Billion Industrial Holdings Limited - Proxy Solicitation & Information Statement 2013

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this Circular or as to the action to be taken, you should obtain independent financial advice.

If you have sold or transferred all your securities in Tonic Industries Holdings Limited, you should at once hand this Circular and the accompanying form of proxy to the purchaser or transferee, licensed securities dealer or registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this Circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this Circular.

This Circular is for information purposes only and is being provided to you solely for the purpose of considering the ordinary resolutions to be voted upon at the EGM of the Company to be held on 8 July 2013. This Circular does not constitute an offer to issue or sell or an invitation of an offer to acquire, purchase or subscribe for securities in the United States or any other jurisdiction, nor is it intended to invite any such offer or invitation. Securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”). The securities described herein have not been and will not be registered under the U.S. Securities Act.

TONIC INDUSTRIES HOLDINGS LIMITED 東力實業控股有限公司*

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 978)

(1) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION

(2) REVERSE TAKEOVER INVOLVING A NEW LISTING APPLICATION

(3) PROPOSED ISSUE OF THE CONSIDERATION SHARES AND PROPOSED PLACING OF THE PLACEMENT SHARES UNDER SPECIFIC MANDATE AND

(4) CONTINUING CONNECTED TRANSACTIONS

Sole Financial Adviser to the Company in respect of the Acquisition and Sole Sponsor to the new listing application of the Company

Goldman Sachs (Asia) L.L.C.

Financial Adviser to Eureka Investment Company Limited

ING Bank N.V.

Independent Financial Adviser to the Independent Board Committee and to the Independent Shareholders

A letter from the Independent Board Committee is set out on pages 48 to 49 of this Circular, and a letter from the Independent Financial Adviser containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 50 to 77 of this Circular.

A notice convening the EGM to be held at Golden Dynasty Court, Macau Jockey Club, Hong Kong Club House, 3/F., Shun Tak Centre, Connaught Road Central, Hong Kong on 8 July 2013 at 11:00 a.m. is set out on pages EGM-1 to EGM-3 of this Circular. A form of proxy for use at the EGM is enclosed. Whether or not you intend to attend the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the branch share registrar of the Company in Hong Kong, Tricor Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding of the EGM or any adjournment thereof. Closing and return of the proxy form shall not preclude you from attending, and voting in person at the EGM or any adjournment thereof if you so desire.

20 June 2013

* For identification purpose only

		Page
Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . .	i
Expected Timetable . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . .	iii
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . .	1
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . .	11
Glossary of Technical Terms . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . .	23
Corporate Information . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . .	25
Directors and Parties Involved . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . .	27
Letter from the Board . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . .	30
Letter from the Independent Board Committee .	. . . . . . . . . . . . . . . . . . . . . . . . .	48
Letter from the Independent Financial Adviser	. . . . . . . . . . . . . . . . . . . . . . . . .	50
Forward-looking Statements . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . .	78
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . .	80
Corporate Structure of the Target Group . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . .	103
Business of the Target Group . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . .	114
Financial Information of the Target Group . . . .	. . . . . . . . . . . . . . . . . . . . . . . . .	173
Relationship with the Controlling Shareholders	. . . . . . . . . . . . . . . . . . . . . . . .	215
Continuing Connected Transactions . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . .	235
Directors and Senior Management of the Enlarged Group . . . . . . . . . . . . . . . . .		241
Waivers from Strict Compliance with the Listing	Rules . . . . . . . . . . . . . . . . . . .	252
Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . .	255

– i –

CONTENTS

			Page
Appendix I	—	Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II	—	Regulatory Overview . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
Appendix III	—	Accountants’ Report on the Target Group . . . . . . . . . . .	III-1
Appendix IV	—	Financial Information of the Group . . . . . . . . . . . . . . . .	IV-1
Appendix V	—	Unaudited Pro Forma Financial Information
		of the Enlarged Group . . . . . . . . . . . . . . . . . . . . . . . . .	V-1
Appendix VI	—	Property Valuation of the Target Group . . . . . . . . . . . . .	VI-1
Appendix VII	—	Summary of the Constitution of the Company and
		Cayman Companies Law . . . . . . . . . . . . . . . . . . . . . . .	VII-1
Appendix VIII	—	Statutory and General Information . . . . . . . . . . . . . . . .	VIII-1
Appendix IX	—	Documents Available for Inspection . . . . . . . . . . . . . . .	IX-1
Notice of EGM . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	EGM-1

– ii –

EXPECTED TIMETABLE

The following expected timetable is indicative only and is subject to change. If necessary, further announcements in relation to the revised timetable will be published as and when appropriate.

Latest time for lodging forms of proxy for the EGM . . . . . . . . . . . . . . . . . . . . . 11:00 a.m.,
Saturday, 6 July 2013
EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11:00 a.m., Monday, 8 July 2013
Announcement of the results of the EGM to be published . . . . . . . . Monday, 8 July 2013
Closing and issue of the Consideration Shares and
the Placement Shares on or before . . . . . . . . . . . . . . . . . . . . . . . Thursday, 11 July 2013
Announcement of Closing to be published on or before . . . . . . . . Thursday, 11 July 2013

Note:

All times and dates in this Circular refer to Hong Kong local time and dates.

– iii –

SUMMARY

This summary is intended to provide you an overview of the information contained in this Circular. As it is a summary, it does not contain all the information that may be important to you. You should read the whole Circular before making a decision as to how you would cast your votes at the EGM in relation to the Acquisition and the appropriate course of action for yourself.

There are risks associated with any business. You should read the section headed “Risk Factors” of this Circular carefully before making a decision on the Acquisition.

THE ACQUISITION

On 24 April 2013, the Company (as the purchaser), Eureka (as the seller) and CMPD entered into the Agreement pursuant to which the Company has conditionally agreed to acquire, and Eureka has conditionally agreed to sell, the Sale Shares and the Shareholder’s Loans.

Through the Acquisition, the Company will acquire Eureka’s equity interests in eight PRC Operating Subsidiaries, which own and operate eight property development projects in four Target Cities, namely, Foshan, Guangzhou, Chongqing and Nanjing.

According to the Agreement, the Consideration for the sale and purchase of the Sale Shares and the Shareholder’s Loans is approximately HK$6,177 million, which will be satisfied by:

(i) the issue of the Perpetual Convertible Securities; or
(ii) (a) the issue of not more than 2,897,028,703 new Shares to Success Well, a wholly-owned subsidiary of Eureka, at the Issue Price; and (b) if the aggregate price of the Consideration Shares calculated at the Issue Price is less than the Consideration, the payment of the rest of the Consideration in cash from all or part of the proceeds of the placement of not less than 939,760,297 Placement Shares at the Issue Price.

The aggregate number of the Consideration Shares and the Placement Shares will be 3,836,789,000 Shares and the Issue Price will not be less than HK$1.61 per Share. The issue of the Consideration Shares and the Placement Shares will not cause the Company not to comply with the minimum public float requirement under the Listing Rules.

The Company has decided to satisfy the Consideration by way of the issue of 2,897,028,703 Consideration Shares at the Issue Price and the payment of approximately HK$708 million in cash, being part of the proceeds from the Placing of 939,760,297 Placement Shares at the Issue Price, and entered into the Placing Agreement with Goldman Sachs (Asia) L.L.C. on 19 June 2013. Pursuant to the Placing Agreement, the Placement Shares have been fully underwritten by the Placing Agent. The Consideration Shares and the Placement Shares will be allotted and issued pursuant to a specific mandate proposed to be obtained at the EGM. The minimum public float of 25% will be maintained upon Closing.

– 1 –

SUMMARY

As at the date of this Circular, CMPD has obtained all the necessary approvals and consents in relation to the Acquisition, including but without limitation the approval of CMG and the consents of the joint venture partners of the relevant Target Projects.

As advised by the Company’s PRC legal advisers, Shu Jin Law Firm, the Acquisition and the arrangements under the Non-Competition Deed do not require approval of the independent shareholders of CMPD nor any approvals from the PRC regulatory authorities except the approval of CMG.

Please see the section headed “Letter from the Board” for more details of the terms on which the Specific Mandate is to be sought from the Independent Shareholders.

BUSINESS DELINEATION

In selecting the Target Cities, the Company has taken into account various factors including PRC legal and regulatory restrictions on project transfer, the profile and development stage of the relevant property development projects and the growth potential of the relevant cities to delineate the Property Business between the Enlarged Group and the CMPD Group after Closing.

Until the end of 31 December 2017 when the Operation Transitional Assets are expected to have been completed and sold, they will be owned by the CMPD Group and the revenue derived from them will belong to the CMPD Group. Except for one project that will continue to be operated and managed by the joint venture partner of that project, which is an independent third party, all the Operation Transitional Assets will be operated and managed by the Enlarged Group for a fee under the Operation Agreement during the Transitional Period.

To minimise actual and potential competition, the Company and CMPD entered into the Non-Competition Deed, pursuant to which CMPD will not compete with the Enlarged Group in the Target Cities and the Company will have a right of first refusal to conduct Property Business in any new city in which neither the CMPD Group nor the Enlarged Group has any Property Business as at the date of the Non-Competition Deed. After Closing, CMPD will continue to engage in its Property Business in 19 CMPD Cities which primarily consist of a number of first tier cities (e.g. Beijing, Shanghai, Shenzhen, Tianjin) and second tier cities (e.g. Qingdao, Chengdu, Wuhan, Xiamen, Kunming) in China. The

– 2 –

SUMMARY

Enlarged Group will base its activities in the Target Cities and focus in the future on development of new property projects in the Unoccupied Cities. After Closing, the Company will become the CMPD Group’s only overseas-listed business platform and has the advantage of accessing to international capital market. The Enlarged Group will be operated independently of the CMPD Group after Closing, and the Target Group’s balances due to and from the CMPD Group had been fully settled as at the Latest Practicable Date. Any transaction between the Enlarged Group and the CMPD Group (including any advances to the CMPD Group) after Closing will be subject to the connected transaction requirements under the Listing Rules. Please see the section headed “Relationship with the Controlling Shareholders” for more details.

Based on the business delineation factors set out in this Circular, the Directors are of the view that although there is potential competition between the Operation Transitional Assets and the Target Projects in the relevant Target Cities, such potential competition will not be extreme and, if it were to materialise, would be sufficiently addressed by the terms of the Operation Agreement and the Non-Competition Deed and will not adversely affect the Enlarged Group.

IMPLICATIONS OF THE ACQUISITION UNDER THE LISTING RULES

The Acquisition constitutes:

(a) a very substantial acquisition for the Company under Rule 14.06(5) of the Listing Rules as one or more of the relevant percentage ratios under Rule 14.07 of the Listing Rules are over 100% for the Company in relation to the Acquisition;
(b) a connected transaction of the Company as Eureka is a connected person of the Company by virtue of its being a Controlling Shareholder of the Company; and
(c) a reverse takeover for the Company under Rule 14.06(6)(b) of the Listing Rules on the basis that the Acquisition (i) constitutes a very substantial acquisition for the Company under Chapter 14 of the Listing Rules and (ii) involves acquisition of assets from Eureka within 24 months of Eureka gaining control (as defined under the Takeovers Code) of the Company.

Accordingly, the Acquisition is subject to the approval of the Independent Shareholders at the EGM. Success Well, its associates, persons acting in concert with it and any person who is involved or interested in the Acquisition are required to abstain from voting on the relevant resolutions to be proposed at the EGM to approve, among others, the Acquisition.

In addition, the Company has been treated as if it were a new listing applicant under Rule 14.54 of the Listing Rules. The Enlarged Group must be able to meet the basic listing eligibility requirements of the Listing Rules. The Company must also comply with the procedures and requirements for new listing applicants as set out in Chapter 9 of the Listing Rules.

– 3 –

SUMMARY

Accordingly, the Acquisition is also subject to the approval by the Listing Committee. The Company made an listing application on 3 May 2013 and the Listing Committee has granted its approval in principle of the new listing application of the Company.

BUSINESS OF THE TARGET GROUP

The Target Group’s current portfolio of property development projects consists of eight projects under various stages of development in Foshan, Guangzhou, Chongqing and Nanjing, with a primary focus on the development of residential properties, as well as integrated residential and commercial properties, offering a range of products including apartments, villas, offices and retail shops.

Below is a map showing the geographic locations of the Target Projects in the PRC.

==> picture [384 x 276] intentionally omitted <==

Please see the section headed “Business of the Target Group — Property Development Projects of the Target Group — Status of the projects of the Target Group” for details of the Target Group’s projects as at 31 March 2013.

– 4 –

SUMMARY

SELECTED FINANCIAL INFORMATION OF THE TARGET GROUP

Set out below are the Target Group’s combined statements of comprehensive income for each of the three years ended 31 December 2010, 2011 and 2012:

Combined Statements of Comprehensive Income

Revenue
Cost of sales
Gross profit
Other income
Net foreign exchange gains
Selling and marketing expenses
Administrative expenses
Finance costs
Other expenses
Profit before tax
Income tax expense
Profit and total comprehensive income
for the year
Profit and total comprehensive income
for the year attributable to:
Eureka
Non-controlling interests

Year ended 31 December
2010
2011
2012
RMB’000
RMB’000
RMB’000
1,342,734
3,341,470
4,288,511
(882,573)
(1,741,030)
(1,849,719)
460,161
1,600,440
2,438,792
11,941
20,467
36,209
109,184
190,365
6,457
(53,033)
(93,383)
(119,936)
(24,084)
(43,116)
(35,581)
–
(12,611)
(65,221)
(150)
(308)
(1,089)
504,019
1,661,854
2,259,631
(180,083)
(782,445)
(1,214,434)
323,936
879,409
1,045,197
142,409
260,620
434,231
181,527
618,789
610,966
323,936
879,409
1,045,197

The Target Group has grown rapidly during the Track Record Period. The Target Group’s revenue increased by 148.9% from RMB1,342.73 million in 2010 to RMB3,341.47 million in 2011 and further increased by 28.3% to RMB4,288.51 million in 2012. Correspondingly, the Target Group’s profit increased by 171.5% from RMB323.94 million in 2010 to RMB879.41 million in 2011 and further increased by 18.9% to RMB1,045.20 million in 2012. As the Target Group has US$ denominated liabilities comprising loans from its equity holders, the net foreign exchange gains were mainly attributable to the appreciation of RMB against US$. RMB appreciated against US$ by 3.01%, 4.86% and 0.24% during each of the three years ended 31 December 2010, 2011 and 2012, respectively.

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SUMMARY

The following table sets out selected combined statements of cash flows of the Target Group for each of the three years ended 31 December 2010, 2011 and 2012.

Selected Combined Statements of Cash Flows

Net cash (used in) from operating activities Net cash used in investing activities Net cash from financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effect of foreign exchange rate changes Cash and cash equivalents at the end of the year	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 (2,566,270) 500,609 2,514,400 (751,564) (1,290,317) (2,200,491) 3,233,344 1,269,636 155,171 (84,490) 479,928 469,080 1,290,698 1,193,425 1,663,365 (12,783) (9,988) (685) 1,193,425 1,663,365 2,131,760	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 (2,566,270) 500,609 2,514,400 (751,564) (1,290,317) (2,200,491) 3,233,344 1,269,636 155,171 (84,490) 479,928 469,080 1,290,698 1,193,425 1,663,365 (12,783) (9,988) (685) 1,193,425 1,663,365 2,131,760
		469,080 1,663,365 (685)
		2,131,760

The Target Group had net cash from operating activities of RMB500.61 million and RMB2,514.40 million in 2011 and 2012, respectively, and net cash used in operating activities of RMB2,566.27 million in 2010. The net cash used in 2010 was primarily due to an increase in properties under development, which was primarily attributable to an increase in land acquisition.

SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The table below sets out selected unaudited pro forma financial information of the Enlarged Group. Further details are set out in the section headed “Appendix V — Unaudited Pro forma Financial Information of the Enlarged Group”.

						For	the year ended
						31	December 2012
							(RMB)
Pro	forma	net	profit				858.48 million
Pro	forma	net	profit	per	Share		0.175
						As	at 31 December
							2012
							(RMB)
Pro	forma	net	assets				6,427.8 million
Pro	forma	net	assets	per	Share		1.31

– 6 –

SUMMARY

Total capital Held and occupied Held for sale Held under development Held for future development Contracted to be acquired	value and Capital Capital Total Total Paid as at Capital Capital Capital	reference Total GFA/ value/ Total GFA/ value/ planned construction 31 March value/ Total site value/ Total site value/	Project Name value/RMB Sq.m. Use RMB Sq.m. Use RMB GFA/Sq.m. cost / RMB 2013/RMB Use RMB area/Sq.m. Use RMB area/Sq.m. Use RMB	Unit 701 of Suhao Building 13,963,000 860.84 O 13,963,000 – – – – – – – – – – – – – –	Jinshan Valley 3,756,220,000 – – – 58,901.50 R/C/CPS 1,518,990,000 197,383.00 983,559,000 222,618,000 A/C/O/ 849,987,000 372,233.60 R/C 1,387,243,000 – – –	CPS/F	Evian Upper City 1,373,000,000 – – – 59,681.75 R/C/CPS 439,000,000 123,002.67 375,000,000 283,000,000 R/C/CPS/F 934,000,000 – – – – – –	Evian Water Bank 1,380,514,000 – – – 114,303.08 R/C/CPS/F 1,380,514,000 – – – – – – – – – – –	Evian Valley 41,652,000 – – – 1,572.27 R 41,652,000 – – – – – – – – – – –	Project G67 1,823,000,000 – – – 54,805.04 R/CPS 1,050,000,000 106,596.87 582,487,000 310,973,000 C/CPS/F 773,000,000 – – – – – –	1,109,000,000 773,000,000	Yonghuafu 1,882,000,000 – – – – – – 91,305.56 1,308,545,000 105,086,000 R/CPS 22,685.05 R/C – – –	2,313,000,000	Chongqing Changjiahui 5,676,000,000 – – – – – – 239,036.89 892,736,000 522,216,000 R/C/CPS/F 1,236,000,000 136,816.00 R/C 2,127,000,000 148,768.00 R/C *	Evian Tianhui 2,232,000,000 – – – – – – 301,818.24 1,171,000,000 669,500,000 R/C/CPS/F 2,232,000,000 – – – – – –	Evian Xicheng 1,181,690,000 – – – – – – 205,887.00 729,588,000 225,690,000 R/CPS/F 775,990,000 77,840.33 R 405,700,000 – – –	Notes:	1. C — commercial; R — Residential; CPS — Car parking spaces; O — Office; F — Others facilities; A — Apartment.	2. “*” — reference value as the title defect.	3. The property interests which are held for occupation, for sale and for future development are valued by direct comparison approach assuming sale of the property interests in their existing state with the benefit of immediate vacant possession and by making reference to comparable sales transactions as available in the relevant market. Appropriate adjustments and analysis are considered given the differences in location, size and other characters between the comparable properties and the subject properties.	4. For the property interests which are currently under development, the valuation has assumed that they will be developed and completed in accordance with the latest development proposal. The valuation adopted the direct comparison approach by making reference to comparable sales evidence as available in the relevant market and have also taken into account the accrued construction cost and professional fees relevant to the stage of construction as at the valuation date and the remainder of the cost and fees that expected to be incurred for completing the development.	5. For property interest which is contracted to be acquired, since the Target Group has not yet obtained the State-owned Land Use Rights Certificates and/or the payment of the land premium has not yet been fully settled, no commercial value to the property interest was attributed to the Target Group.	6. Other special assumptions and details of the valuation, please refer to valuation report in Appendix VI.	7. The properties held for sale included properties not pre-sold nor sold, namely, the properties “pre-sold but not yet delivered” and “not pre-sold/held for investment” as set out in the table of the details of Target Projects on pages 118 to 125 of this Circular. The total planned GFA is equivalent to GFA under development as set out in the table of the details of Target Projects on pages 118 to 125 of this Circular.	The Sole Sponsor is of the view that the key assumptions and parameters used in the valuation report in Appendix VI are	appropriate and reasonable.

– 7 –

SUMMARY

RECENT DEVELOPMENT SINCE 31 DECEMBER 2012

Newly Acquired Land Parcel

On 16 April 2013, Merchants Property Development (Guangzhou), a member of the Target Group and a company that is 51% indirectly held by Eureka, acquired a new land parcel through public tenders, auctions and listing-for-sale process from the Foshan government, for a land premium of approximately RMB1,320 million. The land parcel has a total site area of approximately 71,034 sq.m., with a total GFA of approximately 227,316 sq.m. The Target Group plans to develop a residential community project with ancillary commercial premises on such land parcel. The Target Group confirms that there is no concrete timeline for the development of the newly acquired land parcel now.

Please refer to the section headed “Business of the Target Group – Property Development Projects of the Target Group – Description of the Property Projects – Foshan City – Newly Acquired Land Parcel” for more details.

Contracted ASP for the Three Months Ended 31 March 2013

The total contracted GFA of the Target Group for the three months ended 31 March 2013 amounted to 135,725 sq.m. The contracted ASP of the Target Group’s properties increased from RMB11,564 per sq.m. in 2010 to RMB15,151 per sq.m. in 2011, representing an increase of approximately 31.0%. The contracted ASP then decreased to RMB12,939 per sq.m. in 2012, representing a decrease of approximately 14.6%. The contracted ASP further decreased to RMB10,368 per sq.m. in the three months ended 31 March 2013, representing a decrease of 20.3%.

The fluctuation in the Target Group’s contracted ASP during the three years ended 31 December 2010, 2011 and 2012, and the three months ended 31 March 2013 was primarily due to different product mix sold over the same period, which means more high-end property products with higher ASP were sold during the years 2010 and 2011, while more mid-end property products with lower ASP were sold since 2012 up to the three months ended 31 March 2013.

Please refer to the section headed “Business of the Target Group – Contracted Sales” for more details.

Total Revenue of the Target Group for the three months ended 31 March 2013

The unaudited revenue of the Target Group for the three months ended 31 March 2013 amounted to RMB3,517.19 million.

– 8 –

SUMMARY

REASONS AND BENEFITS OF THE ACQUISITION

Following Closing, the Company can leverage from the platform of, and the favorable conditions under the non-competition arrangement with, the CMPD Group to speed up the development of the Enlarged Group’s Property Business and create value for its Shareholders.
The Target Group has started generating profits as most of the Target Projects are beyond their respective preliminary development stage.
The management team of the PRC Operating Subsidiaries of the Target Group has valuable operating experience in property development in the Target Cities, which have significant potential for property development.
The Enlarged Group will have strong capacity to raise funds for the development of its Property Business.

RISK FACTORS

Risks are associated with the Target Group’s business. The Enlarged Group is subject to extensive government regulation in virtually every aspect of its operations and is highly susceptible to changes in regulatory measures and policy initiatives implemented by the PRC government. Furthermore, the Enlarged Group may not always be able to obtain sites that are suitable for property development and may not be able to obtain adequate funding for its future property developments.

The risks relating to the Acquisition, the business of the Enlarged Group, the business, legal and regulatory environment for property development in the PRC and the general economic, legal and political aspects of the PRC are set out in the section headed “Risk Factors” in this Circular.

CONTINUING CONNECTED TRANSACTIONS

After Closing, CMPD will continue to be a Controlling Shareholder of the Company and therefore a connected person of the Company. Any transaction between the Company and CMPD or any of its associates will constitute a connected transaction of the Company.

On 19 June 2013, the Company entered into the Operation Agreement with CMPD, and entered into the Property Management Agreement with Merchants Property Management Co., Ltd. (a subsidiary of CMPD).

Each of the Operation Agreement and the Property Management Agreement is conditional upon Closing having taken place and all applicable legal and regulatory requirements (including those under the Listing Rules) having been complied with. Ordinary resolutions will be proposed at the EGM for the Independent Shareholders to approve the Operation Agreement and the Property Management Agreement (including the Annual Caps).

Further information on the Non-Exempt Continuing Connected Transactions is set out in the section headed “Continuing Connected Transactions” in this Circular.

– 9 –

SUMMARY

RECOMMENDATIONS

The Independent Board Committee, having considered the terms of the Acquisition and the Non-Exempt Continuing Connected Transactions (including the Annual Caps) as well as the advice and recommendations of the Independent Financial Adviser set out in the section headed “Letter from the Independent Financial Adviser”, considers that (i) the Acquisition, the Non-Exempt Continuing Connected Transactions (which are in the Enlarged Group’s usual and ordinary course of business), their respective relevant agreements and the proposed Annual Caps are in the interests of the Company and the Shareholders as a whole; (ii) the Acquisition and the Non-Exempt Continuing Connected Transactions are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (iii) the proposed Annual Caps have been fairly and reasonably arrived at.

As such, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the ordinary resolutions approving the Acquisition, the Specific Mandate, the Non-Exempt Continuing Connected Transactions and the proposed Annual Caps at the EGM.

On the basis of the information set out in this Circular, the Directors (including members of the Independent Board Committee) consider that the Acquisition, the Specific Mandate, the Non-Exempt Continuing Connected Transactions and the Annual Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole. The Directors, therefore, recommend the Shareholders to vote in favour of the ordinary resolutions approving the Acquisition, the Specific Mandate, the Non-Exempt Continuing Connected Transactions and the proposed Annual Caps at the EGM.

– 10 –

DEFINITIONS

In this Circular, unless the context otherwise requires, the following expressions shall have the following meanings.

“Acquisition”
the sale and purchase of the Sale Shares and the Shareholder ’s Loans as contemplated under the Agreement;
“act in concert”
has the meaning given to it under the Takeovers Code;
“Affiliate”
in relation to any party of the Agreement, any subsidiary or parent company of that party and any subsidiary of any such parent company, in each case from time to time;
“Agreement”
the share purchase agreement dated 24 April 2013 entered into between the Company, Eureka and CMPD in respect of the Acquisition;
“Announcement”
the announcement of the Company dated 24 April 2013 in relation to the Acquisition;
“Annual Caps”
the maximum aggregate annual transaction amount set for each of the Non-Exempt Continuing Connected Transactions for each of the three years ending 31 December 2013, 2014 and 2015;
“Board of Directors” or “Board” the board of Directors of the Company;
“Business Day”
a day (other than a Saturday or Sunday or public holiday in Hong Kong and any day on which a tropical cyclone warning no.8 or above or a black rainstorm warning signal is hoisted in Hong Kong at any time between 9:00 a.m. and 5:00 p.m.) on which banks are open in Hong Kong for general commercial business;
“Business Opportunity”
any opportunity (whether arising by invitation or pursuant to open bidding in response to a “request for proposal” or otherwise) to participate in Property Business in the PRC, whether such participation is direct or indirect;
“BVI”
British Virgin Islands;
“CAGR”
compound annual growth rate;

– 11 –

DEFINITIONS

“CBRC”
“Champion Apex”
“China Merchants Shekou Industrial Zone”
“Chongqing China Merchants”
“Closing”
“Closing Date”
“CMG”
“CMPD”
“CMPD Cities”
“CMPD Group”
China Banking Regulatory Commission;
Champion Apex Limited (華先有限公司), a company incorporated in Hong Kong on 3 February 2010, which is a wholly-owned subsidiary of the Company;
招商局蛇口工業區有限公司 (China Merchants Shekou Industrial Zone Co., Ltd.), a company incorporated in the PRC on 1 April 1992, and is a wholly-owned subsidiary of CMG and is holding 51.89% interest in CMPD directly or through its wholly-owned subsidiaries;
重慶招商置地開發有限公司 (China West Premier Housing Development Co., Ltd.), a company incorporated in the PRC with limited liability on 28 December 2009, and is a wholly-owned subsidiary of Cosmo City;
the closing of the Acquisition pursuant to the terms of the Agreement;
the date on which the Closing occurs;
China Merchants Group Co., Ltd., being the controlling shareholder of CMPD and currently holds approximately 51.89% of the total issued share capital of CMPD;
China Merchants Property Development Co., Ltd. (招商局地產控股股份有限公司), a company established in the PRC with limited liability on 19 September 1990, and is one of the Controlling Shareholders of the Company, the shares of which are listed on the Shenzhen Stock Exchange (stock code: 000024 (A share); 200024 (B share)) and Singapore Exchange (stock code: C03);
Beijing, Bijie, Changzhou, Chengdu, Dalian, Harbin, Kunming, Ningbo, Qingdao, Qionghai, Shanghai, Shenzhen, Suzhou, Tianjin, Wuhan, Xiamen, Zhangzhou, Zhenjiang and Zhuhai;
CMPD and its subsidiaries (excluding the Enlarged Group);

– 12 –

DEFINITIONS

“CMPD Loans”
“Code”
“Company”
“Consideration”
“Consideration Shares”
“Controlling Shareholders”
“Converge”
“Conversion Right”
“Conversion Shares”
“Cosmo City”
“CREIS”
“CSRC”
entrustment loans and advances provided by CMPD (or its subsidiary, Shenzhen China Merchants) to the Target Group, which do not include the Shareholders’ Loans;
the Corporate Governance Code as set out in Appendix 14 of the Listing Rules;
Tonic Industries Holdings Limited, a company incorporated in the Cayman Islands as an exempted company with limited liability on 24 April 1997, and the issued shares of which are listed on the Main Board of the Stock Exchange (stock code: 0978);
the total consideration of HK$6,177,230,290 for the Acquisition;
2,897,028,703 new Shares to be issued by the Company to Success Well, a wholly-owned subsidiary of Eureka, at the Issue Price;
Eureka, CMPD and CMG, each a “Controlling Shareholder”;
Converge Holdings Limited, a company incorporated in the BVI on 2 January 2004, which is a wholly-owned subsidiary of Eureka;
the right of a Holder to convert any Convertible Securities into Shares pursuant to the terms of the Instrument;
new Shares to be allotted and issued by the Company upon the exercise of the Conversion Rights attaching to the Perpetual Convertible Securities by a Holder;
Cosmo City Limited, a company incorporated in Hong Kong with limited liability on 19 November 2009, and is a wholly-owned subsidiary of Pride Oasis;
China Real Estate Index System;
China Securities Regulatory Commission;

– 13 –

DEFINITIONS

“Delineation Matters”
“Director”
“EGM”
“Enlarged Group”
“Eureka”
“Foshan Merchants Wharf”
“Foshan Xin Cheng”
“Foshan Xin Jie”
“FIREE”
“Foshan Yi Yun”

all material matters relating to the operational, managerial and financial delineation of the Company;

director of the Company;

the extraordinary general meeting of the Company to be held to approve matters relating to the Acquisition;
the Group and the Target Group;
Eureka Investment Company Limited, a company incorporated in Hong Kong with limited liability on 16 August 1994 and is a wholly-owned subsidiary of CMPD;
佛山招商九龍倉房地產有限公司(Foshan Merchants Wharf Property Development Co., Ltd.), a company incorporated in the PRC with limited liability on 11 March 2010, and is owned as to 50% by Sino Action and 50% by Favour Year Holdings Limited which is a subsidiary of Wharf Properties (China) Limited and is an independent third party;
佛山鑫城房地產有限公司 (Foshan Xin Cheng Property Development Co., Ltd.), a company incorporated in the PRC with limited liability on 30 April 2007, and is owned as to 50% by Merchants Property Development (Guangzhou) and 50% by Total Up International Limited which is a subsidiary of Wharf Properties (China) Limited and is an independent third party;

佛山信捷房地產有限公司 (Foshan Xin Jie Property Development Co., Ltd.), a company incorporated in the PRC with limited liability on 30 October 2007, which is a wholly-owned subsidiary of Harpen;

foreign-invested real estate enterprise;

佛山依雲房地產有限公司 (Foshan Yi Yun Property Development Co., Ltd.), a company incorporated in the PRC with limited liability on 24 August 2010, and is owned as to 50% by Merchants Property Development (Guangzhou) and 50% by Wharf Properties (Guangzhou) Co., Ltd. which is a subsidiary of Wharf Properties (China) Limited and is an independent third party;

– 14 –

DEFINITIONS

“GDP”
“GGP”
“Goldman Sachs” or
“Sole Financial Adviser” or
“Sole Sponsor”
“Good Ease”
“Group”
“Guan Hua Gang”
“Happy City”
“Harpen”
“Harvest Allied”
“HK$” or “HK cents”
“Holder”
gross domestic product;
Grand Golden Profit Limited (創金利有限公司), a company incorporated in Hong Kong on 3 August 2009, which is a wholly-owned subsidiary of the Company and is currently a dormant company;
Goldman Sachs (Asia) L.L.C., the sole financial adviser to the Company in respect of the Acquisition and sole sponsor to the new listing application of the Company;
Good Ease Holdings Limited, a company incorporated in the BVI on 2 February 2012, and is a wholly-owned subsidiary of Eureka;
the Company and its subsidiaries;
冠華港貿易（深圳）有限公司 (Guan Hua Gang Trading (Shenzhen) Co., Ltd.), a company incorporated in the PRC on 27 May 2010, which is a wholly-owned subsidiary of Champion Apex;
Happy City Investments Limited, a company incorporated in Hong Kong with limited liability on 6 March 2013, and is a wholly-owned subsidiary of Eureka;
Harpen Company Limited, a company incorporated in Hong Kong with limited liability on 6 January 1999, and is owned as to 50% by Eureka and 50% by Wharf Properties (China) Limited, which is an independent third party;
Harvest Allied Investments Limited (匯泰投資有限公司), a company incorporated in Hong Kong on 25 April 2013, which is a wholly-owned subsidiary of the Company;
Hong Kong dollar(s) or cent(s), the lawful currency of Hong Kong;
the person in whose name a Perpetual Convertible Security is registered in the register of Holders;

– 15 –

DEFINITIONS

“Hong Kong”
the Hong Kong Special Administrative Region of the PRC;
“IBC” or “Independent Board Committee”
the independent board committee comprising all the independent non-executive Directors of the Company; in the section headed “Relationship with the Controlling Shareholders”, it means the independent board committee comprising all the independent non-executive Directors of the Company upon Closing;
“Independent Financial Altus Capital Limited; Adviser”
“Independent Shareholders”
the Shareholders of the Company, other than (i) Success Well, parties acting in concert with it and their respective associates, (ii) those who are connected, interested or involved in the Acquisition and (iii) those who are required to abstain from voting at the EGM to be convened to approve the Acquisition and matters relating to it;
“Instrument”
the instrument in the form of a deed poll constituting the Perpetual Convertible Securities;
“Issue Price”
HK$1.888 per Share, the price for the issue of the Consideration Shares and the Placement Shares;
“Jones Lang LaSalle” or “JLL”
Jones Lang LaSalle Corporate Appraisal And Advisory Limited;
“Last Accounts Date” 31 December 2012;
“Last Trading Day”
22 April 2013, being the last full trading day for the Shares before the date of the Announcement;
“LAT”
Land Appreciation Tax as defined in《中華人民共和國土地增值稅暫行條例》(the Provisional Regulations of the PRC on Land Appreciation Tax) and《中華人民共和國土地增值稅暫行條例實施細則》 (the Detailed Implementation Rules on the Provisional Regulations of the PRC on Land Appreciation Tax);
“Latest Practicable Date”
10 June 2013, being the latest practicable date prior to the date of this Circular for the purpose of ascertaining certain information contained in this Circular;

– 16 –

DEFINITIONS

“Listing”

“Listing Committee”
“Listing Rules”
“Merchants Nanjing Real Estate”
“Merchants Property Development (Guangzhou)
“MOFCOM”
“Nanjing China Merchants Rui Sheng”
“NDRC”
“Non-Competition Deed”
“Non-Exempt Continuing Connected Transaction(s)”
“Operation Agreement”

listing of the Consideration Shares and the Placement Shares on the Stock Exchange in connection with the new listing application of the Company for the purpose of the Acquisition;

has the meaning given to it under the Listing Rules;

the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited;
招商局地產（南京）有限公司 (Merchants Nanjing Real Estate Co., Ltd.), a company incorporated in the PRC with limited liability on 13 December 2005, and is owned as to 51% by Happy City and 49% by CMPD;
廣州招商房地產有限公司 (Merchants Property Development (Guangzhou) Ltd.), a company incorporated in the PRC with limited liability on 10 August 2004, and is owned as to 30% by Converge, 21% by Sino Action and 49% by Shenzhen China Merchants;
Ministry of Commerce of the PRC;
南京招商瑞盛房地產有限公司 (Nanjing China Merchants Rui Sheng Property Co., Ltd.), a company incorporated in the PRC with limited liability on 21 January 2011, which is a wholly-owned subsidiary of Merchants Nanjing Real Estate;
National Development and Reform Commission of the PRC;
the non-competition deed entered into between CMPD and the Company on 19 June 2013 in relation to the Acquisition;
the transactions to be carried out pursuant to the Operation Agreement and the Property Management Agreement;
the operational support service framework agreement entered into between CMPD and the Company on 19 June 2013;

– 17 –

DEFINITIONS

“Operation Transitional Assets”
“Overseas Target Group Members”
“PBOC”
“Perpetual Convertible Securities”
“Placement Shares”
“Placing”
“Placing Agent”
“Placing Agreement”
“PRC” or “China”
“PRC Operating Subsidiaries”
four property development projects, namely China Merchants Bay City, China Merchants Garden City, Donghui City and Evian International, whose details are set out in the section headed “Relationship with the Controlling Shareholders – Operation Transitional Assets retained by CMPD in the Target Cities”;
means Sino Action, Happy City, Converge, Pride Oasis, Cosmo City and Harpen, and Overseas Target Group Member means any of them;
People’s Bank of China;
the perpetual convertible securities in the aggregate principal amount equal to the Consideration, which may be issued by the Company in favour of Eureka to satisfy the Consideration for the Sale Shares and the Shareholder’s Loans pursuant to the Agreement;
939,760,297 new Shares to be issued by the Company to institutional investors at the Issue Price;
the placing of the Placement Shares on the terms and conditions of the Placing Agreement;
Goldman Sachs (Asia) L.L.C.;
the placing agreement entered into between the Company, Eureka, CMPD and Goldman Sachs (Asia) L.L.C. on 19 June 2013;
the People’s Republic of China, which for the purpose of this Circular excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan;
the PRC operating subsidiaries of the Target Companies, namely, Foshan Xin Jie, Chongqing China Merchants, Merchants Property Development (Guangzhou), Foshan Xin Cheng, Foshan Yi Yun, Foshan Merchants Wharf, Merchants Nanjing Real Estate and Nanjing China Merchants Rui Sheng, and “PRC Operating Subsidiary” means any of them;

– 18 –

DEFINITIONS

“Pride Oasis”
“Property Business”
“Property Management Agreement”
“Proposed Directors”
“Recognised Stock Exchange”
“Relevant Period”
“Restructuring”
“RMB”
“ROFR”
Pride Oasis Limited, a company incorporated in the BVI on 17 November 2009, which is 50% owned by Converge and 50% owned by Century Lord Limited, which is a subsidiary of Hongkong Land China Holdings Ltd. and is an independent third party;
development, sale, lease, investment and management of properties;
Property Management Framework Agreement entered into between Merchants Property Management Co., Ltd., a wholly-owned subsidiary of CMPD and the Company on 19 June 2013;
Mr. HU Jianxin and Mr. HE Qi who have been appointed as an executive Director and an independent non-executive Director, respectively, on 18 June 2013, with effect from Closing;
the Stock Exchange, Shanghai Stock Exchange, Shenzhen Stock Exchange or Singapore Stock Exchange;
the period from the date of Closing to the termination date of the Non-Competition Deed (both dates inclusive);
the transfer of Eureka’s 21% equity interest in Merchants Property Development (Guangzhou) and its 50% equity interest in Foshan Merchants Wharf to Sino Action and its 51% equity interest in Merchants Nanjing Real Estate to Happy City and the relevant restructuring steps undertaken as described under the section headed “Statutory and General Information — B. Further Information about the Target Group — 3. the restructuring of the Target Group”;

Renminbi, being the lawful currency of the PRC;

has the meaning given to it under the section headed “Relationship with the Controlling Shareholders — Measures to minimise actual and potential competition between the Enlarged Group and the CMPD Group”;

– 19 –

DEFINITIONS

“SAFE”

the State Administration of Foreign Exchange of the PRC;
“SAIC” the State Administration for Industry & Commerce of the PRC;
“Sale Shares” Eureka’s 50%, 100%, 100%, and 100% interest in the issued share capital of Harpen, Converge, Sino Action and Happy City, respectively;
“Seller Group”
Eureka and its Affiliates from time to time, but excludes the Target Group and the Group;
“SFC” The Securities and Futures Commission of Hong Kong;
“SFO” Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong);
“Shares” ordinary shares of HK$0.01 each in the share capital of the Company;
“Shareholder’s Loans” shareholder’s loans outstanding and owing by each of the Target Companies to Eureka from time to time, which will in aggregate be equivalent to HK$3,528 million immediately before Closing;
“Shareholders” holders of the Shares;
“Shenzhen China Merchants”
深圳招商房地產有限公司 (Shenzhen China Merchants Real Estate Co., Ltd.), a company established in the PRC with limited liability on 5 May 1984, and is a wholly-owned subsidiary of CMPD;
“Sino Action”
Sino Action Investments Limited, a company incorporated in Hong Kong with limited liability on 6 March 2013, which is a wholly-owned subsidiary of Eureka;
“Specific Mandate”
a specific mandate to be sought from the Independent Shareholders at the EGM in relation to the issue of the Consideration Shares and the Placement Shares;
“Stock Exchange”
The Stock Exchange of Hong Kong Limited;
“subsidiary”
has the meaning given to it under the Listing Rules;

– 20 –

DEFINITIONS

“Success Well” Success Well Investments Limited, a company incorporated in the BVI with limited liabilities on 2 February 2012, which is a wholly-owned subsidiary of Good Ease and holds 70.18% of the interests in the Company;
“Takeovers Code” the Hong Kong Code on Takeovers and Mergers;
“Target Cities” Foshan, Guangzhou, Chongqing and Nanjing;
“Target Companies”
Harpen, Converge, Sino Action and Happy City;
“Target Group”
the Target Companies and their respective subsidiaries, and “Target Group member” means any of them;
“Target Projects” has the meaning given to it under the section headed “Letter from the Board – Information on the Target Group” of this Circular;
“Track Record Period” the three years ended 31 December 2010, 2011 and 2012;
“Transitional Period” the period from Closing to 31 December 2017;
“Unoccupied Cities”
cities in the PRC in which neither the Target Group nor the CMPD Group has any Property Business as at the date of the Non-Competition Deed;
“US$” or “US dollar”
United States Dollars, being the lawful currency of the United States of America;
“Warranties”
warranties given by Eureka and CMPD as warrantors to the Company under the Agreement;
“Winding-Up”
with respect to the Company, a final and effective order or resolution for winding up or liquidation in respect of the Company; and
“%”

per cent.

In this Circular, unless the context otherwise requires, the following expressions shall have the following meanings.

In this Circular, the terms “ associate ”, “ connected person ”, “ connected transaction ”, “ controlling shareholder ”, “ subsidiary ” and “ substantial shareholder ” shall have the meanings given to such terms in the Listing Rules, unless the context otherwise requires.

– 21 –

DEFINITIONS

In this Circular, unless otherwise stated, certain amounts denominated in US dollars and Renminbi have been translated into Hong Kong dollars at an exchange rate of US$1.00 = HK$7.751 and RMB1.00 = HK$1.233, respectively for illustrative purposes only. Such conversions shall not be construed as representations that amounts in US dollars were or could have been or could be converted into Hong Kong dollars at such exchange rates or any other exchange rates on such date or any other date.

Certain amounts and percentage figures included in this Circular have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures preceding them.

The English names of certain companies incorporated in the PRC and cities of the PRC are translations of their Chinese names and are included for identification purposes only.

– 22 –

GLOSSARY OF TECHNICAL TERMS

The glossary contains explanations and definitions of certain terms used in this Circular in connection with the Target Group or the Group and their respective business. The terms and their meaning may not correspond to standard industry meaning or usage of these terms.

“ASP”
the average selling price per sq.m. which is derived by dividing the total contracted sales (net of any cancelled contracted sales) by the total contracted GFA (net of any cancelled contracted GFA) in a given period;
“construction land planning permit”
建設用地規劃許可證 (construction land planning permit) issued by local urban zoning and planning bureaux or equivalent authorities in China;
“construction work commencement permit”
建築工程施工許可證 (construction work commencement permit) issued by local construction committees or equivalent authorities in China;
“construction work planning permit”
建設工程規劃許可證 (construction work planning permit) issued by local urban zoning and planning bureaux or equivalent authorities in China;
“GFA”
gross floor area;
“land use rights certificate”
國有土地使用證 (land use rights certificate), a certificate (or certificates as the case may be) of the right of a party to use a parcel of land;
“land use rights grant contract”
an agreement the Target Group and the relevant local government authority enter into after the public tenders, auctions or listing-for-sale process (as applicable), which provides for, among other things, the amount of land grant premium that the Target Group should pay for acquiring the land use rights of the relevant land parcel. After the Target Group has paid the land grant premium and satisfied any other conditions as set forth in the land use rights grant contract, the Target Group will obtain a land use rights certificate for the relevant land parcel;
“pre-sale permit”

預售許可證 (the pre-sale permit) authorising a developer to start the pre-sale of property under construction;

“sq.m.”

square metre; and

– 23 –

GLOSSARY OF TECHNICAL TERMS

“total GFA” or “total gross floor area”

the above-ground and underground saleable and/or rentable area contained within the external walls of any building at each floor level and the whole thickness of the external walls of the relevant project together with other non-leasable and non-saleable area. In general, this includes mechanical and electrical services rooms, refuse rooms, water tanks, car parking floors, lifts and staircases.

– 24 –

CORPORATE INFORMATION

Registered office in the P.O. Box 309 GT, Ugland House, South Church Street Cayman Islands George Town, Grand Cayman, Cayman Islands British West Indies Headquarters and principal Room 3111, 31/F. place of business in Hong China Merchants Tower, Shun Tak Centre Kong registered under Part Nos. 168–200 Connaught Road Central XI of the Companies Hong Kong Ordinance Company’s website www.tonic.com.hk www.irasia.com/listco/hk/tonic (The information on the Company’s websites does not form part of this Circular)

Company secretary Ms. CHAN Wing Yan (HKICPA, ACCA) Authorised representatives Mr. Liu Zhuogen Room 3111, 31/F. China Merchants Tower, Shun Tak Centre Nos. 168–200 Connaught Road Central Hong Kong Mr.Yu Zhiliang Room 3111, 31/F. China Merchants Tower, Shun Tak Centre Nos. 168–200 Connaught Road Central Hong Kong Audit committee Dr. WONG Wing Kuen, Albert (Chairman) Ms. LIU Ning Dr. SHI Xinping Remuneration committee Ms. CHEN Yanping (Chairman) Mr. HUANG Peikun Dr. WONG Wing Kuen, Albert Nomination committee Mr. HUANG Peikun (Chairman) Ms. CHEN Yanping Dr. SHI Xinping

– 25 –

CORPORATE INFORMATION

Principal share registrar and Royal Bank of Canada Trust Company transfer office (Cayman) Limited 4th Floor, Royal Bank House 24 Shedden Road, George Town Grand Cayman KY1–1110 Cayman Islands Hong Kong branch share Tricor Tengis Limited registrar 26/F., Tesbury Centre 28 Queen’s Road East Hong Kong Compliance adviser Guotai Junan Capital Limited Principal banker Bank of Communications Co., Ltd. Hong Kong Branch Room 2201, 22/F., City Landmark 1 68 Chung On Street Tsuen Wan, N.T. Hong Kong Standard Chartered Bank (Hong Kong) Limited 20/F., Standard Chartered Tower 388 Kwun Tong Road Kwun Tong Hong Kong

– 26 –

DIRECTORS AND PARTIES INVOLVED

DIRECTORS

Name	Residential address	Nationality
*Executive Directors*
Dr. SO Shu Fai	Flat C, 23/F., Po Garden, 9 Brewin Path	Chinese
(蘇樹輝)	Mid Level, Hong Kong
Mr. HU Jianxin(1)	Flat 2501, Block B1, Li Ya Wan, No. 160	Chinese
(胡建新)	Xingmin Road, Zhujiang New Town
	Tianhe District, Guangzhou, Guangdong
	Province, China
Mr. LIU Zhuogen	Flat C, 35/F., Block 1, Royal Ascot	Chinese
(劉卓根)	1 Tsun King Road, Shatin
	Hong Kong
Mr. YU Zhiliang	Flat A, 18/F., Harmony Court	Chinese
(余志良)	127 Bonham Strand, Hong Kong
*Non-executive Directors*
Mr. HUANG Peikun(2)	Flat 2B, Yi Ting Yuan	Chinese
(Chairman)	Airong Street, Shekou
(黃培坤) (_主席)_	Nanshan District, Shenzhen
	Guangdong Province, China
Ms. LIU Ning	Flat 10A, Tian Hai Hao Jing Yuan	Chinese
(劉寧)	Airong Street, Shekou
	Nanshan District, Shenzhen
	Guangdong Province, China
*Independent Non-executive Directors*
Dr. WONG Wing Kuen,	Flat D, 18th Floor, Ilford Court	Chinese
Albert	5 Perth Street, Perth Garden, Homantin
(王永權)	Kowloon, Hong Kong
Ms. CHEN Yanping	Building 12, Room 902, No. 1 Meilin	Chinese
(陳燕萍)	Village, Futian District, Shenzhen,
	Guangdong China
Dr. SHI Xinping	Flat D, 48/F., Block 1, Bellagio	Chinese
(史新平)	Sham Tseng, New Territories
	Hong Kong
Mr. HE Qi(3)	Room 216, Block 2	Chinese
(何琦)	No. 1 Courtyard House
	Changwa Street, Haidian District
	Beijing, PRC

– 27 –

DIRECTORS AND PARTIES INVOLVED

Sole Sponsor and Goldman Sachs (Asia) L.L.C. Sole Financial Adviser 68th Floor to the Company Cheung Kong Center 2 Queen’s Road Central Hong Kong Independent Financial Adviser Altus Capital Limited to the Independent Board 21 Wing Wo Street Committee and to the Central Independent Shareholders Hong Kong Legal advisers to the Company As to Hong Kong and US laws: Freshfields Bruckhaus Deringer 11th Floor, Two Exchange Square 8 Connaught Place Central, Hong Kong As to PRC law: Shu Jin Law Firm 24th Floor, Hangtian Building No. 4019 Shen Nan Road, Shenzhen, PRC As to Cayman Islands law: Maples and Calder 53rd Floor, The Center 99 Queen’s Road Central Hong Kong Legal advisers to the As to Hong Kong and US laws: Sole Sponsor Paul Hastings 21–22/F., Bank of China Tower 1 Garden Road Hong Kong As to PRC laws: Jun He Law Firm 20th Floor, China Resources Building 8 Jian Guo Men Bei Avenue, Beijing, PRC Reporting accountants Deloitte Touche Tohmatsu Certified Public Accountants 35th Floor, One Pacific Place 88 Queensway Hong Kong

– 28 –

DIRECTORS AND PARTIES INVOLVED

Property Valuer and Industry Jones Lang LaSalle Corporate Appraisal and Consultant Advisory Limited 6th Floor, Three Pacific Place 1 Queen’s Road East, Admiralty Hong Kong

Notes:

(1) Mr. HU Jianxin was appointed as an executive Director on 18 June 2013 with effect from Closing.
(2) Mr. HUANG Peikun was re-designated as a non-executive Director on 18 June 2013 with effect from Closing.
(3) Mr. HE Qi was appointed as an independent non-executive Director on 18 June 2013 with effect from Closing.

– 29 –

LETTER FROM THE BOARD

TONIC INDUSTRIES HOLDINGS LIMITED 東力實業控股有限公司*

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 978)

Board of Directors:

Executive Directors HUANG Peikun SO Shu Fai LIU Zhuogen YU Zhiliang

Non-executive Director LIU Ning

Independent Non-executive Directors WONG Wing Kuen, Albert CHEN Yanping SHI Xinping

Registered office:

P.O. Box 309 GT, Ugland House South Church Street George Town, Grand Cayman Cayman Island, British West Indies

Head office and principal place of business: Room 3111, 31/F China Merchants Tower Shun Tak Centre Nos. 168–200 Connaught Road Central Hong Kong

Company secretary:

CHAN Wing Yan

20 June 2013

To the Shareholders

Dear Sir or Madam,

(1) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION (2) REVERSE TAKEOVER INVOLVING A NEW LISTING APPLICATION

(3) PROPOSED ISSUE OF THE CONSIDERATION SHARES AND PROPOSED PLACING OF THE PLACEMENT SHARES UNDER SPECIFIC MANDATE AND

(4) CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

On 24 April 2013, the Company (as the purchaser), Eureka (as the seller) and CMPD entered into the Agreement pursuant to which, among other things, (i) the Company has conditionally agreed to acquire, and Eureka has conditionally agreed to sell the Sale Shares and the Shareholder’s Loans; and (ii) CMPD has undertaken to the Company to procure the performance by Eureka (which is wholly-owned by CMPD) of its obligations under the Agreement.

* For identification purpose only

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LETTER FROM THE BOARD

The Company has decided to satisfy the Consideration by way of the issue of the Consideration Shares and the Placement Shares and entered into the Placing Agreement with the Placing Agent on 19 June 2013. The Consideration Shares and the Placement Shares will be allotted and issued pursuant to a specific mandate proposed to be obtained at the EGM.

THE AGREEMENT

Date: 24 April 2013

Parties

(1) the Company (as the purchaser);
(2) Eureka (as the seller); and
(3) CMPD.

Eureka is an investment holding company and a wholly-owned subsidiary of CMPD. Eureka indirectly holds 749,860,626 Shares of the Company, representing approximately 70.18% of the total issued share capital of the Company.

The Acquisition

The Company has conditionally agreed to acquire from Eureka:

(i) the Sale Shares comprising (1) 50% of the issued share capital of Harpen and (2) all the issued share capital of Converge, Sino Action and Happy City, free from third party rights with effect from Closing and with all rights attaching to them including the right to receive all distributions and dividends declared, paid or made in respect of the Sale Shares after Closing; and
(ii) the Shareholder’s Loans, being all the shareholder’s loans which are outstanding and owing by each of Harpen, Converge, Sino Action and Happy City to Eureka immediately before Closing.

All of the Target Companies are investment holding companies holding, directly or indirectly, equity interests in the PRC Operating Subsidiaries. Further information on the Target Group is set out in the section headed “Statutory and General Information — B. Further information about the Target Group” in Appendix VIII to this Circular.

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LETTER FROM THE BOARD

Conditions Precedent

Closing of the Acquisition is conditional upon the satisfaction (or, if applicable, the waiver) of the following conditions precedent:

(a) the approval of Independent Shareholders of the Agreement and the transactions contemplated under the Agreement, including without limitation, (i) the acquisition of the Sale Shares and the Shareholder’s Loans and (ii) (a) the terms of the Instrument and the creation and issue of the Perpetual Convertible Securities and the allotment and issue of the Conversion Shares pursuant to the exercise of the Conversion Rights attaching to the Perpetual Convertible Securities, or (as the case may be) (b) the allotment and issue of the Consideration Shares and the Placement Shares pursuant to the Specific Mandate, having been obtained and remaining in full force and effect;
(b) the Company having completed its legal, financial and business due diligence on the Target Group and the results of such due diligence are satisfactory to the Company;
(c) the Restructuring having been duly completed and all necessary approvals required for the implementation of the Restructuring having been obtained and remaining in full force and effect;
(d) the approval of CMG in relation to the Acquisition having been obtained and remaining in full force and effect;
(e) all necessary approvals and consents of, among others, (i) creditors of Eureka, any other member of the Seller Group, and/or any Target Group member, and (ii) shareholders (other than any member of the Seller Group or any other Target Group member) of any Target Group member to the Acquisition having been obtained and remaining in full force and effect;
(f) approval having been obtained from the Listing Committee for the listing of, and permission to deal in, the Conversion Shares or (as the case may be) the Consideration Shares and the Placement Shares on the Main Board of the Stock Exchange;
(g) approval in principle having been obtained from the Listing Committee for the new listing application by the Company in relation to the Acquisition and not having been revoked or withdrawn;
(h) if the Company decides to satisfy the Consideration by the issue of the Consideration Shares and the Placement Shares, the Placing having become unconditional;

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LETTER FROM THE BOARD

(i) the Warranties remaining true and accurate and not misleading in any material respect if they were repeated at any time prior to Closing by reference to the facts and circumstances then existing (on the basis that the references in the Warranties to the date of the Agreement were references to the relevant date);
(j) there having been no material adverse change since the Last Accounts Date;
(k) Jones Lang LaSalle having completed the valuation of the properties of the Target Group in accordance with the requirements of the Listing Rules in relation to the Acquisition and the content and results of such valuation being satisfactory to the Company;
(l) Deloitte Touche Tohmatsu having completed the audit of and issued an unqualified opinion on the accountants’ report of the Target Group in accordance with the requirements of the Listing Rules in relation to the Acquisition and the content and results of such audit being satisfactory to the Company;
(m) the Company having received an opinion dated the date of this Circular issued by Shu Jin Law Firm, the PRC legal advisers to the Company, in respect of the PRC Operating Subsidiaries and other PRC legal issues and in form and substance satisfactory to the Company; and
(n) the Company and CMPD having executed and delivered to each other the Non-Competition Deed and the Operation Agreement substantially in the agreed form required by the Agreement to be executed on or before the date of this Circular.

If any of the conditions precedent set out above has not been fulfilled (or, for the conditions except (a), (d), (f), (g), waived by the Company) on or before 31 December 2013 (or such later date as may be agreed between the Company, Eureka and CMPD), the Agreement will terminate with immediate effect.

As at the date of this Circular, all the conditions precedents (other than items (a), (f), (h), (i) and (j) above) have been satisfied or no longer applicable to the extent that they relate to the issue of the Perpetual Convertible Securities.

As advised by the Company’s PRC legal advisers, Shu Jin Law Firm, the Acquisition and the arrangements under the Non-Competition Deed do not require approval of the Independent Shareholders of CMPD nor any approvals from the PRC regulatory authorities except the approval of CMG.

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LETTER FROM THE BOARD

The Consideration

The Consideration for the Sale Shares and the Shareholder’s Loans is approximately HK$6,177 million, including approximately HK$2,649 million for the Sale Shares and HK$3,528 million for the Shareholder’s Loans immediately before Closing, which will be satisfied by:

(i) the issue of the Perpetual Convertible Securities; or
(ii) (a) the issue of not more than 2,897,028,703 new Shares to Success Well, a wholly-owned subsidiary of Eureka, at the Issue Price and (b) if the aggregate price of the Consideration Shares calculated at the Issue Price is less than the Consideration, the payment of the rest of the Consideration in cash from all or part of the proceeds of the placement of not less than 939,760,297 Placement Shares at the Issue Price.

The Company has decided to satisfy the Consideration by way of the issue of 2,897,028,703 Consideration Shares at the Issue Price and the payment of approximately HK$708 million in cash being part of the proceeds from the Placing of the Placement Shares at the Issue Price, and entered into the Placing Agreement with the Placing Agent on 19 June 2013. Pursuant to the Placing Agreement, the Placement Shares have been fully underwritten by the Placing Agent. The minimum public float of 25% will be maintained upon Closing.

The Consideration was determined after arm’s length negotiations between the Company, Eureka and CMPD and is equal to the agreed value of the Sale Shares and the Shareholder’s Loans, which was derived as follows (applying an exchange rate: HK$1.00 = RMB0.8037):

(a) approximately RMB1,263 million of equity attributable to Eureka and approximately RMB2,410 million of Shareholders’ Loans as at 31 December 2012;
(b) plus:
(i) approximately RMB2,237 million of appreciation of the properties attributable to Eureka, which is equal to the difference between the book value of the properties as at 31 December 2012 and their value as at 31 December 2012 that was calculated based on the preliminary appraisal by Jones Lang LaSalle as at 31 March 2013 in a valuation amount of approximately RMB19.3 billion (in each case, attributable to Eureka);
(ii) RMB31.5 million of capital contribution made by Eureka to Foshan Merchants Wharf and an aggregate of RMB76.5 million of capital contribution made by Eureka and Converge to Merchants Property Development (Guangzhou) after the date of the Announcement but prior to the completion of the Restructuring; and

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LETTER FROM THE BOARD

(c) less:
(i) approximately RMB1,053 million of estimated amount of business tax, land appreciation tax and income tax (attributable to Eureka) that will be payable upon the sale of the properties of the Target Group at their appraised value in the preliminary appraisal by Jones Lang LaSalle as at 31 March 2013.

The change in Shareholder’s Loans from approximately RMB2,410 million as at 31 December 2012 to an equivalent amount of HK$3,528 million immediately before Closing was due to the capital contributions set out in (b)(ii) above and the Restructuring, which had no effect on the total amount of the Consideration.

When the Consideration was calculated, some land use rights certificates in relation to Changjiahui and the land use rights certificate in relation to Yonghuafu had not been obtained. The lack of land use rights certificates for such projects did not affect the basis of calculating the Consideration because (i) in calculating the equity attributable to Eureka, only the land premium that had been paid by the Target Group was taken into account; and (ii) no appreciation was taken into account for the land parcels without land use rights certificates.

The minimum Issue Price

The minimum Issue Price of HK$1.61 per Share under the Agreement represents:

a discount of approximately 44.5% to the closing price of the Shares of HK$2.90 per Share as quoted on the Stock Exchange on the Last Trading Day;
a discount of approximately 34.8% to the average of the closing price of the Shares as quoted on the Stock Exchange for the 30 consecutive trading days up to and including the Last Trading Day of approximately HK$2.47 per Share;
a discount of approximately 13.9% to the average of the closing price of the Shares as quoted on the Stock Exchange for the 180 consecutive trading days up to and including the Last Trading Day of approximately HK$1.87 per Share;
a discount of approximately 49.4% to the closing price of the Shares as quoted on the Stock Exchange on the Latest Practicable Date of approximately HK$3.18 per Share; and
a premium of approximately 116.6% to the pro forma net tangible assets per Share of the Enlarged Group attributable to the equity holders of the Company.

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LETTER FROM THE BOARD

In light of the following facts, the trading price of the Shares on the Last Trading Day may not reflect the true value of the Shares:

according to the 2012 annual report of the Company, the Company had total equity attributable to equity holders of HK$244,000, representing book value of HK0.023 cent per Share as at 31 December 2012. In addition, the Company recorded net loss of HK1.1 cents per Share for the period from 1 April 2012 to 31 December 2012; and
the price of the Shares increased from HK$1.26 per Share on 22 June 2012 (when the general offer made by Success Well for all the issued Shares of the Company under the Takeovers Code was closed) to HK$2.90 on the Last Trading Day without any fundamental improvement in operating results or any price sensitive information having been announced by the Company during such period except the interim results/report and annual results/report for the financial year of 2012, and the announcement dated 8 October 2012 and the circular dated 30 October 2012 in respect of a continuing connected transaction.

Accordingly, the trading price of the Shares on the Last Trading Day may not be a good indicator of the value of the Shares against which the fairness and reasonableness of the Consideration should be measured.

Closing

Closing of the Acquisition is scheduled to take place within three(3) Business Days after all the conditions precedent to which Closing is subject have been fulfilled (or, if applicable, waived).

PLACING

The Company, Eureka, CMPD and the Placing Agent entered into the Placing Agreement on 19 June 2013. Set out below are the key terms of the Placing Agreement:

Issuer : the Company Placing agent : the Company has appointed Goldman Sachs (Asia) L.L.C. as the Placing Agent. The Placing Agent has conditionally agreed with the Company, subject to the terms and conditions of the Placing Agreement, to act as agent for the Company to procure purchasers to purchase, or failing which to purchase itself, the Placement Shares at the Issue Price.

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LETTER FROM THE BOARD

Placees : the Placing Agent has informed the Company that it intends to place the Placement Shares to no less than six independent placees (who will be professional investors). To the best of the Directors’ knowledge, information and belief, each of the placees (and their ultimate beneficial owners) are third parties independent of and not connected with the Company and its connected persons. It is expected that none of the placees will become a substantial shareholder of the Company immediately after Closing.

Placement Shares : 939,760,297 new Shares

Issue Price : HK$1.888 per Share

The Issue Price represents:

(i) a discount of approximately 36.5% to the closing price of HK$2.99 per Share as quoted on the Stock Exchange on 18 June 2013 (being the last full trading day prior to the announcement in respect of the Placing);
(ii) a discount of approximately 36.4% to the average closing price of approximately HK$2.97 per Share as quoted on the Stock Exchange for the last five consecutive trading days up to and including 18 June 2013;
(iii) a discount of approximately 39.1% to the average closing price of approximately HK$3.10 per Share as quoted on the Stock Exchange for the last ten consecutive trading days up to and including 18 June 2013; and
(iv) a discount of approximately 33.1% to the average closing price of approximately HK$2.82 per Share as quoted on the Stock Exchange for the last thirty consecutive trading days up to and including 18 June 2013.

The Issue Price was arrived at after arm’s length negotiations between the Company and the Placing Agent. The Directors consider that the terms of the Placing and the Issue Price are normal commercial terms and are fair and reasonable based on the current market conditions and the Placing is in the interests of the Company and the Shareholders as a whole. After taking into account all related costs, fees, expenses and commission of the Placing, the net Issue Price is approximately HK$1.787 per Share.

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LETTER FROM THE BOARD

Conditions precedent

: Completion of the Placing is conditional upon, among others, the Specific Mandate having been granted by the Independent Shareholders at the EGM and the listing of, and permission to deal in, the Placement Shares on the Stock Exchange having been granted by the Stock Exchange (and such listing and permission not subsequently being revoked prior to the completion of the Placing).
Termination of the Placing : the Placing Agreement is subject to termination by the Placing Agent under certain circumstances.
Placing commission : The Placing Agent will receive a placing commission of 2.6% of the gross proceeds of the Placing upon Closing.
Completion : Completion of the Placing shall take place on the Closing Date.
Reasons for the Placing and : The Placing is intended to maintain the public float of use of proceeds the Company, expand the shareholder base of the Company, and satisfy part of the Consideration.

The aggregate gross proceeds from the Placing are estimated to be approximately HK$1,774 million. The Company will bear the costs and expenses of the Placing and the net proceeds from the Placing are estimated to be approximately HK$1,679 million (the Net Proceeds ).

The Company will use approximately HK$708 million of the Net Proceeds to satisfy part of the Consideration and the remaining approximately HK$971 million to provide funding for working capital of the Company and other general corporate purposes.

THE CONSIDERATION SHARES, THE PLACEMENT SHARES AND THE PROPOSED GRANT OF THE SPECIFIC MANDATE

The Consideration Shares and the Placement Shares will be allotted and issued under the Specific Mandate. The Consideration Shares and the Placement Shares will rank equally among themselves and pari passu in all respects with the Shares in issue on the date of the allotment and issue of the Consideration Shares and the Placement Shares.

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LETTER FROM THE BOARD

EFFECT OF THE ACQUISITION AND THE PLACING ON THE SHAREHOLDING STRUCTURE OF THE COMPANY

The following table illustrates the shareholding structure of the Company (i) as at the date of this Circular; and (ii) immediately after Closing.

CMPD So Shu Fai Note 2 Existing public shareholders New public shareholders Public shareholding subtotal Total	As at the date of this Circular Number of Shares Approx. % of total 749,860,626 Note 1 70.18 32,054,066 3.00 286,554,168 26.82 286,554,168 26.82 1,068,468,860 100.00	Immediately after Closing Number of Shares Approx. % of total 3,646,889,329 74.35 32,054,066 0.65 286,554,168 5.84 939,760,297 19.16 1,226,314,465 25.00 4,905,257,860 100.00	Immediately after Closing Number of Shares Approx. % of total 3,646,889,329 74.35 32,054,066 0.65 286,554,168 5.84 939,760,297 19.16 1,226,314,465 25.00 4,905,257,860 100.00
			100.00

Notes:

These Shares are legally owned by Success Well, a wholly-owned subsidiary of CMPD. CMG is the ultimate controlling shareholder of CMPD and currently indirectly holds approximately 51.89% of the total issued share capital of CMPD.
An executive Director.

FINANCIAL EFFECT OF THE ACQUISITION ON THE COMPANY

The financial impact of the Acquisition on the Company (including its effect on the earnings, assets and liabilities of the Company) is illustrated by way of the unaudited pro forma financial information of the Enlarged Group set out in Appendix V to this Circular.

As the Group and the Target Group have been under common control of Eureka since 7 May 2012 and Eureka will still be the controlling shareholder of the Company upon Closing, the Acquisition is considered as a combination of business under common control and accounted for under merger basis. In applying merger accounting, the Acquisition would be reflected in the consolidated financial statements of the Group for the year ended 31 December 2013 as a reverse acquisition by the Target Group and the financial information of the Target Group for the year ended 31 December 2012 and the financial information of the Group for the period from 7 May 2012 to 31 December 2012 will be restated in the financial information of the Enlarged Group for the year ended 31 December 2013.

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LETTER FROM THE BOARD

INFORMATION ON THE TARGET GROUP

Corporate Structure of the Target Group

Please see the section headed “Corporate Structure of the Target Group” for details of the simplified corporate structure of the Target Group and the Company as at the date of this Circular and immediately after Closing.

Business of the Target Group

The Target Group is primarily engaged in Property Business in the PRC through its PRC Operating Subsidiaries. Its current property portfolio primarily consists of eight property projects under various development stages in Foshan, Guangzhou, Chongqing and Nanjing in the PRC, with a primary focus on the development of residential properties, integrated residential and commercial properties, offering a range of products including apartments, villas, offices, and retail shops. As at 31 March 2013, the Target Projects had an aggregate GFA of approximately 5,381,479 sq.m, and the saleable GFA of the Target Projects which had not been sold or pre-sold amounted to approximately 3,098,444 sq.m.

Please see the section headed “Business of the Target Group” for more details.

Financial information of the Target Group

For each of the three years ended 31 December 2012, the audited revenue of the Target Group was RMB1,342.73 million, RMB3,341.47 million and RMB4,288.51 million, respectively, and the audited profit attributable to the shareholders of the Target Group was RMB142.41 million, RMB260.62 million and RMB434.23 million, respectively. The unaudited revenue of the Target Group for the three months ended 31 March 2013 was RMB3,517.19 million.

The audited net asset value of the Target Group (including net asset value attributable to non-controlling interests) as at 31 December 2012 was approximatelyRMB3,215.45 million. The audited net profit before and after taxation of the Target Group for the respective periods were as follows:

				For the year ended
				31 December
			2010	2011	2012
			(RMB’000)	(RMB’000)	(RMB’000)
Net	profit	before taxation	504,019	1,661,854	2,259,631
Net	profit	after taxation	323,936	879,409	1,045,197

Please refer to the section headed “Financial Information of the Target Group” and the section headed “Accountants’ Report on the Target Group” in Appendix III to this Circular for more information.

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LETTER FROM THE BOARD

INFORMATION ON THE GROUP

The Company was incorporated in the Cayman Islands and its ordinary shares are listed on the Main Board of the Stock Exchange. Currently, the Group is principally engaged in the trading of electronic and electrical products and building related materials and equipment. After Closing, the Enlarged Group will be mainly engaged in Property Business while continuing to operate some of, but not expand, its existing businesses. The Company does not expect to engage in the trading of electronic and electrical products any more. After Closing, as for its existing business, the Company will mainly be engaged in the sourcing of building related materials and equipment from CMPD as part of its continuing connected transactions with CMPD. As disclosed in the circular of the Company dated 30 October 2012, for each of the three years ending 31 December 2012, 2013 and 2014, the annual caps for such continuing connected transactions will be HK$50 million, HK$120 million and HK$30 million, respectively. The trading business of the Company will continue to decrease and is not expected to be a meaningful driver of or contributor to the operating results of the Enlarged Group after Closing.

CMPD acquired an approximately 70.18% interest in the Company in May 2012.

INFORMATION ON EUREKA AND CMPD

Eureka was incorporated in Hong Kong and is a wholly-owned subsidiary of CMPD. The principal activity of Eureka is investment holding.

CMPD is currently the real estate flagship of CMG, which is a Controlling Shareholder of CMPD and currently holds approximately 51.89% of the total issued share capital of CMPD. CMG is a state-owned conglomerate regulated by the national State-Owned Assets Supervision and Administration Commission.

REASONS FOR AND BENEFITS OF THE ACQUISITION

The Board of Directors (including all the independent non-executive Directors of the Company) considers the Acquisition to be in the interests of the Company and the Shareholders as a whole for the following reasons:

(a) Following Closing, the Company can leverage from the platform of, and the favorable conditions under the non-competition arrangement with, the CMPD Group to speed up the development of the Enlarged Group’s Property Business and create value for its Shareholders.

CMPD is one of the largest and the most prestigious property developers in China with a very strong brand. As the real estate flagship of CMG, which is a key state-owned enterprise directly under the PRC central government and whose headquarters is located in Hong Kong, CMPD has run its Property Business through Eureka from Hong Kong for more than 10 years and has established good cooperative relationship with some of the largest property developers in Hong Kong.

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LETTER FROM THE BOARD

After Closing, the Company will become the first and only overseas listed business platform of the CMPD Group. The Enlarged Group will be able to make use of the platform and the brand of the CMPD Group to develop its Property Business in China.

Under the Non-Competition Deed:

except for the Operation Transitional Assets, which will mostly be operated and managed by the Enlarged Group after Closing under the Operation Agreement, the CMPD Group will not commence new Property Business in the Target Cities; and
as regards any new city in which neither group had any Property Business as at the date of the Non-Competition Deed, the Company will have a right of first refusal to conduct Property Business in such city, which means that whenever there is new Business Opportunity in such city, the Company will always have a right of first refusal to take up such opportunity.

These arrangements are expected to minimise the direct and potential competition between the two groups whilst providing a broad space for the Enlarged Group’s development. Please see the section headed “Relationship with the Controlling Shareholders - Business Delineation between the CMPD Group and the Enlarged Group” for more details.

(b) The Target Group has started generating profits as most of the Target Projects are beyond their respective preliminary development stage.

For the year ended 31 December 2012, the Target Group generated net profit of approximately RMB1,045 million and positive cash flow from operating activities of approximately RMB2,506 million. After Closing, the Company will become a property holding company with comprehensive capabilities of property development, operation and management.

The Target Projects comprise the projects that, as a whole, are relatively more mature among the property development projects of the CMPD Group in the Target Cities that are owned by CMPD through its overseas subsidiaries. The Target Projects will help boost the profitability of the Group after Closing.

In Guangzhou and Foshan, as at 31 March 2013, the total completed GFA of the Target Projects was 463,731 sq.m. and 893,778 sq.m., respectively. The cash generated from the sale of these Target Projects is sufficient to finance the development of these Target Projects as well as provide some finance to certain other Target Projects.

The Target Projects in Chongqing and Nanjing have entered into their respective sale period and except Yonghuafu in Nanjing, have all met the requirements for obtaining development and construction loans from commercial banks.

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(c) The management team of the PRC Operating Subsidiaries of the Target Group has valuable operating experience in property development in the Target Cities, which have significant potential for property development.

The PRC Operating Subsidiaries’ management team has a track record of property development ranging from 6 to 10 years in the relevant Target Cities and has accumulated valuable operating experience. They are familiar with the operating environment of the relevant Target Cities and have strong capability for business development. The PRC Operating Subsidiaries have maintained a good market position in the relevant Target Cities. In 2012, the Target Cities’ GDP growth rates were all above 8% and Chongqing’s growth rate reached 13.6%, compared to 7.8% of the PRC, which have demonstrated significant potential for property development in these cities. Please see the section headed “Industry Overview” in Appendix I to this Circular for further information of the business prospect of the Company in the Target Cities as compared to the CMPD Cities.

(d) The Enlarged Group will have strong capacity to raise funds for the development of its Property Business.

The Target Projects, their experienced management team and strong growth potential of the PRC Operating Subsidiaries together are expected to enable the Enlarged Group to obtain equity financing through the Company, which will in turn optimise the debt equity structure of the Enlarged Group, enhance its profitability and facilitate further financing. The Directors believe that the Enlarged Group will have strong capability to raise sufficient funds to develop its Property Business so as to create value for its Shareholders.

IMPLICATIONS OF THE ACQUISITION UNDER THE LISTING RULES

The Acquisition constitutes:

(a) a very substantial acquisition for the Company under Rule 14.06(5) of the Listing Rules as one or more of the relevant percentage ratios under Rule 14.07 of the Listing Rules are over 100% for the Company in relation to the Acquisition;
(b) a connected transaction of the Company as Eureka is a connected person of the Company by virtue of its being a Controlling Shareholder of the Company; and
(c) a reverse takeover for the Company under Rule 14.06(6)(b) of the Listing Rules on the basis that the Acquisition (i) constitutes a very substantial acquisition for the Company under Chapter 14 of the Listing Rules and (ii) involves acquisition of assets from Eureka within 24 months of Eureka gaining control (as defined under the Takeovers Code) of the Company.

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Accordingly, the Acquisition is subject to the approval of the Independent Shareholders at the EGM. Success Well and its associates are required to abstain from voting on the relevant resolutions to be proposed at the EGM to approve, among others, the Acquisition.

Accordingly, the Acquisition is also subject to the approval by the Listing Committee. The Company made an listing application to the Stock Exchange on 3 May 2013 and the Listing Committee has granted its approval in principle to the Company’s listing application.

BUSINESS DELINEATION BETWEEN THE CMPD GROUP AND THE ENLARGED GROUP

After Closing, the CMPD Group will continue to hold controlling interests in four property development projects in three of the four Target Cities, including one in Guangzhou, two in Chongqing and one in Foshan, which could potentially compete with the Property Business of the Enlarged Group in those three cities. Until the end of 31 December 2017 when the Operation Transitional Assets are expected to have been completed and sold, they will be owned by the CMPD Group and revenue derived from them will belong to the CMPD Group. Except for one project that will continue to be operated and managed by the joint venture partner of that project, which is an independent third party, all the Operation Transitional Assets will be operated and managed by the Enlarged Group for a fee under the Operation Agreement during the Transitional Period.

To minimise actual and potential competition, the Company and CMPD entered into the Non-Competition Deed, pursuant to which:

except for the Operation Transitional Assets, which will mostly be operated and managed by the Enlarged Group after Closing under the Operation Agreement, the CMPD Group will not commence new Property Business in the Target Cities; and
as regards any new city in which neither group has any Property Business as at the date of the Non-Competition Deed, the Company will have a right of first refusal to conduct Property Business in such city, which means that whenever there is new Business Opportunity in such city, the Company will always have a right of first refusal to take up such opportunity.

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LETTER FROM THE BOARD

The Company and CMPD will review annually the Company’s and CMPD’s respective portfolio of property projects in the Target Cities and the CMPD Cities, and to consult with each other and determine if any adjustments need to be made to the geographical delineation between the Enlarged Group and the CMPD Group. The Company will implement a number of corporate measures to govern and monitor the decision-making process in relation to the ROFR under the Non-Competition Deed.

Based on the business delineation factors set out in this Circular, the Directors are of the view that although there is potential competition between the Operation Transitional Assets and the Target Projects in the relevant Target Cities, such potential competition will not be extreme and, if it were to materialise, will be sufficiently addressed by the terms of the Operation Agreement and the Non-Competition Deed and will not adversely affect the Enlarged Group.

Please see the section headed “Relationship with the Controlling Shareholders” for more details.

CONTINUING CONNECTED TRANSACTIONS

On 19 June 2013, the Company entered into the Operation Agreement with CMPD, and entered into the Property Management Agreement with Merchants Property Management Co., Ltd., a subsidiary of CMPD.

Each of the Operation Agreement and the Property Management Agreement is conditional upon Closing having taken place and all applicable legal and regulatory requirements (including those under the Listing Rules) having been complied with. An ordinary resolution will be proposed at the EGM for the approval by the Independent Shareholders of the Operation Agreement and the Property Management Agreement (including the Annual Caps).

Further information on the Non-Exempt Continuing Connected Transactions is set out in the section headed “Continuing Connected Transactions” in this Circular.

EGM

A notice of the EGM to be held at Golden Dynasty Court, Macau Jockey Club, Hong Kong Club, Hong Kong Club House, 3/F., Shun Tak Centre, Connaught Road Central, Hong Kong on 8 July 2013 at 11:00 a.m. is set out on pages EGM-1 to EGM-3 of this Circular for the purpose of considering and, if thought fit, approving, among others, the Acquisition, the Specific Mandate, and the Non-Exempt Continuing Connected Transactions (including the Annual Caps). Voting on the resolutions at the EGM will be taken by poll.

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LETTER FROM THE BOARD

Success Well, its associates, persons acting in concert with it and any person who is involved or interested in the Acquisition will abstain from voting on the resolutions for the approval of the Acquisition, the Specific Mandate, and the Non-Exempt Continuing Connected Transactions (including the Annual Caps).

A form of proxy for use at the EGM is enclosed. Whether or not you intend to attend the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the branch share registrar of the Company in Hong Kong, Tricor Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding of the EGM or any adjournment thereof. Completion and return of the proxy form shall not preclude you from attending, and voting in person at the EGM or any adjournment thereof if you so desire.

SOLE FINANCIAL ADVISER, SOLE SPONSOR, INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

Goldman Sachs has been appointed as the Sole Financial Adviser to the Company and the Sole Sponsor to the listing application made by the Company in relation to the Acquisition.

An independent board committee of the Company comprising Dr. Wong Wing Kuen, Albert, Ms. Chen Yanping and Mr. Shi Xinping, being all the independent non-executive Directors of the Company, has been formed to advise the Independent Shareholders in relation to the Acquisition and the Non-Exempt Continuing Connected Transactions.

The Company has, with the approval of the Independent Board Committee, appointed Altus Capital Limited as an independent financial adviser in accordance with the requirements under the Listing Rules to advise the independent board committee of the Company and the Independent Shareholders on matters in relation to the Acquisition and the Non-Exempt Continuing Connected Transactions.

APPLICATION FOR LISTING OF THE CONSIDERATION SHARES AND THE PLACEMENT SHARES

The Company has made a listing application to the Listing Committee for the listing of and permission to deal in, the Consideration Shares and the Placement Shares to be allotted and issued pursuant to the Agreement and the Listing Committee has granted its approval in principle to the Company’s listing application.

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LETTER FROM THE BOARD

RESPONSIBILITY STATEMENTS

This Circular, for which the Directors (including the Proposed Directors) collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group and the Target Group. The Directors (including the Proposed Directors), having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this Circular is accurate and complete in all material respects and not misleading or deceptive and the opinions expressed in this Circular have been arrived at after due and careful consideration, and there are no other matters the omission of which would make any statement in this Circular misleading.

RECOMMENDATIONS

On the basis of the information set out in this Circular, the Directors (including members of the Independent Board Committee) consider that the Acquisition and the Non-Exempt Continuing Connected Transactions (including the Annual Caps) are fair and reasonable and in the interests of the Company and the Shareholders as a whole. The Directors, therefore, recommend the Shareholders to vote in favour of the ordinary resolutions approving the Acquisition, the Specific Mandate, the Non-Exempt Continuing Connected Transactions and the proposed Annual Caps at the EGM.

FURTHER INFORMATION

Your attention is drawn to other sections of and appendices to this Circular, which contain further information on the Target Group, the Enlarged Group and other information required to be disclosed under the Listing Rules. You should consider carefully all the information set out in the section headed “Risk Factors” before making a decision in relation to the Acquisition at the EGM or dealing in the Shares of the Company.

By order of the Board Tonic Industries Holdings Limited HUANG Peikun Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of a letter from the Independent Board Committee to the Independent Shareholders in connection with the Acquisition for inclusion in this Circular. TONIC INDUSTRIES HOLDINGS LIMITED 東力實業控股有限公司*

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 978)

20 June 2013

To the Independent Shareholders

Dear Sir or Madam,

(1) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION (2) REVERSE TAKEOVER INVOLVING A NEW LISTING APPLICATION (3) PROPOSED ISSUE OF THE CONSIDERATION SHARES AND PROPOSED PLACING OF THE PLACEMENT SHARES UNDER SPECIFIC MANDATE AND

(4) CONTINUING CONNECTED TRANSACTIONS

We refer to the Circular dated 20 June 2013 issued by the Company, of which this letter forms part (the “Circular”). Unless otherwise specified, capitalised terms defined in the Circular shall have the same meanings when used herein.

The Independent Board Committee has been formed to advise you in respect of the Acquisition and the Non-Exempt Continuing Connected Transactions (including the Annual Caps), details of which are set out in the “Letter from the Board” contained in the Circular. Altus Capital Limited has been appointed to advise the Independent Board Committee and the Independent Shareholders in this regard. The text of the letter of advice from the Independent Financial Adviser containing their recommendation and the principal factors they have taken into account in arriving at their recommendation are set out on pages 50 to 77 of the Circular.

Having considered the terms of the Acquisition and the Non-Exempt Continuing Connected Transactions (including the Annual Caps) as well as the advice and recommendations of Altus Capital Limited set out in its letter of advice, we consider that (i) the Acquisition, the Non-Exempt Continuing Connected Transactions (which are in the Enlarged Group’s usual and ordinary course of business), their respective relevant agreements and the proposed Annual Caps are in the interests of the Company and the Shareholders as a whole; (ii) the Acquisition and the Non-Exempt Continuing Connected Transactions are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (iii) the proposed Annual Caps have been fairly and reasonably arrived at.

For identification purpose only

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

On the basis above, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions approving the Acquisition, the Specific Mandate, the Non-Exempt Continuing Connected Transactions and the proposed Annual Caps at the EGM.

Yours faithfully, for an on behalf of

the Independent Board Committee Tonic Industries Holdings Limited Dr. WONG Wing Kuen, Albert Ms CHEN Yanping Dr. SHI Xinping Independent non-executive Directors

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition, the Non-Exempt Continuing Connected Transactions and the proposed Annual Caps related thereto, which has been prepared for the purpose of incorporation in this circular.

21 Wing Wo Street Central, Hong Kong

20 June 2013

To the Independent Board Committee and the Independent Shareholders Tonic Industries Holdings Limited Room 3111, 31st Floor China Merchants Tower Shun Tak Centre Nos. 168–200 Connaught Road Central Hong Kong

Dear Sirs,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION AND NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Acquisition, the Non-Exempt Continuing Connected Transactions, their respective relevant agreements (being the Agreement, the Operation Agreement and the Property Management Agreement) and the proposed Annual Caps related thereto. Details of the Acquisition, the Non-Exempt Continuing Connected Transactions and the terms of their respective relevant agreements are set out in the “Letter from the Board” contained in the circular dated 20 June 2013 (the “ Circular ”) to the Shareholders, of which this letter forms part. Terms used in this letter shall have the same meanings as those defined in the Circular unless the context requires otherwise.

On 24 April 2013, the Company announced that it (as the buyer), Eureka (as the seller) and CMPD had entered into the Agreement pursuant to which the Company has conditionally agreed to acquire, and Eureka has conditionally agreed to sell, the Sale Shares and the Shareholder’s Loans. The aggregate consideration for the sale and purchase of the Sale Shares and the Shareholder’s Loan is approximately HK$6,177 million.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

On 18 June, the Company entered into the Operation Agreement with CMPD and entered into the Property Management Agreement with Merchants Property Management Co., Ltd., a subsidiary of CMPD. Each of the Operation Agreement and the Property Management Agreement is conditional upon Closing taking place and all applicable legal and regulatory requirements (including those under the Listing Rules) having been complied with.

As one or more of the relevant percentage ratios under Chapter 14 of the Listing Rules are over 100% for the Company, the Acquisition constitutes a very substantial acquisition for the Company under Rule 14.06(5) of the Listing Rules, a reverse takeover for the Company under Rule 14.06(6)(b) of the Listing Rules on the basis that the Acquisition (i) constitutes a very substantial acquisition for the Company under Chapter 14 of the Listing Rules and (ii) involves acquisition of assets from Eureka within 24 months of Eureka gaining control (as defined under the Takeovers Code) of the Company. Further, as Eureka is a connected person to the Company by virtue of being the controlling shareholder of the Company, the Acquisition also constitutes a connected transaction of the Company and is subject to approval of the Independent Shareholders at the EGM.

As at the Latest Practicable Date, CMPD indirectly holds approximately 70.18% of issued share capital of the Company and is therefore a connected person of the Company under the Listing Rules. Accordingly, the transactions contemplated under the Operation Agreement and Property Management Agreement constitute continuing connected transactions of the Company. Further, as the highest applicable percentage ratios for the respective financial year regarding the Annual Caps exceed 5%, the Non-Exempt Continuing Connected Transactions are subject to the reporting, announcement and Independent Shareholders’ approval requirements pursuant to Rule 14A.35 of the Listing Rules. Success Well and its associates are required to abstain from voting on the relevant resolutions to be proposed at the EGM to approve, among others, the Acquisition, the Specific Mandate, the Non-Exempt Continuing Connected Transactions and the proposed Annual Caps.

THE INDEPENDENT BOARD COMMITTEE

The Independent Board Committee comprising all the independent non-executive Directors, namely Dr. Wong Wing Kuen, Albert, Ms. Chen Yanping and Dr. Shi Xinping, has been established to give advice and recommendation to the Independent Shareholders as to whether the Acquisition, the Non-Exempt Continuing Connected Transactions, the terms of their respective relevant agreements and the Annual Caps related thereto are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole and on how to vote on the resolutions to be proposed at the EGM.

As the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, our role is to give an independent opinion to the Independent Board Committee and the Independent Shareholders as to (i) whether the Acquisition, the Non-Exempt Continuing Connected Transactions (which are in the Enlarged Group’s ordinary and usual course of business), the terms of their respective relevant agreements and the proposed Annual Caps related thereto are in the interests of the Company and the Shareholders as a whole; (ii) whether the Acquisition and the Non-Exempt Continuing

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Connected Transactions are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; (iii) whether the proposed Annual Caps have been fairly and reasonably arrived at; and (iv) how the Independent Shareholders should vote in respect of the proposed resolutions relating to the Acquisition, the Specific Mandate, the Non-Exempt Continuing Connected Transactions and the proposed Annual Caps at the EGM.

BASIS OF OUR ADVICE

In formulating our opinion, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and/or provided to us by the Company, the Directors and the management. We have assumed that all statements, information, opinions and representations contained or referred to in the Circular and/or provided to us were true, accurate and complete at the time they were made and continued to be so as at the date of the Circular.

We have no reason to believe that any statements, information, opinions or representations relied on by us in forming our opinion is untrue, inaccurate or misleading, nor are we aware of any material facts the omission of which would render the statements, information, opinions or representations provided to us untrue, inaccurate or misleading. We have assumed that all the statements, information, opinions and representations for matters relating to the Group contained or referred to in the Circular and/or provided to us by the Company, the Directors and the management have been reasonably made after due and careful enquiry. We have relied on such statements, information, opinions and representations and have not conducted any independent investigation into the business, financial conditions and affairs or the future prospects of the Group.

(I) THE ACQUISITION

Principal factors and reasons considered

1. Background of the Group

Recent development

The Group is principally engaged in the trading of electronic and electrical consumer products and building related materials and equipment.

Due to deteriorating operating environment, the Group’s previous management had put Total Ally Holdings Limited (“ Total Ally ”), which owned its manufacturing and sale of set-top box business, under voluntary liquidation in April 2012.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

CMPD Group acquired a controlling interest in the Company in May 2012; after which, the current management conducted a series of consolidation and restructuring exercises with an aim to expand its existing businesses, optimise the use of its internal resources and enhance its overall operating efficiency. To this end, in October 2012, CMPD Group expanded the scope of its trading business to include building related materials and equipment, including the entering into of a procurement agreement to source products for the CMPD Group.

The Company does not expect to engage in any business for the trading of electronic and electrical products any more. After Closing, as for its existing business, the Company will mainly be engaged in the sourcing of building related materials and equipment from CMPD as part of the continuing connected transactions with CMPD. As disclosed in the circular of the Company dated 30 October 2012, for each of the three years ending 31 December 2012, 2013 and 2014, the annual caps for such transactions will be HK$50 million, HK$120 million and HK$30 million, respectively. The trading business of the Company will continue to decrease and is not expected to be a meaningful driver of or contributor to the operating results of the Enlarged Group after Closing.

Summary of financial results of the Group

Set out below is a summary of the financial results of the Group for the two years ended 31 March 2012 and the nine months ended 31 December 2012. The Company has changed its financial year-end to 31 December to conform to the financial year end of CMPD. Details are set out in Appendix IV to the Circular.

	For the nine
	months ended
	31 December	Year ended 31 March
	2012	2012	2011
	HK$’000	HK$’000	HK$’000
	(audited)	(audited)	(audited)
Revenue	91,453	178,214	77,394
(Loss)/profit before tax	(11,796)	(62,620)	388,444
Income tax	–	–	–
(Loss)/profit for the period/year	(11,796)	(62,620)	388,444

Source: The Company’s annual report for the period 1 April 2012 to 31 December 2012

The Group recorded profit of approximately HK$388.4 million for the year ended 31 March 2011 due to gains on deconsolidation of the liquidating subsidiary and on debt restructuring of about HK$460.6 million following the winding up of its subsidiary, Tonic Electronics Limited, by the order of the courts. Excluding such gain, its business operations were loss making.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Despite an improvement in turnover from the manufacture and sales of electronics products to approximately HK$178.2 million for the year ended 31 March 2012, the Group remained loss making due to high fixed production costs. For that financial year, it recorded loss of approximately HK$62.6 million.

Due partly to the aforesaid liquidation of Total Ally, the Group’s turnover reduced to approximately HK$91.5 million for the nine months ended 31 December 2012. Continuous business rationalisation has however allowed the Group to narrow its operating losses where, excluding the approximately HK$5.1 million loss incurred from the liquidation of Total Ally, the Group losses during the period would have been approximately HK$6.7 million.

Summary of financial position of the Group

Set out below is a summary of the financial position of the Group as at 31 March 2011 and 2012 and 31 December 2012. Details are set out in Appendix IV to the Circular.

	As at
	31 December	As at 31	March
	2012	2012	2011
	HK$’000	HK$’000	HK$’000
	(audited)	(audited)	(audited)
Total assets	52,520	254,640	377,420
Total liabilities	(52,276)	(250,289)	(318,905)
Net assets	244	4,351	58,515

Source: The Company’s annual report for the period 1 April 2012 to 31 December 2012

The net asset position of the Group has shrunk substantially over the past few years as its previous manufacturing businesses which were assets intensive (and accordingly also liabilities intensive) were liquidated. The Group’s trading businesses require minimal investment in fixed assets. In particular, as at 31 December 2012, the Group’s total assets of approximately HK$52.5 million consisted mainly of approximately HK$48.3 million in account receivables and approximately HK$3.9 million in cash and bank balances. Meanwhile, its total liabilities of approximately HK$52.3 million consisted mainly of trade and other payables of approximately HK$43.7 million and approximately HK$8.0 million owing to its holding companies. Net assets of the Group as at 31 December 2012 was an approximate nominal amount of HK$0.2 million.

In summary, the Group had been operating under adverse market environment in the past two years which resulted in it recording operating losses. Its business activities have substantially scaled down following the liquidation of two major businesses. Meanwhile, there has also been ownership change with CMPD becoming the Company’s majority shareholder in May 2012. Soon after, the new management has sought to improve the Group’s operations and profitability by expanding its trading business scope as well

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

as optimising the use of internal resources. As only a short time has elapsed since the above implementations, there has yet to be apparent result in a turnaround of the Group’s profitability. Meanwhile, the financial position of the Group has remained subdued with a low net asset position.

2. Background of Eureka and CMPD

CMPD Group acquired a controlling interest in the Company in May 2012. As at the Latest Practicable Date, CMPD indirectly holds approximately 70.18% of the issued Shares of the Company.

Eureka was incorporated in Hong Kong and is a wholly-owned subsidiary of CMPD, and its principal activity is investment holding. In particular, the aforesaid interests of CMPD in the Company are held through Eureka. Eureka also owns the Sale Shares and the Shareholder’s Loans.

CMPD is currently the real estate flagship of CMG, which is a state-owned conglomerate regulated by the national State-Owned Assets Supervision and Administration Commission.

We are of the view that from the Group’s perspective, in view of its challenging operating performance in the past few years, it is reasonable to leverage on its strong parentage as it continues to restructure. In this case for example, the sourcing arrangement with CMPD Group which started in November 2012 has generated revenue of approximately HK$12.7 million in less than two months. With CMPD’s extensive experience and strong position in the PRC real estate business, CMPD, as a majority shareholder of the Company, is well placed to add value to the Group’s future development.

3. Background of the Target Group

The corporate structure of the Target Group can be found in the section headed “Corporate structure of the Target Group” of the Circular. The Target Group is primarily engaged in Property Business in the PRC through its PRC Operating Subsidiaries. Its current property portfolio primarily consists of eight property projects under various development stages in Foshan, Guangzhou, Chongqing and Nanjing in the PRC, with a primary focus on the development of residential properties, integrated residential and commercial properties, offering a range of products including apartments, villas, offices and retail shops. Through the PRC Operating Subsidiaries, the Target Group operates and has effective interests of 25.5%, 50.0% or 51.0% in eight Target Projects in four Target Cities, being Chongqing, Guangzhou, Foshan and Nanjing.

The Target Projects involve the development of residential, commercial, office properties as well as service apartments, with total GFA of approximately 5.4 million sq.m. as at 31 March 2013. Most of the Target Projects are beyond their respective preliminary development stage. They are generating net profits as described below, and are also generating net cash inflow from operating activities of approximately RMB2,514.40 million for the year ended 31 December 2012.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In Guangzhou and Foshan, as at 31 March 2013, the total completed GFA of the Target Projects was about 460,000 sq.m. and 894,000 sq.m. respectively and cash generated from the sale of these Target Projects is sufficient to finance their future development as well as to provide some finance to certain other Target Projects in Chongqing and Nanjing. Meanwhile, save for a relatively small Yonghuafu project in Nanjing; the Target Projects in Chongqing and Nanjing have already entered into sale period. These projects have also met the requirements for obtaining development and construction loans from commercial banks.

Excluding the Shareholder’s Loan, the audited net asset value of the Target Group (including net assets value attributable to non-controlling interests) as at 31 December 2012 was approximately RMB3,215.45 million. The audited net profits before and after taxation of the Target Group for the two years ended 31 December 2012 were as follows:

			For the year ended	For the year ended
			31 December
			2011	2012
			RMB’000	RMB’000
Net	profit	before taxation	1,661,854	2,259,631
Net	profit	after taxation	879,409	1,045,197

Details of the financial information of the Target Group are set out in the section headed “Financial information of the Target Group” of the Circular and in “Accountants’ report on the Target Group” set out in Appendix III to the Circular.

Further details of the Target Group and their underlying Target Projects can be found in the section headed “Business of the Target Group” of the Circular.

In summary, the Target Projects are relatively mature and have entered into sale period, which is important for the financing of the Group’s future development. Such financing will either be from the positive cashflow generated from such sale or from borrowings. We believe the Group’s risk of undertaking the Target Projects after the Acquisition will be comparatively lower than, for example, it initiating a property development project given the current stage of development of the Target Projects. For risks relating to property development in the PRC, please refer to the section headed “Risk factors” of the Circular. We noted the fact that the Group currently has minimal financial resources. However, the Group is not expected to experience funding pressure in future after the Acquisition as the Target Group is self sufficient in this respect.

4. The PRC property market

The PRC’s economy has experienced significant growth over the past two decades. The real GDP growth rate has kept double-digit growth from 2003 to 2007. According to the statistics communique of the PRC published by the National Bureau of Statistics, amid the global financial crisis in 2008, the PRC’s economy still continued to expand and maintained an annual real GDP growth rate of approximately 9.6%. In 2011, the PRC reached a real GDP of approximately RMB47,310.4 billion and it climbed further to approximately RMB51,932.2 billion in 2012.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In terms of the property market, the investment in real estate development reached approximately RMB4,826.7 billion in 2010, representing an increase of approximately 33.2% compared with the previous year. In 2011, the investment in real estate development increased by approximately 27.9% to approximately RMB6,174.0 billion. In 2012, the investment in real estate development was approximately RMB7,180.4 billion, representing an increase of approximately 16.3%.

Chongqing

Chongqing is a major city in Southwest China and one of the five national central cities in the PRC. According to the Chongqing Municipal Bureau of Statistics, GDP of Chongqing has increased from approximately RMB467.6 billion in 2007 to RMB1,145.9 billion in 2012, representing a CAGR of approximately 19.6%. Over the past five years, the CAGR of fixed assets investments was approximately 24.3%, an increase from approximately RMB316.2 billion in 2007 to approximately RMB938.0 billion in 2012.

Nanjing

Nanjing is the capital of Jiangsu province in eastern China. According to the Nanjing Municipal Bureau of Statistics, in 2012, GDP of Nanjing has increased to approximately RMB720.2 billion while fixed assets investments climbed to approximately RMB468.3 billion. The property market of Nanjing has experienced an increase in investment in real estate development in recent years. From 2007 to 2012, CAGR of investment in real estate development was approximately 17.9%, an increase from approximately RMB44.6 billion in 2007 to approximately RMB101.6 billion in 2012.

Guangzhou

Guangzhou is the capital and largest city of the Guangdong province. According to the Guangzhou Municipal Bureau of Statistics, GDP of Guangzhou has increased from approximately RMB714.0 billion in 2007 to approximately RMB1,355.1 billion in 2012, representing a CAGR of approximately 13.7%. From 2007 to 2012, the CAGR of fixed assets investments was approximately 15.1%, an increase from approximately RMB186.3 billion to approximately RMB375.8 billion respectively.

Foshan

Foshan is a city in central Guangdong province in southern China. According to the Foshan Municipal Bureau of Statistics, in 2012, GDP of Foshan has increased to approximately RMB670.9 billion representing a CAGR of approximately 13.2% from approximately RMB360.5 billion in 2007. In terms of the property market, fixed assets investments climbed to approximately RMB212.8 billion in 2012, representing a CAGR of approximately 14.3% from approximately RMB109.0 billion in 2007.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In summary, the real estate markets in the PRC and the Target Cities have been experiencing continuous growth in the past years. The Acquisition allows the Group to enter into these markets, and over the medium to long term, benefit from the expected growth of the real estate market, especially in the Target Cities. Further, as disclosed in the “Industry overview” set out in Appendix I to the Circular, with the PRC government’s continuous efforts to restrain speculation and encourage self-occupation in the residential market, investment in residential development has maintained at a low level. As a result, market demand, which remains strong as demand for improved living standards continue to rise in the PRC outpaces overall supply in the residential sector. Moreover, with the current PRC monetary policy inducing pressure on inflation, the real estate market becomes more attractive as an alternative investment, leading to further increases in land prices. Such discrepancy in market demand and supply is expected to sustain continuous growth in the PRC residential market.

5. CMPD’s selection process of the Target Projects

CMPD is currently the real estate flagship of CMG and is a major player in the PRC property market. As at the date of the Non-Competition Deed, the CMPD Group (including the Enlarged Group) had 70 property development projects in 23 cities (including the Target Cities), comprising residential units, serviced apartments, hotels, commercial and office building. As at the Latest Practicable Date, the saleable GFA of the properties comprising all the property development projects owned by the CMPD Group which had not been sold or pre-sold amounted to approximately 13 million sq.m.

The Acquisition therefore entails CMPD Group identifying and selecting suitable projects out of its entire project portfolio. For Independent Shareholders, the basis of the selection process is important as it affects the Enlarged Group’s future business development, geographical coverage and financial performance. To this end, we noted that the Target Projects in the Target Cities were selected on the criteria as summarised below:

there is uncertainty to the examination and approval process, as well as timing, by MOFCOM if the Group is to acquire wholly domestically-owned property projects. The PRC legal advisers of the Company have advised that acquisition of wholly domestically-owned property project is subject to the examination and approval of MOFCOM and the approval process in relation to such acquisition is long and uncertain. Such projects were therefore excluded from the selection pool; and
unless approved by CSRC under special circumstances, PRC regulations, in principle, do not allow CMPD to sell its assets in the PRC to the Company within three years of CMPD gaining ownership of such assets if such acquisition were to result in an overseas listing of those assets. Accordingly, only projects (which were formed by CMPD’s investment in the PRC with its overseas assets) which have been owned by CMPD for more than three years were included in the selection pool.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have discussed with the PRC legal advisers of the Company to understand their interpretation of the relevant rules and the basis of their legal opinion. We are of the view that they are reasonable.

In determining the Target Projects, factors considered include:

whether the Target Projects have dominant and leading positions in the portfolio of the CMPD Group in the relevant Target Cities;
the profile and development stage of the Target Projects;
business delineation factors; and
growth potential for Property Business in the relevant Target Cities.

Your attention is also drawn to the paragraph headed “Reasons for selecting the eight Target Projects in four Target Cities” of the section headed “Relationship with the Controlling Shareholders” of the Circular.

Based on our discussion with the Directors responsible for the selection process, they consider that the Target Projects have leading positions in the Target Cities and their development stages are relatively more mature which is important in term of cash flow generation of the Enlarged Group in the future. The Directors are of the view that the Target Cities have good growth potential, and such cities were also selected on the basis that after Closing, the business delineation between the Target Assets and the Operation Transitional Assets can be effectively implemented.

Overall, we are of the view that the selection process described above is a practicable approach and is fair and reasonable, especially in view of the regulatory constraints which are beyond control. We noted that each of the Target Projects satisfies these selection criteria. We have also sample checked the projects which are not selected from CMPD’s portfolio of non-wholly domestically-owned property projects and did not notice any deviation from the aforesaid selection approach.

6. Prospects of the Group after the Acquisition

Following Closing, the Company will become the first and only overseas listed business platform of the CMPD Group, which is one of the largest and prestigious property developers in the PRC with strong branding. Independent Shareholders can therefore immediately share the brand, goodwill and platform which CMPD Group has established through many years of cultivation. This compares favourably with the Group’s current business of trading of electronic and electrical consumer products and building related materials and equipment.

The Acquisition also enables the Enlarged Group to enter into the Property Business in the PRC which, despite market uncertainties over the shorter term due to adverse governmental measures to rein on rising property prices, is expected to have substantial potential in the medium to long term. This has been discussed in detail under the paragraph headed “The PRC property market” above.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Target Group is generating positive cash flow from operating activities and has been profitable. As most of the Target Projects are already in their sale period, they are expected to continue generating profit and positive cash flow in the future. This compares favourably with the Group’s existing business which has been loss making in the past few years. As discussed above, the Group is not expected to experience funding pressure in future after the Acquisition as the Target Group is self-sufficient in this respect. The management of the Company has also confirmed that while the loans from non-controlling interests of RMB2.40 billion have been classified as current liabilities, such amount is not repayable on demand as it was stipulated in the joint venture contracts that the repayment requires approval of the relevant boards which are controlled by the Enlarged Group. As stated in the section headed “Financial information of the Target Group” of the Circular, the Directors confirm that the Enlarged Group has sufficient working capital for the Enlarged Group’s requirements for at least the next 12 months from the date of the Circular, taking into account available banking facilities, other financial resources available and cash flows from its operations and completion of the Acquisition.

Upon Closing, Mr. Hu Jianxin, who has extensive experience in the PRC property market and previously a deputy general manager of CMPD since April 2005, will be appointed to the Board. A team of senior management with extensive experience and proven track record in property business in the PRC will join the Enlarged Group. The Enlarged Group is therefore well positioned to further expand the Property Business in the PRC, including in terms of equity fund raising. Reference is made to the paragraph headed “Reasons for and benefits of the Acquisition” in the “Letter from the Board” of the Circular. Taking into account the above, we concur with the Directors that the Acquisition is in the interest of the Company and the Shareholders as a whole.

7. The Consideration

The Consideration for the Sale Shares and Shareholder’s Loan is approximately HK$6,177 million. It was determined after arm’s length negotiations among the Company, Eureka and CMPD, which is equal to the agreed value of the Sale Shares and the Shareholder’s Loan, which was derived based on factors as set out in the paragraph headed “The Consideration” in the “Letter of the Board” of the Circular.

We note that in arriving at the aggregate value of the Sale Shares and Shareholder’s Loan, the parties have taken into account (i) the equity attributable to Eureka as at 31 December 2012 of approximately RMB1.26 billion (HK$1.57 billion); (ii) the capital contribution made by Eureka prior to the completion of the Restructuring of approximately RMB0.11 billion (HK$0.13 billion); (iii) approximately RMB2.24 billion (HK$2.79 billion) of appreciation of the properties attributable to Eureka, which is equal to the difference between the book value of the properties as at 31 December 2012 and their valuation amount as at 31 December 2012 that was derived from the preliminary appraisal by JLL as at 31 March 2013 (set out in Appendix VI to the Circular); and (iv) the Shareholder’s Loan as at 31 December 2012 of approximately RMB2.41 billion (HK$3.00 billion). Based on the above, the aggregate value of the Sale Shares and the Shareholder’s Loan amounted to approximately RMB6.02 billion (HK$7.49 billion).

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We noted that the above in effect serves to calculate the net asset value of the Target Group, taking into account the latest value of the properties and adjusting for the Shareholder’s Loan as equity since it will also form part of the Acquisition. Net asset value is a commonly adopted approach for valuations of property businesses and companies, and therefore we are of the view that this approach is fair and reasonable.

In respect of property appraisals, we have discussed with JLL and noted that for the property interests which are (i) held and occupied by the Group; (ii) held by the Group for sale; and (iii) held by the Group for future development, the valuation has been prepared by direct comparison approach assuming sale of the property interests in their existing state with the benefit of immediate vacant possession and by making reference to comparable sales transactions as available in the relevant market.

It was assumed that property interests which are currently held under development will be developed and completed in accordance with the latest development proposal provided by the Group. These property interests were valued by adopting the direct comparison approach by making reference to comparable sales evidence as available in the relevant market and taking into account (i) the accrued construction cost and professional fees relevant to the respective stage of construction as at the valuation date; and (ii) the remainder of the cost and fees that are expected to be incurred for completing the development. We consider this methodology and the underlying assumptions to be a commonly adopted approach and justifiable. Details of the valuation of the properties of the Target Group are contained in the property valuation report set out in Appendix VI to the Circular.

Based on the above, the Consideration of approximately HK$6.18 billion represents a discount of approximately 17.49% to the aggregate value of the Sale Shares and the Shareholder ’s Loan of approximately HK$7.49 billion. We understand from the management of the Company that when negotiating the Consideration, they have additionally taken into account the effect of future taxes attributable to Eureka of approximately RMB 1.05 billion (including business tax, land appreciation tax and income tax) that will be payable upon the sale of the properties of the Target Group, and has hence negotiated for the aforesaid discount to the value of the Sale Shares and the Shareholder’s Loan. It was noted that the Consideration of approximately HK$6.18 billion would be at a discount of approximately 0.16% when future tax effect is taken into account. Based on our discussion with the management of the Company, the future tax effect is estimated based on prevailing government tax policies and current valuations of the property interests of the Target Group. The actual amount of tax payable may differ from the estimates for reason of, inter alia, changes in government tax policies (including tax rates) and the actual selling prices of the properties in the Target Projects. Based on the understanding above, we are of the view that the basis of calculation of the future tax effect is reasonable. Based on our view that net asset value approach is a fair and reasonable approach for valuing the Target Group and the discount levels discussed above, we are of the view that the Consideration is fair and reasonable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Moreover the fairness and reasonableness to Independent Shareholders is augmented by the fact that the Consideration will be paid for with Shares at the Issue Price of HK$1.888 per Share; which is at a premium to the net asset value per Share as at 31 December 2012 of HK$0.0002. In other words, the net asset value being acquired under the Acquisition will be paid for by the Group using Shares issued at a price which is at a premium to its net asset value per Share. We are of the view that this is to the advantage of the Independent Shareholders.

8. Company’s payment methods for the Consideration

Payment methods

The Company has decided to satisfy the Consideration by way of the issue of 2,897,028,703 Consideration Shares at the Issue Price and the payment of approximately HK$708 million in cash, being part of the proceeds from the Placing of the Placement Shares at the Issue Price. It entered into the Placing Agreement with Goldman Sachs (Asia) L.L.C. on 19 June 2013. Pursuant to the Placing Agreement, the Placement Shares have been fully underwritten by the Placing Agent. The Consideration Shares and the Placement Shares will be allotted and issued pursuant to a specific mandate proposed to be obtained at the EGM.

Market price of Shares comparison

The Issue Price will be not less than HK$1.61 per Share, which represents discounts to 5/ 10/ 30-day average closing prices, and closing price of Shares as quoted on the Stock Exchange on the Last Trading Day. We have conducted the below analysis to compare the market prices of Shares and the Issue Price.

The chart below sets out the market price of the Shares since 27 April 2012 when it was first announced that CMPD will acquire a controlling interest in the Company to the Latest Practicable Date.

==> picture [378 x 157] intentionally omitted <==

----- Start of picture text -----

HK$
3.00
2.50
2.00
1.50
1.00
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May June
2012 2013
Share price as at closing
----- End of picture text -----

Source: www.hkex.com.hk

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As shown above, the market price of Shares has been on an uptrend since 27 April 2012. The closing price of Shares had increased gradually from about HK$0.71 per Share before the announcement on 27 April 2012, to HK$1.50 per Share level in early January 2013 before increasing abruptly and sharply to a high of about HK$2.91 per Share on 24 January 2013. It then retreated to about HK$2.20 per Share level by the end of March 2013 before increasing again to HK$2.90 immediately before the publication of the Announcement.

It is noted that the prices of Shares had started to increase sharply in early January 2013. Meanwhile, during the period from 27 April 2012 to the date of the Announcement, there had not been any significant improvement in the Group’s financial performance and position, nor was there any development in the Group which had significant positive impact on its business prospects or outlook.

Given the Group’s current loss making operations, subdued financial position and unclear prospects, there is no apparent and fundamental reason supporting the market capitalisation of the Company of approximately HK$3.10 billion as at the Last Trading Day. We are of the view that a plausible reason could be market speculations on possible corporate actions by the Company’s ultimate controlling shareholder, being CMG Group.

Having considered the above, we are of the view that it is fair and reasonable that lesser weight be placed on market price of Shares when determining the Issue Price. Instead, given the nature of the Acquisition is property-related business, more weight should be placed on the net tangible asset per Share of the Enlarged Group as set out in the paragraph headed “Unaudited pro forma adjusted net tangible assets of the Enlarged Group” under the section headed “Financial information of the Target Group” of the Circular. Moreover, the significant increase in prices of Shares had occurred only in early 2013. If analysed over a longer period such as average prices of Shares in the past 12 months up to the Last Trading Day of HK$1.68 per Share, the Issue Price is at a similar level to the average.

Based on the above, we are of the view that the Group’s payment of the Consideration using the Consideration Shares and the Placement Shares to be issued pursuant to the Specific Mandate is fair and reasonable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

9. Effects on the Company’s shareholding structure

The table below illustrates the shareholding structure of the Company (i) as at the Latest Practicable Date; and (ii) immediately after Closing.

CMPD So Shu Fai Public shareholding subtotal Existing public shareholders New public shareholders Total	As at the Latest Practicable Date Number of Shares Approx. % of total 749,860,626 70.18 32,054,066 3.00 286,554,168 26.82 286,554,168 26.82 1,068,468,860 100.00	Immediately after Closing Number of Shares Approx. % of total 3,646,889,329 74.35 32,054,066 0.65 1,226,314,465 25.00 286,554,168 5.84 939,760,297 19.16 4,905,257,860 100.00	Immediately after Closing Number of Shares Approx. % of total 3,646,889,329 74.35 32,054,066 0.65 1,226,314,465 25.00 286,554,168 5.84 939,760,297 19.16 4,905,257,860 100.00
			100.00

As shown in the table, after Closing, CMPD will remain as the majority shareholder of the Group and there will be continuity in this respect. There will also be continuity, if not strengthening, of the existing management of the Group which the Independent Shareholders are familiar with.

There will however be a dilution in the shareholding interests of Independent Shareholders from approximately 26.82% as at the Latest Practicable Date to approximately 5.84% on a fully diluted basis. The dilution effect in itself is not favourable to Independent Shareholders. Nevertheless, it is important to note the significant positive effect of the Acquisition to the Group’s future financial position and financial performance as discussed in the paragraph headed “Possible financial effects of the Acquisition” in this letter. The Group had been loss making in the past two years and as at 31 December 2012 had only nominal net asset of approximately HK$0.2 million. In comparison, as shown in the unaudited pro forma financial information of the Enlarged Group as set out in Appendix V to the Circular, the pro forma net profit of the Enlarged Group for the year ended 31 December 2012 will be approximately RMB856.5 million and the pro forma net asset value of the Enlarged Group will be approximately RMB6,427.8 million. In addition, the Target Projects are already in sale period, generating positive cash flow.

In summary, we are of the view that the aforesaid shareholding dilution of Independent Shareholders is acceptable on the basis that it is more advantageous to Independent Shareholders to have smaller shareholding interests in a company which is profitable and with strong net asset backing, than have a larger shareholding interests in a loss making company with nominal net asset backing.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

10. Possible financial effects of the Acquisition

Upon Closing, the Company will have controlling interest in the Target Group and all members of the Target Group will then become direct/indirect subsidiaries of the Company. The results, assets and liabilities of the Target Group will be consolidated into the consolidated financial statements of the Group thereafter.

Earnings

Based on the audited combined statement of comprehensive income as set out in the Accountant’s Report of the Target Group in Appendix III to the Circular, for the year ended 31 December 2012, revenue and profit generated by the Target Group amounted to approximately RMB4,288.5 million and RMB1,045.2 million respectively. As shown in the unaudited pro forma financial information of the Enlarged Group as set out in Appendix V to the Circular, (assuming the Acquisition had been completed on 31 December 2012), the Enlarged Group would have generated approximately RMB856.5 million in profit for the year ended 31 December 2012 whereas the Group recorded a loss of approximately HK$11.8 million (equivalent to approximately RMB9.7 million) from 1 April 2012 to 31 December 2012.

Net asset value

The unaudited pro forma statement of financial position of the Enlarged Group showing the effect of the Acquisition on net asset value (assuming the Acquisition had been completed on 31 December 2012) is set out in Appendix V to the Circular. Based on the Group and the Target Group’s financial information as at 31 December 2012, net asset value of the Enlarged Group will be approximately RMB6,427.8 million immediately after Closing compared to the Group’s net asset value of approximately HK$244,000 as at 31 December 2012 (equivalent to approximately RMB198,000). In addition, no goodwill on the Acquisition should result upon Closing.

Gearing

According to the Group’s annual report for the nine months ended 31 December 2012, the Group’s gearing ratio (calculated as net debt divided by capital) amounted to approximately 1,669.0% as at 31 December 2012. Based on the pro forma statement of financial position of the Enlarged Group set out in Appendix V to the Circular, the Enlarged Group’s cash and cash equivalent balance will be approximately RMB2,937.5 million as at 31 December 2012. With total borrowings and capital at approximately RMB216.8 million and RMB6,427.8 million respectively, the gearing ratio of the Enlarged Group will improve significantly immediately after Closing.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Cash flow

Based on the audited statement of financial position of the Group as at 31 December 2012, the Group had cash and cash equivalent of approximately HK$3.9 million (equivalent to approximately RMB3.2 million). As aforementioned, the Consideration will be satisfied by the issuance of the Consideration Shares and Placement Shares as shown in the pro forma statement of financial position of the Group as set out in Appendix V to the Circular. Together with the consolidation of the Target Group’s assets, the cash and cash equivalent of the Group will increase to approximately RMB2,937.5 million immediately after Closing.

Given the above, we are of the view that the overall potential financial effects of the Acquisition are positive and it will potentially improve the financial position of the Group, and is in the interests of the Company and the Shareholders as a whole.

11. Business delineation

Management independence

As discussed in the paragraph headed ”Independence of the Enlarged Group from CMPD” of the section headed “Relationship with the Controlling Shareholders” of the Circular, the Company’s Board of Directors and senior management will be independent from CMPD and CMG after Closing, save for the overlapping of (i) Mr. Huang Peikun, the Company’s chairman and a non-executive Director (who is an executive director of CMPD); and (ii) Ms. Liu Ning, a non-executive Director (who is the secretary to the board of directors of CMPD). Based on our discussion with the Directors, there will be sufficient management expertise and experience within the Enlarged Group to manage its Property Business where a team of senior management with extensive experience and proven track record in property business in the PRC will join the Enlarged Group.

Operational independence

The Enlarged Group will have independent project development, construction and marketing teams and does not rely on the CMPD Group or CMG to establish or maintain its business relationship with new or existing customers and suppliers. For example, the management of the PRC Operating Subsidiaries has property development track record of 6 to 10 years in the relevant Target Cities and is familiar with the local operating environment.

Financial independence

The Enlarged Group will have an independent financial reporting system and make financial decisions independently according to its business needs. It also operates its own treasury function independently. The Target Group had previously utilised advances and entrustment loans from CMPD in its ordinary and usual course of business on terms no less favourable than terms available from commercial banks in the PRC. As at 12 April 2013, the total amount of advances and

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

entrustment loans from CMPD to the Target Group amounted to approximately RMB883.75 million, representing approximately 44.6% of the Target Group’s total interest-bearing bank loans and other borrowings. As at the Latest Practicable Date, the Target Group has fully repaid all the advances and entrustment loans from CMPD with loans obtained by it from a trust company without any credit support from the Controlling Shareholders.

Based on our discussion with the Directors, none of the Target Group’s borrowings require guarantees from CMPD Group or CMG. They also do not expect similar guarantee requirement for the Enlarged Group’s debt financing in the future. The Directors also believe that the Target Projects’ advanced development status and future growth potential, the Company’s listing status and the experienced management team, will facilitate future equity and debt fund raising of the Enlarged Group for its Property Business.

Based on the above, we are of the view that the Enlarged Group will not rely on CMPD Group after Closing. In respect of the Non-Exempt Continuing Connected Transactions, one arises due to the Operation Agreement which we are of the view is fair and reasonable and beneficial to the Enlarged Group as discussed below. It does not entail the reliance of the Enlarged Group on CMPD Group for any income.

In respect of the Non-Exempt Continuing Connected Transactions for Property Management Agreement, they arise for the purpose of continuity of property management services entered into in the ordinary and usual course of business of the PRC Operating Subsidiaries. The Company has the right to discontinue the Property Management Agreement if Merchants Property Management Co., Ltd. breaches its obligation in any material respect and we understand from the Directors that they do not foresee any difficulties in engaging alternative property management companies for such services.

12. Potential competition issues after Closing

Potential operational conflicts of interest and the Operation Agreement

Given the substantial interest of CMPD Group in the PRC property market, there will potentially be competition and conflicts of interest issues, and overlapping between the businesses of CMPD Group and the Enlarged Group after Closing. In particular after Closing, CMPD will continue to hold controlling interests in four property development projects in three out of the four Target Cities, being one in Guangzhou, two in Chongqing and one in Foshan (collectively, the “ Operation Transitional Assets ”), which could potentially compete with the Property Business of the Enlarged Group in those cities. Details of the Operation Transitional Assets can be found in the paragraph headed “Operation Transitional Assets Retained by CMPD in the Target Cities” of the section headed “Relationship with the Controlling Shareholders” of the Circular. The Directors explained that the Operation Transitional Assets are wholly domestically-owned property projects which were excluded from the Acquisition for reasons explained in the paragraph headed “CMPD’s selection process of the Target Projects” in this letter.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We noted that measures will be put in place to minimise any potential negative impact of the above issues on the Enlarged Group, in particular during the Transitional Period. To this end, to minimise potential operational conflicts of interest between the CMPD Group and the Enlarged Group in the Target Cities after Closing, except for Donghui City in Guangzhou, being one of the Operation Transitional Assets which will continue to be managed by the independent third party joint venture partner (“ I3P JV Partner ”) of that project; the Operation Transitional Assets will be managed by the Enlarged Group until they are completed and sold during the Transitional Period. The Enlarged Group will have full discretion to deal with operational matters of the projects managed under the Operation Agreement which are spelt out in the paragraph headed “Management arrangement in relation to the Operation Transitional Assets during the Transitional Period” of the section headed “Relationship with the Controlling Shareholders”of the Circular.

We are of the view that the arrangement under the Operation Agreement allows the Group to be proactive in ensuring there will be no conflicts of interest between the Enlarged Group’s property projects with the Operation Transitional Assets; or if competition or conflict is unavoidable, to ensure it is minimised or dealt with in a manner which is as far as possible equitable. Further details of the Non-Exempt Continuing Connected Transactions arising from this Operation Agreement are discussed below.

The Non-Competition Deed

In order to minimise the direct competition between the CMPD Group and the Enlarged Group in the future, CMPD and the Company intend to enter into the Non-Competition Deed. Details of the Non-Competition Deed can be found in the paragraph headed “Non-Competition Deed between CMPD and the Company” in the section headed “Relationship with the Controlling Shareholders” of the Circular. Some of the terms are generally described below:

CMPD undertakes to the Company that during the Relevant Period, other than through the Enlarged Group, CMPD Group shall not engage in Property Business in the Target Cities. The aforesaid shall not include CMPD’s holding in the Company, its interests in the Operation Transitional Assets, properties for own use or certain minority holdings;
the Company undertakes to CMPD that during the Relevant Period, the Enlarged Group shall not engage in Property Business in the CMPD Cities. The aforesaid shall not include properties for own use or certain minority holdings;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

in respect of the Unoccupied Cities, CMPD shall grant the right of first refusal (“ ROFR ”). Under the ROFR, the Company shall have the first right to consider whether to pursue the Business Opportunity in such Unoccupied Cities. No matter whether CMPD has taken up a Business Opportunity in an Unoccupied City or not, the ROFR will enable the Company to take up any other new Business Opportunity in that city within the Unoccupied Cities each and every time it were to arise in the future;
during the Relevant Period, the Annual Review shall be conducted to, inter alia, determine whether adjustments need to be made to the geographical delineation. Any material adjustments may be subject to approvals of Independent Shareholders. An independent board committee comprising the independent non-executive Directors will be formed to oversee all the material matters relating to various delineations between the Enlarged Group and CMPD Group.

Based on the above framework of the Non-Competition Deed, going forward, the property businesses of CMPD Group will remain in the CMPD Cities while the Enlarged Group will focus its resources on the Target Cities as well as any opportunities in the Unoccupied Cities.

We believe property and related businesses are generally localised in nature where potential buyers purchase, or potential tenants rent, a property for reasons which cannot be easily substituted by another property in another city. We are also of the view that overall, the PRC property market has been and is expected to continue to grow in the longer term. While the growth rate of each PRC city may vary, taking into account risk reward profile; we believe it is not practicable, if possible at all, to analyse and compare the merits and potential of the Target Cities and CMPD Cities.

We noted that the ROFR also caters to the scenario where even if the Company has not pursued a Business Opportunity for its own reasons which may be its assessment of the attractiveness of the Business Opportunity or its own resource constraints at that time; it will not preclude the Company from pursuing another Business Opportunity in the same Unoccupied City in the future.

In summary, we are of the view that the Non-Competition Deed provides an equitable basis for the conduct of Property Businesses of the Enlarged Group and CMPD Group in future. In particular, we are of the view that the ROFR is advantageous to the Company and that after Closing, there are sufficient measures and procedures in place to protect the interests of the Group from potential competition of CMPD Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(II) NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

1. Operation Agreement

On 19 June 2013, the Company entered into the Operation Agreement with CMPD, which constitutes as non-exempt continuing connected transactions of the Company under the Listing Rules and will be subject to Independent Shareholders’ approval and the other requirements under Chapter 14A of the Listing Rules.

As discussed above, upon Closing, CMPD will continue to hold controlling interest in four property development projects in three Target Cities, including one in Guangzhou, two in Chongqing and one in Foshan, which could potentially compete with the Property Businesses of the Enlarged Group in those three cities. To minimise potential competition between the CMPD Group and the Enlarged Group after Closing, except Donghui City in Guangzhou, being one of the Operation Transitional Assets, which will continue to be managed by the joint venture partner of that project, the I3P JV Partner, the rest of the Operation Transitional Assets will be managed by the Company or its PRC subsidiaries until they are completed and sold during the Transitional Period.

Key Terms of the Operation Agreement

The Operation Agreement will be effective immediately upon Closing until 31 December 2015. If the property development projects of CMPD under the Operation Agreement have not been completed or sold by 31 December 2015, it will be renewed for another three years unless otherwise agreed by the parties; subject to compliance with the Listing Rules.

Under the Operation Agreement, the Company and its PRC subsidiaries will have full discretion to deal with the operational matters of the projects managed under the Operation Agreement, save that project design and the construction contract with a contractual amount of more than RMB200 million will be subject to the written consent of CMPD. Details of the subject operational matters can be found on in the paragraph headed “Key terms of the Operation Agreement” in the section headed “Continuing Connected Transactions” of the Circular and the paragraph headed “Management Agreement in Relation to the Operation Transitional Assets During the Transitional Period” in the section headed “Relationship with the Controlling Shareholders”.

Material matters relating to the business, operational, managerial and financial delineation between the Enlarged Group and the CMPD Group will be subject to the approval of the Independent Board Committee that will be formed for this purpose, including the following:

the project design (including the key aspects of a project, such as total GFA, plot ratio, floor plan, appearance and layout of buildings, etc.) of the projects operated and managed under the Operation Agreement; and

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

the project management target (including target for cost and revenue and development plan) set by CMPD for the projects operated and managed under the Operation Agreement.

The Company will be the sole service provider for the projects managed under the Operation Agreement, and CMPD should not terminate the Operation Agreement unless there is a serious breach of contract by the Company.

Basis of determining the consideration

CMPD will pay a pre-agreed management fee to the Company for providing the operational support service. Such management fee will be determined on an arm’s length basis and calculated with reference to 1% to 1.5% of the estimated annual pre-sale amount of each project operated and managed under the Operation Agreement, taking into account their development scale and cycle of the specific project.

In particular, the Company would propose the following rates in principle for the respective Operation Transitional Assets:

(i) 1.5% of the pre-sale amount for Evian International, because it will be developed in two phases and is expected to start the development of phase one in July 2013. This development is expected to last until 2015 which will need more on-going operational support services;
(ii) 1% of the pre-sale amount for China Merchant Bay City, because its development will be completed in September 2013, and is currently at the end of its sale period, which will only need limited operational support services; and
(iii) 1% of the pre-sale amount for China Merchants Garden City, because it will be developed into three phases and has already started development of phase two since February 2013. Its development period is expected to last until 2016 and will only need relatively limited operational support services.

We understand that the range of 1%–1.5% is determined with reference to the rate of management fees charged by the I3P JV Partner for providing similar operational support services to CMPD, which was also determined on normal commercial terms at arm’s length. In particular, it was noted that the management fee charged by the I3P JV Partner was charged at a lump sum, which when calculated as a percentage of estimated total sales amount of the relevant property project is at a rate of approximately 2.14%. We have reviewed the agreement between the I3P JV Partner and CMPD and found the rate of management fees and scope of services, where applicable, to be comparable to that proposed for Evian International, having taken into account that the I3P JV Partner was engaged throughout the entire development cycle, whilst the Operation Transitional Assets are all in more advanced stage of the development cycle. As disclosed in the section headed “Continuing Connected Transactions” of the Circular, the rate of management fee is usually higher for projects in their earlier development cycle than those in their later

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

development cycle, because the former will involve more complicated operation and management work, including positioning and planning of the project, preparation for the relevant approvals and permits, and selection of suppliers and contractors, etc. Further, we understand from the management that the rate charged by the I3P JV Partner was selected for reference as the I3P JV Partner is one of the leading provider of such operational services in the PRC market as well as being the closest comparable available.

As for China Merchant Bay City and China Merchant Garden City, we have also discussed with the management of the Company regarding a project manager’s scope of work in projects at more advanced development stage. According to them, the project manager’s work will, amongst other things, involve arranging and coordinating property sales, which is similar to the work of real estate agents. As an alternative, we have therefore considered the fees of real estate agents, and obtained from the Company contracts between the Company and real estate agents which show the typical fee to be up to 1% of sales amount. On this basis, we are of the view that the management fee of the Operation Agreement is fair and reasonable given that the scope of work to be provided will be wider than that of real estate agents.

Proposed Annual Caps

The proposed Annual Caps for transactions to be entered into pursuant to the Operation Agreement for each of the three years ending 31 December 2013, 2014 and 2015 are as follows:

		Proposed Annual Caps
	for the year ending 31 December
	2013	2014	2015
		(RMB’ million)
Aggregate amount to be paid by
CMPD to the Company	16	34	17

According to the Directors, all three Operation Transitional Assets are in more advanced stage of development past their construction phases. In respect of sales, one of the Operation Transitional Assets in Chongqing is almost sold out while the other is at its phase 2 of sale stage; and the Operation Transitional Asset in Foshan is at its early stage.

The Directors have determined the proposed Annual Caps by (i) estimating the annual pre-sale amount for the Operation Transitional Assets in each of the three years ending 31 December 2015 of about RMB1.40 billion, RMB2.25 billion and RMB1.43 billion; and (ii) multiplying these amounts by the rate of 1%-1.5%, which is based on the development stage of the projects to be managed under the Operation Agreement. In particular, the proposed Annual Cap for the year ending 31 December 2013 is of a larger amount because 2014 is expected to be the peak sale period of the relevant Operation Transitional Assets with a larger estimated pre-sale amount.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As discussed above, the Operation Agreement is entered into with the principal purpose of minimising potential competition between the CMPD Group and the Enlarged Group after Closing. Such arrangement provides the Enlarged Group with full discretion to deal with the operational matters mentioned in the paragraph headed “Key terms of the Operation Agreement” in the section headed “Continuing Connected Transaction” of the Circular. The Continuing Connected Transaction is therefore advantageous to the Group, and is fair and reasonable and in the interests of Independent Shareholders.

We have reviewed the sales plans of the Operation Transitional Assets and noted that the estimates of their sales revenue over the next three years are according to the plans. On this basis, we are of the view that the basis of determining the proposed Annual Caps for the transactions contemplated under the Operation Agreement is fair and reasonable.

2. Property Management Agreement

On 19 June 2013, the Company entered into the Property Management Agreement with Merchants Property Management Co., Ltd., a subsidiary of CMPD, which constitutes as non-exempt continuing connected transactions of the Company under the Listing Rules and will be subject to Independent Shareholders’ approval and the other requirements under Chapter 14A of the Listing Rules.

Pursuant to the Property Management Agreement, Merchants Property Management Co., Ltd. will continue to provide certain property management services to the PRC Operating Subsidiaries of the Company. Details of this agreement are set out in the paragraph headed “Property Management Agreement” of the section headed “Continuing Connected Transactions” of the Circular.

Historically, Merchants Property Management Co., Ltd. has been providing property management services to the PRC Operating Subsidiaries in the ordinary and usual course of business. Given the long term relationship of Merchants Property Management Co., Ltd. and the PRC Operating Subsidiaries, which will become the subsidiaries of the Company after Closing, the Directors consider that the entering into of the Property Management Agreement will allow the Enlarged Group to secure a cost effective, timely and stable management of the projects under the PRC Operating Subsidiaries.

Key Terms of the Property Management Agreement

The Property Management Agreement will be effective immediately upon Closing until 31 December 2015. Under the Property Management Agreement, the following property management services will be provided to the Company:

services related to property management services, including security, cleaning services, maintenance of the public area of the building and the maintenance of the equipment as well as the management of the parking lot etc.; and

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sales related services, including reception services and the management of the sample apartments, etc.

Basis of determining the consideration

The consideration to be paid for the property management services provided by Merchants Property Management Co., Ltd. under this agreement will include the following fees:

(i) labour cost, necessary material costs, cleaning cost, water and electricity cost, etc.;
(ii) cost incurred by temporary management tasks requested by the Company in writing, which mainly include but not limited to management and reception services for any marketing events organised by the sales office of the property project; and
(iii) commission for the management service, which will be determined by the Company in accordance with the market practice and the actual request and will be generally 10% of the total amount set forth in items (i) and (ii) above.

We understand from the Directors that the above fee structure of Merchants Property Management Co., Ltd. is the same as those previously offered to the PRC Operating Subsidiaries for provision of property management services. Merchants Property Management Co., Ltd. will provide an annual budget comprising the costs in item (i) above for the Company’s review and approval. The annual proposed budget will set out a detailed staffing plan, the corresponding salary standard and the proposed maximum management fee per square meter of the relevant property project. The latter will be reviewed and assessed based on the specific positioning of each property project, with reference to the rate of management fee charged to other similar properties in the same area. Once the budget is approved by the Company, Merchants Property Management Co., Ltd. shall carry out the property management services within such budget. For the fees under item (ii) above, the Company will fix a maximum amount in its written request for the relevant temporary management task each time, and Merchants Property Management Co., Ltd. shall control the costs incurred accordingly. The maximum amount will be determined taking into account the specific nature and scale of and resources needed for such temporary management. We are of the view that the approval mechanism will ensure the costs are reasonably incurred. In turn, it also ensures that the fees under the Property Management Agreement, which is charged as a percentage of the costs incurred, are appropriately charged.

In this regard, we have attempted to identify similar recent transactions on the criteria of being (i) based on publicly available information of companies listed on the Hong Kong Stock Exchange, for reason that the information gathered will be of similar standards and reliability as those in the Circular; and (ii) similar in nature to the Property

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Management Agreement for residential property projects in the PRC which took place in the past three years. We believe the following is an exhaustive list based on the selection criteria.

We noted that CATIC Shenzhen Holdings Limited (stock code: 161) has similar property management arrangements per its announcement made on 21 December 2011. The fee structure is comparable to that under the Property Management Agreement.

Historical transaction amounts

Merchants Property Management Co., Ltd. had been providing property management services similar to those set out in the Property Management Agreement to the PRC Operating Subsidiaries in the three years ended 31 December 2012. The aggregate amount paid by members of the PRC Operating Subsidiaries to Merchants Property Management Co., Ltd. for such services amounted to approximately RMB35 million, RMB48 million and RMB65 million for the three years ended 31 December 2010, 2011 and 2012 respectively.

Proposed Annual Caps

The Company proposes to adopt the following Annual Caps for transactions to be entered into pursuant to the Property Management Agreement for each of the three consecutive years ending 31 December 2013, 2014 and 2015:

	Proposed Annual Caps	Proposed Annual Caps
	for	the year ending
		31 December
	2013	2014	2015
		(RMB’ million)
Aggregate amount to be paid by the Company
to Merchants Property Management Co., Ltd.	80	100	100

Given the unique nature and requirements of property management services for each property, we are of the view that it is fair and reasonable that the Directors have estimated the proposed Annual Caps based on historical and prevailing transactions amounts for the services of Merchants Property Management Co., Ltd. to the PRC Operating Subsidiaries. In anticipation of further projects of the PRC Operating Subsidiaries, the Directors have also taken into account increase in fees for certain Target Projects based on their development plans.

We are of the view that the proposed Annual Caps for the transactions under the Property Management Agreement have been fairly and reasonably determined.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Overall, we reckoned that the use of property management services of Merchants Property Management Co., Ltd. by the PRC Operating Subsidiaries has been in place since 2010. The arrangements under the Property Management Agreement are therefore for the continuity of such services after Closing. They will be conducted in the ordinary and usual course of business of the Enlarged Group, which is not obliged to use the services of Merchants Property Management Co., Ltd if Merchants Property Management Co., Ltd. breaches its obligation in any material respect. The Company has full right to discontinue the Property Management Agreement if Merchants Property Management Co., Ltd. breaches its obligation in any material respect and we understand from the Directors that they do not foresee any difficulties in engaging alternative property management services for such services.

Continuing connected transactions requirements under the Listing Rules

Pursuant to Rule 14A.37 of the Listing Rules, the independent non-executive Directors are required to review the Non-Exempt Continuing Connected Transactions annually and confirm in the Company’s annual report that they have been (i) conducted in the ordinary and usual course of business of the Group; (ii) either on normal commercial terms, or if there are not sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favourable to the Group than terms available to or from independent third parties; and (iii) in accordance with the relevant agreement governing them on terms that are fair and reasonable and in the interests of the Company and the Shareholders as a whole. The Company will arrange for a review by the independent non-executive Directors for each of the three years ending 31 December 2015 in this regard.

Also, pursuant to Rule 14A.38 of the Listing Rules, each year the auditors must provide a letter to the Board confirming that the Non-Exempt Continuing Connected Transactions (i) have received the approval of the listed issuer’s board of directors; (ii) are in accordance with the pricing policies of the listed issuer if the transactions involve provision of goods or services by the listed issuer; (iii) have been entered into in accordance with the relevant agreement governing the transactions; and (iv) have not exceeded the cap disclosed in previous announcement(s). In compliance with the Listing Rules, the Company will engage auditors to report on the Non-Exempt Continuing Connected Transactions for each of the three years ending 31 December 2015.

Given the above, we consider that the proposed procedures and arrangements to be adopted by the Company will ensure that the Non-Exempt Continuing Connected Transactions be conducted on terms in compliance with the provisions of the Listing Rules.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

Having considered the above principal factors, we are of the view that (i) the Acquisition, the Non-Exempt Continuing Connected Transactions (which are in the Enlarged Group’s ordinary and usual course of business), the terms of their respective relevant agreements and the proposed Annual Caps related thereto are in the interests of the Company and the Shareholders as a whole; (ii) the Acquisition and the Non-Exempt Continuing Connected Transactions are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (iii) the proposed Annual Caps have been fairly and reasonably arrived at. Accordingly, we recommend the Independent Shareholders, as well as the Independent Board Committee to advise the Independent Shareholders, to vote in favour of the ordinary resolutions approving the Acquisition, the Specific Mandate, the Non-Exempt Continuing Connected Transactions and the proposed Annual Caps at the EGM.

Yours faithfully For and on behalf of Altus Capital Limited Arnold Ip Chang Sean Pey Executive Director Executive Director

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FORWARD-LOOKING STATEMENTS

This Circular contains forward-looking statements that state the intentions, beliefs, expectations or predictions of the Group, the Target Group and the Enlarged Group for the future that are, by their nature, subject to significant risks and uncertainties, including the risk factors described in this Circular. These forward-looking statements include all statements in this Circular that are not historical fact, including, without limitation, statements relating to:

the Enlarged Group’s operations and business prospects;
the future developments, trends and conditions in the PRC property development sector;
the Enlarged Group’s strategies, plans, objectives and goals and its ability to implement such strategies and achieve its plans, objectives and goals;
the Enlarged Group’s future capital needs and capital expenditure plans;
the amount and nature of, and potential for, future development of the Enlarged Group’s business;
the regulatory environment relating to, and the general industry outlook for, the PRC property development sector;
prospective financial matters regarding the Enlarged Group’s business, results of operations and financial condition;
CMPD’s continual review of its strategy regarding its Property Business in the PRC;
the competitive markets for property developers and the actions and developments of the Enlarged Group’s competitors in the PRC; and
the general political and economic environment in the PRC.

When used in this Circular, the words “aim”, “anticipate”, “believe”, “could”, “estimate”, “expect”, “going forward”, “intend”, “may”, “ought to”, “plan”, “project”, “seek”, “should”, “will”, “would” and similar expressions, as they relate to the Group, the Target Group and/or the Enlarged Group, are intended to identify forward-looking statements. However, all statements in this Circular other than statements of historical fact are forward-looking statements. Such forward-looking statements reflect the views of the management of the Group, the Target Group or CMPD (as the case may be) as at the date of this Circular with respect to future events and are subject to certain risks, uncertainties and assumptions, including the risk factors described in this Circular. Although the Directors believe that the expectations reflected in such forward-looking statements are reasonable, actual results and events may differ materially from information contained in the forward-looking statements as a result of a number of factors, including:

the performance of the PRC property market;

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FORWARD-LOOKING STATEMENTS

the Enlarged Group’s ability to successfully complete and realise benefits from its development projects;
the Enlarged Group’s ability to obtain adequate financing on terms acceptable to it;
the Enlarged Group’s levels of indebtedness and interest payment obligations;
the Enlarged Group’s ability to effectively manage its planned expansion;
the Enlarged Group’s ability to stay abreast of market trends;
the Enlarged Group’s ability to continue to use certain properties in an undisrupted manner;
the Enlarged Group’s ability to effectively manage its operational and project development costs;
the Enlarged Group’s ability to retain core team members and attract qualified and experienced personnel;
the Enlarged Group’s ability to liquidate assets in response to changes in economic and financial conditions, as necessary;
the Enlarged Group’s ability to maintain and renew the permits and licences it requires to undertake its business operations;
prospective financial information of Enlarged Group; and
other factors beyond the Company’s control.

Should one or more of these risks or uncertainties materialise, or should the underlying assumptions prove to be incorrect, the results of operations and financial condition of the Group, the Target Group and/or the Enlarged Group may be adversely affected and may vary materially from those described herein as anticipated, believed or expected. Accordingly, such statements are not a guarantee of future performance and you should not place undue reliance on such forward-looking information. Moreover, the inclusion of forward-looking statements should not be regarded as representations by the Company that its plans and objectives will be achieved or realised.

The forward-looking statements in this Circular reflect the views of the management of the Group as of the date of this Circular and are subject to change in light of future developments. Subject to the requirements of the Listing Rules, the Company does not intend to update or otherwise revise the forward looking statements in this Circular, whether as a result of new information, future events or otherwise.

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RISK FACTORS

An investment in the Shares involves various risks. You should consider carefully all the information set out in this Circular and, in particular, the risks and uncertainties described below before making an investment in the Shares. The occurrence of any of the following events or factors described below could materially and adversely affect our business, financial condition or results of operations and the trading price of the Shares could decline and you may lose all or part of your investment.

RISKS RELATING TO THE ACQUISITION

Closing is subject to the fulfilment of the conditions precedent and there is no assurance that they can be fulfilled and/or the Acquisition will be completed as contemplated.

A number of the conditions precedent to Closing involve the decisions of third parties, including approvals by the Independent Shareholders at the EGM. These conditions precedent are set out in the section headed “Letter from the Board – the Agreement – Conditions precedent” of this Circular. As fulfilment of these conditions precedent is not within the control of the parties involved in the Acquisition, there is no assurance that the Acquisition will be completed as contemplated.

The shareholding percentages of the existing Shareholders in the Company will be diluted following the issue of the Consideration Shares and the Placement Shares.

Pursuant to the Agreement and the Placing Agreement, the Company will issue an aggregate of 3,836,789,000 Consideration Shares and Placement Shares under the condition that such issue of Shares shall not result in the Company’s public float being less than 25%. The aggregate number of the Consideration Shares and the Placement Shares represents approximately 359% of the issued share capital of the Company as at the date of this Circular and 78% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares and the Placement Shares.

As a result, the shareholding percentages of the existing Shareholders in the Company would be diluted when the Company issues the Consideration Shares and the Placement Shares. Any value enhancement of the Shares as a result of the Acquisition may not necessarily be reflected in their market price and may not offset the dilutive effect to the Shareholders.

RISKS RELATING TO THE ENLARGED GROUP

The Enlarged Group may not be able to obtain adequate funding for its property developments.

The Enlarged Group may not be able to obtain adequate funding for its property developments. The Target Group generally funds its property development projects through capital contributions from its shareholders, bank loans and internal cash flows, including proceeds from the pre-sale of its properties. There is no guarantee that the Enlarged Group will always have sufficient funds available to fund all its property developments.

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RISK FACTORS

Advances and loans provided by the Controlling Shareholders were the main capital resource for the Target Group’s working capital during the Track Record Period, in particular when the property development projects of the PRC Operating Subsidiaries were in a preliminary developments stage and therefore did not meet the requirements for obtaining commercial loans from commercial banks.

After Closing, the Target Group will be financially independent from the Controlling Shareholders. As at the Latest Practicable Date, the CMPD Loans have been fully repaid by the Target Group with commercial loans obtained by it without any credit support from the Controlling Shareholders. There is no assurance that the Enlarged Group will be able to obtain sufficient financing on its own for its property development in the future.

In relation to bank financing, the Enlarged Group’s ability to arrange adequate financing for its property developments on terms which will enable a particular property development project to achieve a reasonable return depends on a number of factors, including general economic conditions, its financial strength and performance, credit availability from financial institutions and monetary policies in the PRC in general. The PRC government has in the past implemented a number of policy initiatives in the financial sector to tighten lending requirements in general and in particular for property developers. There is no assurance that the PRC government will not introduce further initiatives which may limit the Enlarged Group’s access to capital.

As at 30 April 2013, being the latest practicable date for determining the Target Group’s indebtedness, the Target Group’s outstanding borrowings from banks amounted to RMB1,100 million. The Enlarged Group cannot assure you that the Enlarged Group will be able to obtain bank loans or renew existing credit facilities granted by financial institutions in the future on reasonable terms, or at all, or that any fluctuation in the interest rate will not affect its ability to fund its property developments.

In addition to bank loans, the Target Group utilises proceeds from pre-sale of its properties as an important source of financing for its property developments. There is no assurance that the Enlarged Group will be able to continue achieving sufficient proceeds from pre-sale to fund a particular development. Any restriction on its ability to pre-sell its properties, including any increase in the amount of upfront expenditure the Enlarged Group must incur prior to obtaining a pre-sale permit or any restriction on its ability to utilise the pre-sale proceeds, including future changes to laws and regulations governing the use of pre-sale proceeds, or any restriction on the availability or cost of mortgage financing to the customers of the property developments of the Enlarged Group, would extend the time required to recover its capital outlay and could require the Enlarged Group to seek alternative means to finance the various stages of its developments, which, in turn, could have an adverse effect on its cashflow, business and financial position.

The Enlarged Group will rely on the performance of external contractors and suppliers to deliver its projects on time and up to its specified quality standards.

The Target Group does not carry out construction work on its projects. It engages external construction contractors, certified engineering supervisory companies, service

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RISK FACTORS

providers and suppliers to provide the Target Group with construction and related services and various types of construction materials, as well as other services such as design and interior decoration, which the Target Group monitors through their construction department in each project company. In general, contractors are selected through tender by invitation.

There is no assurance that the services rendered or materials supplied by any of those external contractors and suppliers will always be satisfactory or meet the quality requirements of the Enlarged Group. In the event that the performance of the external contractors and suppliers falls short of the standards, or any of such contractors or suppliers encounters financial, operational or managerial difficulties and/or results in any actual or potential dispute, this may disrupt the construction progress of the Enlarged Group’s property developments and the Enlarged Group may incur additional costs in respect of remedial actions to be taken (including the replacement of such contractors or suppliers) as well as potential compensation payable to the customers for delay in completion and delivery of properties.

Moreover, the Enlarged Group may suffer damage to reputation and incur additional financial costs as a result of such delay to its property developments. Please see the section headed “Risk Factors — Risks relating to property development in the PRC — The Enlarged Group may face delay in completing its property development projects” for more details. Any of the above factors may have a material adverse effect on the business, financial condition and results of operations of the Enlarged Group.

The Enlarged Group may be involved in legal and other proceedings arising out of its operations from time to time and may face significant liabilities as a result.

The Enlarged Group may be involved in disputes with various parties in the development and sale of its properties, including property development partners, contractors, suppliers, construction workers and customers. These disputes may lead to legal proceedings and may result in substantial increase in costs and delays to its development schedule.

After Closing, the Company will continue to be controlled by CMPD, whose interests may differ from that of the other Shareholders of the Company.

After Closing, CMPD will continue to be a controlling shareholder of the Company.

As at the date of the Non-Competition Deed, the CMPD Group (including the Enlarged Group) had 70 property development projects in 23 cities, comprising residential units, serviced apartments, hotels, commercial and office buildings. As at the Latest Practicable Date, the saleable GFA of the properties comprising all the property development projects owned by the CMPD Group which had not been sold or pre-sold amounted to approximately 13 million sq.m. After Closing, CMPD will continue to be engaged in the Property Business in the PRC and, in particular, will hold controlling interests in four property development projects in three of the four Target Cities, including one in Guangzhou, two in Chongqing and one in Foshan, which could potentially compete with the Property Business of the Enlarged Group in those three cities.

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RISK FACTORS

As CMPD is able to exercise substantial control or influence over the Enlarged Group’s business by directly or indirectly voting at the Shareholders’ meetings on matters of significance to the Company and the other Shareholders of the Company, the interests of CMPD may not be the same as, and may even conflict with, that of the Company’s other Shareholders. CMPD may take actions, including exercising its influence over the Enlarged Group as a Controlling Shareholder, that favours CMPD instead of the interests of the Enlarged Group or its other Shareholders. In addition, as Directors may serve concurrently as officers of CMPD, there may be an appearance of conflicts of interest.

Furthermore, although CMPD and the Company have entered into the Non-Competition Deed and the Operation Agreement to minimise actual or potential competition between the CMPD Group and the Enlarged Group, there can be no assurance that CMPD will duly perform its obligations under the these agreements. There can be no assurance that the representative directors of CMPD will always vote in a way that is in the best interests of the Company and its Shareholders as a whole.

The Enlarged Group’s use of joint ventures may limit its flexibility with respect to its joint investments.

The Target Group develops properties in cooperation with CMPD or third parties. As at the Latest Practicable Date, third-party joint venture partners had direct or indirect interests in 5 out of 8 Target Projects. Please see the section headed “Business of the Target Group — Property Development Projects of the Target Group — Overview of the property development projects” for more details.

Although the Target Group generally has control over the management of the joint ventures, 4 out of the 5 joint ventures (i.e. Harpen, Foshan Xin Cheng, Foshan Yi Yun and Foshan Merchants Wharf, in which Wharf Properties (China) Limited is the joint venture partner) require all directors to be present to form the quorum of a board meeting, and the adoption of certain important board decisions requires the unanimous resolution of all the directors of a joint venture, some of whom are appointed by the relevant joint venture partners. Please see the section headed “Corporate Structure of the Target Group — Joint venture arrangements — Board decisions requiring unanimous votes of all the directors” for further details. As a result, the participation in these joint venture arrangements is subject to risks, amongst others, that:

a board meeting may not be able to be convened if director(s) appointed by the joint venture partners are absent;
the Enlarged Group may not be able to pass certain important board resolutions requiring the unanimous consent of all the directors of a joint venture if there is a disagreement between the Enlarged Group and its joint venture partner;
a disagreement with any of the Enlarged Group’s joint venture partners in connection with the scope or performance of the Enlarged Group’s obligations under any joint venture arrangement might affect its ability to develop or operate a property;

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RISK FACTORS

the Enlarged Group’s joint venture partners may have different economic or business objectives;
the Enlarged Group’s joint venture partners may be unable or unwilling to perform their obligations under the joint venture arrangements, including their obligation to make required capital contributions and shareholder loans, whether as a result of financial difficulties or otherwise; and
the Enlarged Group’s joint venture partners may take actions contrary to the Enlarged Group’s instructions or requests or contrary to its policies or objectives.

A serious dispute with the Enlarged Group’s joint venture partners or project development partners or the early termination of its joint venture or cooperation arrangements could adversely affect the Enlarged Group’s business, financial condition and results of operations. Should a situation arise in which the Enlarged Group cannot complete a project being jointly developed with the Enlarged Group’s joint venture partners or property development partners due to one of the above reasons, or for any other reason, the rights and obligations of each party with respect to the uncompleted project will be determined as specified under the relevant joint venture or cooperation agreements. To the extent that such agreements are silent or inconclusive with regard to such rights and obligations, the resolution of any dispute may require arbitration or, failing that, litigation, which could have a material adverse effect on the Enlarged Group’s business, results of operations and financial condition.

In the event that the Enlarged Group encounters any of the foregoing problems with respect to its joint venture partners or project development partners, the Enlarged Group’s business operations, profitability and prospects may be materially and adversely affected.

The property valuation report may materially differ from the prices that can be achieved.

The valuation of the Target Group’s properties as at 31 March 2013, prepared by JLL, is contained in the property valuation reports in Appendices VI to this Circular. The valuation is based upon certain assumptions, which, by their nature, are subjective and uncertain and may materially differ from the actual prices.

With respect to the properties under development and properties held for future development, the valuations are based on the market standard assumptions that (i) the properties will be completed or developed as currently proposed; (ii) regulatory and governmental approvals for the proposals have been or will be obtained without onerous conditions or delays; (iii) unless otherwise stated, the transferable land use rights of the properties for their respective term at nominal annual land use fees have been granted and any premium payable has already been fully paid; (iv) the Target Group has an enforceable title to each of the properties and has free and uninterrupted rights to use, occupy or assign the properties for the whole of the respective unexpired land use term as granted; and (v) unless otherwise stated, the properties are free from encumbrances, restrictions and outgoings of an onerous nature which could affect their values. Such market standard assumptions may change and may not be realised.

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RISK FACTORS

For properties owned by the subsidiaries of the Target Group in which the Target Group has an attributable interest of less than 100%, the valuation assumes that the Target Group’s interest in the aggregate capital value of the properties is equal to its proportionate attributable interest in such properties.

These valuations are not a prediction of the actual price the Target Group may achieve from its properties in a public market transaction as at the valuation date. Unforeseen changes in a particular property development or in general or local economic conditions, and other factors, could affect the value of the Target Group’s properties.

The property valuation report in Appendix VI to this Circular also makes reference to one parcel of land under “Group V — Property interests contracted to be acquired by the Group in the PRC” with respect to which Chongqing China Merchants, as at 31 March 2013, had entered into a land use rights grant contract but had not made full payment of the land premiums or satisfied other conditions for obtaining the relevant land use rights certificates. Chongqing China Merchants is not in possession of the proper land use rights certificates with respect to this parcel of land as at the date of this Circular.

In accordance with the Valuation Standards on Properties of the Hong Kong Institute of Surveyors, PRC properties without proper land use rights certificates may not be assigned any commercial value for the purposes of issuing any property valuation report in connection with a listing on the Stock Exchange. You should not rely on the reference value of approximately RMB4,195 million attributable to the Target Group as disclosed in the property valuation report because the issue by the government of the relevant land use rights certificates depends on the Enlarged Group’s timely payment of the requisite land premiums and many other conditions, some of which are beyond the Enlarged Group’s control.

RISKS RELATING TO PROPERTY DEVELOPMENT IN THE PRC

The Enlarged Group’s business is subject to extensive governmental regulations.

Property development in the PRC is subject to extensive governmental regulations. The Enlarged Group must comply with various requirements mandated by the PRC laws and regulations, including the policies and procedures established by local authorities designed to implement such laws and regulations. Should the Enlarged Group be involved in any incidents of non-compliance, the Enlarged Group could be subject to various regulatory or administrative penalties and such incidents may have material adverse impacts on the Enlarged Group’s business, results of operations and financial condition.

In particular, the PRC government exerts considerable direct and indirect influence on the development of the PRC property sector by imposing industry policies and other economic measures. The PRC government may restrict or reduce land available for property development, raise benchmark interest rates of commercial banks, place additional limitations on the ability of commercial banks to make loans to property developers and property purchasers, impose additional taxes, such as property tax, and levies on property sales, and restrict foreign investment in the PRC property sector.

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RISK FACTORS

Many of the policies in the property industry carried out by the PRC government are unprecedented and are expected to be amended and tightened over time. Changes in political, economic and social factors may also lead to further adjustments of such policies. This refining and adjustment process may not necessarily have a positive effect on the Enlarged Group’s operations or future business development. There is no assurance that the PRC government will not adopt additional and more stringent industry policies, regulations and measures in the future. If the Enlarged Group fails to adapt its operations to new policies, regulations and measures that may come into effect from time to time with respect to the property industry, such policy changes may disrupt the Enlarged Group’s business or cause it to incur additional costs, and the Enlarged Group’s business prospects, results of operations and financial condition may be materially and adversely affected.

PRC government policies, regulations and measures intended to curb property speculation may have a negative impact on the business or financial position of the Enlarged Group; furthermore, the PRC government may in the future adopt other measures to slow down the growth in the property development sector.

As a property developer, the Target Group is subject to extensive government regulations in virtually every aspect of its operations and is highly susceptible to changes in regulatory measures and policy initiatives implemented by the PRC government. In the past, the PRC government has introduced an array of policies and measures intended to curtail the overheating of property development and discourage speculation in the residential property market. These measures include, among others, the following:

tightening lending requirements for property developers;
requiring at least 70% of the land supply approved by a local government for residential property development in any given year to be used for developing low-to medium-cost and small to medium-size units and low-cost rental properties;
adopting the “70/90 rule” which requires at least 70% of the total GFA of a residential project approved or constructed on or after 1 June 2006 to consist of units with a GFA of less than 90 sq.m. per unit;
increasing the minimum down payment to 30% of the purchase price of the underlying property (whose GFA exceeds 90 sq.m.) for first-time residence buyers, which may make the Enlarged Group’s properties less affordable to its customers;
increasing (i) the minimum amount of down payment to 60% of the purchase price of the underlying property and (ii) the minimum mortgage loan interest rate to 110% of the relevant PBOC benchmark lending interest rate for second home buyers using mortgage loans;
suspending loans for the purchase of third or more residences;

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RISK FACTORS

suspending loans for purchase of local residences for non-local residents who are unable to provide certificates evidencing their payment of local taxes or social insurance for more than one year;
for a buyer of commercial/residential dual-purpose properties, increasing the minimum amount of down payment to 45% of the purchase price of the underlying property, with the other terms similar to those for commercial properties;
imposing a business tax levy on the entire sales proceeds from re-sale of properties if the holding period is shorter than five years; and
imposing 20% capital gain tax for the gain from sale of self-owned property.

In 2012, the Target Group received 36 requests from customers to cancel the relevant pre-sales mainly in relation to Jinshan Valley, Evian Upper City and Zijinshan No. 1. While customers are not required to provide a reason for their cancellation, the Target Group believes that certain of these cancellations could have been due to the introduction of the new government policies and these customers were unable to obtain mortgages to finance their purchases.

On 20 February 2013, the executive meeting of the State Council of the PRC released five measures to tighten regulation of the property market (the Five National Measures ), and has further released 《國務院辦公廳關於繼續做好房地產市場調控工作的通知》 (the Notice of the State Council on Further Improving Regulation on the Property Market (Guo Ban Fa (2013) No. 17)), which further tightened the relevant property market regulations. Five National Measures provides that the municipalities, provincial capitals and cities which have already implemented purchase restrictions in accordance with The Circular of the General Office of the State Council on Issues concerning Further Works of Regulation and Control of Real Estate Market (國務院辦公廳關於進一步做好房地產市場調控工作的有關問題的通知) dated 26 January 2011 should continue to enforce such purchase restrictions. Such restrictions apply to first or second hand commodity residential properties in all administrative districts of a particular city and require the examination of potential purchasers’ qualifications to purchase to be carried out prior to the signing of any purchase agreement. In addition, a non-local residential family that owns one or more houses and a non-local residential family that cannot provide evidence of the payment of local taxes or social insurance for a required period shall continue to be suspended from purchasing any other commodity residential houses.

Pursuant to Five National Measures, the People’s Government of Guangdong Province promulgated its opinion on Continuing Improvement of the Control in Real Estate Market on 25 March 2013, and Shanghai and Chongqing Municipal People’s Government promulgated their opinions on 30 March 2013. These opinions show the PRC government’s intention to further curb speculation in the real estate market through restrictive measures on purchases of multiple houses, raising the down payment ratio and interest rates required for second-house purchasers and levying income tax.

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RISK FACTORS

There can be no assurance that these restrictive government policies and measures will not adversely affect the results of operations of the Enlarged Group. In addition, there can be no assurance that the PRC government will not introduce further policies or measures to cool the property market or to limit or even prohibit foreign investment in the property sector in the PRC.

These existing policies and measures and any future policies and measures, or even rumours or threats of any new restrictive policies and measures could adversely affect the Enlarged Group’s business, results of operations and financial condition, such as by limiting the Enlarged Group’s access to capital, reducing consumer demand for the Enlarged Group’s properties and increasing its operating costs. They may also lead to changes in market conditions, including price instability and imbalance of supply and demand in respect of office, residential, retail, entertainment and cultural properties, which may have a material adverse effect on the Enlarged Group’s business, financial condition and results of operations.

The recent deterioration of the PRC’s economic growth, Eurozone crisis and the turmoil in the global financial markets may affect the Enlarged Group’s business. It could limit the Enlarged Group’s ability to continue to finance its working capital and to meet its liquidity requirements and materially and adversely affect its financial position and results of operations.

The Target Group operates in a capital intensive industry and expects to finance its future working capital and liquidity requirements primarily through proceeds from the pre-sale and sale of properties, borrowings from financial institutions and capital contributions from shareholders.

However, the PRC property market has experienced significant volatility in recent years as a result of market conditions and fluctuations in property sales volumes and prices, especially as a result of the recent slowdown in the PRC’s economic growth, the PRC credit environment, Eurozone crisis and the turmoil in the global financial markets, which have reduced demand for properties. These factors have also resulted in banks and other financial institutions becoming less willing to make credit available to property purchasers and companies in the property development industry.

In particular, during economic downturns or market slowdown, as has been the case for the PRC property market recently, potential purchasers or purchasers of properties tend to become more prudent and act more cautiously out of concern for further declines of property prices and may even defer or terminate their decisions to purchase property. Customers who have already entered into pre-sale contracts with the Target Group during periods of better economic or market conditions may also wish to cancel their pre-sale contracts and adopt a wait-and-see approach in anticipation of a better bargain. In 2012, the Target Group received 36 requests from customers to cancel the relevant pre-sale with an aggregate GFA of 4,974 sq.m. While customers are not required to provide a reason for their cancellation, the Target Group believes that certain of those cancellations could have been due to the recent deterioration in the global and PRC economic and market conditions.

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RISK FACTORS

In addition, the Enlarged Group faces intense competition from other real estate developers. Please see the section headed “Risk Factors — Risks relating to property development in the PRC — The Enlarged Group faces intense competition from other real estate developers” for more details. Accurate pricing in response to the change in market conditions is vital to the success of the Enlarged Group’s business. Competitors of the Enlarged Group may reduce the prices of their properties as a result of the prevailing economic or market conditions, which could result in increased pricing pressure on the Enlarged Group and further restrict the Enlarged Group’s ability to sell properties.

As a result of these factors, there can be no assurance that the Enlarged Group will be able to generate sufficient cash flow from its operations or that banks, shareholders and other lenders that the Enlarged Group have relied on in the past for financing will continue to provide the Enlarged Group with sufficient funding in the future for it to be able to continue to finance its working capital and liquidity requirements. If the Enlarged Group is not able to finance its working capital and liquidity requirements in the future, its business, financial condition and results of operations may be materially and adversely affected. Please see the section headed “Risk Factors — Risks relating to the Enlarged Group — The Enlarged Group may not be able to obtain adequate funding for its property developments” for more details.

The Enlarged Group may not always be able to obtain sites that are suitable for property development.

The Target Group derives revenue principally from the sale of properties that it develops. This revenue stream depends on the completion of, and the Target Group’s ability to sell, its property developments. To maintain or grow its business in the future, the Enlarged Group will need to acquire suitable development sites so as to replenish its land reserves. Its ability to identify and acquire suitable sites is subject to a number of factors, some of which are beyond its control.

The PRC government controls all new land supply in the PRC and regulates land sale in the secondary market. As a result, the policies of the PRC government towards land supply may adversely affect the ability of the Enlarged Group to acquire land use rights for sites it seeks to develop and could increase the costs of any acquisition. The business, financial condition and results of operations of the Enlarged Group may thus be adversely affected if it is unable to obtain or acquire suitable land sites for development at prices that allow the Enlarged Group to achieve reasonable returns upon the sale of developed properties to its customers.

Please see the section headed “Risk Factors — Risks relating to property development in the PRC — PRC government policies, regulations and measures intended to curb property speculation may have a negative impact on the business or financial position of the Enlarged Group; furthermore, the PRC government may in the future adopt other measures to slow down the growth in the property development sector” for more details.

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RISK FACTORS

The Enlarged Group may not be able to obtain land use rights certificates for certain parcels of land in which the Target Group currently has various interests.

The Target Group is generally allowed to commence its development of a project once the land has been delivered to it and it has entered into a land use rights grant contract or registered a land use transfer agreement, as the case may be, with the relevant authorities.

However, the land use rights with respect to a property will not be vested in the Target Group until it has paid the land premium and received the corresponding land use rights certificates.

The Target Group currently owns eight property development projects in four cities in the PRC, namely Foshan, Guangzhou, Chongqing, Nanjing, with an aggregate GFA of approximately 5,381,479 sq.m. Of these projects, the Target Group has obtained, through public tenders, auctions and listing-for-sale process, interests in, but had not, as at 31 March 2013, obtained land use rights certificates for, land with a total GFA of approximately 1,193,869 sq.m., including:

land parcels of 1,010,635 sq.m. of GFA for Changjiahui;
land parcels with 183,233.74 sq.m. of GFA for Yonghuafu.

For the land parcels of Yonghuafu, as at the Latest Practicable Date the Target Group has paid up land premium and is in the process of obtaining land use rights certificates. For Changjiahui, under the relevant land use rights grant contract, the land parcels shall be handed over to Chongqing China Merchants in three batches and Chongqing China Merchants shall pay land premium in six instalments. The handover of the rest of the land parcels for Changjiahui is expected to be completed by the end of 2015 subject to adjustment to the handover timetable as agreed with the local land authority from time to time.

There can be no assurance that the land authorities will grant the Target Group appropriate land use rights in a timely manner, or at all. If the Enlarged Group cannot obtain land use rights certificates for its development projects, the Enlarged Group may not be able to sell or lease the portions of the project where it does not have land use rights certificates, which could have a material adverse effect on its business, financial condition, results of operations and prospects.

The PRC government may impose a penalty on the Enlarged Group or cancel the land use rights for any project which was not or has not been developed in compliance with the terms of the land use rights grant contract.

Under PRC laws and regulations, if a property developer fails to develop land according to the terms of the land use rights grant contract (including those relating to the payment of fees, designated use of land, amount of GFA developed, time for commencement and completion or suspension of the development, and amount of capital invested), the relevant government authorities may issue a warning to or impose a penalty on the developer or cancel the relevant land use rights.

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RISK FACTORS

Merchants Property Development (Guangzhou) has left a land parcel (No. G32-000249) idle for more than one year since 1 January 2012. The relevant land authority will be entitled to impose idle land charge on Merchants Property Development (Guangzhou) in the amount equal to 20% of the land premium for such land. Please see the section headed “Business of the Target Group — Compliance with Law” for more details.

There is no assurance that any cancellation of land use rights or imposition of penalty will not arise in the future. If any land use right of the Enlarged Group is cancelled, it will not be able to continue its property development on the affected land, recover the costs incurred for the initial acquisition of the land or recover the development costs and other costs incurred up to the date of cancellation. Any law that may require the Enlarged Group to pay idle land fees or other related penalties may adversely affect its business, results of operations or financial condition.

The Enlarged Group faces intense competition from other real estate developers.

In recent years, a large number of property developers, including a number of leading Hong Kong property developers and other overseas developers, have begun undertaking property development and investment projects primarily in the first and second tier cities in the PRC. Some of these developers may have better track records and greater financial, land and other resources, broader name recognition and greater economies of scale than the Enlarged Group. In the past, the PRC government has introduced various policies and measures in order to limit the growth and to prevent the overheating of the property development sector, which has led to decreased land supply and further increased competition for land amongst property developers.

Competition among property developers may result in an increase in land acquisition costs, an increase in construction costs, an oversupply of properties, a decrease in property prices in certain parts of the PRC or an inability to sell such properties, a slow down in the rate at which new property developments are approved or reviewed by the relevant PRC government authorities and an increase in administrative costs for hiring or retaining qualified personnel, any of which may adversely affect the Enlarged Group’s business, financial position and results of operations. If the Enlarged Group cannot respond to changes in market conditions in the markets in which it operates more effectively than its competitors, the Enlarged Group’s business, financial position and results of operations may be adversely affected.

The results of operations of the Enlarged Group may be adversely affected if it fails to obtain or complete, or if there are material delays in obtaining or completing, requisite governmental approvals or registration for its property developments.

The property development industry in the PRC is heavily regulated by the PRC government. PRC property developers must comply with various requirements provided by national and local laws and regulations.

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RISK FACTORS

In order to develop and complete a property development, a property developer must obtain various permits, licences, certificates and approvals from the relevant authorities at various stages of the property development process, including but not limited to state-owned land use rights certificates, construction land planning permits, construction work planning permits, construction work commencement permits, pre-sale permits and completion certificates. Each approval is dependent on the satisfaction of certain conditions.

There is no assurance that the Enlarged Group will not encounter delays or other impediments in fulfilling the conditions necessary for the approvals, or that the Enlarged Group will be able to adapt itself in a timely and effective manner to new laws, regulations or policies that may come into effect from time to time with respect to the property development industry. There may also be delays on the part of the administrative bodies in reviewing the Enlarged Group’s applications and granting approvals.

If the Enlarged Group fails to obtain, or encounters material delays in obtaining, the requisite governmental approvals, the schedule of development and sale of its development properties could be substantially disrupted, which may materially adversely affect its business, financial condition and results of operations.

Changes in laws and regulations with respect to pre-sale of properties may adversely affect cash flow position and performance of the Enlarged Group.

The Target Group depends on pre-sale of properties as an important capital resource for its property projects. Under current PRC laws and regulations, property developers must fulfil certain conditions before they can commence pre-sale of the relevant properties and may only use pre-sale proceeds to finance the development of such properties. Please see the section headed “Business of the Target Group — Project development — pre-sale” for more details.

In August 2005, the PBOC in a report entitled “2004 Real Estate Financing Report” recommended discontinuing the practice of pre-selling unfinished properties because such practices, in the PBOC’s opinion, had a tendency to create significant market risks. Although this and similar recommendations have not been adopted by the PRC government, there can be no assurance that the PRC government will not adopt such recommendations and ban the practice of pre-selling unfinished properties or implement further restrictions on the pre-sale practice, such as imposing additional conditions for obtaining a pre-sale permit or imposing further restrictions on the use of pre-sale proceeds. Any such measures could adversely affect the Enlarged Group’s cash flow position and force it to seek alternative sources of funding for its property development business.

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RISK FACTORS

The Enlarged Group may face delay in completing its property development projects.

Property development projects require substantial capital expenditures prior to completion and these projects typically take a long time to complete. The progress for a development project can be adversely affected by many factors, including:

delays in obtaining necessary licences, permits or approvals from government agencies or authorities;
relocation of existing residents and/or demolishment of existing structures;
shortages of materials, equipment, contractors and skilled labour;
labour disputes;
construction accidents;
natural catastrophes; and
adverse weather conditions.

Any delays in progress for a development project will affect its costs and any delays or failure to complete the construction of a project according to its planned specifications, schedule or budget may affect the business, financial condition and results of operations of the Enlarged Group and may also cause damage to its reputation. In addition, if a pre-sold property development is not completed on time, the purchaser may be entitled to compensation for late delivery.

Foshan Xinjie did not complete development of phase 3 of Evian Upper City in accordance with the agreed schedule under the land use right grant contract. The Company’s legal advisers, Shu Jin Law Firm, have advised that the relevant land authority is entitled to a default payment by Foshan Xinjie, which is equal to 5% of the land premium per year in proportion to the number of days of delay. There is no assurance that the land authority may not impose the default payment on Foshan Xinjie. Please see the section headed “Business of the Target Group — Compliance with law” for more details.

There is no assurance that the Enlarged Group will not experience any other delays in completion or delivery of property development projects or that it will not be subject to any liabilities for any such delays in the future. Any delay in completion of the property development projects of the Enlarged Group will have a material adverse impact on its reputation and its business, financial condition and results of operations.

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RISK FACTORS

The Enlarged Group may face potential liability for environmental problems which could result in substantial costs.

The particular environmental laws and regulations which apply to a development site vary according to the site’s location, the site’s environmental condition, the present and former uses of the site, as well as adjoining properties. Steps taken to comply with the relevant environmental laws and regulations may result in delays in development and be costly. PRC laws and regulations require that for each project, the developers obtain assessments on the possible impact, submit the assessments to competent authorities for examination and approval, and apply for inspection and acceptance after completion. Please see the sections headed “Regulatory Overview — Environment” and “Business of the Target Group — Safety and environmental matters” for more details.

The Enlarged Group is exposed to certain risks for which it does not carry insurance.

The Target Group does not carry insurance for certain risks, which are either not insured under normal PRC industry practice, such as losses it may suffer arising from damage to its properties for the periods between the time it completes construction of its properties to the time it delivers possession of such vacant properties to its customers, or which are uninsurable, such as those caused by typhoons, flooding, war and civil disorder. Therefore, there may be circumstances in which the Enlarged Group will not be covered or compensated for losses, damages and liabilities.

The results of operations of the Enlarged Group are dependent on its ability to manage the costs of its projects and to maximise revenue from these projects.

The Enlarged Group’s ability to derive profits from its construction projects depends on how well it can control the relevant construction costs and whether it is able to obtain the best sale prices for its units.

Construction costs are largely dependent on the costs a property developer pays its contractors. To ensure that the Target Group obtains the best price from its contractors, the Target Group typically holds competitive tenders for its projects. However, it is not realistic for the Target Group to pick the lowest price available.

Construction costs in the PRC are generally increasing as contractors themselves face rising costs due to inflation and rising labour costs. In any case, other than costs, there are a number of factors that the Target Group must take into account in determining whether to award a contract to a contractor, including the contractor’s relevant skill and expertise as well as the design and deadline demands of the relevant project.

Moreover, as set out in the section headed “Risk Factors — Risks relating to property development in the PRC — The Enlarged Group may face delay in completing its property development projects”, delay to progress is a risk and if suffered, can adversely affect the construction costs of the project and since prices quoted by the contractors are subject to adjustments under certain circumstances, there is no assurance that the actual construction costs incurred for a project, which often takes months or years to complete, will not exceed the initial estimation of the Enlarged Group.

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RISK FACTORS

The other important factor affecting the Enlarged Group’s business, financial condition and results of operations is the price at which it sells the units of its property. The Enlarged Group will face intense competition from other real estate developers. Please see the section headed “Risk Factors — Risks relating to property development in the PRC — The Enlarged Group faces intense competition from other real estate developers” for more details. Correctly determining the appropriate price is vital to the success of the Enlarged Group’s business. While a lower price drains revenue from the project, too high a figure puts off potential customers who have a wide choice of properties as offered by the Target Group’s competitors.

There is no assurance the Enlarged Group would be able to get the lowest price from the contractors. Further, there is no assurance that the actual construction costs incurred for a project will not exceed the initial estimation by the developer. In the event that the Enlarged Group cannot effectively control its construction costs, its business, financial condition and results of operations would be adversely affected.

The amount of resettlement compensation payable to existing owners or residents is regulated and may be subject to substantial increases.

If any of the land parcels the Enlarged Group acquires in the future has existing building structures or is occupied by third parties, the Enlarged Group may be responsible for paying resettlement costs prior to developing the land.

In accordance with 《國有土地上房屋徵收與補償條例》 (the Regulation on the Expropriation of Buildings on State-owned Land and Compensation) implemented since 21 January 2011, the relevant government authority at city or country level in the PRC is required to enter into a written agreement with the owners or residents of existing buildings subject to demolition for development to provide compensation for their relocation and resettlement. The compensation payable is calculated in accordance with pre-set formulae provided by the relevant authorities at city or county level and is ultimately borne by the property developers. However, there is no assurance that these authorities will not change their compensation formulae. If they do, land acquisition costs may increase substantially which could adversely affect the Enlarged Group’s financial condition.

In addition, if the local government fails to reach an agreement over compensation with the owners or residents, any party may apply to the relevant housing resettlement authorities for a ruling on the amount of compensation, and this may delay the development schedule of the Enlarged Group’s projects or result in higher compensation costs than that originally anticipated. Such delays will lead to an increase in costs and a delay in the expected cash inflow resulting from the pre-sale of the relevant projects, which may in turn materially and adversely affect the Enlarged Group’s business, results of operations and financial condition.

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RISK FACTORS

China Merchants shall pay land premium in six instalments. As at 31 March 2013, 875,884 sq.m. of land had been handed over to Chongqing China Merchants, which had obtained all the relevant land use rights certificates. The handover of the rest of the land parcels with total GFA of 1,010,635 sq.m. for Changjiahui is expected to be completed by the end of 2015 subject to adjustment to the handover timetable to be agreed with the local land authority from time to time. Some of the land parcels to be handed over by the local land authority to Chongqing China Merchants are subject to resettlement. If the local land authority fails to complete the resettlement on time and as a result, fails to hand over land parcels according to the handover timetable, the Enlarged Group’s business, financial condition and results of operations would be adversely affected.

The Enlarged Group may be subject to stricter payment terms for land use rights with respect to land it acquires in the future as a result of any additional restrictive regulations promulgated by the PRC.

Under the PRC regulations, property developers have to pay the relevant land grant fees in full according to the provisions of the relevant land use rights grant contract for all land parcels under the contract prior to receiving the land registration and land use rights certificates. As a result, property developers are not allowed to bid for a large piece of land, make partial payment, and then apply for land registration and a land use rights certificate for the corresponding portion of land in order to commence development, which has been the past practice in many Chinese cities.

In addition, property developers are required to provide a down payment of no less than 50% of the land grant fee and, generally, to pay the remaining balance in instalments within one year. Moreover, a land use rights grant contract shall be executed within ten business days of completing the public tenders, auctions and listing-for-sale process.

All property developers who have defaulted on a land grant fee payment, left a land idle and unused, or were engaged in land speculation, or have otherwise defaulted on a land use rights grant contract are prohibited from acquiring land for a certain period. As a result, property developers, including the Target Group, are required to maintain a higher level of working capital and hence face restrictions when planning to expand their land reserve.

In addition, there is no assurance that the PRC government will not adopt any additional regulations to impose stricter payment terms for land acquisition by property developers. If this occurs, the Enlarged Group’s business, financial condition or results of operations may be materially and adversely affected.

The Enlarged Group guarantees the mortgages provided to their customers and consequently are liable to the mortgagees if the customers default on their mortgage payments.

In line with market practice, the Target Group has arrangements with various banks for the provision of mortgage facilities to its customers. Like other property developers in the PRC, the Target Group assists its customers for certain property projects with mortgage loans and provides guarantees in favor of the banks or housing provident fund management centers in respect of the mortgage facilities granted by them to the customers.

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RISK FACTORS

As a guarantor, the relevant project company within the Target Group and the customers are jointly responsible for the payment of the mortgage loan. These guarantees are released upon the earlier of (i) the relevant property ownership certificates having been obtained and the certificates of other interests with respect to the relevant properties having been delivered to the mortgagee banks or the housing provident fund management centers, or (ii) the settlement of mortgage loans between the mortgagee and the Target Group’s customers.

In line with industry practice, the Target Group does not conduct independent credit checks on the customers but rely instead on the credit checks conducted by the mortgagee banks or housing provident fund management centers, which may not be as extensive as credit checks conducted in other jurisdictions. As at 31 December 2010, 2011 and 2012, the Target Group had financial guarantees of RMB89.92 million, RMB0 million, and RMB29.46 million, respectively, in respect of mortgage facilities for its customers. As at 30 April 2013, the Target Group had outstanding guarantees for mortgage loans of its customers in the amount of approximately of RMB45.95 million. If a default occurs and the relevant guarantee is called upon, the business, results of operations and financial condition of the Enlarged Group may be adversely affected to the extent that there is a material depreciation in the value of the relevant properties or if the Enlarged Group is unable to sell the properties due to unfavourable market conditions or other reasons. Please see the section headed “Business of the Target Group — Project Development — Payment and End-user Financing” for further details.

RISKS RELATING TO THE PRC

Adverse changes in the economic and political policies of the PRC government could have an adverse effect on overall economic growth in the PRC, which may adversely affect the Enlarged Group’s business.

The economy of China differs from the economies of most developed countries in certain respects, including but not limited to:

structure;
level of governmental involvement;
level of development;
growth rate;
control of foreign exchange; and
allocation of resources.

The PRC economy has been in transition from a planned economy to a more market-oriented economy. The PRC government has implemented economic reform measures emphasising responsiveness to market forces in the development of the PRC economy. Yet, the PRC government continues to play a highly significant role in regulating

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RISK FACTORS

industries by imposing industrial policies. Despite the implementation of such reforms, it is uncertain whether changes in China’s political and social conditions, laws, regulations, policies and diplomatic relationships with other countries will have any adverse effect on the current or future business, results of operations or financial condition of the Enlarged Group.

Uncertainties with respect to the PRC’s legal system could have an adverse effect on the Enlarged Group’s operations.

Almost all of the Target Group’s operations are conducted in the PRC and most of the Target Group’s employees are PRC citizens. The Group’s operations are therefore generally affected by and subject to the PRC legal system and PRC laws and regulations.

Since the late 1970s, many new laws and regulations covering general economic matters have been promulgated in China. Despite these significant developments in its legal system, China does not have a comprehensive system of laws. Even where adequate law exists in China, the enforcement of laws may be uncertain, and it may be difficult to obtain swift and equitable enforcement, or to obtain enforcement of a judgement by a court of another jurisdiction. The PRC legal system is based on written statutes and their interpretation, and prior court decisions may be cited for reference but have limited weight as precedents. In addition, interpretation of statutes and regulations may be subject to government policies reflecting domestic political changes.

The relevant PRC tax authorities may enforce the payment of LAT and may challenge the basis on which the Enlarged Group calculate their respective LAT obligations.

Under PRC tax laws and regulations, properties developed for sale are subject to land appreciation tax ( LAT ), which is collectible by the local tax authorities. All income from the sale or transfer of state-owned land use rights, buildings and their ancillary facilities in the PRC is subject to LAT at progressive rates ranging from 30% to 60% of the appreciation value as defined by the relevant tax laws. LAT is exempted for the sale of ordinary standard residences (普通標準住房) if the appreciation derived from the sale does not exceed 20% of the sum of deductible items. Deductible items include acquisition costs of land use rights, development costs of land, construction costs of new buildings and facilities or assessed value for used properties and buildings, etc. Sales of properties other than ordinary standard residence, however, are not eligible for such exemption. For property developers, an additional 20% of deductible expenses may be deducted in the calculation of the land appreciation amount.

Property developers are required to settle the final LAT payable in respect of their development projects that meet any one of certain criteria, such as 85% of a development project having been pre-sold or sold. Local provincial tax authorities are entitled to formulate detailed implementation rules in respect of LAT in consideration of local conditions. The Enlarged Group may not be able to finalise its LAT returns with the tax authorities for certain of its property development projects. Accordingly, significant judgment is required in determining the amount of land appreciation and its related taxes. It is difficult to ascertain the ultimate tax amount during the ordinary course of business.

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RISK FACTORS

For each of the three financial years ended 31 December 2010, 2011 and 2012, the Target Group made provisions for LAT in the amount of RMB91.45 million, RMB523.04 million, and RMB811.87 million, respectively. In the event that LAT eventually collected by the PRC tax authorities (due to changes in local practices and interpretations of related regulations of local tax authorities) exceeds the amount that the Target Group has provided for, the results of operations and financial position of the Target Group will be adversely affected.

Changes to the PRC tax law or its implementation may have a material adverse effect on the financial condition and results of operations of the Enlarged Group.

Under the Law of the PRC on Enterprise Income Tax ( EIT Law ), which came into effect on 1 January 2008, the exemption from the withholding tax on dividends distributed by foreign-invested enterprises to their foreign investors under the previous tax laws is no longer available. Foreign investors that are established in Hong Kong and are considered non-resident enterprises by the PRC tax authority are subject to a PRC withholding tax at a rate of 5%, subject to certain conditions. In addition, the new tax law deems an enterprise established offshore but with “de facto management bodies” in the PRC as a “resident enterprise” which is subject to the PRC EIT on its global income (dividends received from its PRC subsidiaries may be exempted from PRC EIT).

Since some of the members of the Enlarged Group’s management team are located in China, the non-PRC members of the Enlarged Group may be considered as PRC resident enterprises even though the Directors believe the non-PRC members of the Enlarged Group have real operations outside the PRC. If the PRC tax authorities subsequently determine that the Company should be classified as a resident enterprise, its global income will be subject to PRC income tax at a tax rate of 25% (dividends received from its PRC subsidiaries may be exempted from PRC EIT). As at the Latest Practicable Date, the relevant PRC tax authorities have not certified the Company as a resident enterprise under the EIT Law.

The imposition of withholding tax on dividends payable from the PRC entities of the Enlarged Group or the imposition of PRC tax on the Enlarged Group’s global income as a “resident enterprise” under the EIT Law may have a material adverse effect on the financial condition and results of operations of the Enlarged Group.

The Company is a holding company that relies on dividend payments from its subsidiaries for funding and dividends from PRC subsidiaries are subject to PRC withholding tax.

The Company is a holding company incorporated in Cayman Islands and its operations are conducted through its subsidiaries, a number of which are in the PRC. Therefore, the availability of funds to pay dividends to the Shareholders and to service the Company’s indebtedness depends on dividends received from these subsidiaries. If the subsidiaries incur any debts or losses, such indebtedness or loss may impair their ability to pay dividends or other distributions to the Company. As a result, the Company’s ability to pay dividends or other distributions and to service its indebtedness will be restricted.

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RISK FACTORS

PRC laws require dividends to be paid out of the net profit calculated according to PRC accounting principles, which, in many aspects, differ from the generally accepted accounting principles in other jurisdictions, including the HKFRS. PRC laws also require foreign-invested enterprises, such as the Group’s subsidiaries in China, to set aside part of their net profit as statutory reserves, which are not available for distribution as cash dividends. Please see the section headed “Risk Factors — Risks relating to the PRC — Changes to the PRC tax law or its implementation may have a material adverse effect on the financial condition and results of operations of the Enlarged Group” for more details.

Government control in foreign currency conversion may materially and adversely affect the financial condition, results of operations and ability to meet foreign exchange requirements of the Enlarged Group.

Renminbi is not a freely convertible currency. The Company receives a significant part of its revenue in RMB and will need to convert RMB into foreign currencies for payment of dividends to the Shareholders and to service its debts. The exchange rates of the RMB against the US dollar and other foreign currencies fluctuate and are affected by, among other things, the policies of the PRC government and changes in China’s and international political and economic conditions. There is significant international pressure on the PRC government to adopt a more flexible currency policy, which, together with domestic policy considerations, could result in a further and more significant appreciation of RMB against the US dollar or other foreign currencies.

As the Enlarged Group needs to convert future financing into RMB for the Enlarged Group’s operations in the PRC, the continued appreciation of RMB against the relevant foreign currencies would reduce the RMB amount the Enlarged Group would receive from the conversion. On the other hand, dividends on the Shares, if any, and interest payments on certain debts of the Enlarged Group are paid in foreign currencies, any devaluation of RMB against the relevant foreign currencies would adversely affect the Enlarged Group’s results of operations and financial condition, which may reduce the amount of any cash dividends on the Shares in terms of such other relevant foreign currencies.

In addition, the conversion of RMB into other currencies is subject to a number of foreign exchange control rules, regulations and notices issued by the PRC government. In general, foreign investment enterprises are permitted to convert RMB to foreign currencies for current account transactions (including, for example, distribution of profits and payment of dividends to foreign investors) through designated foreign exchange banks following prescribed procedural requirements. Control over conversion of RMB to foreign currencies for capital account transactions (including, for example, direct investment, loan and investment in securities) is more stringent and such conversion is subject to a number of limitations.

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RISK FACTORS

The requirement for the Company to pay dividends in a currency other than RMB to the Shareholders may expose the Company to foreign exchange risk. Under the current foreign exchange control system, there is no assurance that the Company will be able to obtain sufficient foreign currency to pay dividends or satisfy other foreign exchange requirements in the future.

Natural disasters, public health and public security hazards in the PRC may severely disrupt the Enlarged Group’s business and operations, and may have a material and adverse effect on its business, financial condition and results of operations.

In April 2013, there were reports of occurrences of H7N9 flu in certain parts of the PRC. An outbreak of a health epidemic or contagious disease could result in a widespread health crisis and restrict the level of business activities in affected areas, which may in turn adversely affect the business of the Enlarged Group.

Moreover, the PRC has experienced natural disasters like earthquakes, floods, landslides and droughts in the past few years. For example, in April 2013 and April 2010, the PRC experienced earthquakes with reported magnitudes of 7.0 on the Richter scale in Sichuan Province and Qinghai Province, respectively, resulting in the death of tens of thousands of people. In 2010, severe droughts occurred in southwestern parts of the PRC, resulting in significant economic losses in these areas. In early 2008, parts of the PRC, in particular its eastern, southern and central regions, experienced what was reportedly the most severe winter weather in the country in half a century, which resulted in significant and extensive damage to factories, power lines, homes, automobiles, crops, and other properties, as well as blackouts, transportation and communications disruptions and other losses in the affected areas.

Any future natural disasters and public health and public security hazards may, among other things, significantly disrupt the ability of the Enlarged Group to adequately staff the business of the Enlarged Group or the sales of the properties of the Enlarged Group, and may generally disrupt operations of the Enlarged Group. Furthermore, such natural disasters and public health and public security hazards may severely restrict the level of economic activity in affected areas, which may in turn materially and adversely affect the business and prospects of the Enlarged Group.

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RISK FACTORS

RISK RELATING TO THIS CIRCULAR

Statistics, industry data and other information relating to the economy and the PRC property development industry contained in this Circular have been derived from various official government publications with information provided by Chinese and other government agencies. Although the Company believes that the sources of the information and statistics are appropriate sources for such information and statistics and has taken reasonable care in extracting and reproducing such information and statistics, and has no reason to believe that such information and statistics are false or misleading or that any fact has been omitted that would render such information and statistics false or misleading, the Company or its Directors, agents and advisers cannot assure you or make any representation as to the accuracy or completeness of such information and statistics.

None of the Company, the Directors, the Sole Sponsor or their respective agents or advisers have prepared or independently verified the accuracy or completeness of such information directly or indirectly derived from official government sources. Due to possible flawed collection methods, discrepancies between published information, different market practices or other problems, the statistics, industry data and other information relating to the economy and the industry derived from official government sources might be inaccurate or might not be comparable to statistics produced from other sources and should not be unduly relied upon. Shareholders should give careful consideration as to how much weight and importance you should attach or place on such statistics, projected industry data and other information relating to the economy and the industry.

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CORPORATE STRUCTURE OF THE TARGET GROUP

The Target Group comprises:

six overseas incorporated companies, including the Target Companies, namely Harpen, Converge, Sino Action and Happy City, and two subsidiaries of Converge, namely Pride Oasis and Cosmo City; and
eight PRC Operating Subsidiaries, which are the operating subsidiaries of the Target Group and engaged in Property Business in the PRC.

CMPD is a Controlling Shareholder of the Target Group. It invests in and operates the PRC Operating Subsidiaries through Eureka, a company incorporated in Hong Kong on 16 August 1994, and Eureka’s certain overseas subsidiaries.

Connected subsidiaries

As CMPD currently holds 49% domestic equity interests in each of Merchants Property Development (Guangzhou) and Merchants Nanjing Real Estate, pursuant to rule 14A.11(5) and (6) of the Listing Rules, Merchants Property Development (Guangzhou), Merchants Nanjing Real Estate and their subsidiaries will be both non wholly-owned subsidiaries and connected persons of the Company after Closing.

The Company did not acquire the remaining 49% domestic equity interests in Merchants Property Development (Guangzhou) and Merchants Nanjing Real Estate because:

the Acquisition is meant to inject into the Company CMPD’s overseas equity interests in the PRC Operating Subsidiaries that have been held and operated for more than three years through Eureka, an overseas subsidiary of CMPD; and
as advised by the Company’s PRC legal advisers, Shu Jin Law Firm, acquisition of CMPD’s domestic equity interests in Merchants Property Development (Guangzhou) and Merchants Nanjing Real Estate may involve examination and approval of the relevant subdivisions of MOFCOM and filing with MOFCOM. Due to the PRC government’s policy to curtail overheating property development in China, the acquisition of domestic equity interests in property companies by foreign investors will be subject to stringent examination. As a result, the approval and filing procedures in relation to such acquisition may be long and involve lots of uncertainty.

There will be no continuing connected transactions between any of Merchants Property Development (Guangzhou), Merchants Nanjing Real Estate and their subsidiaries on the one hand and other members of the Enlarged Group on the other hand immediately after Closing. Under the Non-Competition Deed, CMPD has granted the Company, at nil consideration, an option to acquire the 49% domestic equity interests held by CMPD in each of Merchants Property Development (Guangzhou) and Merchants Nanjing Real Estate once the relevant regulatory restrictions are loosened subject to arm’s length negotiations, entry into definitive agreements and compliance with the relevant connected transaction requirements under the Listing Rules. The pricing for such acquisition is expected to be primarily based on the revalued net asset value attributable to the 49% interest. It is expected that there will be no continuing connected transactions between these two companies and other members of the Enlarged Group after Closing.

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CORPORATE STRUCTURE OF THE TARGET GROUP

Set out below is the simplified corporate structure of the Target Group and the Group immediately before Closing.

==> picture [427 x 409] intentionally omitted <==

----- Start of picture text -----

CMPD
(PRC)
100%
100%
Eurek a Good Ease
(HK) (BVI)
100%
100% Success Well
(BVI)
Pride 50% [(2)] 70.18%
Oasis Converge
(BVI)
(BVI) the Company
100% 100% 100%
50% [(1)] 100% 100% 100% Harvest Allied Champion GGP
Apex
(HK) (HK) [(8)]
(HK)
Cosmo City Sino Action Happy City 100%
Harpen (HK)
(HK) (HK) (HK)
Guan Hua
Gang
(PRC)
100% 100% 30% [(3)] 21% [(3)] 50% [(7)] 51% [(4)]
PRC
100%
Foshan XinJie ChongqingChina Merchants PropertyDevelopment MerchantsFoshan Merchants NanjingReal Estate
Merchants (Guangzhou) Wharf
50% [(5)] 50% [(6)] 100%
Foshan Xin Foshan Yi Nanjing China
Merchants Rui
Cheng Yun
Sheng
----- End of picture text -----

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CORPORATE STRUCTURE OF THE TARGET GROUP

Notes:

(1) The remaining 50% interest in Harpen is held by Wharf Properties (China) Limited, a company incorporated in the British Virgin Islands, which is an independent third party;
(2) The remaining 50% interest in Pride Oasis is held by Century Lord Limited, a company incorporated in the British Virgin Islands, which is a subsidiary of Hongkong Land China Holdings Ltd. and is an independent third party;
(3) The remaining 49% interest in Merchants Property Development (Guangzhou) is held by Shenzhen China Merchants, a company incorporated in the PRC, which is a wholly-owned subsidiary of CMPD;
(4) The remaining 49% interest in Merchants Nanjing Real Estate is held by CMPD;
(5) The remaining 50% interest in Foshan Xin Cheng is held by Total Up International Limited, a company incorporated in Hong Kong, which is a subsidiary of Wharf Properties (China) Limited and is an independent third party;
(6) The remaining 50% interest in Foshan Yi Yun is held by Wharf Properties (Guangzhou) Co., Ltd. ( 九龍倉置業 ( 廣州 ) 有限公司 ) (formerly known as Wheelock Properties (Guangzhou) Co., Ltd.), a company incorporated in the PRC, which is a subsidiary of Wharf Properties (China) Limited and is an independent third party;
(7) The remaining 50% interest in Foshan Merchants Wharf is held by Favour Year Holdings Limited ( 博實控股有限公司 ), a company incorporated in Hong Kong, which is a subsidiary of Wharf Properties (China) Limited and is an independent third party; and
(8) GGP is currently a dormant company.

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CORPORATE STRUCTURE OF THE TARGET GROUP

Set out below is the simplified corporate structure of the Target Group and the Group immediately after Closing:

==> picture [398 x 529] intentionally omitted <==

----- Start of picture text -----

CMPD (PRC)
100%
Eureka (HK)
100%
Good Ease (BVI)
100%
Success Well (BVI)
74.35%
the Company
100% 100% 100%
GGP Harvest Allied Champion 100% Guan Hua
Apex Gang
(HK) [(8)] (HK)
(HK) (PRC)
100%
100% 100%
Pride Oasis 50% [(2)] Converge
(BVI) (BVI)
50% [(1)] 100%
Cosmo City Sino Action Happy City
Harpen (HK)
(HK) (HK) (HK)
100% 100% 30% [(3)] 21% [(3)] 50% [(7)] 51% [(4)]
PRC
Merchants Property Foshan
Foshan Xin Chongqing China Merchants Nanjing
Development Merchants
Jie Merchants Real Estate
(Guangzhou) Wharf
50% [(5)] 50% [(6)] 100%
Nanjing China
Foshan Xin Foshan Yi
Merchants Rui
Cheng Yun
Sheng
----- End of picture text -----

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CORPORATE STRUCTURE OF THE TARGET GROUP

Notes:

(1) The remaining 50% interest in Harpen is held by Wharf Properties (China) Limited, a company incorporated in the British Virgin Islands, which is an independent third party;
(2) The remaining 50% interest in Pride Oasis is held by Century Lord Limited, a company incorporated in the British Virgin Islands, which is directly held by Hongkong Land China Holdings Ltd. and is an independent third party;
(3) The remaining 49% interest in Merchants Property Development (Guangzhou) is held by Shenzhen China Merchants, a company incorporated in the PRC, which is a wholly-owned subsidiary of CMPD;
(4) The remaining 49% interest in Merchants Nanjing Real Estate is held by CMPD;
(5) The remaining 50% interest in Foshan Xin Cheng is held by Total Up International Limited, a company incorporated in Hong Kong, which is a subsidiary of Wharf Properties (China) Limited and is an independent third party;
(6) The remaining 50% interest in Foshan Yi Yun is held by Wharf Properties (Guangzhou) Co., Ltd. ( 九龍倉置業 ( 廣州 ) 有限公司 ) (formerly known as Wheelock Properties (Guangzhou) Co., Ltd.), a company incorporated in the PRC, which is a subsidiary of Wharf Properties (China) Limited and is an independent third party;
(7) The remaining 50% interest in Foshan Merchants Wharf is held by Favour Year Holdings Limited ( 博實控股有限公司 ), a company incorporated in Hong Kong, which is a subsidiary of Wharf Properties (China) Limited and is an independent third party; and
(8) GGP is currently a dormant company.

Joint venture arrangements with third parties

The Target Group has developed five of the eight Target Projects with third parties (not including CMPD) by setting up joint ventures overseas or in the PRC. Set out below is a brief introduction of each of the joint ventures.

Harpen

Harpen is 50% held by Eureka and 50% held by Wharf Properties (China) Limited, which is an independent third party. Harpen owns 100% interest in Foshan Xin Jie, which is holding and developing Evian Upper City.

Pursuant to the joint venture agreement entered into between, among others, Eureka and Wharf Properties (China) Limited dated 29 December 2007, the board of Harpen consists of five directors. Eureka is entitled to appoint three directors and Wharf Properties (China) Limited is entitled to appoint the remaining two. Except for certain important board resolutions requiring unanimous votes of all the directors as set out in a separate section below, any of the three directors will be able to approve board resolutions in relation to the financial and operating matters of Harpen, such as the overall design and positioning of property project, marketing strategies, operation plan, annual budget and bank borrowings, etc.

In the event that a board meeting cannot be convened effectively, the directors appointed by the two joint venture partners shall, in the interests of Harpen, consult with each other in an amicable manner, and convene the board meeting again within one month. If the board meeting still cannot be convened effectively within such one month period, the board shall handover the matter to the chairmen of the respective listed companies controlling Eureka and Wharf Properties (China) Limited or their authorised

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CORPORATE STRUCTURE OF THE TARGET GROUP

representatives. If the chairmen fail to reach an agreement on such matter, Harpen shall engage an international accounting firm to evaluate its net assets. If the joint venture partners fail to solve the problem within 14 days upon receipt of the evaluation results, they shall initiate the buyout process of each other’s equity interest in Harpen pursuant to the joint venture agreement.

Any disputes in relation to the joint venture agreement will be subject to non-exclusive jurisdiction of the courts of Hong Kong.

Pride Oasis

Pride Oasis is 50% held by Eureka and 50% held by Century Lord Limited, which is a subsidiary of Hongkong Land China Holdings Ltd. and is an independent third party. Pride Oasis indirectly owns 100% interest in Chongqing China Merchants, which is holding and developing Changjiahui.

Pursuant to the joint venture agreement entered into between, among others, Eureka and Century Lord Limited dated 18 December 2009, the board of Pride Oasis consists of five or any other number of directors agreed between Eureka and Century Lord Limited from time to time. Eureka is entitled to appoint three directors and Century Lord Limited is entitled to appoint the remaining two. Except for certain important board resolutions requiring unanimous votes of all the directors as set out in a separate section below, the board resolutions in relation to the financial and operating matters (such as the plan for project investment, annual operation plan, annual budget and financial report, accounting policy and bank borrowings, etc.) of Pride Oasis will be approved by a simple majority vote.

Foshan Xin Cheng

Foshan Xin Cheng is 50% held by Merchants Property Development (Guangzhou) and 50% held by Total Up International Limited, which is a subsidiary of Wharf Properties (China) Limited and an independent third party. Foshan Xin Cheng is holding and developing Evian Water Bank.

Pursuant to the joint venture agreement entered into between Merchants Property Development (Guangzhou) and Total Up International Limited dated 10 April 2007, the board of Foshan Xin Cheng consists of five directors. Merchants Property Development (Guangzhou) is entitled to appoint three directors and Total Up International Limited is entitled to appoint the remaining two. Except for certain important board resolutions requiring unanimous votes of all the directors as set out in a separate section below, the board resolutions in relation to the financial and operating matters (such as the overall design and positioning of property project, marketing strategies, operation plan, annual budget and bank borrowings, etc.) of Foshan Xin Cheng will be approved by a simple majority vote. Pursuant to the joint venture agreement, Merchants Property Development (Guangzhou) may announce itself as the party controlling Foshan Xin Cheng, and CMPD may consolidate Foshan Xin Cheng’s financial statement into its group financial statements.

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CORPORATE STRUCTURE OF THE TARGET GROUP

The mechanism dealing with the situation where a board meeting cannot be convened effectively is similar to that of Harpen.

Any disputes arising out of the interpretation or enforcement of the joint venture agreement shall be resolved by amicable consultation or mediation first, failing which will be resolved by arbitration.

Foshan Yi Yun

Foshan Yi Yun is 50% held by Merchants Property Development (Guangzhou) and 50% held by Wharf Properties (Guangzhou) Co., Ltd. (九龍倉置業（廣州）有限公司) (formerly known as Wheelock Properties (Guangzhou) Co., Ltd.), which is a subsidiary of Wharf Properties (China) Limited and an independent third party. Foshan Yi Yun is holding and developing Evian Tianhui.

Pursuant to the joint venture agreement entered into between Merchants Property Development (Guangzhou) and Wheelock Properties (Guangzhou) Co., Ltd. dated 23 August 2010, the board of Foshan Yi Yun consists of five directors. Merchants Property Development (Guangzhou) is entitled to appoint three directors and Wheelock Properties (Guangzhou) Co., Ltd. (which changed its name to Wharf Properties (Guangzhou) Co., Ltd. later) is entitled to appoint the remaining two. Except for certain important board resolutions requiring unanimous votes of all the directors as set out in a separate section below, the board resolutions in relation to the financial and operating matters (such as the overall design and positioning of property project, marketing strategies, operation plan, annual budget and bank borrowings, etc.) of Foshan Yi Yun will be approved by a simple majority vote. Pursuant to the joint venture agreement, Merchants Property Development (Guangzhou) may announce itself as the party controlling Foshan Yi Yun, and CMPD may consolidate Foshan Yi Yun’s financial statement into its group financial statements.

The mechanism dealing with the situation where a board meeting cannot be convened effectively is similar to that of Harpen.

Foshan Merchants Wharf

Foshan Merchants Wharf is 50% held by Sino Action and 50% held by Favour Year Holdings Limited (博實控股有限公司), which is a subsidiary of Wharf Properties (China) Limited and is an independent third party. Foshan Merchant Wharf is holding and developing Evian Xicheng. On 9 June 2013, Eureka transferred its 50% equity interest in Foshan Merchants Wharf to Sino Action as a result of the Restructuring.

Pursuant to the joint venture agreement entered into between Eureka and Favour Year Holdings Limited dated 10 February 2010 and the supplemental agreement in relation to Foshan Merchants Wharf entered into between Eureka and Favour Year Holdings Limited dated 23 April 2013, the board of Foshan Merchants Wharf consists of

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CORPORATE STRUCTURE OF THE TARGET GROUP

five directors. Eureka is entitled to appoint three directors and Favour Year Holdings Limited is entitled to appoint the remaining two. Except for certain important board resolutions requiring unanimous votes of all the directors as set out in a separate section below, the board resolutions in relation to the financial and operating matters (such as the overall design and positioning of property project, marketing strategies, operation plan, annual budget and bank borrowings, etc.) of Foshan Merchants Wharf will be approved by a simple majority vote. Pursuant to the joint venture agreement, Sino Action may announce itself as the party controlling Foshan Merchants Wharf, and CMPD may consolidate Foshan Merchants Wharf’s financial statement into its group financial statements.

The mechanism dealing with the situation where a board meeting cannot be convened effectively is similar to that of Harpen.

Quorum

Harpen, Foshan Xin Cheng, Foshan Yi Yun and Foshan Merchant Wharf (in each of which Wharf Properties (China) Limited is directly or indirectly, a joint venture partner) require all directors to be present to form the quorum of a board meeting.

During the Track Record Period and up to the Latest Practicable Date, no board resolution of any joint venture in the Target Group had failed to be passed due to the absence of a quorum at the board meeting. The Company and Wharf Properties (China) Limited each issued a letter on 13 June 2013 and 14 June 2013, respectively, to confirm that they will fulfil their respective obligations as shareholders of the relevant joint ventures after Closing, and procure their representative directors or their agents to attend the board meetings of the joint ventures. Accordingly, the Company believes that the risk that the joint ventures will fail to pass board resolutions due to absence of quorum is very remote. Accordingly, the Enlarged Group will continue to have control over the financial and operational policies of the joint ventures by virtue of its majority board representatives in them.

Board decisions requiring unanimous votes of all the directors

Pursuant to the joint venture agreements mentioned above, there are a number of important board decisions that require the unanimous votes of all directors of the relevant joint venture company, which mainly include:

increase or reduction of the registered capital of the company and change of the capital structure or equity interest of the company;
change of the business scope of the company, acquisition of or merger with other enterprise;

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CORPORATE STRUCTURE OF THE TARGET GROUP

disposal or acquisition of assets by the company (except for those included in the budget approved by the board of directors);
provision of security or mortgage, profit distribution plan and method and the relevant changes thereof;
amendment to the articles of association of the company;
suspension, dissolution, liquidation or termination of the company;
consolidation or separation of the company;
entering into any transaction with either party of the joint venture agreement and its associates;
entering into any transaction not within the ordinary course of business; and
decisions in relation to any proceedings, including instituting, defending for and discontinuing a lawsuit, reaching a settlement, lodging an appeal and arbitration, etc.

Joint venture arrangements with the CMPD Group

The Target Group has set up two joint ventures in the PRC with members of the CMPD Group to develop two Target Projects. Set out below is a brief introduction of each of the joint ventures.

Merchants Property Development (Guangzhou)

Merchants Property Development (Guangzhou) is 49% held by Shenzhen China Merchants, 30% held by Converge and 21% held by Sino Action. Converge and Sino Action are members of the Target Group. Merchants Property Development (Guangzhou) is holding and developing Jinshan Valley. On 19 April 2013, Eureka transferred its 21% equity interest in Merchants Property Development (Guangzhou) to Sino Action.

Pursuant to the joint venture agreement entered into among Shenzhen China Merchants, Converge and Eureka dated 20 July 2004 and the supplemental agreement in relation to Merchants Property Development (Guangzhou) entered into between Shenzhen China Merchants, Converge and Sino Action dated 25 March 2013, the board of Merchants Property Development (Guangzhou) consists of three directors. Each of Shenzhen China Merchants, Converge and Sino Action is entitled to appoint one director. Except for certain important board resolutions requiring unanimous votes of all the directors as set out in a separate section below, the board resolutions in relation to the financial and operating matters (such as determining the joint venture’s annual operation strategy and policy, approving its financial system, annual budget, appointment of the senior management including general manager, deputy general manager, general engineer and chief financial officer, approving the financing and related party

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CORPORATE STRUCTURE OF THE TARGET GROUP

transactions, etc.) of Merchants Nanjing Real Estate will be approved by those directors who represent 50% or more equity interest in the joint venture. Furthermore, an operation and management department led by the general manager is in charge of the joint venture’s daily operation and management.

To avoid conflict of interest between the joint venture partners, any related party transaction between the joint venture on the one hand, and its shareholder or any party related to its shareholder on the other hand, shall be fully reported to the board and need approval of those directors who represent two-thirds or more equity interest in the joint venture which, in effect, requires approval from all directors.

Merchants Nanjing Real Estate

Merchants Nanjing Real Estate is 51% held by Happy City and 49% held by CMPD. Merchants Nanjing Real Estate is holding and developing Zijinshan No. 1. On 10 May 2006, CMPD transferred its 2% equity interest in Merchants Nanjing Real Estate to Eureka. On 13 May 2013, Eureka transferred its 51% equity interest in Merchants Nanjing Real Estate to Happy City.

Pursuant to the joint venture agreement entered into between CMPD and Eureka dated 15 November 2005 and the supplemental agreement in relation to Merchants Nanjing Real Estate entered into between CMPD and Happy City dated 25 March 2013, the board of Merchants Nanjing Real Estate consists of three directors. Happy City is entitled to appoint two directors and CMPD is entitled to appoint the remaining one. Except for certain important board resolutions requiring unanimous votes of all the directors as set out in a separate section below, the board resolutions in relation to the financial and operating matters (such as determining the joint venture’s annual operation strategy and policy, approving its financial system, annual budget, appointment of the senior management including general manager, deputy general manager, general engineer and chief financial officer, approving the financing and related party transactions, etc.) of Merchants Nanjing Real Estate will be approved by those directors who represent 50% or more equity interest in the joint venture. Furthermore, an operation and management department led by the general manager is in charge of the joint venture’s daily operation and management.

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CORPORATE STRUCTURE OF THE TARGET GROUP

Board decision requiring unanimous votes of all the directors

Pursuant to the joint venture agreements mentioned above, there are a number of important board decisions which require the unanimous votes of all directors of Merchants Property Development (Guangzhou) and Merchants Nanjing Real Estate, which are:

amendments to the articles of association of the company;
suspension and dissolution of the company;
increase or reduction of the registered capital of the company; and
consolidation or separation of the company.

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BUSINESS OF THE TARGET GROUP

OVERVIEW

The Target Group is primarily engaged in the development, sale, leasing, investment and management of properties in the PRC through its PRC Operating Subsidiaries.

The Target Group owns eight property development projects in four cities in the PRC, namely Foshan, Guangzhou, Chongqing and Nanjing, with an aggregate GFA of approximately 5,381,479 sq.m. Of these projects, as at 31 March 2013, the Target Group:

(i) had completed development of a total GFA of approximately 1,464,782 sq.m.;
(ii) was in the process of developing a total GFA of approximately 1,305,169 sq.m.;
(iii) was holding for future development land with a total GFA of approximately 1,417,659 sq.m., for which the Target Group holds land use rights certificates; and
(iv) had obtained, through public tenders, auctions and listing-for-sale process, interests in, but had not, as at 31 March 2013, obtained land use rights certificates for, land with a total GFA of approximately 1,193,869 sq.m.

On 16 April 2013, Merchants Property Development (Guangzhou), a member of the Target Group and a company that is 51% indirectly held by Eureka, acquired a new land parcel through public tenders, auctions and listing-for-sale process from the Foshan government, for a land premium of approximately RMB1,320 million. The land parcel has a total site area of approximately 71,036 sq.m., with a total GFA of approximately 227,316 sq.m. The Target Group plans to develop a residential community project with ancillary commercial premises on such land parcel.

The Target Group’s principal business portfolio comprises the developments of residential properties, retail shops, offices and serviced apartments. For the year ended 31 December 2012, the Target Group generated approximately 99% of its revenue from the sale of residential properties and less than 1% of its revenue was generated from the leasing of retail shops.

For the three years ended 31 December 2010, 2011 and 2012, the revenue of the Target Group was RMB1,342.73 million, RMB3,341.47 million and RMB4,288.51 million, respectively, and the profit attributable to Eureka was RMB142.41 million, RMB260.62 million and RMB434.23 million, respectively.

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BUSINESS OF THE TARGET GROUP

PROPERTY DEVELOPMENT PROJECTS OF THE TARGET GROUP

Overview of the property development projects

==> picture [384 x 275] intentionally omitted <==

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BUSINESS OF THE TARGET GROUP

In general, land use rights in the PRC are granted for a term of 70 years for residential properties, 40 years for commercial properties and 50 years for comprehensive use properties. Normally, the relevant authorities will not issue a formal land use rights certificate in respect of a piece of land until the construction land planning permit has been obtained by the developer and the land premium has been paid in full and the resettlement process completed. As a result, according to the pace of development, the land for a property development may be divided into one or more parcels for which multiple land use rights certificates are granted at different stages of development.

The site area information for an entire project is based on either the relevant land use rights certificates, land use rights grant contracts or tender documents, depending on which documents are available. The aggregate GFA of a project includes saleable and non-saleable GFA, car parking spaces as well as rentable GFA. “Saleable GFA” represents the GFA of a property which the Target Group intends to sell and which does not exceed the multiple of the site area and the maximum permissible plot ratio as specified in the relevant land use rights grant contracts or other approval documents from the local governments relating to the project. “Rentable GFA” refers to GFA that is available for rental proposes.

The figures for completed GFA that appear in this Circular are based on figures provided in the relevant government documents. The following information disclosed in this Circular are based on the Target Group’s internal records and estimates:

figures for GFA under development, GFA for future development, GFA sold, GFA pre-sold, saleable GFA and rentable GFA; and
information regarding total development costs (including land costs, construction costs and capitalised finance costs), estimated construction commencement date, estimated completion date, planned construction period, number of residential units, number of residential units pre-sold and ASP. The information setting out the construction period for the phases of the Target Group’s projects in this Circular is based on relevant government documents or the Target Group’s own internal records.

Properties are regarded to be sold when sale and purchase contracts have been executed and the properties have been delivered to the customer. Properties are regarded to be pre-sold when sale and purchase contracts have been executed, but the properties have not yet been delivered to the customer.

We adopt in this Circular the project names which the Target Group has used, or intends to use, to market its properties. Some of the names for the Target Group’s property developments are pending approvals by the relevant government authorities and may be subject to change.

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BUSINESS OF THE TARGET GROUP

Status of the projects of the Target Group

The property projects of the Target Group can be categorised into three types according to their stages of development:

Completed Properties. A property is treated as completed when the certificate of completion is received from the relevant local government authorities in respect of the property development;
Properties under development. A property is treated as under development as soon as the construction work commencement permit is received from the relevant local government authorities with respect to the property development, but prior to the issuance of the certificate of completion;
Properties held for future development. A property is treated as held for future development when the Target Group has successfully bid for land parcels through a listing-for-sale held by the local government and signed the relevant land use rights grant contracts with the relevant PRC land authority, or acquired the project company holding land use rights in relation to the land. In each case, the construction has not yet commenced.

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BUSINESS OF THE TARGET GROUP

									Reference	to	property	valuation	report	(property	no.)			–					4					4					4
								The Target	Group’s	attribut-	able	capital	value	(RMB	million)																					352.03
	Saleable	GFA of the	properties	comprising	the project	which had	not been	sold or	pre-sold	attribut-	able to the	Target	Group		(sq.m.)			–					1,936					3,767					7,996			13,699
									Total GFA	attribut-	able to the	Target	Group		(sq.m.)			33,652					55,486					61,996					16,074			167,208
								The Target	Group’s	attribut-	able	interest in	the project					25.5%					25.5%					25.5%					25.5%			25.5%
							Estimated	future	develop-	ment costs	for the	whole	project	(RMB	million)																					35.35
								Develop-	ment costs	incurred	for the	whole	project	(RMB	million)																					2,951.65
Future development												Total GFA	GFA saleable		(sq.m.) (sq.m.)			– –					– –					– –					– –			– –
Under development										GFA	under Total GFA	develop- saleable/ Of which	ment rentable pre-sold		(sq.m.) (sq.m.) (sq.m.)			– – –					– – –					– – –					– – –			– – –
								Of which	not	pre-sold/	held for	invest-	ment		(sq.m.)			–					7,592					14,771					31,359			53,722
										Of which	pre-sold	but not yet	delivered		(sq.m.)			–					–					56,793					3,788			60,581
Completed											Of which	sold and	delivered		(sq.m.)			109,779					196,685					148,228					21,857			476,549
											Total GFA	saleable/	rentable		(sq.m.)			109,779	95,493	3,147	11,139		204,278	152,026	10,819	41,433		219,792	161,333	10,336	48,123		57,003	30,938	26,065	590,852
												GFA	completed		(sq.m.)			131,967					217,594					243,120					63,035			655,716
					Saleable	GFA of the	properties	comprising	the project	which had	not been	sold or	pre-sold		(sq.m.)			–					7,592					14,771					31,359			53,722
										Actual/	estimated	complet-	ion date Total GFA		(sq.m.)			131,967	Jul-10	Jul-10	Jul-10		217,594	May-11	May-11	May-11		243,120	Jul-12	Jul-12	Jul-12		63,035	Sep-11	Sep-11	655,716
											Pre-sale	commence-	ment date						Sep-08	May-11	Nov-10			Sep-09	Apr-11	Nov-11			Mar-11	May-12	Mar-13			Jan-11	Oct-12
										Actual/estimated	construction	commence-	Project ment date			FOSHAN 佛山	Evian Water Bank Phase I	佛山依雲水岸一期	Residential Mar-08	Retail shops Mar-08	Car parks Mar-08	Evian Water Bank Phase II	佛山依雲水岸二期	Residential Jul-08	Retail shops Jul-08	Car parks Jul-08	Evian Water Bank Phase III	佛山依雲水岸三期	Residential Nov-09	Retail shops Nov-09	Car parks Nov-09	Evian Water Bank Phase IV	佛山依雲水岸四期	Residential Mar-10	Car parks Mar-10	Total for Evian Water Bank

– 118 –

BUSINESS OF THE TARGET GROUP

									Reference	to	property	valuation	report	(property	no.)		3					3					12						13					13
								The Target	Group’s	attribut-	able	capital	value	(RMB	million)																686.50											569.16
	Saleable	GFA of the	properties	comprising	the project	which had	not been	sold or	pre-sold	attribut-	able to the	Target	Group		(sq.m.)		12,760					14,576					37,319				64,655		9,896					44,318				54,214
									Total GFA	attribut-	able to the	Target	Group		(sq.m.)		54,014					65,017					61,501				180,532		28,170					48,794				76,964
								The Target	Group’s	attribut-	able	interest in	the project				50.0%					50.0%					50.0%				50.0%		25.5%					25.5%				25.5%
							Estimated	future	develop-	ment costs	for the	whole	project	(RMB	million)																93.33											468.96
								Develop-	ment costs	incurred	for the	whole	project	(RMB	million)																2,587.50											1,908.39
Future development												Total GFA	GFA saleable		(sq.m.) (sq.m.)		– –					– –					– –				– –		– –					– –				– –
Under development										GFA	under Total GFA	develop- saleable/ Of which	ment rentable pre-sold		(sq.m.) (sq.m.) (sq.m.)		– – –					– – –					123,003 109,458 34,819	78,581	157	30,720	123,003 109,458 34,819		110,471 109,200 70,391	84,044	6,991	18,165		191,347 186,086 12,292	119,526	9,475	57,085	301,818 295,286 82,683
								Of which	not	pre-sold/	held for	invest-	ment		(sq.m.)		25,520					29,151					–				54,671		–					–				–
										Of which	pre-sold	but not yet	delivered		(sq.m.)		1,947					3,064					–				5,011		–					–				–
Completed											Of which	sold and	delivered		(sq.m.)		74,513					92,062					–				166,575		–					–				–
											Total GFA	saleable/	rentable		(sq.m.)		101,979	68,330	20,179	13,470		124,278	98,746	1,956	23,576		–				226,257		–					–				–
												GFA	completed		(sq.m.)		108,027					130,035					–				238,062		–					–				–
					Saleable	GFA of the	properties	comprising	the project	which had	not been	sold or	pre-sold		(sq.m.)		25,519					29,151					74,639				129,309		38,808					173,795				212,603
										Actual/	estimated	complet-	ion date Total GFA		(sq.m.)		108,027	Jul-11	Jul-11	Jul-11		130,034	Oct-12	Oct-12	Oct-12		123,003	Oct-13	Oct-13	Oct-13	361,064		110,471	Oct-13	Oct-13	Oct-13		191,347	Sep-14	Sep-14	Sep-14	301,818
											Pre-sale	commence-	ment date					Dec-09	Jun-11	N/A			Jul-11	N/A	N/A			Jun-12	N/A	N/A				Mar-12	N/A	N/A			Mar-12	N/A	N/A
										Actual/estimated	construction	commence-	Project ment date			Evian Upper City Phase I	佛山依雲上城一期	Residential Jul-08	Retail shops Jul-08	Car parks Jul-08	Evian Upper City Phase II	佛山依雲上城二期	Residential Jun-10	Retail shops Jun-10	Car parks Jun-10	Evian Upper City Phase III	佛山依雲上城三期	Residential Jul-11	Retail shops Jul-11	Car parks Jul-11	Total for Evian Upper City	Evian Tianhui Phase I	佛山依雲天匯一期	Residential Feb-11	Retail shops Feb-11	Car parks Feb-11	Evian Tianhui Phase II	佛山依雲天匯二期	Residential Jun-11	Retail shops Jun-11	Car parks Jun-11	Total for Evian Tianhui

– 119 –

BUSINESS OF THE TARGET GROUP

									Reference	to	property	valuation	report	(property	no.)		14				14				15					15				15
								The Target	Group’s	attribut-	able	capital	value	(RMB	million)																						590.85
	Saleable	GFA of the	properties	comprising	the project	which had	not been	sold or	pre-sold	attribut-	able to the	Target	Group		(sq.m.)		34,258				28,263				48,183					33,438				24,249			168,391
									Total GFA	attribut-	able to the	Target	Group		(sq.m.)		74,452				28,492				50,013					34,275				24,249			211,481
								The Target	Group’s	attribut-	able	interest in	the project				50.0%				50.0%				50.0%					50.0%				50.0%			50.0%
							Estimated	future	develop-	ment costs	for the	whole	project	(RMB	million)																						1,018.27
								Develop-	ment costs	incurred	for the	whole	project	(RMB	million)																						1,119.13
Future development												Total GFA	GFA saleable		(sq.m.) (sq.m.)		– –				– –				100,026 96,366	47,339	24,200	24,827		68,550 66,875	57,289	9,586		48,499 48,499	35,499	13,000	217,075 211,740
Under development										GFA	under Total GFA	develop- saleable/ Of which	ment rentable pre-sold		(sq.m.) (sq.m.) (sq.m.)		148,904 144,988 76,472	99,165	45,823		56,983 56,526 –	45,095	11,431		– – –					– – –				– – –			205,887 201,514 76,472
								Of which	not	pre-sold/	held for	invest-	ment		(sq.m.)		–				–				–					–				–			–
										Of which	pre-sold	but not yet	delivered		(sq.m.)		–				–				–					–				–			–
Completed											Of which	sold and	delivered		(sq.m.)		–				–				–					–				–			–
											Total GFA	saleable/	rentable		(sq.m.)		–				–				–					–				–			–
												GFA	completed		(sq.m.)		–				–				–					–				–			–
					Saleable	GFA of the	properties	comprising	the project	which had	not been	sold or	pre-sold		(sq.m.)		68,516				56,526				96,366					66,875				48,499			336,782
										Actual/	estimated	complet-	ion date Total GFA		(sq.m.)		148,904	Dec-13	Dec-13		56,983	Oct-14	Oct-14		100,026	Sep-15	Sep-15	Sep-15		68,550	Mar-16	Mar-16		48,499	Apr-16	Apr-16	422,962
											Pre-sale	commence-	ment date					Apr-12	N/A			N/A	N/A			N/A	N/A	N/A			N/A	N/A			N/A	N/A
										Actual/estimated	construction	commence-	Project ment date			Evian Xicheng Phase I	佛山依雲曦城一期	Residential Dec-10	Car parks Dec-10	Evian Xicheng Phase II	佛山依雲曦城二期	Residential Oct-12	Car parks Oct-12	Evian Xicheng Phase III	佛山依雲曦城三期	Residential Sep-13	Retail shops Sep-13	Car parks Sep-13	Evian Xicheng Phase IV	佛山依雲曦城四期	Residential Mar-14	Car parks Mar-14	Evian Xicheng Phase V	佛山依雲曦城五期	Residential Jan-15	Car parks Jan-15	Total for Evian Xicheng

– 120 –

BUSINESS OF THE TARGET GROUP

									Reference	to	property	valuation	report	(property	no.)					–				2						2				2						18					18
								The Target	Group’s	attribut-	able	capital	value	(RMB	million)
	Saleable	GFA of the	properties	comprising	the project	which had	not been	sold or	pre-sold	attribut-	able to the	Target	Group		(sq.m.)					–				3,410						17,996				5,481						34,375					64,780
									Total GFA	attribut-	able to the	Target	Group		(sq.m.)					34,872				31,498						34,111				136,021						42,505					83,251
								The Target	Group’s	attribut-	able	interest in	the project							51.0%				51.0%						51.0%				51.0%						51.0%					51.0%
							Estimated	future	develop-	ment costs	for the	whole	project	(RMB	million)
								Develop-	ment costs	incurred	for the	whole	project	(RMB	million)
Future development												Total GFA	GFA saleable		(sq.m.) (sq.m.)					– –				– –						– –				– –						83,343 67,401	57,683	9,718			163,237 127,019	117,670	9,349
Under development										GFA	under Total GFA	develop- saleable/ Of which	ment rentable pre-sold		(sq.m.) (sq.m.) (sq.m.)					– – –				– – –						– – –				– – –						– – –					– – –
								Of which	not	pre-sold/	held for	invest-	ment		(sq.m.)					–				6,687						35,286				10,748						–					–
										Of which	pre-sold	but not yet	delivered		(sq.m.)					–				1,449						4,084				648						–					–
Completed											Of which	sold and	delivered		(sq.m.)					56,469				37,044						27,273				209,446						–					–
											Total GFA	saleable/	rentable		(sq.m.)					56,469	56,469			45,180	34,654	6,154	4,372			66,643	66,643			220,842	196,891	5,124	18,827			–					–
												GFA	completed		(sq.m.)					68,377				61,761						66,884				266,709						–					–
					Saleable	GFA of the	properties	comprising	the project	which had	not been	sold or	pre-sold		(sq.m.)					–				6,687						35,286				10,748						67,401					127,019
										Actual/	estimated	complet-	ion date Total GFA		(sq.m.)					68,377	May-09			61,761	Oct-10	Oct-10	Oct-10			66,884	Jun-12			266,709	Jul-12	Jul-12	Jul-12			83,343	Sep-15	Sep-15			163,237	Sep-15	Sep-15
											Pre-sale	commence-	ment date								Sep-08				Apr-09	Aug-12	Dec-11				Mar-10				Jul-10	Jul-11	Dec-12				N/A	N/A				N/A	N/A
										Actual/estimated	construction	commence-	Project ment date			GUANGZHOU 廣州	Jinshan Valley	Jinshan Valley Residential	Phase I	廣州金山谷一期	Residential Mar-08	Jinshan Valley Residential	Phase II	廣州金山谷二期	Residential Apr-08	Retail shops Apr-08	Car parks Apr-08	Jinshan Valley Residential	Phase III	廣州金山谷三期	Residential Dec-08	Jinshan Valley Residential	Phase IV	廣州金山谷四期	Residential Nov-09	Retail shops Nov-09	Car parks Nov-09	Jinshan Valley Residential	Phase V	廣州金山谷五期	Residential May-13	Car parks May-13	Jinshan Valley Residential	Phase VI	廣州金山谷六期	Residential May-13	Car parks May-13

– 121 –

BUSINESS OF THE TARGET GROUP

									Reference	to	property	valuation	report	(property	no.)			18					10						18							11					18
								The Target	Group’s	attribut-	able	capital	value	(RMB	million)
	Saleable	GFA of the	properties	comprising	the project	which had	not been	sold or	pre-sold	attribut-	able to the	Target	Group		(sq.m.)			25,299					5,416						17,998				174,755			51,796					61,484
									Total GFA	attribut-	able to the	Target	Group		(sq.m.)			27,864					22,953						22,480				435,555			77,713					90,403
								The Target	Group’s	attribut-	able	interest in	the project					51.0%					51.0%						51.0%				51.0%			51.0%					51.0%
							Estimated	future	develop-	ment costs	for the	whole	project	(RMB	million)																										–
								Develop-	ment costs	incurred	for the	whole	project	(RMB	million)
Future development												Total GFA	GFA saleable		(sq.m.) (sq.m.)			54,636 49,606	45,777	3,829			– –						44,078 35,290	31,728	3,562		345,294 279,316			– –					177,260 120,556	93,692	26,864
Under development										GFA	under Total GFA	develop- saleable/ Of which	ment rentable pre-sold		(sq.m.) (sq.m.) (sq.m.)			– – –					45,005 29,189 18,569	18,568	6,780	3,841			– – –				45,005 29,189 18,569			152,378 101,561 –	74,813	26,748			– – –
								Of which	not	pre-sold/	held for	invest-	ment		(sq.m.)			–					–						–				52,721			–					–
										Of which	pre-sold	but not yet	delivered		(sq.m.)			–					–						–				6,181			–					–
Completed											Of which	sold and	delivered		(sq.m.)			–					–						–				330,232			–					–
											Total GFA	saleable/	rentable		(sq.m.)			–					–						–				389,134			–					–
												GFA	completed		(sq.m.)			–					–						–				463,731			–					–
					Saleable	GFA of the	properties	comprising	the project	which had	not been	sold or	pre-sold		(sq.m.)			49,606					10,620						35,290				342,657			101,561					120,556
										Actual/	estimated	complet-	ion date Total GFA		(sq.m.)			54,636	Jul-15	Jul-15			45,005	May-13	May-13	May-13			44,078	Aug-16	Aug-16		854,030			152,378	Sep-14	Sep-14			177,260	Nov-15	Nov-15
											Pre-sale	commence-	ment date						N/A	N/A				Mar-12	N/A	N/A				N/A	N/A						N/A	N/A				N/A	N/A
										Actual/estimated	construction	commence-	Project ment date			Jinshan Valley Residential	Phase VII	廣州金山谷七期	Residential Mar-13	Car parks Mar-13	Jinshan Valley Residential	Phase VIII	廣州金山谷八期	Residential May-11	Retail shops May-11	Car parks May-11	Jinshan Valley Residential	Phase IX	廣州金山谷九期	Residential Apr-15	Car parks Apr-15	Total for Jinshan Valley	Residential	Jinshan Valley Creative	Zone Phase I	廣州金山谷創意產業園一期	Office Apr-13	Retail shops Apr-13	Jinshan Valley Creative	Zone Phase II	廣州金山谷創意產業園二期	Office May-14	Retail shops May-14

– 122 –

BUSINESS OF THE TARGET GROUP

									Reference	to	property	valuation	report	(property	no.)			18								9 and 19					17 and 19					17 and 19					19
								The Target	Group’s	attribut-	able	capital	value	(RMB	million)								1,915.67
	Saleable	GFA of the	properties	comprising	the project	which had	not been	sold or	pre-sold	attribut-	able to the	Target	Group		(sq.m.)			59,570				172,850	347,605			64,417					85,849					104,625					139,039
									Total GFA	attribut-	able to the	Target	Group		(sq.m.)			88,040				256,156	691,711			139,588					98,548					132,724					168,280
								The Target	Group’s	attribut-	able	interest in	the project					51.0%				51.0%	51.0%			50.0%					50.0%					50.0%					50.0%
							Estimated	future	develop-	ment costs	for the	whole	project	(RMB	million)			–					4,268.90
								Develop-	ment costs	incurred	for the	whole	project	(RMB	million)								2,347.00
Future development												Total GFA	GFA saleable		(sq.m.) (sq.m.)			172,628 116,804	115,004	1,800		349,888 237,360	695,182 516,676			– –					197,097 171,698	150,264	12,484	8,950		265,449 209,250	117,650	70,000	21,600		336,560 278,078	195,340	62,000	20,738
Under development										GFA	under Total GFA	develop- saleable/ Of which	ment rentable pre-sold		(sq.m.) (sq.m.) (sq.m.)			– – –				152,378 101,561 –	197,383 130,750 18,569			279,176 234,826 105,992	211,184	6,754	16,888		– – –					– – –					– – –
								Of which	not	pre-sold/	held for	invest-	ment		(sq.m.)			–					52,721			–					–					–					–
										Of which	pre-sold	but not yet	delivered		(sq.m.)			–					6,181			–					–					–					–
Completed											Of which	sold and	delivered		(sq.m.)			–					330,232			–					–					–					–
											Total GFA	saleable/	rentable		(sq.m.)			–					389,134			–					–					–					–
												GFA	completed		(sq.m.)			–					463,731			–					–					–					–
					Saleable	GFA of the	properties	comprising	the project	which had	not been	sold or	pre-sold		(sq.m.)			116,804				338,921	681,578			128,834					171,698					209,250					278,078
										Actual/	estimated	complet-	ion date Total GFA		(sq.m.)			172,628	Feb-16	Feb-16		502,266	1,356,296			279,176	Oct-14	Oct-14	Oct-14		197,097	Jul-15	Jul-15	Jul-15		265,449	Dec-15	Dec-15	Dec-15		336,560	Nov-16	Nov-16	Nov-16
											Pre-sale	commence-	ment date						N/A	N/A							Dec-11	N/A	N/A			N/A	N/A	N/A			N/A	N/A	N/A			N/A	N/A	N/A
										Actual/estimated	construction	commence-	Project ment date			Jinshan Valley Creative	Zone Phase III	廣州金山谷創意產業園三期	Office Sep-14	Retail shops Sep-14	Total for Jiushan Valley	Creative Zone	Jinshan Valley Total	CHONGQING 重慶	Changjiahui Phase I	重慶長嘉匯一期	Residential Jun-11	Shopping mall Feb-12	Car parks Feb-12	Changjiahui Phase II	重慶長嘉匯二期	Residential Jun-13	Shopping mall Jun-13	Car parks Jun-13	Changjiahui Phase III	重慶長嘉匯三期	Residential Jan-14	Shopping mall Jan-14	Car parks Jan-14	Changjiahui Phase IV	重慶長嘉匯四期	Residential Dec-14	Shopping mall Dec-14	Car parks Dec-14

– 123 –

BUSINESS OF THE TARGET GROUP

									Reference	to	property	valuation	report	(property	no.)		19					17 and 19						17							6				7
								The Target	Group’s	attribut-	able	capital	value	(RMB	million)																	2,838.00										929.73
	Saleable	GFA of the	properties	comprising	the project	which had	not been	sold or	pre-sold	attribut-	able to the	Target	Group		(sq.m.)		104,736					96,537						133,433				728,636			12,846				24,111			36,957
									Total GFA	attribut-	able to the	Target	Group		(sq.m.)		126,860					118,420						158,840				943,260			54,709				54,365			109,074
								The Target	Group’s	attribut-	able	interest in	the project				50.0%					50.0%						50.0%				50.0%			51.0%				51.0%			51.0%
							Estimated	future	develop-	ment costs	for the	whole	project	(RMB	million)																	7,183.88										476.08
								Develop-	ment costs	incurred	for the	whole	project	(RMB	million)																	4,373.59										2,116.46
Future development												Total GFA	GFA saleable		(sq.m.) (sq.m.)		253,719 209,473	192,435	2,400	14,638		236,840 193,075	67,800	100,000	10,500	14,775		317,678 266,864	240,130	8,534	18,200	1,607,343 1,328,438			– –				– –			– –
Under development										GFA	under Total GFA	develop- saleable/ Of which	ment rentable pre-sold		(sq.m.) (sq.m.) (sq.m.)		– – –					– – –						– – –				279,176 234,826 105,992			– – –				106,597 64,297 17,020	17,339	46,958	106,597 64,297 17,020
								Of which	not	pre-sold/	held for	invest-	ment		(sq.m.)		–					–						–				–			25,188				–			25,188
										Of which	pre-sold	but not yet	delivered		(sq.m.)		–					–						–				–			29,617				–			29,617
Completed											Of which	sold and	delivered		(sq.m.)		–					–						–				–			26,727				–			26,727
											Total GFA	saleable/	rentable		(sq.m.)		–					–						–				–			81,532	74,287	7,245		–			81,532
												GFA	completed		(sq.m.)		–					–						–				–			107,273				–			107,273
					Saleable	GFA of the	properties	comprising	the project	which had	not been	sold or	pre-sold		(sq.m.)		209,473					193,075						266,864				1,457,272			25,188				47,277			72,465
										Actual/	estimated	complet-	ion date Total GFA		(sq.m.)		253,719	Sep-17	Sep-17	Sep-17		236,840	Aug-18	Oct-20	Aug-18	Aug-18		317,678	Aug-19	Aug-19	Aug-19	1,886,519			107,273	Dec-11	Dec-11		106,597	Oct-13	Oct-13	213,870
											Pre-sale	commence-	ment date					N/A	N/A	N/A			N/A	N/A	N/A	N/A			N/A	N/A	N/A					Apr-11	Dec-12			Mar-12	N/A
										Actual/estimated	construction	commence-	Project ment date			Changjiahui Phase V	重慶長嘉匯五期	Residential Oct-15	Shopping mall Oct-15	Car parks Oct-15	Changjiahui Phase VI	重慶長嘉匯六期	Residential Sep-16	Office Sep-16	Shopping mall Sep-16	Car parks Sep-16	Changjiahui Phase VII	重慶長嘉匯七期	Residential Sep-17	Shopping mall Sep-17	Car parks Sep-17	Total for Changjiahui	NANJING 南京	Zijinshan No. 1 Lot I	南京紫金山1號地塊一	Residential Jul-10	Car parks Jul-10	Zijinshan No. 1 Lot II	南京紫金山1號地塊二	Residential Apr-11	Shopping mall Apr-11	Total for Zijinshan No. 1

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BUSINESS OF THE TARGET GROUP

Completed Under development Future development	Saleable	GFA of the	properties	comprising	Saleable the project	GFA of the which had	properties Estimated not been	comprising Of which Develop- future The Target sold or The Target	the project not ment costs develop- Group’s Total GFA pre-sold Group’s Reference	Actual/estimated Actual/ which had Of which pre-sold/ GFA incurred ment costs attribut- attribut- attribut- attribut- to	construction Pre-sale estimated not been Total GFA Of which pre-sold held for under Total GFA for the for the able able to the able to the able property	commence- commence- complet- sold or GFA saleable/ sold and but not yet invest- develop- saleable/ Of which Total GFA whole whole interest in Target Target capital valuation	Project ment date ment date ion date Total GFA pre-sold completed rentable delivered delivered ment ment rentable pre-sold GFA saleable project project the project Group Group value report	(RMB (RMB (RMB (property	(sq.m.) (sq.m.) (sq.m.) (sq.m.) (sq.m.) (sq.m.) (sq.m.) (sq.m.) (sq.m.) (sq.m.) (sq.m.) (sq.m.) million) million) (sq.m.) (sq.m.) million) no.)	Yonghuafu Phase I	南京雍華府一期 91,306 77,443 – – – – – 91,306 77,443 – – – 51.0% 46,566 39,496 8	Residential Mar-13 N/A May-15 75,143	Car parks Mar-13 N/A May-15 2,300	Yonghuafu Phase II	南京雍華府二期 91,928 77,270 – – – – – – – – 91,928 77,270 51.0% 46,883 39,407 16	Residential Sep-13 N/A Dec-15 66,090	Car parks Sep-13 N/A Dec-15 11,180	Total for Yonghuafu 183,234 154,713 – – – – – 91,306 77,443 – 91,928 77,270 2,047.66 1,159.07 51.0% 93,449 78,903 959.82		Grand total 5,381,479 3,098,444 1,464,782 1,287,775 1,000,083 101,390 186,302 1,305,169 1,113,574 335,555 2,611,528 2,134,124 19,451.38 14,703.84 2,473,679 1,493,060 8,841.76		Notes:	As at 31 March 2013, the Target Group had not obtained land use rights certificates for the land parcels with a total GFA of 1,010,635 sq.m. for Changjiahui, and the	land parcels with a total GFA of 183,234 sq.m. for Yonghuafu.	“N/A” under “Pre-sale commencement date” denotes the fact that the Target Group has not obtained the pre-sale permit for the relevant property.	“GFA attributable to the Target Group” comprises the portion of the GFA which is attributable to the Target Group based on its effective ownership interest in the	relevant property development project.

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BUSINESS OF THE TARGET GROUP

Description of the property projects

Foshan City

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Evian Water Bank ( 依雲水岸 )

Evian Water Bank is a high-end residential and commercial complex located in the Shunde District of Foshan. It is within the Dongping New City area earmarked by the Foshan government as a development focus, and enjoys a river view of the Dongping River to the north. The project site is close to a riverside park to the north and the Foshan Park to the south east, and also adjacent to various major transportation routes and lines 2 and 6 of Foshan subway.

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BUSINESS OF THE TARGET GROUP

Evian Water Bank primarily consists of large-size high-rise residential apartments, stand-alone villas and ancillary commercial properties and has a total site area of approximately 173,105 sq.m. with a total GFA of 655,716 sq.m. We set out below the saleable GFA of each type of properties of Evian Water Bank:

Evian Water Bank Residential Retail shops Car parks Total	Total Saleable GFA (sq.m.) 439,790 24,302 126,760 590,852	Percentage 74% 5% 21%
		100%

As at 31 March 2013, the saleable GFA of the properties comprising Evian Water Bank that had not been sold or pre-sold amounted to 53,722 sq.m.

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Photo of Evian Water Bank

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BUSINESS OF THE TARGET GROUP

Evian Water Bank has been developed in 4 phases, all of which were completed. Details of the 4 phases are as follows:

			Saleable
			GFA of the
			properties
			comprising the	Contracted	Contracted
			relevant phase	ASP for the	ASP for the
			that had not been	year ended	three months
			sold or pre-sold	31 December	ended
Evian	Water	Bank	as at 31 March 2013	2012	31 March 2013
			(sq.m.)	(RMB/sq.m.)	(RMB/sq.m.)
Phase	1	Residential Retail shops Car parks	} –	– – 8,116	– – –
Phase	2	Residential Retail shops Car parks	} 7,592	– – 7,660	– – 6,766
Phase	3	Residential Retail shops Car parks	} 14,771	11,510 28,104 –	12,541 6,421 7,449
Phase	4	Residential Retail shops Car parks	} 31,359	42,354 – 5,509	45,117 – 6,268

As at 31 March 2013, based on the Target Group’s internal estimate or records, the total development costs (including land costs, construction costs and capitalised finance costs) incurred in relation to the development of Evian Water Bank was approximately RMB2,951.65 million. The Target Group currently estimates that an additional RMB35.35 million will be required to complete the whole development of Evian Water Bank, which mainly comprises the retention money to be paid to the construction contractors upon expiry of the relevant warranty periods and costs relating to the remaining unsold portion.

Evian Water Bank is held and developed by Foshan Xin Cheng, a subsidiary that is 50% held by Merchants Property Development (Guangzhou), which is in turn 51% indirectly held by Eureka. As stated in the Property Valuation of the Target Group in Appendix VI to this Circular, as at 31 March 2013, the total capital value of Evian Water Bank was RMB1,380.51 million, and the capital value attributable to Eureka was RMB352.03 million.

Evian Upper City ( 依雲上城 )

Evian Upper City is a residential and commercial complex located in Chancheng District in Foshan, with the view of the Dongping River to the south and the Foshan Asia Arts Park to the west. The site is also conveniently accessible by major highways and transportation routes.

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BUSINESS OF THE TARGET GROUP

Evian Upper City will primarily consist of mid-end high-rise residential apartments and ancillary stores, and has a total site area of approximately 150,426 sq.m. with a total GFA of 361,064 sq.m. We set out below the saleable GFA of each type of properties of Evian Upper City:

Evian Upper City Residential Retail shops Car parks Total	Total Saleable GFA (sq.m.) 245,657 22,292 67,766 335,715	Percentage 73% 7% 20%
		100%

As at 31 March 2013, the saleable GFA of the properties comprising Evian Upper City that had not been sold or pre-sold amounted to 129,309 sq.m.

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Photo of Evian Upper City

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BUSINESS OF THE TARGET GROUP

Evian Upper City is divided into three phases, all of which were completed and details are set out below.

			Saleable
			GFA of the
			properties		Contracted
			comprising the	Contracted	ASP for the
			relevant phase	ASP for the	three months
			that had not been	year ended	ended
			sold or pre-sold	31 December	31 March
Evian	Upper	City	as at 31 March 2013	2012	2013
			(sq.m.)	(RMB/sq.m.)	(RMB/sq.m.)
Phase	1	Residential Retail shops Car parks	} 25,519	9,255 11,590 –	– 15,157 –
Phase	2	Residential Retail shops Car parks	} 29,151	9,143 – –	9,402 – –
Phase	3	Residential Retail shops Car parks	} 74,639	10,798 – –	11,722 – –

Evian Upper City is held and developed by Foshan Xin Jie, a wholly-owned subsidiary of Harpen, which in turn is 50% held by Eureka. As stated in the Property Valuation of the Target Group in Appendix VI to this Circular, as at 31 March 2013, the total capital value of Evian Upper City was RMB1,373.00 million, and the capital value attributable to Eureka was RMB686.50 million.

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BUSINESS OF THE TARGET GROUP

Evian Tianhui ( 依雲天匯 )

Evian Tianhui is a residential and commercial complex located in Nanhai District of Foshan, close to the Qiandenghu Park to the west with an attractive natural environment with greenery and lakes. The project site is conveniently adjacent to line 1 of Foshan subway and is easily accessible by various transportation routes.

Evian Tianhui will primarily consist of upper-class super high-rise residential apartments and ancillary stores, and has a total site area of approximately 56,102 sq.m. with a total GFA of 301,818 sq.m. We set out below the saleable GFA of each type of properties of Evian Tianhui:

Evian Tianhui Residential Retail shops Car park Total	Total Saleable GFA (sq.m.) 203,570 16,466 75,250 295,286	Percentage 69% 6% 25%
		100%

As at 31 March 2013, the saleable GFA of the properties comprising Evian Tianhui that had not been sold or pre-sold amounted to 212,603 sq.m.

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==> picture [200 x 266] intentionally omitted <==

Photo of Evian Tianhui

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BUSINESS OF THE TARGET GROUP

Evian Tianhui is developed in two phases. Phases 1 and 2 are currently under development, details of which are set out below:

	Phase 1	Phase 2
Total GFA_(sq.m.)_	110,471	191,347
Total saleable GFA_(sq.m.)_	109,200	186,086
Planned construction period	February 2011–	June 2011–
	October 2013	September 2014
Date of pre-sale permit	21 March 2012	21 March 2012
Pre-sold GFA as at 31 March 2013 (sq.m.)	70,391	12,292
Number of residential units	547	703
Number of residential units pre-sold
as at 31 March 2013	488	75

Details of the contracted ASP for phases 1 and 2 are as follows:

			Saleable
			GFA of the
			properties		Contracted
			comprising the	Contracted	ASP for the
			relevant phase	ASP for the	three months
			that had not been	year ended	ended
			sold or pre-sold	31 December	31 March
Evian	Tianhui		as at 31 March 2013	2012	2013
			(sq.m.)	(RMB/sq.m.)	(RMB/sq.m.)
Phase	1	Residential Retail shops Car parks	} 38,808	11,345 – –	12,978 – –
Phase	2	Residential Retail shops Car parks	} 173,795	– – –	13,419 – –

Evian Tianhui is held and developed by Foshan Yi Yun, a subsidiary that is 50% held by Merchants Property Development (Guangzhou), which is 51% indirectly held by Eureka. As stated in the Property Valuation of the Target Group in Appendix VI to this Circular, as at 31 March 2013, the total capital value of Evian Tianhui was RMB2,232.00 million, and the capital value attributable to Eureka as at 31 March 2013 was RMB569.16 million.

The Target Group expects to fully complete the whole development of Evian Tianhui by September 2014.

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BUSINESS OF THE TARGET GROUP

Evian Xicheng ( 依雲曦城 )

Evian Xicheng is a residential and commercial complex located in Nanhai District of Foshan, enjoying the view of Bo Ai Lake to the south.

Evian Xicheng will primarily consist of low-end residential apartments, of which middle size units (90-144 sq.m.) amount to approximately 87%, and they are targeting general wage-earners. It has a total site area of approximately 141,900 sq.m., with a total GFA of approximately 422,961 sq.m. We set out below the saleable GFA of each type of properties of Evian Xicheng:

Evian Xicheng Residential Retail shops Car park Total	Total Saleable GFA (sq.m.) 284,387 24,200 104,667 413,254	Percentage 69% 6% 25%
		100%

As at 31 March 2013, the saleable GFA of the properties comprising Evian Xicheng that had not been sold or pre-sold amounted to 336,782 sq.m.

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Photo of Evian Xicheng

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BUSINESS OF THE TARGET GROUP

Evian Xicheng is developed in 5 phases.

Phases 1 and 2 are currently under development, details of which are set out below:

	Phase 1	Phase 2
Total GFA_(sq.m.)_	148,904	56,983
Total saleable GFA_(sq.m.)_	144,988	56,526
Planned construction period	December 2010–	October 2012–
	December 2013	October 2014
Date of pre-sale permit	19 April 2012	N/A
Pre-sale GFA as at 31 March 2013 (sq.m.)	76,472	N/A
Number of residential units	716	323
Number of residential units pre-sold
as at 31 March 2013	613	N/A

Phase 1 of Evian Xicheng has commenced its pre-sale in April 2012. Details of the contracted ASP for phase 1 are as follows:

			Saleable
			GFA of the
			properties		Contracted
			comprising the	Contracted	ASP for the
			relevant phase	ASP for the	three months
			that had not been	year ended	ended
			sold or pre-sold	31 December	31 March
Evian	Xicheng		as at 31 March 2013	2012	2013
			(sq.m.)	(RMB/sq.m.)	(RMB/sq.m.)
Phase	1	Residential Retail shops Car parks	} 68,516	7,351 – –	8,667 – –

Phases 3, 4 and 5 are held for further development and have a total GFA of approximately 217,075 sq.m.

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BUSINESS OF THE TARGET GROUP

Evian Xicheng is held and developed by Foshan Merchants Wharf, a subsidiary 50% held by Sino Action, which is in turn wholly owned by Eureka. As stated in the Property Valuation of the Target Group in Appendix VI to this Circular, as at 31 March 2013, the total capital value of Evian Xicheng was RMB1,181.69 million, and the capital value attributable to Eureka was RMB590.85 million.

The Target Group expects to fully complete the whole development of Evian Xicheng by April 2016.

Newly Acquired Land Parcel

The new land parcel is located in Shunde District of Foshan. It is adjacent to the Desheng business district, close to a local wetland park to the south west and is also easily assessable to various major transportation routes. It has a total site area of approximately 71,036 sq.m., with a total GFA of approximately 227,316 sq.m. The Target Group plans to develop a residential community project with ancillary commercial premises on such land parcel. The Target Group confirms that there is no concrete timeline for the development of the newly acquired land parcel as of now.

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BUSINESS OF THE TARGET GROUP

Guangzhou City

Jinshan Valley ( 金山谷 )

Jinshan Valley is a high-end residential and commercial complex located in Panyu District of Guangzhou. It is conveniently adjacent to various major expressways in the area and is within 15 minutes’ driving distance from the Pearl River New City central business district of Guangzhou.

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Jinshan Valley will primarily consist of standalone villas, semi-detached villas, high-rise residential buildings, shopping mall, street-level stores, office buildings and serviced apartments. It has a total site area of approximately 835,533 sq.m. with a total GFA of 1,356,296 sq.m. We set out below the saleable GFA of each type of properties of Jinshan Valley:

Jinshan Valley Residential Office Retail shops Car parks Total	Total Saleable GFA (sq.m.) 626,083 283,509 73,470 53,498 1,036,560	Percentage 61% 27% 7% 5%
		100%

– 136 –

BUSINESS OF THE TARGET GROUP

As at 31 March 2013, the total saleable GFA of the properties comprising Jinshan Valley that had not been sold or pre-sold amounted to 681,578 sq.m.

==> picture [396 x 559] intentionally omitted <==

Photo of Jinshan Valley

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BUSINESS OF THE TARGET GROUP

Jinshan Valley is divided into two portions comprising:

residential properties and ancillary commercial premises ( Jinshan Valley Residential ); and
office buildings and car parks ( Jinshan Valley Creative Zone ).

Jinshan Valley Residential

Jinshan Valley Residential is developed in 9 phases.

Phases 1, 2, 3 and 4 have been completed. Phase 1 was completely sold in 2009. Details of the contracted ASP of phases 2, 3 and 4 are as follows:

		Saleable
		GFA of the
		properties		Contracted
		comprising the	Contracted	ASP for the
		relevant phase	ASP for the	three months
		that had not been	year ended	ended
		sold or pre-sold	31 December	31 March
Jinshan	Valley Residential	as at 31 March 2013	2012	2013
		(sq.m.)	(RMB/sq.m.)	(RMB/sq.m.)
Phase 2	Residential Retail shops Car parks	} 6,687	15,652 32,385 17,355	16,675 – 19,667
Phase 3	Residential	35,286	34,645	5,741
Phase 4	Residential Retail shops Car parks	} 10,748	11,835 43,404 12,787	– – 12,723

Phase 8 is currently under development, details of which are set out below:

	Phase 8
Total GFA_(sq.m.)_	45,005
Total saleable GFA_(sq.m.)_	29,189
Planned construction period	May 2011–May 2013
Date of pre-sale permit	1 March 2012
Pre-sold GFA as at 31 March 2013 (sq.m.)	18,569
Number of residential units	296
Number of residential units pre-sold	296
as at 31 March 2013

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BUSINESS OF THE TARGET GROUP

Details of the contracted ASP of phase 8 are as follows:

		Saleable
		GFA of the
		properties		Contracted
		comprising the	Contracted	ASP for the
		relevant phase	ASP for the	three months
		that had not been	year ended	ended
		sold or pre-sold	31 December	31 March
Jinshan	Valley Residential	as at 31 March 2013	2012	2013
		(sq.m.)	(RMB/sq.m.)	(RMB/sq.m.)
Phase 8	Residential Retail shops Car parks	} 10,620	10,488 – –	9,545 – –

Phases 5, 6, 7 and 9 are held for further development and have a total GFA of 345,294 sq.m.

Jinshan Valley Creative Zone

Jinshan Valley Creative Zone is developed in 3 phases.

Phase 1 is currently under development and has not commenced pre-sale. Details of phase 1 are set out below:

	Phase 1 of Jinshan
	Valley Creative Zone
Total GFA_(sq.m.)_	152,378
Total saleable GFA_(sq.m.)_	101,561
Planned construction period	April 2013–September 2014

Phases 2 and 3 are held for further development and have a total GFA of 349,888 sq.m.

Jinshan Valley is held and developed by Merchants Property Development (Guangzhou), a company that is 51% indirectly held by Eureka. As stated in the Property Valuation of the Target Group in Appendix VI to this Circular, as at 31 March 2013, the total capital value of Jinshan Valley was RMB3,756.22 million, and the capital value attributable to Eureka was RMB1,915.67 million.

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BUSINESS OF THE TARGET GROUP

Due to the large scale of Jinshan Valley, the Target Group expects to fully complete its whole development by August 2016.

Chongqing City

Changjiahui ( 長嘉匯 )

Changjiahui is an upper-class multi-purpose urban complex located at the Danzishi area in the south central business district of Chongqing, which is one of the key developing areas. Facing the juncture of Yangtze River and Jialing River, Changjiahui enjoys a panoramic river view and has high growth potential for property development.

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BUSINESS OF THE TARGET GROUP

Changjiahui will primarily consist of high-end broad view residential buildings, featured high street, grade 5A office buildings and high-end serviced apartments. It has a total site area of approximately 336,600 sq.m. with a total GFA of 1,886,519 sq.m.

Under the land use rights grant contract for Changjiahui, the land parcels shall be handed over to Chongqing China Merchants in three batches and Chongqing China Merchants shall pay land premium in six instalments. As at 31 March 2013, 875,884 sq.m. of land had been handed over to Chongqing China Merchants, which had obtained all the relevant land use rights certificates. The handover of the rest of the land parcels for Changjiahui is expected to be completed by the end of 2015 subject to adjustment to the handover timetable to be agreed with the local land authority from time to time.

As at the Latest Practicable Date, the amount to be paid in relation to the land use rights grant contract for Changjiahui was RMB2,150 million, RMB800 million of which is expected to be paid in 2013 and the rest of it is expected to be paid in 2014 and 2015. Chongqing China Merchants will finance the RMB800 million with approximately RMB315 million of capital contribution that has been made by the shareholders of Chongqing China Merchants and the rest of it by cash generated from the pre-sale of Changjiahui. As for the remaining RMB1,350 million, the Company expects to finance it with cash generated from the pre-sale of Changjiahui in 2014 and 2015.

We set out below the saleable GFA of the each type of properties of Changjiahui:

Changjiahui Residential Office Shopping mall Car parks Total	Total Saleable GFA (sq.m.) 1,174,803 100,000 172,672 115,789 1,563,264	Percentage 75% 6% 11% 8%
		100%

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BUSINESS OF THE TARGET GROUP

As at 31 March 2013, the saleable GFA of the properties comprising Changjiahui that had not been sold or pre-sold amounted to 1,457,272 sq.m.

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==> picture [205 x 155] intentionally omitted <==

Photo of Chengjiahui

Changjiahui is developed in 7 phases.

Phase 1 is currently under development, details of which are set out below:

	Phase 1
Total GFA_(sq.m.)_	279,176
Total saleable GFA_(sq.m.)_	234,826
Planned construction period	June 2011– October 2014
Date of pre-sale permit	9 December 2011
Pre-sold GFA as at 31 March 2013 (sq.m.)	105,992
Number of residential units	1,255
Number of residential units pre-sold
as at 31 March 2013	780

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BUSINESS OF THE TARGET GROUP

Details of the contracted ASP for phase 1 are as follows:

		Saleable
		GFA of the
		properties		Contracted
		comprising the	Contracted	ASP for the
		relevant phase	ASP for the	three months
		that had not been	year ended	ended 31
		sold or pre-sold	31 December	March
Changjiahui		as at 31 March 2013	2012	2013
		(sq.m.)	(RMB/sq.m.)	(RMB/sq.m.)
Phase 1	Residential Shopping mall Car parks	} 128,834	9,300 – –	8,238 – –

Phases 2 to 7 are held for future development and have a total GFA of approximately 1,607,343 sq.m.

Changjiahui is held and developed by Chongqing China Merchants, a subsidiary that is 50% indirectly held by Eureka. As stated in the Property Valuation of the Target Group in Appendix VI to this Circular, as at 31 March 2013, the total capital and reference value of Changjiahui was RMB5,676.00 million, and the capital and reference value attributable to Eureka was RMB2,838.00 million.

Due to the large scale of Changjiahui, the Target Group expects to fully complete the whole development by October 2020.

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BUSINESS OF THE TARGET GROUP

Nanjing City

==> picture [341 x 342] intentionally omitted <==

Zijinshan No. 1 ( 紫金山一號 )

Zijinshan No. 1 is located in Qixia District of Nanjing and close to the scenic area of Zijin mountain. The project site is conveniently located at the line 2 of Nanjing subway and is easily accessible by various bus routes in the city of Nanjing.

Zijinshan No. 1 will primarily consist of residential units, commercial properties and serviced apartments. It has a total site area of approximately 66,571 sq.m. with a total GFA of 213,870 sq.m. We set out below the saleable GFA of each type of properties of Zijinshan No. 1:

Zijinshan No.1 Residential Shopping mall Carpark Total	Total Saleable GFA (sq.m.) 91,626 46,958 7,245 145,829	Percentage 63% 32% 5%
		100%

As at 31 March 2013, the saleable GFA of the properties comprising Zijinshan No.1 that had not been sold or pre-sold amounted to 72,465 sq.m.

– 144 –

BUSINESS OF THE TARGET GROUP

Zijinshan No. 1 is divided into two land lots. Lot 1 consists of residential units and lot 2 is a residential and commercial complex.

Lot 1 is a mid- to high-end residential community, which primarily consists of high-rise residential buildings, and has a total site area of approximately 44,039 sq.m. with a total GFA of 107,273 sq.m.

==> picture [397 x 242] intentionally omitted <==

Photo of Lot 1 of Zijinshan No. 1

Lot 1 was completed in December 2011, details of which are set out below:

		Saleable
		GFA of the
		properties		Contracted
		comprising the	Contracted	ASP for the
		relevant lot that had	ASP for the	three months
		not been sold or	year ended	ended
		pre-sold	31 December	31 March
Zijinshan	No. 1	as at 31 March 2013	2012	2013
		(sq.m.)	(RMB/sq.m.)	(RMB/sq.m.)
Lot 1	Residential Car parks	} 25,188	20,973 12,124	21,770 11,134

– 145 –

BUSINESS OF THE TARGET GROUP

Lot 2 will consist of a serviced apartments block called Tai Ge Apartments (泰格公寓) and a shopping mall called China Merchants Garden City Centre (招商花園城中心). It has a total site area of approximately 22,532 sq.m., with a total GFA of 106,597 sq.m.

==> picture [197 x 131] intentionally omitted <==

Photo of Lot 2 of Zijinshan No. 1

Tai Ge Apartments

Tai Ge Apartments are currently under development, details of which are set out below:

	Tai Ge Apartments
Total GFA_(sq.m.)_	21,115
Total saleable GFA_(sq.m.)_	17,339
Planned construction period	April 2011–October 2013
Date of pre-sale permit	5 March 2012
Pre-sold GFA as at 31 March 2013 (sq.m.)	17,020
Number of serviced apartment units	398
Number of serviced apartment units pre-sold	391
as at 31 March 2013

China Merchants Garden City Centre

China Merchants Garden City Centre is a community shopping mall ancillary to the Tai Ge Apartments. China Merchants Garden City Centre is currently under development. It has a total GFA of approximately 85,482 sq.m.

– 146 –

BUSINESS OF THE TARGET GROUP

Details of contracted ASP for Lot 2 of Zijinshan No.1 are as follows:

Saleable GFA of the properties comprising the Contracted ASP Contracted ASP relevant lot for the year for the three that had not been ended months ended sold or pre-sold 31 December 31 March Zijinshan No. 1 as at 31 March 2013 2012 2013 (sq.m.) (RMB/sq.m.) (RMB/sq.m.) Lot 2 Residential — Tai 14,935 15,966 Ge Apartments Shopping mall — 47,277 – – China Merchants Garden City Centre }

Zijinshan No. 1

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BUSINESS OF THE TARGET GROUP

Zijinshan No. 1 is held and developed by Merchants Nanjing Real Estate, which is 51% indirectly held by Eureka. As stated in the Property Valuation of the Target Group in Appendix VI to this Circular, as at 31 March 2013, the total capital value of Zijinshan No. 1 was RMB1,823.00 million, and the capital value attributable to Eureka was RMB929.73 million.

The Target Group expects to fully complete the whole development of Zijinshan No. 1 by October 2013.

Yonghuafu ( 雍華府 )

Yonghuafu is a residential complex located in Jianye District of Nanjing. It will consist of high-rise, middle- to large-size residential apartments and has a total site area of approximately 48,478 sq.m. with a total GFA of 183,234 sq.m. We set out below the saleable GFA of each type of properties of Yonghuafu:

Yonghuafu Residential Car park Total	Total Saleable GFA (sq.m.) 141,233 13,480 154,713	Percentage 91% 9%
		100%

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Photo of Yonghuafu

As at 31 March 2013, the saleable GFA of the properties comprising Yonghuafu that had not been sold or pre-sold amounted to 154,713 sq.m.

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BUSINESS OF THE TARGET GROUP

Yonghuafu is developed in 2 phases.

Phase 1 is currently under development, details of which as at 31 March 2013 are set out below:

	Phase 1
Total GFA_(sq.m.)_	91,306
Total saleable GFA_(sq.m.)_	77,443
Planned construction period	March 2013 – May 2015
Number of residential units	564

The Target Group began the pre-sale of phase 1 on 25 April 2013.

Phase 2 is held for further development and has a total GFA of approximately 91,928 sq.m.

As at 31 March 2013, based on the Target Group’s internal estimate or records, the total preliminary development costs (including land costs, construction costs and capitalised finance costs) incurred in relation to the development of Yonghuafu was approximately RMB2,047.66 million. The Target Group currently estimates that an additional RMB1,159.07 million will be required to complete the whole development of Yonghuafu.

Yonghuafu is held and developed by Nanjing China Merchants Rui Sheng, a wholly-owned subsidiary of Merchants Nanjing Real Estate, which is in turn 51% indirectly held by Eureka. As stated in the Property Valuation of the Target Group in Appendix VI to this Circular, as at 31 March 2013, the total reference value of Yonghuafu was RMB1,882.00 million, and the reference value attributable to Eureka as at 31 March 2013 was RMB959.82 million.

The Target Group expects to fully complete the whole development of Yonghuafu by December 2015.

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BUSINESS OF THE TARGET GROUP

Set forth below is a summary of the Target Group’s total contracted sales (net of any cancelled contracted sale) for each of the three	years ended 31 December 2010, 2011 and 2012, and the three months ended 31 March 2013:	For the year ended 31 December For the three months ended 31 March	Project 2010 2011 2012 2013	Contracted Contracted Contracted Contracted Contracted Contracted Contracted Contracted Contracted Contracted Contracted Contracted	GFA Sales ASP GFA Sales ASP GFA Sales ASP GFA Sales ASP	(sq.m.) (RMB million) (RMB/sq.m.) (sq.m.) (RMB million) (RMB/sq.m.) (sq.m.) (RMB million) (RMB/sq.m.) (sq.m.) (RMB million) (RMB/sq.m.)	FOSHAN 佛山	Evian Water Bank Phase I	佛山依雲水岸一期	Residential – – – – – – – – – – – –	Retail shops – – – 3,147 214.58 68,184 – – – – – –	Car parks 11,328 102.21 9,023 2,434 25.97 10,670 21 0.18 8,166 – – –	Evian Water Bank Phase II	佛山依雲水岸二期	Residential 83,396 1,082.41 12,979 8,760 140.80 16,074 – – – – – –	Retail shops – – – 11,010 249.56 22,667 – – – – – –	Car parks – – – 36,615 275.93 7,536 664 5.08 7,660 205 1.39 6,766	Evian Water Bank Phase III	佛山依雲水岸三期	Residential – – – 64,509 812.78 12,599 79,625 916.45 11,510 11,298 141.69 12,541	Retail shops – – – – – – 6,345 178.31 28,104 5,473 35.14 6,421(1)	Car parks – – – – – – – – – 39,359 293.17 7,449	Evian Water Bank Phase IV	佛山依雲水岸四期	Residential – – – 8,370 495.58 59,210 11,610 491.74 42,354 862 38.88 45,117	Car parks – – – – – – 4,556 25.10 5,509 255 1.6 6,268	Total for Evian Water Bank 94,724 1,184.62 12,506 134,845 2,215.20 16,428 102,821 1,616.86 15,725 57,452 511.87 8,910

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For the three months ended 31 March	2013	Contracted Contracted Contracted	GFA Sales ASP	(sq.m.) (RMB million) (RMB/sq.m.)			– – –	1,086 16.46 15,157	– – –			1,837 17.28 9,402	– – –	– – –			10,358 121.42 11,722	– – –	– – –	13,281 155.16 11,683			5,356 69.51 12,978	– – –	– – –			12,292 164.95 13,419	– – –	– – –	17,648 234.46 13,285
		Contracted	ASP	(RMB/sq.m.)			9,255	11,590	–			9,143	–	–			10,798	–	–	9,788			11,345	–	–			–	–	–	11,345
	2012	Contracted	Sales	(RMB million)			3.1	31.46	–			417.26	–	–			264.14	–	–	715.96			737.84	–	–			–	–	–	737.84
		Contracted	GFA	(sq.m.)			335	2,714	–			45,638	–	–			24,461	–	–	73,148			65,035	–	–			–	–	–	65,035
For the year ended 31 December	2011	Contracted Contracted Contracted	GFA Sales ASP	(sq.m.) (RMB million) (RMB/sq.m.)			10,984 118.75 10,811	3,900 116.88 29,972	– – –			48,230 453.91 9,411	– – –	– – –			– – –	– – –	– – –	63,114 689.54 10,925			– – –	– – –	– – –			– – –	– – –	– – –	– – –
		Contracted	ASP	(RMB/sq.m.)			10,005	–	–			–	–	–			–	–	–	11,334			–	–	–			–	–	–	–
	2010	Contracted	Sales	(RMB million)			462.63	–	–			–	–	–			–	–	–	462.63			–	–	–			–	–	–	–
		Contracted	GFA	(sq.m.)			50,618	–	–			–	–	–			–	–	–	50,618			–	–	–			–	–	–	–
	Project				Evian Upper City Phase I	佛山依雲上城一期	Residential	Retail shops	Car parks	Evian Upper City Phase II	佛山依雲上城二期	Residential	Retail shops	Car parks	Evian Upper City Phase III	佛山依雲上城三期	Residential	Retail shops	Car parks	Total for Evian Upper City	Evian Tianhui Phase I	佛山依雲天匯一期	Residential	Retail shops	Car parks	Evian Tianhui Phase II	佛山依雲天匯二期	Residential	Retail shops	Car parks	Total for Evian Tianhui

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For the three months ended 31 March	2013	Contracted Contracted Contracted	GFA Sales ASP	(sq.m.) (RMB million) (RMB/sq.m.)			19,456 168.63 8,667	– – –	19,456 168.63 8,667					340 5.67 16,675	– – –	49 0.96 19,667			113 0.65 5,741(2)			– – –	– – –	1,607 20 12,723			62 0.59 9,545	– – –	– – –	2,171 27.87 13,045	2,171 27.87 13,045
		Contracted	ASP	(RMB/sq.m.)			7,351	–	7,351					15,652	32,385	17,355			34,645			11,835	43,404	12,787			10,488	–	–	20,018	20,018
	2012	Contracted	Sales	(RMB million)			419.10	–	419.10					5.31	82.42	1.40			579.79			94.78	29	86			194.11	–	–	1,072.81	1,072.81
		Contracted	GFA	(sq.m.)			57,016	–	57,016					339	2,545	81			16,735			8,009	673	6,694			18,507	–	–	53,583	53,583
For the year ended 31 December	2011	Contracted Contracted Contracted	GFA Sales ASP	(sq.m.) (RMB million) (RMB/sq.m.)			– – –	– – –	– – –					– – –	– – –	1,016 15.18 14,941			2,466 111.70 45,295			70,640 953.55 13,499	4,208 142 33,762	– – –			– – –	– – –	– – –	78,330 1,222.43 15,607	78,330 1,222.43 15,607
		Contracted	ASP	(RMB/sq.m.)			–	–	–					17,500	–	–			34,752			9,681	–	–			–	–	–	11,835	11,835
	2010	Contracted	Sales	(RMB million)			–	–	–					18.07	–	–			139.26			1,303.15	–	–			–	–	–	1,460.48	1,460.48
		Contracted	GFA	(sq.m.)			–	–	–					1,032	–	–			4,007			118,360	–	–			–	–	–	123,399	123,399
	Project				Evian Xicheng Phase I	佛山依雲曦城一期	Residential	Car parks	Total for Evian Xicheng	GUANGZHOU 廣州	Jinshan Valley 金山谷	Jinshan Valley Residential Phase II	廣州金山谷二期	Residential	Retail shops	Car parks	Jinshan Valley Residential Phase III	廣州金山谷三期	Residential	Jinshan Valley Residential Phase IV	廣州金山谷四期	Residential	Retail shops	Car parks	Jinshan Valley Residential Phase VIII	廣州金山谷八期	Residential	Retail shops	Car parks	Total for Jinshan Valley Residential	Jinshan Valley Total

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For the year ended 31 December For the three months ended 31 March	Project 2010 2011 2012 2013	Contracted Contracted Contracted Contracted Contracted Contracted Contracted Contracted Contracted Contracted Contracted Contracted	GFA Sales ASP GFA Sales ASP GFA Sales ASP GFA Sales ASP	(sq.m.) (RMB million) (RMB/sq.m.) (sq.m.) (RMB million) (RMB/sq.m.) (sq.m.) (RMB million) (RMB/sq.m.) (sq.m.) (RMB million) (RMB/sq.m.)	CHONGQING 重慶	Changjiahui Phase I	重慶長嘉匯一期	Residential – – – 1,980 25.89 13,076 86,106 800.77 9,300 17,907 147.51 8,238	Shopping mall – – – – – – – – – – – –	Car parks – – – – – – – – – – – –	Total for Changjiahui – – – 1,980 25.89 13,076 86,106 800.77 9,300 17,907 147.51 8,238		NANJING 南京	Zijinshan No. 1 Lot I	南京紫金山1號地塊一	Residential – – – 14,542 283.23 19,477 33,388 700.25 20,973 6,903 150.28 21,770	Car parks – – – – – – 1,700 21 12,124 723 8 11,134	Zijinshan No. 1 Lot II	南京紫金山1號地塊二	Residential – – – – – – 16,837 251.46 14,935 184 2.94 15,966	Shopping mall – – – – – – – – – – – –	Total for Zijinshan No.1 – – – 14,542 283.23 19,477 51,925 972.71 18,725 7,810 161.22 20,649		Grand Total 268,741 3,107.73 11,564 292,811 4,436.29 15,151 489,634 6,336.05 12,939 135,725 1,406.72 10,368		Note:	(1) The reason that the contracted ASP of Evian Water Bank Phase III decreased significantly for the three months ended 31 March 2013 as compared to that for the year ended 31 December 2012 is because the contracted sales for the three months ended 31 March 2013 mainly consisted of contracted sales of kindergartens (which has been treated as retail shops by the Target Group given the similar commercial nature and saleability), which had a total contracted GFA of 5,358 sq.m. with a lower average selling price of approximately RMB5,599 per sq.m. The remaining contracted GFA of 115 sq.m. was for ancillary shops with a higher average selling price of approximately RMB44,800 per sq.m. The average selling price for kindergartens is generally lower because certain amount of the GFA of the relevant project has been designated for use of kindergarten by the local government, which has a direct effect on the pricing of such property.	(2) The reason that the contracted ASP of Jinshan Valley Residential Phase III decreased significantly for the three months ended 31 March 2013 as compared to that for the three years ended 31 December 2010, 2011 and 2012 is because only one villa was pre-sold during the three months ended 31 March 2013, while the pre-sale of another villa (which was pre-sold in 2012) was cancelled by the customer. The former has a total GFA of 452 sq.m. with a price of RMB40,929 per sq.m. The latter (the pre-sale of which was cancelled) has a totally GFA of 339 sq.m. with a price of RMB52,658 per sq.m. The cancellation of the pre-sale took place in the first quarter of 2013 rather than 2012 (when the pre-sale was made). In terms of GFA and price, the villa whose pre-sale was cancelled did not match the villa that was pre-sold in the first quarter of 2013. As a result, the net effect has led to the deviation of the contracted ASP from the ASP without taking into account the cancelled contracted sales. Such deviation only exists when the pre-sale and its cancellation occur in different time periods while the number of properties pre-sold during the period is very small. During the Track Record Period and the first three months of 2013, except for the contracted ASP for Jinshan Valley Phase III at issue here, the effect of cancellation of pre-sale on the contracted ASP is immaterial.

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The contracted ASP of the Target Group’s properties increased from RMB11,564 per sq.m. in 2010 to RMB15,151 per sq.m. in 2011, representing an increase of approximately 31.0%. The contracted ASP then decreased to RMB12,939 per sq.m. in 2012, representing a decrease of approximately 14.6%. The contracted ASP further decreased to RMB10,368 per sq.m. in the three months ended 31 March 2013, representing a decrease of 20.3%.

For the year ended 31 December 2012, the Target Group’s contracted GFA for residential properties was approximately 463,620 sq.m., while its contracted GFA for commercial properties was approximately 12,277 sq.m. Subject to market condition, the Target Group plans to sell the remaining commercial properties in its property portfolio.

PROJECT DEVELOPMENT

Although the nature and sequence of specific planning and execution activities vary among projects, we have summarised below the core elements of the Target Group’s typical project development process for its residential and commercial properties for sale:

	Land bidding/					After Sale
Project Selection	Tendering	Pre-Construction	Project Design	Construction	Pre-sale and Sale	Service
• Gather land	• Arrange for	• Obtain	• Schematic	• Bidding/	• Engage in	• Register and
information	bidding/tendering	construction	design	tendering for	marketing and	apply for unit
• Perform market	• Receive notice	land planning	• Construction	project	promotion	ownership
research	of successful	permit	drawing design	construction	• Obtain pre-sale	certificate
• Formulate	bid/ tender	• Obtain	• Water and	work	permit	• Gather and
initial concept	• Sign land	construction	drainage	• Bidding/	• Sign, notarise	process
• Perform	contract	works planning	design	tendering for	and register	customer
internal	• Obtain land	permit	• Mechanical &	project	pre-sale	feedback
feasibility	use rights	• Obtain work	electrical	sub-item	contract and	• Perform
study	certificate	commencement	design;	• Monitor	mortgage	customer
• Perform		permit	structure	construction	• Obtain	information
internal		• Obtain other	design	progress	completion and	analysis
assessment and		relevant	• Interior design;	• Perform quality	acceptance	• Regular
approval		government	landscape	inspection	certificate	customer visits
		approvals	design	• Maintain cost	• Obtain delivery	and activities
				control	certificate

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Project Management

We set out below the project management structure of the Target Group:

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----- Start of picture text -----

City-level PRC Operating Subsidiary
General Managers Decision-Making Meeting
Cost Committee
Administration
DevelopmentDepartment ManagementDesign and ProcurementEngineering Cost ManagementDepartment DepartmentFinance DepartmentSales and HumanResources
Department Department
Department
----- End of picture text -----

The Target Group has established seven departments for each of the PRC Operating Subsidiaries: development department, design management department, engineering and procurement department, cost management department, finance department, sales department and administration and human resources department.

The development department is responsible for conducting market research and analysis to track the macro- and socio-economic changes and growth patterns of the relevant Target Cities, to identify and assess target localities which the Target Group believes to have development potential. The development department is also responsible for coordinating the other departments to prepare brief reports on land information, economic estimate and to make investment recommendations for proposed investment on land (project) to the General Managers Decision-Making Meeting, which is attended by the senior management team of the relevant PRC Operating Subsidiary (usually consisting of the general manager, the deputy general manager, the chief financial officer and the assistant to the general manager) and is held on a weekly basis.

The design management department is responsible for preparing the planning for each project. It also supervises the contracting out of the design work for projects and tracks the process of design.

The engineering and procurement department is responsible for overseeing the construction progress of each project, monitoring the quality control and entering into agreements for procurement of building materials.

The finance department is responsible for reviewing the cash flow estimates and arranging for the financing for the relevant project.

The sales department is responsible for analysing project position, the marketing and promotion of the relevant project and also supervising the sales process. There is also a customer service team within the sales department, which is responsible for after-sale services.

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The cost management department is responsible for preparing the cost control strategy and target for the relevant projects. The managers of each department above will form a cost committee to approve the cost control target, the suppliers and major contractors and to monitor the tender process of each property project.

Project Selection

In conjunction with the Target Group’s ongoing market and design research, the Target Group continuously works to identify and evaluate potential sites for new projects. The Target Group assesses land parcels for use in potential projects based on its analysis of, among other things:

size, shape and location of the land parcel;
local customer demand and expected growth of the city in which the land is located;
transportation access and infrastructure support;
project evaluation according to the Target Group’s internal pre-determined criteria;
development prospects, taking into account social, economic and environmental effects;
timing and cost of relocating existing occupants;
applicable zoning regulations and government preferential policies; and
government development plans for the relevant site and the neighboring area.

Once the development department of each of PRC Operating Subsidiaries decides to acquire a piece of land, it will prepare a feasibility report to be reviewed by the General Managers Decision-Making Meeting and to be approved by the board of directors of the relevant project company.

Land acquisition

The Target Group uses and plans to use a variety of channels to acquire land interests, which include:

acquiring from governments through public tenders, auctions and listing-for-sale process;
purchasing from existing non-governmental land-interest holders pursuant to land transfer agreements; and
establishing joint ventures with companies which have acquired or are well-positioned to acquire interests in land.

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In conjunction with the acquisition of land interests from the PRC government, property developers in the PRC are required to pay land premium to the relevant government authority and apply for the land use rights certificate in relation to the land interests. In general, upon the payment of land premium to the relevant land authorities, land use rights in the PRC are granted on the relevant land parcels for a term of 70 years for residential properties, 40 years for commercial properties and 50 years for comprehensive-use properties.

Pre-construction

Once the Target Group has obtained the rights to develop a parcel of land, it will begin to apply for the various necessary permits and licenses for the construction and sale of its properties. If the land use right is acquired by way of grant, the land grant contract will be a precondition to applications for the following permits and licenses:

land use rights certificate, being a certification of the right of a party to use a parcel of land;
construction land planning permit, being a permit authorizing a developer to begin the survey, planning and design of a parcel of land;
construction work planning permit, being a certificate indicating government approval for a developer’s overall planning and design of the project and allowing a developer to apply for a work commencement permit;
construction work commencement permit, being a permit required for commencement of construction; and
pre-sale permit, being a permit authorising a developer to start the pre-sale of property still under construction.

Financing of Projects

Historically, the Target Group financed its projects primarily through capital contributions or advances provided by its shareholders, bank loans and internal cash flows, including proceeds from the pre-sale of its properties. As disclosed in the section “Relationship with the Controlling Shareholders”, as at the Latest Practicable Date, the Target Group has repaid all advances and entrustment loans from CMPD. Going forward, the Target Group will mainly finance its projects through internal cash flows and bank loans, and the policy is to finance its property developments with internal resources to the extent practicable so as to reduce the level of external funding required.

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According to guidelines issued by the CBRC, no loan shall be granted to projects which have not obtained the relevant land use rights certificates, construction land planning permits, construction work planning permits and construction work commencement permits. The guidelines also stipulate that not less than 35% of the total investment in a property development project must come from a real estate developer’s own capital for the development project in order for banks to extend loans to the real estate developer.

On 5 June 2003, the PBOC published the Notice on Further Strengthening the Management of Loans for Property Business, which prohibits commercial banks from advancing loans to fund the payment of land premium. As a result, the Target Group may use its own funds only to pay for land grant fees.

Following the Opinion on Adjusting the Housing Supply Structures and Stabilising House Prices promulgated by the State Council on 4 May 2006, the credit conditions on property development was further regulated to deter property developers from using bank loans to build up its land bank. Pursuant to these regulations, commercial banks in the PRC were not permitted to provide loans to property developers failing to meet loan conditions, such as having less than 35% of the project capital required for development, and commercial banks require property developers to obtain land use rights certificates and have at least 35% of the project capital required for a development prior to a loan grant.

In May 2009, the State Council issued the Notice on Adjusting the Proportions of Registered Capital in Fixed Asset Investment Projects, which has lowered the minimum capital ratio for affordable housing and ordinary commodity housing projects from 35% to 20%.

As at the Latest Practicable Date, except for Nanjing China Merchants Rui Sheng, all the project companies of the Target Group had satisfied the foregoing requirements in their applications for loan. Nanjing China Merchants Rui Sheng has not yet obtained the relevant land use rights certificates and thus cannot apply for bank loans. Before Nanjing China Merchants Rui Sheng can obtain bank loans on its own, the Target Group plans to use the proceeds from the sale of the Target Group’s other properties to finance Nanjing China Merchants Rui Sheng’s projects.

Historically, the Target Group had paid land premium mainly from the capital contribution and advances from the CMPD. The Target Group plans to use the proceeds from the sale of properties and other internal funds to finance its future land premium payments.

As at 30 April 2013, the Target Group’s outstanding borrowings from shareholders and a trust company amounted to RMB5,942 million and RMB1,100 million, respectively. Please see the section headed “Financial Information of the Target Group” for more details of the Target Group’s channels of financing, indebtedness and borrowings.

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Project Design

The design management department of each project company is responsible for planning and determining the master design concept for the relevant property project, taking into account certain factors such as:

proposed type of development;
target market; and
size and surrounding area of the site.

Once the conceptual design of a property development project is completed, the Target Group contracts out the detailed project design work to reputable architectural, interior design firms and landscape architecture firms (the External Team ). The Target Group selects the External Team mainly based on the specific positioning and conceptual design of the relevant project, as well as the relevant External Team’s specific design style, professional qualifications, reputation, track record and technical abilities, etc.

The design management department will collaborate with the External Team to transform the design concept into a more detailed design drawing (the Design Development Document ). This is a crucial part of the design process. The Design Development Document must be approved by the relevant PRC governmental authorities. Once approved, the Design Development Document then becomes the basis for the detailed design and construction of the project.

The engineering and procurement department will develop and determine the appropriate building methods and materials so that project costs can be controlled and its developed properties are more likely to be accepted by the targeted markets.

During the construction phase, the engineering and procurement department works closely with the contractor, the project engineers and the External Team to manage and oversee the project’s progress. In addition to focusing on the functional and aesthetic aspects of the project, the design management department also provides constant site supervision and conducts progress audits in order to ensure that construction progresses is in accordance with the design plan and schedule.

Resettlement

The Target Group acquired land for its current property development projects through public tenders, auctions and listing-for-sale process. The relevant land authority as grantor of land use rights has the obligation to carry out resettlement on the relevant land and hand over the land to the Target Group afterwards. Resettlement in respect of most of the Target Group’s project developments is carried out by the relevant local governments pursuant to specified time schedules for the delivery of the land to the Target Group, which is agreed and reflected in its land use rights grant contracts.

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Upon delivery of land (and accompanying land use rights certificates), the relevant project company will pay the corresponding portion of the land premium according to the relevant land grant contract, and no additional resettlement costs will be borne by the Target Group in relation to these projects.

All the land parcels for the Target Projects have been handed over to the Target Group without being subject to any resettlement except some land parcels for Changjiahui. Under the land use rights grant contract for Changjiahui, the land parcels should be handed over to Chongqing China Merchants in three batches and Chongqing China Merchants shall pay land premium in six instalments. As at 31 March 2013, 875,884 sq.m. of land had been handed over to Chongqing China Merchants, which had obtained all the relevant land use rights certificates. The handover of the rest of the land parcels with total GFA of 1,010,635 sq.m. for Changjiahui is expected to be completed by the end of 2015 subject to adjustment to the handover timetable to be agreed with the local land authority from time to time. Some of the land parcels to be handed over by the local land authority to Chongqing China Merchants are subject to resettlement. If the local land authority fails to complete the resettlement on time and as a result, fails to hand over the land parcels according to the handover timetable, the property development on the relevant parcels of land may be materially affected.

During the Track Record Period and up to the Latest Practicable Date, the Target Group had not experienced any delay in its property development as a result of any resettlement that had an adverse effect on the project development.

Construction

Appointment of Construction Contractors

Construction of the Target Group’s projects usually proceeds phase by phase or block by block as part of its financial management and marketing strategy. Normally, different general contractors are selected to carry out construction of different phases or blocks in a development, a practice which they consider enables them to better control construction quality, time and cost. According to the relevant PRC laws, the selection of construction companies with respect to certain construction projects must be carried out by using a tender process. Only those contractors which have obtained all relevant professional qualifications can attend the bidding process.

To ensure compliance with the quality standard, the Target Group has established a selection procedure to select the construction contractors. The selection process for the tenders is managed by the engineering and procurement department, and is supervised by the cost management department. A thorough joint-departments due diligence will be undertaken on the potential contractors during the bidding process, including conducting interviews with bidders, visiting the construction sites where the bidders are currently working on and conducting investigation to verify the credentials and track record submitted by the bidders, etc. When selecting a contractor, the Target Group typically takes into account its professional qualifications, reputation in the industry, experience and credentials, prices tendered, cash flows and other financial conditions.

The total annual fees paid to the Target Group’s contractors during each of the three years ended 31 December 2010, 2011 and 2012 amounted to approximately RMB1,052.89 million, RMB1,998.40 million and RMB1,950.70 million, respectively.

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Key Terms of Construction Agreement

Typically, each project company within the Target Group will enter into the relevant construction agreement with external construction contractors based on the Target Group’s standard construction agreement.

Payment to contractors by the Target Group is made in stages in accordance with the terms and conditions stipulated in the standard construction agreement signed between the relevant project company and the contractors. The Target Group’s standard construction agreement generally provides for progressive monthly payment during the construction period until a specified maximum percentage of the total contract sum is paid.

The percentage of the stage payments varies from case to case. Upon completion of a project, the contractors would usually have received approximately 80% of the total payment. At closing and settlement, the Target Group will settle approximately 95% of the total payment, and retain approximately 5% as retention money. The retention money is used to cover any contingent expenses incurred as a result of any construction defects.

The contractors are required to provide warranties, with warranty periods ranging from two to three years, for any losses the Target Group incur as a result of not meeting contractually or statutorily specified quality standards. Any unused portion of the retention money will be returned to the contractors upon expiry of the warranty period.

The Target Group’s standard construction agreement also includes express terms on construction schedule and work quality, etc. Under the standard construction agreement, the contractors are required to provide unconditional and irrevocable performance guarantee issued by banks.

Quality Control and Construction Supervision

The Target Group closely monitors all construction processes to ensure quality control and construction supervision. The engineering and procurement department of the relevant project company, comprising qualified engineers, is responsible to carry out quality control and safety supervision, and conducts regular inspection of the construction sites to ensure construction quality and safety control could comply with the relevant laws, regulation, guidelines and industry standards. The project companies also engage third party supervisory teams to implement national standards and supervisory regulations pursuant to the laws and regulations of the PRC. The Target Group also engages independent third party to conduct sample checks by on-site measurements on the projects. The engineering and procurement department then controls the quality and safety risk of the projects based on the results of the on-site sample checks.

The Target Group has formulated detailed management policies on project supervision and quality control, by which all relevant departments of the project companies are required to strictly abide. The construction contractors also have to follow the quality control procedures.

Procurement

The Target Group mainly outsources the procurement of construction materials to the construction contractors. However, in certain circumstances, the Target Group is

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responsible for procuring specialised building materials, such as elevators, windows and doors, while the construction contractors are responsible for procuring more general construction materials, such as cement and steel.

The Target Group maintains strict quality control procedures for selection, inspection and testing of construction materials. Where the materials are sourced by the contractors, the Target Group will designate the specific quality standard, or a few reputable brands from which the contractors can source materials. This is to ensure the construction materials meet the Target Group’s standards and requirements.

All materials provided by the contractors are subject to inspection and acceptance procedures. Construction materials and fittings, such as steel, cement, sand and stone, will be inspected by the engineering and procurement department of the relevant project company to ensure compliance with the contractual specifications. They will also be sent to project quality supervision and inspection stations designated by governmental authorities according to the relevant PRC laws and regulations. Materials that do not meet the required quality standards will not be used in projects and will be returned to suppliers.

Pre-sale

According to the Urban Real Property Law and the Administrative Measures governing the Pre-sale of Urban Real Estate, the following conditions must be fulfilled before the pre-sale of a particular property can commence:

the land premium must be paid in full and the land use rights certificate must have been obtained;
the construction work planning permit and the work commencement permit must have been obtained;
the funds contributed to the development of the project shall amount to at least 25% of the total amount to be invested in the project, the standard of process of project image prescribed by local government must have been complied and the project progress and the date of completion of the project for use must have been ascertained; and
the pre-sale approval must have been obtained.

The Target Group has complied with the relevant statutory requirements in all material respects for pre-sale, including but not limited to requiring all developers to use a standard pre-sale contract required by the relevant government authority. Please see the section headed “Regulatory Overview — Real estate development — pre-sale of commodity residential houses” and the section headed “Business of the Target Group — Permits, licences and approvals” for more details.

Sales and Marketing

The sales department of each project company is responsible for determining the appropriate promotion and sales plans for the relevant property developments. Particularly, they are responsible for conducting detailed analyses of market conditions,

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preparing promotional materials, conducting general promotional campaigns and recommending unit prices for the projects, and coordinating and monitoring the relevant project company’s relationship with the media.

The Target Group has maintained a cooperation relationship with some of the major property agents throughout the years, but has adopted different and flexible sales and marketing approaches for different markets, according to the different situation of each property project and different target customers. For southern China areas, such as Guangzhou and Foshan where there is extensive recognition of the CMPD brand, the sales and marketing teams of the relevant project companies will conduct the relevant sales and marketing on their own, so as to maintain brand reputation and to achieve higher profitability. For eastern China area namely Nanjing, the relevant project companies tend to engage both national and regional property agents to carry out the sales and marketing so as to achieve efficiency. For south west area namely Chongqing, the sales and marketing team of the relevant project company works together with the regional property agents and leverage on their extensive customer base.

The Target Group also undertakes both direct and indirect marketing efforts such as advertising, organising commercial activities, customer activities and publication of customer magazines, etc.

Delivery

In relation to the Target Group’s properties for sale, after construction is completed, it will need to obtain a completion and acceptance certificate from the relevant local governments before it is able to deliver the properties to its customers.

As required by the applicable regulations, the Target Group provides, without charge, various certificates to the owners of residential units of the relevant projects, such as the “Internal Furnishing Quality Control Certificate” (室內裝修質量合格證書) and the “Air Quality Control Certificate” (室內空氣質量檢驗合格證書). The initial owners also receive a residence quality warranty against certain defects. The Target Group believes such certificates and warranty evidence its construction standards and have contributed to its high customer satisfaction rate.

Payment and End-user Financing

Purchasers of the Target Group’s properties can choose between payment by installments or lump sum payments. Where a purchaser chooses to pay by installments, at least 30% of the purchase price is required to be made as a down payment when the sales contract is entered into. In line with market practice, the Target Group has arrangements with various banks for the provision of mortgage facilities to its customers. Like other property developers in the PRC, the Target Group assists its customers with mortgage loans and provides guarantees in favor of the banks or housing provident fund management centers in respect of the mortgage facilities granted by them to the customers.

However, as its general policy, the Target Group prefers not providing such guarantees where possible, and as at the Latest Practicable Date, only two of the PRC Operating Subsidiaries had provided guarantees in respect of mortgage facilities granted to their customers. As a guarantor, the relevant project company within the Target Group

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is jointly responsible with the customer for the payment of the mortgage loan. The relevant project company’s obligations under the guarantees are released upon the earlier of (i) the relevant property ownership certificates having been obtained and the certificates of other interests with respect to the relevant properties (房屋他項權證) having been delivered to the mortgagee banks or the housing provident fund management centers, or (ii) the settlement of mortgage loans between the mortgagee and the Target Group’s customers.

As at 30 April 2013, the Target Group had outstanding guarantees for mortgage loans of its customers in the amount of approximately of RMB45.95 million. During the Track Record Period and thereafter up to the Latest Practicable Date, the Target Group did not experience any material default on mortgage loans guaranteed by it. Please also refer to the section headed “Risk Factor — Risks relating to Property Development in the PRC — The Enlarged Group guarantees the mortgages provided to their customers and consequently are liable to the mortgagees if the customers default on their mortgage payments”.

In line with industry practice, the Target Group does not conduct independent credit checks on its purchasers but rely on credit checks conducted by the relevant banks.

After-Sale Services

To provide comprehensive after-sale services to its customers, the Target Group has implemented a “Comprehensive Service System” (全程服務體系). It has established specialised service teams in each project company, including customer management team (in charge of assistance in signing contracts, title registration and obtaining relevant title certificates) and customer service centre (in charge of property delivery, after-sale repair work and maintenance). Each year, the Target Group engages independent third party to conduct customer survey, which aims to monitor customers’ satisfaction and loyalty level, so as to improve product quality accordingly. Some of the project companies have initiated a series of after-sale related activities, such as “Owner Experience Day (業主體驗日)” and “Express Repair (快速維修)”, etc. To the extent possible and according to the situation of the delivered properties, the project companies will also provide value-added services to customers from time to time, such as providing mosquito repellent devices and fitness equipment for free to the residents. These activities are all widely and well recognised by customers.

Property Management Service

The Target Group engages related parties to provide property management services to each of the Target Group’s projects. Typically, the relevant project company will enter into a property management agreement for a period of time up to the establishment of the “Owners’ Committee” with such property management companies, which will be responsible for all aspects of the daily management of the property, including security, cleaning, environment maintenance and recruiting and training staff for the buildings. Particularly, for property projects held by Chongqing China Merchants and Merchants Property Development (Guangzhou), the relevant property management companies were engaged as early as at the project design stage and were involved in the property design process from the property management perspective.

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Upon Closing, provision of such property management services will constitute the Company’s continuing connected transactions, and will be subject to the requirements under the Listing Rules. Please see the section headed “Continuing Connected Transactions — Property Management Agreement” for more details.

INVESTMENT PROPERTY MANAGEMENT

Along with its residential property projects, as at 31 December 2012, the Target Group also held a total of approximately 6,154 sq.m. investment properties which is ancillary to Jinshan Valley, and they mainly include retail shops.

SUPPLIERS AND CUSTOMERS

The suppliers of the Enlarged Group primarily include construction contractors, building material suppliers and equipment suppliers. The five largest suppliers of the Target Group accounted for 40.6%, 44.2% and 34.4% of its total purchases, excluding land costs, in each of the three financial years of 2010, 2011 and 2012. The five largest suppliers of the Enlarged Group accounted for approximately 38.6%, 41.3% and 33.2% of its total purchases, excluding land costs, in each of the three financial years of 2010, 2011 and 2012. The Enlarged Group’s purchase from its single largest supplier accounted for approximately 14.3%, 14.0% and 13.8% of its total purchases (excluding land costs), in each of the three financial years of 2010, 2011 and 2012, respectively. None of the Directors and their respective associates or any of the Shareholders which, to the knowledge of the Directors, own more than 5% of the Company’s share capital as of the Latest Practicable Date, have any interest in any of the Enlarged Group’s five largest suppliers.

The customers of the Enlarged Group are principally individual purchasers from the PRC. The five largest customers accounted for less than 30% of the revenue of the Enlarged Group in each of the three financial years of 2010, 2011 and 2012.

The past three financial years for the Target Group were the three years ended 31 December 2010, 2011 and 2012. The past three financial years for the Group were the two years ended 31 March 2011 and 2012, and the nine months ended 31 December 2012.

EMPLOYEES

As at 31 March 2013, the Target Group had approximately 365 full-time employees. The remuneration of the employees comprises basic salaries and other allowances and retirement benefit scheme contributions. The Target Group’s total expenses on employees’ remuneration for each of the three years ended 31 December 2010, 2011 and 2012 was approximately RMB45.40 million, RMB86.34 million and RMB125.80 million, respectively (excluding the emoluments paid to the directors of the entities comprising the Target Group, which were substantially borne by Eureka). As required by applicable PRC regulations, the Target Group participates in various employee benefit plans organised by the municipal and provincial governments, including housing provident fund, pension, medical, maternity and unemployment benefit plans.

The Target Group provides various training schemes to its employees, including induction training for the newly-joined employees, training for employees with more than

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three years of working experience and have a potential to take up more responsibilities, as well as the training for senior management on project management, finance, and the overall situation of the projects. The Target Group also organises regular safety training for its employees. Those training schemes enable the employees to achieve their professional development goals and ensure the Target Group to maintain a leading position under competitive industrial environment.

The Target Group had complied with applicable employment laws and regulations in the PRC in all material respects and there had been no labour related legal proceedings against the Target Group during the Track Record Period.

SAFETY AND ENVIRONMENTAL MATTERS

Occupational health and safety

The Target Group is subject to the PRC laws and regulations regarding labour, safety and work-related incidents. The Target Group provides safety protection to its employees, which includes providing them with adequate safety equipment and ensuring that the construction sites have adequate precautionary measures.

The Target Group has also established an occupational safety management team, which is in charge of implementation of the Target Group’s safety policies. The Target Group also organises regular safety training to its employees.

During the Track Record Period and thereafter up to the Latest Practicable Date, the Target Group had been in compliance with the applicable PRC labour and safety regulations in all material respects and had not had any incident or complaint which had a material adverse effect on its operations. During the Track Record Period and thereafter up to the Latest Practicable Date, there had been no major accident that had resulted in the death or serious injury of the employees of the Target Group.

Environmental matters

The Target Group is subject to certain laws and regulations concerning the protection of the environment. As required by PRC laws and regulations, each property development project is required to undergo environmental assessments. An environmental impact assessment document has to be submitted to the relevant environmental authority for examination and approval by the property developer before the relevant authority grants construction work commencement permit on the property development. In addition, each project developed by a property developer is also required to undergo an environmental inspection upon project completion by the relevant environmental authorities, to ensure compliance with applicable environmental standards and regulations before the property can be delivered to the purchasers.

During the three years ended 31 December 2010, 2011 and 2012, the Target Group incurred costs of approximately RMB484,702, RMB1,019,262 and RMB1,740,387, respectively, in relation to compliance with applicable PRC environmental rules and regulations. The Target Group expects it will continue to incur compliance costs with applicable environmental rules and regulations at a similar rate for the same city.

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COMPETITION

The Target Group competes with other real estate developers based on a number of factors, including product quality, service quality, price, financial resources, brand recognition, ability to acquire proper land reserves and other factors.

Throughout the years, the Target Group has launched various programs to enhance customer recognition and improve its competition strength. For example, the quality of projects has been significantly increased in the last two years after implementation of on-site examination and measurements by independent third parties. Also, each of the project companies has launched the innovative “Red Service” activities, which aims to nurture a service mindset so as to create a caring, inclusive and harmonious community, by providing a spectrum of services catering to the various needs of customers. In particular, activities such as “Customer Experience Day” (業主體驗日) and “Inspection of Properties in Advance” (預前驗房), etc. have significantly increased the properties’ satisfactory one-time delivery rate.

LEGAL PROCEEDINGS

As at the Latest Practicable Date, the Target Group was not engaged in any litigation, arbitration or claim of material importance, and no litigation, arbitration or claim of material importance was known to the Directors to be pending or threatened against any member of the Target Group, which would have a material adverse effect on the Target Group’s results of operations or financial condition.

PERMITS, LICENCES AND APPROVALS

The Company’s PRC legal advisers, Shu Jin Law Firm, have advised that, save as disclosed below, the Target Group has obtained all the permits, licences and approvals that are material for its operations in the PRC.

The land parcel No. G54 granted to Nanjing China Merchants Rui Sheng for Yonghuafu is developed in two phases. Currently, Nanjing China Merchants Rui Sheng has obtained the construction land planning permit for the whole land parcel, and the construction work planning permit and the construction work commencement permit for phase I, and the pre-sale permit for the buildings ready for pre-sale in phase 1 and has commenced pre-sale accordingly. However, it has not obtained the land use rights certificate for the land parcel, which, prima facie, is not in compliance with the relevant PRC regulation that requires a land use rights certificate to be obtained before pre-sale commences.

The failure to obtain the land use rights certificate was due to (i) a dispute between the local residents and the local land authority in respect of the land planning scope of the site where phase 2 of Yonghuafu is located, and (ii) the delay in the payment of the last instalment of the land premium by Nanjing China Merchants Rui Sheng as a result of the aforesaid dispute, which caused Nanjing China Merchants Rui Sheng not to be able to commence groundwork on the land for phase 2 due to the obstruction of the local residents.

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As advised by the Company’s PRC legal advisers, Shu Jin Law Firm, Nanjing China Merchants Rui Sheng was not a party to the dispute; the dispute was not attributable to any action of, or failure to perform obligations by, Nanjing China Merchants Rui Sheng; and the dispute has been resolved by the local government.

Nanjing China Merchants Rui Sheng has fully paid the last instalment of the land premium and deed tax on 21 March 2013 and is in the process of obtaining the land use rights certificate. The land use rights certificate for the whole parcel of land No. G54 will be obtained before Closing and an announcement will be made by the Company accordingly. The earliest time for delivery of the properties of Yonghuafu is expected to be 31 July 2015.

Before the issue of the pre-sale permit by Nanjing Municipal Commission of Housing and Urban-Rural Development for phase 1 of Yonghuafu on 24 April 2013, Nanjing State-owned Land Resources Bureau issued a confirmation on 22 April 2013 in relation to the land use rights certificate of the land parcel No. G54 (“ No. 149 Confirmation ”), which set out, among others things,

(i) the certificate number of the land use rights certificate of the land parcel No. G54;
(ii) the scope of the current land use rights, which only covers phase 1 (but not phase 2) of Yonghuafu with a site area of 23,068.13 sq.m., and the particulars of such land use rights; and
(iii) Nanjing China Merchants Rui Sheng may apply for the land use rights for the whole land parcel No.54 (including the land for phase 1 and phase 2) after the relevant liabilities (namely, those for the late payment of land premium) have been resolved.

Nanjing China Merchants Rui Sheng applied for the pre-sale permit from Nanjing Municipal Commission of Housing and Urban-Rural Development on 22 April 2013 by submitting various documents including the No.149 Confirmation and obtained the pre-sale permit on 24 April 2013. The Company understands that No. 149 Confirmation was one of the documents based on which the pre-sale permit was issued.

According to a further confirmation issued by Nanjing State-owned Land Resources Bureau on 20 May 2013, Nanjing State-owned Land Resources Bureau was verifying the relevant facts and considering whether Nanjing China Merchants Rui Sheng shall pay (and if so, the amount of) any late payment charges in relation to its late payment of the last instalment of the land premium for the land parcel No.54. Considering the terms of the land use rights grant contract and the circumstances surrounding and leading to the late payment of the last instalment of the land premium, the Company estimates that even if the late payment charge were to be imposed, the maximum amount would not exceed RMB30 million. As at the Latest Practicable Date, Nanjing State-owned Land Resources Bureau had not informed Nanjing China Merchants Rui Sheng about whether to pay (and if so, the amount of) any late payment charges.

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As advised by the Company’s PRC advisers, Shu Jin Law Firm:

Nanjing State-owned Land Resources Bureau is the competent authority for land use rights registration and the grantor of the land use rights under the land use rights grant contract for the land parcel No.54, and Nanjing Municipal Commission of Housing and Urban-Rural Development is the competent authority to issue pre-sale permit;
As Nanjing Municipal Commission of Housing and Urban-Rural Development issued the pre-sale permit for phase 1 of Yonghuafu based on, among others things, the No.149 Confirmation, Nanjing China Merchants Rui Sheng did not breach any relevant PRC regulation in connection with the pre-sale of phase 1 of Yonghuafu in any material respect.
based on No. 149 Confirmation, if the liabilities on the late payment of the last instalment of the land premium have been resolved, there will be no substantive legal impediment for Nanjing China Merchants Rui Sheng to obtain the land use rights certificate for the whole land parcel No. G54;
if the land use rights certificate can be obtained before 31 July 2015, as far as the obtaining of the land use rights certificate is concerned, there will be no risk for Nanjing China Merchants Rui Sheng to perform its obligations under the pre-sale contracts; and
the risk that Nanjing State-owned Land Resources Bureau would confiscate the land parcel No.54 due to the late payment of the last instalment of the land premium is very remote.

CMPD has undertaken to the Company to indemnify the Company against all losses and expenses that have been or will be suffered or incurred by the Target Group or the Company since the date of the Agreement, arising out of or in connection with the acquisition of the land parcel No. G54.

In the unlikely event that Nanjing China Merchants Rui Sheng fails to obtain the land use rights certificate for the land parcel No. G54 and Yonghuafu is excluded from the Target Projects, the total GFA of the Target Projects will reduce to 5,198,245 sq.m., representing a decrease of approximately 3.4%.

The Company will disclose the progress in obtaining the land use rights certificate for the land parcel No.G54 in its interim report and annual report until Nanjing China Merchants Rui Sheng successfully obtains the land use rights certificate.

COMPLIANCE WITH LAW

The Company’s PRC legal advisers, Shu Jin Law Firm, have advised that, save as disclosed below, the business of the Target Group had been operated in compliance with applicable PRC laws in all material respects during the Track Record Period and the period thereafter up to the Latest Practicable Date.

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Develop Land According to the Terms of the Land Use Rights Grant Contract

Under the PRC laws and regulations, if a property developer fails to develop land according to the terms of the land use rights grant contract (including those relating to the payment of fees, designated use of land, amount of GFA developed, time for commencement and completion or suspension of the development, and amount of capital invested), the relevant government authorities may issue a warning to or impose a penalty on the developer or confiscate the land.

A member of the Target Group, Foshan Xin Jie, did not completed development of phase 3 in one of the Target Projects, Evian Upper City, in accordance with the schedule agreed in the relevant land use rights grant contract and the supplemental agreement thereof. Pursuant to the agreement on extension of construction period of Evian Upper City (the Extension Agreement ) entered into between Foshan Xin Jie and the relevant land authority dated 25 October 2012, phase 3 of Evian Upper City should be completed by 17 April 2013. In fact, phase 3 of Evian Upper City passed all the completion inspections on 20 May 2013 and obtained the certificate of completion from the relevant governmental authorities on the same date.

The delay in completion was due to the fact that the planned roads to the north and west of the relevant land parcel, where phase 3 of Evian Upper City is located, had not been opened for traffic yet, and the construction of the project was suspended during the period when Asian Games was held in Guangzhou in 2010.

As advised by the Company’s PRC legal advisers, Shu Jin Law Firm, as at the Latest Practicable Date, the relevant land authority was entitled to a default payment payable by Foshan Xin Jie in the amount equal to 5% of the land premium per year in proportion to the 33 days of delay under the relevant land use rights grant contract. The Company expects that the maximum default payment will not exceed RMB6.80 million. As at the Latest Practicable Date, Foshan Xin Jie has not been imposed any default payment from the relevant land authority.

Idle Land

The land parcel no. G32-000249 granted to Merchants Property Development (Guangzhou) for the planned development of phases 5-7 of Jinshan Valley has been left idle for more than one year since 1 January 2012, where no construction work has ever commenced.

The land parcel G32-000249 will be used for the development of phases 5, 6 and 7 of Jinshan Valley and their main products will be large-size residential apartments. Given the large size of Jinshan Valley, fast development may result in overstocking. So the Target Group planned its development based on sales and therefore strategically delayed the construction of this parcel of land of Jinshan Valley.

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Under the relevant PRC laws and regulations, if any parcel of land has been left idle for one year, the relevant land authority will be entitled to impose idle land charge on the owner of the land use right in the amount equal to 20% of the land premium for such land. If any parcel of land has been left idle for more than two years, the relevant land authority will be entitled to confiscate the idle land without compensating the owner of the land use right.

As advised by the Company’s PRC legal advisers, Shu Jin Law Firm, as at the Latest Practicable Date, the land parcel no. G32-000249 has been left idle for more than one year but less than two years. There is a risk that Merchants Property Development (Guangzhou), as the owner of the land use right, will be required by the relevant land authority to pay an idle land charge in the amount equivalent to 20% of the land premium for such land parcel, and/or certain amount of liquidated damages under the land use rights grant contract although in practice, there is very little likelihood that the idle land charge and the liquidated damages are both collected. The Company expects that the maximum amount to be paid by the Target Group will not exceed RMB43 million. If construction work does not commence before 2014, the relevant land authority may confiscate such land parcel without any compensation to Merchants Property Development (Guangzhou). The Target Group expects to commence construction on this land parcel within 2013.

CMPD has undertaken to indemnify the Company against all losses and expenses that have been or will be suffered or incurred by the Target Group or the Company since the date of the Agreement, arising out of or in connection with the idle land.

Internal control measures

The Company has set up an operation management team with effect from Closing to oversee the enforcement of land use rights grant contracts and the progress of project development of the Enlarged Group to ensure the compliance with the land use rights grant contracts and the relevant regulations. This team will report to the Board on any material business and legal risks associated with the enforcement of land use right grant contracts and project development from time to time. Its members include 3 managerial personnel, and each of them has more than 10 years of property project management experience.

To monitor the execution of all the land use rights grant contracts and legal compliance in relation to property development, the operation team of each property development project is required to submit a project plan to the operation management team after signing a land use rights grant contract, and a report with supporting documents immediately after the completion of each key development such as commencement of construction, application for each of the key permits, and land-related payments. The operation management team will have a regular meeting at least once a quarter to review the operations of each property development project and its agenda should include a review of the legal compliance of each project.

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Borrowing and lending with equity holders

During the Track Record Period, the PRC Operating Subsidiaries obtained loans and advances from, and provided advances to, CMPD and their non-controlling shareholders. Please see the sections headed “Financial Information — Liquidity and capital resources” and “Financial Information — Certain balance sheet items — Trade and other receivables” for further details.

As advised by the Company’s PRC legal advisers, Shu Jin Law Firm,

(i) under the General Provision of Loans of the PRC, in the case where enterprises engage in borrowing and lending or borrowing and lending in a disguised manner without authorisation, PBOC may impose a fine on the lending party between 1 to 5 times of its illegal proceeds, and concurrently, abolish the lending activity; and
(ii) if any dispute arises from the aforesaid non-compliant borrowing or lending, the borrowing/lending contract shall be adjudicated to be void by a competent court, the principal of such loan will be returned to the lender, the interest received by the lender will be confiscated and a fine equal to the interest paid will be imposed on the borrower.

Shu Jin Law Firm is of the opinion that:

(a) as the amount due to or from the non-controlling shareholders does not bear any interest except certain entrustment loans provided by the relevant non-controlling shareholders through commercial banks, there will be no risk of any fine being imposed for any interest paid or received;
(b) as the amount due to and from CMPD bears interest at RMB benchmark lending interest rate and deposit interest rate offered by PBOC, respectively, such borrowing and lending were not in compliance with the General Provisions of Loans. The interest income from CMPD was RMB0.56 million, RMB2.22 million and RMB7.02 million in each of the three years ended 31 December 2010, 2011 and 2012, respectively. As the borrowing and lending took place between CMPD and the Target Group members (as CMPD group members), the risk of any dispute arising out of such borrowing or lending is remote;
(c) the amount to and from CMPD had been fully settled as at the Latest Practicable Date, the risk of the Target Group being fined for any interest received from CMPD is very remote.

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FINANCIAL INFORMATION OF THE TARGET GROUP

The following discussion and analysis should be read in conjunction with the Accountants’ Report on the Target Group, including the accompanying notes, in Appendix III and the Financial Information of the Group in Appendix IV. The historical combined financial information of the Target Group during each of the three years ended 31 December 2010, 2011 and 2012 is not necessarily indicative of the future performance of the Enlarged Group. For an illustration of the financial information of the Enlarged Group as a result of the completion of the Transaction, see Appendix V — Unaudited Pro Forma Financial Information of the Enlarged Group. The Accountants’ Report of the Target Group in Appendix III and the Financial Information of the Group in Appendix IV have been prepared in accordance with HKFRS.

This discussion contains forward-looking statements that reflect the current views of our management and involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to, those described under “Risk Factors” and factors described elsewhere in this Circular.

OVERVIEW

(i) had completed development of a total GFA of approximately 1,464,782 sq.m.,
(ii) was in the process of developing a total GFA of approximately 1,305,169 sq.m. and
(iii) was holding for future development land with a total GFA of approximately 1,417,659 sq.m., for which the Target Group holds land use rights certificates.

The Target Group has also obtained, through public tenders, auctions and listing-for-sale process, interests in land with a total GFA of approximately 1,193,869 sq.m., which the Target Group had not, as at 31 March 2013, obtained land use rights certificates.

The Target Group’s business portfolio comprises the development of residential properties, retail shops, offices and serviced apartments. For the year ended 31 December 2012, the Target Group generated approximately 99.9% of its revenue from the sale of residential properties and less than 1% of its revenue was generated from the leasing of retail shops.

FACTORS AFFECTING THE RESULTS OF OPERATIONS OF THE TARGET GROUP

The business, financial position and results of operations of the Target Group are significantly affected by a number of factors, many of which may not be within the control of the Target Group. A discussion of these factors is set out below.

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Economic growth, urbanisation and demand for real estate properties in China

Economic growth, urbanisation and improving standards of living have been the main forces driving the increasing market demand for residential properties in China. At the current stage of China’s economic development, while the property industry in China is regarded by the PRC government as one of China’s key industries, it is significantly dependent on China’s overall economic growth, including the increase in the purchasing power of Chinese consumers and the resulting demand for residential properties in China.

Since the Target Group primarily focuses on property development projects in Tier I and Tier II cities, private sector developments and urbanisation in China, particularly in current and other future target cities, are especially important to the operations of the Target Group. These factors are expected to continue to have a significant impact on the number of potential property buyers and the pricing and profitability of residential properties, which directly affect the results of operations of the Target Group. If there is a downturn in the PRC economy or in any of the property markets in which of the Target Group has operations, its financial condition and results of operations may be adversely affected. Please see the section headed “Risk Factors — Risks relating to the PRC — The recent deterioration of the PRC’s economic growth, Eurozone crisis and the turmoil in the global financial markets may affect the Enlarged Group’s business. It could limit the Enlarged Group’s ability to continue to finance its working capital and to meet its liquidity requirements and materially and adversely affect its financial position and results of operations.”

The PRC property market has experienced significant volatility in recent years as a result of market conditions and fluctuations in property sales volumes and prices, especially as a result of the recent slowdown in PRC’s economic growth, the PRC credit environment and the global economic and financial crisis, which has reduced demand for the properties of the Target Group. These factors have also resulted in banks and other financial institutions tightening credit available to property purchasers and companies in the property development industry.

In particular, during economic downturns or market slowdown of the PRC property market recently, potential purchasers or purchasers of properties tend to become more prudent and act more cautiously out of concern for further declines in property prices and may even terminate or defer their decisions to purchase property. Customers who have already entered into pre-sale contracts with the Target Group during periods of better economic or market conditions may also wish to cancel their pre-sale contracts and adopt a wait-and-see approach in anticipation of a better bargain.

In addition, the Target Group faces intense competition from other real estate developers. Please see the section headed “Risk Factors — Risks relating to property development in the PRC — The Enlarged Group faces intense competition from other real estate developers” for more details.

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FINANCIAL INFORMATION OF THE TARGET GROUP

Accurate pricing in response to the change in market conditions is vital to the success of the Target Group’s business. Competitors of the Target Group may reduce the prices of their properties as a result of the prevailing economic or market conditions, which could result in higher pressure on pricing strategy of the Target Group and further restrict the Target Group’s ability to sell properties. It could limit the Enlarged Group’s ability to continue to finance its working capital and to meet its liquidity requirements and materially and adversely affect its financial position and results of operations” for more details.

Regulatory measures for the property sector in China

PRC government policies and measures regarding property development and related industries have a direct impact on the Target Group’s business and results of operations. From time to time, the PRC government adjusts its taxation policies and its macro-economic policies to promote or slow down the development of the property sector. Since 2004, the PRC government has taken various steps to control land acquisition, planning, design, construction and pre-sale of properties, money supply, credit availability, mortgage, taxation and fixed asset investment with a view to preventing China’s economy from overheating and to achieving balanced and sustainable economic growth.

Since the fourth quarter of 2009, in response to concerns about the overheating of the property market, the PRC government has adopted, and may continue to adopt, a series of measures to, among other things, slow the escalation of property prices and curb speculation in the property market. PRC regulatory measures affecting the property sector will continue to impact on the business and results of operations of the Target Group. For details of such government regulations, please see the sections headed “Risk Factors — Risks relating to property development in the PRC — The Enlarged Group’s business is subject to extensive governmental regulations”, “Risk Factors — Risks relating to property development in the PRC — PRC government policies, regulations and measures intended to curb property speculation may have a negative impact on the business or financial position of the Enlarged Group; furthermore, the PRC government may in the future adopt other measures to slow down the growth in the property development sector” and the section headed “Regulatory Overview” in Appendix II to this Circular for more details.

Pre-sale

Pre-sale represents a critical source of the Target Group’s operating cash inflows during its project development process. PRC law allows the Target Group to pre-sell properties before completion upon satisfaction of certain conditions and requires the Target Group to use the pre-sale proceeds to develop the properties that have been pre-sold. Please see the section headed “Business of the Target Group — Project development — pre-sale” for more details. The amount and timing of cash inflows from pre-sale are affected by a number of factors, including satisfaction of government regulations and other conditions relating to the construction and pre-sale schedules of the Target Group’s relevant projects, governmental restrictions on the pre-sale of properties as well as the market demand for the Target Group’s properties available for pre-sale.

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FINANCIAL INFORMATION OF THE TARGET GROUP

Please see the section headed “Risk Factors — Risks relating to property development in the PRC — Changes in laws and regulations with respect to pre-sale of properties may adversely affect cash flow position and performance of the Enlarged Group.” The amount of cash inflows generated from pre-sale of properties affects the Target Group’s need for external financing and its financing expenses, which could in turn impact the Target Group’s ability to finance its continuing property developments as well as its financial condition and results of operations.

Timing of property development

The number of property projects that the Target Group undertakes during any particular period is limited due to the substantial capital requirements for land acquisitions and construction. In addition, significant time is required for the development of property projects and it may take months or probably years before the completion and delivery of a property project. No revenue is recognised with respect to a property project until it has been completed and delivered to the customers. In addition, as market demand is not stable, revenue in a particular period may also depend on the Target Group’s ability to gauge the expected market demand at the expected launch time for completion and delivery of a particular project, while delays in construction, regulatory approval processes and other factors can adversely affect the timetable of the Target Group’s projects. This was one of the reasons that led the Target Group’s results of operations to fluctuate in the past and to be likely to continue to fluctuate in the future. Please see the section headed “Risk Factors — Risks relating to property development in the PRC — The Enlarged Group may face delay in completing its property development projects” for more details.

Ability to acquire suitable land

The continuing growth of the Target Group will depend on its ability to acquire quality land at reasonable prices. As the PRC economy continues to grow at a relatively high speed and demand for residential properties remains strong, the Target Group’s management expects that competition among developers for land reserves will remain intense. In addition, the statutory means of public tenders, auctions and listing-for-sale process for the grant of state-owned land use rights are also likely to increase competition for land development and increase land acquisition costs. Please see the section headed “Risk Factors — Risks relating to property development in the PRC — The Enlarged Group may not always be able to obtain sites that are suitable for property development” for more details.

Access to capital and cost of financing

Borrowings from banks, related parties and third parties are an important source of funding for the Target Group’s property developments. As at 31 December 2010, 2011 and 2012, the Target Group’s total bank loans and payables due to shareholders of the companies were RMB7,568.94 million, RMB8,776.63 million and RMB9,507.43 million, respectively. The interest rates of a substantial portion of the Target Group’s borrowings are linked to benchmark lending rates published by the PBOC. The PBOC adjusts the benchmark lending rates from time to time. Any change in the interest rate on the Target

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FINANCIAL INFORMATION OF THE TARGET GROUP

Group’s bank borrowings, including as a result of an interest rate adjustment by the PBOC, will affect the Target Group’s interest payments and finance costs and therefore affect its cash flow, financial condition and results of operations. In addition, the Target Group’s access to capital and cost of financing are also affected by restrictions imposed from time to time by the PRC government on bank lending for property development.

ACCOUNTING TREATMENT OF THE TRANSACTIONS

The acquisition of the Target Group is considered as a business combination under common control because the Company and the Target Company are ultimately controlled by CMPD both before and after Closing of the Acquisition. Accordingly, the acquisition of the Sale Share will be accounted for using the principles of merger accounting.

SIGNIFICANT ACCOUNTING POLICIES

The preparation of the Target Group’s combined financial information requires selecting accounting policies and making estimates and judgements that affect reported items in the combined statement of comprehensive income, combined statement of financial position, other primary statements and notes to the combined financial information. The determination of these accounting policies is fundamental to the Target Group’s results of operations and financial condition, and requires management to make subjective and complex judgements about matters that are inherently uncertain based on information and data that may change in future periods. As a result, determinations regarding these items necessarily involve the use of estimates and subjective judgements as to future events and are subject to change, and the use of different assumptions or data could produce materially different results. In addition, actual results could differ from estimates and may have a material adverse effect on the Target Group’s financial condition, results of operations and cash flows. For more information regarding the Target Group’s significant accounting policies, see Note 3 of Section A to the Accountant’s Report on the Target Group set forth in Appendix III to this Circular.

Certain accounting estimates are particularly sensitive because of their significance to the financial information and because of the possibility that future events affecting the estimates may differ significantly from management’s current judgements. For more information regarding the summary of critical accounting estimates and judgements, see Note 4 of Section A to the Accountant’s Report on the Target Group set forth in Appendix III to this Circular.

Allocation of total comprehensive income to non-controlling interests

Total comprehensive income and expense of a subsidiary is attributed to the Controlling Shareholders of the Target Group and to the non-controlling equity holders even if this results in the non-controlling equity holders having a deficit balance.

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FINANCIAL INFORMATION OF THE TARGET GROUP

Subsidiaries

Entities comprising the Target Group are considered as subsidiaries of Eureka if Eureka has power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Eureka also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies, appoint or remove the majority of members of the board of directors or equivalent governing body or cast the majority of votes at meetings of the board of directors or equivalent governing body.

Subsidiaries are fully consolidated from the date on which control is transferred to the Target Group. They are de-consolidated from the date that control ceases.

Inter-company transactions, balances and unrealised gains on transactions within the Target Group are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Target Group.

Merger accounting for business combinations involving entities under common control

The combined financial information incorporates the financial statements items of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or businesses first came under the control of the controlling party.

The net assets of the combining entities or businesses are combined using the existing book values from the controlling party’s perspective. No amount is recognised in respect of goodwill or excess of acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party’s interest.

The combined statements of comprehensive income includes the results of each of the combining entities or businesses from the earliest date presented or since the date when the combining entities or businesses first came under the common control, where this is a shorter period, regardless of the date of the common control combination.

Properties held for sale

Properties under development held for sale under current assets are properties under development held for future sale in the ordinary course of business and are stated at the lower of cost and net realisable value. Cost includes the costs of land, development expenditure incurred and, where appropriate, borrowing costs capitalised. Net realisable value is determined based on prevailing market conditions. Net realisable value takes into account the price ultimately expected to be realised, less applicable variable selling expenses and the anticipated cost to completion. Upon completion, the properties are transferred to completed properties held for sale.

Completed properties held for sale are stated at the lower of cost and net realisable value. Cost includes the costs of land, development expenditure incurred and, where appropriate, borrowing costs capitalised. Net realisable value is determined based on prevailing market conditions.

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FINANCIAL INFORMATION OF THE TARGET GROUP

The Target Group transfers a property from properties for sale to investment property at cost when there is a change of intention to hold the property to earn rentals or/and for capital appreciation rather than for sale in the ordinary course of business, which is evidenced by the commencement of an operating lease to another party.

Financial instruments

Financial assets and financial liabilities are recognised in the combined statements of financial position when the entities comprising the Target Group becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Financial assets

The Target Group’s financial assets are classified into loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the Track Record Period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period to the net carrying amount on initial recognition.

Interest income is recognised on an effective interest basis for debt instruments.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including other receivables, restricted bank deposit and bank balances and cash) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment of loans and receivables below).

Impairment of loans and receivables

Loans and receivables are assessed for indicators of impairment at the end of each reporting period. Loans and receivables are considered to be impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected.

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FINANCIAL INFORMATION OF THE TARGET GROUP

Objective evidence of impairment of loans and receivables could include:

significant financial difficulty of the issuer or counterparty; or
breach of contract, such as default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial re organisation.

The amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the financial asset’s original effective interest rate.

If, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Financial liabilities and equity instruments

Debt and equity instruments issued by the entities comprising the Target Group are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the Track Record Period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where appropriate, a shorter period to the net carrying amount on initial recognition.

Interest expense is recognised on an effective interest basis.

Financial liabilities

Financial liabilities of the Target Group (including trade and other payables and bank borrowings) are subsequently measured at amortised cost using effective interest method.

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FINANCIAL INFORMATION OF THE TARGET GROUP

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Target Group after deducting all of its liabilities. Equity instruments issued by the entities comprising the Target Group are recorded at the proceeds received, net of direct issue costs.

Derecognition

The Target Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire or, when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss.

The Target Group derecognises financial liabilities when, and only when, the Target Group’s obligations are discharged, cancelled or expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Impairment losses on tangible assets

At the end of the reporting period, the Target Group reviews the carrying amounts of the tangible assets and to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, the Target Group estimates the recoverable amount of the cash-generating unit ( CGU ) to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual CGUs, or otherwise they are allocated to the smallest group of CGUs for which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or a CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or a CGU) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

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FINANCIAL INFORMATION OF THE TARGET GROUP

Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or a CGU) in prior years. A reversal of an impairment loss is recognised as income immediately.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold and services provided in the normal course of business, net of discounts.

Specifically, revenue from sales of properties in the ordinary course of business is recognised when the respective properties have been completed and delivered to the buyers, at which time all of the following criteria are satisfied:

the Target Group has transferred to the buyer the significant risks and rewards of ownership of the properties;
the Target Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the properties sold;
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with the transaction will flow to the Target Group; and
the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Deposits received from purchasers prior to meeting the above criteria for revenue recognition are included in the combined statements of financial position under current liabilities.

Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease.

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Target Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

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FINANCIAL INFORMATION OF THE TARGET GROUP

Borrowing costs

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Income tax expense

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the combined statements of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Target Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the underlying financial statements and the corresponding tax base used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries, except where the Target Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

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FINANCIAL INFORMATION OF THE TARGET GROUP

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Target Group expect, at the end of the reporting period, to recover or settle the carrying amount of their assets and liabilities.

Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively.

DESCRIPTION OF SELECTED INCOME STATEMENT ITEMS

Revenue

The Target Group’s revenue consists primarily of income from sales of properties. The Target Group also generates a small portion of revenue from leasing of properties, which accounted for less than 1% of the revenue for each of the three years ended 31 December 2012.

As revenue from the sale of properties constitutes a substantial portion of the Target Group’s revenue, the Target Group’s results of operations for a given period are dependent upon the type and GFA of properties the Target Group has completed and delivered during that period, the market demand for those properties and the prices of the pre-sold or sold properties. Please see the section headed “— Significant accounting policies — Revenue recognition” for more details.

Cost of sales

Cost of sales comprises the costs the Target Group incurs directly in relation to its property development activities as well as its leasing operation. Cost of sales primarily comprises costs relating to the acquisition of land use rights, construction cost and related costs, business tax and other costs. Other costs primarily include capitalised interest and administrative expenses on relevant borrowings during the period of construction, public utility fee and indirect expense for property development.

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FINANCIAL INFORMATION OF THE TARGET GROUP

The following table sets out a breakdown of cost of sales of the Target Group for the three years ended 31 December 2012:

Land cost Construction cost Business tax Other costs	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 283,274 530,380 461,963 425,415 797,952 796,837 55,081 183,875 240,038 118,803 228,823 350,881 882,573 1,741,030 1,849,719	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 283,274 530,380 461,963 425,415 797,952 796,837 55,081 183,875 240,038 118,803 228,823 350,881 882,573 1,741,030 1,849,719
		1,849,719

Gross profit

Gross profit represents revenue less cost of sales. The Target Group’s gross margin, therefore, depends upon a combination of factors, including the volume and price at which the Target Group sells properties, the cost of land use rights, construction costs and other taxes.

Other income

Other income mainly comprises bank interest income and interest income from CMPD. The following table sets out a breakdown of other income of the Target Group for each of the three years ended 31 December 2010, 2011 and 2012:

Bank interest income Interest income from an intermediate holding company Others	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 10,288 17,193 21,531 559 2,217 7,022 1,094 1,057 7,656 11,941 20,467 36,209	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 10,288 17,193 21,531 559 2,217 7,022 1,094 1,057 7,656 11,941 20,467 36,209
		36,209

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FINANCIAL INFORMATION OF THE TARGET GROUP

Net foreign exchange gains

Target Group has foreign currency payables including certain amounts due to non-controlling shareholders and certain amounts due to Eureka, which are denominated in US dollars and/or Hong Kong dollars. At the end of the reporting period, the foreign currency payables are retranslated at the rates prevailing at that date. Exchange differences arising on the settlement of the foreign currency payables and on the retranslation of foreign currency payables are recognised in profit or loss in the period in which they arise.

Selling and marketing expenses

Selling and marketing expenses mainly include service fees paid to property sales agents, advertisement expenses relating to the sale of properties, exhibition expenses, sales and marketing staff costs and other expenses relating to sales and marketing.

The following table sets out a breakdown of the selling and marketing expenses of the Target Group for each of the three years ended 31 December 2010, 2011 and 2012:

Sales agent fee Advertisement expenses Sales and marketing staff cost Others Total	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 35 1,226 2,986 36,345 63,490 83,730 11,742 21,540 27,673 4,911 7,127 5,547 53,033 93,383 119,936	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 35 1,226 2,986 36,345 63,490 83,730 11,742 21,540 27,673 4,911 7,127 5,547 53,033 93,383 119,936
		119,936

Administrative expenses

Administrative expenses mainly include salaries paid to management and administrative staff, general office expenses, rental expenses paid for office, bank charges for arranging loan financing, entertainment and travel expenses, donation and other expenses.

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FINANCIAL INFORMATION OF THE TARGET GROUP

The following table sets out a breakdown of the administrative expenses of the Target Group for each of the three years ended 31 December 2010, 2011 and 2012:

Salaries, social insurance and other labour cost Business entertainment Travel and automobile expenses Others Total	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 12,637 28,375 19,476 944 1,819 1,785 1,582 2,311 2,255 8,921 10,611 12,065 24,084 43,116 35,581	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 12,637 28,375 19,476 944 1,819 1,785 1,582 2,311 2,255 8,921 10,611 12,065 24,084 43,116 35,581
		35,581

Other administrative expenses primarily include advertisement fee, donation, depreciation of office building and equipment and fees paid to intermediaries and auditors.

Finance costs

The Target Group’s finance costs consist primarily of interest costs net of capitalised interest. The Target Group capitalises a portion of its costs of borrowings to property under development to the extent that such costs are directly attributable to construction. Since the development period for a property project does not necessarily coincide with the repayment period of the relevant loan, not all of the interest costs related to a property project can be capitalised. As a result, the period to period fluctuation of the Target Group’s finance costs is primarily attributable to the amount and timing of capitalisation.

Income tax expenses

Income tax expenses represent current and deferred PRC corporate income tax in the PRC. Under the EIT Law, the tax rate of the PRC subsidiaries of the Target Group is 25% from 1 January 2008 onwards.

PRC LAT is levied at progressive rates ranging from 30% to 60% on the appreciation of land value, being the proceeds of sale of properties less certain deductible items including cost of land use rights, borrowing costs and property development expenditures.

As at 31 December 2010, 2011 and 2012, the Target Group had unused tax losses of approximately RMB204.92 million, RMB239.18 million and RMB352.73 million, respectively, available to offset against future profits. The increase in unused tax losses in 2011 was mainly attributable to an aggregate of RMB34.26 million of loss attributable to four newly incorporated PRC Operating Subsidiaries which were in their preliminary development stage and Merchants Property Development (Guangzhou) which also recorded loss in 2011 because it only delivered a small number of properties in 2011. The increase in unused tax losses in 2012 was mainly due to a loss of RMB67.93 million

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FINANCIAL INFORMATION OF THE TARGET GROUP

recorded by Merchants Nanjing Real Estate and an aggregate RMB45.60 million loss of other four PRC Operating Subsidiaries.

Non-controlling interests

Non-controlling interests represent the interest of shareholders other than Eureka in the results and net assets of the subsidiaries that the Target Group did not wholly own during the three years ended 31 December 2012. The table below sets out the attributable equity interest of the Controlling Shareholders and the non-controlling shareholders in the PRC Operating Subsidiaries of the Target Group as at 31 December 2012.

		Interest	Interest
		attributable to	attributable to
		the Controlling	non-controlling
PRC Operating Subsidiaries	Project	Shareholders	shareholders
Chongqing China Merchants	Changjiahui	50%	50%
	(長嘉匯)
Merchants Property Development	Jinshan Valley	51%	49%
(Guangzhou)	(金山谷)
Foshan Yi Yun	Evian Tianhui	25.5%	74.5%
	(依雲天匯)
Foshan Xin Cheng	Evian Water Bank	25.5%	74.5%
	(依雲水岸)
Foshan Xin Jie	Evian Upper City	50%	50%
	(依雲上城)
Foshan Merchants Wharf	Evian Xicheng	50%	50%
	(依雲曦城)
Merchants Nanjing Real Estate	Zijinshan No.1	51%	49%
	(紫金山1號)
Nanjing China Merchants Rui Sheng	Yonghuafu	51%	49%
	(雍華府)

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FINANCIAL INFORMATION OF THE TARGET GROUP

COMBINED STATEMENT OF COMPREHENSIVE INCOME

The following table sets forth selected data from the Target Group’s combined statement of comprehensive income for each of the three years ended 31 December 2010, 2011 and 2012:

Revenue
Cost of sales
Gross profit
Other income
Net foreign exchange gains
Selling and marketing expenses
Administrative expenses
Finance costs
Other expenses
Profit before tax
Income tax expense
Profit and total comprehensive
income for the year
Profit and total
comprehensive income for
the year attributable to:
Eureka
Non-controlling interests

Year ended 31 December
2010
2011
2012
RMB’000
RMB’000
RMB’000
1,342,734
3,341,470
4,288,511
(882,573)
(1,741,030)
1,849,719
460,161
1,600,440
2,438,792
11,941
20,467
36,209
109,184
190,365
6,457
(53,033)
(93,383)
(119,936)
(24,084)
(43,116)
(35,581)
–
(12,611)
(65,221)
(150)
(308)
(1,089)
504,019
1,661,854
2,259,631
(180,083)
(782,445)
(1,214,434)
323,936
879,409
1,045,197
142,409
260,620
434,231
181,527
618,789
610,966
323,936
879,409
1,045,197

The following discussion is based on the combined financial statements of the Target Group.

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FINANCIAL INFORMATION OF THE TARGET GROUP

2012 compared with 2011

Revenue . Revenue for 2012 was RMB4,288.51 million, an increase of 28.3%, compared to RMB3,341.47 million in 2011. The increase was primarily due to the increase in the total GFA of properties sold at a higher average selling price in 2012 which was RMB14,265/sq.m., an increase of 9.1% compared to RMB13,078/sq.m. of 2011. In 2011, revenue was primarily attributable to the sale of residential units in phase 1 of Evian Upper City and phase 2 of Evian Water Bank and the Target Group’s total GFA of properties sold in 2011 was approximately 255,510 sq.m. In 2012, the Target Group’s revenue was primarily attributable to (i) the sale of residential units in phase 4 of Jinshan Valley, (ii) car parks in phase 2 of Evian Water Bank, (iii) stand alone villas in phase 4 of Evian Water Bank and (iv) residential units in phase 1 of Zijinshan No.1 and the Target Group’s total GFA of properties sold in 2012 was approximately 300,639 sq.m. an increase of 17.66%, compared to 2011.

Cost of sales . Cost of sales in 2012 was RMB1,849.72 million, an increase of 6.2%, compared to RMB1,741.03 million in 2011. This increase was primarily due to an increase in the total GFA of properties sold, which gave rise to a corresponding increase from RMB228.82 million in 2011 to RMB350.88 million in 2012 in other costs including administrative cost, financial cost and indirect construction cost, which was slightly offset by a decrease in land cost from RMB530.38 million in 2011 to RMB461.96 million in 2012 mainly due to the lower land cost of Jinshan Valley that contributed to approximately 69% of the total GFA of properties sold in 2012, and a decrease in construction cost from RMB797.95 million in 2011 to RMB796.84 million in 2012, which was mainly due to the reverse of inventory impairment partly offset by inventory impairment made in 2012.

Gross profit . The Target Group recorded a gross profit of RMB2,438.79 million for 2012, an increase of 52.4%, compared to RMB1,600.44 million in 2011, which was due to the increase in revenue and a higher gross profit margin. The gross profit margin for 2012 was 56.9%, compared to 47.9% in 2011. The increase in gross profit margin was primarily due to an increase in the total GFA of properties sold in Jinshan Valley from approximately 2,109 sq.m. to 208,149 sq.m., representing about 69% of the total GFA of properties sold in 2012. The profit margin of the properties sold in Jinshan Valley in 2012 was higher than the properties sold in 2011 due to the lower land cost of Jinshan Valley.

Other income . The Target Group’s other income increased by 76.9% from RMB20.47 million in 2011 to RMB36.21 million in 2012, which was primarily due to an increase in interest income from RMB19.41 million to RMB28.55 million, which was mainly attributable to the increase in bank deposits and amounts due from CMPD.

Selling and marketing expenses . The Target Group’s selling and marketing expenses increased by 28.4% from RMB93.38 million in 2011 to RMB119.94 million in 2012, which was primarily due to an increase in the pre-sale amount from RMB4,285.42 million in 2011 to RMB5,996.71 million in 2012 and the corresponding increase in advertisement expenses from RMB63.49 million to RMB83.73 million, an increase in service fees paid to property sales agents from RMB1.23 million to RMB2.99 million and an increase in the related staff cost from RMB21.54 million to 27.63 million in connection with Jinshan Valley, Evian Water Bank and Changjiahui as the Target Group conducted most of the promotional activities for these projects in 2012.

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FINANCIAL INFORMATION OF THE TARGET GROUP

Administrative expenses . The Target Group’s administrative expenses decreased by 17.5% from RMB43.12 million in 2011 to RMB35.58 million in 2012, which was primarily due to a reverse of overprovision of bonus in an amount of RMB3.14 million in 2011 and cost control on general office expenses.

Finance costs . The Target Group’s finance costs increased by 417.2% from RMB12.61 million in 2011 to RMB65.22 million in 2012, which was primarily due to an increase of interest expenses that were not capitalised due to a suspension of construction of Yonghuafu for more than one year from October 2011 to December 2012 due to a dispute between the relevant land authority and the neighbouring residents on the borderline of the site.

Income tax expense . The Target Group’s income tax expense for 2012 increased by 55.2% to RMB1,214.43 million from RMB782.45 million in 2011. The increase in income tax expenses was primarily due to an increase in profit before tax and a higher effective tax rate which was primarily attributable to an increase in the applicable LAT rate due to an increased gross profit margin in 2012. The effective tax rate in 2012 was 53.74%, an increase of 6.66 percentage points, compared to 47.08% in 2011.

Profit for the year . Profit for the year in 2012 increased by 18.9% to RMB1,045.20 million from RMB879.41 million in 2011, primarily due to an increase in profit before tax , which was partially offset by an increase of 6.66 percentage points in the effective tax rate in 2012 as compared to 2011. Although the gross profit margin increased by 9 percentage points from 47.9% in 2011 to 56.9% in 2012, the net profit margin decreased by 1.9 percentage points from 26.3% in 2011 to 24.4% in 2012, which was primarily attributable to the increase of effective tax rate in 2012.

Profit attributable to non-controlling interests and owners of the companies . The Target Group’s profit attributable to non-controlling interests in 2012 decreased by 1.3% from RMB618.79 million to RMB610.97 million, which was primarily due to the fact that most of the profit in 2012 was attributable to the sale of properties in Guangzhou Jinshan Valley in which the non-controlling shareholder had a 49% equity interest, whilst in 2011, most of the profit was attributable to the sale of properties in Evian Upper City and Evian Water Bank in which the non-controlling shareholders had a 50% and a 74.5% attributable equity interest, respectively. For the same reason, profit attributable to the Controlling Shareholders for 2012 was RMB434.23 million, an increase of 66.6%, compared to RMB260.62 million in 2011.

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FINANCIAL INFORMATION OF THE TARGET GROUP

2011 compared with 2010

Revenue . Revenue for 2011 was RMB3,341.47 million, an increase of 148.9%, compared to RMB1,342.73 million in 2010. The increase was primarily due to the increase in the GFA of properties sold at a higher average selling price in 2011, which was RMB13,078/sq.m., an increase of 46.25%, compared to RMB8,942/sq.m. of 2010. In 2010, revenue was primarily attributable to sale of residential units in (i) phase 1 of Evian Water Bank, (ii) phase 3 of Evian Xigu, and (iii) phase 2 of Jinshan Valley and the Target Group’s total GFA of properties sold was approximately 150,157 sq.m. In 2011, the Target Group’s revenue was primarily attributable to the sale of residential units in phase 1 of Evian Upper City and phase 2 of Evian Water Bank and the total GFA of properties sold in 2011 was 255,510 sq.m. in 2011, an increase of 70.2%, compared to 2010.

Cost of sales . Cost of sales in 2011 was RMB1,741.03 million, an increase of 97.3%, compared to RMB882.57 million in 2010. This increase was primarily due to an increase in the total GFA of properties sold, which gave rise to a corresponding increase in land cost from RMB283.27 million in 2010 to RMB530.38 million in 2011 and an increase in construction and related costs recognised from RMB425.42 million in 2010 to RMB797.95 million in 2011.

Gross profit . The Target Group recorded a gross profit of RMB1,600.44 million for 2011, an increase of 247.8%, compared to RMB460.16 million in 2010 which, was due to an increase in revenue and a higher gross profit margin. The gross profit margin for 2011 was 47.9%, compared to 34.3% in 2010. The increase in gross profit margin was primarily due to the sale of properties sold in phase 2 of Evian Water Bank in 2011, representing about 58% of the total GFA of properties sold in 2012. The gross profit margin of properties sold in phase 2 of Evian Water Bank was higher than the gross profit margins of most of the properties sold in 2010 due to the lower land cost of Evian Water Bank.

Other income . The Target Group’s other income increased by 71.4% from RMB11.94 million in 2010 to RMB20.47 million in 2011, which was primarily due to an increase in interest income from RMB10.85 million to RMB19.41 million, which was mainly attributable to the increase in bank deposits and amounts due from CMPD.

Selling and marketing expense . The Target Group’s selling and marketing expenses increased by 76.1% from RMB53.03 million in 2010 to RMB93.38 million in 2011, which was primarily due to an increase in the pre-sale amount from RMB3,464.86 million in 2010 to RMB4,285.42 million in 2011 and the corresponding increase in advertisement expenses from RMB36.35 million in 2010 to RMB63.49 million in 2011, an increase in service fees paid to property sales agents from RMB35,000 in 2010 to RMB1.23 million in 2011 and an increase in related staff cost from RMB11.7 million in 2010 to RMB21.54 million in 2011 in connection with Evian Water Bank, Zijinshan No.1 and Jinshan Valley as the Target Group conducted most of the promotional activities for these projects in 2011. As the property market was relatively sluggish in 2011, the selling and marketing expenses were further increased.

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FINANCIAL INFORMATION OF THE TARGET GROUP

Administrative expenses . The Target Group’s administrative expenses increased by 79.1% from RMB24.08 million in 2010 to RMB43.12 million in 2011, which was primarily due to an increase of RMB15.74 million in salaries paid to staff recruited in 2010 for some newly incorporated PRC Operating Subsidiaries and an increase in general office expenses.

Finance costs . The Target Group had no finance costs in 2010 as all the interest expenses were capitalised. The Target Group had finance costs of RMB12.61 million in 2011, which was primarily due to the interest expenses paid in relation to Yonghuafu prior to the commencement of its construction. After the construction began, the relevant interest expenses could be capitalised.

Income tax expense . The Target Group’s income tax expense for 2011 increased by 334.5% to RMB782.45 million from RMB180.08 million in 2010. The increase in tax expenses was primarily due to an increase in profit before tax. The effective tax rate in 2011 was 47.08%, an increase of 11.35 percentage points, compared to 35.73% in 2010.

Profit for the year . Profit for the year in 2011 increased by 171.5% to RMB879.41 million from RMB323.94 million in 2010, primarily due to an increase in profit before tax, which was partially offset by an increase of 11.35 percentage points in the effective tax rate in 2011 as compared to 2010. The net profit margin increased from 24.13% in 2010 to 26.32% in 2011, which was primarily attributable to the increase in gross profit margin from 34.3% in 2010 to 47.9% in 2011, although such increase was significantly offset by the increase in effective tax rate from 35.73% in 2010 to 47.08% in 2011.

Profit attributable to non-controlling interests and the owners of the companies . Profit attributable to non-controlling shareholders in 2011 increased by 240.9% from RMB181.53 million to RMB618.79 million, which was primarily due to the increase in profit and the fact that the profit in 2011 was primarily attributable to the sale of properties of Evian Upper City and Evian Water Bank, which represented approximately 93% of the total GFA of Properties sold by the Target Group. The non-controlling shareholders had a 50% and 74.5% equity interest in Evian Upper City and Evian Water Bank, respectively. In contrast, in 2010, the total GFA of properties sold in Evian Water Bank represented approximately 48% of the total GFA of properties sold by the Target Group. For the same reason, profit attributable to the Controlling Shareholders of the Target Group for 2011 was RMB260.62 million, an increase of 83.0%, compared with RMB142.41 million in 2010.

LIQUIDITY AND CAPITAL RESOURCES

As at the date of the Circular, the Target Group has funded its projects principally from operating cash flow, shareholders’ contributions, bank loans and proceeds from the pre-sale of its developed properties.

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FINANCIAL INFORMATION OF THE TARGET GROUP

During the Track Record Period, the Target Group obtained advances and/or loans from the Controlling Shareholders and its non-controlling shareholders, which mainly comprise:

(i) shareholders’ loans provided by Eureka and the non-controlling shareholders in proportion to their respective interests in the relevant Target Group member, which were unsecured, interest-free and had no fixed repayment term;
(ii) entrustment loans provided by CMPD and the non-controlling shareholders in proportion to their respective interests in the relevant Target Group member, which were unsecured and interest bearing at RMB benchmark loan rate offered by PBOC;
(iii) advances from CMPD, which were unsecured and interest bearing at RMB benchmark loan rate offered by PBOC.

Advances and loans provided by the Controlling Shareholders and its non-controlling shareholders were the main capital resource for the Target Group’s working capital during the Track Record Period, in particular when the property development projects of the PRC Operating Subsidiaries were in a preliminary developments stage and therefore did not meet the requirements for obtaining commercial loans from commercial banks.

In 2010, the Target Group, as a whole, was in its development stage and required a large amount of working capital to pay for land acquisition and construction expenses of the Target Projects. Therefore, in 2010 cash inflow from advances from the Controlling Shareholders amounted to RMB2,184.00 million, and the total net cash inflow from financing activities amounted to RMB3,233.34 million, compared to RMB1,269.64 million and RMB163.30 million in 2011 and 2012. Although after most of the project development projects had met the commercial loans requirements they utilised more finance provided by CMPD than commercial banks, this was not because the Target Group had difficulty in obtaining bank borrowing, but partly because it were the shareholders’ obligations to finance the property development projects under the relevant investment agreements by way of equity or shareholders’ loans and partly because it was also more cost efficient to use funds provided by CMPD than commercial banks.

As at the Latest Practicable Date, the 8 Target Projects had all commenced pre-sale and/or sale, which generated a large amount of cash. The Target Group recorded net cash inflow from operating activities of RMB500.61 million and RMB2,506.27 million in 2011 and 2012, respectively, compared to net cash outflow from operating activities of RMB2,566.27 million in 2010.

As at the Latest Practicable Date, the amounts due from CMPD have been fully repaid by CMPD to the Target Group and the CMPD Loans have been fully repaid by the Target Group using a commercial loan obtained by it without any credit support from the Controlling Shareholders. The commercial loan is in an aggregate amount of RMB2,000 million and was obtained from a trust company on 30 May 2013 through a claim trust

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FINANCIAL INFORMATION OF THE TARGET GROUP

under which a commercial bank is the beneficiary. The loan has a term of one year and the annual interest rate is PBOC benchmark loan interest rate with 5% discount. The shareholders’ loans provided by Eureka will be acquired by the Company under the Acquisition.

After Closing, the Target Group will be financially independent from the Controlling Shareholders and will finance its property project development with cash flow generated from its operating activities, commercial loans and other financial instruments such as issue of bonds, short-term securities, notes and other convertible securities.

The following table presents selected cash flow data from the Target Group’s combined cash flow statements for each of the three years ended 31 December 2010, 2011 and 2012:

Net cash (used in) from operating activities Net cash used in investing activities Net cash inflow from financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effect of foreign exchange rate changes Cash and cash equivalents at the end of the year	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 (2,566,270) 500,609 2,514,400 (751,564) (1,290,317) (2,200,491) 3,233,344 1,269,636 155,171 (84,490) 479,928 469,080 1,290,698 1,193,425 1,663,365 (12,783) (9,988) (685) 1,193,425 1,663,365 2,131,760

Cash flow used in/from operating activities

The Target Group derives its cash from operations principally from the pre-sale and sale of properties. The Target Group’s cash used in operations is principally for investments in property under development.

The net cash from operating activities in 2012 was RMB2,514.40 million, primarily reflecting profit before tax of RMB2,259.63 million, an increase in pre-sale amount of RMB1,711.29 million and an increase in trade and other payables of RMB1,896.74 million, primarily offset by an increase in properties for sale of RMB2,664.73 million.

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FINANCIAL INFORMATION OF THE TARGET GROUP

The net cash generated from operating activities in 2011 was RMB500.61 million, primarily reflecting profit before tax of RMB1,661.85 million, an increase in pre-sale amount of RMB820.56 million, primarily offset by an increase in properties for sale of RMB1,141.82 million and a decrease in trade and other payables of RMB249.09 million.

The net cash used in operating activities in 2010 was RMB2,566.27 million, primarily reflecting an increase in properties for sale of RMB4,501.76 million, primarily offset by profit before tax of RMB504.02 million, a decrease in trade and other payables of RMB1,277.66 million and an increase in pre-sale amount of RMB1,684.40 million.

Cash flow used in investing activities

The Target Group’s cash used in investing activities mainly comprises investments in property, plant and equipment and advance to shareholders.

The net cash used in investing activities in 2012 was RMB2,200.49 million, which was primarily attributable to RMB1,767.76 million of advance to CMPD and an advance to non-controlling shareholders of RMB427.82 million.

The net cash used in investing activities in 2011 was RMB1,290.32 million, which was primarily attributable to an advance to non-controlling shareholders of RMB1,157.77 million.

The net cash outflow from investing activities in 2010 was RMB751.56 million, primarily attributable to an advance of RMB838.87 million to CMPD.

Cash flow from financing activities

The Target Group’s cash inflow from financing activities consist primarily of bank borrowings, advances from shareholders and distributions of dividends.

The Target Group had a net cash inflow from financing activities of RMB3,233.34 million, RMB1,269.64 million and RMB155.17 million in 2010, 2011 and 2012, respectively.

The net cash inflow from financing activities in 2010 was primarily due to an increase in advances from the Controlling Shareholders in an amount of RMB2,184.00 million, which was mainly used to pay the land acquisition price of Zijinshan No.1, Changjiahui, Evian Xicheng and Evian Tianhui. The cash inflow from financing activities in 2011 was primarily due to the increase in advances from the Controlling Shareholders and the non-controlling shareholders in an amount of RMB557.71 million and RMB768.83 million, respectively, which was mainly used to pay for the land acquisition price of Changjiahui and Yonghuafu. The cash inflow from financing activities in 2012 was primarily due to the increase in advances from the Controlling Shareholders and the non-controlling shareholders in an amount of RMB391.29 million and RMB136.44 million, respectively, which was mainly used to pay the land acquisition price of Changjiahui.

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FINANCIAL INFORMATION OF THE TARGET GROUP

Contractual commitments

The Target Group funds its contractual commitments using any one or a combination of its internal cash flow, bank loans and shareholders’ contributions. The table below sets forth its contractual commitments for its project companies as at 31 December 2012:

Properties under development by project companies Merchants Property Development (Guangzhou) Chongqing China Merchants	RMB millions 352.69 3,178.54
	3,531.24

CERTAIN BALANCE SHEET ITEMS

Combined statement of financial position

NON-CURRENT ASSETS Property, plant and equipment Investment properties Deferred tax assets Other receivables CURRENT ASSETS Properties for sale Deposit paid for acquisition of land use rights Trade and other receivables Tax recoverable Restricted bank deposits Bank balances and cash	At 31 December 2010 2011 RMB’000 RMB’000 12,981 13,378 34,417 36,065 25,024 139,470 – 1,157,770 72,422 1,346,683 10,232,565 12,349,946 930,086 – 1,383,532 1,591,327 56,162 87,056 – 12,475 1,193,425 1,663,365 13,795,770 15,704,169	2012 RMB’000 12,365 34,359 298,240 1,328,584
		1,673,548
		15,212,165 – 3,750,353 312,410 14,704 2,131,760
		21,421,392

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FINANCIAL INFORMATION OF THE TARGET GROUP

CURRENT LIABILITIES Deposits received in respect of pre-sale of properties Trade and other payables Loans from equity holders Tax payable Bank borrowings – due within one year NET CURRENT ASSETS NON-CURRENT LIABILITIES Other payables Bank borrowings – due after one year Deferred tax liabilities TOTAL EQUITY Equity attributable to Eureka Non-controlling interests	At 31 December 2010 2011 RMB’000 RMB’000 3,464,862 4,285,419 4,817,698 4,645,047 3,773,350 4,175,820 50,470 124,669 – – 12,106,380 13,230,955 1,689,390 2,473,214 – 1,169,960 – – 6,306 15,022 6,306 1,184,982 1,755,506 2,634,915 603,251 863,871 1,152,255 1,771,044	2012 RMB’000 5,996,707 7,130,470 4,794,164 543,707 101,000
		18,566,048
		2,855,344
		1,169,960 109,351 34,136
		1,313,447
		3,215,445

		1,263,102 1,952,343

Investment properties

The Target Group holds certain investment properties, which principally comprise properties held for rental yields. The Target Group classifies investment properties as non-current assets. As of 31 December 2012, the Target Group’s investment properties had a total rentable GFA of approximately 6,154 sq.m. and were valued by JLL, an independent property valuer, at RMB175.99 million based on valuations of current prices in an active market for all properties and assuming that all land was obtained by way of grant. As at 31 December 2010, 2011 and 2012, the Target Group’s investment properties had a value of RMB34.42 million, RMB36.07 million and RMB34.36 million, respectively.

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FINANCIAL INFORMATION OF THE TARGET GROUP

Properties for sale

The following table sets forth the Target Group’s properties for sale as at the balance sheet dates indicated:

Properties under development for sale Completed properties for sale	As at 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 9,908,946 11,973,842 11,658,240 323,619 376,104 3,553,925 10,232,565 12,349,946 15,212,165	As at 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 9,908,946 11,973,842 11,658,240 323,619 376,104 3,553,925 10,232,565 12,349,946 15,212,165
		15,212,165

As the Target Group’s core business is property development, its properties for sale comprise properties under development for sale and completed properties for sale. During the year ended 31 December 2012, the Target Group provided for inventory impairment allowance of RMB154.00 million in relation to Yonghuafu as the management estimated that the cost of sales of properties are higher than the probable recoverable selling price. The impairment allowance represented the difference between the valuation of the properties of this project and their book value at the relevant time.

The Target Group’s balances of properties for sale increased from RMB12,349.95 million as at 31 December 2011 to RMB15,212.17 million as at 31 December 2012 primarily due to an increase in land acquisition in relation to Changjiahui and construction expenses.

The Target Group’s balances of properties for sale increased from RMB10,232.57 million as at 31 December 2010 to RMB12,349.95 million as at 31 December 2011 primarily due to an increase in land acquisition and construction expenses in relation to Changjiahui.

Tax recoverable

As of 31 December 2010, 2011 and 2012, the Target Group’s tax recoverable was RMB56.16 million, RMB87.06 million and RMB312.41 million, respectively. The tax recoverable comprised pre-paid enterprise income tax. Normally, enterprise income tax is prepaid based on 15% of the monthly pre-sale amount at a rate of 25%, which is equal to the enterprise income tax rate. The Target Group may make tax filing and make settlement accordingly with the tax authority on a quarterly basis. In any event, the Target Group will make final settlement with the tax authority once a year based on its annual audited financial accounts.

The increases in tax recoverable in 2011 and 2012 were mainly attributable to the increase in pre-sale amount from RMB3,464.86 million in 2010 to RMB4,285.42 million in 2011 and further increase to RMB5,996.71 million in 2012. The significant increase in tax

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FINANCIAL INFORMATION OF THE TARGET GROUP

recoverable in 2012 related to phase 3 of Evian Water Bank. In September 2012, phase 3 of Evian Water Bank completed its completion filing formalities. As required by the relevant tax regulations, all the pre-sale amount up to then should be treated as revenue for income tax purpose. Accordingly, Foshan Xincheng paid income tax based on the pre-sale amount and such amount was recorded as tax recoverable until the corresponding revenue was recognised when the relevant properties were delivered.

Trade and other receivables

The following table sets forth the total amounts of the Target Group’s trade and other receivables as of the balance sheet dates indicated:

Other receivable – non-current Loans to non-controlling interest (note) Other receivables – current Prepaid LAT Other non-income prepaid tax Other receivables Amount due from an intermediate holding company Amounts due from non-controlling interests (note) Amounts due from fellow subsidiaries (note)	At 31 December 2010 2011 RMB’000 RMB’000 – 1,157,770 111,277 126,331 178,508 236,420 14,249 19,085 1,078,498 1,208,907 – – 1,000 584 1,383,532 1,591,327	2012 RMB’000 1,328,584

		134,044 344,849 33,575 2,976,667 257,009 4,209
		3,750,353

Note: The amounts were unsecured, interest-free and repayment on demand.

Due to its nature of business, the Target Group generally grants no credit period to property buyers and the tenants of its investment properties. The Target Group’s trade receivables mainly include pre-paid LAT, other non-income prepaid tax and amounts due from CMPD and the non-controlling shareholders.

The Target Group’s trade and other receivables balances as at 31 December 2010, 2011 and 2012 were RMB1,383.53 million, RMB2,749.10 million and RMB5,078.94 million, respectively, representing an increase of 98.7% and 84.75%, respectively, which were primarily due to the significant increase in advances to CMPD and non-controlling shareholders.

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FINANCIAL INFORMATION OF THE TARGET GROUP

Pre-paid LAT and other non-income pre-paid tax

The Target Group prepays LAT on a monthly basis with reference to a certain percentage of the pre-sale amount in the relevant month in accordance with specific requirements in relation to different property products in the relevant city. Normally, the Target Group shall take the lead to settle LAT when the relevant properties are sold or the properties under construction are pre-sold, while it may be requested by the tax authority to settle the LAT once the pre-sale percentage reaches 85% of the relevant property or the pre-sale permit has been issued for more than three years. The other non-income tax is prepaid monthly with reference to a certain percentage of the pre-sale amounts in the relevant month and recorded as cost at the time of delivery of properties.

The Target Group’s pre-paid LAT and other non-income prepaid tax (such as business tax) increased by 6.1% and 45.9% from RMB126.33 million and RMB236.42 million as at 31 December 2011 to RMB134.04 million and RMB344.85 million as at 31 December 2012, respectively, which was primarily due to an increase in the properties pre-sold in relation to Evian Water Bank, Evian Upper City, Evian Tianhui, Changjiahui and the corresponding increase in prepayment of LAT and other non-income prepaid tax in 2012.

The Target Group’s pre-paid LAT and other non-income prepaid tax (such as business tax) increased by 13.5% and 32.4% from RMB111.28 million and RMB178.51 million as at 31 December 2010 to RMB126.33 million and RMB236.42 million as at 31 December 2011, respectively, which was primarily due to an increase in the properties pre-sold in relation to Evian Water Bank and Evian Upper City and the corresponding increase in prepayment of LAT and other non-income prepaid tax in 2011.

Amount due from equity holders

During the Track Record Period, the Target Group provided advances to the Controlling Shareholders and the non-controlling shareholders, which mainly comprised:

(i) Advances provided by the relevant Target Group members to their shareholders in proportion to their respective interests in the relevant Target Group members, which were unsecured, interest-free and have no fixed repayment term.

Distribution of dividends to the shareholders of the Target Group members will only take place after revenue and profits of the relevant projects are recognised when completed properties are delivered to purchasers. Before that, in order to enhance the efficiency of the utilisation of cash surplus generated from the pre-sale of properties and on the basis that working capital was not affected, during the Track Record Period, some Target Group members provided their cash surplus as loans or advances to their shareholders (primarily including Merchants Property Development

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FINANCIAL INFORMATION OF THE TARGET GROUP

(Guangzhou), which is a member of the Target Group) in proportion to their respective equity interests on an interest-free, unsecured and repayment on demand basis so that the shareholders could utilise the cash surplus as if it were a distribution to the shareholders.

Accordingly, as at 31 December 2012, RMB1,328.58 million was due from Total Up International Limited to Foshan Xin Cheng, RMB242.01 million and RMB15.00 million were both due from Wharf Properties ( Guangzhou) Co., Ltd. to Foshan Xin Jie and Foshan Merchants Wharf, respectively, which amounted to RMB1,585.59 million in total. As at 31 December 2012, approximately RMB1,570.6 million were due from these Target Group members’ controlling shareholders, of which RMB1,324.84 million due from Merchants Property Development (Guangzhou) to Foshan Xin Cheng was eliminated in the consolidated accounts of the Target Group as Merchants Property Development (Guangzhou) is a member of the Target Group, and the reminder was accounted for as “amounts due from an intermediate holding company (i.e. CMPD)”.

The total amounts due to these Target Group members from their controlling shareholders and non-controlling shareholders were approximately proportional to their 50/50 equity interests in such companies. As such, there have been no preferential benefits to either the non-controlling shareholders or the controlling shareholders in terms of the provision of these loans and advances.

The provision of loans and advances to, and the repayment of such loans and advances by, the shareholders of the Target Group members described above are not stipulated in the relevant joint venture agreements, investment agreements or articles of association of the Target Group members. Such loans and advances are expected to be fully repaid before 2015 by dividends to be distributed by the Target Group members to their shareholders.

After Closing, the Enlarged Group will not provide new loans and advances to the shareholders of the Target Group members any more unless the relevant Listing Rules requirements including without limitation the connected transaction requirements under Chapter 14A of the Listing Rules are complied with.

(ii) Advances provided by the Target Group members to CMPD, which were unsecured, are interest bearing at RMB benchmark deposit rate offered by PBOC.

As at the Latest Practicable Date, the advances due from CMPD had been fully repaid by CMPD to the Target Group.

The amounts of, and the timing of providing, such loans and advances were largely dependent on the amount of cash surplus generated from the relevant Target Group members’ pre-sale activities and their respective working capital requirements at the relevant time.

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FINANCIAL INFORMATION OF THE TARGET GROUP

The Target Group’s amounts due from the CMPD as at 31 December 2010, 2011 and 2012 were RMB1,078.50 million, RMB1,208.91 million and RMB2,976.67 million, respectively. The significant increase in the amount in 2012 was primarily due to an increase in advances from Merchants Property Development (Guangzhou), Foshan Xin Jie, Foshan Yi Yun and Merchants Nanjing Real Estate to CMPD. These companies generated a large amount of cash from their pre-sale in 2012. The increase in the amount for 2011 was primarily due to an increase in advances from Merchants Property Development (Guangzhou) to CMPD.

The Target Group’s amounts due from its non-controlling shareholders as at 31 December 2011 and 2012 were RMB1,157.77 million and RMB1,585.59 million, respectively. The increase in the amounts in 2011 and 2012 were primarily due to the advance from Foshan Xin Cheng to its non-controlling shareholder in 2011 and Foshan Xincheng and Foshan Xin Jie to their respective non-controlling shareholder in 2012, respectively.

The amount due from the non-controlling shareholders that was classified as non-current assets was amount due from Total Up International Limited, the non-controlling shareholder of Foshan Xin Cheng. The balance as at 31 December 2012 was RMB1,328.58 million and it had not been repaid as at the Latest Practicable Date.

The net asset value of Foshan Xin Cheng as at 31 December 2012 was RMB1,355.27 million, of which retained earnings were RMB320.36 million. As Evian Water Bank, which is owned and operated by Foshan Xin Cheng, has entered into its peak season of properties delivery, most profits from Evian Water Bank will be recognised in the following 1 to 2 years. The amount due from Total Up International Limited is expected to repaid by the profits distributed to it by Foshan Xin Cheng in the future. Accordingly, the Target Group considers that there is no impairment on the amounts due from the non-controlling shareholders.

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FINANCIAL INFORMATION OF THE TARGET GROUP

Trade and other payables

As at 31 December 2010, 2011 and 2012, the Target Group had trade and other payables of RMB8,591.05 million, RMB9,990.83 million and RMB13,094.59 million, respectively. The following table shows the breakdown of the Target Group’s trade and other payables as at the balance sheet dates indicated:

Trade payables Other payables – current Other non-income tax payables Other payables and accrued charges Dividend payable LAT payable Amounts due to intermediate holding companies Amounts due to non-controlling interests Amounts due to fellow subsidiaries Loans from equity holders Loans from Eureka Loans from non-controlling interests Other payables – non-current Amount due to an intermediate holding company Amount due to a non-controlling interests Total	As at 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 862,445 553,472 2,437,563 31,386 47,112 43,928 39,045 83,205 99,034 – – 113,167 88,775 525,415 1,095,525 3,494,129 3,228,247 3,308,575 301,464 202,604 24,383 454 4,992 8,295 4,817,698 4,645,047 7,130,470 1,886,675 2,087,910 2,397,082 1,886,675 2,087,910 2,397,082 3,773,350 4,175,820 4,794,164 – 584,980 584,980 – 584,980 584,980 – 1,169,960 1,169,960 8,591,048 9,990,827 13,094,594	As at 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 862,445 553,472 2,437,563 31,386 47,112 43,928 39,045 83,205 99,034 – – 113,167 88,775 525,415 1,095,525 3,494,129 3,228,247 3,308,575 301,464 202,604 24,383 454 4,992 8,295 4,817,698 4,645,047 7,130,470 1,886,675 2,087,910 2,397,082 1,886,675 2,087,910 2,397,082 3,773,350 4,175,820 4,794,164 – 584,980 584,980 – 584,980 584,980 – 1,169,960 1,169,960 8,591,048 9,990,827 13,094,594
		7,130,470
		2,397,082 2,397,082
		4,794,164
		584,980 584,980
		1,169,960
		13,094,594

– 204 –

FINANCIAL INFORMATION OF THE TARGET GROUP

Trade payables of the Target Group primarily comprise the construction costs payable to construction contractors and land acquisition cost payable to local land authority. The terms with the contractors of the Target Group vary on a case by case basis and typically include stage payments upon achievement of certain milestones.

The Target Group’s trade payables increased from RMB553.47 million as at 31 December 2011 to RMB2,437.56 million as at 31 December 2012, primarily due to an increase in trade payables in relation to land acquisition costs for Changjiahui and Yonghuafu in 2012.

The Target Group’s trade payables decreased from RMB862.45 million as at 31 December 2010 to RMB553.47 million as at 31 December 2011, primarily due to less construction carried out due to a sluggish property market in 2011.

The following is an aged analysis of trade payables, based on the invoice date, at the end of the reporting period:

0 – 60 days 61 – 180 days 181 – 365 days Over 365 days	As at 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 853,170 270,612 1,891,862 2,800 106,739 219,966 2,214 13,916 179,966 4,261 162,205 145,769 862,445 553,472 2,437,563	As at 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 853,170 270,612 1,891,862 2,800 106,739 219,966 2,214 13,916 179,966 4,261 162,205 145,769 862,445 553,472 2,437,563
		2,437,563

The payables aged more than 180 days mainly comprise construction cost payable to construction contractors. When the construction of a property project is completed, the Target Group will do a pre-settlement and record accrued construction costs that are to be paid to construction contractors after completion inspection is finished and other contractual conditions are fulfilled. There is usually a time gap ranging from 6 months up to one year or beyond between the pre-settlement and the actual settlement. Accordingly, the more property construction completed within a financial period, there will normally be more accrued construction costs payable.

The increase in the trade payables aged over 180 days in 2011 was mainly due to an increase in accrued construction costs payable to construction contractors in relation to the completion of phase 1 of Evian Water Bank, and Evian Valley. The increase in the trade payables aged over 180 days in 2012 was mainly due to an accrued construction costs payable to construction contractors in relation to the completion of phases 2 and 4 of Evian Water Bank, phase 1 of Evian Upper City and additional accrued construction costs for phase 1 and 2 of Zijinshan No. 1.

Approximately 33.01% of the trade payables of RMB2,437.56 million as at 31 December 2012 had been subsequently settled as at 30 April 2013.

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FINANCIAL INFORMATION OF THE TARGET GROUP

The following table sets out a breakdown of the other payables and accrued charges as of 31 December 2010, 2011, and 2012:

Salary payable to employees Interest payable Accrued charges	As at 31 December 2012 2011 2010 RMB’000 RMB’000 RMB’000 37,651 25,671 10,774 2,355 1,906 – 59,029 55,629 28,271 99,034 83,205 39,045	As at 31 December 2012 2011 2010 RMB’000 RMB’000 RMB’000 37,651 25,671 10,774 2,355 1,906 – 59,029 55,629 28,271 99,034 83,205 39,045
		39,045

The accrued charges mainly comprise project deposits made by contractors, deed tax, tax collected from customers, advances due to third parties. The increase in the accrued charges in 2011 was primarily attributable to the commencement of construction of more property development projects in 2011 than in 2010, which led to more deposits made by contractors. The salary payable to employees increased by 138.35% from RMB10.77 million in 2010 to RMB25.67 million in 2011, which was mainly attributable to an increase in the number of employees recruited in 2010 for some newly incorporated PRC Operating Subsidiaries.

Other payables of the Target Group primarily represented the amounts due to the Controlling Shareholders and non-controlling Shareholders. As at the Latest Practicable Date, the CMPD Loans had been fully repaid by the Target Group.

Deposits received in respect of pre-sale of properties

Customer deposits from pre-sales of properties represent proceeds received on property sales that have not been recognised as revenue in accordance with the Target Group’s revenue recognition policy. Such amounts are expected to be recognised as revenue upon properties being transferred to customers.

As at 31 December 2010, 2011 and 2012, the amount of customer deposits from sale of properties received and held by the Target Group was RMB3,464.86 million, RMB4,285.42 million and RMB5,996.71 million, respectively. As at 31 December 2012, the amount to be paid in relation to the pre-sold properties was approximately RMB1,347 million.

Restricted bank deposits

As at 31 December 2011 and 2012, the Target Group had restricted bank deposits of RMB12.48 million and RMB14.70 million. The restricted bank deposits during the Track Record Period represented the cash deposits made by Chongqing China Merchants in special accounts earmarked for property project development as required by the relevant regulation.

– 206 –

FINANCIAL INFORMATION OF THE TARGET GROUP

In accordance with the regulation, the cash deposits should be made based on 35% of the total investment amount of the relevant project and such deposits may be offset by 50% with the preliminary expenses (e.g. land cost, design fee, resettlement expenses) incurred by the property developers. The property developers can use up to 30%, 65% and 100% of the deposits at the time of (i) the foundation of the project having passed inspection; (ii) the main structure of the project being under construction; and (iii) the completion inspection certificate having been obtained, respectively.

Financial instruments

The Target Group’s major financial instruments include other receivables, restricted bank deposits, bank balances and cash, loan from equity holders, trade and other payables and bank borrowings. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Market risk

The Target Group is exposed to various types of market risks, including currency risk, credit risk and liquidity risk in its normal course of business.

Currency risk

Several companies within the Target Group have foreign currency bank balances and other payables, which expose the Target Group to foreign currency risk. The management has closely monitored foreign exchange exposure and will undertake procedures necessary to mitigate the currency risk.

The carrying amounts of the Target Group’s foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period mainly consist of USD:

		Liabilities			Assets
	2010	2011	2012	2010	2011	2012
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
US$	3,786,244	4,188,254	4,806,664	161,457	237,516	322,478

The US$ denominated liabilities mainly comprised shareholders’ loans to Harpen and Pride Oasis from their respective equity holders, which were provided as part of their investment to these companies. Harpen and Pride Oasis then contributed such capital in the relevant PRC Operating Subsidiaries as equity investment.

– 207 –

FINANCIAL INFORMATION OF THE TARGET GROUP

The USD denominated assets mainly comprised the amount for capital increase of the relevant Target Group members, which were contributed by the equity holders of the Target Group and had not been converted into RMB at the end of the reporting period.

Sensitivity analysis

The following table details the Target Group’s sensitivity to a 5% increase and decrease in the exchange rate of RMB against the USD which represents management’s assessment of the reasonably possible change in foreign exchange rate. The sensitivity analysis includes only outstanding USD denominated monetary items and adjusts their translation at the end of the reporting period for a 5% change in foreign currency rate. A positive number below indicates an increase in post-tax profit where the RMB strengthens 5% against the relevant currency and vice versa.

				December
			2010	2011	2012
			RMB’000	RMB’000	RMB’000
Profit	or	loss	135,930	148,153	168,157

Interest risk

The Target Group is exposed to cash flow interest rate risk in relation to variable-rate bank deposits and variable-rate bank borrowings and variable-rate amounts due to intermediate holding company/non-controlling interests.

The Target Group’s fair value interest rate risk relates primarily to its fixed-rate amount due to intermediate holding company. It is the Target Group’s policy to maintain a majority of borrowing at fixed-rate of interest so as to reduce the cash flow interest rate risks.

The Target Group’s cash flow interest rate risk is mainly concentrated on the fluctuation of RMB benchmark lending interest rates offered by PBOC for its bank borrowings and other payables.

Credit risk

The Target Group’s maximum exposure to credit risk which will cause a financial loss to the Target Group due to failure to discharge an obligation by the counterparties is arising from the carrying amount of the respective recognised financial assets as stated in the combined statements of financial position at the end of each reporting period.

The credit risk to the Target Group arising from financial guarantees to third parties in respect of mortgage loans granted to customers is limited as the related properties under the mortgage loans can be resold in the market if the customer fails to repay the mortgage loan. Meanwhile, the Target Group has not been required to repay mortgage loans on behalf of customers to date.

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FINANCIAL INFORMATION OF THE TARGET GROUP

The Target Group has concentration of credit risk in respect of bank balances. As at 31 December 2010, 2011 and 2012, approximately 65.43%, 65.33% and 68.56% of the bank balances, respectively, were deposited at China Merchants Bank. Deposits in other banks are less than 10% of total bank deposits and bank balances. The credit risk of these liquid funds is limited because the counterparties are either state-owned banks located in the PRC or banks with high credit ratings.

The Target Group has concentration of credit risk in respect of amount due from CMPD and amounts due from non-controlling shareholders. In order to minimise the credit risk on these amounts, the management of the Target Group continuously monitors the credit quality and financial conditions of the intermediate holding company and non-controlling interest and the level of exposure to ensure that follow-up action is taken to recover overdue debts. Under such circumstances, the Directors consider that the Target Group’s credit risk is insignificant.

Liquidity risk

The Target Group’s objective is to maintain a balance between continuity of funding generated from operating activities and the flexibility through the use of borrowings. The Directors will closely monitor the liquidity position and expect to have adequate sources of funding to finance the Target Group’s projects and operations.

The following table details the Target Group’s expected remaining contractual maturity for its non-derivative financial liabilities. The table has been drawn up based on the undiscounted cash flows of non-derivative financial liabilities based on the earliest date on which the Target Group can be required to pay. The table includes both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate curve at the end of the reporting period.

Liquidity and interest rate tables

Weight average effective interest rate As at 31 December 2010 Trade and other payables – interest free – – fixed-rate 3.56% Loans from equity holders – Financial guarantee	On demand or within 60 days RMB’000 1,216,302 20,344 3,773,350 5,009,996 89,915	61 to 180 days RMB’000 – 40,668 – 40,668 –	181 to 365 days RMB’000 – 3,543,962 – 3,543,962 –	1 -2 years RMB’000 – – – – –	2 - 3 years Total undiscounted cash flows RMB’000 RMB’000 – 1,216,302 – 3,604,994 – 3,773,350 – 8,594,646 – 89,915	Carrying amount RMB’000 1,216,302 3,481,235 3,773,350
						8,470,887

						–

– 209 –

FINANCIAL INFORMATION OF THE TARGET GROUP

Weight average effective interest rate As at 31 December 2011 Trade and other payables – interest free – – fixed-rate 4.33% Loans from equity holders – Other payables – non-current – variable-rate 6.24% As at 31 December 2012 Trade and other payables – interest free – – fixed-rate 5.5% Loans from equity holders – Other payables – non-current – variable-rate 6.4% Bank borrowings – variable-rate 6.78% Financial guarantee	On demand or within 60 days RMB’000 856,707 22,890 4,175,820 11,334 5,066,751 2,694,942 29,773 4,794,164 11,425 2,344 7,532,648 29,466	61 to 180 days RMB’000 – 45,779 – 22,669 68,448 – 59,546 – 22,850 4,689 87,085 –	181 to 365 days RMB’000 – 3,286,389 – 34,947 3,321,336 – 3,387,875 – 35,227 108,529 3,531,631 –	1 -2 years RMB’000 – – – 68,950 68,950 – – – 1,173,769 7,396 1,181,165 –	2 - 3 years Total undiscounted cash flows RMB’000 RMB’000 – 856,707 – 3,355,058 – 4,175,820 1,173,739 1,311,639 1,173,739 9,699,224 – 2,694,942 – 3,477,194 – 4,794,164 – 1,243,271 115,769 238,727 115,769 12,448,298 – 29,466	Carrying amount RMB’000 856,707 3,215,813 4,175,820 1,169,960
						9,418,300

						2,694,942 3,296,075 4,794,164 1,169,960 210,351
						12,165,492

						–

The amounts included above for financial guarantee contracts are the maximum amounts the Target Group could be required to settle under the arrangement for the full guaranteed amount if that amount is claimed by the counterparty to the guarantee. Based on expectations at the end of the reporting period, the Target Group considers that it is more likely than not that no amount will be payable under the arrangement. However, this estimate is subject to change depending on the probability of the counterparty claiming under the guarantee, which is a function of the likelihood that the financial receivables held by the counterparties that are guaranteed by the Target Group suffer any credit losses.

– 210 –

FINANCIAL INFORMATION OF THE TARGET GROUP

Bank Borrowings

The Target Group’s bank borrowings as at 31 December 2010, 2011 and 2012 were as follows:

Carrying amount repayable: Within one year More than two years but not more than five years	As at 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 – – 101,000 – – 109,351 – – 210,351	As at 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 – – 101,000 – – 109,351 – – 210,351
		210,351

The Target Group’s bank borrowings as at 31 December 2012 were repayable in year 2015 which were subject to variable-rate interest at RMB benchmark lending interest rates offered by PBOC. These bank borrowings were granted to Chongqing China Merchants in relation to Changjiahua. The effective interest rates on these bank borrowings ranged from 5.85% to 7.98% per annum. These bank borrowings are denominated in RMB.

As at 30 April 2013, being the latest practicable date for the purpose of determining indebtedness, the Target Group had RMB241 million of undrawn and unrestricted banking facilities.

During the Track Record Period and up to the Latest Practicable Date, the Directors have confirmed that the Target Group had no material default with regard to covenants and/or breaches of finance covenants under the bank loans.

Related party transactions

It is the view of the Target Group’s directors that each of the related party transactions set out in Note 31 to the Accountants’ Report on the Target Group in Appendix III was conducted on normal commercial terms between the relevant parties.

Distributable Reserves

As at 31 December 2012, retained earnings of RMB867.10 million are available for distribution to the Target Group’s shareholders.

– 211 –

FINANCIAL INFORMATION OF THE TARGET GROUP

STATEMENT OF INDEBTEDNESS

Borrowings

At the close of business on 30 April 2013, being the latest practicable date for the purpose of determining indebtedness, the Target Group had aggregate outstanding borrowings of approximately RMB7,042 million, comprising:

i. unsecured borrowings of RMB1,100 million of loans provided by Founder BEA Trust Co., Ltd., which is a CBRC licensed financial institution and an independent third party, with a term of two years;
ii. advance from CMPD of approximately RMB1,144 million; and
iii. advance from equity holders of the entities comprising the Target Group (including Eureka) of approximately RMB4,798 million.

Upon completion of the Acquisition, an amount of approximately RMB2,410 million due to Eureka would be acquired by the Company.

In May 2013, the Target Group raised RMB2,000 million from a trust company to repay the CMPD Loans.

Contingent Liability

As at 30 April 2012, the latest practicable date for determining its indebtedness, the Target Group had outstanding guarantees for mortgage loans of its customers in the amount of approximately of RMB45.95 million.

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities and normal trade payables in the normal course of business, at the close of business on 30 April 2013, the Target Group did not have any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances (other than normal trade bills) or acceptance credits, debentures, mortgages, charges, hire purchase commitments, guarantees or other material contingent liabilities.

Working Capital

The Directors confirm that the Enlarged Group has sufficient working capital for the Enlarged Group’s requirements for at least the next 12 months from the date of this Circular, taking into account available banking facilities, other financial resources available and cash flows from its operations and upon completion of the Acquisition.

DIVIDENDS AND DIVIDEND POLICY

The Directors may recommend a payment of dividend in future after taking into account various relevant factors including the financial condition, capital requirements and earnings of the Enlarged Group, and subject to the Bye-laws. There is no guarantee that dividends will be paid in the future.

– 212 –

FINANCIAL INFORMATION OF THE TARGET GROUP

Any cash dividend will be paid in Hong Kong dollars and other distributions (if any) will be paid to the Shareholders by any means as the Directors deem legal, fair and practical.

TOTAL EXPENSES

The aggregate fees, together with the Stock Exchange listing fee, placing commission, legal and other professional fees and printing and other expenses relating to the Acquisition are estimated to be approximately HK$95 million in aggregate and are payable by the Company.

UNAUDITED PRO FORMA ADJUSTED NET TANGIBLE ASSETS OF THE ENLARGED GROUP

The unaudited pro forma net tangible assets of the Enlarged Group attributable to the equity holders of the Company and the unaudited pro forma net tangible assets per share of the Enlarged Group attributable to the equity holders of the Company would be approximately RMB4,461.2 million and RMB0.9094 respectively, which is calculated as follows as extracted from the Unaudited Pro Forma Consolidated Statement of Financial Position of the Enlarged Group as if the Transactions were completed on 31 December 2012:

Net assets of the Group
Pro forma total assets of the Enlarged Group
Less: Pro forma total liabilities
Pro forma net assets of the Enlarged Group
Less: non-controlling interests
Pro forma net assets attributable to
the equity holders of the Company
Divided by:
1,068,468,860 of the Company’s share
outstanding on 31 December 2012 and
3,836,789,000 of the Company’s share to
be issued upon completion of the Transaction
Net tangible assets attributable to
the equity holders of the Company per Share (RMB)

RMB’000
23,925,847
(17,512,303)
6,413,544
(1,952,343)
4,461,201
1,068,468,860
3,836,789,000
4,905,257,860
0.9094

– 213 –

FINANCIAL INFORMATION OF THE TARGET GROUP

OWNED PROPERTIES AND PROPERTY VALUATION

The Target Group owns all of its properties located in the PRC, including land use rights and buildings primarily held or under development for sale, for investment and for self-use.

For details of the Target Group’s properties as at 31 March 2013 and the text of the valuation certificates of these property interests prepared by JLL, please see Appendix VI of this Circular.

Disclosure of the reconciliation of the Target Group’s properties, from the audited combined financial statements as at 31 December 2012 to the valuation as at 31 March 2013 is set out as below:

RMB millions

Valuation of properties as at 31 March 2013 as set out in the
property valuation report included in Appendix VI*
Net book value of properties as at 31 December 2012
as set out in Appendix III
— Self-use office included in property, plant and equipment
— Investment properties
— Properties for sale
Movement for the period from 1 January 2013 to 31 March 2013
Land cost expected to pay after 31 March 2013
Revaluation surplus, before income taxes and
land appreciation tax
— Attributable to Eureka
— Attributable to non-controlling interests of the Target Group

19,360.04
7.01
34.36
15,212.17
(1,307.18)
1,318.89
4,094.79
1,779.20
2,315.59
4,094.79

Include both commercial values and reference values disclosed in the Appendix VI.

NO MATERIAL ADVERSE CHANGE

The Directors confirm that there has been no material adverse change in the Target Group’s financial or trading position or prospects since 31 December 2012 and up to the date of this Circular.

– 214 –

RELATIONSHIP WITH THE CONTROLLING SHAREHOLDERS

CONTROLLING SHAREHOLDERS

Immediately after Closing, CMPD will own and control indirectly through its wholly-owned subsidiaries including Eureka, Good Ease and Success Well approximately 74.35% of the issued share capital of the Company and will remain as a controlling shareholder of the Company under the Listing Rules.

BUSINESS DELINEATION BETWEEN THE CMPD GROUP AND THE ENLARGED GROUP

Overview

CMPD is currently the real estate flagship of CMG. CMG is engaged in three core businesses, namely, (i) transportation, infrastructure construction, operation and services, (ii) financial investing and management, and (iii) real estate development and operation (through CMPD only).

As at 31 December 2012, the CMPD Group had 64 property development projects in 19 cities (including the Target Cities), comprising residential units, serviced apartments, hotels, commercial and office building. As at 31 December 2012, the saleable GFA of the properties comprising all the property development projects owned by the CMPD Group which had not been sold or pre-sold amounted to approximately 12 million sq.m. As at the date of the Non-Competition Deed, CMPD Group (including the Enlarged Group) had 70 property development projects in 23 cities, an increase by four cities (namely, Qionghai, Dalian, Kunming and Ningbo), compared to 31 December 2012. All of the new property development projects in those four cities are wholly domestically-owned projects. For the reasons set out below, such property development projects will not be acquired by the Company under the Acquisition.

For each of the three years ended 31 December 2010, 2011 and 2012, CMPD’s revenue was RMB13,782.43 million, RMB15,111.37 million and RMB25,296.76 million, respectively, its net profits attributable to shareholders was RMB2,011.40 million, RMB2,591.78 million and RMB3,318.27 million, respectively, and its net assets attributable to shareholders was RMB18,207.43 million, RMB20,418.21 million and RMB23,393.52 million, respectively.

The Target Group is principally engaged in Property Business in the PRC through the PRC Operating Subsidiaries. As at 31 March 2013, the Target Group has eight Target Projects located in four Target Cities, namely Foshan, Guangzhou, Chongqing and Nanjing, in the PRC with an aggregate GFA of approximately 5,381,478 sq.m. Property Business will become the core business of the Enlarged Group after Closing.

– 215 –

RELATIONSHIP WITH THE CONTROLLING SHAREHOLDERS

Reasons for Selecting the Eight Target Projects in Four Target Cities

The Company, Eureka and CMPD have agreed to inject only the Target Projects in the Target Cities into the Company for the following reasons:

Legal and regulatory restrictions on project transfer . According to the Company’s PRC legal advisers, Shu Jin Law Firm, acquisition of wholly domestically-owned property projects is subject to the examination and approval of MOFCOM and the approval process in relation to such acquisition is long and uncertain. Accordingly, the Company has not selected any wholly domestically-owned property projects of the CMPD Group as Target Projects for the Acquisition.

The Company has also excluded the property projects in which CMPD has not held equity interests through its overseas subsidiaries for more than three years. According to Shu Jin Law Firm, unless specifically approved by CSRC, PRC regulations currently do not, in principle, allow CMPD to sell such assets in the PRC to the Company if such acquisition were to result in an overseas listing of those assets.

Accordingly, 10 property development projects in six cities (namely, Foshan, Guangzhou, Chongqing, Nanjing, Tianjin and Suzhou) became candidates for target projects.

The Target Projects being more mature . The Company has selected Target Projects as they are relatively more mature and all enjoy dominant positions among all the property development projects of the CMPD Group in the relevant Target Cities.
No significant competition . The Company has selected property development projects in Foshan, Guangzhou, Chongqing and Nanjing as the Target Projects, so as not to result in significant competition with the property development projects retained by CMPD Group in the relevant Target Cities. Please see the sections headed “Relationship with the Controlling Shareholders — Business Delineation between the CMPD Group and the Enlarged Group — Operation Transitional Assets retained by CMPD in the Target Cities” and “An analysis of the Operation Transitional Assets and the Target Projects in the Overlapping Target Cities” for more details.

Considering the two criteria set out above, the Company further excluded one property development project in each of Suzhou and Tianjin where the total GFA of the property projects that would be retained by CMPD due to the legal and regulatory restrictions set out above represented over 80% of the total GFA of CMPD’s property portfolio in the relevant cities. The remaining 8 property development projects in the four Target Cities were therefore selected as the Target Projects.

– 216 –

RELATIONSHIP WITH THE CONTROLLING SHAREHOLDERS

Mr. Yu Zhiliang and Mr. Liu Zhuogen, who are executive Directors of the Company and do not hold positions in CMPD, together with Mr. Huang Peikun, who is currently an executive director of each of the Company and CMPD, and Ms. Liu Ning, who is a non-executive Director of the Company and a secretary to the board of directors of CMPD, are responsible for selecting the Target Cities and negotiating the terms of the Non-Competition Deed and the Operation Agreement.

Operation Transitional Assets Retained by CMPD in the Target Cities

After Closing, CMPD will continue to hold controlling interests in four property development projects in three out of the four Target Cities, including one in Guangzhou, two in Chongqing and one in Foshan ( Operation Transitional Assets ), which could potentially compete with the Property Business of the Enlarged Group in those three cities.

Until the end of 31 December 2017, when the Operation Transitional Assets are expected to have been completed and sold, they will be owned by the CMPD Group and the revenue derived from them will belong to the CMPD Group. Except for Donghui City in Guangzhou that will continue to be operated and managed by the independent third party joint venture partner of that project, all the Operation Transitional Assets will be operated and managed by the Enlarged Group for a fee under the Operation Agreement during the Transitional Period.

Set out below is a list of the property development projects comprised in the Target Projects and brief details of the Operation Transitional Assets which will continue to be owned by CMPD but operated and managed by the Enlarged Group under the Operation Agreement during the Transitional Period:

Asset Type	Foshan	Foshan	Guangzhou	Chongqing	Chongqing	Nanjing
Target Projects to	–	Evian Tianhui	Jinshan Valley	Changjiahui		Zijinshan No. 1
be injected into		(依雲天匯)	(金山谷)		(長嘉匯)	(紫金山1號)
the Company	–	Evian Upper				Yonghuafu
		City (依雲上城)				(雍華府)
	–	Evian Water
		Bank (依雲水岸)
	–	Evian Xicheng
		(依雲曦城)
Operation	Evian		Donghui City	–	China	None
Transitional		International	(東薈城)		Merchants Bay
Assets to be		(依雲國際)			City
retained by					(江灣城)
CMPD				–	China
					Merchants
					Garden City
					(花園城)

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Foshan

Evian International (依雲國際):

Evian International comprises purely commercial properties, which are mainly high-end office buildings, shops and apartments designed for corporate and commercial customers, within which office buildings amount to approximately 56%, shops amount to approximately 20% and the remaining 24% are small size (35–40 sq.m.) apartment units for commercial customers. It is located in the Shun De District. As at 31 December 2012, it had an aggregate GFA of approximately 139,319 sq.m. and a total saleable GFA of approximately 88,819 sq.m.

Evian International will be developed in two phases. Development of phase 1 will commence in July 2013 and the development of the whole project is expected to last until 2015.

Shenzhen China Merchants owns 60% interest in Evian International and another joint venture partner owns the remaining 40% interest.

Guangzhou

Donghui City (東薈城):

Donghui City mainly comprises mid-size residential apartments, which target general retail residential customers. It is located in the science city of the economic development zone of Luo Gang District of Guangzhou. As at 31 December 2012, it had an aggregate GFA of approximately 372,207 sq.m. and a total saleable GFA of approximately 302,900 sq.m.

Donghui City is developed in three phases. Phase 1 was completed and sold out. Phase 2 is currently under development and is expected to commence its pre-sale in July 2013. Phase 3 is currently undertaking certain preliminary foundation construction works. It is estimated that the whole development of Donghui City will be fully completed by June 2016.

CMPD owns 34% interest in Donghui City and two joint venture partners each own 33% interest. Since the commencement of this project in 2011, CMPD and the two joint venture partners have agreed that this project will be operated and managed by one of the joint venture partners, which is one of the top property developers in the PRC and is an independent third party. This joint venture partner has been responsible for the operation and management of this project since 2011. CMPD has the right to appoint the chief financial officer of this project and apart from exercising this right, it has not been involved in the day to day operation and management of this project. Accordingly, it is inappropriate for the Company or CMPD to operate and manage Donghui City following Closing.

Since Donghui City and Jinshan Valley are very different in terms of location, market positioning and scale (Donghui City is much smaller than Jinshan Valley),

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the Company believes that Donghui City does not pose significant actual or potential competition to Jinshan Valley. Please see the section headed “Relationship with the Controlling Shareholders — An analysis of the Operation Transitional Assets and the Target Projects in the Overlapping Target Cities” for more details.

Chongqing

China Merchants Bay City (江灣城):

China Merchants Bay City is a traditional mid to high-end community-oriented residential block targeting general retail residential customers. It is located at the north bank of Jialing River, which is a relatively mature region in terms of property development. As at 31 December 2012, it had an aggregate GFA of approximately 495,403 sq.m. and a total saleable GFA of approximately 53,150 sq.m.

China Merchants Bay City is currently at the end of its sale period. It is expected that its whole development will be completed by September 2013.

CMPD owns 90% interest in China Merchants Bay City, and Shenzhen China Merchants owns the remaining 10%.

China Merchants Garden City (花園城):

China Merchants Garden City mainly comprises high-end condominiums (low-rise residential buildings of 4–18 stories), high-rise residential buildings (higher than 18 stories) and a few villas, and there are no commercial properties except for some community-oriented stores. It is located at the north bank of Jialing River, which is a relatively mature region in terms of property development. As at 31 December 2012, it had an aggregate GFA of approximately 696,083 sq.m. and a total saleable GFA of approximately 519,083 sq.m.

China Merchants Garden City is developed in three phases and has already started development of phase 2 since February 2013. It is estimated that the whole development of China Merchants Garden City will be fully completed by 2016.

CMPD owns 100% interest in China Merchants Garden City.

Management Arrangement in Relation to the Operation Transitional Assets During the Transitional Period

To minimise potential competition between the CMPD Group and the Enlarged Group after Closing, CMPD and the Company has entered into the Operation Agreement on 19 June 2013. Pursuant to the Operation Agreement, except for Donghui City in Guangzhou, being one of the Operation Transitional Assets, which will continue to be operated and managed by the joint venture partner of that project (an independent third party), the Operation Transitional Assets will be operated and managed by the Enlarged Group until they are completed and sold during the Transitional Period.

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If Donghui City were no longer operated and managed by the joint venture partner, CMPD will make best efforts to let the Enlarged Group operate and manage Donghui City on the terms of the Operation Agreement.

Under the proposed Operation Agreement, the Company will have full discretion to deal with the operational matters of the projects operated and managed under the Operation Agreement, including but not limited to:

application for approvals in relation to project development;
project construction management;
cost management;
financial management;
planning for construction period, sale period, marketing events and pricing;
completion inspection and property handover; and
archive management.

Project design and the construction contract with a contractual amount of more than RMB200 million will be subject to the written consent of CMPD.

Material matters relating to the business, operational, managerial and financial delineation between the Enlarged Group and the CMPD Group will be subject to the approval of the Independent Board Committee of the Company that will be formed for this purpose, including the following:

the project design (including the key aspects of a project, such as total GFA, plot ratio, floor plan, appearance and layout of buildings, etc.) of the projects operated and managed under the Operation Agreement; and
the project management target (including target for cost and revenue and development plan) set by CMPD for the projects operated and managed under the Operation Agreement.

Where necessary, the IBC will be able to seek professional advice at the Company’s cost in relation to the matters set out above.

CMPD will pay a pre-agreed management fee to the Company for providing the operational support service. Such management fee will be determined on an arm’s length basis and calculated with reference to 1%–1.5% of the estimated annual pre-sale amount of each project operated and managed under the Operation Agreement taking into account their scale and project development stage.

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AN ANALYSIS OF THE OPERATION TRANSITIONAL ASSETS AND THE TARGET PROJECTS IN THE OVERLAPPING TARGET CITIES

Overview

The Operation Transitional Assets and the Target Projects currently all belong to the CMPD Group. As a property developer, CMPD would not develop property projects within the same city which will directly compete with each other. When it first decided to conduct Property Business within the same city, from a commercial and operational perspective, CMPD must have taken into consideration a number of factors in project selection, such as geographical location, product positioning and target customers, etc. and would never intend to allow direct competition to exist between its property projects within one city.

After Closing, the Operation Transitional Assets and the Target Projects overlap in three out of the four Target Cities, namely Foshan, Guangzhou and Chongqing (the Overlapping Target Cities ). Based on the business delineation factors set out below, the Directors are of the view that although there is potential competition between the Operation Transitional Assets and the Target Projects, such potential competition will not be extreme and, if it were to materialise, will be sufficiently addressed by the terms of the Operation Agreement and the Non-Competition Deed and will not adversely affect the Enlarged Group.

Factors taken into account to delineate properties within each of the Overlapping Target Cities

Set out below is an analysis of the way in which the Operation Transitional Assets and the Target Projects in each of the Overlapping Target Cities have been delineated to minimise potential competition, having taken the following factors into account:

the geographical location of each property development project by district and product positioning;
the proportion of GFA held by the Target Projects as compared to the GFA held by the Operation Transitional Assets as at 31 December 2012;
the proportion of saleable GFA held by the Target Projects as compared to saleable GFA held by the Operation Transitional Assets as at 31 December 2012; and
the fact that any overlap in relation to the sale period of the relevant property development projects within the Target Projects and the Operation Transitional Assets will not lead to significant competition due to their different location and product positioning, which will attract different customers.

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In China, in relation to Property Business, geographical locations should not be distinguished merely by reference to cities but also to the specific district that each property is located in. The factors relating to specific district or zone of a city such as schooling, daily commutes and transportation normally do not allow people to easily move to live in another district or zone in the relevant city. For example, in urban areas of China, schools are divided in accordance with districts or zones and the government’s general policy on school assignment is that students go to the public school in their district of residence. For these reasons, residential property projects rarely compete with each other if they are located in different districts of the same city.

Dealing with each of these factors in each of the Overlapping Target Cities in turn:

Foshan

Geographical location and product positioning

The Operation Transitional Asset is adjacent to one project of the Target Projects and is 8, 16 and 34 kilometers away from the other three projects of the Target Projects, respectively.

The Operation Transitional Asset and the Target Projects have completely different product positioning and target customers. The Target Projects in Foshan comprise (i) mid-end and upper-class large-size residential apartments with an average price range of RMB10,000 to RMB14,000 per sq.m., which are targeting the high-income working professional population; and (ii) low-end residential apartments, which are targeting general wage-earners. The Operation Transitional Asset consists of mainly high-end office buildings, shops and apartments designed for corporate and commercial customers, of which office buildings account for approximately 56%, shops accounts for approximately 20% and the remaining 24% are small size (35-40 sq.m.) apartment units for commercial customers.

GFA proportion

As at 31 December 2012, the total GFA of the Target Projects was 1,741,560 sq.m., accounting for approximately 93% of the total GFA owned by the CMPD Group in Foshan. The Operation Transitional Asset accounted for the remaining 7%.

Saleable GFA proportion

As at 31 December 2012, the total saleable GFA of the Target Projects was 839,210 sq.m. accounting for approximately 90% of the total saleable GFA owned by CMPD in Foshan. The Operation Transitional Asset accounted for the remaining 10%.

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• Sale period

While the sale periods of the Target Projects and the Operation Transitional Asset overlap to certain extent in Foshan, this will not lead to significant competition since their different locations and product positioning will attract different customers. Furthermore, Operation Transitional Asset will also be operated and managed by the Enlarged Group after Closing under the Operation Agreement, which will have the discretion to make internal co-ordination and conduct separate marketing schemes to the extent sufficient to avoid any actual competition.

Guangzhou

Geographical location and product positioning

In Guangzhou, the Target Asset is located at Panyu District whilst the Operation Transitional Asset is located at the science city in Luogang District. They are about 37 kilometers away from each other and are not close to each other at all.

As to product positioning, the Target Asset consists of mainly complexes of huge-size stand-alone villas, large-size high-rise residential apartments, office buildings and stores, and they are targeting entrepreneurs, businessmen, corporate and commercial customers in the area. By contrast, the Operation Transitional Assets consists of ordinary mid-size residential apartments, which target general retail residential customers.

GFA proportion

As at 31 December 2012, the total GFA of the Target Asset was 1,356,296 sq.m., accounting for approximately 78% of the total GFA owned by the CMPD Group in Guangzhou. The Operation Transitional Asset accounted for the remaining 22% of the total GFA.

Saleable GFA proportion

As at 31 December 2012, the total saleable GFA of the Target Asset was 684,106 sq.m., accounting for approximately 69% of the total saleable GFA owned by the CMPD Group in Guangzhou. The Operation Transitional Asset accounted for the remaining 31% of the total saleable GFA.

Sale period

In Guangzhou, the Target Asset has commenced the sale period since 2008 and because of its large scale, its sale period is expected to last until November 2016 whilst the Operation Transitional Asset commenced its sale period at the end of 2012 and is expected to be sold out by the end of 2015.

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While the sale periods of the Target Asset and Operation Transitional Asset overlap to certain extent in Guangzhou, this will not lead to significant competition since their different locations and market positioning will attract different customers. Furthermore, the Operation Transitional Asset will continue to be operated and managed by the joint venture partner of this project, which is an independent third party.

Chongqing

Geographical location and product positioning

The distance between the Target Asset and the Operation Transitional Assets are more than 20 kilometers in Chongqing, one of which is located in Jiangbei district and the other in South Bank district, respectively. The Target Asset is located in the Danzishi area in the south part of Chongqing Central Business District, which is one of the key developing areas in Chongqing. Facing the juncture of Yangtze River and Jialing River, the Target Asset enjoys a broad river view and has high growth potential for property development. By contrast, the Operation Transitional Assets are inland residential buildings located at the north bank of Jialing River, which is a relatively mature region in terms of property development.

As to product positioning, the Target Asset is upper-class multi-purpose urban complex, including high-rise high quality residential apartments, office buildings and shopping malls. With its superior geographical location, the Target Asset is designed to cater to needs of upper-class residential, corporate and commercial customers. In contrast, the Operation Transitional Assets are mainly traditional mid- to high-end residential blocks targeting at general retail residential customers.

GFA proportion

As at 31 December 2012, the total GFA of the Target Asset was 1,886,519 sq.m., accounting for 61% of the total GFA owned by the CMPD Group in Chongqing. The Operation Transitional Assets accounted for the remaining 39% of the total GFA.

Saleable GFA proportion

As at 31 December 2012, the total saleable GFA of the Target Asset was approximately 1,475,178 sq.m., accounting for 72% of the total saleable GFA owned by the CMPD Group in Chongqing. The Operation Transitional Assets accounted for the remaining 28% of the total saleable GFA.

Sale period

In Chongqing, the Target Asset has commenced its sale period at the end of 2011 and is currently at its phase 1 sale stage. Due to the very large scale of the Target Asset (which has a total GFA of 1,886,519 sq.m.), it is expected that the sale will go on for about 8 to 9 years. By contrast, China Merchants Bay City of the

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RELATIONSHIP WITH THE CONTROLLING SHAREHOLDERS

Operation Transitional Assets has almost been sold out, and China Merchants Garden City of the Operation Transitional Assets is currently at its phase 2 sale stage, which will go on for about 4 to 5 years.

While the sale periods of the Target Asset and Operation Transitional Assets overlap to certain extent in Chongqing, this will not lead to significant competition since their different locations and market positioning will attract different customers. Furthermore, the Operation Transitional Assets will be operated and managed by the Enlarged Group after Closing, which will have the discretion to make internal co-ordination and conduct separate marketing schemes to the extent sufficient to avoid any actual competition.

MEASURES TO MINIMISE ACTUAL AND POTENTIAL COMPETITION BETWEEN THE ENLARGED GROUP AND THE CMPD GROUP

The Company proposes to adopt a number of measures to avoid actual and potential competition and conflict of interest between the Enlarged Group and the CMPD Group.

Non-Competition Deed between CMPD and the Company

In order to minimise the direct competition between the CMPD Group and the Enlarged Group in the future, CMPD and the Company entered into the Non-Competition Deed on 19 June 2013.

CMPD not to compete in the Target Cities

Under the Non-Competition Deed, CMPD has undertaken to the Company (for itself and on behalf of each of its subsidiaries) that during the Relevant Period when the Company or any of its subsidiaries conducts Property Business in any of the Target Cities, that CMPD (i) shall not, and (ii) shall procure that its subsidiaries (excluding the Enlarged Group) shall not, and (iii) shall use its best endeavours to procure that its associates (excluding its subsidiaries) shall not, solely or jointly, or through the representation of any person, enterprise or company:

(a) hold and/or be interested, directly or indirectly, in any shares or other securities or interest in any company, partnership, trust or other business entity, which engages or is involved in, directly or indirectly, any Property Business in any of the Target Cities; or
(b) otherwise, directly or indirectly, engage or be involved or participate or invest in, or provide other support, financial or otherwise, to any Property Business in any of the Target Cities.

Notwithstanding the above, during the Relevant Period, CMPD, any of its subsidiaries (excluding the Enlarged Group) and/or any of its associates may:

(a) hold or be interested in, directly or indirectly, any shares or securities or interest in the Company or, through the Company, in any shares or other securities or interest in any of its subsidiaries;

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(b) continue to own or be interested in, directly or indirectly, the Operation Transitional Assets;
(c) hold and/or be interested, directly or indirectly, in shares or other securities or interests in any company which engages or is involved in, directly or indirectly, any Property Business in any of the Target Cities, if:
(i) such company is listed on a Recognised Stock Exchange;
(ii) such shares or securities or interests do not exceed 5% of such company’s issued and outstanding share capital;
(iii) CMPD, any of its subsidiaries and/or any of its associates are not entitled to appoint a majority of the directors of such company; and
(iv) such company shall at all relevant times have at least one other shareholder which (together, where appropriate, with its associates) holds and/or is interested, directly or indirectly, in a larger percentage of shares and securities or other interests in such company than CMPD, any of its subsidiaries (excluding the Enlarged Group) and/or any of its associates does, which does not act in concert with CMPD, any of its subsidiaries (excluding the Enlarged Group) and/or any of its associates in relation to its shares and securities or other interests in such company; and/or
(f) have interests in properties acquired and held for their own use provided that such activities do not involve any property development.

The Company not to compete in the CMPD Cities

The Company has undertaken to CMPD (for itself and on behalf of each of its subsidiaries) that during the Relevant Period when CMPD or any of its subsidiaries (excluding the Enlarged Group) conducts Property Business in any of the CMPD Cities, that it (i) shall not, and (ii) shall procure that its subsidiaries shall not, and (iii) shall use its best endeavours to procure that its associates (excluding its subsidiaries and the CMPD Group) shall not, solely or jointly, or through the representation of any person, enterprise or company:

(a) hold and/or be interested, directly or indirectly, in any shares or other securities or interests in any company, partnership, trust or other business entity, which engages or is involved in, directly or indirectly, any Property Business in any of the CMPD Cities; or
(b) otherwise, directly or indirectly, engage or be involved or participate or invest in, or provide other support, financial or otherwise, to, any Property Business in the CMPD Cities.

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Notwithstanding the above, during the Relevant Period, the Company, any of its subsidiaries and/or any of its associates may:

(a) hold and/or be interested, directly or indirectly, in any shares or other securities or interest in any company which engages or is involved in, directly or indirectly, any Property Business in any of the CMPD Cities, if:
(i) such company is listed on a Recognised Stock Exchange;
(ii) such shares or securities or interests do not exceed 5% of such company’s issued and outstanding share capital;
(iii) the Company, any of its subsidiaries and/or any of its associates (excluding the CMPD Group), are not entitled to appoint a majority of the directors of such company; and
(iv) such company shall at all relevant times have at least one other shareholder which (together, where appropriate, with its associates) holds and/or is interested, directly or indirectly, in a larger percentage of shares and securities or other interests in such company than the Company, any of its subsidiaries and/or any of its associates (excluding the CMPD Group), and which does not act in concert with the Company, any of its subsidiaries and/or any of its associates (excluding the CMPD Group) does, in relation to its shares and securities or other interests in such company; and/or
(b) have interests in properties acquired and held for their own use provided that such activities do not involve any property development.

CMPD to grant right of first refusal in respect of the Unoccupied Cities

As regards any Unoccupied City, CMPD has granted a right of first refusal to the Company to conduct Property Business in such city (the ROFR ) on the terms set out below:

If CMPD or any of its subsidiaries (excluding the Enlarged Group) (the Offeror ) identifies or is offered any Business Opportunity in any Unoccupied City during the Relevant Period, the Offeror shall give a written notice (the Offer Notice ) to the Company of such Business Opportunity as soon as practicable after the Offeror identifies or is offered such Business Opportunity and shall provide or procure the provision of all necessary information and documents possessed by the Offeror in respect of such Business Opportunity to enable the Company to evaluate the Business Opportunity.
If the Company is interested in pursuing the Business Opportunity in such Unoccupied City, it shall give a written notice (the Notice of Interest ) to the Offeror as soon as possible but in any case within 25 Business Days of receipt of the Offer Notice indicating its decision to pursue or decline the Business Opportunity.

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The Offeror shall use all reasonable endeavours to procure that the Business Opportunity in such Unoccupied City shall remain available for pursuit by the Company on terms and conditions which are not less favourable than those offered or made available to the Offeror for at least 30 Business Days from the date of the Notice of Interest.

However, the Offeror shall be free to pursue the Business Opportunity in such Unoccupied City if prior to such pursuit:

the Offeror has received a written notice from the Company stating that it will not pursue the Business Opportunity in such Unoccupied City and therefore waive the ROFR;
the Offeror has not received a Notice of Interest within the prescribed time period referred to above;
the Offeror has received a Notice of Interest within the prescribed time period referred to above but the Company has not taken such reasonable steps as are necessary to pursue the Business Opportunity in such Unoccupied City by the end of the 30 Business Days mentioned above; or
the Company has previously notified the Offeror that the Company will pursue the Business Opportunity in such Unoccupied City, but the Company is subsequently precluded from doing so due to a regulatory decision or regulatory restrictions.

It has been agreed by CMPD and the Company that no matter whether CMPD has taken up a Business Opportunity in an Unoccupied City or not, the ROFR will enable the Company to take up any other new Business Opportunity in that city within the Unoccupied Cities each and every time it were to arise in the future.

It has been further agreed that where any Business Opportunity in the Unoccupied Cities has to be pursued faster than the timeframe set out above due to time limitations imposed by third parties, the Company and CMPD shall agree to a reasonable timeframe in order to achieve and complete the procedure set out above to ensure that the Business Opportunity in the Unoccupied Cities may be duly pursued.

Based on the agreed arrangements above, CMPD will focus on the CMPD Cities where it operates at present, and the Enlarged Group will base its activities in the Target Cities and focus in the future on development of new property projects in the Unoccupied Cities. After Closing, CMPD will continue to engage in its Property Business in 19 CMPD Cities which primarily consist of a number of first tier cities (e.g. Beijing, Shanghai, Shenzhen, Tianjin) and second tire cities (e.g. Qingdao, Chengdu, Wuhan, Xiamen, Kunming) in China. These cities are expected to provide CMPD with sufficient business opportunities for its future development. In addition, after Closing, CMPD will continue to be the controlling shareholder of the Group. The development of the Group as CMPD’s overseas business platform, which has the advantage of accessing international capital

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market, will be complementary to the current strengths of CMPD Group and is therefore in the interest of CMPD and its shareholders as a whole.

Annual review and disclosure of geographical delineation between the Enlarged Group and the CMPD Group

Pursuant to the Non-Competition Deed, during the Relevant Period, the Company and CMPD will review annually the Company’s and CMPD’s respective portfolio of property projects in the Target Cities and the CMPD Cities, and to consult with each other to determine if any adjustments need to be made to the geographical delineation between the Enlarged Group and the CMPD Group (the Annual Review ) based on the following principles:

if the Enlarged Group ceases to have Property Business in any Target City, CMPD will continue to comply with its undertakings under the Non-Competition Deed as if the Enlarged Group still had Property Business in such city. This means that CMPD will not be able to conduct any Property Business in any such city; and
if the CMPD Group ceases to have Property Business in any CMPD City, CMPD will always have the right of first refusal to take up any new Business Opportunity in such city and if CMPD does not exercise the right of first refusal to take up the new Business Opportunity, the Company will have the right to pursue such new Business Opportunity in this city. If a future Business Opportunity arises in any such CMPD City, CMPD will again have a right of first refusal to pursue such Business Opportunity.

The Annual Review will be carried out by the Company and the CMPD jointly during the Relevant Period. Each party will undertake that, during the Relevant Period, it should as soon as practicable upon request by the other party, provide to the other party all such information as may reasonably be requested by the other party to facilitate the Annual Review.

The Company and CMPD will disclose any material change in their properties portfolio and any change in the geographical delineation as a result of the Annual Review to their respective shareholders in their respective annual report. If any adjustment in the geographical delineation is so material that it will require amendment to the Non-Competition Deed, such adjustment and the amendment to the Non-Competition Deed should be subject to the independent Shareholders’ approval. Such material adjustments include, but not limited to, the change in the number of cities within the Target Cities or the CMPD Cities, and any amendment to the rights of the Company and CMPD in relation to Property Business in the CMPD Cities and the Target Cities, respectively.

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Corporate measures in relation to the implementation of the Non-Competition Deed

Pursuant to the Non-Competition Deed, the Company will implement the following corporate measures to govern and monitor the decision-making process in relation to the ROFR under the Non-Competition Deed:

Independent Directors’ decision

The IBC will be solely responsible for deciding whether or not to take up a Business Opportunity referred to the Company under the terms of the Non-Competition Deed. The key parameters that the IBC will take into account when deciding whether the Company should exercise the ROFR are:

(i) whether the Property Business in the relevant Unoccupied City is in line with the Company’s business strategy (e.g. products and market positioning);
(ii) the projected investment return;
(iii) whether the scale and capital requirements of the Property Business are within the budget of the Company at the relevant time;
(iv) the business prospect of the Unoccupied City concerned; and
(v) geographical location of the Property Business and its geographical synergy with the Target Cities.

In order for the IBC to consider and make a decision in relation to a Business Opportunity, the Company’s management should provide each member of the IBC with all the information and documents in its possession in respect of the Business Opportunity as soon as possible but no later than two Business Days after its receipt of the Offer Notice.

Before the IBC makes a decision on whether or not to take up a Business Opportunity, any member of the IBC has the right to require the Company’s management to provide further information in relation to the Business Opportunity. The decision of the IBC will be made based on a majority vote.

The Board of Directors will take appropriate steps to implement the decision of the IBC. If the IBC decides to pursue a Business Opportunity, the Company’s management should implement such decision in a timely manner under the timeframe provided for under the Non-Competition Deed. Any failure to do so will be reported back to the IBC.

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Ms. Chen Yanping, who will be a member of the IBC, is a Certified Metropolitan Planner of the PRC and has in-depth knowledge and industry experience in architecture and urban planning. Mr. He Qi, who will be a member of the IBC after Closing, has been serving as the deputy secretary of the China Real Estate Association since 2006, and is the director of the training centre and the intermediary professional committee of the China Real Estate Association. Given their academic and industry background, Ms. Chen and Mr. He are qualified and are expected to contribute significantly to the decision making process of the IBC in deciding whether or not to take up each Business Opportunity. In addition, where necessary, the IBC will be able to seek professional advice at the Company’s cost in relation to any issues that they may come across in their decision-making process, which will ensure that the IBC will have strong professional support in discharging their responsibilities.

Independent directors’ review and public disclosure

The IBC will review a report prepared by the Company’s management on a quarterly basis containing details and the latest information in respect of the property project portfolio of the CMPD Group and the Enlarged Group and how any Business Opportunities accepted or given up by the Company during the last quarter (if any) may have impacted or will impact the property project portfolio of the CMPD Group and the Enlarged Group in the short to long term. The IBC will also review, on a semi-annual basis, the extent to which the terms of the Non-Competition Deed have been complied with by the CMPD Group and the Company.

The Company will disclose by way of an announcement the decisions (with basis) made by the IBC on accepting or rejecting any Business Opportunity and other material matters reviewed by the IBC relating to the enforcement of the Non-Competition Deed, and the occurrence of any material conflicts of interest in relation to the business delineation between the CMPD Group and the Enlarged Group on a quarterly basis. A report in relation to the implementation of, and the compliance with, the Non-Competition Deed by the CMPD Group and the Company, including the IBC’s confirmation on such compliance will be published in the interim reports and annual reports of the Company.

Termination of the Non-Competition Deed

The Non-Competition Deed will automatically terminate upon the earlier of (a) the date on which CMPD ceases to be a Controlling Shareholder of the Company; and (b) the date on which the Shares cease to be listed on the Stock Exchange.

Confirmation from Directors and the Sole Sponsor

The Directors, including independent non-executive Directors, are of the view that the Non-Competition Deed described in this section are fair and reasonable and in the interests of the Shareholders as a whole.

The Sole Sponsor is of the view that the Non-Competition Deed described in this section is fair and reasonable and in the interests of the Shareholders as a whole.

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INDEPENDENCE OF THE ENLARGED GROUP FROM CMPD

Management Independence

The Board of Directors and senior management will be independent from CMPD and CMG after Closing. In terms of overlapping management personnel:

Mr Huang Peikun will be the only overlapping Director at the board level and he will continue to be an executive director of CMPD while serving as the chairman and a non-executive Director of the Company after Closing; and
Ms Liu Ning will be the only overlapping officer at the senior management level. She will continue to be the secretary to the board of directors of CMPD and a non-executive Director of the Company after Closing.

Mr. Huang and Ms. Liu are representative directors of CMPD, a Controlling Shareholder of the Company and will continue to serve as Directors of the Company after Closing. However, they will both be non-executive Directors of the Company after Closing and will not be involved in the day to day operation and management of the Company. There will be no overlap in terms of independent non-executive directors between the Company and CMPD and there will be no overlap in the other senior management of both groups.

Set out below is the proposed board composition and the senior management team of CMPD and the Company after Closing:

CMPD	Company
Executive Directors	Executive Directors
Lin Shaobin (chairman)	So Shu Fai
He Jianya (director and general manager)	Hu Jianxin
Huang Peikun (director and	Liu Zhuogen
chief financial officer)	Yu Zhiliang
Non-executive Directors	Non-executive Directors
Yang Tianping (vice-chairman)	Huang Peikun (chairman)
Wang Hong	Liu Ning
Hua Li
Hu Yong

Independent Non-executive Directors	Independent Non-executive Directors
Chai Qiang	Wong Wing Kuen
Liu Hongyu	Chen Yanping
Lu Weixiong	Shi Xinping
Zhang Wei	He Qi

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RELATIONSHIP WITH THE CONTROLLING SHAREHOLDERS

CMPD

Company

Senior Management

He Jianya (general manager) Yang Zhiguang (deputy general manager) Huang Peikun (chief financial officer) Wang Li (deputy general manager) Zhu Wenkai (deputy general manager) Meng Cai (deputy general manager) Zhang Lin (deputy general manager) Wang Zhengde (chief economist) Liu Ning (secretary to the board of directors)

Liu Zhuogen (deputy general manager) Yu Zhiliang (chief financial officer) Jiang Tiefeng (project general manager) Xian Yaoqiang (project general manager)

Wang Tao (project general manager) Chan Wing Yan (company secretary)

The biographical details of each of the Directors (including the Proposed Directors) and senior management of the Company are included in the section headed “Directors and Senior Management of the Enlarged Group” the Circular.

Currently, PRC Operating Subsidiaries are sharing certain management personnel with the Operation Transitional Assets in the same Target City. During the Track Record Period, the relevant personnel were employed by, and the related expenses were borne by, different project companies and there was no special arrangement among them about cost allocation. In order to ensure the independent operation of the Enlarged Group after Closing, the overlapping management personnel in each project company of the Operation Transitional Assets will be exclusively transferred to the Target Group on or before Closing. Such management personnel will continue to manage the Operation Transitional Assets under the Operation Agreement.

Operational Independence

The Enlarged Group is operationally independent of the CMPD Group and CMG and has independent project development, construction and marketing teams. It has direct access to its suppliers and customers and does not rely on the CMPD Group or CMG to establish or maintain its business relationship with new or existing customers and suppliers. The Enlarged Group also has sufficient capital, equipment and employees to operate its business independently. Other than (i) the transactions under the Non-Competition Deed and the Operation Agreement, (ii) the continuing connected transactions (i.e. the sourcing of electronic and electrical products and building related materials and equipment by Guan Hua Gang from CMPD) between the Company and the CMPD Group that have been disclosed in the annual report of the Company for the year ended 31 December 2012 and will continue after Closing, and (iii) the possible continuing connected transactions mentioned in the section headed “Continuing Connected Transactions” below, the Enlarged Group is not expected to enter into any material transactions with the CMPD Group which will continue after Closing.

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RELATIONSHIP WITH THE CONTROLLING SHAREHOLDERS

Financial Independence

The Enlarged Group will have an independent financial system and makes financial decisions according to its own business needs. It will also have its own treasury function which is operated independently from the CMPD Group and CMG.

The Targets Group utilises advances and entrustment loans from CMPD in its ordinary and usual course of business on terms no less favourable than terms available from commercial banks in China. As of 12 April 2013, the total amount of advances and entrustment loans from CMPD to the Target Group amounted to approximately RMB883.75 million, representing approximately 44.6% of the Target Group’ total interest-bearing bank loans and other borrowings.

As at the Latest Practicable Date, the Target Group has fully repaid the CMPD Loans with loans obtained by it from a trust company without any credit support from the Controlling Shareholders.

All of the other Target Projects have already commenced their respective sale period and are generating revenues. During the year ended 31 December 2012, the Target Group generated net profits after taxation of approximately RMB1,045 million and cash flow from operating activities of approximately RMB2,506 million. The Enlarged Group will have strong capacity to raise sufficient funds to develop its Property Business.

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CONTINUING CONNECTED TRANSACTIONS

NON-EXEMPT CONTINUING CONNECTED TRANSACTION

The Company has entered into the following Non-Exempt Continuing Connected Transactions with CMPD with effect from Closing:

Operation Agreement

On 19 June 2013, the Company entered into the Operation Agreement with CMPD, pursuant to which the Enlarged Group will provide project operational support services to CMPD, including but not limited to taking charge of land acquisition, project development and sales. The reason to enter into the Operation Agreement is to minimise the potential competition between the CMPD Group and the Enlarged Group in the relevant Target Cities after Closing. Such transactions constitute continuing connected transactions of the Company under the Listing Rules and will be subject to Independent Shareholders’ approval and the other requirements under Chapter 14A of the Listing Rules.

Key Terms of the Operation Agreement

Under the Operation Agreement, the Enlarged Group will operate and manage Evian International, China Merchants Bay City and China Merchants Garden City, which are among the Operation Transitional Assets. The Enlarged Group has full discretion to deal with the operational matters of the property development projects managed under the Operation Agreement, including but not limited to:

application for approvals in relation to project development;
project construction management;
cost management;
financial management;
planning for construction period, sale period, marketing events and pricing;
completion inspection and property delivery; and
archive management.

It is agreed by both parties that the Company will be the sole service provider for the projects managed under the Operation Agreement. Unless there is a serious breach of contract by the Company, CMPD should not terminate this agreement during the term of the Operation Agreement.

Subject to the approval by the Board and the approval by the Independent Shareholders at the EGM, the Operation Agreement will be effective immediately upon Closing and remain effective until 31 December 2015. If the property development projects of CMPD under the Operation Agreement have not been completed or sold out by 31

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CONTINUING CONNECTED TRANSACTIONS

December 2015, such agreement will be renewed unless otherwise agreed to by the parties. Such renewal shall be in compliance with all the requirements under the Listing Rules.

Please see the section headed “Relationship with the Controlling Shareholders – Business Delineation between the CMPD Group and the Enlarged Group – Management Arrangement in Relation to the Operation Transitional Assets during the Transitional Period” for more details.

Basis of determining the consideration

CMPD will pay a pre-agreed management fee to the Company for providing the operational support services. Such management fee will be determined on an arm’s length basis, taking into account the estimated costs and a proper level of profits for providing the operational support services. It will be calculated with reference to 1%–1.5% of the estimated annual pre-sale amount of each project operated and managed under the Operation Agreement. The range of 1%–1.5% is determined with reference to the rate of management fees charged by other major property developer (who is an independent third party) for providing similar operational support services to CMPD, which was also determined on normal commercial terms at arm’s length.

It is agreed by both parties that the price of each transaction under the Operation Agreement will be determined by taking into account the development scale and cycle of the specific project. Generally speaking, the rate of management fees is lower for larger scale project due to the synergy by integrating the staffing and services for different phases of the specific large scale project. The rate of management fees is higher for projects in their earlier development cycle than those in their later development cycle, because the former will involve more complicated operation and management work, including positioning and planning of the project, preparation for the relevant approvals and permits, and selection of suppliers and contractors, etc.

Specifically, the Company would propose the following rates in principle for the relevant Operation Transitional Assets for the following reasons:

(i) 1.5% of the pre-sale amount for Evian International, because it will be developed in two phases and development of phase one is expected to commence in July 2013. This development is expected to last until 2015 which will require more on-going operational support services;
(ii) 1% of the pre-sale amount for China Merchant Bay City, because its development will be completed in September 2013, and is currently at the end of its sale period, which will only require limited operational support services; and
(iii) 1% of the pre-sale amount for China Merchants Garden City, because it will be developed into three phases and development of phase two already started in February 2013. Its development period is expected to last until 2016 and will only require relatively limited operational support services.

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CONTINUING CONNECTED TRANSACTIONS

CMPD or its subsidiary and the Company or its subsidiary will enter into a specific operational support service agreement in relation to each Operation Transitional Asset, in which details of the operational support services will be stipulated more specifically.

The management fees for each transaction under the Operation Agreement will be paid on a quarterly basis and will be settled by way of cash.

Proposed Annual Caps

The Company proposes to adopt the following Annual Caps for the transactions under the Operation Agreement for each of the three years ending 31 December 2013, 2014 and 2015:

	Proposed Annual Caps	Proposed Annual Caps
Transaction	for the year ending 31 December
	2013	2014	2015
		(RMB’ million)
Maximum aggregate annual transaction
amount to be paid by CMPD to the
Company	16	34	17

In arriving at the above Annual Caps, the Directors have considered (i) the estimated annual pre-sale amount for the three Operation Transitional Assets in each of the 3 years ending 31 December 2015, which are approximately RMB1.4 billion, RMB2.25 billion and RMB1.43 billion; and (ii) multiply these amounts by a rate ranging from 1% to 1.5%, which is based on the development stage of the projects to be managed under the Operation Agreement. The proposed Annual Cap for the year ending 31 December 2014 is of a larger amount because year 2014 is expected to be the peak sale period of the relevant Operation Transitional Assets with a larger estimated pre-sale amount.

Property Management Agreement

In the ordinary and usual course of business of the PRC Operating Subsidiaries, they have entered into property management agreements from time to time with Merchants Property Management Co., Ltd., a subsidiary of CMPD. Pursuant to the property management agreements, Merchants Property Management Co., Ltd. provides property management services to the PRC Operating Subsidiaries on a non-exclusive basis. Following Closing, such transactions will constitute continuing connected transactions of the Company.

On 19 June 2013, the Company entered into the Property Management Agreement with Merchants Property Management Co., Ltd., pursuant to which Merchants Property Management Co., Ltd. will continue to provide certain property management services to the Enlarged Group. Such transactions constitute continuing connected transactions of the Company under the Listing Rules and will be subject to Independent Shareholders’ approval and the other requirements under Chapter 14A of the Listing Rules.

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Key Terms of the Property Management Agreement

Under the Property Management Agreement, the following property management services will be provided to the Enlarged Group:

(i) services related to property management services, including security, cleaning services, maintenance of the public area of the building and the maintenance of the equipment, as well as management of the parking lot, etc.; and
(ii) sales-related services, including reception services and the management of the sample apartments, etc.

Subject to the approval by the Board and the Independent Shareholders at the EGM, the Property Management Agreement will be effective immediately upon Closing until 31 December 2015. Such agreement will be subject to renewal unless otherwise agreed by the parties upon the expiry of such term. Such renewal shall be in compliance with all the requirements under the Listing Rules.

The Company has the right to terminate the Property Management Agreement if Merchants Property Management Co., Ltd. breaches its obligation in any material respect.

Basis of determining the consideration

The consideration to be paid by the Company to Merchants Property Management Co., Ltd. under the Property Management Agreement will include the following fees:

(i) labor costs, necessary material costs, cleaning costs, water and electricity costs, etc.;
(ii) the costs incurred by temporary management tasks requested by the Company in writing, which mainly include but not limited to management and reception services for any marketing events organised by the sales office of the property project; and
(iii) commission for the management service, which will be determined by the Company in accordance with market practice and the actual request, and will generally be 10% of the total amount set forth in items (i) and (ii) above.

For the fees under item (i) above, Merchants Property Management Co., Ltd. shall submit annually a proposed budget for the Company’s review and approval. The proposed budget should set out a detailed staffing plan, the corresponding salary standard and the proposed maximum management fee per square meter of the relevant property project (which will be reviewed and assessed based on the specific positioning of each property project, with reference to the rate of management fee charged to other similar properties in the same area). Once the budget is approved by the Company, Merchants Property Management Co., Ltd. shall carry out the property management services within such budget.

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CONTINUING CONNECTED TRANSACTIONS

For the fees under item (ii) above, the Company will fix a maximum amount in its written request for the relevant temporary management task each time, taking into account the specific nature and scale of and resources needed for such temporary management task. Merchants Property Management Co., Ltd. shall control the costs incurred accordingly.

The property management fees for each transaction under the Property Management Agreement will be paid on a monthly basis and will be settled by way of cash.

Historical transaction amounts

Merchants Property Management Co., Ltd. had been providing property management services to the PRC Operating Subsidiaries in the ordinary and usual course of business. The aggregate amount paid by the PRC Operating Subsidiaries to Merchants Property Management Co., Ltd. for such services amounted to approximately RMB35 million, RMB48 million and RMB65 million for the three years ended 31 December 2010, 2011 and 2012, respectively.

Proposed Annual Caps

	Proposed Annual Caps	Proposed Annual Caps
Transaction	for the year ending 31 December
	2013	2014	2015
		(RMB’ million)
Maximum aggregate annual transaction
amount to be paid by the Company to
Merchants Property Management Co.,
Ltd.	80	100	100

In arriving at the above Annual Caps, the Directors have considered (i) the historical and existing transactions amount for the services provided by Merchants Property Management Co., Ltd. to the PRC Operating Subsidiaries; and (ii) the number of projects to be completed and the corresponding needs for property management services in the three consecutive years ending 31 December 2013, 2014 and 2015.

Confirmation from the Directors

The Directors, including members of the Independent Board Committee, are of the view that the Non-Exempt Continuing Connected Transactions described in this section have been entered into in the usual and ordinary course of business of the Enlarged Group, are on normal commercial terms, are fair and reasonable and in the interests of the Shareholders as a whole.

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CONTINUING CONNECTED TRANSACTIONS

Confirmation from the Sole Sponsor

The Sole Sponsor is of the view that the Non-Exempt Continuing Connected Transactions described in this section have been entered into in the usual and ordinary course of business of the Enlarged Group, are on normal commercial terms, are fair and reasonable and in the interests of the Shareholders as a whole, and that the Annual Caps for these Non-Exempt Continuing Connected Transactions referred to in this section are fair and reasonable, and in the interest of the Shareholders as a whole.

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DIRECTORS AND SENIOR MANAGEMENT OF THE ENLARGED GROUP

DIRECTORS

The Board will consist of ten Directors upon Closing, comprising four executive Directors, two non-executive Directors and four independent non-executive Directors.

Save as disclosed in this Circular, none of the Directors (including the Proposed Directors) had any other directorships in any listed companies during the last three years.

The following table sets out certain information of the Directors (including the Proposed Directors):

Name Dr. So Shu Fai (蘇樹輝) Mr. Hu Jianxin (胡建新) Mr. Liu Zhuogen (劉卓根) Mr. Yu Zhiliang (余志良) Mr. Huang Peikun (黃培坤) Ms. Liu Ning (劉寧) Dr. Wong Wing Kuen, Albert (王永權) Ms. Chen Yanping (陳燕萍) Dr. Shi Xinping (史新平) Mr. He Qi (何琦)	Age 62 54 49 34 51 44 61 54 54 57	Position executive Director executive Director executive Director executive Director chairman and non-executive Director non-executive Director independent non-executive Director independent non-executive Director independent non-executive Director independent non-executive Director	Position held/ will be held since 11 December 2010 Closing Date 2 June 2012 2 June 2012 Closing Date 2 June 2012 2 June 2012 2 June 2012 2 June 2012 Closing Date	Year joined
				2010 2013 2012 2012 2012 2012 2012 2012 2012 2013

EXECUTIVE DIRECTORS

Dr. So Shu Fai (蘇樹輝) , aged 62, joined the Company as an executive Director and chairman of the executive committee on 11 December 2010 and was elected chairman of the Company on 31 December 2010. Dr. So resigned from his position as the chairman of the Board and his board committee position on 23 June 2012 and remains an executive Director of the Company. Dr. So is responsible for overseeing the trading business of the Enlarged Group.

Dr. So currently holds positions in two companies listed on the Stock Exchange. He is an executive director of SJM Holdings Limited (Stock Code: 00880) and an independent non-executive director of SHK Hong Kong Industries Limited (Stock Code: 666). Dr. So is also a director of Estoril Sol, SGPS, S.A., a company listed in Euronext Lisbon.

In addition, Dr. So currently is a director of Shenzhen Super Perfect Optics Limited and the chairman of the board of directors of Macauport – Sociedade de Administrac¸a˜ o de Portos, S.A..

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DIRECTORS AND SENIOR MANAGEMENT OF THE ENLARGED GROUP

Dr. So is a member of the 12th National Committee of the Chinese People’s Political Consultative Conference, a member of the 9th National Committee of China Federation of Literary and Art Circles, the honorary consul of the Republic of Portugal in the Hong Kong SAR, as well as a member of the Economic Development Council and a member of the Cultural Consultative Council of the Macau SAR Government.

Dr. So was awarded the Medal of Merit – Culture by the Macau SAR Government in 2009 in recognition of his outstanding achievements, contributions and distinguished services rendered to the Macau SAR. He was awarded the Doctor of Social Sciences honoris causa by the University of Macau in November 2012, and the Honorary University Fellowship by The University of Hong Kong in 2005. Dr. So is an associate of The Hong Kong Institute of Company Secretaries and The Institute of Chartered Secretaries and Administrators.

Dr. So graduated with a bachelor’s degree from The University of Hong Kong in November 1973, and received a doctoral degree in management studies from Southern Cross University in September 2001.

Mr. Hu Jianxin (胡建新) , aged 54, was appointed as an executive Director of the Company on 18 June 2013 with effect from Closing. He has been working as a deputy general manager of CMPD since April 2005. Mr. Hu is responsible for the project management of the Enlarged Group.

Mr. Hu worked as a deputy general manager in Shenzhen China Merchants from December 2001 to February 2011, worked in China Merchants Properties Development Ltd. (招商局置業有限公司) from November 1996 to November 2001 initially as a deputy general manager and subsequently was promoted to general manager. Mr. Hu also worked in China Merchants Properties Holdings Company Limited (招商局地產集團有限公司) as a deputy general manager from November 1998 to November 2001.

Mr. Hu was granted a certificate for High-Level Professional in Shenzhen by the Personnel Bureau of Shenzhen Municipality in January 2009, to recognize him as a national-level talent and Mr. Hu is entitled to enjoy privileged treatment according to relevant policies in Shenzhen. Mr. Hu enjoys a monthly special governmental allowance since October 1992. Mr. Hu was granted a certificate of Young and Middle-aged Expert with Outstanding Contribution (“中青年有突出貢獻專家”) by Ministry of Personnel of the PRC in 1992.

Mr. Hu graduated with a bachelor’s degree in architectural and structural engineering and a master’s degree in architectural and structural engineering from South China University of Technology (formerly called “華南工學院”) in July 1982 and July 1991, respectively. Mr. Hu was qualified as a senior architectural engineer in April 1993.

Mr. Liu Zhuogen (劉卓根) , aged 49, joined the Company as an executive Director on 2 June 2012 and was appointed as a deputy general manager on 29 June 2012. Mr. Liu has been serving as a director of Champion Apex and GGP since June 2012 and a director of Harvest Allied since April 2013. Mr. Liu has been serving as the legal representative of Guan Hua Gang since June 2012. Mr. Liu is responsible for overseeing the daily operation and trading business of the Enlarged Group.

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DIRECTORS AND SENIOR MANAGEMENT OF THE ENLARGED GROUP

Mr. Liu has been serving as a director of Eureka since September 2009. Prior to joining Eureka, he worked as a deputy general manager at the Commercial Property Division of CMPD from September 2005 to August 2009, an engineer of the Wharf (Holdings) Limited from November 1997 to August 2002, a project manager at Kenworth Engineering Limited from May 1996 to October 1997, a sales manager at Sanko Technology Limited from February 1995 to June 1996 and an engineer at China Merchants Shekou Industrial Zone from November 1982 to January 1991.

Mr. Liu received a bachelor’s degree of engineering majoring in automation in industry from South China University of Technology in July 1982, a master’s degree of engineering majoring in systems and control from University of New South Wales, Australia October 1994, an MBA under a distance learning program jointly offered by Deakin University and the Association of Professional Engineers, Scientists and Managers, Australia in September 1998 and a master’s degree in accounting under a distance learning program from Curtin University of Technology, Australia in February 2002.

Mr. Yu Zhiliang (余志良) , aged 34, joined the Company as an executive Director on 2 June 2012. Mr. Yu has been serving as a director of Champion Apex and GGP since January 2013 and a director of Harvest Allied since April 2013. Mr. Yu is responsible for managing accounting, monitoring internal control and overseeing the financial activities of the Enlarged Group.

Mr. Yu has been serving as a chief financial officer of China Merchants Property (Xiamen) Co. Ltd. (招商局地產（厦門）有限公司) and Fujian Zhong Lian Sheng Estate Development Ltd. (福建中聯盛房地產開發有限公司) since November 2010. He also worked as a director of China Merchants Properties Development Ltd. (招商局置業有限公司) from September 2009 to December 2010 and a director of Wahsheung Finance Ltd. (華商財務有限公司) from December 2005 to December 2010.

Mr. Yu received a bachelor’s degree in accounting from Xiamen University in July 2001 and an MBA in finance from Chinese University of Hong Kong in December 2009. Mr. Yu was qualified as an accountant in the PRC in May 2005.

NON-EXECUTIVE DIRECTORS

Mr. Huang Peikun (黃培坤) (Chairman) , aged 51, was re-designated as a non-executive Director of the Company on 18 June 2013 with effect from Closing. Mr. Huang joined the Company as an executive Director on 2 June 2012 and was elected chairman of the Company on 29 June 2012. Mr. Huang is responsible for the strategic direction and overall performance of Enlarged Group.

Mr. Huang has been serving as a director of CMPD since October 2007. Mr. Huang has been a chief financial officer of Shenzhen China Merchants and CMPD since January 2003 and a director of Eureka since April 2006.

Prior to joining the Target Group, Mr. Huang worked as a manager in the finance department and a chief accountant in Shenzhen China Merchants Petrol Chemical Co., Ltd. (深圳招商石油化工有限公司) from April 1992 to March 1995, and worked in China Merchants Shekou Industrial Zone as a financial manager, deputy chief accountant and

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DIRECTORS AND SENIOR MANAGEMENT OF THE ENLARGED GROUP

chief financial officer from April 1995 to July 2001 and worked in China Merchants Landmark (Shenzhen) Co., Ltd. (深圳市招商創業有限公司) as a chief financial officer and a deputy general manager from July 2001 to January 2003.

Mr. Huang received a master’s degree in management from Zhejiang University in March 2000 and was qualified as a senior accountant of the PRC in February 2000. Mr. Huang completed the program of Executive Master of Business Administration from The Hong Kong University of Science and Technology in June 2012.

Ms. Liu Ning (劉寧) , aged 44, joined the Company as a non-executive Director on 2 June 2012. Ms. Liu is a member of the audit committee of the Company.

Ms. Liu has 14 years’ experience in securities industry and has been serving as the secretary to the board of directors of CMPD since February 2008. She was appointed as a representative for securities affairs of CMPD in October 2001 and a director of secretariat to the board of CMPD in July 2004.

Ms. Liu currently serves as an independent director in the following companies listed on the Shenzhen Stock Exchange:

Tianjin Zhonghuan Semiconductor Co., Ltd. (天津中環半導體股份有限公司) (Stock Code: 002129);
Shenzhen Jinxinnong Feed Co., Ltd. (深圳金新農飼料股份有限公司) (Stock Code: 002548); and
Shenzhen Changfang Light Emitting Diode Lighting Co., Ltd. (深圳市長方半導體照明股份有限公司) (Stock Code: 300301).

Ms. Liu received a bachelor’s degree in wood processing from Central South University of Forestry and Technology in June 1992. She completed a post-graduate course in Department of Business Administration of Business School of Nankai University in December 2000 and subsequently obtained an MBA from Macau University of Science and Technology in March 2003. Ms. Liu is an economist of the PRC.

INDEPENDENT NON-EXECUTIVE DIRECTORS

Dr. Wong Wing Kuen, Albert (王永權) , aged 61, joined the Company as an independent non-executive Director on 2 June 2012. Dr. Wong is the chairman of the audit committee and a member of the remuneration committee of the Company.

Dr. Wong currently holds the following positions in other listed companies:

independent non-executive director of APAC Resources Limited, a company listed on the Stock Exchange (Stock Code: 1104);
independent non-executive director of Solargiga Energy Holdings Limited, a company listed on the Stock Exchange (Stock Code: 757); and

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DIRECTORS AND SENIOR MANAGEMENT OF THE ENLARGED GROUP

non-executive director of Rare Earths Global Limited, a company listed on AIM market of the London Stock Exchange.

In addition, Dr. Wong has been the managing director of Charise Financial Planning Limited, a private professional consulting firm in Hong Kong since October 2005.

Dr. Wong was elected or admitted:

a fellow of The Institute of Chartered Secretaries and Administrators in September 2002;
a fellow of The Hong Kong Institute of Chartered Secretaries in February 2002;
a fellow of the Taxation Institute of Hong Kong in January 1999;
an ordinary member of The Hong Kong Securities and Investment Institute in November 2012;
a fellow member of Association of International Accountants in September 2005;
a member of The Institute of Certified Public Accountants in Ireland in August 2000;
a member of the Chartered Institute of Arbitrators in May 2002; and
a Certified Tax Adviser of Hong Kong for the year 2013 by the Taxation Institute of Hong Kong.

Dr. Wong received a doctor’s degree in Business Administration from Bulacan State University, Republic of the Philippines in December 2010 and a bachelor’s degree in commerce from a joint program held by Shenzhen University and Clayton University, Missouri, USA in May 1990. He also received a bachelor’s degree and a master’s degree in business administration from Nottingham Trent University, UK in December 2005 and December 2007, respectively.

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DIRECTORS AND SENIOR MANAGEMENT OF THE ENLARGED GROUP

Ms. Chen Yanping (陳燕萍) , aged 54, joined the Company as an independent non-executive Director on 2 June 2012. Ms. Chen has been an independent director of CMPD from October 2007 to November 2011. Ms. Chen is the chairman of the remuneration committee and a member of the nomination committee of the Company.

Ms. Chen has been a professor of Architecture and Urban Planning School in Shenzhen University since December 2000. Ms. Chen attended a “China Management Training Program” in University of California, Los Angeles from November 2003 to November 2004.

Ms. Chen received a bachelor’s degree and a master’s degree in architecture and urban planning from Tongji University in January 1982 and November 1984, respectively. Ms. Chen was qualified as a metropolitan planner of the PRC in October 2000.

Dr. Shi Xinping (史新平) , aged 54, joined the Company as an independent non-executive Director on 2 June 2012. Dr. Shi has been an independent director of CMPD from July 2001 to October 2007. Dr. Shi is a member of the audit committee and nomination committee.

Dr. Shi is currently an associate professor of Department of Finance and Decision Sciences in Hong Kong Baptist University. He is also an independent non-executive director of Renewable Energy Trade Board Corporation (formerly known as “China Technology Development Group Corporation”), a company listed on Nasdaq.

Dr. Shi received a bachelor’s degree from North-western Polytechnic University in July 1982, an MBA from Lancaster University, UK in December 1990 and a PhD degree from Middlesex University, UK in July 1995.

Mr. He Qi (何琦) , aged 57, was appointed as an independent non-executive Director of the Company on 18 June 2013 with effect from Closing.

Mr. He currently is an independent non-executive director of Evergrande Real Estate Group Limited, a company listed on the Stock Exchange (Stock Code: 3333) since 14 October 2009. Mr. He has been serving as the deputy secretary of the China Real Estate Association since 2006, and is the director of the training centre and the intermediary professional committee of the China Real Estate Association. He was an executive of the Development Centre of the China Real Estate Association from 1995 to 1999.

Save as disclosed above, there is no other information in respect of the appointment of Directors that is discloseable pursuant to Rule 13.51 (2) of the Listing Rules and there is no other matter that needs to be brought to the attention of the Shareholders of the Company.

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DIRECTORS AND SENIOR MANAGEMENT OF THE ENLARGED GROUP

SENIOR MANAGEMENT

Name Mr. Liu Zhuogen (劉卓根) Mr. Yu Zhiliang (余志良) Mr. Jiang Tiefeng (蔣鐵峰) Mr. Xian Yaoqiang (冼耀強) Mr. Wang Tao (汪濤) Ms. Chan Wing Yan (陳頴茵)	Age 49 34 40 39 50 33	Position deputy general manager chief financial officer project general manager project general manager project general manager company secretary	Position held/ will be held since 29 June 2012 29 June 2012 Closing Date Closing Date Closing Date 29 June 2012	Year joined
				2012 2012 2013 2013 2013 2012

Mr. Liu Zhuogen (劉卓根) was appointed as a deputy general manager of the Company on 29 June 2012. As a deputy general manager, Mr. Liu is responsible for assisting the general manager in the management of the property development projects. Mr. Liu is also an executive Director of the Company on a full-time basis. Please see the section headed “Directors and Senior Management of the Enlarged Group — Executive Directors” for more details.

Mr. Yu Zhiliang (余志良) was appointed as a chief financial officer of the Company on 29 June 2012. Mr. Yu is also an executive Director of the Company on a full-time basis. Please see the section headed “Directors and Senior Management of the Enlarged Group — Executive Directors” for more details.

Mr. Jiang Tiefeng (蔣鐵峰) , aged 40, was appointed as a project general manager of the Company on 18 June 2013 with effect from Closing. Mr. Jiang is responsible for the management of the property development projects of the Company.

Mr. Jiang joined Merchants Nanjing Real Estate in February 2007 initially as an assistant to the general manager and was subsequently promoted to a deputy general manager in September 2008. He has been working as a general manager since 27 February 2012.

Prior to joining the Target Group, Mr. Jiang worked in Shenzhen China Merchants from November 2001 to October 2004 initially as an engineer and was subsequently promoted to an assistant to the general manager. Under the arrangement of Shenzhen China Merchants, Mr. Jiang was sent to Shenzhen China Merchants Overseas Chinese Town Investments Co., Ltd. (深圳招商華僑城投資有限公司) to work as an assistant to the general manager from October 2004 to February 2007.

Mr. Jiang graduated from Huazhong University of Science and Technology with a bachelor’s degree in construction engineering in July 1995 and graduated from Qinghua University with a master’s degree in architectural and civil engineering in January 2004. Mr. Jiang was qualified as a qualified structural engineer in the PRC in June 2000.

Mr. Xian Yaoqiang (冼耀強) , aged 39, was appointed as a project general manager of the Company on 18 June 2013 with effect from Closing. Mr. Xian is responsible for the management of the property development projects.

– 247 –

DIRECTORS AND SENIOR MANAGEMENT OF THE ENLARGED GROUP

Mr. Xian joined Foshan Merchants Wharf in March 2008 initially as a deputy general manager and has been working as the general manager since February 2011.

Prior to joining the Target Group, Mr. Xian worked in the department of construction projects management of Foshan Construction Bureau (佛山市建設局建築工程管理科) from April 2005 to March 2008.

Mr. Xian graduated from South China University of Technology with a bachelor’s degree in industrial and civil construction engineering in July 1995 and a master’s degree in structural engineering in April 1998. Mr. Xian was qualified as a senior engineer in the PRC in December 2004.

Wang Tao (汪濤) , aged 50, was appointed as a project general manager of the Company on 18 June 2013 with effect from Closing. Mr. Wang is responsible for the management of the property development projects.

Mr. Wang has been working as a general manager in Chongqing China Merchants since December 2009 and a general manager in China Merchants Property (Chongqing) Co., Ltd. (招商局地產（重慶）有限公司) since October 2004. Mr. Wang had been working in Shenzhen China Merchants from January 2000 to October 2004, where he initially worked as a senior project engineering manager, and was subsequently promoted to an assistant to the general manager in November 2001, and was further promoted to a deputy general manager in August 2003.

Mr. Wang graduated from Chongqing Institute of Architecture and Engineering with a bachelor’s degree in heating and ventilating on 20 July 1984. Mr. Wang was qualified as a senior engineer of the PRC in heating and ventilating in December 1996.

COMPANY SECRETARY

Ms. Chan Wing Yan (陳頴茵) , aged 33, joined the Company on 18 June 2012 and was appointed as the company secretary on 29 June 2012. Ms. Chan has been serving as the deputy chief financial officer and general manager of the Company’s finance department since 18 June 2012. Ms. Chan is responsible for overseeing the Company’s secretarial functions and also assisting Mr. Yu Zhiliang in managing accounting, monitoring internal control and overseeing the financial activities of the Company.

Ms. Chan is a professional accountant with 10 years of experience in various accounting, finance and management positions. Prior to joining the Group, Ms. Chan had been working in Deloitte Touche Tohmatsu from September 2002 to February 2010, initially as an accountant and subsequently was promoted to senior accountant and manager and worked as a senior finance manager in Apollo Solar Energy Technology Holdings Limited from March 2010 to June 2012.

Ms. Chan graduated from The City University of Hong Kong with a bachelor’s degree in accounting in July 2002. She has been a member of the Hong Kong Institute of Certified Public Accountants since December 2008 and a member of the Association of Chartered Certified Accountants of the United Kingdom since August 2006.

– 248 –

DIRECTORS AND SENIOR MANAGEMENT OF THE ENLARGED GROUP

NON-COMPETITION

Each of the Directors (including the Proposed Directors) has confirmed that save as disclosed in the sections headed “Relationship with the Controlling Shareholders” and “Directors and Senior Management of the Enlarged Group”, he or she and his/her respective associate(s) is not engaged in, or interested in any business which, directly or indirectly, competes or may compete with the business of the Enlarged Group.

AUDIT COMMITTEE

The Company has established an audit committee in compliance with the Code. The primary duties of the audit committee are to make recommendation to the Board on the appointment and removal of the external auditors, to review the financial information of the Company and to oversight the Company's financial reporting system and internal control procedures etc..

The audit committee currently consists of two independent non-executive Directors and one non-executive Director. The members of the audit committee are Dr. Wong Wing Kuen, Albert, Dr. Shi Xinping and Ms. Liu Ning. It is currently chaired by Dr. Wong Wing Kuen, Albert, an independent non-executive Director.

NOMINATION COMMITTEE

The Company has established a nomination committee as recommended by the Code. The primary duties of the nomination committee are to review the structure, size and composition of the Board at least annually and make recommendations to the Board on potential candidates to fill vacancies on or additional appointment to the Board and to assess the independence of independent non-executive Directors.

The nomination committee currently consists of one executive Director and two independent non-executive Directors. The members of the nomination committee are Mr. Huang Peikun, Ms. Chen Yanping and Dr. Shi Xinping. It is currently chaired by Mr. Huang Peikun, an executive Director (who has been re-designated as a non-executive Director on 18 June 2013 with effective from Closing).

REMUNERATION COMMITTEE

The Company has established a remuneration committee in compliance with the Code. The primary duties of the remuneration committee are to make recommendations to the Board on the Company’s policy and structure for all remunerations of the Directors and senior management and on the establishment of a formal and transparent procedure for developing such policy.

The remuneration committee currently consists of one executive Director and two independent non-executive Directors. The members of the remuneration committee are Mr. Huang Peikun, Ms. Chen Yanping and Dr. Wong Wing Kuen, Albert. It is chaired by Ms. Chen Yanping, an independent non-executive Director.

– 249 –

DIRECTORS AND SENIOR MANAGEMENT OF THE ENLARGED GROUP

COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT

The Directors and the senior management of the Company are paid compensation in the form of fees, salaries, contribution to pension schemes, other allowances and benefits in kind, discretionary bonuses and options granted under the Company’s share option scheme based on the performance of the Company. The Company also reimburses them for expenses necessarily and reasonably incurred for providing services to the Group or in the execution of their functions in relation to the Group’s operations. The respective remuneration to the Directors has been determined by the remuneration committee of the Board with reference to their qualifications, experience, responsibilities, market conditions and the performance of the Company.

The above remuneration policy is expected to continue and apply to the Directors and senior management of the Enlarged Group after Closing.

The remunerations (including fees, salaries, allowances and benefits in kind and pension scheme contribution) paid to the Directors in aggregate for the financial years ended 31 March 2011, 31 March 2012 and the period from 1 April 2012 to 31 December 2012 were approximately HK$4,218,000, HK$1,705,000 and HK$1,093,000, respectively.

The remunerations (including salaries and other allowances, discretionary bonus and retirement benefit scheme contributions) paid to the Group’s five highest paid individuals in aggregate for the financial years ended 31 March 2011, 31 March 2012 and the period from 1 April 2012 to 31 December 2012 were approximately HK$5,685,000, HK$5,085,392 and HK$1,809,106, respectively.

Save as disclosed above, no other payments have been paid or are payable, or any benefits in kind granted, in respect of the two years ended 31 March 2010, 31 March 2011 and the period from 1 April 2012 to 31 December 2012, by the Company or any of its any member of the Enlarged Group to the Directors.

Based on the existing remuneration package, the Company estimates the aggregate remuneration payable to, and benefits in kind receivable by, the Directors (including the Proposed Directors) by any member of the Enlarged Group in respect of the year ending 31 December 2013 to be approximately HK$495,000.

TRAINING FOR DIRECTORS

Pursuant to the revised Code which has come into effect since 1 April 2012, the Directors have participated in continuous professional development to develop and refresh their knowledge and skills to ensure that their contribution to the board remains informed and relevant and ensure they keep abreast of the changes in the applicable laws and regulations and the overall development of the operations of the Company.

– 250 –

DIRECTORS AND SENIOR MANAGEMENT OF THE ENLARGED GROUP

COMPLIANCE ADVISER

The Company has appointed Guotai Junan Capital Limited as its compliance adviser pursuant to Rule 3A.19 of the Listing Rules to advise in the following circumstances in accordance with Rule 3A.23 of the Listing Rules:

(a) before the publication of any regulatory announcement, circular or financial report;
(b) where a transaction, which might be a notifiable or connected transaction, is contemplated including share issues and share repurchases;
(c) where the business activities, developments or results of the Group deviate from any forecast, estimate or other information in this Circular; and
(d) where the Stock Exchange makes an inquiry of the Company of unusual movements in the price or trading volume of its listed securities or any other matters in accordance with Rule 13.10 of the Listing Rules.

The term of the appointment will commence upon Closing and end on the date on which the Company sends its financial results as required under Rule 13.46 of the Listing Rules for the first full financial year commencing after Closing or until the compliance adviser agreement is terminated, whichever is earlier.

– 251 –

WAIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES

CHANGE IN PERIOD OF FINANCIAL YEAR DURING THE LATEST COMPLETE FINANCIAL YEAR

Rule 8.21(1)(a) of the Listing Rules states that subject to certain exception for a listing applicant’s subsidiary, the Stock Exchange will not normally consider an application for listing from a new applicant which has changed the period of its financial year during the latest complete financial year (being twelve months) immediately preceding the proposed date of issue of the listing document.

The Company has applied to the Stock Exchange for, and the Stock Exchange has agreed to grant, a waiver from strict application of Rule 8.21 of the Listing Rules in relation to the Company’s change of financial year end date in the financial year of 2012 from 31 March to 31 December, on the grounds that:

(i) the only reason for the change is to align the Company’s financial year end date to that adopted by CMPD, which became a Controlling Shareholder indirectly holding approximately 70.18% of the issued Shares in June 2012, so as to facilitate the preparation and reporting of the Group’s consolidated financial statements and accounts for CMPD; and
(ii) even if 31 March were to be used as the Company’s financial year end, both the Target Group and the Enlarged Group will be able to satisfy the requirements of Rule 8.05(1)(a) of the Listing Rules.

The Sole Sponsor confirms that the Enlarged Group is still able to satisfy the minimum profit requirements under Rule 8.05(1)(a) of the Listing Rules even if 31 March were continue to be used as the Company’s financial year end.

DEALING IN THE SHARES OF THE COMPANY PRIOR TO LISTING

According to Rule 9.09 (b) of the Listing Rules, there must be no dealing in the securities for which listing is sought by any connected person of the issuer from four clear business days before the expected hearing date until listing is granted.

As at the Latest Practicable Date, so far as the Company is aware, CMG, CMPD, China Merchants Shekou Industrial Zone and Success Well were the only substantial shareholders (Substantial Shareholders) of the Company within the meaning of the Listing Rules. Given that the Company’s Shares are already publicly traded on the Stock Exchange, the Company is not in a position to control dealings in the Shares by any other person (whether or not an existing holder of the Shares) or its associates who may, as a result of such dealing, become a substantial shareholder of the Company within the meaning of the Listing Rules.

– 252 –

WAIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES

The Company has applied for, and the Stock Exchange has granted, a waiver from strict compliance with Rule 9.09 (b) of the Listing Rules in respect of any dealing by any holder of the Shares (other than the Company’s substantial shareholders, the Directors and chief executives of the Company and any of its subsidiaries and their respective associates) from four clear business days before the expected hearing date until Listing is granted, on condition that:

(a) the Company will promptly release any inside information to the public in accordance with the Listing Rules;
(b) the Company will procure that none of the Substantial Shareholders, the Directors and chief executives of the Company and any of its subsidiaries and their respective associates will deal in the Shares (other than the allotment of the Consideration Shares under the Acquisition) from four clear business days before the expected hearing date until Listing is granted;
(c) the Company will notify the Stock Exchange if there is any dealing or suspected dealings in the Shares by any of its connected persons from four clear business days before the expected hearing date until Listing is granted; and
(d) for any person (other than the Company’s Substantial Shareholders, and the Directors and chief executives of the Company and any of its subsidiaries and their respective associates) who, as a result of dealing in the securities of the Company from four clear business days before the expected hearing date until Listing is granted, becomes a substantial shareholder of the Company (a Potential New Substantial Shareholder ):
(i) such Potential New Substantial Shareholder is currently not a member of the senior management of the Company or its subsidiaries and, to the knowledge of the Company as at the latest practicable date, will not become a director or a member of the senior management of the Enlarged Group after Listing; and
(ii) the Company and its management have not had control over the investment decisions of such Potential New Substantial Shareholder or its associates.

FURTHER ISSUE OF SECURITIES

Rule 10.08 of the Listing Rules provides that no further shares or securities convertible into equity securities of a listed issuer may be issued or form the subject of any agreement to such an issue within six months from the date on which securities of the listed issuer first commence dealing on the Stock Exchange.

The restriction in Rule 10.08 applies to the Company solely because it is deemed to be a new listing applicant pursuant to Rule 14.54 of the Listing Rules as a result of the Acquisition which constitutes a reverse takeover under the Listing Rules. The Listing will

– 253 –

WAIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES

not involve any share offering to the public (save for the Placing) and hence, there is no concern of new public investors being subject to the risk of dilution within a relatively short time after the Listing.

The Company considers that it would be unduly onerous to restrict its ability to raise funds through the issue of new Shares on the terms set out in Rule 10.08, which could have an adverse effect on its business development and might not, therefore, be in the interests of its Shareholders.

The Company has applied for, and the Stock Exchange has granted, a waiver from strict compliance with Rule 10.08 of the Listing Rules in relation to the restrictions on further issue of securities within six months of Listing, and a consequential waiver from strict compliance with Rule 10.07(1)(a) of the Listing Rules in respect of the deemed disposal of Shares by the Controlling Shareholders upon issue of securities by the Company within the first six months of Listing, on condition that:

(i) any issue of securities by the Company within the first six months from the Closing Date must be either (a) for cash to fund a specific acquisition of asset or business that will contribute to the growth of the Enlarged Group’s operation; or (b) for full or partial settlement of the consideration for such acquisition; and
(ii) the Controlling Shareholders will, after the completion of the Acquisition, remain as the controlling shareholder of the Company within the first twelve months of Listing.

– 254 –

SHARE CAPITAL

SHARE CAPITAL

As at the Latest Practicable Date, the Company had only one class of shares in issue, namely ordinary shares of HK$0.01 each. The authorised share capital of the Company is HK$300,000,000 divided into 30,000,000,000 ordinary shares of HK$0.01 each.

The following table sets out the issued share capital of the Company as at the date of the Circular and to be issued as fully paid or credited as fully paid immediately upon Closing:

Number of shares 1,068,468,860 Shares in issue at the date of the Circular 3,836,789,000 Shares to be issued to satisfy the Consideration and for the Placing 4,905,257,860 Shares in issue immediately upon Closing	Nominal value of the Shares
	(HK$) 10,684,688.6 38,367,890
	49,052,578.60

The above table assumes that the Acquisition becomes unconditional and will be completed in accordance with the relevant terms and conditions.

RANKING

The Consideration Shares and the Placement Shares will rank equally among themselves and pari passu in all respects with the Shares in issue on the date of the allotment and issue of the Consideration Shares and the Placement Shares.

PUBLIC FLOAT

Pursuant to Rule 8.08(1)(a) the Listing Rules, upon Closing and at all times thereafter, the Company must maintain the “minimum prescribed percentage” of 25% of the issued share capital of the Company in the hands of the public (within the meaning as defined under Rule 8.24 of the Listing Rules). The issue of the Consideration Shares and the Placement Shares will not cause the Company not to comply with the minimum public float requirement under the Listing Rules.

– 255 –

SHARE CAPITAL

UNDERTAKINGS BY CMPD

Pursuant to Rule 10.07 of the Listing Rules, CMPD has undertaken to the Stock Exchange and to the Company that, it shall not, and shall procure that the relevant registered holders shall not, without the prior written consent of the Stock Exchange:

(a) except for the deemed disposal of shares by CMPD upon any issue of securities by the Company within the first six months of Closing (as exempted by the Stock Exchange in the waiver from strict compliance with Rule 10.08 of the Listing Rules), in the period commencing on the date of the Circular and ending on the date (the End Date ) which is six months from the Closing Date, dispose of, nor enter into any agreement to dispose of or otherwise create any options, rights, interests or encumbrances in respect of, any of the Shares in respect of which it is shown by the Circular to be the beneficial owner;
(b) in the period of six months commencing from the End Date, dispose of, nor enter into any agreement to dispose of or otherwise create any options, rights, interests or encumbrances in respect of, any of the Shares if, immediately following such disposal or upon the exercise or enforcement of such options, rights, interests or encumbrances, it would cease to be a controlling shareholder of the Company; and
(c) within the period commencing on the date of the Circular and ending on the date which is 12 months from the Closing Date, it will:
(i) when it pledges or charges any Shares beneficially owned by it in favour of an authorised institution (as defined in the Banking Ordinance (Chapter 155 of the Laws of Hong Kong)) pursuant to Note (2) to Rule 10.07(2) of the Listing Rules, immediately inform the Company of such pledge or charge together with the number of Shares so pledged or charged; and
(ii) when it receives indications, either verbal or written, from the pledgee or charger that any of the pledged or charged Shares will be disposed of, immediately inform the Company of such indications.

– 256 –

APPENDIX I

INDUSTRY OVERVIEW

This section contains information and statistics relating to our industry and related industry sectors, some of which has been derived from official governmental sources and other industry sources. The Company believes that the sources of this information are appropriate sources for such information and has taken reasonable care in extracting and reproducing such information. The Company has no reason to believe that such information is false or misleading or that any fact has been omitted that would render such information false or misleading. The information has not been independently verified by the Company, the Sole Sponsor or any other party involved in the Listing and no representation is given as to its accuracy.

OVERVIEW OF CHINA ECONOMY

Over the last quarter of a century, China’s economy has been gradually transforming from a centrally planned model to a more market-oriented economy with the help of various market liberalisation initiatives aimed at making China an economically developed country. China’s nominal GDP grew at a CAGR of approximately 15.2% from 2001 to 2012, reaching RMB51,932 billion in 2012, making China one of the fastest growing economies in the world.

Overall Economic Growth

China’s economy has experienced remarkable expansion over the past two decades. The real GDP growth rate has remained at double-digit clips from 2003 to 2007. Amid the global financial crisis in 2008, China’s economy was only slightly impacted, but China’s economy still managed to expand at an annual real GDP growth rate of 9.6%. In 2009, the PRC government further boosted the economic momentum with the launch of its RMB4 trillion stimulus package. China was among the first economies in the world to rebound from the global financial crisis and maintained positive economic growth throughout the crisis. According to real GDP statistics in 2010, China overtook Japan to become the world’s second largest economy. In 2011, China held this position firmly with a real GDP of RMB47,288 billion. China’s real GDP in 2012 climbed to RMB51,932 billion.

The table below sets out selected economic statistics of China for the periods indicated.

													2001-2012
	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	CAGR
Nominal GDP
(RMB billion)	10,966	12,033	13,582	15,988	18,494	21,631	26,581	31,405	34,090	40,151	47,288	51,932	15.2%
Real GDP growth_(%)_	8.3	9.1	10.0	10.1	11.3	12.7	14.2	9.6	9.2	10.4	9.3	7.8	N/A
GDP per capita_(RMB)_	8,622	9,398	10,542	12,336	14,185	16,500	20,169	23,708	25,608	30,015	35,181	38,354	13.2%

Source: National Statistics Bureau of China

Note: The data in 2012 are accumulated data of the 12 months in the same year.

– I-1 –

APPENDIX I

INDUSTRY OVERVIEW

Urbanisation

China’s rapid economic development has boosted the pace of urbanisation. The urbanisation ratio increased from approximately 37.7% in 2001 to 52.6% in 2012. Rapid urbanisation, coupled with contemporaneous industrialisation, has created robust demand for investment in infrastructure facilities and housing, which together contribute to further economic growth. The table below describes China’s urbanisation ratios for the periods indicated.

													2001-2012
	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	CAGR
Urban population
(million)	481	502	524	543	562	583.0	606	624	645	670	691	712	3.3%
Population_(million)_	1,276	1,285	1,292	1,300	1,308	1,314	1,321	1,328	1,335	1,341	1,347	1,354	0.5%
Urbanization_(%)_	37.7	39.1	40.5	41.8	43.0	44.3	45.9	47.0	48.3	50.0	51.3	52.6	2.8%

Source: National Statistics Bureau of China

Disposable Income

The rapid economic development in China has resulted in stellar growth in per capita disposable income of urban residents, rising from RMB6,860 in 2001 to RMB24,565 in 2012. Disposable income has a direct impact on domestic consumption, which includes spending on residential properties and tourism. The table below sets out the per capita disposable income levels of urban households for the periods indicated.

													2001-2011
	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	CAGR
Per capita disposable
income of urban
households_(RMB)_	6,860	7,703	8,472	9,422	10,493	11,760	13,786	15,781	17,175	19,109	21,810	24,565	11.2%

Source: National Statistics Bureau of China

– I-2 –

APPENDIX I

INDUSTRY OVERVIEW

OVERVIEW OF CHINA PROPERTY MARKET

Prior to the 1990s, the PRC real estate industry was part of the nation’s planned economy. From the 1990s, the PRC’s real estate and housing sector began the transition to a market-oriented system. Since then, the incremental increase in demand for various properties, especially for residential properties, has shifted from slow to remarkable. Meanwhile, disposable income of urban residents has seen a significant rise during these years. In terms of the property market, the growing speed of real estate investment reached a peak in 2010 with a 33% rise compared with the previous year. In 2012, the real estate investment still kept an upward trend arriving at RMB7,180 billion. The table below sets out selected property market indicators of China between 2006 and 2012:

Property Market Indicators of China (2006-2012)

								2006-2012
	2006	2007	2008	2009	2010	2011	2012	CAGR
Fixed asset investment
(RMB billion)	11,000	13,732	17,283	22,460	25,168*	31,149*	36,484*	22.1%
Real estate investment of
commodity properties
(RMB billion)	1,942	2,529	3,120	3,624	4,826	6,180	7,180	24.4%
Real estate investment of
residential properties
(RMB billion)	1,364	1,801	2,244	2,561	3,403	4,432	4,937	23.9%
GFA of commodity
properties completed
(million sq.m.)	558	606	665	727	787	926	994	10.1%
GFA of residential
properties completed
(million sq.m.)	455	498	543	596	634	743	790	9.6%
GFA of commodity
properties sold
(million sq.m.)	619	774	660	948	1,048	1,094	1,113	10.3%
GFA of residential
properties sold
(million sq.m.)	554	701	593	862	934	965	985	10.1%
Average price of
commodity properties
(RMB per sq.m.)	3,367	3,864	3,800	4,681	5,032	5,357	5,792	9.5%
Average price of
residential properties
(RMB per sq.m.)	3,119	3,645	3,576	4,459	4,725	4,993	5,428	9.7%

Source: National Statistics Bureau of China

Note: * Since 2010, the statistical cut-off point has changed from RMB0.5 million to RMB5 million.

– I-3 –

APPENDIX I

INDUSTRY OVERVIEW

With the recovery of China’s economy in the second half of 2009, the real estate market rebounded significantly after a long time of “wait and see” attitude of the purchasers. GFA of commodity and residential properties sold increased by 44% and 45%, respectively, to a record high of 948 million sq.m. and 862 million sq.m., respectively, in 2009. Average selling price of commodity properties climbed up to RMB4,681 per sq.m. in 2009. Growth in the real estate market increased moderately in 2010, 2011 and 2012, in response to the change of policy environment after the PRC government issued a number of real estate-related austerity measures. The average price of commodity and residential properties grew at a CAGR of 9.5% and 9.7%, respectively, over the period of 2006 to 2012, having increased from RMB3,367 per sq.m. and RMB3,119 per sq.m. in 2006 to RMB5,792 per sq.m. and RMB5,428 per sq.m. in 2012, respectively.

Recent Development and Trends in the Real Estate Market in the PRC

According to the 70-city residential property price index of March 2013 released by the National Bureau of Statistics, among these 70 medium to large cities, 68 cities showed increase in newly built residential property price with up to a 3.2% increase compared with last month, 1 city kept the same price level and only 1 city decreased by 0.1%. Compared to same period of 2012, only 2 cities’ newly developed residential property prices have decreased, 1 city kept the same price level and the remaining 67 cities all showed a trend of increase. Among the 67 cities, the highest growth rate reached 11.2% compared to the price in March 2012. The statistics indicated that although the General Office of the State Council issued “the Notice on Further Adjustment and Control of Real Estate Market” on 1 March 2013, the residential property market still maintained stable growth.

China Social Sciences published 2013 Real Estate Blue Paper on April 25, 2013. The Blue Paper believes that there is still a great deal of both rigid demand and improved living demand in China residential real estate market whereas the growth of new residential supply is comparatively slow than demand because of government’s policy on restraining speculation and supporting self living demand policies. The investment on residential development maintains at a low level. Therefore demand continuously outpacing supply is the key factor which is expected to support price of residential property. In addition, the current monetary policy adds more pressure to inflation, and attracts people to enter the real estate market which leads to continuous increase in land price. The Blue Paper expects to see sustainable increase in price of newly built residential market.

– I-4 –

APPENDIX I

INDUSTRY OVERVIEW

OVERVIEW OF TARGET CITIES

FOSHAN CITY (佛山市)

Overview of Foshan

Located in the mid-south of Guangdong Province, China, Foshan is in the heart of the Pearl River Delta (“PRD”), one of the most powerful economic areas in China. It connects Guangzhou to the east and is adjacent to Hong Kong and Macau to the south. This strategically favourable geographic location contributes to Foshan’s prosperity both in the past and present. At present Foshan governs five districts, namely, Chancheng District (禪城區), Nanhai District (南海區), Shunde District (順德區), Gaoming District (高明區) and Sanshui District (三水區). Foshan is referred to as one of the hometowns of overseas Chinese. Over 1.48 million Foshan origins are now living overseas, of which over 800,000 are residing in Hong Kong and Macau.

Foshan and Guangzhou, with similar history and culture, formed a “Guangzhou-Foshan Economic Circle” in recent years. Foshan is within one-hour drive from central Foshan to the three main transportation hubs of Guangzhou (Guangzhou New Baiyun International Airport, Guangzhou Nansha Port, Guangzhou Railway Station). The geographic advantage enables Foshan to share with Guangzhou the infrastructure facilities, transportation network, financial capital, human resources, education system, technological information and market resources, etc.

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Source: Foshan government website

– I-5 –

APPENDIX I

INDUSTRY OVERVIEW

The table below sets out selected major economic indicators of Foshan between 2007 and 2012:

Major Economic Indicators of Foshan (2007-2012)

							2007-2012
	2007	2008	2009	2010	2011	2012	CAGR
Population_(million)_	3.6	3.6	3.7	3.7	3.7	N/A	1%*
Nominal GDP
(RMB billion)	360.5	433.3	481.5	565.2	658.0	670.9	13%
Real GDP growth rate
(%)	19.2%	15.2%	13.5%	14.3%	12.1%	8.2%	14%**
Fixed asset investment
(RMB billion)	109.0	125.9	147.1	172.0	193.6	212.8	14%
Per capita disposable
income_(RMB)_	21,754	22,494	24,578	27,245	30,718	34,580	10%

Source: Foshan Statistics Bureau

Note: * CAGR of 2007 to 2011, ** average rate of 2007-2012

Foshan’s Property Market

Foshan’s residential market is mainly supported by owner-occupier demand, either from first-time buyers comprising young residents and migrants, or from family buyers for multiple uses or upgrade purposes. As an economically affluent city in Guangdong Province, Foshan is expected to experience higher urbanisation rate, which will further strengthen demand.

The table below sets out key statistics related to the property market in Foshan for the periods indicated.

Major Residential Market Indicators of Foshan (2007-2012)

							2007-2012
	2007	2008	2009	2010	2011	2012	CAGR
Total GFA sold
(sq.m. million)	3.9	5.0	9.7	7.7	6.3	6.7	11%
Total sales revenue
(RMB billion)	21.7	27.1	56.7	58.0	51.8	51.3	19%
Average sale price
(RMB per sq.m.)	5,610	5,474	5,856	7,457	8,170	7,635	6%

Source: CREIS

– I-6 –

APPENDIX I

INDUSTRY OVERVIEW

In 2012, the total GFA sold rose 6.3% over 2011 reaching 6.7 million sq.m. Although registered population in Foshan remained stable in recent years, demand for residential property continues to increase owing to economic growth, urbanisation, increasing number of migrants and rising disposable incomes of city residents.

Average sale price for residential properties has experienced a sustainable growth from 2007 to 2011. Due to the tightening policies for the real estate market implemented by the PRC government in 2011, the price of the residential properties in Foshan in 2012 decreased by 6.5%. In 2012, the total GFA sold in Foshan rose 6.3% over 2011 reaching 6.7 million sq.m..

GUANGZHOU CITY (廣州市)

Overview of Guangzhou

Guangzhou is the capital and a political, economic, and cultural center of Guangdong Province. It is located in the southeast of Guangdong Province and in the north of the Pearl River Delta, borders on the South China Sea and adjacent to Hong Kong and Macau SAR.

Guangzhou has historically been China’s leading commercial port. Following the implementation of the reform and opening-up policy, Guangzhou’s economy has made remarkable achievements. Since 1992, Guangzhou’s overall economic strength has risen to the third position among the country’s 10 largest cities.

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H U N A N J I A N G X I
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Shaoguan
Mexian
G U A N D O N G
Guangzhou
Shenzhen
Hong Kong
Macau
Yangjiang
Maoming
Zhanjiang
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Source: Google map

– I-7 –

APPENDIX I

INDUSTRY OVERVIEW

The table below sets out selected major economic indicators of Guangzhou between 2007 and 2012:

Major Economic Indicators of Guangzhou (2007-2012)

							2007-2012
	2007	2008	2009	2010	2011	2012	CAGR
Population_(million)_	7.7	7.8	7.9	8.1	8.2	N/A	2%*
Nominal GDP
(RMB billion)	714.0	828.7	913.8	1,074.8	1,242.3	1,355.1	14%
Real GDP growth rate
(%)	15.3	12.5	11.7	13.2	11.3	10.5	12.4%**
GDP per capita_(RMB)_	69,673	76,440	79,383	87,458	97,588	105,909	9%
Fixed asset investment
(RMB billion)	186.3	210.6	266.0	326.4	341.2	375.8	15%
Per capita disposable
income_(RMB)_	22,469	25,317	27,610	30,658	34,438	38,054	11%

Source: Guangzhou Statistics Bureau Note: * CAGR of 2007 to 2011, ** average rate of 2007-2012

Overview of Guangzhou’s Property Market

Despite the central government’s continued home purchase restrictions and the local government’s further control on the pre-sale and transactions of luxury homes, the residential market in Guangzhou saw significant improvement in the second half of 2012. Residential sales volume grew 21.4% year on year (“y-o-y”) over 2011, with transacted GFA reaching 6.8 million sq.m. and average sale price rose 3.4% y-o-y to reach RMB13,859 per sq.m. in 2012. Looking forward, it is expected that the residential market of Guangzhou will remain stable.

– I-8 –

APPENDIX I

INDUSTRY OVERVIEW

The table below sets out key statistics related to the property market in Guangzhou for the periods indicated.

Major Residential Property Indicators of Guangzhou (2007-2012)

								2007-2012
		2007	2008	2009	2010	2011	2012	CAGR
Total GFA completed
(sq.m.	million)	7.0	7.5	7.9	7.7	8.3	8.0	2.7%
Total GFA sold
(sq.m.	million)	8.0	5.5	9.8	6.0	5.6	6.8	–3.2%
Total sales revenue
(RMB	billion)	68.9	51.5	91.4	75.4	74.7	94.4	6.5%
Average	sale price
(RMB	per sq.m.)	8,599	9,340	9,346	12,484	13,401	13,859	10%
Source:	CREIS

PANYU NEW TOWN (番禺新城)

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----- Start of picture text -----

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Source: Google map

– I-9 –

APPENDIX I

INDUSTRY OVERVIEW

Panyu District, located in the central and southern parts of Guangzhou, is a transportation hub of the Pearl River Delta region. Panyu is a key region of Guangzhou’s “southward expansion project”, gathering together Guangzhou’s emerging industries and service sector.

According to the Guangzhou City Strategy Concept Planning Outline 2000 (廣州城市建設總體戰略概念規劃綱要2000), the Panyu New Town will be built as the sub-city center of Guangzhou. The development of Panyu New Town was accelerated by the Government with the hosting of the 2010 Asian Games, the subway system and Guangzhou Southern Train Station, as well as being equipped with the Dafu Mountain Park (大夫山森林公園) and Guangzhou Chimelong Tourist Resort (廣州長隆旅游度假區). Comprising social, economic and culture elements, Panyu New Town will provide premises for commercial, service and residential uses.

The table below sets out selected major economic indicators of Panyu District between 2007 and 2012:

Major Economic Indicators of Panyu District (2007-2012)

							2007-2012
	2007	2008	2009	2010	2011	2012	CAGR
Population_(million)_	0.98	0.99	1.0	1.00	1.01	N/A	0.8%*
Nominal GDP
(RMB billion)	66.1	78.3	88.6	106.3	123.6	136.9	15%
GDP per capita_(RMB)_	44,003	49,983	53,766	61,756	69,761	N/A	12%*
Fixed asset investment
(RMB billion)	18.1	20.6	25.8	33.6	35.2	39.5	17%
Per capita disposable
income_(RMB)_	20,448	23,108	25,432	28,226	31,745	35,478	12%

Source: Panyu District Statistics Bureau

Notes: * CAGR of 2007 to 2011

The real estate market in Guangzhou’s Panyu District has been developing rapidly in recent years. The district is seeing an increase in demand from home buyers given the scenic living environment and improved transportation network.

The table below sets out key statistics related to the property market in Panyu District for the periods indicated.

– I-10 –

APPENDIX I

INDUSTRY OVERVIEW

Major Residential Market Indicators of Panyu District (2007-2012)

							2007-2012
	2007	2008	2009	2010	2011	2012	CAGR
Total GFA sold
(sq.m. million)	0.7	0.8	2.0	1.0	1.2	2.0	23%
Total sales revenue
(RMB billion)	5.3	6.7	15.9	12.8	17.4	27.2	39%
Average sale price
(RMB per sq.m.)	7,900	8,363	8,068	13,312	14,326	13,334	11%

Source: CREIS

Panyu has become a focus of urbanization in the Pearl River Delta region, with increasingly more Guangzhou residents moving from the old city Centre for a better living environment. Panyu features many recreational facilities and a modern transportation link. This area will continue to attract high-net-worth individuals from both Guangzhou and the rest of Pearl River Delta. Consequently the price of residential properties are expected to see an increase with the sustainable growth in demand.

CHONGQING CITY (重慶市)

Overview of Chongqing’s Economy

Chongqing is a major city in Southwest China and one of the four direct-controlled municipalities (the other three are Beijing, Shanghai and Tianjin), and the only such municipality in western China. It covers a total land area of 82,400 square kilometers. Situated in the transitional area between the Yangtze River and its tributary Jialing River, Chongqing is composed of Beibei, Shapingba, Jiulongpo, Dadu, Yuzhong, Yubei, Jiangbei and Nan’an districts with a total population of 29.5 million in 2012.

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Beibei Yubei
Jiangbei
Shapingba
Yuzhong
Nan’an
Dadu
Jiulongpo
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Source: Google map

– I-11 –

APPENDIX I

INDUSTRY OVERVIEW

The table below sets out selected major economic indicators of Chongqing between 2007 and 2012:

Major Economic Indicators of Chongqing (2007-2012)

							2007-2012
	2007	2008	2009	2010	2011	2012	CAGR
Population_(million)_	28.2	28.4	28.6	28.8	29.2	29.5	0.9%
Nominal GDP
(RMB billion)	467.6	579.4	653.0	792.6	1,001.1	1,145.9	19.6%
GDP growth rate_(%)_	19.7	23.9	12.7	21.4	26.3	14.5	19.75*
GDP per capita_(RMB)_	16,629	20,490	22,920	27,596	34,500	39,083	18.6%
Fixed asset investment
(RMB billion)	316.2	404.5	531.8	693.5	768.6	938.0	24.3%
Per capita disposable
income_(RMB)_	12,591	14,368	15,749	17,532	20,250	22,968	12.8%

Source: Chongqing Statistics Bureau Note: * average rate of 2007-2012

Overview of Chongqing’s Property Market

Residential market of Chongqing is developing steadily due to both fast urbanisation and rapid local real estate development. In 2007-2012, residential development in Chongqing grew at a CAGR of 14% to reach 33.9 million sq.m. and the CAGR of the same period of total sale revenue was 18%, reaching RMB197.2 billion in 2012. The CAGR of average sale price increase during the past five year was 13%.

Sales volume of high-end residential market of Chongqing in 2012 was 11,116 units representing an increase of 34.5% y-o-y, with the sale-through rate of 2012 around 70%.

– I-12 –

APPENDIX I

INDUSTRY OVERVIEW

The table below set out selected property market indicators of Chongqing between 2007 and 2012:

Major Residential Market Indicators of Chongqing (2007-2012)

								2007-2012
		2007	2008	2009	2010	2011	2012	CAGR
Total GFA completed
(sq.m.	million)	17.7	19.5	23.9	21.8	28.3	33.9	14%
Total GFA sold
(sq.m.	million)	33.1	26.7	37.7	39.9	40.6	41.1	4%
Total sales revenue
(RMB	billion)	85.6	70.4	123.1	161.0	182.5	197.2	18%
Average	sale price
(RMB	per sq.m.)	2,588	2,640	3,266	4,040	4,492	4,804	13%
Source:	CREIS

Danzishi Central Business District (CBD)

Chongqing has three central business districts (CBD), namely Jiefangbei, Jiangbeizui and Danzishi. Unlike Jiefangbei and Jiangbeizui, Danzishi is still lacking of large-scale real estate development. Danzishi CBD is planned to be built as a base for corporate headquarters and supporting services to attract companies and residents from all around of Chongqing and neighborhood districts. High-end residence, culture, entertainment and leisure facilities are provided as a supplement to Jiefangbei and Jiangbeizui CBDs. Until February 2013, NVC Lighting Holding Limited, GDF Suez, Chongqing Publication Group, Sinosteel Investment Group and other well-known companies had moved into the district. Most of the demand in this area are from upgraders. The comparative lower average sale price in this district also attracts residents from other district of Chongqing.

NANJING CITY (南京市)

Overview of Nanjing’s Economy

Nanjing is located in the Yangtze River Delta and is an important transportation hub in China. With a history of over 6,000 years, Nanjing is also a renowned historical and cultural city. As the province capital of Jiangsu, Nanjing is comprised of Xuanwu, Gulou, Jianye, Qinhuai, Xiaguan, Yuhuatai, Qixia, Jiangning, Pukou and Liuhe districts as well as 2 counties: Lishui and Gaochun. The total coverage of municipal district is 6,598 square kilometers and the urban space is 4,730 square kilometers. The level of urbanisation is above 75% in 2012 with over 8 million permanent residents.

– I-13 –

APPENDIX I

INDUSTRY OVERVIEW

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The table below sets out selected major economic indicators of Nanjing between 2007 and 2012:

Major Economic Indicators of Nanjing (2007-2012)

							2007-2012
	2007	2008	2009	2010	2011	2012	CAGR
Population_(million)_	7.4	7.6	7.7	8.0	8.1	8.2	2.1%
Nominal GDP
(RMB billion)	334.0	381.5	423.0	501.3	614.6	720.2	16.6%
GDP per capita_(RMB)_	45,135	50,197	54,935	62,663	75,877	87,829	14.2%
Fixed asset investment
(RMB billion)	186.8	215.4	266.8	330.6	401.0	468.3	20.2%
Per capita disposable
income_(RMB)_	20,317	23,123	25,504	28,312	32,200	36,322	12.3%

Source: Nanjing Statistics Bureau

Overview of Nanjing’s Property Market

The property market of Nanjing has attracted substantial investment in recent years due to the rapid growth of the tertiary industry. From 2007 to 2012, CAGR of investment in real estate is 17.9%, increasing from RMB44.6 billion in 2007 to RMB101.6 billion in 2012. The total GFA completed increased from 5.8 million sq.m. in 2007 to 13.6 million sq.m. in 2012, representing a CAGR of 18.6%. During the same period, average sale price increased significantly from RMB5,011 per sq.m. to RMB9,674 per sq.m., providing a CAGR of 14%.

– I-14 –

APPENDIX I

INDUSTRY OVERVIEW

The charts below set out Nanjing residential market indicators between 2007 and 2012:

Major Residential Market Indicators of Nanjing (2007-2012)

							2007-2011
	2007	2008	2009	2010	2011	2012	CAGR
Total GFA completed
(sq.m. million)	5.8	8.9	12.3	7.4	8.6	13.6	18.6%
Total GFA sold
(sq.m. million)	10.6	6.6	11.1	7.5	6.8	8.8	–3.7%
Total sales revenue
(RMB billion)	53.3	31.6	76.7	69.6	57.2	84.7	9.7%
Average sales price
(RMB per sq.m.)	5,011	4,808	6,893	9,227	8,414	9,674	14.1%

Source: CREIS

Hexi New Town

Nanjing’s 12th five year plan labels Hexi new town as the new CBD of Nanjing, with the concept of “humanity, livability, wisdom, green and energy” and the goal of becoming a modern international city center. The core functions of Hexi new town include finance, insurance, commerce, administrative offices, research & development headquarters, innovation, stylistic and leisure living. The positioning of Hexi New Town brings a great new prospect to the residential market. With the strong economy development, this district as the new CBD provides Nanjing and other neighboring cities and districts’ residents with an opportunity to enjoy its modern facilities.

Chengdong District

The scope of Chengdong is from Zhongshan Gate to Maqun and Qilin town. It is traditionally a high-end residential area. The Chengdong District enjoys beautiful view of Purple Mountain, Xianlin university town and the biggest golf course of Nanjing, Zhongshan international golf club. It is considered as the most important leisure district of Nanjing only 20 minutes from downtown by metro line 2. There is a plan to build Maqun in Chengdong District as the traffic hub which includes three metro lines and 13 bus lines. The unique natural environment, education resource and future convenient accessibility provide Chengdong area a bright future.

– I-15 –

APPENDIX II

REGULATORY OVERVIEW

LAND

Categories of Land

Land in the PRC is categorised by ownership type or by usage. By ownership type, land can be divided into: (i) State-owned land (“SOL”) owned by the State and (ii) collectively-owned land (“COL”) which is collectively owned, under the Land Administration Law of the PRC 《中華人民共和國土地管理法》( ) adopted by the Standing Committee of NPC on 25 June 1986, as revised and amended. Unless otherwise specified by law, SOL is located in urban areas while COL comprises all land in rural and suburban areas. All land for residential building and land and hills reserved for farmers in rural and suburban areas are allowed to be retained by farmers. Collectively-owned farmland is not allowed to be used for non-agricultural construction purposes. COL may be expropriated and converted into SOL and such expropriation is subject to the approval of the State Council or the local governments depending on the size and the original use of the relevant parcel of COL. Land user shall use the land in compliance with the purposes approved.

According to the Land Administration Law of the PRC 《中華人民共和國土地管理法》( ), land can also be divided into (i) land designated for agricultural use; (ii) land designated for construction use; and (iii) unused land. Land designated for agricultural use refers to land used directly in agricultural production, including cultivated land, forest land, grassland, land for farmland water conservancy and water surfaces for breeding etc. Land designated for construction use refers to land on which buildings and structures are built, including land for urban and rural housing and public facilities, land for industrial and mining use, land for building communications and water conservancy facilities, land for tourism and land for building military installations etc. Unused land refers to land other than that for agricultural and construction uses.

The land use rights of SOL can be further divided into two categories in terms of acquisition methods pursuant to the Interim Regulations of the PRC on the Assignment and Transfer of the Right to the Use of the State-owned Land in Urban Areas (《中華人民共和國城鎮國有土地使用權出讓和轉讓暫行條例》) promulgated by the State Council on 19 May 1990. The first category, “allocated SOL” refers to the SOL which can be acquired by a land user without paying compensation in accordance with law. The second category, “granted SOL” refers to the SOL which requires the acquirer to pay a land grant premium in accordance with law.

REAL ESTATE DEVELOPMENT

Establishment of Real Estate Development Enterprise

Pursuant to the PRC Urban Real Estate Administration Law (《中華人民共和國城市房地產管理法》, (the “Urban Real Estate Law”) promulgated by the Standing Committee of NPC, which became effective on 1 January 1995 and was revised on 30 August 2007 and 27 August 2009, “real estate development” refers to the development of infrastructure and real properties on the land by the entity which has obtained the land use rights for such land. Under the Administrative Ordinance on Development and Management of Urban

– II-1 –

APPENDIX II

REGULATORY OVERVIEW

Real Estate 《城市房地產開發經營管理條例》( , (the “Development Ordinance”), which was promulgated by the State Council on 20 July 1998 and revised on 8 January 2011, an enterprise engaging in real estate development must satisfy the following requirements in addition to the requirements on the establishment of enterprises provided in the relevant laws and administrative regulations:

Its registered capital must be RMB1,000,000 or more; and
It must have four or more full-time technical personnel in the fields of real estate and construction engineering and two or more full-time accounting officers, each of whom must hold the relevant qualification certificate. The authorities at provincial level, autonomous region level or municipalities under the direct administration of central PRC governments may impose more stringent requirements regarding the registered capital and professional qualifications of real estate enterprises.

To establish a real estate development enterprise, the developer must apply for registration with the local SAIC at or above the county level, which should, in examining the application for the registration, seek the opinion of the real estate development authority at the relevant level. The developer must also report its establishment to the department of real estate development in the location of its registration within 30 days of receipt of its business licence.

A foreign investor intending to engage in real estate development may establish an equity joint venture, a cooperative joint venture or a wholly foreign owned enterprise in accordance with PRC laws and regulations regarding foreign-invested enterprises. However, pursuant to the Catalogue for the Guidance of Foreign Investment Industries (the “2011 amendment”) ((外商投資產業指導目錄)(2011年修訂)) promulgated by MOFCOM and NDRC on 24 December 2011, a foreign investor is only allowed to establish an equity joint venture or a cooperative joint venture for the development of tracts of land.

Qualification of Real Estate Developer

Under the Provisions on Administration of Qualifications of Real Estate Developers 《房地產開發企業資質管理規定》( , (the “Provisions on Administration of Qualifications”)) promulgated by the Ministry of Construction on 29 March 2000, a real estate developer must apply for a qualification grade certificate. An enterprise may not engage in real estate development business without a qualification grade certificate for real estate development. The Ministry of Construction is in charge of monitoring the qualifications of all real estate developers within the PRC, and local real estate development authorities at or above the county level are in charge of monitoring the qualifications of local real estate developers. Under the Provisions on Administration of Qualifications, real estate developers are divided into four grades:

Grade 1 qualification is subject to preliminary examination by the construction authorities at the provincial level and the final approval of the Ministry of Construction. A Grade 1 real estate developer is not restricted as to the construction scale of its real estate projects and may undertake a real estate development projects throughout the country.

– II-2 –

APPENDIX II

REGULATORY OVERVIEW

Grade 2, 3 or 4 qualifications and interim qualifications are regulated by the construction authorities at the provincial level. A real estate developer of the Grade 2 qualification or lower qualification may undertake a project with a GFA of less than 250,000 sq.m.. The detailed business scope of the developer of the Grade 2 qualification or lower is determined by the construction authorities at the provincial level.

The real estate development qualification grade of Foshan Xinjie, Foshan Xiecheng, Merchants Property Development (Guangzhou), Merchants Nanjing Real Estate and Nanjing China Merchants Rui Sheng is Grade III; the real estate development qualification grade of Foshan Yi Yun and Foshan Merchants Wharf is Grade IV; and Chongqing China Merchants is holding an interim qualification for real estate development.

Grant of Land Use Rights

Pursuant to the Provisions on the Agreement-based Grant of the Right to Use State-Owned Land (《協議出讓國有土地使用權規定》) promulgated by the Ministry of Land and Resources (“MLR”), which became effective on 1 August 2003, land use rights may be granted by way of a bilateral agreement between the relevant land authority and a grantee other than by means of public tenders, auctions or listing-for-sale process as required by laws, regulations or rules. Upon full payment of the land grant premium, a land user may register with the land administration authority and obtain a land use rights certificate as evidence of the acquisition of the land use rights.

However, according to the Provisions on the Grant of State-owned Land Use Rights by Tender, Auction or Listing-for-Sale 《招標拍賣掛牌出讓國有土地使用權規定》( ) effective on 1 July 2002, the Notice Regarding Supervision Work of Legal Enforcement Situation of Granting Business Land Use Rights Through Tender, Auction or Listing-for-Sale 《關於繼( 續開展經營性土地使用權招標拍賣掛牌出讓情況執法監察工作的通知》) promulgated by MLR and the Ministry of Supervision on 31 March 2004, and the Provisions on the Grant of State-owned Construction Land Use Rights by Tender, Auction or Listing-for-Sale 《招標( 拍賣掛牌出讓國有建設用地使用權規定》) amended on 21 September 2007, land parcels to be used for operation purposes (including industrial, commercial, entertainment or commercial residential purposes) shall be granted in the manner of public tenders, auctions and listing for sale process. The Notice on Certain Issues Relating to the Strengthening of Land Control 《關於加強土地調控有關問題的通知》( ) promulgated by the State Council on 31 August 2006 sets out the administration of the income and expenditure relating to land grant premium, modification of the tax policies relating to the land and creation of a publication system of the standards of the lowest price in respect of the grant of the land use rights for SOL for industrial purposes.

According to the Notice on Relevant Issues Regarding the Strengthening of Examination and Approval of Urban Construction Land 《關於加強城市建設用地審查報批( 工作有關問題的通知》) promulgated by the MLR on 4 September 2003, the Notice on Strengthening Land Supply Management and Promoting Sustainable Sound Development of Real Estate Market 《關於加强土地供應管理促進房地產市場持續健康發展的通知》( )

– II-3 –

APPENDIX II

REGULATORY OVERVIEW

promulgated by the MLR on 24 September 2003, the Urgent Notice on Tightening Land Administration 《關於當前進一步從嚴土地管理的緊急通知》( ) published by the MLR on 30 May 2006, land use for high-end commercial residential properties shall be stringently controlled, and applications for land use right to build villas shall be stopped. Furthermore, land supply for medium- to low-price, small- to medium-size ordinary commercial residential properties (including economically affordable housing) or low-rental residential houses shall be satisfied in priority.

On 16 March 2007, the NPC promulgated the Properties Law of the PRC 《中華人民共和國物權法》( , (the “Property Law”), which took effect on 1 October 2007. The Property Law stipulates the construction land use rights may be obtained through grant or allocation. With respect to the land used for operational purposes, including but not limited to industry, commerce, entertainment or residential commodity residential houses purposes, the grant of land use rights shall be conducted through public tenders, auctions and listing-for-sale process. It is strictly prohibited to grant the land use rights for construction land by means of allocation.

On 18 November 2009, five governmental authorities, including the Ministry of Finance, Ministry of Supervision, National Audit Office of the PRC, MLR and PBOC issued the Notice on Further Strengthening the Management of the Income and Expenditure Relating to Land Grants 《關於進一步加强土地出讓收支管理的通知》( ), to regulate the management of income and expenditure on land grants. In particular, real estate developers are required to provide a down payment of no less than 50% of the land grant premium and are required in principle to pay all of the land premium in installments within one year.

Planning Permits and Construction Permits

Under the Measures for Administration on Planning of Granting and Transfer of Right to Use Urban State-owned Land 《城市國有土地使用權出讓轉讓規劃管理辦法》( ) promulgated by the Ministry of Construction on 4 December 1992 and effective on 1 January 1993, and the Notice on Strengthening the Planning Administration of Granting and Transferring Right to Use State-owned Land 《關於加强國有土地使用權出讓規劃管理( 工作的通知》) promulgated by the Ministry of Construction on 26 December 2002 and effective on the same date, a real estate developer shall, after signing a land grant contract, apply for the letter of opinions on the site selection of a construction project and the planning licence for construction site to the relevant city and county planning authorities. After obtaining a planning licence for construction site, the real estate developer shall organise the necessary planning and design work in accordance with planning and design requirements and apply for a planning permit for construction project from the relevant urban planning authority pursuant to the Law of the PRC on Urban and Rural Planning ( 《中華人民共和國城鄉規劃法》) promulgated by Standing Committee of the NPC in October 2007 and effective on 1 January 2008.

A real estate developer must apply for a construction permit for construction projects from the relevant construction administrative authority under the local people’s government above the county level pursuant to the Measures for the Administration of a Construction Permit of Construction Projects 《建築工程施工許可管理辦法( ) promulgated by the Ministry of Construction on 15 October 1999 and revised on and became effective on 4 July 2001.

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REGULATORY OVERVIEW

Completion of Real Estate Project

Construction projects shall be delivered for use only after passing the inspection and acceptance test under Article 61 of the PRC Construction Law 《中華人民共和國建築( 法》), which became effective on 1 March 1998 and subsequently amended on 22 April 2011.

A real estate development project must comply with various laws and legal requirements concerning planning, construction quality, safety and environment and technical guidance on architecture, design and construction work, as well as provisions contained in the relevant contracts. On 30 January 2000, the State Council promulgated and implemented the Regulation on the Quality Management of Construction Projects 《建設工程質量管理條例》( ), which sets out the respective quality responsibilities and liabilities for developers, construction companies, exploration companies, design companies and construction supervision companies. After the construction of a project is completed, the real estate developer must arrange an inspection and acceptance test under the supervision of the relevant competent governmental authorities together with the relevant parties involved in the construction and experts according to the Interim Provisions on Inspection Upon Completion of Buildings and Municipal Infrastructure 《房屋建築工程和市政基礎設施工程竣工驗收暫行規定》( ) promulgated by the Ministry of Construction on 30 June 2000. The real estate developer shall submit the filing for record to the departments in charge of project construction of the relevant local governmental authorities above the county level in the area where the projects are constructed within 15 days after the projects having successfully passed the completion acceptance inspection, pursuant to the Measures for the Administration on the Record of Inspection Upon Completion of Buildings and Municipal Infrastructure (《房屋建築和市政基礎設施工程竣工驗收備案管理辦法》), promulgated by the Ministry of Construction on 19 October 2009.

Pre-Sale of Commodity Residential Houses

Any pre-sale of commodity residential houses must be conducted in accordance with the Measures for Administration of Pre-sale of Urban Commodity Residential Houses 《城市商品房預售管理辦法》( , (the “Pre-sale Measures”) promulgated by the Ministry of Construction on 15 November 1994, as amended on 15 August 2001 and 20 July 2004. The Pre-sale Measures provide that any pre-sale of commodity residential houses is subject to specified procedures. The pre-sale of commodity residential houses shall be subject to a licensing system. If a real estate developer intends to sell commodity residential houses in advance, it shall apply to the real estate administrative authority to obtain a pre-sale permit. The pre-sale of commodity residential houses is required to meet the following conditions:

the related land grant premium having been fully paid up and a land use rights certificate having been obtained;
a planning permit for construction project and a construction permit for construction projects having been obtained; and
the funds invested in the development of the commodity residential houses intended for pre-sale reaching 25% or more of the total investment in the project and the progress of construction and the completion and delivery dates having been properly determined.

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REGULATORY OVERVIEW

The proceeds of pre-sale of commodity residential houses must be used to develop the relevant project. Further, the Pre-sale Measures authorises the real estate administrative authority on the provincial autonomous regional and municipal level to set up their implementation rules in accordance with the Pre-sale Measures.

Pursuant to the Notice on Forwarding the Opinions of the Ministry of Construction and other Ministries on Stabilizing the Housing Prices (《國務院辦公廳轉發建設部等部門關於做好穩定住房價格工作意見的通知》) promulgated by the General Office of the State Council on 9 May 2005, the purchaser of a pre-sale commodity residential house is prohibited from transferring such house prior to the completion of its construction. Prior to the completion and delivery of a pre-sell commodity residential house and the obtaining of the property ownership certificate, the administrative authority of real estate is strictly prohibited from engaging in any transfer formalities for the pre-sale purchaser. Real estate developers are required to carry out an immediate archival filing for pre-sale contracts of commodity residential houses with the local authorities through a network system on a real name and real time basis.

On 13 April 2010, the Ministry of Construction issued the Notice on Further Strengthening the Supervision of Real Estate Market and Improving the Pre-sale System of Commodity Residential Houses 《關於進一步加强房地產市場監管完善商品住房預售制度有( 關問題的通知》), which sets out certain measures to enhance the regulation of pre-sale of residential commodity residential houses. Real estate developers are strictly prohibited from pre-selling residential commodity residential houses without obtaining pre-sale permits. Within 10 days after obtaining the relevant pre-sale permits, real estate developers are required to make a public announcement on the units available for pre-sale and the price of each unit at one time.

Spot Sale of Commodity Residential Houses

Commodity residential houses may be put up for spot sale only when the preconditions for such spot sale have been satisfied. Under the Measures for Administration of Sale of Commodity Residential Houses 《商品房銷售管理辦法》( ), the spot of commodity residential houses shall meet the following conditions:

The real estate development enterprise making spot sales shall have a business license and a qualification certificate for real estate development;
The land use rights certificates or approval documents of land use shall have been obtained;
The planning permit for construction project and a construction permit for construction projects shall have been obtained;
The commodity residential houses shall have been completed, inspected and accepted as qualified;
The relocation of the original residents shall have been completed;

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REGULATORY OVERVIEW

The supplementary essential facilities such as the supply of water, electricity, heating and gas, and communications shall have been made ready for use, and other public facilities shall have been made ready for use, or the schedule of construction and delivery date of such facilities shall have been specified; and
The property management plan shall have been completed.

Estate Loan

On 29 September 2010, the PBOC and CBRC promulgated the Notice on Issues Related to Improving Differentiated Housing Loan Policies (《關於完善差別化住房信貸政策有關問題的通知》), which, among other things:

Prohibits commercial banks from granting or extending loans to real estate developers that violate laws and regulations such as:

(i) holding idle land;
(ii) changing the land use and nature;
(iii) delaying the commencement and completion of development project; and
(iv) intentionally holding back the sale of houses in the market for the purpose of selling these houses at a higher price in the future;

Prohibits commercial banks from granting housing loans to families that purchase three or more houses or non-local residents who fail to provide certificates evidencing their payment for over one year of local tax or social insurance; and

Increases the minimum of down payment to at least 30% for all first house purchases with mortgage loans.

On 2 November 2010, the Ministry of Construction, the Ministry of Finance, the PBOC and the CBRC jointly promulgated the Notice on Relevant Issues on Standardising the Policies for Individual Housing Provident Fund Loans 《關於規範住房公積金個人住房( 貸款政策有關問題的通知》), which provided that, among other things:

Where a first-house pruchaser (including the borrower, the borrower’s spouse and minors) uses housing provident fund for individual housing loans to buy an ordinary residential house for self-use, the minimum down payment shall be at least:

(i) 20%, if the GFA of the house is equal to or less than 90 sq.m.;
(ii) 30%, if the GFA of house is more than 90 sq.m.;

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REGULATORY OVERVIEW

For a second-house purchaser that uses housing provident fund for individual housing loans, the minimum down payment shall be at least 50% and the minimum lending interest rate shall be 110% of the lending interest rate of a first-house purchaser of the same corresponding period;

The second housing provident fund for individual housing loan will only be available to families whose per capita housing area is below the average in locality and such loan must only be used to purchase an ordinary house for self-use to improve residence conditions; and

Housing provident fund for individual housing loans to families for their third or further residential house will be suspended.

On 26 January 2011, the General Office of the State Council issued the Notice on Further Adjustment and Control of Real Estate Market (《國務院辦公廳關於進一步做好房地產市場調控工作有關問題的通知》). According to this notice, second residential house purchasers are required to pay a down payment of no less than 60% of the purchase price for these second residential houses and the applicable mortgage rate must be at least 1.1 times that of the corresponding benchmark interest rate. Local branches of the PBOC may raise the down payment ratio and interest rate on loans for second residential houses based on the following factors: the price control target set by the local government for newly constructed residential houses and policy requirements, as well as national unified credit policies.

Mortgages of Real Estate

The mortgage of real estate within the PRC is mainly governed by the Property Law 《中華人民共和國物權法》( ), Security Law of the People’s Republic of China (《中華人民共和國擔保法》), the Urban Real Estate Law and the Measures for Administration of Mortgages of Urban Real Estate 《城市房地產抵押管理辦法》( ). According to these laws and regulations, land use rights, the buildings and other attachments on the ground can be mortgaged. To create a mortgage interest, the parties concerned shall conclude a mortgage contract in writing and register the mortgage. The mortgage interest is created as of the date of registration. Where a building is mortgaged, the land use rights within the area occupied by the building shall be mortgaged along with the building. Where the land use rights are mortgaged, the buildings on the land shall be mortgaged along with those rights. However, the newly-built houses on the land that is already mortgaged shall not be included in the mortgaged property. Where it is necessary to auction the mortgaged real estate, the newly-built houses on such land can be auctioned, according to law, together with the mortgaged property, but the mortgagee shall have no right to enjoy the priority of having his claim satisfied by the proceeds from auction of the newly-built houses. Where a piece of house of which a property ownership certificate has been obtained in accordance with the law is mortgaged, the relevant registration authority shall record the additional types of ownership on the original property ownership certificate, which shall subsequently be kept by the mortgagor. A Certificate of Other House Rights shall be issued to the mortgagee. Where pre-sale commodity residential houses or construction in process is mortgaged, the registration authorities shall specify the circumstances in the mortgage contract. Where construction of the mortgaged property is completed during the period of mortgage, the parties concerned shall, following acquirement of a property ownership certificate by the mortgagor, undertake a new mortgage registration.

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REGULATORY OVERVIEW

Idle Land

The concern of the MLR on handling of idle land began in 1999. On 28 April 1999, the MLR promulgated the Measures on Handling of Idle Land 《閒置土地處理辦法》( ) which determine the scope and definition of idle land and set out the corresponding punishment measures, including payment of idle land fee and repossession of idle land without compensation.

On 1 June 2012, the MLR revised and promulgated the Measures for the Disposal of Idle Land 《閑置土地處置辦法》( ) which further clarified the scope and definition of idle land, and the corresponding punishment measures compared to the old version. Pursuant to the new Measures for the Disposal of Idle Land, under the following circumstances, a parcel of land shall be defined as “idle land”:

Any SOL for construction use, of which the holder of the land use right fails to start the construction and development thereof within one year after the commencement date of the construction and development work as agreed upon and prescribed in the contract for fee-based use of SOL for construction use, or the decision on allocation of SOL for construction use;
Any SOL for construction use of which the construction and development have been started but the area of land that is under construction and development is less than one third of the total area of land that should have been under construction and development or the invested amount is less than 25% of the total investment, and the construction and development of which has been suspended for more than one year.

If a parcel of land is deemed as idle land by competent department of land and resources, unless otherwise prescribed by the new Measures for the Disposal of Idle Land, the land shall be disposed of in the following ways:

Where the land has remained idle for more than one year, the competent department of land and resources at the municipal or county level shall, with the approval of the people’s government at the same level, issue the Decision on Collecting Charges for Idle Land (《徵繳土地閒置費決定書》) to the holder of the right to use the land and collect the charges for idle land at the rate of 20% of the land assignment or allocation fee; and the said charges for idle land shall not be included in the production cost by the holder of the land use right;
Where the land has remained idle for more than two years, the competent department of land and resources at the municipal or county level shall, with the approval of the people’s government having the jurisdiction to approve thereof, issue a Decision on Taking Back the Right to Use the State-owned Land for Construction Use (《收回國有建設用地使用權决定書》) to the holder of the right to use the land and take back the right to use the land without compensation; and if any mortgage is created on the idle land, a copy of the Decision on Taking Back the Right to Use the State-owned Land for Construction Use shall be sent to each mortgagee thereof.

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APPENDIX II

REGULATORY OVERVIEW

Environment

The laws and regulations governing the environmental protection requirements for real estate development in the PRC mainly include the PRC Environmental Protection Law 《中華人民共和國環境保護法》( ), the PRC Environmental Impact Assessment Law 《中華人民共和國環境影響評價法》( ), the PRC Prevention and Control of Noise Pollution Law 《中華人民共和國環境噪聲污染防治法》( ) and the PRC Administrative Regulations on Environmental Protection for Construction Projects 《建設項目環境保護管理條例》( ). Pursuant to these laws and regulations, depending on the impact of the project on the environment, an environmental impact report, an environmental impact analysis table or an environmental impact registration form must be submitted by a real estate developer before the relevant authorities grant approval for the commencement of the construction of the real estate development. In addition, upon completion of the real estate development project, the relevant environmental authorities will also inspect the property to ensure compliance with the applicable environmental protection standards and regulations before the property can be delivered to the purchasers.

New Rules Of Foreign Investment In The Real Estate Market In The PRC

On 11 July 2006, the Ministry of Construction, MOFCOM, NDRC, PBOC, SAIC and SAFE jointly promulgated the Opinions for Regulating the Access by and Administration on Foreign Investment in the Real Estate Market (《關於規範房地產市場外資准入和管理的意見》, (the “171 Opinion”). Under the 171 Opinion, a foreign investor investing in real estate in the PRC must establish an FIREE and if its total investment amount is over US$10 million, the registered capital of the FIREE has to be at least 50% of the total investment amount. A FIREE is not allowed to obtain loans (domestic or overseas) unless its registered capital has been fully paid off, the land use rights certificate has been obtained or at least 35% of the total project investment has been injected as the initial capital funding of the project.

On 23 May 2007, the MOFCOM and the SAFE jointly promulgated the Notice on Further Reinforcing and Regulating the Approval and Supervision on Foreign Direct Investment in the Real Estate Industry 《關於進一步加强、規範外商直接投資房地產業審批( 和監管的通知》). The notice provides stricter controlling measures as follows:

Foreign investment in the real estate market in the PRC relating to high-end houses is to be strictly controlled;
Prior to obtaining approval for the establishment of an FIREE, either (i) both the land use rights certificates and property ownership certificates must have been obtained, or (ii) contracts for obtaining land use rights or property ownership must have been entered into. If the above requirements have not been satisfied, the approval authority will not approve the application;
A foreign-invested enterprise needs to obtain approval before expanding its business scope into the real estate sector and an FIREE which has been established for real estate development purposes needs to obtain approvals to engage a new real estate development project;

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APPENDIX II

REGULATORY OVERVIEW

Acquisition of or investment in domestic real estate enterprises by means of round-trip investment (including by the same actual controlling person) is to be strictly controlled. Foreign investors shall not evade the examination and approval of foreign-invested real estate by means of altering the actual controlling person of domestic real estate enterprises. If the foreign exchange authority finds that the FIREE has been established by providing false representation, action will be taken against the enterprise for its evasion of foreign exchange;
Investors of an FIREE are prohibited from engaging in a fixed return agreement or any agreements of a similar nature; and
The local SAFE administrative authority and designated foreign exchange banks may not carry out the procedures of exchange, settlement, or sale of capital items for any FIREE which has not completed filing procedures with the MOFCOM or fails to pass the joint annual inspection of foreign-invested enterprises.

On 10 May 2013, SAFE issued the Notice of the Regulation on Management of Foreign Exchange for Domestic Direct Investment By Foreign Investors and supplemental documents (Huifa (2013) No. 21). The Notice requires:

A foreign-invested enterprise shall be registered in SAFE after its establishment in accordance with the laws. A foreign investor shall contribute capital to the foreign-invested enterprise by way of monetary funds, equity interest holdings, physical assets and intangible assets, inclusive of those domestically obtained legally, or pay the consideration by acquiring the equity of interests of the PRC party in a domestic enterprise. The foreign-invested enterprise shall register the contribution and shareholding by the foreign investor in SAFE.

In relation to any change regarding subsequent increased or reduced capital contribution and transfer of shareholding in the foreign-invested enterprise, the change shall be registered in the SAFE. Any cancellation of the foreign-invested enterprise and change of its status to non-foreign-invested enterprise, the cancellation should be registered in SAFE.

The conversion of the registered capital of a foreign-invested enterprise into RMB shall be conducted in accordance with the foreign exchange related rules. A foreign-invested enterprise’ registered capital and the RMB proceeds converted therefrom shall be used in consistence with the business scope of such foreign-invested enterprise, based on its own demands and for the purposes as disclosed to the relevant authorities.

– II-11 –

APPENDIX II

REGULATORY OVERVIEW

Under the Catalogue of Industries for Guiding Foreign Investment (2011 version) 《外商投資產業指導目錄( (2011年修訂)》) promulgated by the MOFCOM and the NDRC in December 2011:

The development of a whole land lot jointly with PRC partners and the construction and operation of high-end hotels, premium office buildings and international conference centres fall within the category of industries in which foreign investment is subject to restrictions;
The construction and operation of golf courses and villas fall within the category of industries in which foreign investment is prohibited; and
Other real estate development falls within the category of industries in which foreign investment is permitted.

On 18 June 2008, the MOFCOM promulgated the Notice on Improving Record Work Related to Foreign Investment in Real Estate Sector 《關於做好外商投資房地產業備案工作( 的通知》), under which MOFCOM authorises the provincial departments in charge of commerce to verify record materials of FIREEs. After approving matters relating to foreign investments in the real estate sector in accordance with the relevant PRC laws and regulations (including establishment of an enterprise, increase of capital, issuance of new shares, equity transfer, merger and acquisition, and other relevant matters), local departments, whether at municipal, district or county level, in charge of commerce shall submit those materials, which were originally required to be submitted to MOFCOM for record, to the relevant provincial departments in charge of commerce for verification. After the verification, the provincial departments will file the record form of FIREE with the MOFCOM.

On 22 November 2010, the General Office of MOFCOM promulgated the Notice on Strengthening the Examination and Approval, Record and Administration of Foreign Investment in Real Estate 《關於加强外商投資房地產業審批備案管理的通知》( ). The notice provides, among other things, that:

FIREEs are prohibited from making profit gains by purchasing completed and non-completed real estate projects in China and subsequently selling these projects;
Local MOFCOM shall approve the establishment of foreign-invested investment enterprises in China strictly in accordance with the relevant PRC laws and regulations, and shall not approve the establishment of foreign-invested investment enterprises engaging in real estate business; and
Local MOFCOM shall examine real estate enterprises in China engaging in round-trip investments and strictly control the establishment of these enterprises.

– II-12 –

APPENDIX II

REGULATORY OVERVIEW

Foreign Exchange Control

On 29 January 1996, the State Council promulgated the PRC Regulations on the Control of Foreign Exchange (《中華人民共和國外匯管理條例》) which became effective on 1 April 1996 and was amended on 14 January 1997 and 1 August 2008 respectively. This regulation classifies all international payments and transfers into current account items and capital account items. Current account items are no longer subject to the SAFE approval, but the conversion of Renminbi into other currencies and remittance of the converted foreign currency outside the PRC for the purpose of capital account items, such as direct equity investments, loans and repatriation of investment, require prior approval from the SAFE or its local counterparts. Payments for transactions that take place within the PRC must be made in Renminbi.

On 29 August 2008, the General Department of SAFE issued the Notice on Relevant Operating Issues concerning the Improvement of the Administration of Payment and Settlement of Foreign Currency Capital of Foreign-funded Enterprises (《關於完善外商投資企業外匯資本金支付結匯管理有關業務操作問題的通知》), which aims at strengthening the administration of payment and settlement of foreign currency capital of foreign-invested enterprises. The notice requires that:

The capital verification of a foreign-invested enterprise shall be conducted by accountants before the foreign-invested enterprise applies for the payment and settlement of foreign currency capital;
The RMB proceeds converted from the foreign-invested enterprise’s foreign currency capital shall be used within the approved business scope and unless otherwise provided, such proceeds shall not be used for domestic equity investment. Other than FIREEs, foreign-invested enterprise shall not use the RMB proceeds converted from its foreign currency capital to purchase domestic houses for non-self use; and
The RMB proceeds converted from foreign-invested enterprises’ foreign currency capital shall not be used to repay the unused RMB loans.

Administrative Rules on Stabilising Prices of Real Estate Market

From 2006 to 2008, the Chinese government has taken a series of regulatory measures to stabilize the price of real estate market.

In terms of land supply and the size of the properties, according to the Opinions on Adjustment of Housing Supply Structure and Stabilization of Housing Prices 《關於調整( 住房供應結構穩定住房價格的意見》) jointly issued by the Ministry of Construction, Ministry of Supervision, Ministry of Finance, National Bureau of Statistics, NDRC, MLR, PBOC, SAT and CBRC on 24 May 2006, and the Opinions on Implementing Ratio Requirements for the Layout of Newly-Constructed Residential Houses 《關於落實新建住( 房結構比例要求的若干意見》) promulgated by the Ministry of Construction on 6 July 2006, at least 70% of the land supply approved by a local government for residential property development for any given year must be used for developing low- to medium-priced and

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APPENDIX II

REGULATORY OVERVIEW

small-to-medium-sized ordinary residential properties (including economically affordable housing) or low-cost rental houses, and for any given city or county, at least 70% of the total GFA for development and construction should comprise residential properties with a GFA of less than 90 sq.m.

In terms of requirements in respect of loan extension, pre-sale and transfer imposed on the real estate developer, according to the Opinions on Adjustment of Housing Supply Structure and Stabilization of Housing Prices 《關於調整住房供應結構穩定住房價格的意( 見》) jointly issued by the Ministry of Construction, Ministry of Supervision, Ministry of Finance, National Bureau of Statistics, NDRC, MLR, PBOC, SAT and CBRC on 24 May 2006, and the Notice on Reorganizing and Regulating Real Estate Transaction Order (《關於進一步整頓規範房地產交易秩序的通知》) jointly promulgated by the Ministry of Construction, the NDRC and the SAIC on 6 July 2006, the commercial banks are prohibited from granting loans to real estate developers with a capital ratio (calculated by dividing the registered capital by the gross investment required for the relevant projects) of less than 35%, are restricted from extending loans and granting revolving credit facilities to real estate developers holding a large amount of idle land and vacant commercial residential properties, and are prohibited from accepting mortgage on commercial residential properties which have been vacant for more than three years as security for loans. Furthermore, a real estate developer shall commence the sales of the properties within 10 days upon receiving the pre-sale permit for the project, shall be prohibited from reselling any unit of a pre-sold uncompleted commercial residential property, and shall be prohibited from making any advertisement of pre-sale prior to obtaining the relevant pre-sale permit.

In terms of transfer and purchase of properties by individuals, according to the Opinions on Adjustment of Housing Supply Structure and Stabilization of Housing Prices 《關於調整住房供應結構穩定住房價格的意見》( ) jointly issued by the Ministry of Construction, Ministry of Supervision, Ministry of Finance, National Bureau of Statistics, NDRC, MLR, PBOC, SAT and CBRC on 24 May 2006, effective from 1 June 2006, business tax shall be imposed on the entire sales proceeds from the re-sales of properties if the seller’s holding period is shorter than five years, as opposed to two years as such tax was initially imposed in June 2005. Where an individual transfers a property other than an ordinary residential property five years after the purchase of such property, business tax will be levied on the difference between the resale price and the original purchase price. Furthermore, the minimum amount of down payment shall be increased from 20% to 30% of the purchase price of the underlying residential property if the underlying property has a GFA of no smaller than 90 sq.m.

On 7 January 2010, the General Office of the State Council issued the Notice on Promoting the Stable and Healthy Development of the Real Estate Market 《關於促進房地( 產市場平穩健康發展的通知》) to further regulate the real estate market. The notice provides for 11 measures addressing the following objectives:

Effectively increasing the supply of social welfare housing and ordinary residential commodity residential houses;
Directing consumers to make reasonable purchases of residential houses and discouraging investment and speculation in the housing market;

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Strengthening credit risk management for real estate projects and market supervision;
Speeding up the construction of social welfare housing projects; and
Setting or clarifying the responsibilities of provincial and local governments.

On 17 April 2010, the State Council also issued the Notice on Firmly Curbing the Surging Housing Prices in Certain Cities 《關於堅决遏制部分城市房價過快上漲的通知》( ), which further increases the minimum down payment in respect of mortgage loans on purchases of a second residential houses by individuals to 50% of the purchase price and provides that the applicable mortgage rate must be at least 1.1 times that of the corresponding benchmark interest rate over the same corresponding period published by the PBOC. The minimum down payment in respect of mortgage loans on purchases of a third or a further residential house by individuals may be substantially increased at the commercial bank’s discretion according to its risk control policies. The notice also specifies that the down payment for first self-used residential house with a GFA of more than 90 sq.m. must be at least 30% of the purchase price. In addition, in those areas where housing prices have escalated and housing supply is tight, commercial banks may, depending on the level of risk, suspend granting mortgage loans to purchasers purchasing a third or a further residential houses or to those non-local residents who fail to provide certificates evidencing their payment for over one year of local tax or social insurance.

Pursuant to the Notice on Further Standardising the Administration over Purchase of Housing by Overseas Institutions and Individuals 《關於進一步規範境外機構和個人購( 房管理的通知》) promulgated by the Ministry of Construction and SAFE on 4 November 2010, an oversea individual is only permitted to purchase a house for self-use in the PRC and an offshore institution which has branches or representative offices in the PRC is only permitted to purchase non-residential houses for office use in the cities where they are registered.

On 29 September 2010, the Ministry of Finance, the Ministry of Construction and SAT promulgated the Notice on Adjusting the Preferential Policies on Deed Tax and Individual Income Tax during Real Estate Transactions 《關於調整房地產交易環節契稅個( 人所得稅優惠政策的通知》), which provides that, effective from 1 October 2010, deed tax rate is reduced to 1% for a first time individual purchaser who purchases an ordinary residential property with a GFA less than 90 sq.m. as the family’s sole housing.

On 26 January 2011, the General Office of the State Council issued the Notice on Issues Related to Further Enhancing the Regulation and Control of Real Estate Market 《國務院辦公廳關於進一步做好房地產市場調控工作有關問題的通知》( ), which provides, among other things, that:

Second residential housing purchasers are required to pay a down payment of no less than 60% of the purchase price for these second residential houses and the applicable mortgage rate must be at least 1.1 times that of the corresponding benchmark interest rate;

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APPENDIX II

REGULATORY OVERVIEW

Any transfer of residential houses by individuals within five years of purchase shall be subject to a business tax calculated based on the entire sale proceeds from such transfer;
Entities or individuals participating in the bidding of land shall state the source of capital and provide the relevant evidence;
Land use rights granted over a parcel of land where a construction permit has not been obtained and the construction has not been carried out within two years shall be recalled and a fine will be imposed on the land which has been idle for more than one year;
No land or any development project on the land shall be transferred in any manner whatsoever if the total project development investment is less than 25%;
Each local authority shall increase the effective supply of land and conscientiously implement the requirement of allotting land that is not lower than 70% of the total land supply for housing construction for affordable housing, housing reconstructed from shanty towns and small and medium-sized ordinary commodity housing;
All municipalities directly under the Central Government, provincial capitals and cities in which the housing prices are excessively high or rising rapidly are to formulate and implement measures for restriction of housing purchases strictly. In principle:
(i) families having local household registration and owning one residential house or families not having local household registration but are able to provide evidence of tax payment or social insurance payment within a certain period are allowed to purchase one additional residential house (including newly constructed residential commodity residential houses and second-hand residential houses); and
(ii) real estate development enterprises shall suspend any sale of their houses to families having local household registration and owning two or more residential houses, or families owning one or more residential house but not having local household registration, or families are not able to provide certain proof of local tax payment or social insurance payment.

– II-16 –

APPENDIX II

REGULATORY OVERVIEW

On 27 January 2011, the Ministry of Finance and the SAT issued the Notice on Adjusting the Business Tax Policy on Transfers of Residential Properties by Individuals 《財政部、國家稅務總局關於調整個人住房轉讓營業稅政策的通知》( ) to discourage speculative activities in the secondary real estate market and control soaring housing prices. For example, effective from 28 January 2011:

Transfers of residential houses by individuals who have held them for less than five years are subject to business tax calculated on a gross basis;
Transfers of non-residential houses by individuals who have held them for five years or more are subject to business tax calculated on a net basis; and
Transfers of residential houses by individuals who have held them for five years or more are exempted from business tax.

On 20 February 2013, standing committee meeting of State Council issued the five control policies and measures to strengthen the regulation on the real estate market (the “Five Regulations”), and on 26 February 2013 “The Notice on Continuing to Effectively Regulate the Real Estate Guo Ban Fa [2013] no. 17” 《國務院辦公廳關於繼續做( 好房地產市場調控工作的通知》), further tighten the regulation policy, details on the restriction on mortgage issuance are:

(i) stepping up the enforcement of the policies on the minimum down payment and loan interest rates for loans extended to first-home purchases;
(ii) strictly implement the credit extension policies applicable to second-home purchases (and all subsequent purchases).

Detailed requirements on restriction of housing purchases are:

(i) the regions for purchase restriction should cover all administrative regions of a city;
(ii) the types of residential property for purchase restriction should cover all newly -constructed residential houses and second-hand houses.

Detailed requirements on taxes are:

(i) imposing restriction of purchase on residents without local household register that already owns one or more houses and residents without local household register that is unable to provide proofs for a certain number of consecutive years of local tax payment;
(ii) Individual income tax is levied based on the 20% of transferring.

Detailed requirements on supply of social welfare housing are:

(i) accomplishing a task for completing 4.7 million units of social welfare housing project and commencing new construction of 6.3 million units.

– II-17 –

APPENDIX II

REGULATORY OVERVIEW

Implementing rules of the Five Regulations have been issued in the four cities where the PRC Operating Subsidiaries are located.

Foshan

On 18 March 2011, Foshan People’s Municipal Government issued the Notice on Issues Related to Further Enhancing the Regulation and Control of Real Estate Market issued by State Council to further promote the stable and sound development of Real Estate Market of Foshan. The Notice mainly contains the following content:

(1) In Municipal administrative districts where purchase restriction is implemented, to those families with Foshan household who already purchase one residential house and those family without Foshan household who can provide proof of tax payment for one year above or proof of social insurance payment, they are in principle allowed to purchase only one residential house. To those families with Foshan household who already purchase two or above residential houses and those families without Foshan household who already purchase one or above residential house, or those families without Foshan household who fail to provide proof of tax payment for one year above or proof of social insurance payment, no residential properties shall be sold to them in this administrative district effective as of the issue of the notice.
(2) Increase the effective land supply of social welfare housing. There is a need to increase the effective land supply in various districts to ensure the land used for the social welfare housing, units transformed from shanty areas and small-to medium-sized ordinary commodity residential housing should not be less than 70% of total land supply of residential housing.
(3) The authorities in charge of residential housing and construction strengthen supervision of pre-sale of commodity housing, in particular to set up supervision of use of proceeds of pre-sale of commodity housing. Enhancement of information disclosure of commodity housing to ensure curbing of illegal behavior such as withholding the sales in order to raise the price of such properties. Close monitoring of market change of commodity housing in districts and projects where home price fluctuates, presale is suspended to rectify the situation.
(4) Strictly enforce differential housing lending policies. To those families who purchase second residential housing, it is strictly required that the down-payment shall not be below 60% and lending interest rate shall not be below 1.1 times of benchmark interest rate.
(5) According to the requirement of the Notice on Adjusting the Business Tax Policy on Transfers of Residential Properties by Individuals issued by Ministry of Finance and the SAT (Caishui (2011) No. 12), since the issue of the Notice, it strictly implements the tax policy on transfers of residential properties by individuals, individuals who transfer the property after less than 5 years of purchase should be levied based on the total sale proceeds.

– II-18 –

APPENDIX II

REGULATORY OVERVIEW

Enhance the supervision of levy of LAT. Those real estate development projects whose selling price exceeds the surrounding areas will be settled and verified on levy of LAT. Strengthen levy of LAT for trial cities and efforts on enforcement by using home price evaluation techniques and block the loopholes of tax collection. Strictly enforce Levy Policies of Transfers of Residential Properties by Individuals.

(6) NDRC (Price Control) strengthens the supervision of price of commodity housing and continues to strictly implement the requirement on “one price for one house”. Real estate development enterprises who have obtained pre-sale permit should publish all sources of properties under prescribed time. Those enterprises should strictly follow the disclosed price and sell the properties under express price.

Guangzhou

On 31 March 2013, the General Office of Guangzhou People’s Municipal Government issued Implementing Advice on the Notice on Issues Related to Further Enhancing the Regulation and Control of Real Estate Market issued by State Council issued forwarded by the General Office of Guangzhou People’s Municipal Government (Huifuban [2013] No. 14) 《廣州市人民政府辦公廳關於貫徹廣東省人民政府辦公廳轉發國務( 院辦公廳關於繼續做好房地產市場調控工作通知的實施意見》(穗府辦[2013]14號)) for Five Regulations, which mainly include the following advices:

(1) the increase rate of price of newly constructed residential properties (exclude social security housing, same as below) for 2013 should be lower than the actual increase rate of average per capita disposable income of the city for the year in accordance with the economic development target, growth rate of average per capita disposable income and capability to pay for residential properties of the city based on the principle of maintaining relative stable housing prices.
(2) Guangzhou Land Resources and Housing Administrative Bureau, Local Taxation Bureau, Human Resources and Social Security Bureau should further implement measures for restriction of housing purchases strictly.

From the date of this advice, families not having local household registration but are able to provide over 1 year evidence of income tax payment or social insurance payment within 2 years before purchase are allowed to purchase one residential house (including newly constructed residential commodity residential houses and second-hand residential houses); families not having local household registration are not allowed to purchase residential house by means of making a supplementary evidence for income tax payment or social insurance payment.

Guangzhou Land Resources and Housing Administrative Bureau shall further strengthen supervision on the houses purchase behaviors and the qualification review for purchasing houses shall be conducted prior to the signing of the purchase contract.

– II-19 –

APPENDIX II

REGULATORY OVERVIEW

(3) The People’s Bank Guangzhou Branch would combine the price control target of newly constructed residential properties of Guangzhou for 2013 with the relevant requirement imposed on the real estate market of Guangzhou, and increase the minimum down payment and loan interest rates for loans of second-home purchases.
On 12 April 2013, Guangzhou Municipal Land Resources and Housing Administrative Bureau issued the Notice on Implementation of Adjusting Policies on Guangzhou Municipal Real Estate Market to Enhance the Supervision of the relevant Market. It requires the real estate development enterprises strictly follow the disclosed price and sell the properties under express price and the requirement on “one price for one house”. Prior to pre-sale of commodity housing, the real estate development enterprises should publish selling price by way of online publication, and be under price guidelines by relevant Land Resources and Housing Administrative Authority. Those enterprises who fail the online publication of selling price, or published price to be too high and fail to accept price guidelines of relevant Land Resources and Housing Administrative Authority, will not be granted pre-sale permit temporarily. For those sale with selling price exceeding published price, the entering of commodity housing contracts by way of online transaction will be suspended. Since 24 April 2013, Guangzhou Municipal (including 10 districts under the Guangzhou Municipal, Conghua Municipal and Zengcheng Municipal) implements online publication of selling price for pre-sale of commodity housing.

Chongqing

On 27 January 2011, “The Temporary Measures Regarding the Pilot Reform on the Imposition of Real Estates Taxation of Certain Individual Housings” (關於進行對部分個人住房徵收房產稅改革試點的暫行辦法) was issued by the People’s Government of Chongqing City. The People’s Government of Chongqing City resolved to implement pilot reform on the imposition of real estates taxation of certain individual housings. The pilot districts were Yu Zhong District, Jiang Bei District, Sha Ping Bei District, Jiu Long Po District, Da Du Kou District, Nan An District, Bei Bei District, Yu Bei District and Ba Nan District. The pilot districts adopted the implementation by stages. The first batch of housings for taxation was: 1. independent commodity housing owned by individuals; 2. high-ended housing newly-bought by individuals. High-ended housing refers to the housing of which the unit price of the gross floor area transaction was over 2 times (inclusive) of the average gross floor area price of the newly-built commodity housings in those nine districts for the previous two years; and 3. the second (inclusive) or more normal housings newly-bought by individuals who have no household account, no corporate and no job imposed by the government of Chongqing. The high-ended housings and multiple normal housings which are not under the scope for taxation will be under the scope for taxation in due course.

– II-20 –

APPENDIX II

REGULATORY OVERVIEW

On 30 March 2013, the General Office of Chongqing People’s Municipal Government issued the Notice on Continuing to Effectively Regulate the Real Estate by General Office of Chongqing People’s Municipal Government (Yufubanfa [2013] No. 77) (渝府辦發 [2013] 77號《重慶市人民政府辦公廳關於繼續做好房地產市場調控工作的通知》), which mainly includes the following advices:

(1) The total land supply for residential houses in 2013 should not be lower than average actual supply amount for the past five years of the city, land for affordable housing, housing reconstructed from shanty towns and small and medium-sized ordinary commodity properties should achieve more than 70% of annual total supply of the land supply for housing construction. Large-size, low-density residential houses with plot ratio lower than 1 shall be strictly restricted;
(2) Strictly implement differentiated housing loan policies. Strictly implement the credit extension policies applicable to second-home purchases (and all subsequent purchases) and suspend the granting of loans to families for purchasing third or a further residential house;
(3) Discouraging speculative purchase in the housing market, villa-detached commodity residential houses in urban area, newly purchased high-end residential commodity residential houses and newly purchased second or above ordinary residential commodity residential houses purchased by individuals without local household registration, ownership in local enterprises or job will be subject to property tax; sales of self-own commodity residential houses are subject to tax at the rate of 20% of income from transfer strictly in compliance with the law to the extent that the original value of such properties can be verified based on the historical information such as tax collection and house registration;
(4) Strengthening pre-sale management, suspending the granting of pre-sales permit for commodity residential houses project which are quoted with a high price or has a rapid price increase rate. Continuing to strictly implement the requirement on sales of commodity residential houses at expressly marked price and “one price for one house”, conducting penalty measures such as suspending the pre-sale, downgrading the development qualification and suspending the loans for new development project whose developer has engaged in any of the following activities in the course of the sales of such project: withholding the sales in order to raise the price of such properties, engaging in fictitious sales, making inappropriate pricing arrangements and etc.

– II-21 –

APPENDIX II

REGULATORY OVERVIEW

Nanjing

On 16 April 2013, the General Office of Nanjing People’s Municipal Government issued the Notice of Continuing to Regulate the Real Estate Market by the General Office of Nanjing People’s Municipal Government (Ningzhengbanfa(2013) No. 40) 《南京市人民( 政府辦公廳關於繼續做好房地產市場調控工作的通知》(寧政辦發(2013)40號)), which mainly includes the following matters:

(1) Newly Purchase Evidence should be issued before signing purchase agreement when newly purchasing residential commodity residential houses in Nanjing. Each relevant department shall comply with the restricting requirement on purchase and strictly control and review the houses purchase.
(2) Continuing to implement differentiated housing loan policies, and seriously implement the loan policies for second residential houses. Enhancing the regulation effect of tax and carrying out the relevant requirement of the State and the province regarding the imposition of income tax on sales of self-owned houses by individuals. Meanwhile, evaluation measures on the real estate price will be moving on to strengthen the tax collecting on the transaction of stock houses.
(3) Strengthening pre-sale management of commodity residential houses, directing real estate companies to set reasonable prices. Continuing to strictly implement the requirement on sales of commodity residential houses at expressly marked price, “one price for one house” and “one price selling” and conducting sales strictly within the declared price. Suspending the issuance of pre-sale permits to commodity residential house projects that declared over-high price in pre-sale proposal and refused guidance from prices and housing and construction departments or without escrow arrangements for pre-sale proceeds.

PRC TAXATION

Corporate Income Tax

Under the EIT Law effective on 1 January 2008, domestic enterprises and foreign invested enterprises are subject to the same corporate income tax law and the same corporate income tax rate of 25%. Pre-tax deduction methods and criteria for domestic and foreign invested enterprises have been made uniform and standardised.

Deed tax

Under the PRC Interim Regulations on Deed Tax 《中華人民共和國契稅暫行條例》( ) promulgated by the State Council on 7 July 1997 and implemented on 1 October 1997, a deed tax is chargeable to transferees of land use rights and/or property ownership within the territory of China. The deed tax rate is between 3% and 5% subject to determination by local governments at the provincial level in light of local conditions.

– II-22 –

APPENDIX II

REGULATORY OVERVIEW

Business tax

Under the PRC Interim Regulations on Business Tax 《中華人民共和國營業稅暫行條( 例實施細則》) promulgated by the State Council on 13 December 1993, amended on 5 November 2008, and implemented on 1 January 2009, and the Detailed Implementing Rules on the PRC Provisional Regulations on Business Tax (《中華人民共和國營業稅暫行條例實施細則》) issued by the Ministry of Finance and the SAT on 25 December 1993, amended on 15 December 2008 and implemented on 1 January 2009, and further amended on 28 October 2011 and implemented on 1 November 2011, business tax is imposed on income derived from the furnishing of specified services and transferring of immovable property or intangible property at rates ranging from 3% to 20%, depending on the activities.

Land Appreciation Tax

Under the Provisional Regulations of the PRC on Land Appreciation Tax (《中華人民共和國土地增值稅暫行條例》) promulgated by the State Council on 13 December 1993, became effective on 1 January 1994 as amended on 8 January 2011 and its implementing rules which were promulgated by the Ministry of Finance on 27 January 1995, all income from transfer of state-owned land use rights, and buildings and their attached facilities in the PRC, is subject to LAT, irrespective of whether they are corporate entities or individuals. The tax is payable by a taxpayer on the appreciation value derived from the transfer of land use rights, buildings or other facilities on such land, after deducting certain “deductible items” that include the following:

Payment made to acquire land use rights;
Costs and charges incurred in connection with land development;
Construction costs and charges in the case of newly constructed buildings and facilities;
Assessed value in the case of old buildings and facilities;
Taxes paid or payable in connection with the transfer of land use rights, buildings or other facilities on such land; and
Other items allowed by the Ministry of Finance.

The LAT is progressive and ranges from 30% to 60% of the appreciation value net of the “deductible items”.

On 28 December 2006, the SAT promulgated the Notice on the Settlement Management of Land Appreciation Tax of Real Estate Enterprises (《關於房地產開發企業土地增值稅清算管理有關問題的通知》), effective on 1 February 2007. According to the notice, the LAT assessment amount shall be derived from the entire value of the real estate development project if the project was approved by the relevant authority as a unit; and for a project developed in stages, the LAT assessment amount shall be derived from the value of each individual stage of the project.

– II-23 –

APPENDIX II

REGULATORY OVERVIEW

A taxpayer should pay the LAT if one of the following circumstances occurs:

A construction project has been completed and its commodity residential houses have been sold;
A real estate development project that has neither been completed nor undergone final accounts is transferred as a whole; or
A direct transfer of a land use right.

The tax authority may require the taxpayer to pay the LAT in one of the following circumstances:

The GFA of the real estate sold is in excess of 85% of the saleable GFA of the entire project or, if the proportion is less than 85%, the residual saleable GFA has been leased out or is held for self-use;
The pre-sale permit has been held for three years, but not all of the commodity residential houses of the project have been sold;
The taxpayer applies for cancellation of tax registration but has yet to carry out the procedures for the LAT settlement; or
Other circumstances stipulated by tax authorities at the provincial level.

On 25 May 2010, the SAT promulgated the Notice on Strengthening the Levy and Administration of Land Appreciation Tax 《關於加强土地增值稅徵管工作的通知》( ) to impose further requirements on the collection of LAT. The notice provides that, except for social security housing, the minimum LAT prepayment rate shall be no less than 2% for houses in Eastern China, no less than 1.5% for houses in Central and Northeastern China and no less than 1% for houses in Western China. The LAT prepayment rate shall be determined by the local authorities based on different housing types in the locality.

Urban and Town Land Use Tax

Pursuant to the Interim Regulations of the PRC on Urban and Town Land Use Tax 《中華人民共和國城鎮土地使用稅暫行條例》( ) promulgated by the State Council in September 1988, urban and town land use tax is levied according to the area of the urban and town land actually occupied and the annual tax rate on urban land was set at between RMB0.2 and RMB10 per sq.m. On 31 December 2006, the Provisional Regulations of the PRC on Urban and Town Land Use Tax were amended by the State Council. As at 1 January 2007, on the basis of the amended regulations, the urban and town land use tax is charged at a rate three times higher than the previous rate and foreign-invested enterprises are no longer exempt. Certain terms in the regulation was amended on 8 January 2011.

– II-24 –

APPENDIX II

REGULATORY OVERVIEW

Property Tax

Under the Provisional Regulations of the PRC on Real Estate Tax 《中華人民共和國( 房產稅暫行條例》) promulgated by the State Council in September 1986 and amended on 8 January 2011, real estate tax applicable to domestic enterprises is 1.2% if it is calculated on the basis of the residual value of a property and 12% if it is calculated on the basis of the rental income of the property.

Stamp Duty

Under the Provisional Regulations of the PRC on Stamp Duty (《中華人民共和國印花稅暫行條例》) promulgated by the State Council in August 1988 and amended on 8 January 2011, which applying to real estate transfer instruments, including property ownership transfer instruments, the duty rate is 0.05% of the amount stated therein. For permits and certificates relating to rights, including property ownership certificates and land use rights certificates, stamp duty is levied on an item-by-item basis at a rate of RMB5 per item.

City Maintenance Construction Tax and Education Surcharge

Under the Provisional Regulations of the PRC on City Maintenance Construction Tax (《中華人民共和國城市維護建設稅暫行條例》) promulgated by the State Council in 1985, any taxpayer, whether an individual or otherwise, that is required to pay product tax, value-added tax or business tax is also required to pay city maintenance construction tax. The tax rate is 7% for a taxpayer whose domicile is in an urban area, 5% for a taxpayer whose domicile is in a county or a town, and 1% otherwise.

On 18 October 2010, the State Council issued the Notice on Unifying the Systems for City Maintenance Construction Tax and Educational Surcharge on Chinese- and Foreign-Funded Enterprises and Individuals 《國務院關於統一內外資企業和個人城市維護( 建設稅和教育費附加制度的通知》). According to the notice, starting from 1 December 2010, city maintenance construction tax and educational surcharge are also applicable to foreign-invested enterprises, foreign enterprises and foreign individuals. Pursuant to the Notice on Relevant Issues of Imposition of City Maintenance Construction Tax and Education Surcharge on Foreign-invested Enterprises《關於對外資企業徵收城市維護建設稅和教育費附加有關問題的通知》, promulgated by the Ministry of Finance and the SAT on 4 November 2010, foreign-invested enterprises, foreign enterprises and foreign individuals are to pay city maintenance construction tax at a certain rate on the amount of value-added tax, consumption tax and business tax paid by the taxpayer and to pay education surcharge at a 3% rate on the amount of value-added tax, consumption tax and business tax paid by the taxpayer.

– II-25 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

The following is the text of a report received from Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong, the Company’s reporting accountants, for the purpose of incorporation in this Circular.

==> picture [68 x 52] intentionally omitted <==

香港金鐘道88號太古廣場一座35樓

Deloitte Touche Tohmatsu 35/F, One Pacific Place 88 Queensway Hong Kong

20 June 2013

The Directors

Tonic Industries Holdings Limited Goldman Sachs (Asia) L.L.C.

Dear Sirs,

We set out below our report on the financial information for each of the three years ended 31 December 2012 (the “Track Record Period”) (“Financial Information”) of certain subsidiaries of Eureka Investment Company Limited (“Eureka”) (the “Target Group”) which are proposed to be acquired by Tonic Industries Holdings Limited (the “Company”) for inclusion in the circular of the Company dated 20 June 2013 (the “Circular”).

The Company is a non-wholly-owned subsidiary of Eureka.

Pursuant to a conditional share purchase agreement dated 24 April 2013 entered into, among others, Eureka as vendor and the Company as purchaser, as described more fully in the section headed “Letter from the Board” included in the Circular, the Company has conditionally agreed to acquire from Eureka the following:

(i) 50% of the issued share capital of Harpen Company Limited (“Harpen”);
(ii) all the issued share capital of Converge Holdings Limited (“Converge”), Sino Action Investments Limited (“Sino Action”) and Happy City Investments Limited (“Happy City”); and
(iii) all the shareholder’s loans which were outstanding and owing by each of Harpen, Converge, Sino Action and Happy City to Eureka as at the date of the conditional share purchase agreement.

Sino Action was incorporated in Hong Kong under the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) with limited liability on 6 March 2013. Sino Action is an investment holding company.

– III-1 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Happy City was incorporated in Hong Kong under the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) with limited liability on 6 March 2013. Happy City is an investment holding company.

On 19 April 2013, Sino Action was interspersed between Eureka and 廣州招商房地產有限公司 and held 21% equity interest in 廣州招商房地產有限公司. On 9 June 2013, Eureka transferred its 50% equity interest in 佛山招商九龍倉房地產有限公司 to Sino Action. On 13 May 2013, Happy City was interspersed between Eureka and 招商局地產（南京）有限公司 and became the holding company of 招商局地產（南京）有限公司 holding 51% equity interests therein (collectively referred to as “Restructuring”). The Restructuring was completed on 9 June 2013.

Harpen, Converge, Sino Action and Happy City are investment holding companies holding, directly or indirectly, equity interests in entities operating in the People’s Republic of China (“PRC”) . Details of entities comprising the Target Group are as follows:

Company name
Place and date of
incorporation/
establishment
Issued and fully
paid share
capital/
registered
capital
重慶招商置地開發有限公司
China West Premier
Housing Development
Co., Ltd. (notes 1 & 5)
PRC
28 December 2009
US$569,960,000
(Paid-up capital:
US$533,960,015)
Converge
British Virgin
Islands (“BVI”)
2 January 2004
US$2
Cosmo City Limited (note 5)
Hong Kong
19 November 2009
HK$2
佛山招商九龍倉房地產
有限公司
Foshan Merchants
Wharf Property
Development Co., Ltd.
(“Foshan Merchants
Wharf”) (notes 1 & 4)
PRC
11 March 2010
US$149,890,000
佛山鑫城房地產有限公司
Foshan Xin Cheng Property
Development Co., Ltd.
(notes 2 & 6)
PRC
30 April 2007
US$127,000,000
佛山信捷房地產有限公司
Foshan Xin Jie Property
Development Co., Ltd.
(notes 1 & 7)
PRC
30 October 2007
US$264,670,000
(paid-up capital
US$228,774,000)
佛山依雲房地產有限公司
Foshan Yi Yun Property
Development Co., Ltd.*
(notes 3 & 6)
PRC
24 August 2010
RMB30,000,000
Happy City
Hong Kong
6 March 2013
HK$100

Attributable equity
interest held by Eureka
At 31 December
At the
date
of this
report
Principal
activities
2010
2011
2012
50%
50%
50%
50%
Property
development
100%
100%
100%
100%
Investment
holding
50%
50%
50%
50%
Investment
holding
50%
50%
50%
50%
Property
development
25.5%
25.5%
25.5%
25.5%
Property
development
50%
50%
50%
50%
Property
development
25.5%
25.5%
25.5%
25.5%
Property
development
N/A
N/A
N/A
100%
Investment
holding

– III-2 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Company name
Place and date of
incorporation/
establishment
Issued and fully
paid share
capital/
registered
capital
Harpen (note 4)
Hong Kong
6 January 1999
HK$10,000
招商局地產（南京）
有限公司
Merchants Nanjing Real
Estate Co., Ltd.
(“Merchants Nanjing”)
(note 2)
PRC
13 December 2005
RMB30,000,000
廣州招商房地產有限公司
Merchants Property
Development
(Guangzhou) Ltd.
(“Merchants Guangzhou”)
(note 2)
PRC
10 August 2004
RMB200,000,000
南京招商瑞盛房地產有限公司
Nanjing China
Merchants Rui Sheng
Property Co., Ltd.*
(note 3)
PRC
21 January 2011
RMB30,000,000
Pride Oasis Limited (note 4)
BVI
17 November 2009
US$100
Sino Action
Hong Kong
6 March 2013
HK$100

Attributable equity
interest held by Eureka
At 31 December
At the
date
of this
report
Principal
activities
2010
2011
2012
50%
50%
50%
50%
Investment
holding
51%
51%
51%
51%
Property
development
51%
51%
51%
51%
Property
development
N/A
51%
51%
51%
Property
development
50%
50%
50%
50%
Investment
holding
N/A
N/A
N/A
100%
Investment
holding

The English name is for identification only. The official name of the entity is in Chinese.
note 1 : The entity is a wholly foreign owned enterprise.
note 2 : The entity is a sino-foreign joint venture.
note 3 : The entity is a wholly-domestic owned enterprise.
note 4 : This entity is considered to be a subsidiary of Eureka despite Eureka holds directly and indirectly not more than half of the equity interest therein as Eureka has the power to cast the majority of votes at meetings of the board of directors of this entity, which governs the financial and operating policies of this entity.
note 5 : The entity is a subsidiary of Pride Oasis Limited.
note 6 : This entity is considered to be a subsidiary of Eureka despite Eureka indirectly holds not more than half of the equity interest therein as Merchants Guangzhou, a subsidiary of Eureka, has the power to cast the majority of votes at meetings of the board of directors of this entity, which governs the financial and operating policies of this entity.
note 7 : The entity is a subsidiary of Harpen.

The financial year end date of the entities now comprising the Target Group is 31 December.

The statutory financial statements of Harpen for each of the three years ended 31 December 2012 were prepared in accordance with the Hong Kong Financial Reporting Standards (the “HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) and audited by Deloitte Touche Tohmatsu.

– III-3 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

The statutory financial statements of the other entities now comprising the Target Group for each of the three years ended 31 December 2012, or since the respective dates of their incorporation/establishment, where this is a shorter period, were audited by auditors other than Deloitte Touche Tohmatsu as follows:

Name of company	Name of statutory	auditor for the financial period	ended 31 December
	2010	2011	2012
China West	普華永度中天會計師	普華永度中天會計師	普華永度中天會計師
Premier Housing	事務所有限公司重慶分所1	事務所有限公司重慶分所1	事務所有限公司重慶分所1
Development
Co., Ltd.
Cosmo City	PricewaterhouseCoopers2	PricewaterhouseCoopers2	PricewaterhouseCoopers2
Limited
Foshan Merchants	天健會計師事務所	天健會計師事務所	信永中和會計師事務所
Wharf	（特殊普通合夥）	（特殊普通合夥）	（特殊普通合伙）深圳分所1
	深圳分所1	深圳分所1
Foshan Xin Cheng	天健會計師事務所	天健會計師事務所	信永中和會計師事務所
Property	（特殊普通合夥）	（特殊普通合夥）	（特殊普通合伙）深圳分所1
Development	深圳分所1	深圳分所1
Co., Ltd.
Foshan Xin Jie	天健會計師事務所	天健會計師事務所	信永中和會計師事務所
Property	（特殊普通合夥）	（特殊普通合夥）	（特殊普通合伙）深圳分所1
Development	深圳分所1	深圳分所1
Co., Ltd.
Foshan Yi Yun	天健會計師事務所	天健會計師事務所	信永中和會計師事務所
Property	（特殊普通合夥）	（特殊普通合夥）	（特殊普通合伙）深圳分所1
Development	深圳分所1	深圳分所1
Co., Ltd.
Merchants Nanjing	天健會計師事務所	天健會計師事務所	信永中和會計師事務所
	（特殊普通合夥）	（特殊普通合夥）	（特殊普通合伙）上海分所1
	深圳分所1	深圳分所1
Merchants	天健會計師事務所	天健會計師事務所	信永中和會計師事務所
Guangzhou	（特殊普通合夥）	（特殊普通合夥）	（特殊普通合伙）深圳分所1
	深圳分所1	深圳分所1
Nanjing China	N/A3	天健會計師事務所	信永中和會計師事務所
Merchants Rui		（特殊普通合夥）	（特殊普通合伙）上海分所1
Sheng Property		深圳分所1
Co., Ltd.

1 Statutory financial statements for the financial period were prepared in accordance with relevant accounting principles and regulations in the PRC and were audited by certified public accountants registered in the PRC.

– III-4 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX III

2 Statutory financial statements for the financial period were prepared in accordance with HKFRSs issued by the HKICPA and were audited by certified public accountants registered in Hong Kong.
3 No statutory audited financial statements have been prepared as the company was established after 31 December 2010.

No statutory audited financial statements have been prepared for Converge and Pride Oasis since incorporation as there are no statutory audit requirements in the BVI.

No statutory audited financial statements have been prepared by Sino Action and Happy City since their incorporation in 2013.

For the purpose of this report, the directors of Eureka have prepared the financial statements of Foshan Merchants Wharf, and the consolidated financial statements of Converge, Harpen, Merchants Nanjing and Merchants Guangzhou for the Track Record Period (collectively the “Underlying Financial Statements”) in accordance with HKFRSs issued by the HKICPA. We have undertaken an independent audit on the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA and examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

The Financial Information set out in this report has been prepared from the Underlying Financial Statements on the basis set out in Note 1 of Section A below. Adjustments have been made by us to the Underlying Financial Statements in preparing our report for inclusion in the Circular. The preparation of the Underlying Financial Statements is the responsibility of the directors of Eureka. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, on the basis of presentation set out in Note 1 of Section A below, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of the Target Group as at 31 December 2010, 2011 and 2012 and of the combined results and combined cash flows of the Target Group for the Track Record Period.

– III-5 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

A. FINANCIAL INFORMATION

COMBINED STATEMENTS OF COMPREHENSIVE INCOME

Notes
Revenue
5
Cost of sales
Gross profit
Other income
7
Net foreign exchange gains
Selling and marketing expenses
Administrative expenses
Finance costs
8
Other expenses
Profit before tax
Income tax expense
9
Profit and total comprehensive
income for the year
10
Profit and total comprehensive
income for the year
attributable to:
Eureka
Non-controlling interests

– III-6 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

COMBINED STATEMENTS OF FINANCIAL POSITION

Notes NON-CURRENT ASSETS Property, plant and equipment 14 Investment properties 15 Deferred tax assets 16 Other receivables 18 CURRENT ASSETS Properties for sale 17 Deposit paid for acquisition of land use rights Trade and other receivables 18 Tax recoverable Restricted bank deposits 19 Bank balances and cash 19 CURRENT LIABILITIES Deposits received in respect of pre-sale of properties Trade and other payables 20 Loans from equity holders 21 Tax payable Bank borrowings – due within one year 22 NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES	At 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 12,981 13,378 12,365 34,417 36,065 34,359 25,024 139,470 298,240 – 1,157,770 1,328,584 72,422 1,346,683 1,673,548 10,232,565 12,349,946 15,212,165 930,086 – – 1,383,532 1,591,327 3,750,353 56,162 87,056 312,410 – 12,475 14,704 1,193,425 1,663,365 2,131,760 13,795,770 15,704,169 21,421,392 3,464,862 4,285,419 5,996,707 4,817,698 4,645,047 7,130,470 3,773,350 4,175,820 4,794,164 50,470 124,669 543,707 – – 101,000 12,106,380 13,230,955 18,566,048 1,689,390 2,473,214 2,855,344 1,761,812 3,819,897 4,528,892	At 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 12,981 13,378 12,365 34,417 36,065 34,359 25,024 139,470 298,240 – 1,157,770 1,328,584 72,422 1,346,683 1,673,548 10,232,565 12,349,946 15,212,165 930,086 – – 1,383,532 1,591,327 3,750,353 56,162 87,056 312,410 – 12,475 14,704 1,193,425 1,663,365 2,131,760 13,795,770 15,704,169 21,421,392 3,464,862 4,285,419 5,996,707 4,817,698 4,645,047 7,130,470 3,773,350 4,175,820 4,794,164 50,470 124,669 543,707 – – 101,000 12,106,380 13,230,955 18,566,048 1,689,390 2,473,214 2,855,344 1,761,812 3,819,897 4,528,892
		1,673,548
		15,212,165 – 3,750,353 312,410 14,704 2,131,760
		21,421,392
		5,996,707 7,130,470 4,794,164 543,707 101,000
		18,566,048
		2,855,344
		4,528,892

– III-7 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Notes NON-CURRENT LIABILITIES Other payables 20 Bank borrowings – due after one year 22 Deferred tax liabilities 16 CAPITAL AND RESERVES Paid-up/share capital 23 Reserves Equity attributable to Eureka Non-controlling interests TOTAL EQUITY	At 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 – 1,169,960 1,169,960 – – 109,351 6,306 15,022 34,136 6,306 1,184,982 1,313,447 1,755,506 2,634,915 3,215,445 366,783 366,783 366,783 236,468 497,088 896,319 603,251 863,871 1,263,102 1,152,255 1,771,044 1,952,343 1,755,506 2,634,915 3,215,445	At 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 – 1,169,960 1,169,960 – – 109,351 6,306 15,022 34,136 6,306 1,184,982 1,313,447 1,755,506 2,634,915 3,215,445 366,783 366,783 366,783 236,468 497,088 896,319 603,251 863,871 1,263,102 1,152,255 1,771,044 1,952,343 1,755,506 2,634,915 3,215,445
		1,313,447
		3,215,445

		366,783 896,319
		1,263,102 1,952,343
		3,215,445

– III-8 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

COMBINED STATEMENTS OF CHANGES IN EQUITY

Attributable to Eureka

At 1 January 2010 Profit and total comprehensive income for the year Capital injection by Eureka Capital contribution from non-controlling interests At 31 December 2010 Profit and total comprehensive income for the year At 31 December 2011 Profit and total comprehensive income for the year Statutory reserve appropriation Dividend declared At 31 December 2012	Paid-up/ share capital RMB’000 25,804 – 340,979 – 366,783 – 366,783 – – – 366,783	Statutory reserve RMB’000 (note) – – – – – – – – 29,215 – 29,215	Retained profits RMB’000 94,059 142,409 – – 236,468 260,620 497,088 434,231 (29,215) (35,000) 867,104	Total RMB’000 119,863 142,409 340,979 – 603,251 260,620 863,871 434,231 – (35,000) 1,263,102	Non- controlling interests RMB’000 614,749 181,527 – 355,979 1,152,255 618,789 1,771,044 610,966 – (429,667) 1,952,343	Total equity RMB’000 734,612
						323,936
						340,979 355,979
						1,755,506
						879,409
						2,634,915
						1,045,197 – (464,667)
						3,215,445

note: The amount mainly represents statutory reserve of the companies established in the PRC. According to the relevant laws in the PRC, wholly foreign-owned enterprises in the PRC are required to transfer their net profit after tax, as determined under the PRC accounting regulations, to a non-distributable reserve fund before the distribution of a dividend to equity owners. Such reserve fund can be used to offset the previous years’ losses, if any, and is non-distributable other than upon liquidation.

– III-9 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

COMBINED STATEMENTS OF CASH FLOWS

OPERATING ACTIVITIES
Profit before tax
Adjustments for:
Depreciation of property, plant and
equipment
Depreciation of investment
properties
Interest expenses
Reversal of write down on
properties for sale
Interest income
Loss on write off of property,
plant and equipment
Unrealised net foreign
exchange gains
Operating cash flows before
movements in working capital
Increase in properties for sale
Increase in deposit paid for
acquisition of land use rights
Decrease (increase) in trade and other
receivables
Increase in restricted bank deposits
for operating use
Increase in deposits received in
respect of pre-sale of properties
(Decrease) increase in trade and other
payables
Cash (used in) generated from
operations
PRC Enterprise Income Tax paid
Land Appreciation Tax paid
Interest received
NET CASH (USED IN) FROM
OPERATING ACTIVITIES

Year ended 31 December
2010
2011
2012
RMB’000
RMB’000
RMB’000
504,019
1,661,854
2,259,631
1,846
2,157
2,290
130
1,719
1,706
–
12,611
65,221
–
–
(28,000)
(10,847)
(19,410)
(28,553)
23
–
6
(43,834)
(108,863)
(6,593)
451,337
1,550,068
2,265,708
(4,501,762)
(1,141,832)
(2,664,728)
(930,086)
–
–
1,277,656
(62,748)
(122,919)
–
(12,475)
(2,229)
1,684,397
820,557
1,711,288
(332,146)
(249,087)
1,896,736
(2,350,604)
904,483
3,083,856
(120,626)
(321,833)
(348,541)
(105,887)
(101,451)
(249,468)
10,847
19,410
28,553
(2,566,270)
500,609
2,514,400

– III-10 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

INVESTING ACTIVITIES
Advance to an intermediate holding
company
Purchase of property, plant and
equipment
(Advance to) repayment from fellow
subsidiaries
Repayment from (advance to)
non-controlling interests
NET CASH USED IN INVESTING
ACTIVITIES
FINANCING ACTIVITIES
Advance from an intermediate
holding company
Capital contributed by
non-controlling interests
Capital injection by Eureka
Advance from non-controlling
interests
Advance from fellow subsidiaries
Interest paid
Dividends paid to owners of the
relevant entities in the Target Group
New bank borrowings raised
NET CASH FROM FINANCING
ACTIVITIES
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS
AT THE BEGINNING
OF THE YEAR
Effect of foreign exchange rate
changes
CASH AND CASH EQUIVALENTS
AT THE END OF THE YEAR,
represented by bank balances
and cash

Year ended 31 December
2010
2011
2012
RMB’000
RMB’000
RMB’000
(838,865)
(130,409)
(1,767,760)
(2,642)
(2,554)
(1,283)
(432)
416
(3,625)
90,375
(1,157,770)
(427,823)
(751,564)
(1,290,317)
(2,200,491)
2,184,001
557,706
391,289
355,979
–
–
340,979
–
–
418,093
768,833
136,440
284
4,538
3,303
(65,992)
(61,441)
(234,712)
–
–
(351,500)
–
–
210,351
3,233,344
1,269,636
155,171
(84,490)
479,928
469,080
1,290,698
1,193,425
1,663,365
(12,783)
(9,988)
(685)
1,193,425
1,663,365
2,131,760

– III-11 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

NOTES TO THE FINANCIAL INFORMATION

1. BASIS OF PRESENTATION OF FINANCIAL INFORMATION

The combined statements of comprehensive income, combined statements of changes in equity and combined statements of cash flows for the Track Record Period include the combined results and cash flows of the entities comprising the Target Group as if they constituted as a single reporting unit throughout the Track Record Period, or since the respective dates of their incorporation/establishment of the individual company, where this is a shorter period.

The combined statements of financial position as at 31 December 2010, 2011 and 2012 have been prepared to present the assets and liabilities of the entities comprising the Target Group as if they constituted as a single reporting unit as at those dates.

The Financial Information is presented in Renminbi (“RMB”), the functional currency of the entities comprising the Target Group.

2. APPLICATION OF HKFRSs

For the purposes of preparing and presenting the Financial Information for the Track Record Period, the Target Group has consistently applied Hong Kong Accounting Standards (“HKASs”), HKFRSs and Interpretation (“HK(IFRC) - Int”) issued by the HKICPA, which are effective for the accounting periods beginning on 1 January 2012 throughout the Track Record Period.

At the date of this report, the Target Group has not early applied the following new and revised standards, amendments or interpretations that have been issued but are not yet effective.

Amendments to HKFRSs Annual Improvements to HKFRSs 2009 - 2011 Cycle[1] Amendments to HKFRS 7 Disclosures - Offsetting Financial Assets and Financial Liabilities[1] Amendments to HKFRS 9 Mandatory Effective Date of HKFRS 9 and Transition Disclosures[2] and HKFRS 7 Amendments to HKFRS Consolidated Financial Statements, Joint Arrangements and 10, HKFRS 11 and Disclosure of Interests in Other Entities: Transition Guidance[1] HKFRS 12 Amendments to HKFRS Investment Entities[4] 10, HKFRS 12 and HKAS 27 HKFRS 9 Financial Instruments[2] HKFRS 10 Consolidated Financial Statements[1] HKFRS 11 Joint Arrangements[1] HKFRS 12 Disclosure of Interests in Other Entities[1] HKFRS 13 Fair Value Measurement[1] HKAS 19 Employee Benefits[1] (as revised in 2011) HKAS 27 Separate Financial Statements[1] (as revised in 2011) HKAS 28 Investments in Associates and Joint Ventures[1] (as revised in 2011) Amendments to HKAS 1 Presentation of Items of Other Comprehensive Income[3] Amendments to HKAS 32 Offsetting Financial Assets and Financial Liabilities[4] HK(IFRIC) - Int 20 Stripping Costs in the Production Phase of a Surface Mine[1]

1 Effective for annual periods beginning on or after 1 January 2013. 2 Effective for annual periods beginning on or after 1 January 2015. 3 Effective for annual periods beginning on or after 1 July 2012. 4 Effective for annual periods beginning on or after 1 January 2014.

– III-12 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

HKFRS 12 is a disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. In general, the disclosure requirements in HKFRS 12 are more extensive than those in the current standards.

HKFRS 13 establishes a single source of guidance for fair value measurements and disclosures about fair value measurements. The standard defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. The scope of HKFRS 13 is broad; it applies to both financial instrument items and non-financial instrument items for which other HKFRSs require or permit fair value measurements and disclosures about fair value measurements, except in specified circumstances. In general, the disclosure requirements in HKFRS 13 are more extensive than those in the current standards. For example, quantitative and qualitative disclosures based on the three-level fair value hierarchy currently required for financial instruments only under HKFRS 7 Financial Instruments: Disclosures will be extended by HKFRS 13 to cover all assets and liabilities within its scope.

The directors of Eureka anticipate that the application of HKFRS 13 may affect certain amounts reported in the financial statements and result in more extensive disclosures in the financial statements.

The directors of Eureka anticipate that the application of other new and revised standards, amendments or interpretation will have no material impact on the results and the financial position of the Target Group as well as the disclosure in the financial statements.

3. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared on the historical cost basis, and in accordance with accounting policies set out below which are in conformity with HKFRSs issued by the HKICPA. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. In addition, the Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and by the Hong Kong Companies Ordinance.

Basis of combination

The Financial Information incorporates the financial statements of the entities comprising the Target Group. Control is achieved where Eureka has the power to govern the financial and operating policies of the companies so as to obtain benefits from its activities.

Income and expenses of companies acquired or disposed of during the Track Record Period are included in the combined statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Target Group.

All intra-group transactions, balances, income and expenses are eliminated on combination.

Non-controlling interests in subsidiaries are presented separately from Eureka’s equity therein and represent the portion of the net assets of entities attributable to interests that are not owned by Eureka, whether directly or indirectly and in respect of which the Target Group has not agreed any additional terms with the holders of those interests which would result in the Target Group having a contractual obligation in respect of those interests that meets the definition of a financial liability. Non-controlling interests are presented in the combined statement of financial position within equity, separately from equity attributable to Eureka. Non-controlling interests in the results of the relevant entities in the Target Group are presented on the face of the combined statement of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between non-controlling interests and Eureka.

Allocation of total comprehensive income to non-controlling interests

Total comprehensive income and expense of a subsidiary is attributed to the controlling interests and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

– III-13 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Subsidiaries

Entities comprising the Target Group are considered as subsidiaries of Eureka if Eureka has power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Eureka also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies, appoint or remove the majority of members of the board of directors or equivalent governing body or cast the majority of votes at meeting of the board of directors or equivalent governing body.

Subsidiaries are fully consolidated from the date on which control is transferred to the Target Group. They are de-consolidated from the date that control ceases.

Merger accounting for business combinations involving entities under common control

The Financial Information incorporates the financial statements items of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or businesses first came under the control of the controlling party.

The combined statement of comprehensive income includes the results of each of the combining entities or businesses from the earliest date presented or since the date when the combining entities or businesses first came under the common control, where this is a shorter period, regardless of the date of the common control combination.

Property, plant and equipment

Property, plant and equipment are stated in the combined statement of financial position at cost less subsequent accumulated depreciation and any subsequent accumulated impairment losses, if any.

Depreciation is recognised so as to write off the cost of items of property, plant and equipment less their residual values over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation.

Investment properties are initially measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are stated at cost less subsequent accumulated depreciation and any accumulated impairment losses. Depreciation is recognised so as to write off the cost of investment properties over their estimated useful lives and after taking into account of their estimated residual value, using the straight-line method.

– III-14 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the profit or loss in the period in which the property is derecognised.

Properties held for sale

Financial instruments

Financial assets and financial liabilities are recognised in the combined statement of financial position when the entities comprising the Target Group becomes a party to the contractual provisions of the instrument.

Financial assets

Effective interest method

Interest income is recognised on an effective interest basis for debt instruments.

– III-15 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including other receivables, restricted bank deposits and bank balances and cash) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment of loans and receivables below).

Impairment of loans and receivables

Objective evidence of impairment of loans and receivables could include:

significant financial difficulty of the issuer or counterparty; or
breach of contract, such as default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

Financial liabilities and equity instruments

Effective interest method

Interest expense is recognised on an effective interest basis.

Financial liabilities

Financial liabilities of the Target Group (including trade and other payables, loans from equity holders and bank borrowings) are subsequently measured at amortised cost using effective interest method.

Equity instruments

– III-16 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.

A financial guarantee contract issued by the Target Group and not designated at fair value through profit or loss is recognised initially at fair value less transaction costs that are directly attributable to the issue of the financial guarantee contract. Subsequent to initial recognition, the Target Group measures the financial guarantee contract at the higher of: (i) the amount of the obligation under the contract, as determined in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets , and (ii) the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with the revenue recognition policy.

Derecognition

Impairment losses on tangible assets

At the end of the reporting period, the Target Group reviews the carrying amounts of the tangible assets and to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, the Target Group estimates the recoverable amount of the cash-generating unit (“CGU”) to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual CGUs, or otherwise they are allocated to the smallest group of CGUs for which a reasonable and consistent allocation basis can be identified.

Revenue recognition

– III-17 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Specifically, revenue from sale of properties in the ordinary course of business is recognised when the respective properties have been completed and delivered to the buyers, at which time all of the following criteria are satisfied:

the Target Group has transferred to the buyer the significant risks and rewards of ownership of the properties;
the Target Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the properties sold;
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with the transaction will flow to the Target Group; and
the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Deposits received from purchasers prior to meeting the above criteria for revenue recognition are included in the combined statement of financial position under current liabilities.

Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Target Group as lessor

Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the relevant lease.

The Target Group as lessee

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

Borrowing costs

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Retirement benefit costs

Payments to state-managed retirement benefit schemes are recognised as an expense when employees have rendered service entitling them to the contributions.

Foreign currencies

In preparing the financial statements of each individual entity comprising the Target Group, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in the respective functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

– III-18 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognised in profit or loss in the period in which they arise.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the combined statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Target Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Target Group expects, at the end of the reporting period, to recover or settle the carrying amount of their assets and liabilities.

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Target Group’s accounting policies, which are described in Note 3, the directors of Eureka are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

– III-19 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Deferred tax

Deferred tax assets of RMB25,024,000, RMB139,470,000 and RMB298,240,000 mainly in relation to tax losses and land appreciation tax (“LAT”) have been recognised at 31 December 2010, 2011 and 2012 respectively as set out in Note 16. The realisability of the deferred tax assets mainly depends on whether sufficient future profits or taxable temporary differences will be available in the future. The directors of Eureka determine the deferred tax assets based on the enacted or substantially enacted tax rates and the best knowledge of profit projections of the Target Group for coming years during which the deferred tax assets are expected to be utilised. The directors of Eureka will review the assumptions and profit projections by the end of the reporting period. In cases where the actual future profits generated are less than expected or there is a downward revision of estimated future profits, a reversal of deferred tax assets may arise, which would be recognised in the combined statement of comprehensive income for the period in which such a reversal takes place.

LAT

The Target Group is subject to LAT in the PRC. However, the implementation of the tax varies amongst different tax jurisdictions in various cities of the PRC and certain projects of the Target Group have not finalised their LAT calculations with the local tax authorities in the PRC. Accordingly, significant judgement is required in determining the amount of land appreciation and its related income tax provisions. The Target Group recognised the land appreciation tax based on management’s best estimates. The final tax outcome could be different from the amounts that were initially recorded, and these differences will impact the income tax expense and the related income tax provisions in the period in which such tax is finalised with local tax authorities.

Estimated write down of properties for sale

The Target Group records properties for sale at the lower of cost and net realisable value. Net realisable value of properties for sale is calculated as estimated selling price in the ordinary course of business, minus estimated cost of completion (if any), and estimated selling expenses which are estimated based on best available information.

The Target Group writes down properties for sale to net realisable value based on assessment of the realisability of properties for sale, taking into account costs to completion based on past experience and net sales value based on past experience and prevailing market conditions. If there is an increase in costs to completion or a decrease in net sales value, the net realisable value will decrease and this might result in write-downs of properties for sale to net realisable value. Write-downs are recorded where events or changes in circumstances indicate that the balances may not be realised. The identification of write-downs requires the use of judgements and estimates. If the expectation is different, it will impact the carrying value and write-downs of properties for sale in the period in which such estimate is changed.

The carrying amount of properties for sale was RMB10,232,565,000, RMB12,349,946,000 and RMB15,212,165,000 as at 31 December 2010, 2011 and 2012, respectively as set out in Note 17.

– III-20 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

5. REVENUE

Revenue represents income from sales of properties and rental income earned during the Track Record Period, net of discounts allowed, and is analysed as follows:

Sales of properties held for sale Rental income	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 1,341,073 3,338,925 4,285,512 1,661 2,545 2,999 1,342,734 3,341,470 4,288,511	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 1,341,073 3,338,925 4,285,512 1,661 2,545 2,999 1,342,734 3,341,470 4,288,511
		4,288,511

6. SEGMENT INFORMATION

Information reported to the directors of Eureka, being the chief operating decision maker, for the purposes of resource allocation and assessment of segment performance focuses on geographical location of business operations.

Specifically, the Target Group’s reportable and operating segments under HKFRS 8 are as follows:

Foshan in the PRC (“Foshan”)	–	Development and sale of properties
Guangzhou in the PRC	–	Development and sale of properties and property
(“Guangzhou”)		leasing
Nanjing in the PRC (“Nanjing”)	–	Development and sale of properties
Chongqing in the PRC	–	Development and sale of properties
(“Chongqing”)

Segment revenues and results

The following is an analysis of the Target Group’s revenue and results by reportable and operating segments.

For the year ended 31 December 2010 Segment revenue – external Segment results Unallocated corporate income Net foreign exchange gains Unallocated corporate expenses Profit before tax	Foshan Guangzhou RMB’000 RMB’000 540,123 447,394 105,216 214,194	Nanjing RMB’000 355,217 80,767	Chongqing RMB’000 – (11,727)	Total RMB’000 1,342,734

				388,450 6,454 109,184 (69)
				504,019

– III-21 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

For the year ended 31 December 2011 Segment revenue – external Segment results Unallocated corporate income Net foreign exchange gains Unallocated corporate expenses Profit before tax For the year ended 31 December 2012 Segment revenue – external Segment results Unallocated corporate income Net foreign exchange gains Unallocated corporate expenses Profit before tax	Foshan Guangzhou RMB’000 RMB’000 2,917,145 31,460 1,314,971 (23,243) Foshan Guangzhou RMB’000 RMB’000 1,202,762 2,571,538 910,459 1,572,979	Nanjing RMB’000 392,865 194,717 Nanjing RMB’000 514,211 (211,181)	Chongqing RMB’000 – (20,043) Chongqing RMB’000 – (24,044)	Total RMB’000 3,341,470

				1,466,402 5,222 190,365 (135)
				1,661,854

				Total RMB’000 4,288,511

				2,248,213 5,090 6,457 (129)
				2,259,631

Segment revenue reported above represents revenue generated from external customers. There were no inter-segment sales during the Track Record Period.

The accounting policies of the operating segments are the same as the Target Group’s accounting policies described in Note 3. Segment result represents the profit earned/loss incurred by each segment without allocation of central administration costs, certain corporate income, net foreign exchange gains and income tax expense. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and performance assessment.

– III-22 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Segment assets and liabilities

The following is an analysis of the Target Group’s assets and liabilities by reportable and operating segments:

At 31 December 2010 Segment assets Other unallocated assets Total assets Segment liabilities Other unallocated liabilities Total liabilities At 31 December 2011 Segment assets Other unallocated assets Total assets Segment liabilities Other unallocated liabilities Total liabilities	Foshan Guangzhou RMB’000 RMB’000 6,189,070 2,432,616 3,300,494 2,431,141 Foshan Guangzhou RMB’000 RMB’000 7,265,259 3,540,425 4,556,258 2,679,618	Nanjing RMB’000 2,863,700 2,583,893 Nanjing RMB’000 3,235,310 2,855,537	Chongqing RMB’000 2,382,623 4,422 Chongqing RMB’000 3,009,688 106,058	Total RMB’000 13,868,009 183
				13,868,192

				8,319,950 3,792,736
				12,112,686

				Total RMB’000 17,050,682 170
				17,050,852

				10,197,471 4,218,466
				14,415,937

– III-23 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

At 31 December 2012 Segment assets Other unallocated assets Total assets Segment liabilities Other unallocated liabilities Total liabilities	Foshan Guangzhou RMB’000 RMB’000 9,612,731 4,269,737 7,225,835 2,289,817	Nanjing RMB’000 4,014,533 3,887,228	Chongqing RMB’000 5,197,771 1,680,524	Total RMB’000 23,094,772 168
				23,094,940

				15,083,404 4,796,091
				19,879,495

For the purposes of monitoring segment performance and allocating resources between segments:

all assets, other than assets of the investment holding companies, are allocated to reportable and operating segments; and
all liabilities, other than liabilities of the investment holding companies, are allocated to reportable and operating segments.

Other information

Amounts included in the measure of segment profit or loss or segment assets

	Foshan	Guangzhou	Nanjing	Chongqing	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
For the year ended
31 December 2010
Addition to non-current
assets (note)	192	1,069	583	798	2,642
Interest income	5,960	4,210	367	310	10,847
Gross rental income	–	16	1,645	–	1,661
Depreciation of property,
plant and equipment	493	572	734	47	1,846
Depreciation of investment
properties	–	130	–	–	130

note: Non-current assets excluded deferred tax assets.

– III-24 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

	Foshan Guangzhou	Foshan Guangzhou	Nanjing	Chongqing	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
For the year ended
31 December 2011
Addition to non-current assets
(note)	309	672	698	875	2,554
Interest income	8,915	8,896	552	1,047	19,410
Gross rental income	–	1,810	735	–	2,545
Depreciation of property,
plant and equipment	556	508	809	284	2,157
Depreciation of investment
properties	–	1,719	–	–	1,719
Interest expense	–	–	12,611	–	12,611
For the year ended
31 December 2012
Addition to non-current assets
(note)	577	324	166	216	1,283
Interest income	11,348	12,386	5	4,814	28,553
Gross rental income	–	2,999	–	–	2,999
Depreciation of property,
plant and equipment	835	512	736	207	2,290
Depreciation of investment
properties	–	1,706	–	–	1,706
Interest expense	–	–	65,221	–	65,221
(Reversal of) write down on
properties for sale	(182,000)	–	154,000	–	(28,000)

note: Non-current assets exclude deferred tax assets.

No single customer of the Target Group contributed 10% or more to the Target Group’s revenue for the Track Record Period.

The Target Group’s revenue from external customers is derived solely from its operation in the PRC, and non-current assets which exclude deferred tax assets of the Target Group are all located in the PRC.

7. OTHER INCOME

Bank interest income Interest income from an intermediate holding company Others	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 10,288 17,193 21,531 559 2,217 7,022 1,094 1,057 7,656 11,941 20,467 36,209	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 10,288 17,193 21,531 559 2,217 7,022 1,094 1,057 7,656 11,941 20,467 36,209
		36,209

– III-25 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

8. FINANCE COSTS

Interest on: bank borrowings wholly repayable within five years amount due to an intermediate holding company amount due to a non-controlling equity holder of an entity of the Target Group Total borrowing costs Less: Amounts capitalised	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 – – 8,139 65,992 58,693 188,033 – 2,748 38,540 65,992 61,441 234,712 (65,992) (48,830) (169,491) – 12,611 65,221	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 – – 8,139 65,992 58,693 188,033 – 2,748 38,540 65,992 61,441 234,712 (65,992) (48,830) (169,491) – 12,611 65,221
		234,712 (169,491)
		65,221

Borrowing costs capitalised to properties under development for sale were determined by the contracted interest rates of respective specific borrowings as disclosed in Notes 20 and 22.

9. INCOME TAX EXPENSE

The charge (credit) comprises: Current Tax PRC Enterprise Income Tax (“EIT”) – Current year – Underprovision in prior years Dividend withholding tax LAT Deferred tax (Note 16)	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 89,025 365,138 535,872 4,422 – 1,353 – – 5,000 91,447 523,037 811,865 184,894 888,175 1,354,090 (4,811) (105,730) (139,656) 180,083 782,445 1,214,434	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 89,025 365,138 535,872 4,422 – 1,353 – – 5,000 91,447 523,037 811,865 184,894 888,175 1,354,090 (4,811) (105,730) (139,656) 180,083 782,445 1,214,434
		1,354,090 (139,656)
		1,214,434

Under the Law of the PRC on Enterprise Income Tax (“EIT Law” effective from 1 January 2008) and Implementation Regulation of the EIT Law, the statutory EIT rate of PRC companies in the Target Group is 25% during the Track Record Period. Further, 10% withholding income tax is generally imposed on dividends relating to any profits earned commencing from 1 January 2008 to foreign investors, while for some investments held by companies incorporated in certain places, including Hong Kong, preferential tax rate of 5% will be applied if such companies are the beneficial owner of over 25% of these PRC entities according to PRC tax regulations.

LAT is levied at progressive rates ranging from 30% to 60% on the appreciation of land value, being the proceeds of sales of properties less deductible expenditures including cost of land use right and all property development expenditures.

No provision for Hong Kong Profits Tax has been made as the Target Group’s income neither arises in, nor is derived from, Hong Kong.

– III-26 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Pursuant to the rules and regulations of the BVI, the Target Group is not subject to any income tax in the BVI.

The income tax expense for the Track Record Period can be reconciled to the profit before tax per the combined statements of comprehensive income as follows:

Profit before tax Tax at the domestic income tax rate of 25% (note) Tax effect of expenses not deductible for tax purposes Tax effect of income not taxable for tax purposes Tax effect of utilisation of tax losses previously not recognised Tax effect of tax losses not recognised PRC LAT Tax effect of PRC LAT Underprovision in prior years Tax effect of deductible temporary differences not recognised Utilisation of deductible temporary differences previously not recognised Dividend withholding tax expense Effect of different tax rates in other jurisdictions Income tax expense	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 504,019 1,661,854 2,259,631 126,005 415,464 564,908 1,108 141 471 (19,081) (25,623) (1,905) – (750) – 2,561 785 22,128 91,447 523,037 811,865 (22,862) (126,125) (200,529) 4,422 – 1,353 – – 38,500 – – (45,500) 6,306 8,716 24,114 (9,823) (13,200) (971) 180,083 782,445 1,214,434	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 504,019 1,661,854 2,259,631 126,005 415,464 564,908 1,108 141 471 (19,081) (25,623) (1,905) – (750) – 2,561 785 22,128 91,447 523,037 811,865 (22,862) (126,125) (200,529) 4,422 – 1,353 – – 38,500 – – (45,500) 6,306 8,716 24,114 (9,823) (13,200) (971) 180,083 782,445 1,214,434

		564,908 471 (1,905) – 22,128 811,865 (200,529) 1,353 38,500 (45,500) 24,114 (971)
		1,214,434

note: The applicable tax rate represents EIT rate of 25% where the operation of the Target Group is substantially based.

– III-27 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

10. PROFIT FOR THE YEAR

Profit for the year has been arrived at after charging (crediting): Directors’ emoluments (Note 11) Other staff costs Salaries and other allowances Retirement benefit scheme contributions Total staff costs Less: Amount capitalised to properties under development for sale Gross rental income from investment properties Less: Direct operating expenses incurred Cost of properties recognised as an expense Depreciation of property, plant and equipment Depreciation of investment properties Auditors’ remuneration Loss on write off of property, plant and equipment	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 – – – 38,658 78,474 115,875 6,743 7,868 9,925 45,401 86,342 125,800 (23,525) (45,970) (75,740) 21,876 40,372 50,060 (1,661) (2,545) (2,999) 130 1,719 1,706 (1,531) (826) (1,293) 882,573 1,741,030 1,849,719 1,846 2,157 2,290 130 1,719 1,706 426 396 445 23 – 6	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 – – – 38,658 78,474 115,875 6,743 7,868 9,925 45,401 86,342 125,800 (23,525) (45,970) (75,740) 21,876 40,372 50,060 (1,661) (2,545) (2,999) 130 1,719 1,706 (1,531) (826) (1,293) 882,573 1,741,030 1,849,719 1,846 2,157 2,290 130 1,719 1,706 426 396 445 23 – 6
		125,800 (75,740)
		50,060
		(2,999) 1,706
		(1,293)
		1,849,719 2,290 1,706 445 6

11. DIRECTORS’, CHIEF EXECUTIVE’S AND EMPLOYEES’ EMOLUMENTS

Directors and chief executive

Each of the entities comprising the Target Group has its own directors and one of the directors, Mr. Hu Jianxin, has proposed to be the director of the Company upon completion of the transactions, which is also the management of the intermediate holding company. The remuneration of Mr. Hu Jianxin was borne by the intermediate holding company during the Track Record Period. In the opinion of the directors of Eureka, there is no reasonable basis to allocate his remuneration to the Target Group.

Employees

The emoluments of the five highest paid individuals of the entities comprising the Target Group for the Track Record Period are as follows:

Salaries and other allowances Bonus (note) Retirement benefit scheme contributions	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 1,336 2,258 2,150 1,051 2,447 2,809 206 249 245 2,593 4,954 5,204	Year ended 31 December 2010 2011 2012 RMB’000 RMB’000 RMB’000 1,336 2,258 2,150 1,051 2,447 2,809 206 249 245 2,593 4,954 5,204
		5,204

note: The bonus is discretionary and is determined by reference to the individuals’ performance.

– III-28 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

The number of these individuals whose emoluments fell within the following bands is as follows:

	Number	of individuals
	Year ended 31 December
	2010	2011	2012
Emoluments
No more than HK$1,000,000
(Not more than approximately RMB823,700)	5	1	–
HK$1,000,001 to HK$1,500,000
(approximately RMB823,700 to RMB1,236,000)	–	4	4
HK$1,500,001 to HK$2,000,000
(approximately RMB1,236,000 to
RMB1,647,000)	–	–	1
	5	5	5

During the Track Record Period, no emoluments were paid by the Target Group to the five highest paid individuals as an inducement to join or upon joining the Target Group or as compensation for loss of office.

12. DIVIDEND

During the year ended 31 December 2012, Merchants Guangzhou declared dividends of RMB35,000,000 and RMB81,667,000 to Eureka and its non-controlling equity holder, respectively, while Foshan Xincheng Properties Co., Ltd declared dividends of RMB348,000,000 to its non-controlling equity holder.

No special dividend was proposed to be distributed after 31 December 2012.

The rate of dividend and the number of shares ranking for dividend are not presented as such information is not meaningful having regard to the purpose of this report.

13. EARNINGS PER SHARE

No earnings per share information is presented, as its inclusion, for the purpose of this report, is not considered meaningful due to the presentation of the Financial Information on the basis as set out in Note 1.

– III-29 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

14. PROPERTY, PLANT AND EQUIPMENT

COST At 1 January 2010 Additions Write off At 31 December 2010 Additions At 31 December 2011 Additions Write off At 31 December 2012 ACCUMULATED DEPRECIATION At 1 January 2010 Charge for the year Eliminated on write off At 31 December 2010 Charge for the year At 31 December 2011 Charge for the year Eliminated on write off At 31 December 2012 CARRYING VALUE At 31 December 2010 At 31 December 2011 At 31 December 2012	Buildings RMB’000 8,719 – – 8,719 – 8,719 – – 8,719 428 427 – 855 427 1,282 427 – 1,709 7,864 7,437 7,010	Motor vehicles RMB’000 4,654 1,698 (228) 6,124 1,403 7,527 329 – 7,856 1,599 888 (205) 2,282 1,178 3,460 1,148 – 4,608 3,842 4,067 3,248	Office equipment RMB’000 2,016 944 – 2,960 1,151 4,111 954 (9) 5,056 1,154 531 – 1,685 552 2,237 715 (3) 2,949 1,275 1,874 2,107	Total RMB’000 15,389 2,642 (228)
				17,803 2,554
				20,357 1,283 (9)
				21,631
				3,181 1,846 (205)
				4,822 2,157
				6,979 2,290 (3)
				9,266
				12,981

				13,378

				12,365

The above items of property, plant and equipment are depreciated using the straight-line basis, after taking into account of their estimated residual values, at the following rates per annum:

Buildings	5%
Motor vehicles	18%
Office equipment	18%

The Target Group’s buildings are erected on land under medium term lease in the PRC.

– III-30 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

15. INVESTMENT PROPERTIES

COST At 1 January 2010 Transfer from properties held for sale At 31 December 2010 Transfer from properties held for sale At 31 December 2011 and 2012 ACCUMULATED DEPRECIATION At 1 January 2010 Provided for the year At 31 December 2010 Provided for the year At 31 December 2011 Provided for the year At 31 December 2012 CARRYING VALUE At 31 December 2010 At 31 December 2011 At 31 December 2012	RMB’000 – 34,547
	34,547 3,367
	37,914
	– 130
	130 1,719
	1,849 1,706
	3,555
	34,417

	36,065

	34,359

The fair value of the Target Group’s investment properties at 31 December 2010, 2011 and 2012 was RMB70,836,000, RMB92,315,000 and RMB175,987,000, respectively. The valuation was determined by the directors of Merchants Guangzhou with reference to recent market prices for similar properties in similar locations and conditions.

The Target Group’s investment properties are erected on land under medium term lease in the PRC.

The above investment properties are depreciated on a straight-line basis over the shorter of the term of the lease and 20 years.

The transfer from properties held for sale to investment properties was made since there was a change in use as evidenced by the commencement of operating leases to independent third parties during the two years ended 31 December 2010 and 2011.

– III-31 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

16. DEFERRED TAXATION

The following is the analysis of the deferred tax balances for financial reporting purposes:

Deferred taxation assets Deferred taxation liabilities	At 31 December 2010 2011 RMB’000 RMB’000 25,024 139,470 (6,306) (15,022) 18,718 124,448	2012 RMB’000 298,240 (34,136)
		264,104

The following are the major deferred tax assets (liabilities) recognised and movements thereon during the Track Record Period:

Temporary differences on LAT provision RMB’000 At 1 January 2010 13,907 Credit (charge) to profit or loss 8,938 At 31 December 2010 22,845 Credit (charge) to profit or loss 103,874 At 31 December 2011 126,719 Credit (charge) to profit or loss 139,289 At 31 December 2012 266,008	Others RMB’000 – – – 4,824 4,824 11,690 16,514	Tax losses Dividend withholding tax RMB’000 RMB’000 – – 2,179 (6,306) 2,179 (6,306) 5,748 (8,716) 7,927 (15,022) 7,791 (19,114) 15,718 (34,136)	Total RMB’000 13,907 4,811
			18,718 105,730
			124,448 139,656
			264,104

At 31 December 2010, 2011 and 2012, the Target Group had unused tax losses of approximately RMB204,921,000, RMB239,180,000 and RMB352,731,000, respectively, available to offset against future profits. Deferred tax assets have been recognised in respect of such losses of RMB8,716,000, RMB31,708,000 and RMB62,872,000 at 31 December 2010, 2011 and 2012, respectively. No deferred tax asset has been recognised in respect of the remaining RMB196,205,000, RMB207,472,000 and RMB289,859,000 as at 31 December 2010, 2011 and 2012, respectively, due to the unpredictability of future profit streams. Included in unrecognised tax losses are losses of RMB196,205,000, RMB207,472,000 and RMB288,970,000 as at 31 December 2010, 2011 and 2012 that will expire in 2015, 2016 and 2017, respectively. Other losses may be carried forward indefinitely.

At 31 December 2010, 2011 and 2012, the Target Group had unrecognised deductible temporary difference of RMB182,000,000, RMB182,000,000 and RMB154,000,000, respectively, attributable to write down on properties for sale. No deferred tax asset has been recognised due to the unpredictability of future profit streams.

– III-32 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

17. PROPERTIES FOR SALE

Completed properties for sale Properties under development for sale	At 31 December 2010 2011 RMB’000 RMB’000 323,619 376,104 9,908,946 11,973,842 10,232,565 12,349,946	2012 RMB’000 3,553,925 11,658,240
		15,212,165

The Target Group’s properties for sale are located in the PRC. They are stated at the lower of cost and net realisable value.

The properties under development for sale are located in the PRC under medium term leases and represent properties under development for subsequent sale in the ordinary course of business upon completion.

Included in the properties under development for sale as at 31 December 2010, 2011 and 2012 is carrying value of RMB7,610,933,000, RMB7,061,568,000 and RMB6,881,828,000, respectively, which represents the carrying value of properties expected to be completed and available for sale after more than twelve months from the end of the reporting period.

Land use rights amounting to RMB554,429,000 which are included in properties under development for sale as at 31 December 2012 were pledged for the bank borrowings as set out in Note 22.

18. TRADE AND OTHER RECEIVABLES

Trade receivables mainly arise from sales of properties. Considerations in respect of properties sold are paid in accordance with the terms of the related sales and purchase agreements, normally within 60 days from the date of agreement. At the end of all reporting periods, there were no outstanding trade receivables.

Other receivables – non-current Loans to non-controlling equity holders of entities of the Target Group (note c) Other receivables – current Prepaid LAT Other non-income prepaid tax Other receivables Amount due from an intermediate holding company (note a) Amounts due from non-controlling equity holders of entities of the Target Group (note b) Amounts due from fellow subsidiaries (note b)	At 31 December 2010 2011 RMB’000 RMB’000 – 1,157,770 111,277 126,331 178,508 236,420 14,249 19,085 1,078,498 1,208,907 – – 1,000 584 1,383,532 1,591,327	2012 RMB’000 1,328,584

		134,044 344,849 33,575 2,976,667 257,009 4,209
		3,750,353

notes:

(a) The amount was unsecured, interest bearing at 0.36%, 0.47% and 0.42% per annum at respective years and repayable on demand. The amount was fully settled subsequent to 31 December 2012.

– III-33 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

(b) The amounts were unsecured, interest-free and repayable on demand.
(c) The amounts were unsecured, interest-free and have no fixed repayment term. The directors of relevant entities of the Target Group have no plan to realise the amounts within one year from the end of the reporting period.

19. RESTRICTED BANK DEPOSITS/BANK BALANCES AND CASH

Restricted bank deposits are deposits designated for capital requirement for real estate development projects in the PRC.

Bank balances and cash comprise cash and short-term bank deposits with an original maturity of three months or less. The bank balances carry variable rates as follows:

							At	31	December
						2010			2011		2012
Interest	rate	per	annum	0%	to	0.36%		0%	to 0.50%	0%	to 0.50%

Analysis of bank balances and cash denominated in currencies other than the functional currency of the entities to which they relate:

Denominated in Hong Kong dollars (“HKD”) Denominated in United States dollars (“US$”) 20. TRADE AND OTHER PAYABLES Trade payables Other payables – current Other non-income tax payables Other payables and accrued charges Dividend payable LAT payable Amounts due to intermediate holding companies (note a) Amounts due to non-controlling equity holders of entities of the Target Group (note b) Amounts due to fellow subsidiaries (note b) Other payables – non-current Amount due to an intermediate holding company (note c) Amount due to a non-controlling equity holders of entities of the Target Group (note c)	At 31 December 2010 2011 RMB’000 RMB’000 14 13 161,457 237,516 At 31 December 2010 2011 RMB’000 RMB’000 862,445 553,472 31,386 47,112 39,045 83,205 – – 88,775 525,415 3,494,129 3,228,247 301,464 202,604 454 4,992 4,817,698 4,645,047 – 584,980 – 584,980 – 1,169,960	2012 RMB’000 20 322,478

		2012 RMB’000 2,437,563 43,928 99,034 113,167 1,095,525 3,308,575 24,383 8,295
		7,130,470

		584,980 584,980
		1,169,960

– III-34 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

notes:

(a) Included in the balances are amounts of RMB3,481,235,000, RMB3,215,813,000 and RMB3,296,075,000 as at 31 December 2010, 2011 and 2012, respectively, which were unsecured, interest bearing at fixed interest rates ranging from 1.80% to 5.31%, 2.10% to 6.56% and 4.84% to 6.15% per annum, respectively, and repayable within one year. The remaining balances were unsecured, interest-free and repayable on demand. Except for an amount of RMB12,500,000, the remaining balance as at 31 December 2012 had been fully repaid subsequent to 31 December 2012.
(b) The amounts were unsecured, interest-free and repayable on demand.
(c) The amounts were unsecured, interest bearing at RMB Benchmark Loan Rates offered by the People’s Bank of China and repayable in 2014. The amount had been fully repaid subsequent to 31 December 2012.

The ranges of effective interest rates are as follows:

	2010			2011			2012
Variable-rate	N/A	6.10%	to	6.65%	6.15%	to	6.65%

Trade payables comprise construction costs and other project-related expenses which are payable based on project progress measured by the Target Group. The average credit period of trade payables is 60 days. The Target Group has financial risk management policies in place to ensure that all payables are within the credit timeframe.

The following is an aged analysis of trade payables, based on the invoice date, at the end of the reporting period:

0 - 60 days 61 - 180 days 181 - 365 days Over 365 days	At 31 December 2010 2011 RMB’000 RMB’000 853,170 270,612 2,800 106,739 2,214 13,916 4,261 162,205 862,445 553,472	2012 RMB’000 1,891,862 219,966 179,966 145,769
		2,437,563

Analysis of trade and other payables denominated in currencies other than the functional currency of the entities to which they relate:

– Denominated in HKD – Denominated in US$ 21. LOANS FROM EQUITY HOLDERS	At 31 December 2010 2011 RMB’000 RMB’000 200 263 12,894 12,434	2012 RMB’000 380 12,500

Loans from Eureka Loans from non-controlling equity holders of entities of the Target Group	At 31 December 2010 2011 RMB’000 RMB’000 1,886,675 2,087,910 1,886,675 2,087,910 3,773,350 4,175,820	2012 RMB’000 2,397,082 2,397,082
		4,794,164

– III-35 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

The amounts were unsecured, interest-free and have no fixed repayment term.

The loans from equity holders are denominated in US$.

22. BANK BORROWINGS

At 31 December 2010 2011 RMB’000 RMB’000 Secured – – Unsecured – – – – Carrying amount repayable:* Within one year – – More than two years but not more than five years – – – –	2012 RMB’000 109,351 101,000
	210,351

	101,000 109,351
	210,351

The amount due are based on scheduled repayment dates set out in the loan agreements.

The Target Group’s bank borrowings amounting to RMB109,351,000 as at 31 December 2012 were secured by the land use rights included in properties under development for sale as set out in Note 17. The loan had been fully repaid subsequent to 31 December 2012.

The Target Group’s bank borrowings amounting to RMB101,000,000 are guaranteed by the equity holders of the borrower and the loan had been fully repaid subsequent to 31 December 2012.

The Target Group’s bank borrowings as at 31 December 2012 were subjected to variable-rate interest at RMB Benchmark Loan Rates offered by the People’s Bank of China. The effective interest rates on the Target Group’s bank borrowings ranged from 5.85% to 7.98% per annum.

The Target Group’s bank borrowings are denominated in RMB.

23. PAID-UP/SHARE CAPITAL

For the purpose of the presentation of the combined statements of financial position, the issued and fully paid-up/share capital as at 31 December 2010, 2011 and 2012 represents the issued and fully paid share capital of Converge and Harpen held by Eureka, and paid-up capital of Merchants Guangzhou, Merchants Nanjing and Foshan Merchants Wharf contributed by Eureka.

24. CAPITAL RISK MANAGEMENT

The management of the Target Group manages its capital to ensure that entities in the Target Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance.

The capital structure of the Target Group consists of amounts due to intermediate holding companies/non-controlling equity holders of entities of the Target Group/fellow subsidiaries as disclosed in Note 20, loans from equity holders as disclosed in Note 21 and bank borrowings as disclosed in Note 22, cash and cash equivalents, and equity attributable to Eureka, comprising paid-up/share capital, reserves and retained profits.

The management of the Target Group reviews the capital structure on a regular basis. As part of this review, the management of the Target Group considers the cost of capital and the risks associated with each class of capital, and takes appropriate actions to balance its overall capital structure.

– III-36 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

25. FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

Financial assets Loans and receivables (including cash and cash equivalents) Financial liabilities Amortised cost	At 31 December 2010 2011 RMB’000 RMB’000 2,287,172 4,062,186 8,470,887 9,418,300	2012 RMB’000 6,746,508

		12,165,492

(b) Financial risk management objectives and policies

The Target Group’s major financial instruments include other receivables, restricted bank deposits, bank balances and cash, loan from equity holders, trade and other payables and bank borrowings. Details of the financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management of the Target Group manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Market risk

(i) Currency risk

Several companies within the Target Group have foreign currency denominated bank balances, loans from equity holders and other payables, which expose the Target Group to foreign currency risk. The management of the Target Group has closely monitored foreign exchange exposure and will undertake procedures necessary to mitigate the currency risk.

The carrying amounts of the Target Group’s foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period mainly consist of US$:

		Liabilities			Assets
	2010	2011	2012	2010	2011	2012
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
US$	3,786,244	4,188,254	4,806,664	161,457	237,516	322,478

Sensitivity analysis

The following table details the Target Group’s sensitivity to a 5% increase and decrease in RMB against US$ which represents the directors of Eureka’s assessment of the reasonably possible change in foreign exchange rate. The sensitivity analysis includes only outstanding US$ denominated monetary items and adjusts their translation at the end of the reporting period for a 5% change in foreign currency rate. A positive number below indicates an increase in post-tax profit where RMB strengthen 5% against US$ and vice versa.

				December
			2010	2011	2012
			RMB’000	RMB’000	RMB’000
Profit	or	loss	135,930	148,153	168,157

– III-37 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

(ii) Interest rate risk management

The Target Group is exposed to cash flow interest rate risk in relation to variable-rate restricted bank deposits, bank balances and variable-rate bank borrowings and variable-rate amounts due to intermediate holding company/non-controlling interests.

The Target Group’s exposures to interest rates on financial liabilities are detailed in the liquidity risk section of this note.

The Target Group’s cash flow interest rate risk is mainly concentrated on the fluctuation of RMB Benchmark Loan Rates offered by the People’s Bank of China for its bank borrowings and other payables.

Sensitivity analysis

No sensitivity analysis has been presented as the directors of Eureka consider that the impact to profit or loss for the respective years is insignificant, taking into account that (i) the fluctuation in interest rates on restricted bank deposits and bank balances is minimal and (ii) the impact to finance costs, net of interest capitalised, is not material based on a reasonably possible change in interest rate of 50 basis point.

Credit risk

The Target Group’s maximum exposure to credit risk which will cause a financial loss to the Target Group due to failure to discharge an obligation by the counterparties is arising from:

the carrying amount of the respective recognised financial assets as stated in the combined statements of financial position at the end of each reporting period; and
the amount of contingent liabilities in relation to financial guarantees issued by the Target Group as disclosed in note 30.

The Target Group has concentration of credit risk in respect of bank balances. At 31 December 2010, 2011 and 2012, approximately 65.43%, 65.33% and 68.56% of the bank balances were deposited at China Merchants Bank. Deposits in other banks are individually less than 10% of total bank deposits and bank balances. The credit risk of these liquid funds is limited because the counterparties are either state-owned banks located in the PRC or banks with high credit ratings.

The Target Group has concentration of credit risk in respect of amount due from an intermediate holding company and amounts due from non-controlling equity holders of entities of the Target Group. In order to minimise the credit risk on these amounts, the management of the Target Group continuously monitors the credit quality and financial conditions of the intermediate holding company and non-controlling equity holders of entities of the Target Group and the level of exposure to ensure that follow-up action is taken to recover overdue debts. Under such circumstances, the directors of Eureka consider that the Target Group’s credit risk is insignificant.

The Target Group provides guarantees to banks in connection with certain customers’ borrowing of mortgage loans to finance their purchase of the Target Group’s properties. If a purchaser defaults on the payment of its mortgage during the period of guarantee, the bank holding the mortgage may demand the Target Group to repay the outstanding loan and any interest accrued thereon. Under such circumstances, the Target Group is able to repossess the properties for resale. Therefore, the management of the Target Group consider it would likely recover any loss incurred arising from the guarantee provided by the Target Group. No such repossession of properties occurred during the Track Record Period.

– III-38 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Liquidity risk

The Target Group’s objective is to maintain a balance between continuity of funding generated from operating activities and the flexibility through the use of borrowings. The management of the Target Group closely monitor the liquidity position and expect to have adequate sources of funding to finance the Target Group’s projects and operations.

Liquidity and interest rate tables

Weight average effective interest rate As at 31 December 2010 Trade and other payables – interest free – – fixed-rate 3.56% Loans from equity holders – Financial guarantee contracts As at 31 December 2011 Trade and other payables – interest free – – fixed-rate 4.33% Loans from equity holders – Other payables – variable-rate 6.24% As at 31 December 2012 Trade and other payables – interest free – – fixed-rate 5.5% Loans from equity holders – Other payables – variable-rate 6.4% Bank borrowings – variable-rate 6.78% Financial guarantee contracts	On demand or within 60 days RMB’000 1,216,302 20,344 3,773,350 5,009,996 89,915 856,707 22,890 4,175,820 11,334 5,066,751 2,694,942 29,773 4,794,164 11,425 2,344 7,532,648 29,466	61 to 180 days RMB’000 – 40,688 – 40,688 – – 45,779 – 22,669 68,448 – 59,546 – 22,850 4,689 87,085 –	181 to 365 days RMB’000 – 3,543,962 – 3,543,962 – – 3,286,389 – 34,947 3,321,336 – 3,387,875 – 35,227 108,529 3,531,631 –	1 -2 years RMB’000 – – – – – – – – 68,950 68,950 – – – 1,173,769 7,396 1,181,165 –	2 - 3 years Total undiscounted cash flows RMB’000 RMB’000 – 1,216,302 – 3,604,994 – 3,773,350 – 8,594,646 – 89,915 – 856,707 – 3,355,058 – 4,175,820 1,173,739 1,311,639 1,173,739 9,699,224 – 2,694,942 – 3,477,194 – 4,794,164 – 1,243,271 115,769 238,727 115,769 12,448,298 – 29,466	Carrying amount RMB’000 1,216,302 3,481,235 3,773,350
						8,470,887

						–

						856,707 3,215,813 4,175,820 1,169,960
						9,418,300

						2,694,942 3,296,075 4,794,164 1,169,960 210,351
						12,165,492

						–

– III-39 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

(c) Fair value

The fair values of financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flows analysis.

The directors of Eureka consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the statements of financial position approximate their respective fair values at the end of each reporting period.

26. OPERATING LEASES

The Target Group as a lessor

At the end of the reporting period, the Target Group had contracted with tenants for the following future minimum lease payments as follows:

Within one year In the second to fifth year inclusive After five years	At 31 December 2010 2011 RMB’000 RMB’000 2,545 2,999 – – – – 2,545 2,999	2012 RMB’000 863 3,085 1,335
		5,283

The Target Group as a lessee

The Target Group’s minimum lease payments paid during the years ended 31 December 2010, 2011 and 2012 under operating lease in respect of rented premises amounted to RMB324,000, RMB556,000 and RMB1,543,000, respectively.

At the end of the reporting period, the Target Group had future minimum lease payments under non-cancellable operating leases in respect of leased properties as follows:

Within one year In the second to fifth year inclusive After five years	At 31 December 2010 2011 RMB’000 RMB’000 556 1,543 788 4,835 – 19,080 1,344 25,458	2012 RMB’000 1,268 4,951 17,696
		23,915

Operating lease payments represent rentals payable by the Target Group for certain of its office premises. Leases are negotiated for an average term of one to fifteen years and rentals are fixed at the date of signing of lease agreements.

– III-40 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

27. RETIREMENT BENEFIT PLANS

The employees of the Target Group in the PRC are members of the state-managed retirement benefit schemes operated by the PRC government. The Target Group’s PRC companies are required to contribute certain percentage of their payroll to the retirement benefit scheme to fund the benefits. The only obligation of the Target Group with respect to the retirement benefit schemes is to make the required contributions under the schemes.

28. PLEDGE OF ASSETS

At the end of each reporting period, the Target Group had pledged the following assets to secure the banking facilities granted to the Target Group.

			At 31 December	At 31 December
		2010	2011	2012
		RMB’000	RMB’000	RMB’000
	Properties under development for sale (Note 17)	–	–	554,429

29.	COMMITMENTS
	At the end of the reporting period, the Target Group	had the following commitments:
			At 31 December
		2010	2011	2012
		RMB’000	RMB’000	RMB’000
	Commitments contracted for but not
	provided in the Financial Information in
	respect of:
	– Construction of properties under
	development for sale	3,971,585	5,848,592	3,531,236

30.	CONTINGENT LIABILITIES

At the end of the reporting period, contingent liabilities of the Target Group were as follows:

		At 31 December
	2010	2011	2012
	RMB’000	RMB’000	RMB’000
Guarantees given to banks
in connection with facilities granted to
third parties	89,915	–	29,466

The Target Group acted as guarantor to the mortgage loans granted to certain purchasers of the Target Group’s properties and agreed to repay the outstanding loan and interest accrual thereon, if the purchasers default the repayment of loan before the issue of the property certificate. The directors of Eureka consider that the fair value of the financial guarantee contracts is not significant as the default rate is low.

– III-41 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

31. RELATED PARTY TRANSACTIONS AND BALANCES

(a) Related party transactions:

During the Track Record Period, the Target Group had the following transactions with related parties:

	Nature of	Year	ended 31 December
Name of related party	transaction	2010	2011	2012
		RMB’000	RMB’000	RMB’000
Intermediate holding company	Interest income	559	2,217	7,022
Intermediate holding company	Interest expense	65,992	58,693	188,033
Non-controlling equity holders of	Interest expense
entities of the Target Group		–	2,748	38,540
A fellow subsidiary	Property
	management fee
	paid	35,249	48,493	65,269

(b) Related party balances

Details of the Target Group’s transactions and balances with related parties are disclosed in Notes 18, 20, 21 and 22.

(c) Compensation of key management personnel

The emoluments of directors and the key management of the Target Group are borne by an intermediate holding company.

(d) Transactions with other government-related entities in the PRC

The Target Group itself is part of a larger group of companies under China Merchants Group Limited (“CMG”) which is controlled by the PRC government. Thus, the directors of Eureka consider that the Target Group is ultimately controlled by the PRC government. In addition, the Target Group operates in an economic environment currently predenominated by entities controlled, jointly controlled or significantly influenced by the PRC government (“PRC government-related entities”). Apart from the transactions with the intermediate holding companies and fellow subsidiary set out in (a) and (b) above, the Target Group also conducts businesses with other PRC government-related entities in the ordinary course of business. The Target Group’s bank deposits and bank borrowings are entered into with certain banks which are PRC-government related entities in its ordinary course of business. In addition, the Target Group entered into various transactions, including purchases of land use rights, construction of properties and other operating expenses with other PRC government-related entities in the ordinary course of business. In view of the nature of those banking transactions, the directors of Eureka are of the opinion that separate disclosures would not be meaningful.

B. SUBSEQUENT EVENTS

The following events took place subsequent to 31 December 2012:

The Restructuring was completed on 9 June 2013.
On 10 April 2013, the registered capital of Merchants Guangzhou was increased from RMB50,000,000 to RMB200,000,000. The increase was fully paid.
On 21 May 2013, the registered capital of Foshan Merchants Wharf was increased from US$99,900,000 to US$149,890,000.

– III-42 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

The Target Group’s bank borrowings and certain receivables from and payables to intermediate holding companies and non-controlling equity holders of entities of the Target Group have been settled subsequent to the reporting period. Details are set out in notes 18, 20 and 22.

C. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by any of entities comprising the Target Group in respect of any period subsequent to 31 December 2012.

Yours faithfully,

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

– III-43 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

AUDITOR’S REPORT AND AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE NINE MONTHS PERIOD FROM 1 APRIL 2012 TO 31 DECEMBER 2012

Set out below is the auditor’s report extracted from the annual report of the Company for the nine months period from 1 April 2012 to 31 December 2012.

==> picture [71 x 54] intentionally omitted <==

TO THE SHAREHOLDERS OF TONIC INDUSTRIES HOLDINGS LIMITED

(incorporated in the Cayman Islands with limited liability)

We have audited the consolidated financial statements of Tonic Industries Holdings Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 48 to 111, which comprise the consolidated statement of financial position as at 31 December 2012, and the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the period from 1 April 2012 to 31 December 2012, and a summary of significant accounting policies and other explanatory information.

DIRECTORS’ RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS

The directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with the Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

– IV-1 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Group as at 31 December 2012, and of its loss and cash flows for the period from 1 April 2012 to 31 December 2012 in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

OTHER MATTER

The consolidated financial statements of the Company for the year ended 31 March 2012 were audited by another auditor who expressed an unmodified opinion on those statements on 29 June 2012.

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong 8 March 2013

– IV-2 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED INCOME STATEMENT

For the period from 1 April 2012 to 31 December 2012

Notes Turnover 6 Cost of sales Gross profit (loss) Other income 7 Selling expenses and distribution costs Administrative expenses Loss on disposal of property, plant and equipment (Loss) gain on loss of control of subsidiaries 8 Impairment loss recognised in respect of property, plant and equipment Finance costs 9 Loss for the period/year attributable to equity holders of the Company 11 Loss per share Basic (HK cents) 14	From 1 April 2012 to 31 December 2012 HK$’000 91,453 (90,074) 1,379 177 (21) (8,036) (86) (5,062) – (147) (11,796) (1.1)	From 1 April 2011 to 31 March 2012 HK$’000 178,214 (181,272) (3,058) 3,502 (766) (31,025) (6) 8,911 (26,870) (13,308) (62,620) (5.9)

– IV-3 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period from 1 April 2012 to 31 December 2012

Loss for the period/year Other comprehensive income (expense) Exchange differences arising on translation of foreign operations Reclassified to profit or loss upon loss of control of subsidiaries Surplus on property revaluation Deferred tax on property revaluation Total comprehensive expense for the period/year attributable to equity holders of the Company	From 1 April 2012 to 31 December 2012 HK$’000 (11,796) (76) 7,765 – – (4,107)	From 1 April 2011 to 31 March 2012 HK$’000 (62,620) 2,821 – 7,514 (1,879) (54,164)

– IV-4 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2012

Notes Non-current assets Property, plant and equipment 15 Prepaid lease payments 16 Current assets Inventories 18 Accounts receivables 19 Prepayments, deposits and other receivables 20 Cash and bank balances 21 Current liabilities Accounts payables 22 Accruals and other payables 23 Borrowings 24 Amount due to a director 25 Amount due to an intermediate holding company 25 Net current assets (liabilities) Total assets less current liabilities Non-current liabilities Borrowings 24 Deferred tax liabilities 26 NET ASSETS Capital and reserves Share capital 27 Reserves TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY	At 31 December 2012 HK$’000 33 – 33 – 48,322 238 3,927 52,487 42,269 1,391 8,000 – 616 52,276 211 244 – – – 244 10,685 (10,441) 244	At 31 March 2012 HK$’000 186,038 17,892 203,930 5,499 9,215 2,313 33,683 50,710 570 25,825 185,570 2,000 – 213,965 (163,255) 40,675 18,000 18,324 36,324 4,351 10,685 (6,334) 4,351

– IV-5 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period from 1 April 2012 to 31 December 2012

Attributable to equity holders of the Company

At 1 April 2011 Loss for the year Exchange differences arising on translation of foreign operations Surplus on property revaluation Deferred tax on property revaluation Total comprehensive income (expense) for the year At 31 March 2012 and 1 April 2012 Transfer arising from loss of control of subsidiaries Loss for the period Exchange differences arising on translation of foreign operations Reclassified to profit or loss upon loss of control of subsidiaries Total comprehensive (expense) income for the period At 31 December 2012	Share capital HK$’000 10,685 – – – – – 10,685 – – – – – 10,685	Share premium (Note) HK$’000 75,022 – – – – – 75,022 – – – – – 75,022	Property revaluation reserve HK$’000 43,423 – – 7,514 (1,879) 5,635 49,058 (49,058) – – – (49,058) –	Foreign currency translation reserve Accumulated losses HK$’000 HK$’000 (10,476) (60,139) – (62,620) 2,821 – – – – – 2,821 (62,620) (7,655) (122,759) – 49,058 – (11,796) (76) – 7,765 – 7,689 37,262 34 (85,497)	Total HK$’000 58,515 (62,620) 2,821 7,514 (1,879)
					(54,164)
					4,351
					– (11,796) (76) 7,765
					(4,107)
					244

Note: Under the Companies Law of the Cayman Islands, the share premium account of the Company is available for distribution to shareholders, subject to the provisions of the Company’s memorandum of association or articles of association and provided that immediate following the distribution of dividends, the Company is able to pay its debts as and when they fall due in the ordinary course of business.

– IV-6 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED STATEMENT OF CASH FLOWS

For the period from 1 April 2012 to 31 December 2012

Note Operating activities Loss before tax: Adjustments for: Finance costs Bank interest income Loss on disposal of property, plant and equipment Depreciation on property, plant and equipment Amortisation of prepaid lease payments Impairment loss recognised in respect of property, plant and equipment Loss (gain) on loss of control of subsidiaries Operating loss before working capital changes Decrease in inventories (Increase) decrease in accounts receivables Increase in prepayments, deposits and other receivables Increase (decrease) in accounts payables (Decrease) increase in accruals and other payables Cash used in operating activities Interest received Net cash used in operating activities Investing activities Net cash outflow on loss of control of subsidiaries 8 Purchase of property, plant and equipment Net cash used in investing activities	From 1 April 2012 to 31 December 2012 HK$’000 (11,796) 147 (1) 86 612 16 – 5,062 (5,874) 1,476 (52,277) (16,122) 46,485 (4,461) (30,773) 1 (30,772) (7,388) (13) (7,401)	From 1 April 2011 to 31 March 2012 HK$’000 (62,620) 13,308 (21) 6 11,741 306 26,870 (8,911) (19,321) 1,946 271 (203) (1,528) 1,242 (17,593) 21 (17,572) (16) (285) (301)

– IV-7 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Note Financing activities Loans from a shareholder and immediate holding company Advances from an intermediate holding company New borrowings Advances from directors Interest paid Net cash generated from financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of period/year Effect of changes in foreign exchange rate Cash and cash equivalents at end of period/year, representing cash and bank balances	From 1 April 2012 to 31 December 2012 HK$’000 8,000 616 – – (133) 8,483 (29,690) 33,683 (66) 3,927	From 1 April 2011 to 31 March 2012 HK$’000 – – 54,000 1,000 (11,930) 43,070 25,197 8,927 (441) 33,683

– IV-8 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

NOTES TO THE FINANCIAL STATEMENTS

1. GENERAL INFORMATION

The Company is incorporated in the Cayman Islands as a limited liability company and its shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The address of the registered office and principal place of business of the Company is Room 3111, 31/F, China Merchants Tower, Shun Tak Centre, Nos. 168-200 Connaught Road Central, Hong Kong.

On 24 April 2012, a sales and purchase agreement was entered into between Success Well Investments Limited (“Success Well”) and Skill China Limited (“Skill China”) in connection with the acquisition of approximately 66.18% of the aggregate issued share capital of the Company (the “Acquisition”). The Acquisition was completed on 7 May 2012 (“Completion”). Immediately after Completion, the Company’s immediate holding company became Success Well, which is a limited liability company incorporated in the British Virgin Islands (the “BVI”) and is indirectly wholly-owned by Eureka Investment Company Limited (“Eureka”), an intermediate holding company of the Company. The ultimate holding company of the Company became China Merchants Group Limited (“CMG”). CMG is a People’s Republic of China (“PRC”) enterprise regulated and directly managed by the State-owned Assets Supervision and Administration Commission of the State Council, PRC and CMG is owned and controlled by the PRC government.

Prior to the Acquisition, Skill China, a limited liability company incorporated in the BVI, was the immediate and ultimate holding company of the Company.

As set out in the Company’s announcement dated 8 October 2012, the board of directors of the Company announced that the financial year end date of the Company and the Group has been changed from 31 March to 31 December to conform with the financial year end date of China Merchants Property Development Company Ltd, an intermediate holding company of the Company which is incorporated in the PRC with shares listed on the Shenzhen Stock Exchange, holding the entire equity interests in Eureka.

The principal activity of the Company is investment holding and the principal activities of its subsidiaries are set out in note 17.

The consolidated financial statements are presented in Hong Kong dollars (“HK$”), which is also the functional currency of the Company.

2. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS

As set out in note 1, on 8 October 2012, the board of directors of the Company decided to change the financial year end date of the Company and the Group from 31 March to 31 December. Accordingly, the consolidated financial statements for the current period cover a nine-month period from 1 April 2012 to 31 December 2012. The corresponding comparative amounts shown for the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated statement of cash flows and related notes cover a twelve-month period from 1 April 2011 to 31 March 2012 and therefore may not be comparable with amounts shown for the current period.

The consolidated financial statements have been prepared on a going concern basis because Eureka, an intermediate holding company of the Company, has agreed to provide adequate funds to enable the Group to meet in full its financial obligations as and when they fall due for a period of at least twelve months from the date of issuance of these consolidated financial statements.

– IV-9 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

3. ADOPTION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

In the current period, the Group has applied the following new and revised HKFRSs issued by Hong Kong Institute of Certified Public Accountants (“HKICPA”).

Amendments	to	HKAS 12	Deferred Tax: Recovery of Underlying Asset
Amendments	to	HKFRS 7	Financial Instruments: Disclosure – Transfer of Financial
			Assets; and
Amendments	to	HKAS 1	As part of the Annual Improvement to HKFRSs 2009–2011
			Cycle issued in 2012

Amendments to HKAS 1 Presentation of Financial Statements (as part of the Annual Improvement to HKFRSs 2009–2011 Cycle issued in June 2012)

In current period, the Group has applied for the first time the amendments to HKAS 1 in advance of effective date (annual periods beginning on or after 1 January 2013). HKAS 1 requires an entity that changes an accounting policy retrospectively, or makes a retrospective restatement or reclassification to present a statement of financial position as at the beginning of the preceding period (third statement of financial position). The amendments to HKAS 1 clarify that an entity is required to present a third statement of financial position only when the retrospective application, restatement or reclassification has a material effect on the information in the third statement of financial position and that related notes are not required to accompany the third statement of financial position.

In current period, the leasehold interest in land under an operating lease, which was previously classified as property, plant and equipment in previous consolidated financial statements of the Group have been reclassified to prepaid lease payments in the comparative figures of the consolidated statement of financial position as at 31 March 2012. The directors of the Company consider that the reclassification from property, plant and equipment to prepaid lease payments has no material effect on the information presented in the consolidated statement of financial position at 1 April 2011 and accordingly such third consolidated statement of financial position has not been presented in these consolidate financial statements.

Other than described above, the application of new and revised HKFRSs in the current period has had no material effect on the amounts reported in the consolidated financial statements for the current period and prior years and/or disclosures set out in the consolidated financial statements.

HKFRSs issued but not yet effective

The Group has not early applied the following HKFRSs that have been issued but are not yet effective:

Amendments to HKFRSs	Annual Improvements to HKFRSs 2009–2011 Cycle, except for
	the amendments to HKAS 11
Amendments to HKFRS 7	Disclosures – Offsetting Financial Assets and Financial
	Liabilities1
Amendments to HKFRS 9 and	Mandatory Effective Date of HKFRS 9 and Transition
HKFRS 7	Disclosures3
Amendments to HKFRS 10,	Consolidated Financial Statements, Joint Arrangements and
HKFRS 11 and HKFRS 12	Disclosure of Interests in Other Entities: Transition
	Guidance1
Amendment to HKFRS 10,	Investment Entities2
HKFRS 12 and HKAS 27
HKFRS 9	Financial Instruments3
HKFRS 10	Consolidated Financial Statements1
HKFRS 11	Joint Arrangements1
HKFRS 12	Disclosure of Interests in Other Entities1
HKFRS 13	Fair Value Measurement1
HKAS 19 (as revised in 2011)	Employee Benefits1
HKAS 27 (as revised in 2011)	Separate Financial Statements1
HKAS 28 (as revised in 2011)	Investments in Associates and Joint Ventures1
Amendments to HKAS 1	Presentation of Items of Other Comprehensive Income4
Amendments to HKAS 32	Offsetting Financial Assets and Financial Liabilities2
HK(IFRIC) – Int 20	Stripping Costs in the Production Phase of a Surface Mine1

1 Effective for annual periods beginning on or after 1 January 2013.

– IV-10 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

2 Effective for annual periods beginning on or after 1 January 2014.
3 Effective for annual periods beginning on or after 1 January 2015.
4 Effective for annual periods beginning on or after 1 July 2012.

The directors of the Company anticipate that the application of HKFRSs will have no material impact on the results and the financial positions of the Group.

4. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards issued by HKICPA. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange and by the Hong Kong Companies Ordinance.

The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of buildings, which are carried at their fair values.

The principal accounting policies are set out below.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries. Subsidiaries are entities over which the Group has control. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group has control.

Income and expenses of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from the effective date of acquisition and up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by other members of the Group.

Intragroup transactions, balances and unrealised profits are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (“foreign currencies”) are recorded in the respective functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognised in profit or loss in the period in which they arise.

– IV-11 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Group (i.e. Hong Kong dollars) using exchange rates prevailing at the end of the reporting period. Income and expenses items are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity under the heading of foreign currency translation reserve and will be reclassified from equity to profit or loss on disposal of the foreign operation.

Property, plant and equipment

Buildings are carried at fair value less subsequent depreciation and impairment losses. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. All other property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are recognised in profit or loss during the period in which they are incurred.

Revaluation increases of buildings are recognised in profit or loss to the extent that it reverse a revaluation decreases for the same asset previously recognised in profit or loss, in which case the increase is credited to profit or loss to the extent of the decrease previously charged. All other revaluation increases are credited to the property revaluation reserve as other comprehensive income. Revaluation decreases that offset previous revaluation increases of the same asset remaining in the property revaluation reserve are charged against the property revaluation reserve as other comprehensive income. All other decreases are recognised in profit or loss. On the subsequent sale or retirement of a revalued building, the attributable revaluation increases remaining in the property revaluation reserve is transferred directly to accumulated losses.

Depreciation is recognised to write off the cost of items of property, plant and equipment, other than buildings, less their residual values, over their estimated useful lives, using the reducing balance basis.

Depreciation is charged so as to write off the cost of buildings, over the shorter of their estimated useful lives and lease term, using the straight-line method. Depreciation on revalued building is charged to profit or loss.

The estimated useful life, residual values and depreciation methods are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

The gain or loss on disposal of property, plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in profit or loss.

Leases

The Group as lessee

Operating leases

Leases that do not substantially transfer to the Group all the risks and rewards of ownership of assets are accounted for as operating leases. Lease payments (net of any incentives received from the lessor) are recognised as an expense on a straight-line basis over the lease term.

The Group as lessor

Operating leases

Leases that do not substantially transfer to the lessees all the risks and rewards of ownership of assets are accounted for as operating leases. Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the relevant lease.

Leasehold land and building

When a lease includes both land and building elements, the Group assesses the classification of each element as a finance or an operating lease separately based on the assessment as to whether substantially

– IV-12 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

all risks and rewards incidental to ownership of each element have been transferred to the Group, unless it is clear that both elements are operating lease, in which case the entire lease is classified as an operating lease. Specifically, the minimum lease payments (including any lump-sum upfront payments) are allocated between the land and the building elements in proportion to the relative fair values of the leasehold interests in the land element and building element of the lease at the inception of the lease.

To the extent the allocation of the lease payments can be made reliably, interest in leasehold land is accounted for as an operating lease is presented as “prepaid lease payments” in the consolidated statement of financial position and is amortised over the lease terms on a straight line basis. When the lease payments cannot be allocated reliably between land and the building elements, the entire lease is generally classified as finance lease and accounted for as property, plant and equipment.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average cost basis. The cost of finished goods and work in progress comprises raw materials, direct labour and an appropriate proportion of all production overhead expenditure, and where appropriate, subcontracting charges. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

Financial instruments

Financial assets and financial liabilities are recognised in the consolidated statement of financial position when a group entity becomes a party to the contractual provisions of the instrument.

Financial assets

The Group’s financial assets are loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period to the net carrying amount on initial recognition.

Interest income is recognised on an effective interest basis for debt instruments.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including accounts and other receivables, cash and bank balances) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment loss of financial assets below).

– IV-13 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Impairment of financial assets

Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, the estimated future cash flows of the loans and receivables have been affected.

Objective evidence of impairment could include:

significant financial difficulty of the issuer or counterparty;
breach of contract, such as default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For certain categories of financial assets, such as accounts and other receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 30 to 90 days, observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the financial asset’s original effective interest rate.

The carrying amount of the financial assets is reduced by the impairment loss directly for all financial assets with the exception of accounts and other receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When an accounts and other receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Financial liabilities and equity instruments

Debt and equity instruments issued by the group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Interest expense is recognised on an effective interest basis.

Financial liabilities

The Group’s financial liabilities including accounts and other payables, borrowings and amount due to a director/an intermediate holding company, are subsequently measured at amortised cost, using the effective interest method.

– IV-14 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Derecognition

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

The Group recognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amount receivable for good sold in the normal course of business, net of discounts and sales related taxes.

Revenue from sales of goods is recognised when the goods are delivered and titles have passed, at which time all the following conditions are satisfied:

the Group has transferred to the buyer the significant risk and rewards of the ownerships of the goods;
the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with the transaction will flow to the Group; and
the costs incurred or to be incurred in respect of the transaction can be measured reliably

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

Rental income is recognised on a straight-line basis over the lease term.

Retirement benefit costs

Payments to defined contribution retirement benefit plans, including state-managed retirement benefit schemes/the Mandatory Provident Fund Scheme (“MPF Scheme”) are recognised as an expense when employees have rendered service entitling them to the contributions.

– IV-15 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Borrowing costs

All other borrowing costs are recognised in the profit or loss in the period in which they are incurred.

Taxation

Income tax expense represents the sum of the current tax and deferred tax.

The tax currently payable is based on taxable profit for the period. Taxable profit differs from ‘profit before tax’ as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences, unused tax losses or unused tax credits can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax rates that have been enacted or substantively enacted by the end of the reporting period. Current and deferred tax is recognised in profit or loss, except when it relates to items recognised in other comprehensive income or directly in equity, in which case the current and deferred tax is also recognised in other comprehensive income or directly in equity respectively.

Impairment of tangible assets

At the end of the reporting period, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount under another standard, in which case the reversal of the impairment loss is treated as a revaluation increase under that standard.

– IV-16 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

5. SEGMENT INFORMATION

The Group has adopted HKFRS 8 Operating Segments, which requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to segments and to assess their performance. The chief operating decision maker is the Company’s directors.

For the management purpose, the Group is currently organised into the following two operating and reportable segments: (i) the sales of electronic and electrical products and related components; and (ii) the sales of building related materials and equipment for property development, a new operating segment which commenced business since October 2012.

The information of the Group’s operating and reportable segment is analysed as follow:

Segment revenue and results

Segment revenue from external customers – sales of electronic and electrical products and related components – sales of building related materials and equipment for property development Total segment revenue Segment profit (losses) – sales of electronic and electrical products and related components – sales of building related materials and equipment for property development Total segment losses Other unallocated and corporate expenses Finance costs (Loss) gain on loss of control of subsidiaries Interest income Loss for the period/year Amount included in the measure of segment profit (losses): Impairment loss recognised in respect of property, plant and equipment	From 1 April 2012 to 31 December 2012 HK$’000 80,102 11,351 91,453 (1,915) 330 (1,585) (5,003) (147) (5,062) 1 (11,796) –	From 1 April 2011 to 31 March 2012 HK$’000 178,214 –
		178,214

		(42,795) –
		(42,795)
		(15,449) (13,308) 8,911 21
		(62,620)

		26,870

The accounting policies of the operating segments are the same as the Group’s accounting policies described in note 4. Segment profit (losses) represents the profit (losses) from operating and reportable segment without allocation of unallocated corporate expenses, finance costs and loss/gain on loss of control of subsidiaries and interest income. This is the measure reported to the chief operating decision maker for the purpose of resources allocation and performance assessment.

– IV-17 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Geographical information

Revenue Mainland China Dubai The Philippines Macau	From 1 April 2012 to 31 December 2012 HK$’000 17,234 47,715 1,362 25,142 91,453	From 1 April 2011 to 31 March 2012 HK$’000 69,275 84,948 23,991 –
		178,214

In presenting the geographical information, revenue is based on the locations that the goods are delivered to.

Analysis of segment assets and liabilities has not been presented as it is not regularly reviewed by the chief operating decision maker.

The Group’s non-current assets by geographical location of the assets is detailed as below:

Mainland China Hong Kong	At 31 December 2012 HK$’000 15 18 33	At 31 March 2012 HK$’000 203,930 –
		203,930

Information about major customers

Information about revenue from three (from 1 April 2011 to 31 March 2012: four) customers of the Group contributing over 10% of total revenue of the Group is as follows:

	From 1 April	From 1 April
	2012 to	2011 to
	31 December	31 March
	2012	2012
	HK$’000	HK$’000
Sales of electronic and electrical products and
related components:
Customer A	33,466	84,948
Customer B	*	42,535
Customer C	*	21,397
Customer D	*	20,741
Customer E	25,142	*
Customer F	14,250	*

In addition, the Group generated revenue from fellow subsidiaries relating to sales under both operating segments amounting to HK$12,659,000 from 1 April 2012 to 31 December 2012 (from 1 April 2011 to 31 March 2012: Nil).

The customers did not contribute sales of the Group for the period/year.

– IV-18 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

6. TURNOVER

The Group’s turnover which represents sales of goods to customers is as follows:

Sales of electronic and electrical products and related components Sales of set-top boxes Sales of building related materials and equipment for property development Service fee from processing of electronic consumer products and related components	From 1 April 2012 to 31 December 2012 HK$’000 79,350 752 11,351 – 91,453	From 1 April 2011 to 31 March 2012 HK$’000 108,939 65,355 – 3,920
		178,214

7. OTHER INCOME

Bank interest income Rental income Sundry income	From 1 April 2012 to 31 December 2012 HK$’000 1 93 83 177	From 1 April 2011 to 31 March 2012 HK$’000 21 2,630 851
		3,502

8. (LOSS) GAIN ON LOSS OF CONTROL OF SUBSIDIARIES

(a) On 19 April 2012, the board of directors resolved to voluntarily wind up an indirect wholly-owned subsidiary of the Company, Total Ally Holdings Limited (“Total Ally”). Mr. Lai Kar Yan, Derek, Mr. Yeung Lui Ming, Edmund and Mr. Ho Kwok Leung, Glen have been appointed as liquidators for the winding up of Total Ally jointly and severally.

Total Ally and its subsidiaries (“Total Ally Group”) are involved in PRC operations which operated a factory in the PRC manufacturing TV set-top boxes of the Group.

Upon the appointment of liquidators, the directors of the Company considered that the Group had no power to govern the financial and operating decision of Total Ally Group. The results, assets and liabilities and cash flows of Total Ally Group were deconsolidated from the consolidated financial statements of the Group from 19 April 2012.

– IV-19 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

The net liabilities of Total Ally Group at the date of loss of control were as follows:

Net liabilities: Property, plant and equipment Prepaid lease payments Inventories Accounts receivables Prepayments, deposit and other receivables Cash and bank balances Accounts payables Accruals and other payables Borrowings Amount due to a director Deferred tax liabilities Net liabilities Exchange reserve released Loss on loss of control of subsidiaries Net cash outflow arising on loss of control of subsidiaries Cash and bank balances	HK$’000 185,310 17,876 4,023 9,341 1,026 7,388 (4,786) (19,987) (182,570) (2,000) (18,324)
	(2,703) 7,765
	5,062

	(7,388)

(b) On 20 February 2012, the board of directors resolved to voluntarily wind up an indirect wholly-owned subsidiary of the Company, Tonic DVB Marketing Limited (“TDML”). TDML became dormant since 2010. Mr. Mark Chapman, Mr. Yeung Lui Ming, Edmund and Mr. Darach E. Haughey have been appointed as the liquidators of TDML with the power to act jointly and severally. The directors of the Company considered that the control over TDML has been lost since then. The results, assets and liabilities and cash flows of TDML were deconsolidated from the consolidated financial statements of the Group with effect from 20 February 2012.

The net liabilities of TDML at the date of loss of control were as follows:

Net liabilities: Prepayments, deposits and other receivables Cash and bank balances Accounts payables Accruals and other payables Amounts due to the Group Current tax liabilities Net liabilities Impairment of amounts due from the deconsolidated subsidiary Gain on loss of control of subsidiary Net cash outflow arising on loss of control of subsidiary Cash and bank balances	HK$’000 11 16 (170) (8,510) (24,364) (258)
	(33,275) 24,364
	(8,911)

	(16)

– IV-20 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

9. FINANCE COSTS

Interest on borrowings wholly repayable within five years: Bank and other borrowings Loans from ultimate holding company Loans from immediate holding company Loans from shareholders of the Company	From 1 April 2012 to 31 December 2012 HK$’000 59 – 14 74 147	From 1 April 2011 to 31 March 2012 HK$’000 11,494 800 – 1,014
		13,308

10. INCOME TAX

No provision for Hong Kong Profits Tax and PRC Enterprise Income Tax has been made for the period/year as the Group has no assessable profit for the period/year.

Under the law of People’s Republic of China on Enterprise Income Tax (“the EIT Law”) and Implementation Regulation of the EIT Law, the tax rate of the PRC subsidiaries is 25% from 1 January 2008 onwards.

The tax charge for the period/year can be reconciled to the loss for the period/year per the consolidated income statement as follows:

Loss for the period/year Tax at the Hong Kong Profits Tax rate of 16.5% (from 1 April 2011 to 31 March 2012: 16.5%) Effect of different tax rates of subsidiaries operating in other jurisdictions Tax effect of income not taxable for tax purpose Tax effect of expenses not deductible for tax purpose Utilisation of tax losses previously not recognised Tax effect of tax losses not recognised Taxation	From 1 April 2012 to 31 December 2012 HK$’000 (11,796) (1,946) (235) (232) 1,783 (163) 793 –	From 1 April 2011 to 31 March 2012 HK$’000 (62,620)

		(10,332) (4,590) (5,496) 18,631 – 1,787
		–

Details of deferred tax are set out in note 26.

– IV-21 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

11. LOSS FOR THE PERIOD/YEAR

The loss for the period/year is stated after charging:

Amortisation of prepaid lease payments Auditor’s remuneration Cost of inventories recognised in profit or loss Depreciation on property, plant and equipment Minimum lease payments under operating leases on land and buildings Net exchange loss Employee benefits expense (including directors’ remuneration): Wages, salaries and allowances Pension scheme contributions	From 1 April 2012 to 31 December 2012 From 1 April 2011 to 31 March 2012 HK$’000 HK$’000 16 306 550 552 90,074 181,272 612 11,741 224 1,026 2 556 3,059 17,891 88 433 3,147 18,324

12. DIVIDEND

No dividend was paid or proposed to be paid during the period from 1 April 2012 to 31 December 2012 (from 1 April 2011 to 31 March 2012: Nil) and no dividend has been proposed to be paid since the end of the reporting period.

13. DIRECTORS’ AND FIVE HIGHEST PAID INDIVIDUALS’ EMOLUMENTS

From 1 April 2012 to 31 December 2012

Name of Directors Executive directors: Mr. Huang Peikun (i)* Dr. So Shu Fai Mr. Liu Zhuogen (i) Mr. Yu Zhiliang (i) Mr. Mak Bing Kau (ii) Mr. Ng Wai Hung (ii) Mr. Lau Cheuk Lun (ii) Non-executive director: Ms. Liu Ning (i) Independent non-executive directors: Dr. Wong Wing Kuen, Albert (i) Ms. Chen Yanping (i) Dr. Shi Xinping (i) Mr. Pang Hon Chung (ii) Mr. Cheng Tsang Wai (ii) Dr. Chung Hing Wah, Paul (ii) Total emoluments	Fees HK$’000 – – – – – – – – 46 46 46 42 37 33 250	Salaries, allowances and benefits in kind Pension scheme contribution Total emoluments HK$’000 HK$’000 HK$’000 23 – 23 89 4 93 23 1 24 23 – 23 46 2 48 46 2 48 550 11 561 23 – 23 – – 46 – – 46 – – 46 – – 42 – – 37 – – 33 823 20 1,093	Salaries, allowances and benefits in kind Pension scheme contribution Total emoluments HK$’000 HK$’000 HK$’000 23 – 23 89 4 93 23 1 24 23 – 23 46 2 48 46 2 48 550 11 561 23 – 23 – – 46 – – 46 – – 46 – – 42 – – 37 – – 33 823 20 1,093
			1,093

– IV-22 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Notes:

(i) Appointed during the period
(ii) Resigned during the period

From 1 April 2011 to 31 March 2012

Name of Directors Executive directors: Dr. So Shu Fai* Mr. Mak Bing Kau Mr. Ng Wai Hung Mr. Lau Cheuk Lun Independent non-executive directors: Mr. Pang Hon Chung Mr. Cheng Tsang Wai Dr. Chung Hing Wah, Paul Total emoluments	Fees HK$’000 – – – – 107 106 88 301	Salaries, allowances and benefits in kind Pension scheme contribution Total emoluments HK$’000 HK$’000 HK$’000 300 12 312 200 10 210 200 10 210 660 12 672 – – 107 – – 106 – – 88 1,360 44 1,705	Salaries, allowances and benefits in kind Pension scheme contribution Total emoluments HK$’000 HK$’000 HK$’000 300 12 312 200 10 210 200 10 210 660 12 672 – – 107 – – 106 – – 88 1,360 44 1,705
			1,705

Mr. Huang Peikun and Dr. So Shu Fai are also the role of Chief Executive of the Company and his emoluments disclosed above include those for services rendered by him as the role of Chief Executive.

The Group’s five highest paid individuals during the period/year included one (from 1 April 2011 to 31 March 2012: one) director and four (from 1 April 2011 to 31 March 2012: four) other individuals. Details of the emoluments of the Directors are reflected in the analysis presented above. The emoluments of the remaining four (from 1 April 2011 to 31 March 2012: four) individuals are set out below:

Salaries and allowances, as employee Pension scheme contribution, as employee	From 1 April 2012 to 31 December 2012 HK$’000 1,213 35 1,248	From 1 April 2011 to 31 March 2012 HK$’000 4,348 48
		4,396

There was no arrangement under which a director waived or agreed to waive any remuneration from 1 April 2012 to 31 December 2012 (from 1 April 2011 to 31 March 2012: Nil).

– IV-23 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

The emoluments of the highest paid individuals (other than the Directors as disclosed above) fell within the following bands:

Less than HK$1,000,000 HK$1,000,001 – HK$1,500,000	Number of individuals From 1 April 2012 to 31 December 2012 From 1 April 2011 to 31 March 2012 4 1 – 3 4 4	Number of individuals From 1 April 2012 to 31 December 2012 From 1 April 2011 to 31 March 2012 4 1 – 3 4 4
		4

During the period/year, no emoluments were paid by the Group to any of the directors or the highest paid individuals as inducement to join or upon joining the Group or as compensation for loss of office.

14. LOSS PER SHARE

The calculation of the basic loss per share is based on the loss attributable to equity holders of the Company of approximately HK$11,796,000 (from 1 April 2011 to 31 March 2012: a loss of approximately HK$62,620,000) and the 1,068,468,860 ordinary shares in issue during the period/year.

Diluted loss per share is not presented from 1 April 2012 to 31 December 2012 nor from 1 April 2011 to 31 March 2012 as there is no potential ordinary shares outstanding during the period/year or at the end of the reporting periods.

15. PROPERTY, PLANT AND EQUIPMENT

At 1 April 2012, amount net of accumulated depreciation and impairments Additions Disposals Loss of control of subsidiaries (note 8) Depreciation provided during the period Exchange differences At 31 December 2012, net of accumulated depreciation and impairments – at cost	Buildings Furniture, fixtures and leasehold improvements HK$’000 HK$’000 161,954 5,135 – 13 – (86) (161,614) (4,914) (335) (112) (5) (3) – 33	Equipment and tools HK$’000 18,932 – – (18,765) (165) (2) –	Motor vehicles HK$’000 17 – – (17) – – –	Total HK$’000 186,038 13 (86) (185,310) (612) (10)
				33

– IV-24 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

At 1 April 2011, amount net of accumulated depreciation and impairments Additions Disposals Surplus on revaluation Depreciation provided during the year Impairment loss recognised Exchange differences At 31 March 2012, net of accumulated depreciation and impairments Cost or valuation Accumulated depreciation and impairments Net carrying amount Analysis of cost or valuation: At cost At valuation	Buildings Furniture, fixtures and leasehold improvements HK$’000 HK$’000 154,982 20,367 – 107 – (2) 7,514 – (6,345) (2,044) – (14,285) 5,803 992 161,954 5,135 161,954 40,203 – (35,068) 161,954 5,135 – 40,203 161,954 – 161,954 40,203	Equipment and tools HK$’000 34,527 158 (4) – (3,349) (12,585) 185 18,932 56,513 (37,581) 18,932 56,513 – 56,513	Motor vehicles HK$’000 – 20 – – (3) – – 17 20 (3) 17 20 – 20	Total HK$’000 209,876 285 (6) 7,514 (11,741) (26,870) 6,980
				186,038

				258,690 (72,652)
				186,038

				96,736 161,954
				258,690

The above items of property, plant and equipment are depreciated at the following rates per annum:

Buildings 4% on the straight-line basis Furniture, fixtures and 10% to 25% on the reducing balance basis leasehold improvements Equipment and tools 10% to 25% on the reducing balance basis Motor vehicles 30% on the reducing balance basis

The Group’s buildings located in the PRC were held under medium term lease.

As at 31 March 2012, due to the low utilisation of the production capacity of property, plant and equipment in the PRC as a result of the insufficient orders for set-top boxes, the major product of the Group, the Group has incurred substantial idle overhead costs during that year. In view of the heavy overhead costs and the continuous losses, the directors considered the recoverable amounts of those property, plant and equipment on the basis of the higher of their estimated fair value less cost to sell and values in use. Impairment loss recognised in respect of property, plant and equipment in that year amounted to approximately HK$26,870,000 in profit or loss.

16. PREPAID LEASE PAYMENTS

	At	At
	31 December	31 March
	2012	2012
	HK$’000	HK$’000
The Group’s prepaid lease payments comprise leasehold land
held under medium term lease in the PRC	–	17,892

– IV-25 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Note: Prepaid lease payments amounting to HK$17,892,000, which were previously included in property, plant and equipment, have been reclassified to prepaid lease payments in the consolidated statement of financial position as at 31 March 2012.

17. PARTICULARS OF SUBSIDIARIES OF THE COMPANY

Particulars of the Company’s subsidiaries as at 31 December 2012 and 31 March 2012 are as follows:

		Issued and
		fully paid-up
	Place of	share capital/
	establishment/	registered	Attributable equity interest			held
Name	incorporation	capital		by the	Company		Principal activities
			Directly		Indirectly
			At	At	At	At
			31.12.2012	31.03.2012	31.12.2012	31.03.2012
Champion Apex Limited	Hong Kong	HK$10,000	100%	100%	–	–	Trading of electronic consumer
							products and related
							components
Grand Golden Profit Limited (“GGP”)	Hong Kong	HK$10,000	100%	100%	–	–	Inactive
冠華港貿易(深圳)有限公司#	PRC	RMB1,000,000	–	–	100%	100%	Trading of electronic and
(Guan Hua Gang Trading (Shenzhen)							electrical products and
Co., Ltd.**)							building related materials
							and equipment
Tonic Electronics (B.V.I.) Limited_(Note)_	BVI	HK$1	–	100%	–	–	Investment holding
東莞鑫聯數碼科技有限公司#	PRC	RMB68,830,005	–	–	–	100%	Manufacture, processing, and
(Dongguan Xin Lian Digital							sale of electronic consumer
Technology Co., Ltd.*)(Note)*							products
Tonic Marketing Limited_(Note)_	BVI	US$0.01	–	–	–	100%	Investment holding

Wholly-foreign-owned enterprises

** The English name is for identification purpose only

Note The Group has lost control over this entity from 19 April 2012

None of the subsidiaries had any debt securities outstanding at the end of the period or at any time during the period.

18. INVENTORIES

Raw materials Work in progress Finished goods	At 31 December 2012 HK$’000 – – – –	At 31 March 2012 HK$’000 2,305 1,573 1,621
		5,499

– IV-26 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

19. ACCOUNTS RECEIVABLES

				At	At
			31	December	31 March
				2012	2012
				HK$’000	HK$’000
Accounts	receivables,	trade		48,322	9,215

The Group’s trading terms with its customers are mainly on credit. The credit period is generally 0 to 30 days. The Group seeks to maintain strict control over its outstanding receivables in order to minimise credit risk. Overdue balances are reviewed regularly by senior management. At the end of the reporting period, the Group had certain concentration of credit risk as approximately 52% (31 March 2012: 85%) and 91% (31 March 2012: 100%) of the Group’s trade receivables were due from the Group’s largest trade debtor and the five largest trade debtors, respectively.

The ageing analysis of accounts receivables at the end of the reporting period, based on the invoice date, is as follows:

30 days or less 31 to 60 days 61 to 90 days Over 90 days	At 31 December 2012 HK$’000 18,852 14,377 4,273 10,820 48,322	At 31 March 2012 HK$’000 5,097 487 3,631 –
		9,215

Before accepting any new customers, the Group uses an internal credit assessment process to assess the potential customer’s credit quality and defines credit limits by customers. Limits attributed to customers are reviewed regularly. 39% (31 March 2012: 100%) of the trade receivables that were neither past due nor impaired at 31 December 2012 have good repayment history.

As at 31 December 2012, included in the Group’s accounts receivable balance are debtors with aggregate carrying amount of HK$29,470,000 which are past due as at the reporting date for which the Group has not provided for impairment loss. The Group does not hold any collateral over these balances.

Ageing of accounts receivables which are past due but not impaired:

31 to 60 days 61 to 90 days Over 90 days	At 31 December 2012 HK$’000 14,377 4,273 10,820 29,470	At 31 March 2012 HK$’000 – – –
		–

As at 28 February 2013, approximately HK$28,000,000 of the above accounts receivables which are past due but not impaired as at 31 December 2012 has subsequently settled.

As at 31 March 2012, the Group’s accounts receivables that were neither past due nor impaired relate to several customers for whom there was no recent history of default.

– IV-27 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

20. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

Prepayments Deposits and other receivables	At 31 December 2012 HK$’000 235 3 238	At 31 March 2012 HK$’000 176 2,137
		2,313

21. CASH AND BANK BALANCES

Cash at banks earns interest at floating rates based on daily bank deposit rates.

22. ACCOUNTS PAYABLES

The credit periods is generally ranging from 30 days extending up to 90 days for major suppliers. The ageing analysis of trade accounts payables at the end of the reporting period, based on the invoice date, is as follows:

30 days or less 31 to 60 days 61 to 90 days Over 90 days	At 31 December 2012 HK$’000 17,655 9,627 3,884 11,103 42,269	At 31 March 2012 HK$’000 71 – – 499
		570

23. ACCRUALS AND OTHER PAYABLES

Other payables Interest payable to immediate holding company Interest payable to ultimate holding company Other payable to ultimate holding company Accruals	At 31 December 2012 HK$’000 445 14 – – 932 1,391	At 31 March 2012 HK$’000 2,205 – 1,758 2,095 19,767
		25,825

– IV-28 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

24. BORROWINGS

Notes Loans from ultimate holding company (i) Loan from immediate holding company (ii) Loan from a shareholder of the Company (iii) Loans from another shareholder of the Company (iv) Other loans (v) Analysed as: Secured Unsecured Carrying amounts repayable: Within one year or on demand, disclosed as current liabilities More than one year, but not exceeding two years, disclosed as non-current liabilities	At 31 December 2012 HK$’000 – 3,000 5,000 – – 8,000 – 8,000 8,000 8,000 – 8,000	At 31 March 2012 HK$’000 69,700 – – 49,000 84,870
		203,570

		124,870 78,700
		203,570

		185,570 18,000
		203,570

Notes:

(i) As at 31 March 2012, the loans from the ultimate holding company of HK$40,000,000 bore interest at fixed rate of 2% per annum and were secured by a share charge over the entire issued capital of a wholly-owned subsidiary of Company. The remaining loans of HK$29,700,000 from the former ultimate holding company were unsecured, interest free and had no fixed term of repayment. During the period from 1 April 2012 to 31 December 2012, the loans from the former ultimate holding company were derecognised upon loss of control of subsidiaries and the share charge was released.
(ii) The loan from immediate holding company is unsecured, bears interest at 6-month Hong Kong Interbank Offered Rate plus 2% per annum. The loan is repayable on 31 December 2013.
(iii) The loan from a shareholder of the Company is unsecured, and repayable on demand.
(iv) As at 31 March 2012, the loans from another shareholder of the Company were unsecured and bore interest at Hong Kong prime interest rate plus 2% per annum, in which, HK$31,000,000 had no fixed term of the repayment and the remaining loan of HK$18,000,000 was not repayable within one year. As at 19 April 2012, Total Ally assumed all responsibilities of the outstanding loans amounting to HK$28,000,000 due to this shareholder of the Company by the Group. The remaining loans of HK$21,000,000 was offset against prepayments and advancements to Total Ally Group. Details are set out in note 28.
(v) At 31 March 2012, other loans of approximately HK$84,870,000 were secured by the mortgages over the Group’s leasehold buildings with an aggregate carrying amount of approximately HK$179,846,000. The other loans were derecognised upon loss of control of subsidiaries.

25. AMOUNT DUE TO A DIRECTOR/AN INTERMEDIATE HOLDING COMPANY

The amounts are unsecured, interest free and repayable on demand.

– IV-29 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

26. DEFERRED TAX LIABILITIES

The movements in deferred tax liabilities of the Group are as follows:

At 1 April 2011 Deferred tax charged to other comprehensive income Exchange differences At 31 March 2012 and 1 April 2012 Loss of control of subsidiaries (note 8) At 31 December 2012	Revaluation of properties HK$’000 15,844 1,879 601
	18,324 (18,324)
	–

At the end of the reporting period, the Group had unused tax losses of HK$5,370,000 (31 March 2012: HK$1,550,000) available for offset against future assessable profits. No deferred tax asset has been recognised for the period/year due to the unpredictability of future profit streams.

27. SHARE CAPITAL

Ordinary shares of HK$0.01 each Authorised: At 1 April 2011, 31 March 2012 and 31 December 2012 Issued and fully paid: At 1 April 2011, 31 March 2012 and 31 December 2012	Number of shares 30,000,000,000 1,068,468,860	Amounts HK$’000 300,000

		10,685

28. MAJOR NON-CASH TRANSACTIONS

The Group entered into the following non-cash transactions:

(i) During the period from 1 April 2012 to 31 December 2012, the Group entered into various agreements with some shareholders of the Company and subsidiaries of Total Ally. On 19 April 2012, pursuant to the agreements, the subsidiaries of Total Ally assumed all the responsibilities of the outstanding loans and interests amounting to approximately HK$86,904,000 due to shareholders of the Company by the Group.
(ii) On 23 April 2012, a shareholder of the Company entered into an agreement with Total Ally and GGP, a subsidiary of the Company, to provide the guarantees for any prepayments and advancements made by GGP to Total Ally Group. Pursuant to the agreement, GGP has the right to offset the loan due to shareholder against the prepayments and advancements to Total Ally Group. As at 31 December 2012, loan due to a shareholder amounting to approximately HK$21,000,000 was offset against prepayments and advancements to Total Ally Group at the same amount.

– IV-30 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

(iii) During the year ended 31 March 2011, an indirect wholly-owned subsidiary of the Company, Xin Lian Digital Technology Company Limited, borrowed bank and other loans (collectively the “Xin Lian Loans”) with an aggregate principal amount of approximately RMB103,000,000 (equivalent to approximately HK$122,055,000) in repayment of the equivalent amounts of bank and other loans of a scheme subsidiary (the “Scheme Subsidiary”), Dongguan Tonic Electronics Limited. The Xin Lian Loans were pledged by the leasehold land and buildings (the “Pledged Properties”) held by the Scheme Subsidiary with an estimated market value of approximately RMB145,000,000 (approximately HK$171,825,000) and equipment and tools of an indirect wholly-owned subsidiary of the Company with an aggregate carrying amount of approximately HK$14,199,000 as at 31 March 2011.

During the period from 1 April 2011 to 31 March 2012, the Scheme Subsidiary disposed of the Pledged Properties which were secured for the Xin Lian Loans. The Xin Lian Loans were fully settled using the proceeds from the disposal of the Pledged Properties. Under the Xin Lian Loans arrangement, the equivalent amounts due from the Scheme Subsidiary were simultaneously recovered and released upon the repayment of the Xin Lian Loans through the disposal of the Pledged Properties.

29. CAPITAL RISK MANAGEMENT

The Group manages its capital to ensure that entities in the Group will be able to continue as going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from prior year.

The capital structure of the Group consists of net debts, which include borrowings disclosed in note 24, net of cash and cash equivalents and equity attributable to owners of the Company, comprising issued share capital, share premium and various reserves.

The directors of the Company review the capital structure on a regular basis. As part of this review, the directors consider the cost of capital and the risk associated with each class of capital.

The Group monitors capital using a gearing ratio, which is net debt divided by the capital. Net debts include bank and other borrowings less cash and bank balances. Capital represents total equity. The gearing ratios at the end of the reporting period were as follows:

Bank and other borrowings Less: Cash and bank balances Net debts Capital Gearing ratio	At 31 December 2012 HK$’000 8,000 (3,927) 4,073 244 1,669%	At 31 March 2012 HK$’000 203,570 (33,683)
		169,887 4,351 3,905%

The gearing ratios above exceed 100%. In view of such circumstance, the directors have given careful consideration to the future liquidity and performance of the Group and its available sources of finance in assessing whether the Group will have sufficient financial resources to continue as a going concern. Further details are set out in note 2.

– IV-31 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

30. FINANCIAL INSTRUMENTS

Categories of financial instruments

	At	At
	31 December	31 March
	2012	2012
	HK$’000	HK$’000
Financial assets
Loan and receivables (including cash and cash equivalents)	52,252	45,035
Financial liabilities
Amortised cost	51,344	212,198

The major financial instruments of the Group include accounts and other receivables, cash and bank balances, accounts and other payables, borrowings and amount due to a director/an intermediate holding company. The risks associated with those financial instruments include credit risk and liquidity risk. The directors reviewed and agreed on the policies for managing each of these risks and they are summarised below. Management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Financial risk management objectives and policies

(a) Interest rate risk

The Group is exposed to the risk of changes in market interest rates which relates primarily to the Group’s debt obligation with a floating interest rate.

The Group currently does not have any interest rate hedging policy in relation to risk of changes in market interest rates. The directors of the Company monitor the Group’s exposures on an ongoing basis and will consider hedging the interest rate should the need arises.

Sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to interest rates of variable-rate borrowings at the end of the reporting period. The analysis is prepared assuming the amount outstanding at the end of the reporting period was outstanding for the whole period/year. 100 basis points increase or decrease for borrowing are used and represent management’s assessment of the reasonably possible change in interest rates.

At the end of the reporting period, if interest rates had increased or decreased by 100 basis points (31 March 2012: 100 basis points) and all other variables were held constant, the loss for period/year of the Group would increase or decrease by approximately HK$30,000 (31 March 2012: increase or decrease by approximately HK$490,000) mainly as a result of higher or lower interest rates on floating rate borrowings.

In the management’s opinion, the sensitivity analysis is unrepresentative of the inherent interest risk as the period end exposure does not reflect the exposure during the period.

(b) Foreign currency risk

The Group’s entities mainly operate in Hong Kong and the PRC and are exposed to foreign exchange rate risk arising from various currency exposures, primarily with respect to assets and liabilities that are denominated in the currency that is not the entity’s functional currency. The Group constantly reviews the economic situation and its foreign currency risk profile, and considers implementing appropriate hedging measures in future as the need arises.

– IV-32 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

The carrying amounts of the Group’s foreign currency denominated monetary assets (including accounts and other receivables and cash and bank balances) and monetary liabilities (including accounts payables) at the end of the reporting period are as follows:

		Assets				Liabilities
		At		At		At		At
	31	December	31	March	31	December	31	March
		2012		2012		2012		2012
HKD		56		–		–		–
USD		13,968		1,991		8,038		–

The directors of the Company consider that the Group’s exposure in USD and HKD is insignificant on the ground that HKD is pegged to USD.

As at 31 March 2012, the Group’s foreign currency risk is related to the fluctuation of Renminbi (‘RMB’) to USD, 5% is the sensitivity rate used and represents management’s assessment of the reasonably possible change in USD. If RMB strengthened or weakened by 5% against USD, with all other variables held constant, loss for the year would have been approximately HK$100,000 higher or lower, mainly as a result of foreign exchange gain or loss on translation of other receivables and in relation to the operation in the PRC.

(c)

Credit risk

The Group intends to trade with recognised and creditworthy third parties. It is the Group’s policy that customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis.

At the end of the reporting period, the Group had certain concentration of credit risk as approximately 52% (31 March 2012: 85%) and 91% (31 March 2012: 100%) of the Group’s trade receivables were due from the Group’s largest trade debtor and the five largest trade debtors, respectively. The five largest debtors have good credit rating and repayment history. As at 31 December 2012, the Group’s maximum exposure to credit risk which will cause a financial loss to the Group due to failure to perform an obligation by the counterparties is arising from the carrying amount of the respective recognised financial assets as stated in the consolidated statement of financial position.

In order to minimise the credit risk, management of the Group has closely monitored the credit limits, credit approvals of all its customers and in particular, its five largest customers to ensure that follow-up action is taken to recover overdue debt. In addition, the Group reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regards, the directors of the Company consider that the Group’s credit risk is significantly reduced. Further quantitative data in respect of the Group’s exposure to credit risk arising from accounts receivables are disclosed in note 19.

The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.

– IV-33 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

(d) Liquidity risk

The Group’s policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and longer term. The Company’s exposure to liquidity risk is minimal as an intermediate holding company of the Company has agreed to provide adequate funds to enable the Group to meet in full its financial obligations as and when they fall due for a period of at least twelve months from the date of issuance of these consolidated financial statements. The maturity profile of the Group’s financial liabilities at the end of the reporting period, based on the contractual undiscounted payments, is as follows:

Weighted average interest rate % At 31 December 2012 Accounts payables – Other payables – Borrowings 2.55 Amount due to an intermediate holding company – Weighted average interest rate % At 31 March 2012 Accounts payables – Other payables – Borrowings 5.9 Amount due to a director –	On demand HK$’000 11,103 9 5,000 616 16,728 On demand HK$’000 71 6,058 206,714 2,000 214,843	Less than 3 months HK$’000 31,166 450 – – 31,616 Less than 3 months HK$’000 499 – – – 499	3 to less than 12 months HK$’000 – – 3,076 – 3,076 3 to less than 12 months HK$’000 – – – – –	Between 1 and 2 years HK$’000 – – – – – Between 1 and 2 years HK$’000 – – 18,782 – 18,782	Total un- discounted cash flows HK$’000 42,269 459 8,076 616 51,420 Total un- discounted cash flows HK$’000 570 6,058 225,496 2,000 234,124	Carrying amount at 31 December 2012 HK$’000 42,269 459 8,000 616
						51,344

						Carrying amount at 31 March 2012 HK$’000 570 6,058 203,570 2,000
						212,198

Fair Value

The fair values of financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

The directors of the Company consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the consolidated financial statements approximate their fair values.

– IV-34 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

31. RETIREMENT BENEFIT PLANS

The Group operates the following defined contribution schemes for its employees:

(i) Plans for Hong Kong employees

The Group participates in a MPF Scheme for all its qualifying employees in Hong Kong. The assets of the MPF Scheme are held separately from those of the Group in funds under the control of an independent trustee.

The only obligation of the Group with respect to the MPF Scheme is to make the required contributions under the scheme. No forfeited contribution is available to reduce the contribution payable in future years.

(ii) Plans for PRC employees

The employees employed in the PRC are members of the state-managed retirement benefits schemes operated by the PRC government. The PRC subsidiaries are required to contribute a certain percentage of their payroll to the retirement benefit schemes to fund the benefits. The only obligation of the Group with respect to the retirement benefit schemes is to make the required contributions under the schemes.

32. OPERATING LEASE ARRANGEMENTS

(a) As lessor

At 31 March 2012, the Group leased certain of its properties under operating lease arrangement, with leases negotiated for terms ranging from one to eight years. The terms of leases generally also require the tenants to pay security deposits and provided for periodic rent adjustments according to the then prevailing market conditions. The Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows:

Within one year In the second to fifth year, inclusive After five years	At 31 March 2012 HK$’000 3,010 8,482 771
	12,263

As at 31 December 2012, the Group has not entered into any operating lease arrangement.

(b) As lessee

The Group leases certain of its land and buildings under operating lease arrangements from a fellow subsidiary, with leases negotiated for a term ranging from one to two years. At the end of the reporting period, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth year inclusive	At 31 December 2012 HK$’000 14 21 35	At 31 March 2012 HK$’000 161 –
		161

– IV-35 –

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FINANCIAL INFORMATION OF THE GROUP

33. RELATED PARTY TRANSACTIONS

The Group had the following related party and connected transactions during the period/year:

(a) Compensation of key management personnel of the Group:

Short term employee benefits Post-employment benefits Total compensation paid to key management personnel	From 1 April 2012 to 31 December 2012 HK$’000 2,286 55 2,341	From 1 April 2011 to 31 March 2012 HK$’000 6,009 92
		6,101

(b) Details of the amounts due to related parties are set out in notes 23, 24 and 25.

(c) The Group has the following transactions/balances with related parties:

(i) Transactions

	From 1 April	From 1 April
	2012 to	2011 to
	31 December	31 March
	2012	2012
	HK$’000	HK$’000
Sales to fellow subsidiaries	12,659	–
Rental expense to the fellow subsidiary (Note)	7	–
Interest paid or payable to:
– Former ultimate holding company	–	800
– Shareholders of the Company	74	1,014
– Immediate holding company	14	–

Note: Details of operating lease arrangement are set out in note 32.

(ii) Balances

As at 31 December 2012, included in accounts receivables amounting to HK$12,410,000 is due from fellow subsidiaries.

– IV-36 –

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FINANCIAL INFORMATION OF THE GROUP

34. INFORMATION ABOUT THE STATEMENT OF FINANCIAL POSITION OF THE COMPANY

Notes ASSETS Investments in unlisted subsidiaries Prepayments, deposits and other receivables Cash and bank balances LIABILITIES Accruals and other payables Loan from immediate holding company Amounts due to subsidiaries (a) CAPITAL AND RESERVES Share capital Share premium Contributed reserves Accumulated losses (b)	At 31 December 2012 HK$’000 10 235 5 250 (1,274) (3,000) (12,426) (16,700) (16,450) 10,685 75,022 58,514 (160,671) (16,450)	At 31 March 2012 HK$’000 10 249 100
		359
		(2,197) – (10,013)
		(12,210)
		(11,851)

		10,685 75,022 58,514 (156,072)
		(11,851)

Notes:

(a) The amounts are unsecured, interest free and repayable on demand.

(b) The movement of accumulated losses is shown as follows:

At 1 April 2011 Total comprehensive expense for the year At 31 March 2012 and 1 April 2012 Total comprehensive expense for the period At 31 December 2012	Accumulated losses HK$’000 (150,199) (5,873)
	(156,072) (4,599)
	(160,671)

– IV-37 –

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FINANCIAL INFORMATION OF THE GROUP

AUDITOR’S REPORT AND AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE TWELVE MONTHS ENDED 31 MARCH 2012

Set out below is the auditor’s report extracted from the annual report of the Company for the twelve months ended 31 March 2012, which contains the audited consolidated financial statements of the Company and its subsidiaries for each of the two years ended 31 March 2011 and 2012 prepared by ANDA CPA Limited.

==> picture [158 x 34] intentionally omitted <==

TO THE SHAREHOLDERS OF TONIC INDUSTRIES HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

We have audited the consolidated financial statements of Tonic Industries Holdings Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 44 to 118, which comprise the consolidated and Company statements of financial position as at 31 March 2012, and the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

DIRECTORS’ RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS

The directors of the Company (the “Directors”) are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the Directors determine is necessary to enable the preparation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error.

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the HKICPA. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

– IV-38 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Group and the Company as at 31 March 2012, and of the Group’s results and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

ANDA CPA Limited

Certified Public Accountants

Sze Lin Tang Practising Certificate Number P03614

Hong Kong, 29 June 2012

– IV-39 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED INCOME STATEMENT

For the year ended 31 March 2012

Notes Turnover 8 Cost of sales Gross (loss)/profit Other income 9 Selling expenses and distribution costs Administrative expenses Provision for impairment of assets Provision against inventories Gain on deconsolidation of a liquidating subsidiary 10 Gain on debt restructuring 11 (Loss)/profit from operations Finance costs 12 (Loss)/profit before tax Income tax 13 (Loss)/profit for the year attributable to equity holders of the Company 14, 18 (Loss)/earnings per share Basic (HK cents per share) 17	2012 HK$’000 178,214 (181,272) (3,058) 3,502 (766) (31,031) (26,870) – 8,911 – (49,312) (13,308) (62,620) – (62,620) (6)	2011 HK$’000 77,394 (75,007) 2,387 4,590 (897) (40,315) (2,281) (2,516) 243,503 217,108 421,579 (33,135) 388,444 – 388,444 93

– IV-40 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 March 2012

Notes (Loss)/profit for the year attributable to equity holders of the Company 14, 18 Translation differences of foreign operations Translation differences reclassified to profit or loss upon deconsolidation of scheme subsidiaries Surplus on property revaluation Deferred tax on property revaluation reserve: – Surplus on revaluation Other comprehensive income for the year, net of tax Total comprehensive (loss)/ income for the year attributable to equity holders of the Company	2012 HK$’000 (62,620) 2,821 – 7,514 (1,879) 8,456 (54,164)	2011 HK$’000 388,444 992 (18,931) 35,561 (8,890) 8,732 397,176

– IV-41 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 March 2012

Notes Non-current assets Property, plant and equipment 19 Current assets Inventories 21 Accounts receivables 22 Prepayments, deposits and other receivables 23 Due from a scheme subsidiary 24 Cash and bank balances 25 Current liabilities Accounts payables 26 Accruals and other payables 27 Borrowings 28 Due to a director 24 Current tax liabilities Net current liabilities Total assets less current liabilities Non-current liabilities Borrowings 28 Deferred tax liabilities 29 NET ASSETS Capital and reserves Share capital 30 Reserves 31(a) TOTAL EQUITY	2012 HK$’000 203,930 5,499 9,215 2,313 – 33,683 50,710 570 25,825 185,570 2,000 – 213,965 (163,255) 40,675 18,000 18,324 36,324 4,351 10,685 (6,334) 4,351	2011 HK$’000 227,411 7,172 9,801 2,054 122,055 8,927 150,009 2,245 31,038 186,755 1,000 258 221,296 (71,287) 156,124 81,765 15,844 97,609 58,515 10,685 47,830 58,515

– IV-42 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

STATEMENT OF FINANCIAL POSITION

As at 31 March 2012

Notes Non-current assets Investments in subsidiaries 20 Current assets Prepayments, deposits and other receivables Cash and bank balances Current liabilities Accruals and other payables Due to subsidiaries 20 Net current liabilities NET LIABILITIES Capital and reserves Share capital 30 Reserves 31(b) TOTAL EQUITY	2012 HK$’000 10 249 100 349 2,197 10,013 12,210 (11,861) (11,851) 10,685 (22,536) (11,851)	2011 HK$’000 10 100 – 100 1,516 4,572 6,088 (5,988) (5,978) 10,685 (16,663) (5,978)

– IV-43 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 March 2012

At 1 April 2010 Total comprehensive income/ (loss) for the year Reclassification upon deconsolidation of subsidiaries Capital reorganisation: – capital reduction – issue of shares – share premium cancellation – set-off accumulated losses against contributed reserve At 31 March 2011 and 1 April 2011 Total comprehensive income/ (loss) for the year At 31 March 2012	Share capital HK$’000 105,789 – – (104,731) 9,627 – – 10,685 – 10,685	Attributable to equity holders of the Company Share premium account Contributed reserve Property revaluation reserve Foreign currency translation reserve Accumulated losses HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 71,388 280 74,068 7,463 (682,298) – – 26,671 (17,939) 388,444 – – (57,316) – 57,316 – 104,731 – – – 75,022 – – – – (71,388) 71,388 – – – – (176,399) – – 176,399 75,022 – 43,423 (10,476) (60,139) – – 5,635 2,821 (62,620) 75,022 – 49,058 (7,655) (122,759)	Total HK$’000 (423,310) 397,176 – – 84,649 – –
			58,515 (54,164)
			4,351

– IV-44 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 March 2012

Notes Cash flows from operating activities (Loss)/profit before tax: Adjustments for: Finance costs Bank interest income Loss on disposal of items of property, plant and equipment Depreciation Provision against inventories Provision for impairment of assets Gain on deconsolidation of a liquidating subsidiary 10 Gain on debt restructuring 11 Operating loss before working capital changes Change in inventories Change in accounts receivables Change in prepayments, deposits and other receivables Change in accounts payables Change in accruals and other payables Cash used in operations Interest received Interest paid Interest element on finance lease rental payment Oversea taxes paid Net cash used in operating activities Cash flows from investing activities Net cash (outflow)/inflow on deconsolidation of a liquidating subsidiary 10 Purchase of items of property, plant and equipment Net cash (used in)/generated from investing activities	2012 HK$’000 (62,620) 13,308 (21) 6 12,047 – 26,870 (8,911) – (19,321) 1,946 271 (203) (1,528) 1,242 (17,593) 21 (11,930) – – (29,502) (16) (285) (301)	2011 HK$’000 388,444 33,135 (5) – 17,886 2,516 2,281 (243,503) (217,108) (16,354) (8,222) (8,970) (1,434) 384 (15,211) (49,807) 5 (11,252) (111) (75) (61,240) 7,968 (2,081) 5,887

– IV-45 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Notes Cash flows from financing activities Net cash inflow on debt restructuring 11 New borrowings Loans from the ultimate holding company Advances from directors Net cash generated from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of changes in foreign exchange rate Cash and cash equivalents at end of year Analysis of cash and cash equivalents Cash and bank balances	2012 HK$’000 – 54,000 – 1,000 55,000 25,197 8,927 (441) 33,683 33,683	2011 HK$’000 18,574 9,480 24,700 371 53,125 (2,228) 16,998 (5,843) 8,927 8,927

– IV-46 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 March 2012

1. GENERAL INFORMATION

The Company is incorporated in the Cayman Islands as a limited liability company and its shares are listed on the Main Board of the Stock Exchange of Hong Kong Limited (the “Stock Exchange”). In the opinion of the Directors of the Company, the Company’s holding company and ultimate holding company at the end of the reporting period is Skill China Limited (“Skill China”), a limited liability company incorporated in the British Virgin Islands (the “BVI”).

Subsequent to the end of the reporting period, on 24 April 2012, a sale and purchase agreement in respect of the sale of the Company’s shares was entered into by Success Well Investments Limited (“Success Well”) and Skill China (the “Transaction”). After the Transaction that took place on 7 May 2012, the holding company of the Company has been changed from Skill China to Success Well. Success Well is a limited liability company incorporated in the BVI and is indirectly wholly-owned by Eureka Investment Company Limited (“Eureka” or “the intermediate holding company”). Eureka is a company incorporated in Hong Kong with limited liability and is wholly-owned by China Merchants Property Development Co., Ltd. (“CMPD”). CMPD is a limited liability company incorporated in the People’s Republic of China (the “PRC”), with its shares listed on the Shenzhen Stock Exchange. Further details of the Transaction were disclosed in the joint public announcement (the “Joint Announcement”) of the Company and the board of directors of Success Well on 27 April 2012.

The address of the registered office and principal place of the Company are disclosed in the corporate information included in the annual report. The Company is an investment holding company and the principal activities of its major subsidiaries are set out in note 20.

2. BASIS OF PREPARATION

The Group incurred a loss attributable to equity holders of the Company of approximately HK$62,620,000 for the year ended 31 March 2012 and as at 31 March 2012, the Group had net current liabilities of approximately HK$163,255,000. These conditions therefore indicate the existence of the uncertainty in relation to the Group’s ability to continue as a going concern. In view of these circumstances, the Directors have given careful consideration to the future liquidity and performance of the Group and its available sources of finance in assessing whether the Group will have sufficient financial resources to continue as a going concern.

The consolidated financial statements have been prepared on a going concern basis. In the opinion of the Directors, the Group should be able to continue as a going concern in the coming years taking into consideration various measures to improve its financial performance and position which include, but not limited to, the following:

(a) On the successful implementation of the restructured business model of the Group’s set-up box operation, this provides an opportunity for the Group to have a more cost effective and commercially feasible structure to improve financial performance of the Group;
(b) The intermediate holding company of the Company has agreed to provide adequate funds for the Group to meet its liabilities as they fall due; and
(c) The Directors are looking for various business alternatives to broaden its business scope and sources of income by taking business opportunities to diversify into other business through investment or business ventures to improve the profitability of the Group.

Based on the aforesaid factors, the Directors are satisfied that the Group will have sufficient financial resources to meet its financial obligations as they fall due for the foreseeable future, the validity of which depends upon the measures mentioned above, at a level sufficient to finance the working capital requirements of the Group. Accordingly, the Directors are of the opinion that it is appropriate to prepare these financial statements on a going concern basis. Should the Group be unable to continue as a going concern, adjustments would have to be made to these financial statements to adjust the value of the Group’s assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify non-current assets and liabilities as current assets and liabilities, respectively.

3. ADOPTION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

In the current year, the Group has adopted all the new and revised Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the

– IV-47 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

“HKICPA”) that are relevant to its operations and effective for its accounting year beginning on 1 April 2011. HKFRSs comprise Hong Kong Financial Reporting Standards; Hong Kong Accounting Standards (“HKAS”); and Interpretations. The adoption of these new and revised HKFRSs did not result in significant changes to the Group’s accounting policies, presentation of the Group’s financial statements and amounts reported for the current year and prior years.

The Group has not applied the new and revised HKFRSs that have been issued but are not yet effective. The Group has already commenced an assessment of the impact of these new and revised HKFRSs but is not yet in a position to state whether these new and revised HKFRSs would have a material impact on its results of operations and financial position.

4. SIGNIFICANT ACCOUNTING POLICIES

These financial statements have been prepared in accordance with HKFRSs issued by the HKICPA, accounting principles generally accepted in Hong Kong and applicable disclosures required by the Rules Governing the Listing of Securities (the “Listing Rules”) on the Stock Exchange and by the Hong Kong Companies Ordinance.

These financial statements have been prepared under the historical cost convention, as modified by the revaluation of buildings, which are carried at their fair values. These financial statements are presented in Hong Kong dollars (“HK$”) and all values are rounded to the nearest thousand except when otherwise indicated.

The preparation of financial statements in conformity with HKFRSs requires the use of certain key assumptions and estimates. It also requires the Directors to exercise its judgments in the process of applying the accounting policies. The areas involving critical judgments and areas where assumptions and estimates are significant to these financial statements, are disclosed in note 5 to these financial statements.

The significant accounting policies applied in the preparation of these financial statements are set out below.

Consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries made up to 31 March. Subsidiaries are entities over which the Group has control. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group has control.

Subsidiaries are consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date the control ceases.

The gain or loss on the disposal of a subsidiary that results in a loss of control represents the difference between (i) the fair value of the consideration of the sale plus the fair value of any investment retained in that subsidiary and (ii) the Company’s share of the net assets of that subsidiary plus any remaining goodwill relating to that subsidiary and any related accumulated foreign currency translation reserve.

Intragroup transactions, balances and unrealised profits are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

– IV-48 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Changes in the Company’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions (i.e. transactions with owners in their capacity as owners). The carrying amounts of the controlling and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the Company.

In the Company’s statement of financial position, the investments in subsidiaries are stated at cost less allowance for impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.

Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in Hong Kong dollars, which is the Company’s functional and presentation currency.

(b) Transactions and balances in each entity’s financial statements

Transactions in foreign currencies are translated into the functional currency on initial recognition using the exchange rates prevailing on the transaction dates. Monetary assets and liabilities in foreign currencies are translated at the exchange rates at the end of each reporting period. Gains and losses resulting from this translation policy are recognised in profit or loss.

Non-monetary items that are measured at fair values in foreign currencies are translated using the exchange rates at the dates when the fair values are determined.

When a gain or loss on a non-monetary item is recognised in other comprehensive income, any exchange component of that gain or loss is recognised in other comprehensive income. When a gain or loss on a non-monetary item is recognised in profit or loss, any exchange component of that gain or loss is recognised in profit or loss.

(c) Translation on consolidation

The results and financial position of all the Group entities that have a functional currency different from the Company’s presentation currency are translated into the Company’s presentation currency as follows:

(i) Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position;
(ii) Income and expenses for each profit or loss are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the exchange rates on the transaction dates); and
(iii) All resulting exchange differences are recognised in the foreign currency translation reserve.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities and of borrowings are recognised in the foreign currency translation reserve. When a foreign operation is sold, such exchange differences are recognised in consolidated profit or loss as part of the gain or loss on disposal.

– IV-49 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Property, plant and equipment

Buildings comprise mainly factories and offices and are carried at fair values, based on periodic valuations by external independent valuers, less subsequent depreciation and impairment losses. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. All other property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.

Revaluation increases of buildings are recognised in profit or loss to the extent that the increases reverse revaluation decreases of the same asset previously recognised in profit or loss. All other revaluation increases are credited to the property revaluation reserve as other comprehensive income. Revaluation decreases that offset previous revaluation increases of the same asset remaining in the property revaluation reserve are charged against the property revaluation reserve as other comprehensive income. All other decreases are recognised in profit or loss. On the subsequent sale or retirement of a revalued building, the attributable revaluation increases remaining in the property revaluation reserve is transferred directly to retained profits.

Depreciation of property, plant and equipment is calculated at rates sufficient to write off their costs or revalued amounts less their residual values over the estimated useful lives on a straight-line basis. The principal annual rates are as follows:

Leasehold lands Over the lease terms Leasehold buildings 4% on the straight-line basis Leasehold improvements 10% to 25% on the reducing balance basis Furniture and fixtures 10% to 25% on the reducing balance basis Equipment and tools 10% to 25% on the reducing balance basis Motor vehicles 30% on the reducing balance basis

The residual values, useful lives and depreciation method are reviewed and adjusted, if appropriate, at the end of each reporting period.

The gain or loss on disposal of property, plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in profit or loss.

Leases

The Group as lessee

Operating leases

The Group as lessor

Operating leases

Leases that do not substantially transfer to the lessees all the risks and rewards of ownership of assets are accounted for as operating leases. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease.

– IV-50 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average basis. The cost of finished goods and work in progress comprises raw materials, direct labour and an appropriate proportion of all production overhead expenditure, and where appropriate, subcontracting charges. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

Recognition and derecognition of financial instruments

Financial assets and financial liabilities are recognised in the statement of financial position when the Group becomes a party to the contractual provisions of the instruments.

Financial assets are derecognised when the contractual rights to receive cash flows from the assets expire; the Group transfers substantially all the risks and rewards of ownership of the assets; or the Group neither transfers nor retains substantially all the risks and rewards of ownership of the assets but has not retained control on the assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and the cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid is recognised in profit or loss.

Trade and other receivables

Trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment. An allowance for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the allowance is the difference between the carrying amount of the receivables and the present value of estimated future cash flows, discounted at the effective interest rate computed at initial recognition. The amount of the allowance is recognised in profit or loss.

Impairment losses are reversed in subsequent periods and recognised in profit or loss when an increase in the recoverable amount of the receivables can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the receivables at the date the impairment is reversed shall not exceed what the amortised cost would have been had the impairment not been recognised.

Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents represent cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term highly liquid investments which are readily convertible into known amounts of cash and subject to an insignificant risk of change in value. Bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management are also included as a component of cash and cash equivalents.

Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred, and subsequently measured at amortised cost using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.

Trade and other payables

Trade and other payables are stated initially at their fair value and subsequently measured at amortised cost using the effective interest method unless the effect of discounting would be immaterial, in which case they are stated at cost.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

– IV-51 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably.

(a) Revenues from the sales of goods are recognised when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;
(b) Processing services fee is recognised when the services are rendered;
(c) Interest income is recognised on a time proportion basis using the effective interest method; and
(d) Rental income is recognised on a straight-line basis over the lease term.

Employee benefits

(a) Employee leave entitlements

Employee entitlements to annual leave and long service leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave and long service leave as a result of services rendered by employees up to the end of the reporting period.

Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.

(b) Pension obligations

The Group operates a mandatory provident fund scheme (the “MPF Scheme”) under the Hong Kong Mandatory Provident Fund Scheme Ordinance for all qualifying employees in Hong Kong. The Group’s contribution to the MPF Scheme are calculated at 5% of the salaries and wages subject to a monthly maximum amount of contribution of HK$1,000 per employee and vest fully with employees when contributed into the MPF Scheme.

The employees of the Group’s subsidiaries established in the PRC are members of a central pension scheme operated by the local municipal government. The subsidiaries are required to contribute certain percentage of the employees’ basic salaries and wages to the central pension scheme to fund the retirement benefits. The local municipal government undertakes to assume the retirement benefits obligation of all existing and future retired employees of the subsidiaries. The only obligation of the subsidiaries with respect to the central pension scheme are to meet the required contributions under the scheme.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

– IV-52 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

To the extent that funds are borrowed generally and used for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalisation is determined by applying a capitalisation rate to the expenditures on that asset. The capitalisation rate is the weighted average of the borrowing costs applicable to the borrowings of the Group that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset.

All other borrowing costs are recognised in the profit or loss in the period in which they are incurred.

Taxation

Income tax represents the sum of the current tax and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit recognised in profit or loss because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences, unused tax losses or unused tax credits can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax is recognised in profit or loss, except when it relates to items recognised in other comprehensive income or directly in equity, in which case the deferred tax is also recognised in other comprehensive income or directly in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Related parties

A related party is a person or entity that is related to the Group.

(a) A person or a close member of that person’s family is related to the Group if that person:
(i) has control or joint control over the Group;
(ii) has significant influence over the Group; or
(iii) is a member of the key management personnel of the Company or of a parent of the Group.
(b) An entity is related to the Group if any of the following conditions applies:
(i) The entity and the Company are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).
(iii) Both entities are joint ventures of the same third party.

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FINANCIAL INFORMATION OF THE GROUP

(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
(v) The entity is a post-employment benefit plan for the benefit of employees of either the Company or an entity related to the Company. If the Company is itself such a plan, the sponsoring employers are also related to the Company.
(vi) The entity is controlled or jointly controlled by a person identified in (a) above.
(vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

Segment reporting

Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Group’s most senior executive management for the purpose of allocating resources to, and assessing the performance of the Group’s various lines of business.

Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of productions processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

Impairment of assets

At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets, except inventories and receivables, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of any impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs.

If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Events after the reporting period

Events after the reporting period that provide additional information about the Group’s position at the end of the reporting period or those that indicate the going concern assumption is not appropriate are adjusting events and are reflected in the financial statements. Events after the reporting period that are not adjusting events are disclosed in the notes to the financial statements when material.

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FINANCIAL INFORMATION OF THE GROUP

5. CRITICAL JUDGEMENTS AND KEY ESTIMATES

Critical judgements in applying accounting policies

In the process of applying the accounting policies, the Directors have made the following judgements that have the most significant effect on the amounts recognised in the financial statements apart from those involving estimations, which are dealt with below.

(a) Going concern basis

These financial statements have been prepared on a going concern basis, taking into consideration the measures as explained in note 2 to the consolidated financial statements to improve the Group’s financial performance and position.

(b) Distinction between investment properties and owner-occupied properties

The Group determines whether a property qualifies as an investment property. In making its judgement, the Group considers whether the property generates cash flows largely independently of the other assets held by the Group. Owner-occupied properties generate cash flows that are attributable not only to property but also to other assets used in the production or supply process.

Some properties comprise a portion that is held to earn rentals and another portion that is held for use in the production of goods. If these portions can be sold separately (or leased out separately under a finance lease), the Group accounts for the portions separately. If the portions cannot be sold separately, the property is accounted for as investment property only if an insignificant portion is held for use in the production of goods. Judgement is applied in determining whether ancillary services are so significant that a property does not qualify as an investment property. The Group considers each property separately in making its judgement.

(c) Legal titles of certain lands and buildings

As stated in note 19 to these financial statements, the legal titles of certain lands and buildings have not been transferred to the Group as at 31 March 2012. Despite the fact that the Group has not obtained the relevant certificates of legal titles, the Directors determine to recognise those lands and buildings under property, plant and equipment, on the grounds that they expect the transfer of legal titles in future should have no major difficulties and the Group is in substance controlling those lands and buildings.

Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

(a) Impairment of assets

The Group has to exercise judgement in determining whether an asset is impaired or the event previously causing the asset impairment no longer exists, particularly in assessing: (i) whether an event has occurred that may affect the asset value or such event affecting the asset value has not been in existence; (ii) whether the carrying value of an asset can be supported by the net present value of future cash flows which are estimated based upon the continued use of the asset or derecognition; and (iii) the appropriate key assumptions to be applied in preparing cash flow projections including whether these cash flow projections are discounted using an appropriate rate. Changing the assumptions selected by management to determine the level of impairment, including the discount rates or the growth rate assumptions in the cash flow projections, could materially affect the net present value used in the impairment test.

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FINANCIAL INFORMATION OF THE GROUP

(b) Depreciation of property, plant and equipment

Property, plant and equipment are depreciated on a straight-line and a reducing balance basis over their estimated useful lives, after taking into account of their estimated residual values. The determination of the useful lives and residual values involves management’s estimation. The Group assesses annually the residual values and the useful lives of the property, plant and equipment and if the expectation differs from the original estimate, such a difference may impact the depreciation in the year and the estimate will be changed in the future period.

(c) Allowance for inventories

The management of the Group reviews an aging analysis at the end of the reporting period, and makes allowances for obsolete and slow-moving inventory items identified that are no longer suitable for use in production. The management estimates the net realisable value for such finished goods based primarily on the latest invoice prices and current market conditions. The Group carries out an inventory review on a product-by-product basis at the end of the reporting period and makes allowances for obsolete items.

(d) Estimation of fair value of buildings

The best evidence of fair value is current prices in an active market for similar buildings. In the absence of such information, the Group considers information from a variety of sources, including: (i) by reference to independent valuations; (ii) current prices in an active market for buildings of a different nature, condition or location (or subject to different leases or other contracts), adjusted to reflect those differences; (iii) recent prices of similar buildings on less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and (iv) discounted cash flow projections based on reliable estimates of future cash flows, supported by the terms of any existing lease and other contracts and (when possible) by external evidence such as current market prices for similar buildings in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.

The principal assumptions for the Group’s estimation of the fair value include those related to current market prices for similar buildings in the same location and condition, appropriate discount rates, expected future market prices and future maintenance costs. The carrying amount of the Group’s buildings are disclosed in note 19 to these financial statements.

6. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The major financial instruments of the Group include accounts and other receivables, cash and bank balances, accounts and other payables and borrowings. The activities of the Group expose it to a variety of financial risks: interest rate risk, foreign currency risk, credit risk and liquidity risk. The Directors reviewed and agreed on the policies for managing each of these risks and they are summarised below.

(a) Interest rate risk

The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s debt obligation with a floating interest rate.

At the end of the reporting period, if interest rates had been increased or decreased by 100 basis points (2011: 100 basis points) and all other variables were held constant, the loss (2011: profit) before tax of the Group would increase or decrease by approximately HK$490,000 (2011: decrease or increase by HK$1,126,000) mainly as a result of higher or lower interest rates on floating rate borrowings.

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FINANCIAL INFORMATION OF THE GROUP

(b) Foreign currency risk

The Group’s entities mainly operate in Hong Kong and the PRC and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to assets and liabilities that are denominated in a currency that is not the entity’s functional currency. The Group constantly reviews the economic situation and its foreign currency risk profile, and considers implementing appropriate hedging measures in future as the need arises.

At the end of the reporting period, if Renminbi (“RMB”) strengthened or weakened by 5% against US dollars, with all other variables held constant, loss (2011: profit) before tax for the year would have been approximately HK$100,000 higher or lower (2011: HK$54,000 lower or higher), mainly as a result of foreign exchange losses or gains on translation of prepayments, deposits and receivables and in relation to the operation in the Mainland China.

(c) Credit risk

At the end of the reporting period, the Group had certain concentration of credit risk as approximately 85% (2011: 63%) and 100% (2011: 100%) of the Group’s trade receivables were due from the Group’s largest trade debtor and the five largest trade debtors, respectively. The credit risk of the Group’s other financial assets, which comprise amount due from a scheme subsidiary, cash and bank balances and other receivables arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments.

Since the Group has policies in place to ensure that sales are made to customers with appropriate credit history, there is generally no requirement for collateral. Further quantitative data in respect of the Group’s exposure to credit risk arising from accounts receivables are disclosed in note 22 to these financial statements.

(d) Liquidity risk

The Group’s policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and longer term. The maturity profile of the Group’s financial liabilities at the end of the reporting period, based on the contractual undiscounted payments, is as follows:

At 31 March 2012 Accounts payables Financial liabilities included in accruals and other payables Borrowings Due to a director	On demand HK$’000 71 6,058 206,714 2,000 214,843	Less than 3 months HK$’000 499 – – – 499	3 to less than 12 months HK$’000 – – – – –	Between 1 and 2 years Total un- discounted cash flows HK$’000 HK$’000 – 570 – 6,058 18,782 225,496 – 2,000 18,782 234,124	Between 1 and 2 years Total un- discounted cash flows HK$’000 HK$’000 – 570 – 6,058 18,782 225,496 – 2,000 18,782 234,124
					234,124

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FINANCIAL INFORMATION OF THE GROUP

At 31 March 2011 Accounts payables Financial liabilities included in accruals and other payables Borrowings Due to a director	On demand HK$’000 327 12,047 159,431 1,000 172,805	Less than 3 months HK$’000 1,748 – – – 1,748	3 to less than 12 months HK$’000 170 – 40,000 – 40,170	Between 1 and 2 years Total un- discounted cash flows HK$’000 HK$’000 – 2,245 – 12,047 81,765 281,196 – 1,000 81,765 296,488	Between 1 and 2 years Total un- discounted cash flows HK$’000 HK$’000 – 2,245 – 12,047 81,765 281,196 – 1,000 81,765 296,488
					296,488

7. SEGMENT INFORMATION

The Group’s revenue and result for the year ended 31 March 2012 and 2011 were mainly derived from its operating segment of manufacture, processing and sale of electronic consumer products and related components. The Group’s reportable segments are strategic business units that offer different products. They are managed separately because each business requires different technology and marketing strategies.

The accounting policies of the operating segments are the same as these described in note 4 to these financial statements. Segment profits or losses do not include, interest income, gain on deconsolidation of a liquidating subsidiary, gain on debt restructuring, finance costs, income tax and unallocated corporate income and expenses. Segment assets do not include due from a scheme subsidiary, cash and bank balances and other unallocated corporate assets. Segment liabilities do not include borrowings, amount due to a director, tax liabilities and unallocated corporate liabilities. Segment non-current assets do not include any financial instruments and deferred tax assets.

Information about the manufacture, processing and sale of electronic consumer products and related components segment profit or loss, assets and liabilities:

	2012	2011
	HK$’000	HK$’000
Year ended 31 March:
Revenue from external customers	178,214	77,394
Segment losses	42,795	39,037
Interest revenue	21	5
Interest expense	13,308	33,135
Depreciation	12,047	17,886
Other material non-cash item:
Provision for impairment of assets	26,870	2,281
Provision against inventories	–	2,516
Additions to segment non-current assets	285	2,081
At 31 March:
Segment assets	220,554	246,338
Segment liabilities	21,713	31,767

– IV-58 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Reconciliations of reportable segment revenue, profit and loss, assets and liabilities:

Revenue: Total turnover of the reportable segment disclosed as consolidated turnover Profit or loss: Total loss of reportable segments Interest income Gain on deconsolidation of a liquidating subsidiary Gain on debt restructuring Corporate and unallocated profit or loss Consolidated (loss)/profit Assets: Total assets of reportable segments Due from a scheme subsidiary Cash and bank balances Corporate and unallocated assets Consolidated total assets Liabilities: Total liabilities of reportable segments Borrowings Current tax liabilities Deferred tax liabilities Due to a director Corporate and unallocated liabilities Consolidated total liabilities Geographical information: Revenue: Greater China Dubai Philippines Consolidated total	2012 HK$’000 178,214 (42,795) 21 8,911 – (28,757) (62,620) 220,554 – 33,683 403 254,640 21,713 203,570 – 18,324 2,000 4,682 250,289 2012 HK$’000 69,275 84,948 23,991 178,214	2011 HK$’000 77,394

		(39,037) 5 243,503 217,108 (33,135)
		388,444

		246,338 122,055 8,927 100
		377,420

		31,767 268,520 258 15,844 1,000 1,516
		318,905

		2011 HK$’000 46,299 7,839 23,256
		77,394

– IV-59 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Information about revenue from four (2011: six) customers of the Group contributing over 10% of total revenue of the Group as follows:

		2012	2011
		HK$’000	HK$’000
Customer	A	84,948	7,839
Customer	B	42,535	20,698
Customer	C	21,397	15,868
Customer	D	20,741	10,216
Customer	E	–	13,039
Customer	F	–	8,721

In presenting the geographical information, revenue is based on the locations of the customers. At the end of the reporting period, all non-current assets of the Group were located in the Greater China.

8. TURNOVER

The Group’s turnover which represents manufacture, sales of goods to customers and revenue from processing service fees are as follows:

Manufacture and sales of electronic consumer products and related components Service fees from processing of electronic consumer products and related components	2012 HK$’000 174,294 3,920 178,214	2011 HK$’000 76,383 1,011
		77,394

9. OTHER INCOME

The Group’s other income is analysed as follows:

Bank interest income Rental income Bad debts recovered Sundry income	2012 HK$’000 21 2,630 – 851 3,502	2011 HK$’000 5 284 3,756 545
		4,590

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FINANCIAL INFORMATION OF THE GROUP

10. GAIN ON DECONSOLIDATION OF A LIQUIDATING SUBSIDIARY

On 20 February 2012, the Board resolved to voluntarily wind up an indirect wholly-owned subsidiary of the Company, Tonic DVB Marketing Limited (“TDML”). Mr. Mark Chapman of Deloitte & Touche in the BVI and Mr. Yeung Lui Ming, Edmund and Mr. Darach E. Haughey both of Deloitte Touche Tohmatsu in Hong Kong have been appointed as the liquidator of TDML with the power to act jointly and severally. The Directors considered that the control over this subsidiary has been lost since then. The results, assets and liabilities and cash flows of this subsidiary were deconsolidated from the consolidated financial statements of the Group with effect from that day.

Net liabilities of the subsidiary deconsolidated were as follows: Property, plant and equipment Prepayments, deposits and other receivables Current tax assets Cash and bank balances Accounts payables Accruals and other payables Amounts due to the Group Current tax liabilities Borrowings Deferred tax liabilities Net liabilities of the deconsolidated subsidiary Impairment of amounts due from the deconsolidated subsidiary Net gain on deconsolidation of the liquidating subsidiary	TDML 20 February 2012 HK$’000 – 11 – 16 (170) (8,510) (24,364) (258) – – (33,275) 24,364 (8,911)	TEL 30 June 2010* HK$’000 26,626 87 1,919 131 (153,377) (22,578) (140,184) – (92,197) (4,114)
		(383,687) 140,184
		(243,503)

Net cash (outflow)/inflow on deconsolidation of a liquidating subsidiary is set out below:

Cash and cash equivalent balances deconsolidated: Cash and bank balances Bank overdrafts	HK$’000 (16) – (16)	HK$’000 (131) 8,099
		7,968

During the prior year, a direct wholly-owned subsidiary of the Company, Tonic Electronics Limited (“TEL”) was wound up by the High Court of Hong Kong. Messrs. Huen Ho Yin and Huen Yuen Fun were appointed as the Joint and Several Provisional Liquidators of TEL by the official receiver on 30 June 2010. The Directors considered that the control over this subsidiary had been lost since then. The results, assets and liabilities and cash flows of this subsidiary were deconsolidated from the consolidated financial statements of the Group with effect from 30 June 2010. Further details of which were described in the Company’s announcement dated 6 July 2010.

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FINANCIAL INFORMATION OF THE GROUP

11. GAIN ON DEBT RESTRUCTURING

During the prior year, the capital and group reorganisation (the “Restructuring”) was completed on 3 December 2010 (the “Effective Date”). In order to reorganise the Group and to facilitate the implementation of the creditor scheme of the Restructuring, the scheme subsidiaries under the creditor scheme were transferred to the administrators of the creditor scheme. The Group had ceased to control those scheme subsidiaries after the transfer. On the Effective Date, the results, assets and liabilities, and cash flows of those scheme subsidiaries were derecognised from the Group. Further details of which were described in the Company’s annual report for the year ended 31 March 2011.

Notes Net liabilities of scheme subsidiaries derecognised on the Effective Date were as follows: Property, plant and equipment Prepayments, deposits and other receivables Cash and bank balances Accounts payables Accruals and other payables Borrowings Current tax liabilities Deferred tax liabilities Net liabilities of scheme subsidiaries derecognised Less: Release of the related foreign currency translation reserves Proceeds from the issuance of shares transferred to the administrators (a) Debt restructuring costs in form of remuneration shares issued to financial advisors (b) Amounts recoverable from a scheme subsidiary (c) Gain on debt restructuring Net cash inflow on debt restructuring is set out below: Cash and cash equivalent balances derecognised: Cash and bank balances Bank overdrafts	3 December 2010 HK$’000 180,161 17 724 (163,971) (49,111) (94,428) (13,452) (20,711)
	(160,771) (18,931) 80,000 4,649 (122,055)
	(217,108)

	HK$’000 (724) 19,298
	18,574

(a) On the Effective Date, 909,785,366 subscription shares with a par value of HK$0.01 each at a price of approximately HK$0.0879 per subscription share were issued and allotted to Skill China for the cash consideration of HK$80 million. Based on the creditor scheme, all proceeds from the issuance of the subscription shares was made available to the administrators to settle and discharge the claims under the creditor scheme.

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FINANCIAL INFORMATION OF THE GROUP

(b) On the Effective Date, 52,894,498 remuneration shares with a par value of HK$0.01 each at a price of approximately HK$0.0879 per remuneration share were issued and allotted to two financial advisors in settlement of professional fees of approximately HK$4,649,000 attributable to the Company in relation to the Restructuring. As the fair value of these professional advisory services in relation to the Restructuring cannot be estimated reliably, such services received by the Group were measured by reference to the fair value of the share issued in settlement of the relevant processional fees, in form of the equity-settled share-based payments, measured at the Effective Date the counterparties render services.
(c) During the prior year, an indirect wholly-owned subsidiary of the Company, Xin Lian Digital Technology Company Limited, borrowed bank and other loans (collectively the “Xin Lian Loans”) with the aggregate principal amounts of approximately RMB103,000,000 (equivalent to approximately HK$122,055,000) at the end of the prior reporting period in repayment of the equivalent amounts of bank and other loans of a scheme subsidiary (the “Scheme Subsidiary”), Dongguan Tonic Electronics Limited. The Xin Lian Loans were pledged by the leasehold land and buildings (the “Pledged Properties”) held by the Scheme Subsidiary with an estimated market value of approximately RMB145,000,000 (approximately HK$171,825,000) and equipment and tools of an indirect wholly-owned subsidiary of the Company with the aggregate carrying amounts of approximately HK$14,199,000 at the end of the prior reporting period. Under the Xin Lian Loans arrangement, it was expected that the repayment of the Xin Lian Loans will be satisfied by the proceeds from the subsequent disposal of the Pledged Properties to recover the corresponding amounts due from the Scheme Subsidiary.

12. FINANCE COSTS

Interest on borrowings wholly repayable within five years: Bank and other borrowings Loans from the ultimate holding company Loans from a shareholder of the Company Finance leases	2012 HK$’000 11,494 800 1,014 – 13,308	2011 HK$’000 32,224 800 – 111
		33,135

13. INCOME TAX

Neither Hong Kong Profits Tax nor the PRC Enterprise Income Tax has been provided, since the Group has no assessable profit for both years.

The reconciliation between the income tax and the (loss)/profit before tax multiplied by the Hong Kong Profits Tax rate is as follows:

(Loss)/profit before tax: Tax at the domestic income tax rate of 16.5% (2011: 16.5%) Effect of different tax rates of subsidiaries Income not subject to tax Expenses not deductible for tax Tax losses utilised from previous periods Tax losses not recognised Tax at the Group’s effective rate	2012 HK$’000 (62,620) (10,332) (4,590) (5,496) 18,631 – 1,787 –	2011 HK$’000 388,444

		64,093 (12,069) (94,124) 37,587 (912) 5,425
		–

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FINANCIAL INFORMATION OF THE GROUP

14. (LOSS)/PROFIT FOR THE YEAR

The Group’s (loss)/profit for the year is stated after charging the following:

Cost of inventories sold Provision against inventories Depreciation on property, plant and equipment Minimum lease payments under operating leases on land and buildings Auditors’ remuneration Employee benefits expense (including directors’ remuneration – note 15): Wages, salaries and allowances Pension scheme contributions Provision for impairment of assets: Impairment of items of property, plant and equipment Impairment of deposits and other receivables		2012 HK$’000 181,272 – 12,047 1,026 552		2011 HK$’000 75,007 2,516 17,886 639 713 16,550 253 16,803 2,070 211 2,281
		17,891 433
		18,324
		26,870 –
		26,870

15. DIRECTORS’ AND FIVE HIGHEST PAID INDIVIDUAL EMOLUMENTS

Name of Directors Executive directors: Dr. So Shu Fai Mr. Mak Bing Kau Mr. Ng Wai Hung Mr. Lau Cheuk Lun Independent non-executive directors: Mr. Pang Hon Chung Mr. Cheng Tsang Wai Dr. Chung Hing Wah, Paul Total for the year ended 31 March 2012	Fees HK$’000 – – – – 107 106 88 301	Salaries, allowances and benefits in kind Pension scheme contribution Total emoluments HK$’000 HK$’000 HK$’000 300 12 312 200 10 210 200 10 210 660 12 672 – – 107 – – 106 – – 88 1,360 44 1,705	Salaries, allowances and benefits in kind Pension scheme contribution Total emoluments HK$’000 HK$’000 HK$’000 300 12 312 200 10 210 200 10 210 660 12 672 – – 107 – – 106 – – 88 1,360 44 1,705
			1,705

– IV-64 –

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FINANCIAL INFORMATION OF THE GROUP

Name of Directors Executive directors: Dr. So Shu Fai (i) Mr. Mak Bing Kau (i) Mr. Ng Wai Hung (i) Mr. Lau Cheuk Lun (i) Mr. Ling Siu Man, Simon (ii) Mr. Wong Ki Cheung (ii) Ms. Li Fung Ching, Catherine (ii) Independent non-executive directors: Mr. Pang Hon Chung Mr. Cheng Tsang Wai Dr. Chung Hing Wah, Paul Total for the year ended 31 March 2011	Fees HK$’000 – – – – – – – 107 106 88 301	Salaries, allowances and benefits in kind Pension scheme contribution Total emoluments HK$’000 HK$’000 HK$’000 92 4 96 61 3 64 61 3 64 165 4 169 1,149 19 1,168 1,166 12 1,178 1,166 12 1,178 – – 107 – – 106 – – 88 3,860 57 4,218	Salaries, allowances and benefits in kind Pension scheme contribution Total emoluments HK$’000 HK$’000 HK$’000 92 4 96 61 3 64 61 3 64 165 4 169 1,149 19 1,168 1,166 12 1,178 1,166 12 1,178 – – 107 – – 106 – – 88 3,860 57 4,218
			4,218

(i): Appointed as a director on 11 December 2010

(ii): Resigned as a director on 1 January 2011

The Group’s five highest paid individuals during the year included one director (2011: three ex-directors) and four (2011: two) individuals. Details of the emoluments of the Directors are reflected in the analysis presented above. The emoluments of the four individuals (2011: three ex-directors and two individuals) for the year are set out below:

Salaries and allowances, and pension scheme contributions, as Director disclosed above Salaries and allowances, as employee Pension scheme contributions, as employee	2012 HK$’000 – 4,348 48 4,396	2011 HK$’000 3,524 2,134 27
		5,685

There was no arrangement under which a director waived or agreed to waive any remuneration during the two years ended 31 March 2012 and 2011.

The emoluments of the highest paid individuals (other than the Directors as disclosed above) are fell within the following bands:

HK$500,001 – HK$1,000,000 HK$1,000,001 – HK$1,500,000 HK$1,500,001 – HK$2,000,000	Number of individuals 2012 2011 1 2 3 – – 3 4 5	Number of individuals 2012 2011 1 2 3 – – 3 4 5
		5

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FINANCIAL INFORMATION OF THE GROUP

16. DIVIDEND

No dividend has been proposed or declared by the Company during the two years ended 31 March 2012 and 2011.

17. (LOSS)/EARNINGS PER SHARE

The calculation of the basic (loss)/earnings per share is based on the loss attributable to equity holders of the Company of approximately HK$62,620,000 (2011: a profit of approximately HK$388,444,000) and the weighted average number of 1,068,468,860 (2011: 419,649,007, as adjusted to reflect the share consolidation and issue of new shares in December 2010) ordinary shares in issue during the year.

18. (LOSS)/PROFIT FOR THE YEAR ATTRIBUTABLE TO EQUITY HOLDERS

The consolidated (loss)/profit attributable to equity holders of the Company included a loss of approximately HK$5,873,000 (2011: a profit of HK$68,158,000) for the year, which has been dealt with in the financial statements of the Company.

19. PROPERTY, PLANT AND EQUIPMENT

Group

31 March 2012 At 1 April 2011, net of accumulated depreciation and impairments Additions Disposals Surplus on revaluation Depreciation provided during the year Impairments Exchange differences At 31 March 2012, net of accumulated depreciation and impairments At 31 March 2012 Cost or valuation Accumulated depreciation and impairments Net carrying amount Analysis of cost or valuation: At cost At valuation	Leasehold lands HK$’000 17,535 – – – (306) – 663 17,892 20,435 (2,543) 17,892 20,435 – 20,435	Leasehold buildings Furniture, fixtures and leasehold improvement HK$’000 HK$’000 154,982 20,367 – 107 – (2) 7,514 – (6,345) (2,044) – (14,285) 5,803 992 161,954 5,135 161,954 40,203 – (35,068) 161,954 5,135 – 40,203 161,954 – 161,954 40,203	Equipment and tools HK$’000 34,527 158 (4) – (3,349) (12,585) 185 18,932 56,513 (37,581) 18,932 56,513 – 56,513	Motor vehicles HK$’000 – 20 – – (3) – – 17 20 (3) 17 20 – 20	Total HK$’000 227,411 285 (6) 7,514 (12,047) (26,870) 7,643
					203,930

					279,125 (75,195)
					203,930

					117,171 161,954
					279,125

– IV-66 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Group

31 March 2011 At 1 April 2010, net of accumulated depreciation and impairments Additions Surplus on revaluation Depreciation provided during the year Deconsolidation of a liquidating subsidiary Deconsolidation of scheme subsidiaries Impairments Exchange differences At 31 March 2011, net of accumulated depreciation and impairments At 31 March 2011 Cost or valuation Accumulated depreciation and impairments Net carrying amount Analysis of cost or valuation: At cost At valuation	Leasehold lands HK$’000 35,032 – – (629) (6,537) (11,813) – 1,482 17,535 19,687 (2,152) 17,535 19,687 – 19,687	Leasehold buildings Furniture, fixtures and leasehold improvement HK$’000 HK$’000 291,830 22,400 – 1,009 35,561 – (11,095) (2,092) (4,742) (1,846) (168,348) – – – 11,776 896 154,982 20,367 154,982 38,403 – (18,036) 154,982 20,367 – 38,403 154,982 – 154,982 38,403	Equipment and tools HK$’000 51,049 1,072 – (4,057) (13,166) – (1,922) 1,551 34,527 65,413 (30,886) 34,527 65,413 – 65,413	Motor vehicles HK$’000 496 – – (13) (335) – (148) – – – – – – – –	Total HK$’000 400,807 2,081 35,561 (17,886) (26,626) (180,161) (2,070) 15,705
					227,411

					278,485 (51,074)
					227,411

					123,503 154,982
					278,485

The recoverable amount of impaired asset is estimated in order to determine the extent of any impairment loss on property, plant and equipment (“PPE”). The recoverable amount of the PPE is the higher of its estimated fair value less cost to sell and value in use. The fair values of the Group’s PPE have been estimated by reference to market evidence of recent transactions for similar assets. The impairment loss is recognised and charged to profit or loss in the period in which it arises to the extent that the carrying amount exceeds its recoverable amount.

Due to the low utilisation of the production capacity of manufacturing operation as a result of the insufficient orders for set-top boxes, the major product of the Group, the Group’s manufacturing operation has incurred substantial idle overhead costs during the year. In view of the heavy overhead costs and the continuous losses of the manufacturing operation, the Directors considered that it is more appropriate to determine the recoverable amounts of the PPE on the basis of the higher of its estimated fair value less cost to sell and values in use. Impairment losses recognised in respect of the PPE in the year amounted to approximately HK$26,870,000 (2011: HK$2,070,000, due to the greater than anticipated obsolescence) that were recognised in consolidated profit or loss for the year.

– IV-67 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

The Group’s leasehold lands and buildings located in the PRC were held under medium term lease.

At the end of the reporting period, had the whole class of the Group’s buildings been carried at cost less accumulated depreciation, their carrying amounts would have been included in the financial statements at the carrying amount of approximately HK$89,542,000 (2011: HK$95,887,000).

At the end of the reporting period, the Group was in the process of obtaining the land use right and building ownership certificates in respect of the Group’s lands and buildings located in Mainland China with the carrying amounts of approximately HK$17,892,000 (2011: HK$17,535,000) and HK$161,954,000 (2011: HK$154,982,000), respectively.

At the end of the reporting period, the Group’s leasehold lands and buildings with the carrying amounts of approximately HK$17,892,000 (2011: HK$17,535,000) and HK$161,954,000 (2011: HK$154,982,000), respectively, were pledged to secure for certain of the Group’s other borrowings as further detailed in note 28 to these financial statements.

At the end of last reporting period, equipment and tools with the carrying amounts of approximately HK$14,199,000 were pledged to an independent third party to secure for other borrowing as further detailed in note 28 to these financial statements.

20. INVESTMENTS IN SUBSIDIARIES

Unlisted investments, at cost Less: Impairments	Company 2012 2011 HK$’000 HK$’000 58,822 58,822 (58,812) (58,812) 10 10	Company 2012 2011 HK$’000 HK$’000 58,822 58,822 (58,812) (58,812) 10 10
		10

The balances with subsidiaries were unsecured, interest-free and had no fixed term of repayment.

The table below lists the subsidiaries of the Company which, in the opinion of the Directors, principally affected the results of the year or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the Directors, result in particulars of excessive length.

– IV-68 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Particulars of the Company’s principal subsidiaries are as follows:

		Nominal
		value of
	Place of	issued/
	incorporation/	registered/
	registration	paid-up	Percentage of equity
Name	and operation	capital	attributable to the Group		Principal activities
			2012	2011
			%	%
Directly held:
Champion Apex Limited	Hong Kong	HK$10,000	100	100	Trading of electronic
					consumer products and
					related components
Grand Golden Profit Limited	Hong Kong	HK$10,000	100	100	Inactive
Tonic Electronics (B.V.I.) Limited	BVI	HK$1	100	100	Investment holding
Indirectly held:
東莞鑫聯數碼科技有限公司#	PRC	RMB68,830,005	100	100	Manufacture, processing, and
(Dongguan Xin Lian Digital					sale of electronic consumer
Technology Co., Ltd.**)					products
冠華港貿易(深圳)有限公司#	PRC	RMB1,000,000	100	100	Dormant
(Guan Hua Gang Trading (Shenzhen)
Co., Ltd.**)
Tonic Marketing Limited	BVI	US$0.01	100	100	Investment holding

Wholly-foreign-owned enterprises

** The English name is for identification purpose only

21. INVENTORIES

Raw materials Work in progress Finished good ACCOUNTS RECEIVABLES Accounts receivables	Group 2012 2011 HK$’000 HK$’000 2,305 429 1,573 6,743 1,621 – 5,499 7,172 Group 2012 2011 HK$’000 HK$’000 9,215 9,801

22. ACCOUNTS RECEIVABLES

– IV-69 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

The Group’s trading terms with its customers are mainly on credit. The credit period is generally 30 days extending up to 90 days for major customers. The Group seeks to maintain strict control over its outstanding receivables in order to minimise credit risk. Overdue balances are reviewed regularly by senior management. At the end of the reporting period, the Group had certain concentration of credit risk as approximately 85% (2011: 63%) and 100% (2011: 100%) of the Group’s trade receivables were due from the Group’s largest trade debtor and the five largest trade debtors, respectively.

The aging analysis of accounts receivables at the end of the reporting period, based on the invoice date, is as follows:

30 days or less 31 to 60 days 61 to 90 days	Group 2012 2011 HK$’000 HK$’000 5,097 5,261 487 4,540 3,631 – 9,215 9,801	Group 2012 2011 HK$’000 HK$’000 5,097 5,261 487 4,540 3,631 – 9,215 9,801
		9,801

At the end of the reporting period, the Group’s accounts receivables that were neither past due nor impaired which relate to several customers for whom there was no recent history of default.

23. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

Prepayments Deposits and other receivables Less: Impairments (note 14)	Group 2012 2011 HK$’000 HK$’000 176 621 2,137 1,644 2,313 2,265 – (211) 2,313 2,054	Group 2012 2011 HK$’000 HK$’000 176 621 2,137 1,644 2,313 2,265 – (211) 2,313 2,054
		2,265 (211)
		2,054

Included in the impairment recognised in respect of prepayments, deposits and other receivables were individually impaired deposits and other receivables of approximately HK$211,000 with an equivalent gross carrying amount at the end of the prior reporting period. The individually impaired other receivables relate to counterparties that were in default of payment. The Group does not hold any collateral or other credit enhancements over these balances.

Save as disclosed, none of the above assets is either past due nor impaired and the financial assets included in the above balances related to receivables for which there was no recent history of default.

24. DUE FROM A SCHEME SUBSIDIARY/DUE TO A DIRECTOR

The amounts due from a scheme subsidiary and due to a director were unsecured, interest free and had no fixed term of repayment. Further details of the amounts due from the scheme subsidiary were explained in note 11(c).

During the year, the scheme subsidiary has disposed of the Pledged Properties which were secured for the Xin Lian Loans of approximately RMB103,000,000 (equivalent to approximately HK$122,055,000) borrowed by an indirect wholly-owned subsidiary of the Company. The Xin Lian Loans have been fully settled by the proceeds from the disposal of the Pledged Properties. Under the Xin Lian Loans arrangement, the equivalent amounts due from the scheme subsidiary have been simultaneously recovered and released upon the repayment of the Xin Lian Loans through the disposal of the Pledged Properties.

– IV-70 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

25. CASH AND BANK BALANCES

At the end of the reporting period, the cash and bank balances of the Group denominated in Renminbi (“RMB”) amounted to approximately HK$4,372,000 (2011: HK$846,000). RMB is not freely convertible into other currencies. However, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

Cash at banks earns interest at floating rates based on daily bank deposit rates. The bank balances are deposited with creditworthy banks with no recent history of default. The carrying amounts of the cash and bank balances approximate to their fair values.

26. ACCOUNTS PAYABLES

The aging analysis of accounts payables at the end of the reporting period, based on the invoice date, is as follows:

30 days or less 31 to 60 days 61 to 90 days Over 90 days	Group 2012 2011 HK$’000 HK$’000 71 327 – 1,473 – 275 499 170 570 2,245	Group 2012 2011 HK$’000 HK$’000 71 327 – 1,473 – 275 499 170 570 2,245
		2,245

27. ACCRUALS AND OTHER PAYABLES

Other payables Accruals	Group 2012 2011 HK$’000 HK$’000 6,058 12,047 19,767 18,991 25,825 31,038	Group 2012 2011 HK$’000 HK$’000 6,058 12,047 19,767 18,991 25,825 31,038
		31,038

At the end of the reporting period, included above are loan interest and other payables to the ultimate holding company amounted to approximately HK$1,758,000 (2011: HK$958,000) and HK$2,095,000 (2011: HK$1,469,000), respectively.

– IV-71 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

28. BORROWINGS

Bank loans Loans from the ultimate holding company Loans from a shareholder of the Company Other loans Secured Unsecured Carrying amounts repayable: Within one year or on demand, disclosed as current liabilities More than one year, but not exceeding two years, disclosed as non-current liabilities	Group 2012 2011 HK$’000 HK$’000 – 112,575 69,700 64,700 49,000 – 84,870 91,245 203,570 268,520 124,870 131,245 78,700 137,275 203,570 268,520 185,570 186,755 18,000 81,765 203,570 268,520	Group 2012 2011 HK$’000 HK$’000 – 112,575 69,700 64,700 49,000 – 84,870 91,245 203,570 268,520 124,870 131,245 78,700 137,275 203,570 268,520 185,570 186,755 18,000 81,765 203,570 268,520
		268,520

		131,245 137,275
		268,520

		186,755 81,765
		268,520

Bank loans at 31 March 2011 were arranged at floating rates at the range from 6.9% to 13% per annum. Interest-bearing other borrowings are arranged at fixed interest rates at the range from 2% to 36% per annum.

At 31 March 2011, the Group’s pledged bank borrowings of approximately HK$112,575,000 were secured by the mortgages over the leasehold lands and buildings of a scheme subsidiary. This loan has been fully repaid during the year in accordance with the arrangement of Xin Lian Loans as explained in note 24 to these financial statements.

The loans from the ultimate holding company of HK$40,000,000 (2011: HK$40,000,000) were interest bearing at 2% per annum and secured by a share charge over the entire issued capital of a wholly-owned subsidiary of Company. The rest of loans from the ultimate holding company were unsecured, interest free and had no fixed term of repayment.

At 31 March 2012, the Group’s loans from a shareholder of the Company were unsecured and bearing interest at Hong Kong prime interest rate plus 2% per annum. HK$31,000,000 of which had no fixed term of repayment and the rest of them are not repayable within one year.

At the end of the reporting period, the Group’s other loans of approximately HK$84,870,000 (2011: HK$91,245,000) were secured by the mortgages over the Group’s leasehold land and buildings which had the aggregate carrying amounts of approximately HK$179,846,000 (2011: HK$172,518,000) and equipment and tools with the carrying amounts of approximately HK$nil (2011: HK$14,199,000).

– IV-72 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

29. DEFERRED TAX LIABILITIES

The movements in the Group’s deferred tax liabilities during the year are as follows:

At 1 April 2010 Deconsolidation of a liquidating subsidiary Deconsolidation of scheme subsidiaries Deferred tax debited to other comprehensive income Exchange differences At 31 March 2011 and 1 April 2011 Deferred tax debited to other comprehensive income Exchange differences At 31 March 2012	Accelerated tax depreciation HK$’000 3,739 (3,726) (13) – – – – – –	Revaluation of properties HK$’000 27,738 (388) (20,698) 8,890 302 15,844 1,879 601 18,324	Total HK$’000 31,477 (4,114) (20,711) 8,890 302
			15,844 1,879 601
			18,324

Subject to agreement by the respective tax authorities, the Group had tax losses arising in Hong Kong of approximately HK$1,550,000 (2011: HK$301,000) at the end of the reporting period that are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose. The allowable losses of the Company’s subsidiaries incorporated in Hong Kong are yet to be agreed by the IRD. At the end of the reporting period, the Group also had tax losses arising in Mainland China of HK$711,896 (2011: HK$21,895,000) that will expire in one to five years for offsetting against future taxable profit. Deferred tax assets have not been recognised in respect of these losses as the Directors consider not probable that the subsidiaries will have sufficient future taxable profits against which those tax losses can be utilised.

Pursuant to the PRC Corporate Income Tax Law, a 10% withholding tax is levied on dividends declared to foreign investors from the foreign investment enterprises established in Mainland China. The requirement is effective from 1 January 2008 and applies to earnings after 31 December 2007. A lower withholding tax rate may be applied if there is a tax treaty between China and jurisdiction of the foreign investors. For the Group, the applicable rate is 5% or 10%. The Group is therefore liable to withholding taxes on dividends distributed by those subsidiaries established in Mainland China in respect of earnings generated from 1 January 2008.

No deferred tax has been recognised for withholding taxes that would be payable on the unremitted earnings of the Group’s subsidiary established in Mainland China, as the subsidiary did not have any distributable earnings at the end of the reporting period.

There are no income tax consequences attaching to the payment of dividends by the Company to its shareholders.

– IV-73 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

30. SHARE CAPITAL

Notes Ordinary share of HK$0.01 each at 31 March 2011 and 2012 Authorised: At beginning of year Share Subdivision (b) Share Consolidation (c) At 31 March Issued and fully paid: At beginning of year Capital Reduction (a) Share Consolidation (c) Share after Capital Reorganisation Issue of New Shares (d) At 31 March	2012 2011 No. of shares Per share Amount No. of shares Per share Amount HK$ HK$’000 HK$ HK$’000 30,000,000,000 0.01 300,000 3,000,000,000 0.10 300,000 – – – 297,000,000,000 – – – – – (270,000,000,000) – – 30,000,000,000 0.01 300,000 30,000,000,000 0.01 300,000 1,068,468,860 0.01 10,685 1,057,889,962 0.10 105,789 – – – – – (104,731) – – – (952,100,966) – – 1,068,468,860 0.01 10,685 105,788,996 0.01 1,058 – – – 962,679,864 0.01 9,627 1,068,468,860 0.01 10,685 1,068,468,860 0.01 10,685	2012 2011 No. of shares Per share Amount No. of shares Per share Amount HK$ HK$’000 HK$ HK$’000 30,000,000,000 0.01 300,000 3,000,000,000 0.10 300,000 – – – 297,000,000,000 – – – – – (270,000,000,000) – – 30,000,000,000 0.01 300,000 30,000,000,000 0.01 300,000 1,068,468,860 0.01 10,685 1,057,889,962 0.10 105,789 – – – – – (104,731) – – – (952,100,966) – – 1,068,468,860 0.01 10,685 105,788,996 0.01 1,058 – – – 962,679,864 0.01 9,627 1,068,468,860 0.01 10,685 1,068,468,860 0.01 10,685
		300,000

		105,789 (104,731) –
		1,058 9,627
		10,685

Notes for 2011:

(a) Upon completion of the capital reorganisation, the issued share capital of the Company was reduced by cancelling the paid up capital to the extent of HK$0.099 on each issued existing share on the Effective Date such that the nominal value of all the issued existing Share had been reduced from par value of HK$0.10 to HK$0.001 each (the “Capital Reduction”).
(b) Upon completion of the capital reorganisation, each of the authorised but unissued share of par value HK$0.10 each in the share capital of the Company was subdivided into 100 shares of par value HK$0.001 each on the Effective Date (the “Share Subdivision”).
(c) Subject to Capital Reduction and Share Subdivision becoming effective, the share consolidation was implemented by consolidation of every 10 issued and unissued shares of par value HK$0.001 each into one consolidated share of par value HK$0.01 each in the share capital of the Company (the “Share Consolidation”).
(d) The Company entered into the subscription agreement with Skill China, on 15 January 2010 (as amended by the supplemental subscription agreement dated 24 June 2010). According to the subscription agreement, the subscriber agreed to subscribe for an aggregate of 909,785,366 subscription shares with a par value of HK$0.01 each in the share capital of the Company at the subscription price of approximately HK$0.0879 per subscription share resulting in the cash consideration of HK$80 million. These shares were issued and allotted to the subscriber on the Effective Date, and 63,473,398 subscriptions shares of which were transferred to the scheme on the same day as option shares for the purpose of the creditor scheme.

– IV-74 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Upon the capital reorganisation becoming effective, 52,894,498 remuneration shares with a par value of HK$0.01 each in the share capital of the Company were issued and allotted to two financial advisors of the Company in relation of the Restructuring at a price of approximately HK$0.0879 per remuneration share for settlement of part of their professional fees in relation to the Restructuring.

On the Effective Date, following transfer of the Option Shares by Skill China to Schemeco and the allotment and issue of the Remuneration Shares, Skill China was interested in 846,311,968 shares, representing approximately 79.21% of the entire issued share capital of the Company. To restore the requirement of the minimum 25% public float under Rule 8.08(1)(a) of the Listing Rules, as disclosed in the joint announcement of the Company and the board of directors of Skill China dated 31 December 2010 (the “Announcement”), upon the close of the offer and completion of the placing to restore the minimum 25% public float requirement, Skill China was interested in 739,164,898 shares, representing approximately 69.18% of the entire issued share capital of the Company, and remains as the controlling shareholder at the end of the last reporting period.

Capital management

The primary objective of the Group’s capital management is to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders’ value.

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes for managing capital during the two years ended 31 March 2012 and 2011.

The Group monitors capital using a gearing ratio, which is net debt divided by the capital. The Group’s policy is to maintain the gearing ratio below 100%. Net debts include interest-bearing bank and other borrowings less cash and bank balances. Capital represents total equity. The gearing ratios at the end of reporting period were as follows:

Bank and other borrowings Less: Cash and bank balances Net debts Capital Gearing ratio	Group 2012 2011 HK$’000 HK$’000 203,570 268,520 (33,683) (8,927) 169,887 259,593 4,351 58,515 3905% 444%	Group 2012 2011 HK$’000 HK$’000 203,570 268,520 (33,683) (8,927) 169,887 259,593 4,351 58,515 3905% 444%
		259,593 58,515 444%

The gearing ratio above exceeds 100%. In view of such circumstance, the Directors have given careful consideration to the future liquidity and performance of the Group and its available sources of finance in assessing whether the Group will have sufficient financial resources to continue as a going concern. Further details are explained in note 2 to these financial statements.

– IV-75 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

31. RESERVES

(a) Group

The amounts of the Group’s reserves and movements therein are presented in the consolidated statement of comprehensive income and consolidated statement of changes in equity.

(b) Company

Notes At 1 April 2010 Profit for the year Capital reorganisation: – capital reduction 31(c) – issue of shares 30 – share premium cancellation 31(c) – set-off accumulated losses against contributed reserve 31(c) At 31 March 2011 and 1 April 2011 Loss for the year At 31 March 2012	Share premium account Contributed reserve Accumulated losses HK$’000 HK$’000 HK$’000 71,388 58,794 (394,756) – – 68,158 – 104,731 – 75,022 – – (71,388) 71,388 – – (176,399) 176,399 75,022 58,514 (150,199) – – (5,873) 75,022 58,514 (156,072)	Total HK$’000 (264,574) 68,158 104,731 75,022 – –
		(16,663) (5,873)
		(22,536)

(c) Nature and purpose of reserves

(i) Share premium account

Under the Companies Law of the Cayman Islands, the share premium account of the Company is available for distribution to shareholders, subject to the provisions of the Company’s memorandum of association or articles of association and provided that immediately following the distribution of dividends, the Company is able to pay its debts as and when they fall due in the ordinary course of business. In the opinion of the Directors, the Company’s reserves available for distribution represent the share premium account, contributed reserve and retained profits.

During the year ended 31 March 2011, the amount of approximately HK$71,388,000 standing to the credit of the share premium account of the Company as at 31 March 2010 was cancelled (“Share Premium Cancellation”) pursuant to a resolution of the Company. The credit arising from the Share Premium Cancellation was transferred to the contributed reserve account of the Company.

(ii) Contributed reserve

The contributed reserve of the Group represents the difference between the nominal value of the share capital of the former holding company of the Group acquired pursuant to the Group reorganisation to rationalise the Group structure in preparation for the listing of the Company’s shares on the Stock Exchange over the nominal value of the Company’s shares issued in exchange therefor.

– IV-76 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

During the year ended 31 March 2011, upon the completion of the Capital Reduction of the Company, the issued share capital of the Company was reduced from approximately HK$105,789,000 to approximately HK$1,058,000. The Capital Reduction resulted in the decrease of the issued share capital of the Company by approximately HK$104,731,000. Such amount was credited to the contributed reserve account of the Company. The credits arising from the Share Premium Cancellation and Capital Reduction in aggregate amounts of approximately HK$176,119,000 were transferred to the contributed reserve account of the Company. The Directors were authorised to utilise the amounts of approximately HK$176,399,000 to set off against the accumulated losses of the Company.

(iii) Property revaluation reserve

The property revaluation reserve has been set up and are dealt with in accordance with the accounting policies adopted for buildings in note 4 to these financial statements.

(iv) Foreign currency translation reserve

The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operation. The reserve is dealt with in accordance with the accounting policies set out in note 4 to these financial statements.

32. MAJOR NON-CASH TRANSACTIONS

The Group entered into the following non-cash transactions which are not reflected in the consolidated statement of cash flows:

(a) The Group’s bank and other loans of approximately RMB103,000,000 (equivalent to approximately HK$122,055,000) has been fully settled by the proceeds from the disposal of the Pledged Properties held by the scheme subsidiary. Under the Xin Lian Loans arrangement, the equivalent amount due from the scheme subsidiary has been simultaneously recovered and released upon the repayment of the Xin Lian Loans through the disposal of the Pledged Properties. Further details for the Xin Lian Loans Arrangement are explained in note 24 to these financial statements.
(b) During the year ended 31 March 2011, on the Effective Date, 909,785,366 subscription shares with a par value of HK$0.01 were issued and allotted to a new investor, Skill China, for the cash consideration of HK$80 million (approximately HK$0.0879 per subscription share). Based on the creditor scheme, all proceeds from the issuance of the subscription shares was made available to the administrators to settle and discharge the claims under the creditor scheme.

33. OPERATING LEASE ARRANGEMENTS

(a) As lessor

The Group leases certain of its properties under operating lease arrangement, with leases negotiated for terms ranging from one to eight years. The terms of leases generally also require the tenants to pay security deposits and provide for periodic rent adjustments according to the then prevailing market conditions. At the end of the reporting period, the Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows:

Within one year In the second to fifth year, inclusive After five years	2012 HK$’000 3,010 8,482 771 12,263	2011 HK$’000 2,487 9,641 1,536
		13,664

– IV-77 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

(b) As lessee

The Group leases certain of its buildings under operating lease arrangements, with leases negotiated for a term ranging from one to two years. At the end of the reporting period, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth year inclusive	2012 HK$’000 161 – 161	2011 HK$’000 1,116 181
		1,297

34. CAPITAL COMMITMENTS

At the end of the reporting period, the Group does not have capital expenditure in respect of property, plant and equipment contracted for but not provided in the consolidated financial statements.

At 31 March 2011, the Group had the capital commitments contracted but not provided for in the financial statements in respect of unpaid portion of capital contributions to an indirect-holding subsidiary of the Company amounting to approximately HK$584,000.

35. RELATED PARTY TRANSACTIONS

In addition to the transactions and balances detailed elsewhere in the financial statements, the Group had the following related party and connected transactions during the year:

(a) Compensation of key management personnel of the Group:

Short term employee benefits Post-employment benefits Total compensation paid to key management personnel	2012 HK$’000 6,009 44 6,053	2011 HK$’000 5,319 67
		5,386

Further details of directors’ emoluments are included in note 15 to these financial statements.

(b) Details of the Group’s amounts due to a director are included in note 24 to these financial statements.

– IV-78 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

(c) As disclosed in notes 12, 27 and 28 to these financial statements, the Group has the following transactions and balances with related parties:

		2012	2011
	Notes	HK$’000	HK$’000
Interest paid to:
– Ultimate holding company	(i)	800	800
– A shareholder of the Company	(ii)	1,014	–
Balances with the ultimate holding company:
– Loan interest payable		1,758	958
– Other payables		2,095	1,469
– Secured loan	(i)	40,000	40,000
– Unsecured loan	(iii)	29,700	24,700
Loans from a shareholder of the Company	(ii)	49,000	–

Notes:

(i) This loan is interest bearing at 2% per annum, and pledged by a share charge over the entire issued capital of a wholly-owned subsidiary of the Company, and has no fixed terms of repayment.
(ii) The Group’s loans from a shareholder of the Company were unsecured and bearing interest at Hong Kong prime interest rate plus 2% per annum. HK$31,000,000 of which has no fixed term of repayment and the rest of them are not repayable within one year.
(iii) This loan is unsecured, interest-free and has no fixed terms of repayment.

36. EVENTS AFTER THE END OF THE REPORTING PERIOD

(a) Voluntary liquidation of a subsidiary – Total Ally

Subsequent to the end of the reporting period, on 19 April 2012, the Board resolved to voluntarily wind up an indirect wholly-owned subsidiary of the Company, Total Ally, and to appoint Mr. Lai Kar Yan, Derek, Mr. Yeung Lui Ming, Edmund, and Mr. Ho Kwok Leung, Glen, as liquidators for the winding-up of Total Ally jointly and severally. With effect from the commencement date of the liquidation, the financial results and operation of Total Ally Group will be deconsolidated from the Group accordingly.

Total Ally Group, through its subsidiary Xin Lian, is principally engaged in the manufacture, processing and sale of electronic consumer products and related components (currently being set-top box). The manufacturing operation of the Group has been carried out mainly through Total Ally Group. The voluntary winding-up of Total Ally Group has resulted in the restructuring of the Group’s business model in the set-up box operation. The Board considered that this provides an opportunity for the Group to have a more cost effective and commercially feasible structure to improve financial performance of the Group.

Please see the Company’s public announcement date 19 April 2012 for further details. Unless otherwise specified, capitalised terms used herein this note shall have the same meanings as in this announcement.

– IV-79 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

(b) Change of controlling shareholder

As described in the Joint Announcement on 27 April 2012, subsequent to the end of the reporting period, on 24 April 2012, the Board was informed by Vendor 1 that Success Well (the “Purchaser”) entered into S&P Agreement 1 with Skill China (the “Vendor 1”) and Dr. So Shu Fai (the “Vendor Guarantor”) pursuant to which the Purchaser has conditionally agreed to purchase and Vendor 1 has conditionally agreed to sell 707,110,832 Sale Shares at a consideration of HK$0.251 per Sale Share.

On 27 April 2012, the Purchaser also entered into the S&P Agreement 2 with Greatest Mark (the “Vendor 2”), pursuant to which the Purchaser has conditionally agreed to purchase and Vendor 2 have conditionally agreed to procure the sale of 42,738,754 Sale Shares at a consideration of HK$0.50 per Sale Share. The consideration payable by the Purchaser for the Acquisition amounted to in aggregate HK$198,854,195.83. The Sale Shares in aggregate represented approximately 70.18% of the entire issued share capital of the Company as at the date of the Joint Announcement.

As at the date of the Joint Announcement, all conditions to the Completion have been satisfied or waived. Upon the Completion and completion of S&P Agreement 2 on 7 May 2012, the Purchaser and parties acting in concert with it owned 749,849,586 Shares, representing approximately 70.18% of the entire issued share capital of the Company as at the date of the Joint Announcement and became the controlling shareholder of the Company accordingly. Unless otherwise specified, capitalised terms used herein this note shall have the same meanings as in the Joint Announcement.

(c) Change of board composition

The change of controlling shareholder to Success Well as detailed in (b) above had triggered Success Well to make a general offer for all the issued shares of the Company (other than those shares already owned or agreed to be acquired by Success Well and parties acting in concert with it) under the Code on Takeovers and Mergers of Hong Kong. The general offer closed on 22 June 2012 as detailed in the announcement of the Company published on the same date.

Upon the completion of the general offer, the board composition changed accordingly. Please see the Company’s announcement on 22 June 2012 for the changed board composition and the role and functions of the Directors with effect from 23 June 2012 for further details.

37. APPROVAL OF FINANCIAL STATEMENTS

These financial statements were approved and authorised for issue by the Board of Directors on 29 June 2012.

– IV-80 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

MANAGEMENT DISCUSSION AND ANALYSIS OF HISTORICAL RESULTS OF OPERATIONS

Set out below is the management discussion and analysis of the Group’s operations for the nine months ended 31 December 2012, for the 12 months ended 31 March 2012, and for the 12 months ended 31 March 2011. The information set out below is principally extracted from the “Management Discussion and Analysis” section of the relevant annual reports of the Company to provide further information relating to the financial condition and results of operations of the Group during the periods stated. These extracted materials were prepared prior to the Acquisition and speak as of the date they were originally published. The Company’s prospects and intentions will have changed since that date, and the reader should therefore not place undue reliance on this information, particularly the information consisting of or relating to forward-looking or future statements.

For the nine months ended 31 December 2012

Business Overview

From 1 April 2012 to 31 December 2012, the Group recorded a turnover of HK$91,453,000 and a loss attributable to equity holders of the Company of HK$11,796,000, compared to turnover of HK$178,214,000 and loss of HK$62,620,000 for the year from 1 April 2011 to 31 March 2012. Among the loss for the nine months ended 31 December 2012, as Total Ally Holding Limited ( Total Ally ), an indirect wholly-owned subsidiary of the Company which operated a factory in the PRC has been put under voluntary liquidation since 19 April 2012, a loss of HK$5,062,000 was incurred from the loss of control of Total Ally. Excluding such loss, the loss for the period would amount to HK$6,734,000. Although the results of the Group remained unsatisfactory for the nine months ended 31 December 2012, the loss has been narrowed with the joint effort of the management and all staff.

Business Development and Transition

Electronic and Electrical Products Trading Business

Under the financial crisis, the import and export of electronic and information products in Mainland China slightly climbed with aggregate import and export of US$1,186,800,000,000 for the year of 2012, representing an increase of 5.1%. The speed of increase dropped 6.4% as compared with last year, 1.1% lower than the growth of the aggregate amount of domestic foreign trading of commodity. As the industry environment in which the Group operates is increasingly harsh, the trading business of electronic and electrical products also encounters enormous difficulties and pressure.

From 1 April 2012 to 31 December 2012, the Group realized a turnover of HK$80,102,000 from electronic and electrical products trading business, decreased by HK$98,112,000 as compared to the year of 1 April 2011 to 31 March 2012. The main reason of the decrease is that turnover of last year included the turnover of HK$69,275,000 realised from Total Ally which was put under voluntary liquidation since April 2012. Due to the increasing difficulties in the Group’s electronic and electrical products trading business expansion, the management is striving to open up new business line.

– IV-81 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Property Related Materials and Equipment Procurement Business

On 7 May 2012, CMPD has become the controlling shareholder of the Group, providing a strong backup for the Group to explore new ventures. After prudent analysis, the Board considered that the Group has difficulty to resume its profitability if it continues to limit its major operations on electronic and electrical products trading business. In order to improve its financial results, the Group strives to operate the existing trading of electronic and electrical products, as well as fully leverage its own experience on product sourcing, adjusting strategies to extend the business scope to sectors beyond electronics and electrical products. The Group will first seek internal opportunities to tap into other business, to materialize the consolidation and optimization of internal resources so as to enhance the overall operating efficiency and effectiveness of the Group.

The procurement agreement in relation to the sourcing of the electronic and electrical products and building related materials and equipment by 冠華港貿易（深圳）有限公司 (Guan Hua Gang Trading (Shenzhen) Co., Ltd.), a wholly-owned subsidiary of the Company, for CMPD, has been duly approved in the extraordinary general meeting held on 16 November 2012. Subsequent to the approval of such continuing connected transactions, it has contributed HK$12,659,000 turnover to the nine months ended 31 December 2012.

As the property related procurement business smoothly moves ahead, it is beneficial to accumulate abilities and experience related to the property industry, and to enhance the resources synergies with CMPD, the controlling shareholder, to improve the Group’s profitability in the future.

Outlook and Prospects

Under the background of the continuous implementation of monetary quantitative easing by the United States of America and Japan, the export trading of Mainland China felt the full negative effect. Even it is more difficult to enlarge the electronic and electrical products trading business, the management will still continuously strive to explore new customers. In addition, the Group will focus on enhancing the ability for the property related materials and equipment procurement business, broadening business channels and deepen the understanding of the property industry and accumulating related experience. The Group will continue to explore and develop other business with higher return and more growing potential.

Liquidity and Financial Resources

As at 31 December 2012, the net assets value of the Group attributable to equity holders of the Company amounted to approximately HK$244,000 (31 March 2012: approximately HK$4,351,000). The reduction has been the combined results of operation loss and loss on loss of control of subsidiaries during the nine months ended 31 December 2012.

As at 31 December 2012, the trade receivable balance was approximately HK$48.3 million (31 March 2012: HK$9.2 million). All trade receivables were on 0 to 30 days credit terms with strict control to minimize credit risks.

– IV-82 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

The gearing ratio as at 31 December 2012, calculated on the basis of borrowings over total equity attributable to the equity holders of the Company, was 32.8 as compared to 46.8 as at 31 March 2012. As at 31 December 2012, the Group’s aggregate borrowings were approximately HK$8 million (31 March 2012: HK$203.6 million).

Treasury Policies and Exchange & Other Exposures

The Group’s monetary transactions and deposits are mainly in the form of US dollars and Hong Kong dollars and also include a minor percentage of Renminbi. The Group expected that the exposure to exchange rates fluctuation was not significant and therefore had not engaged in any hedging activities.

Employee Remuneration and Relations

The Group remunerates the employees by reference to their qualification, experience, responsibilities, profitability of the Group and current market conditions.

As at the Latest Practicable Date, the Group has 4 employees (31 March 2012: 310 employees), including two senior managements, one company secretary and one administrative staff. The significant decrease in the number of employees was due to the voluntary liquidation of Total Ally Group on 19 April 2012.

The Group’s total expenses on salaries, wages and allowances (including directors’ remuneration) for the nine months from 1 April 2012 to 31 December 2012 was approximately HK$3.1 million (for the year from 1 April 2011 to 31 March 2012: HK$18.3 million).

Apart from basic salaries and wages, fringe benefits such as contributions to the mandatory provident fund and group medical insurance also offered to the employees. A share option scheme was adopted at the annual general meeting of the Company held on 27 September 2011 (the “2011 Share Option Scheme”) for the purpose of providing incentives and rewards to eligible participants who have contributed to the success of the Group’s operations. No grants under the 2011 Share Option Scheme were made during the nine months ended 31 December 2012.

– IV-83 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Borrowings

Notes Loans from ultimate holding company (i) Loan from immediate holding company (ii) Loan from a shareholder of the Company (iii) Loans from another shareholder of the Company (iv) Other loans (v) Analysed as: Secured Unsecured Carrying amounts repayable: Within one year or on demand, disclosed as current liabilities More than one year, but not exceeding two years, disclosed as non-current liabilities	At 31 December 2012 HK$’000 – 3,000 5,000 – – 8,000 – 8,000 8,000 8,000 – 8,000	At 31 March 2012 HK$’000 69,700 – – 49,000 84,870
		203,570

		124,870 78,700
		203,570

		185,570 18,000
		203,570

Notes:

(i) As at 31 March 2012, the loans from the ultimate holding company of HK$40,000,000 bore interest at fixed rate of 2% per annum and were secured by a share charge over the entire issued capital of a wholly-owned subsidiary of Company. The remaining loans of HK$29,700,000 from the former ultimate holding company were unsecured, interest free and had no fixed term of repayment. During the period from 1 April 2012 to 31 December 2012, the loans from the former ultimate holding company were derecognised upon loss of control of subsidiaries and the share charge was released.
(ii) The loan from immediate holding company is unsecured, bears interest at 6-month Hong Kong Interbank Offered Rate plus 2% per annum. The loan is repayable on 31 December 2013.
(iii) The loan from a shareholder of the Company is unsecured, and repayable on demand.
(iv) As at 31 March 2012, the loans from another shareholder of the Company were unsecured and bore interest at Hong Kong prime interest rate plus 2% per annum, in which, HK$31,000,000 had no fixed term of the repayment and the remaining loan of HK$18,000,000 was not repayable within one year. As at 19 April 2012, Total Ally assumed all responsibilities of the outstanding loans amounting to HK$28,000,000 due to this shareholder of the Company by the Group. The remaining loans of HK$21,000,000 was offset against prepayments and advancements to Total Ally Group. Details are set out in note 28.
(v) At 31 March 2012, other loans of approximately HK$84,870,000 were secured by the mortgages over the Group’s leasehold buildings with an aggregate carrying amount of approximately HK$179,846,000. The other loans were derecognised upon loss of control of subsidiaries.

– IV-84 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

For the 12 months ended 31 March 2012

Group Results

During the year, the Group recorded a turnover of HK$178.2 million (2011: HK$77.4 million) and a loss attributable to equity holders of the Company of HK$62.6 million (2011: profit attributable to equity holders of the Company of HK$388.4 million).

However, the loss was mainly arrived at after debiting non-cash provision of impairment on assets of HK$26.9 million and crediting a gain of HK$8.9 million for the deconsolidation of a liquidating subsidiary. As there was a net credit of HK$460.6 million of non-cash items for the previous year, like for like comparison and before such non-cash debit/credit for the year would be loss of HK$44.6 million for the year ended 31 March 2012 and loss of HK$72.2 million for the year before.

Post-Group Restructuring

Following the successful completion to restructure the Group at the end of December 2010, as detailed in the circular of the Company dated 28 June 2010 to shareholders, the Group was in a much leaner and healthier position free from litigations and under a new management.

Starting from the beginning of the year under review, the policy to shift market emphasis to the Middle East was proved the correct move. Annual turnover increased to HK$178.2 million for the year ended 31 March 2012 (2011: HK$77.4 million). However, the very high fixed production costs resulted in the net loss before non-cash extraordinary items, finance costs and tax to HK$31.3 million (2011: HK$34.3 million).

Business Development

Apart from attempts in marketing and product diversification to increase revenue, the Group also looked into ways to rectify the high costs situation caused by the idle capacity of the production arm of the Group.

Efforts on the latter only materialized on 19 April 2012 when Total Ally, an indirectly wholly-owned subsidiary of the Company, which owned the manufacturing arm of the Group, was put under voluntary liquidation, as detailed in the announcement of the Company dated 19 April 2012. The Group now has the option to choose manufacturing facilities which offer better prices.

– IV-85 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Prospects

The directors of the Company consider that the voluntary liquidation of Total Ally would provide an opportunity for the Group to have a more cost effective structure by subcontracting the manufacturing works to subcontractors in order to avoid absorbing any unnecessary idle overhead costs. In addition, it would lay a foundation for the Company to continue its existing trading and manufacturing (by way of subcontracting arrangement) of various types of consumer electronic products businesses in a more commercially feasible manner. Therefore it is the intention of the Group to continue with its existing principal businesses including but not limited to its trading and manufacturing business of consumer electronics products. However, the Group may explore other business opportunities involving but not limited to existing trading and manufacturing business and consider whether to make any acquisition or investment in assets and/or business or cooperate with other business partners of the Group in order to enhance its growth and future development.

Liquidity and Financial Resources

As at 31 March 2012, the net assets value of the Group attributable to equity holders of the Company amounted to approximately HK$4.35 million (2011: approximately HK$58.5 million). The reduction has been the combined results of operation loss and impairment of assets during the year.

As at 31 March 2012, the trade receivable balance was approximately HK$9.2 million (2011: HK$9.8 million). All trade receivables were on 30 to 90 days credit terms with strict control to minimize credit risks.

As at 31 March 2012, the Group’s aggregated borrowings were approximately HK$203.6 million (2011: HK$268.5 million).

The Group is not exposed to material currency fluctuation as the Group’s RMB receipt from domestic sales could offset RMB expenses in the PRC.

Employee Remuneration and Relations

The Group remunerates the employees by reference to their qualification, experience, responsibilities, profitability of the Group and current market conditions.

As at 31 March 2012, the Group had 310 (2011: 320) employees in Hong Kong and the PRC.

– IV-86 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

The Group’s total expenses on salaries, wages and allowances for the year ended 31 March 2012 was approximately HK$18.3 million (2011: HK$16.8 million). Apart from basic salaries and wages, fringe benefits such as contributions to the mandatory provident fund, group medical insurance and group personal accident insurance also offered to the employees. The Group also operates a share option scheme to reward and encourage long term contributions from employees. No grant of such share options were made during the year.

Capital Management

Bank and other borrowings Less: Cash and bank balances Net debts Capital Gearing ratio	Group 2012 2011 HK$’000 HK$’000 203,570 268,520 (33,683) (8,927) 169,887 259,593 4,351 58,515 3905% 444%

The gearing ratio above exceeds 100%. In view of such circumstance, the directors of the Company have given careful consideration to the future liquidity and performance of the Group and its available sources of finance in assessing whether the Group will have sufficient financial resources to continue as a going concern.

– IV-87 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Borrowings

Bank loans Loans from the ultimate holding company Loans from a shareholder of the Company Other loans Secured Unsecured Carrying amounts repayable: Within one year or on demand, disclosed as current liabilities More than one year, but not exceeding two years, disclosed as non-current liabilities	Group 2012 2011 HK$’000 HK$’000 – 112,575 69,700 64,700 49,000 – 84,870 91,245 203,570 268,520 124,870 131,245 78,700 137,275 203,570 268,520 185,570 186,755 18,000 81,765 203,570 268,520	Group 2012 2011 HK$’000 HK$’000 – 112,575 69,700 64,700 49,000 – 84,870 91,245 203,570 268,520 124,870 131,245 78,700 137,275 203,570 268,520 185,570 186,755 18,000 81,765 203,570 268,520
		268,520

		131,245 137,275
		268,520

		186,755 81,765
		268,520

– IV-88 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

For the 12 months ended 31 March 2011

The Group Reorganisation, Capital Reorganisation and Creditor Scheme

The year under review was one which the Group took bold steps to overcome the many difficulties the Group was facing since the global financial crisis in 2008. During the year under review, the Company successfully completed the major exercises of the group reorganization, capital reorganization and a creditor scheme. The details are as contained in the circular dated 28 June 2010 to shareholders of the Company.

The initiatives received (i) shareholders’ approval at the extraordinary general meeting of the Company held on 26 July 2010, (ii) creditors’ approval on 28 October 2010 and, finally (iii) the approval of the Grand Court of the Cayman Islands and Hight Court of the Hong Kong Special Administration Region on 16 November 2010 and 26 November 2010, respectively.

With the completion of the group reorganization, capital reorganization and the creditor scheme in early December 2010 and also the introduction of a new executive board since 1 January 2011, the Company is in a better position to strengthen its operations, to enhance cost-effectiveness, and to explore new business initiative in the foreseeable future.

Business Development

The directors of the Company are optimistic that the present policy of strengthening the Group’s domestic sales while, at the same time, exploring new business initiatives, particularly those with potential synergy, for widening the Group’s horizon, will progressively improve the turnover and profitability of the Group in the foreseeable future.

Segment Information

The Group’s revenue and result for the year ended 31 March 2011 were mainly derived from its operating segment of manufacture, processing and sale of electronic consumer products and related components. The Group’s reportable segments are strategic business units that offer different products. They are managed separately because each business requires different technology and marketing strategies.

– IV-89 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Liquidity and Financial Resources

As at 31 March 2011, the net assets value of the Group attributable to equity holders of the Company amounted to approximately HK$58.51 million (2010: net liabilities of approximately HK$423.31 million). This represents a remarkable turnaround from a year ago and has been the direct result of the capital reorganization completed in December 2010 after the elimination of various loss-making subsidiaries as well as significant debts.

As at 31 March 2011, the trade receivable balance was approximately HK$9.80 million (2010: HK$0.83 million (after impairment)). All trade receivables were on 30 to 90 days credit terms with strict control to minimize credit risks.

As at 31 March 2011, the Group’s aggregated borrowings were approximately HK$268.52 million (2010: HK$408.71 million). The big drop has resulted mainly from the elimination of debts through the creditor scheme.

The Group is not exposed to material currency fluctuation as the Group’s RMB receipt from domestic sales could offset RMB expenses in the PRC.

Employee Relations

As of 31 March 2011, the Group had 320 (2010: 195) employees in Hong Kong SAR and on the mainland of the People Republic of China.

Upon implementation of the group reorganization and business restructuring, the Group’s total expenses on salaries, wages and allowances for the year ended 31 March 2011 downscaled to approximately HK$16.80 million (2010: HK$80.6 million). Employees’ remuneration packages are generally structured by reference to market conditions, individual qualifications and performance. In addition to basic salary payment, other benefits offered to employees include contributions to mandatory provident fund, group medical insurance and group personal accident insurance.

– IV-90 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Capital Management

The Group monitors capital using a gearing ratio, which is net debt divided by the capital. The Group’s policy is aimed to maintain the gearing ratio below 100%. Net debts include bank and other borrowings less cash and bank balances. Capital represents total equity. The gearing ratios at the end of reporting period were as follows:

Bank and other borrowings Less: Cash and bank balances Net debts Capital Gearing ratio	Group 2011 2010 HK$’000 HK$’000 268,520 412,094 (8,927) (30,176) 259,593 381,918 58,515 (423,310) 444% Not applicable#	Group 2011 2010 HK$’000 HK$’000 268,520 412,094 (8,927) (30,176) 259,593 381,918 58,515 (423,310) 444% Not applicable#
		381,918 (423,310) Not applicable#

# As the Group had a net deficiency in capital at 31 March 2010, the Group’s gearing ratio as at that date was not applicable.

Borrowings

Bank loans Bank overdrafts Loans from the ultimate holding company Other loans Secured Unsecured Carrying amounts repayable: Within one year or on demand, disclosed as current liabilities More than one year, but not exceeding two year, disclosed as non-current liabilities	Group 2011 2010 HK$’000 HK$’000 112,575 272,747 – 13,178 64,700 – 91,245 122,782 268,520 408,707 131,245 277,915 137,275 130,792 268,520 408,707 186,755 408,707 81,765 – 268,520 408,707	Group 2011 2010 HK$’000 HK$’000 112,575 272,747 – 13,178 64,700 – 91,245 122,782 268,520 408,707 131,245 277,915 137,275 130,792 268,520 408,707 186,755 408,707 81,765 – 268,520 408,707
		408,707

		277,915 130,792
		408,707

		408,707 –
		408,707

– IV-91 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Bank loans and overdrafts of approximately HK$112,575,000 (2010: HK$285,925,000) are arranged at floating rates at the range from 6.9% to 13% per annum. Interest-bearing other borrowings are arranged at fixed interest rates at the range from 2% to 36% per annum.

At 31 March 2011, the Group’s bank borrowings of approximately HK$112,575,000 were secured by the mortgages over the leasehold lands and buildings of a Scheme Subsidiary which had the estimated market value of approximately RMB145,000,000 (equivalent to approximately HK$171,825,000) at the end of the reporting period.

At 31 March 2010, the Group’s bank borrowings of approximately HK$159,669,000 were secured by a corporate guarantee granted by the Company, cross-corporate guarantees granted by certain subsidiaries and the Company, all monies debenture executed by certain subsidiaries of the Company, and the mortgages over certain of the Group’s leasehold lands and buildings which had the aggregate carrying amounts of approximately HK$126,082,000.

At the end of the reporting period, the Group’s other loans of approximately HK$91,245,000 (2010: HK$78,246,000) were secured by the mortgages over the Group’s leasehold land and buildings which had the aggregate carrying amounts of approximately HK$172,518,000 (2010: HK$135,581,000) and equipment and tools with the carrying amounts of approximately HK$14,199,000 (2010: HK$nil). The loans from the ultimate holding company of HK$40,000,000 (2010: HK$40,000,000 included in other loans) were secured by a share charge over the entire issued capital of a wholly-owned subsidiary of Company.

MATERIAL CHANGES

The Directors confirm that there has been no material change in the business development, financial or trading position or outlook of the Group since 31 December 2012 (being the date to which the last audited financial statements of the Group were prepared as set out in this appendix to this circular) up to and including the Latest Practicable Date, save for (a) the Acquisition, and (b) the indebtedness position of the Group as detailed in the paragraph headed “Indebtedness of the Group” in this appendix to this circular.

– IV-92 –

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

INDEBTEDNESS OF THE GROUP

As at 30 April 2013, being the latest practicable date for determining indebtedness, the Group’s indebtedness was HK$6.24 million. The Group’s total indebtedness as at 30 April 2013 are set out below:

Amount due to CMPD Group Amount due to Success Well Total	As at 30 April 2013 HK$’000 1,239 5,000
	6,239

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities and normal trade payables in the normal course of business at the close of business on 30 April 2013 disclosed above, the Group did not have any other outstanding bank or other borrowings, mortgages, charges, debentures or other loan capital or other similar indebtedness, guarantee, liabilities under acceptances (other than normal trade bills), acceptance credits, hire purchase or other finance lease commitments, indemnities or other material contingent liabilities.

As at 30 April 2013, the Group has cash and bank balances of HK$5.7 million, and aggregate borrowings of HK$5 million which were unsecured, bore interest at 6-month Hong Kong Interbank Offered Rate plus 2% per annum and repayable on 31 December 2013. The Group’s monetary transactions and deposits are mainly in the form of HK$ and RMB. The Group expected that the exposure to exchange rates fluctuation was not significant and therefore had not engaged in any hedging activities.

As at 30 April 2013, the capital structure of the Group consists of net debts, net of cash and cash equivalents and equity attributable to owners of the Company, comprising issued share capital, share premium and various reserves.

As at the Latest Practicable Date, the Directors have confirmed that there has been no material change in the indebtedness or any contingent liabilities of the Group since 30 April 2013.

– IV-93 –

APPENDIX V UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The information set out in this Appendix does not form part of the Accountants’ Report on the Target Group from Deloitte Touche Tohmatsu, the Company’s reporting accountants, as set out in “Appendix III – Accountants’ Report on the Target Group”, and is included herein for information only. The unaudited pro forma financial information should be read in conjunction with “Financial Information” and the Accountants’ Report set out in “Appendix III – Accountants’ Report on the Target Group”.

(A) UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(I) BASIS OF PREPARATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF THE ENLARGED GROUP

On 24 April 2012, a sale and purchase agreement was entered into between Success Well Investments Limited (“Success Well”), a wholly-owned subsidiary of Eureka Investment Company Limited (“Eureka”), and a shareholder of the Company, to acquire approximately 66.18% of the aggregate issued share capital of the Company. This acquisition was completed on 7 May 2012.

On 24 April 2013, the Company (as the purchaser), Eureka (as the seller) and China Merchants Property Development Co., Ltd. entered into a share purchase agreement in connection with the proposed acquisition of (i) 50% of the issued share capital of Harpen Company Limited (“Harpen”) and all the issued share capital of Converge Holdings Limited (“Converge”), Sino Action Investments Limited (“Sino Action”) and Happy City Investments Limited (“Happy City”) from Eureka, an intermediate holding company of the Company, and (ii) shareholder’s loans outstanding and owing by each of Harpen, Converge, Sino Action and Happy City and their subsidiaries to Eureka (the “Transaction”) (hereinafter, Harpen, Converge, Sino Action and Happy City and their subsidiaries are collectively referred to as the “Target Group”).

The Transaction involves acquisition of assets from Eureka within 24 months of Eureka gaining control of the Company and constitutes a reverse takeover (as defined under the Takeovers Code) for the Company by the Target Group.

The financial year end period of the Target Group is 31 December and the period prepared for the unaudited pro forma consolidated income statement, the unaudited pro forma consolidated statement of comprehensive income and the unaudited pro forma consolidated statement of cash flows of the Enlarged Group follows the financial year end of the Target Group (i.e. the Acquirer), i.e. from 1 January 2012 to 31 December 2012.

– V-1 –

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The unaudited pro forma financial information is prepared to provide information on the Enlarged Group as a result of the completion of the Transaction on the basis of notes set out below for illustrating the effect of the Transaction, as if the Transaction had taken place on 31 December 2012 for the preparation of the unaudited pro forma consolidated statement of financial position and the unaudited pro forma net tangible assets attributable to the equity holders of the Company. For the preparation of the unaudited pro forma consolidated income statement, unaudited pro forma consolidated statement of comprehensive income and unaudited pro forma consolidated statement of cash flows, it is assumed that the Transaction had taken place on 7 May 2012, the date from which the Group and the Target Group are both under common control of Eureka. The directors of the Company consider that such basis is appropriate for reflecting the accounting treatment to be adopted upon completion of the Transaction and providing the relevant information to the shareholders of the Company.

The information is prepared for illustrative purposes only and because of its hypothetical nature, it does not purport to represent what the results and cash flows, or financial position of the Enlarged Group would have been upon completion of the Transaction in any future periods or on any future dates.

The unaudited pro forma consolidated statement of financial position, the unaudited pro forma consolidated statement of income statement, the unaudited pro forma consolidated statement of comprehensive income and the unaudited pro forma consolidated statement of cash flows of the Enlarged Group for the period from 1 January 2012 to 31 December 2012 are prepared based on (i) the audited consolidated statement of financial position as at 31 December 2012, and the audited consolidated income statement, consolidated statement of comprehensive income and consolidated statement of cash flows of the Group for the period from 1 April 2012 to 31 December 2012 as extracted from the consolidated financial statements set out in Appendix IV to this Circular and (ii) the audited combined statement of financial position, the audited combined statement of comprehensive income and the audited combined statement of cash flows of the Target Group for the year ended 31 December 2012 as extracted from the Accountants’ Report on the Target Group set out in Appendix III to this Circular, after making pro forma adjustments to the Transaction.

– V-2 –

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(II) UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION OF THE ENLARGED GROUP

The Group as at 31 December 2012 HK$’000 (Audited) (Note 1) – 33 – – –	The Group as at 31 December 2012 RMB’000 (Note 1) – 27 – – –	The Target Group as at 31 December 2012 RMB’000 (Audited) (Note 2) – 12,365 34,359 298,240 1,328,584	Unaudited pro forma for the Enlarged Group as at 31 December 2012 RMB’000 – 12,392 34,359 298,240 1,328,584
33	27	1,673,548	1,673,575
– 48,560 – – 3,927	– 39,377 – – 3,184	15,212,165 3,750,353 312,410 14,704 2,131,760
52,487	42,561	21,421,392
– 44,276 – – 8,000	– 35,903 – – 6,487	5,996,707 7,130,470 4,794,164 543,707 101,000
52,276	42,390	18,566,048
211	171	2,855,344
244	198	4,528,892

– V-3 –

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Pro forma adjustments

				Goodwill
				arising on		Issuance of
				acquisition		new shares		Unaudited
				of the		and		pro forma
			The Target	Company as	Impairment	placement by		for the
	The Group	The Group	Group	if reverse	of goodwill	the Company	Transaction	Enlarged
	as at 31	as at 31	as at 31	acquisition	arising on	to acquire	cost related	Group as at
	December	December	December	on	reverse	the Target	to the	31 December
	2012	2012	2012	7 May 2012	acquisition	Group	Transaction	2012
	HK$’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
	(Audited)		(Audited)
	(Note 1)	(Note 1)	(Note 2)	(Note 3)	(Note 3)	(Note 4)	(Note 6)
NON-CURRENT
LIABILITIES
Other payables	–	–	1,169,960					1,169,960
Borrowings	–	–	109,351					109,351
Deferred tax liabilities	–	–	34,136					34,136
	–	–	1,313,447					1,313,447
	244	198	3,215,445					6,413,544

CAPITAL AND RESERVES
Share capital/
Paid up capital	10,685	8,664	366,783	(366,783)		31,112		39,776
Statutory reserve	–	–	29,215					29,215
Other reserve	–	–	–	519,315		(2,599,475)		(2,080,160)
Translation reserve	34	29	–	(28)				1
Share premium	75,022	60,835	–	(60,835)		5,791,599		5,791,599
(Accumulated losses)
retained profits	(85,497)	(69,330)	867,104	68,482	(160,210)		(25,276)	680,770
Equity attributable to equity
holders of the Company	244	198	1,263,102					4,461,201
Non-controlling interests	–	–	1,952,343	59		(59)		1,952,343
	244	198	3,215,445					6,413,544

– V-4 –

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(III) UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT OF THE ENLARGED GROUP

Revenue Cost of sales Gross profit Other income Net foreign exchange gains Loss on disposal of property, plant and equipment Loss on loss of control of subsidiaries Impairment loss recognised in respect of goodwill Other expenses Administrative expenses Selling and distribution expenses Finance costs Profit before tax Income tax expense (Loss) profit for the period/year (Loss) profit for the period / year attributable to: Equity holders of the Company Non-controlling interests	Por forma adjustments The Group for the period from 1 April 2012 to 31 December 2012 The Group for the period from 1 April 2012 to 31 December 2012 The Target Group for the year ended 31 December 2012 Impairment of goodwill arising on reverse acquisition Elimination of financial results from 1 April 2012 to 6 May 2012 of the Group Transaction cost related to the Transaction Unaudited pro forma for the Enlarged Group for the year ended 31 December 2012 HK$’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Audited) (Audited) (Note 1) (Note 1) (Note 2) (Note 3) (Note 5) (Note 6) 91,453 75,332 4,288,511 (1,788) 4,362,055 (90,074) (74,196) (1,849,719) 3,776 (1,920,139) 1,379 1,136 2,438,792 – 1,988 2,441,916 177 146 36,209 (146) 36,209 – – 6,457 6,457 (86) (71) (6) (77) (5,062) (4,170) – 4,170 – – – – (160,210) (160,210) – – (1,083) (25,276) (26,359) (8,036) (6,619) (35,581) 2,350 (39,850) (21) (17) (119,936) 17 (119,936) (147) (121) (65,221) 110 (65,232) (11,796) (9,716) 2,259,631 (160,210) 8,489 (25,276) 2,072,918 – – (1,214,434) (1,214,434) (11,796) (9,716) 1,045,197 858,484 (11,796) (9,716) 434,231 (160,210) 8,489 (25,276) 247,518 – – 610,966 610,966 (11,796) (9,716) 1,045,197 858,484	Por forma adjustments	Unaudited pro forma for the Enlarged Group for the year ended 31 December 2012 RMB’000 4,362,055 (1,920,139)
			858,484

– V-5 –

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(IV) UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME OF THE ENLARGED GROUP

(Loss) profit for the period/year Other comprehensive income (expense) Exchange difference arising on translation of foreign operations Reclassified to profit or loss upon loss of control of subsidiaries Total comprehensive (expense) income for the period/year Total comprehensive (expense) income for the period/year attributable to: Equity holders of the Company Non-controlling interests	The Group for the period from 1 April 2012 to 31 December 2012 The Group for the period from 1 April 2012 to 31 December 2012 The Target Group for the year ended 31 December 2012 HK$’000 RMB’000 RMB’000 (Audited) (Audited) (Note 1) (Note 1) (Note 2) (11,796) (9,716) 1,045,197 (76) (63) – 7,765 6,396 –	The Group for the period from 1 April 2012 to 31 December 2012 The Group for the period from 1 April 2012 to 31 December 2012 The Target Group for the year ended 31 December 2012 HK$’000 RMB’000 RMB’000 (Audited) (Audited) (Note 1) (Note 1) (Note 2) (11,796) (9,716) 1,045,197 (76) (63) – 7,765 6,396 –	The Group for the period from 1 April 2012 to 31 December 2012 The Group for the period from 1 April 2012 to 31 December 2012 The Target Group for the year ended 31 December 2012 HK$’000 RMB’000 RMB’000 (Audited) (Audited) (Note 1) (Note 1) (Note 2) (11,796) (9,716) 1,045,197 (76) (63) – 7,765 6,396 –	Por forma adjustments Impairment of goodwill arising on reverse acquisition Elimination of financial results from 1 April 2012 to 6 May 2012 of the Group Transaction cost related to the Transaction Unaudited pro forma of the Enlarged Group for the year ended 31 December 2012 RMB’000 RMB’000 RMB’000 RMB’000 (Note 3) (Note 5) (Note 6) (160,210) 8,489 (25,276) 858,484 19 (44) (6,396) – (160,210) 2,112 (25,276) 858,440 (160,210) 2,112 (25,276) 247,474 610,966 858,440	Por forma adjustments Impairment of goodwill arising on reverse acquisition Elimination of financial results from 1 April 2012 to 6 May 2012 of the Group Transaction cost related to the Transaction Unaudited pro forma of the Enlarged Group for the year ended 31 December 2012 RMB’000 RMB’000 RMB’000 RMB’000 (Note 3) (Note 5) (Note 6) (160,210) 8,489 (25,276) 858,484 19 (44) (6,396) – (160,210) 2,112 (25,276) 858,440 (160,210) 2,112 (25,276) 247,474 610,966 858,440
	(4,107) (3,383) 1,045,197

	(4,107) (3,383) 434,231 – – 610,966
	(4,107) (3,383) 1,045,197				858,440

– V-6 –

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(V) UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS OF THE ENLARGED GROUP

						Pro forma adjustments	Pro forma adjustments
						Issuance	Elimination	Elimination		Unaudited
	The Group	The Group for		Cash		of new	of advance	of cash flow		pro forma of
	for the period	the period	The Target	flows from	Impairment	shares and	from Eureka	impact from		the Enlarged
	from 1 April	from 1 April	Group for the	acquisition	of goodwill	placement by	from 7 May	1 April 2012	Transaction	Group for the
	2012 to	2012 to	year ended	of the	arising from	the Company	2012 to	to 6 May 2012	cost related	year ended
	31 December	31 December	31 December	Group as at	reverse	to acquire the	31 December	of the	to the	31 December
	2012	2012	2012	7 May 2012	acquisition	Target Group	2012	Group	Transaction	2012
	HK$’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
	(Audited)		(Audited)
	(Note 1)	(Note 1)	(Note 2)	(Note 3)	(Note 3)	(Note 4)	(Note 4)	(Note 5)	(Note 6)
OPERATING ACTIVITIES
(Loss) / Profit before tax	(11,796)	(9,716)	2,259,631		(160,210)			8,489	(25,276)	2,072,918
Adjustments for:
Depreciation of property, plant and
equipment	612	504	2,290					(494)		2,300
Depreciation of investment properties	–	–	1,706							1,706
Loss on disposal of property, plant
and equipment	86	71	6							77
Interest income	(1)	(1)	(28,553)							(28,554)
Interest expenses	147	121	65,221					(110)		65,232
Amortisation of prepaid lease
payments	16	13	–					(13)		–
Reversal of write down on properties
for sales	–	–	(28,000)							(28,000)
Loss on loss of control of subsidiaries	5,062	4,170	–					(4,170)		–
Unrealised net foreign exchange gains	–	–	(6,593)							(6,593)
Impairment loss recognised in
respect of goodwill	–	–	–		160,210					160,210
Operating cash flows before
movements in working capital	(5,874)	(4,838)	2,265,708					3,702	(25,276)	2,239,296
Increase in properties for sale	–	–	(2,664,728)							(2,664,728)
Decrease in inventories	1,476	1,216	–					(1,216)		–
Increase in trade and other
receivables	(68,399)	(56,342)	(122,919)					12,845		(166,416)
Increase in restricted bank deposit for
operating use	–	–	(2,229)							(2,229)
Increase in deposits received in
respect of pre-sale of properties	–	–	1,711,288							1,711,288
Increase in trade and other payables	42,024	34,616	1,896,736					(1,012)		1,930,340
Cash (used in) generated from
operations	(30,773)	(25,348)	3,083,856					14,319	(25,276)	3,047,551
PRC Enterprise Income Tax paid	–	–	(348,541)							(348,541)
Land Appreciation Tax paid	–	–	(249,468)							(249,468)
Interest received	1	1	28,553							28,554
NET CASH (USED IN) FROM
OPERATING ACTIVITIES	(30,772)	(25,347)	2,514,400					14,319	(25,276)	2,478,096
INVESTING ACTIVITIES
Purchase of property, plant and
equipment	(13)	(11)	(1,283)							(1,294)
Advance to an intermediate holding
company	–	–	(1,767,760)							(1,767,760)
Advance to non-controlling interests	–	–	(427,823)							(427,823)
Net cash outflow from loss on loss of
control of subsidiaries	(7,388)	(6,086)	–					6,086		–
Advance to a fellow subsidiary			(3,625)							(3,625)
Net cash inflows from acquisition
of the Group				7,061						7,061
NET CASH USED IN INVESTING
ACTIVITIES	(7,401)	(6,097)	(2,200,491)	7,061				6,086		(2,193,441)

– V-7 –

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

FINANCING ACTIVITIES
Proceeds from placement of new
shares
Deemed distribution to Eureka for the
acquisition of the Target Group
Share issue cost
New bank borrowings raised
Dividend paid
Loans from a shareholder and
immediate holding company
Advance from an intermediate
holding company
Interest paid
Advance from non-controlling
shareholders
Advance from fellow subsidiaries
NET CASH FROM FINANCING
ACTIVITIES
NET (DECREASE) INCREASE IN
CASH AND CASH
EQUIVALENTS
CASH AND CASH EQUIVALENTS
AT BEGINNING OF THE
PERIOD/YEAR
Effect of foreign exchange rate
changes
CASH AND CASH EQUIVALENTS
AT END OF THE PERIOD/ YEAR

Pro forma adjustments
The Group
for the period
from 1 April
2012 to
31 December
2012
The Group for
the period
from 1 April
2012 to
31 December
2012
The Target
Group for the
year ended
31 December
2012
Cash
flows from
acquisition
of the
Group as at
7 May 2012
Impairment
of goodwill
arising from
reverse
acquisition
Issuance
of new
shares and
placement by
the Company
to acquire the
Target Group
Elimination
of advance
from Eureka
from 7 May
2012 to
31 December
2012
Elimination
of cash flow
impact from
1 April 2012
to 6 May 2012
of the
Group
Transaction
cost related
to the
Transaction
Unaudited
pro forma of
the Enlarged
Group for the
year ended
31 December
2012
HK$’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(Audited)
(Audited)
(Note 1)
(Note 1)
(Note 2)
(Note 3)
(Note 3)
(Note 4)
(Note 4)
(Note 5)
(Note 6)
–
–
–
1,438,221
1,438,221

(573,613)
(573,613)
(51,333)
(51,333)
–
–
210,351
210,351
–
–
(351,500)
(351,500)
8,000
6,590
–
6,590
616
507
391,289
(201,678)
190,118
(133)
(110)
(234,712)
110
(234,712)
–
–
136,440
136,440
–
–
3,303
3,303
8,483
6,987
155,171
813,275
(201,678)
110
773,865
(29,690)
(24,457)
469,080
7,061
813,275
(201,678)
20,515
(25,276)
1,058,520
33,683
27,694
1,663,365
(27,694)
1,663,365
(66)
(53)
(685)
320
118
(300)
3,927
3,184
2,131,760
7,061
813,595
(201,678)
(7,061)
(25,276)
2,721,585

– V-8 –

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Note:

1 The amounts are extracted from the audited consolidated financial statements of the Group for the period from 1 April 2012 to 31 December 2012 as set out in Appendix IV to this Circular.

For the purpose of preparation of the unaudited pro forma financial information, the presentation currency of the Group are changed from Hong Kong dollars (“HK$”) to Renminbi (“RMB”).

The results and cash flows of the Group presented in HK$ are translated into RMB at the average exchange rate of HK$1 to RMB0.8237 for the period from 1 April 2012 to 31 December 2012. Items of the consolidated statement of financial position are translated into RMB at the exchange rate ruling at 31 December 2012 of HK$1 to RMB0.8109.

The amounts are extracted from the accountants’ report on the Target Group as set out in Appendix III to this Circular.
On 24 April 2012, a sale and purchase agreement was entered into between a shareholder of the Company and Success Well, an entity indirectly wholly-owned by Eureka, in connection with the acquisition of approximately 66.18% of the aggregate issued share capital of the Company. The total consideration involved is HK$177,484,819 (approximately RMB143,869,000).

On 27 April 2012, a sale and purchase agreement was entered into between Success Well and Greatest Mark Limited in connection with the acquisition of approximately 4% of the aggregate issued share capital of the Company. The total consideration of this acquisition is HK$21,369,377 (approximately RMB17,322,000).

In addition, 11,040 ordinary shares of the Company with consideration of HK$5,520 (approximately RMB4,474) were acquired by Success Well due to the unconditional mandatory cash offer under Rule 26.1 (a) of the Takeovers Code.

In aggregate, total consideration of HK$198,859,716 (approximately RMB161,196,000) (“Consideration of the 2012 Acquisition”) was paid by Success Well to acquire approximately 70.18% of the aggregate issued share capital of the Company, representing 749,860,626 Shares of the Company (the “2012 Acquisition”). The 2012 Acquisition was completed on 7 May 2012 (“Completion”). Immediately after Completion, Success Well and Eureka became the immediate and intermediate holding companies of the Company respectively.

On 24 April 2013, the Group entered into a share purchase agreement with Eureka to acquire the equity interest of Target Group and the shareholder's loans which were outstanding and owing by the Target Group to Eureka (the “Transaction”). Pursuant to the agreement, the total consideration payable to Eureka is HK$6,177,230,290 (approximately RMB5,009,116,000) which will be satisfied by issuance of not more than 2,897,028,703 new Shares to Success Well (“Consideration Shares”) at an issue price of HK$1.888 per Share and if the aggregate price of the Consideration Shares calculated at the issue price is less than the consideration, the payment of the rest of the consideration payable will be satisfied in cash from all or part of the proceeds of the placement of not less than 939,760,297 new Shares at the issue price HK$1.888 per Share.

As the Group and Target Group have been under common control of Eureka since 7 May 2012 and Eureka will still be the controlling shareholder of the Company upon completion of the Transaction, the Transaction is considered as a combination of business under common control and accounted for under merger basis. In applying merger accounting, the Acquisition would be reflected in the consolidated financial statements of the Group as a reverse acquisition by the Target Group taking into consideration of the requirements under Hong Kong Financial Reporting Standard 3 (Revised) “Business Combination”.

– V-9 –

APPENDIX V UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

For the purpose of preparation of the unaudited pro forma financial information in applying the acquisition method of accounting to reflect the reverse acquisition, the Consideration of the 2012 Acquisition paid by Success Well is the deemed consideration paid by the Target Group to acquire the Group as at 7 May 2012 (“Deemed Consideration”).

In addition, the directors of Eureka have assessed the fair values of the identifiable assets acquired and liabilities assumed of the Group at 7 May 2012 and are of the opinion that the then fair values of identifiable assets and liabilities of the Group approximated to their carrying amounts as at 7 May 2012.

Fair value of identifiable assets and liabilities of the Group at 7 May 2012:

Property, plant and equipment Cash and bank balances Trade debtors Prepayments, deposits and other debtors Accrued charges and other creditors Borrowings	RMB’000 96 7,061 470 13,118 (2,311) (17,029)
	1,405

Goodwill is determined as the excess of the Deemed Consideration and the amount of non-controlling interests in the Group over the fair values of the identifiable assets acquired and liabilities assumed of the Group at 7 May 2012, translated from HK$ to RMB at the exchange rate of HK$1 to RMB0.8106, as follows:

Consideration of the 2012 Acquisition Non-controlling interests, based on 29.82% of the net identifiable assets of the Group Fair value of net identifiable assets of the Group Goodwill Non-controlling interests as at 7 May 2012 Share of loss for the period from 7 May 2012 to 31 December 2012 Share of other comprehensive income for the period from 7 May 2012 to 31 December 2012 Non-controlling interests as at 31 December 2012	RMB’000 161,196 419 (1,405)
	160,210

	419 (366) 6
	59

The adjustment represents:

recognition of goodwill and non-controlling interests on 2012 Acquisition at 7 May 2012, as well as share of loss and other comprehensive income by non-controlling interests from 7 May 2012 to 31 December 2012 for the unaudited pro forma consolidated of financial position;
elimination of the pre-acquisition reserves of the Group prior the 2012 Acquisition; and

– combination of the cash and bank balances of the Group as at 7 May 2012 for the unaudited pro forma consolidated statement of cash flows.

– V-10 –

APPENDIX V UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Goodwill arising from the 2012 Acquisition is tested for impairment at least annually or whenever events or changes in circumstances indicate that its carrying amount may not be recoverable in accordance with the accounting policies of the Group and the requirements of Hong Kong Accounting Standard 36 “Impairment of Assets” (“HKAS 36”). Goodwill will be allocated to the cash generating units (“CGUs”) that are expected to benefit from the synergies of the 2012 Acquisition, both existing and acquired CGUs, for the purpose of impairment testing. The results of the Enlarged Group may be affected by impairment loss whenever the recoverable amount of CGUs is lower than the carrying amount.

Based on the existing business model of the Group, the directors of the Company have performed the necessary assessment on impairment in accordance with the requirement under HKAS 36.

With reference to the cashflow forecast prepared by the management of the Group, the directors of the Company are of the opinion goodwill arising on the 2012 Acquisition under reverse acquisition has been impaired.

These adjustments are not expected to have continuing effect on the Enlarged Group’s unaudited pro forma consolidated income statement and unaudited pro forma consolidated statement of cash flows.

The adjustment represents:
Issuance of 2,897,028,703 new Shares to Success Well and proceeds from placement of 939,760,297 new Shares (“Placement Shares”) at an assumed value of HK$1.888 per Share. The placing commission of approximately RMB51,333,000 would be paid by the Company upon issue of Placement Shares. For the unaudited pro forma consolidated statement of cash flows, the cash flow effects of deemed distribution to Eureka and Placement Shares in HK$ are translated into RMB at the exchange rate at 7 May 2012 of HK$1 to RMB0.8106.
assignment of shareholder ’s loans outstanding and owing by the Target Group of RMB2,409,582,000 as at 31 December 2012 to the Group. For the purpose of preparation of the unaudited pro forma consolidated statement of cash flows, the advance from an intermediate holding company from 7 May 2012 to 31 December 2012 was reversed.

Since the Group and the Target Group have been under common control of Eureka from 7 May 2012, these two transactions with Eureka are considered as deemed distribution to Eureka and therefore recognised in the other reserves of the Enlarged Group.

In addition, non-controlling interests of RMB59,000 is reallocated to other reserves as if the Transaction had taken place on 31 December 2012.

Since the shareholder's loan of the Target Group and the fair value of the Shares on completion date of the Transaction may be different from the estimated amounts shown above, the amount charged to equity may be different from the estimated amount shown in this unaudited pro forma consolidated statement of financial position.

The adjustment represents the elimination of the results and cash flows for the period from 1 April to 6 May 2012 based on the management accounts prepared by the directors of the Company on the basis that the 2012 Acquisition would be reflected in the consolidated financial statements of the Group as a reverse acquisition by the Target Group on 7 May 2012.
The adjustment represents expenditures incurred directly to the Transaction including financial advisor fees, legal fees, printing costs, accountants fees, and other related expenses of approximately HK$31,181,000 (approximately RMB25,276,000). The adjustment has no continuing effect to the Enlarged Group but will be reflected in the consolidated income statement and consolidated statement of cash flows of the Group in the year these expenses actually incurred.
The Target Group adopted the cost model for its buildings held for administration purpose. The Group adopted the revaluation model for its buildings held for use in the production of goods, that had been disposed of before the 2012 Acquisition. Thus, no adjustment is made to align the accounting policy of the property, plant and equipment between the Target Group and the Group in the preparation of the unaudited pro forma financial information.

– V-11 –

APPENDIX V UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Unaudited pro forma statement of adjusted net tangible assets of the Enlarged Group

				Unaudited
			Unaudited	pro forma
			pro forma	adjusted net
		Audited net	adjusted net	tangible
	Audited net	tangible	tangible	assets of the
	tangible	assets of the	assets of the	Enlarged
	assets of the	Group per	Enlarged	Group per
	Group as at	Share as at	Group as at	Share as at
	31 December	31 December	31 December	31 December
	2012	2012	2012	2012
	RMB’000	RMB	RMB’000	RMB
	Note a	Note b	Note c	Note d
Net tangible assets attributable to
equity holders of the Company	198	0.0002	4,461,201	0.9094

Notes:

a. The audited net tangible assets of the Group as at 31 December 2012 is based on the amount of audited net assets attributable to the equity holders of the Company as at 31 December 2012, which is extracted from the audited consolidated financial statements of the Group for the period from 1 April 2012 to 31 December 2012 and translated into RMB at the exchange rate of HK$1 to RMB0.8109.
b. The number of Shares used for the calculation of the audited net tangible assets of the Group per Share is 1,068,468,860, being the number of Shares in issue as at 31 December 2012.
c. The unaudited pro forma adjusted net tangible assets of the Enlarged Group as at 31 December 2012 is calculated based on the amount of the unaudited pro forma adjusted net assets attributable to the equity holders of the Company as at 31 December 2012, which is extracted from the unaudited pro forma consolidated statement of financial position of the Enlarged Group.
d. The number of shares used for the calculation of the unaudited pro forma adjusted net tangible assets of the Enlarged Group per Share is 4,905,257,860, comprising 1,068,468,860 Shares in issue as at 31 December 2012 and 3,836,789,000 new Shares to be issued upon completion of the Transaction as at 31 December 2012 as described in the note 4 above.
Apart from the above, no adjustments have been made to the unaudited pro forma consolidated statement of financial position, unaudited pro forma consolidated income statement, unaudited pro forma consolidated statement of comprehensive income, unaudited pro forma consolidated statement of cash flows and unaudited pro forma statement of adjusted net tangible assets to reflect any trading results or other transactions of the Enlarged Group entered into subsequent to 31 December 2012 where applicable.

– V-12 –

APPENDIX V UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(B) ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following is the text of a report received from the reporting accountants, Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong, in respect of the Group’s pro forma financial information for the purpose of incorporation in this Circular.

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ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION TO THE DIRECTORS OF TONIC INDUSTRIES HOLDINGS LIMITED

We report on the unaudited pro forma financial information of Tonic Industries Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the proposed acquisition of 50% of the issued share capital of Harpen Company Limited (“Harpen”) and all the issued share capital of Converge Holdings Limited (“Converge”), Sino Action Investments Limited (“Sino Action”) and Happy City Investments Limited (“Happy City”) from Eureka Investment Company Limited (“Eureka”), an intermediate holding company of the Company, and shareholder’s loans outstanding and owing by each of Harpen, Converge, Sino Action and Happy City to Eureka, might have affected the financial information presented, for inclusion in Section A of Appendix V to the circular dated 20 June 2013 (the “Circular”). The basis of preparation of the unaudited pro forma financial information is set out in Section A of Appendix V to the Circular.

Respective responsibilities of directors of the Company and reporting accountants

It is the responsibility solely of the directors of the Company to prepare the unaudited pro forma financial information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants.

It is our responsibility to form an opinion, as required by paragraph 29(7) of Chapter 4 of the Listing Rules, on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

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APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants” Reports on Pro Forma Financial Information in Investment Circulars issued by the Hong Kong Institute of Certified Public Accountants. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma financial information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the unaudited pro forma financial information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purpose of the unaudited pro forma financial information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Our work has not been carried out in accordance with the auditing standards or other standards and practices generally accepted in the United States of America or auditing standards of the Public Company Accounting Oversight Board (United States) and accordingly should not be relied upon as if it has been carried out in accordance with those standards.

The unaudited pro forma financial information is for illustrative purpose only, based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in future and may not be indicative of:

the financial position of the Group as at 31 December 2012 or any future date; or
the results and cash flows of the Group for the period from 1 April 2012 to 31 December 2012 or any future period.

Opinion

In our opinion:

a) the unaudited pro forma financial information has been properly compiled by the directors of the Company on the basis stated;
b) such basis is consistent with the accounting policies of the Group so far as such policies relate to the transaction; and

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APPENDIX V UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

c) the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong, 20 June 2013

– V-15 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

The following is the text of a letter, summary of values and valuation certificates, prepared for the purpose of incorporation in this Circular received from Jones Lang LaSalle Corporate Appraisal and Advisory Limited, an independent valuer and consultant, in connection with its valuation as at 31 March 2013 of the property interests of the Group.

Jones Lang LaSalle Corporate Appraisal and Advisory Limited 6/F Three Pacific Place 1 Queen’s Road East Hong Kong tel +852 2846 5000 fax +852 2169 6001 Licence No.: C-030171

20 June 2013

The Board of Directors Tonic Industries Holdings Limited Room 3111, 31/F. China Merchants Tower, Shun Tak Centre Nos. 168–200 Connaught Road Central Hong Kong

Dear Sirs,

In accordance with your instructions to value the property interests acquired by Tonic Industries Holdings Limited (the “Company”) from Eureka Investment Company Limited (“Eureka”) and its subsidiaries (hereinafter together referred to as the “Group”) in the People’s Republic of China (the “PRC”), we confirm that we have carried out inspections, made relevant enquiries and searches and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the capital values of the property interests as at 31 March 2013 (the “valuation date”).

Our valuation is carried out on a market value basis. Market value is defined as “the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”.

We have valued the property interest in Group I which is held and occupied by the Group, property interests in Group II which are held by the Group for sale and property interests in Group IV which are held by the Group for future development by direct comparison approach assuming sale of the property interests in their existing state with the benefit of immediate vacant possession and by making reference to comparable sales transactions as available in the relevant market. Appropriate adjustments and analysis are considered given the differences in location, size and other characters between the comparable properties and the subject properties.

For the purpose of our valuation, real estate developments for future development are those for which the Construction Works Commencement Permit(s) have not been issued, while the State-owned Land Use Rights Grant Contract have been signed; real estate developments for sale are those for which the Construction Works Certified Report(s) or Certificate(s) of Completion or Building Ownership Certificate(s)/Real Estate Title Certificate(s) have been issued by the relevant local authority, this also includes those property interests which have been contracted to be sold, but the formal assignment procedures of which have not yet been completed.

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APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

In valuing the property interests in Group III which are currently under development, we have assumed that they will be developed and completed in accordance with the latest development proposal provided to us by the Group. In arriving at our opinion of value, we have adopted the direct comparison approach by making reference to comparable sales evidence as available in the relevant market and have also taken into account the accrued construction cost and professional fees relevant to the stage of construction as at the valuation date and the remainder of the cost and fees that expected to be incurred for completing the development. We have relied on the accrued construction cost and professional fees information provided by the Group according the different stages of construction of the subject properties as at the valuation date, and we did not find any material inconsistency from those of other similar developments.

For the purpose of our valuation, real estate developments under development are those for which the Construction Works Commencement Permit(s) has (have) been issued while the Construction Works Certified Report(s) or Certificate(s) of Completion of the building(s) have not been issued.

For the property interest in Group V, which is property interest contracted to be acquired by the Group, the Group has entered into agreements with the relevant government authorities. Since the Group has not yet obtained the State-owned Land Use Rights Certificates and/or the payment of the land premium has not yet been fully settled as at the date of valuation, we have attributed no commercial value to the property interest.

We have attributed no commercial value to the property interests in Group VI, which are leased by the Group, due either to the short-term nature of the lease or the prohibition against assignment or sub-letting or otherwise due to the lack of substantial profit rent.

Our valuation has been made on the assumption that the seller sells the property interests in the market without the benefit of a deferred term contract, leaseback, joint venture, management agreement or any similar arrangement, which could serve to affect the values of the property interests.

No allowance has been made in our report for any charge, mortgage or amount owing on any neither of the property interests valued nor for any expense or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature, which could affect their values.

In valuing the property interests, we have complied with all requirements contained in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities issued by The Stock Exchange of Hong Kong Limited; the RICS Valuation — Professional Standards published by the Royal Institution of Chartered Surveyors; the HKIS Valuation Standards published by the Hong Kong Institute of Surveyors and the International Valuation Standards published by the International Valuation Standards Council.

We have relied to a very considerable extent on the information given by the Group and have accepted advice given to us on such matters as tenure, planning approvals, statutory notices, easements, and particulars of occupancy, lettings, and all other relevant matters.

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APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

We have been shown copies of various title documents including State-owned Land Use Rights Certificates, Building Ownership Certificates and official plans relating to the property interests and have made relevant enquiries. Where possible, we have examined the original documents to verify the existing title to the property interests in the PRC and any material encumbrance that might be attached to the property interests or any tenancy amendment. We have relied considerably on the advice given by the Company’s PRC legal advisers – Shu Jin Law Firm, concerning the validity of the property interests in the PRC.

We have not carried out detailed measurements to verify the correctness of the areas in respect of the properties but have assumed that the areas shown on the title documents and official site plans handed to us are correct. All documents and contracts have been used as reference only and all dimensions, measurements and areas are approximations. No on-site measurement has been taken.

We have inspected the exterior and, where possible, the interior of the properties. However, we have not carried out investigation to determine the suitability of the ground conditions and services for any development thereon. Our valuation has been prepared on the assumption that these aspects are satisfactory and that no unexpected cost and delay will be incurred during construction. Moreover, no structural survey has been made, but in the course of our inspection, we did not note any serious defect. We are not, however, able to report whether the properties are free of rot, infestation or any other structural defect. No tests were carried out on any of the services.

The site inspection was carried out in March 2013 by Mr. Michael Yu, Mr. James Liang, Ms. Dase Li, Mr. Dave Cui and Mr. Nash Lai. They are China Certified Real Estate Appraisers and/or have more than 3 years’ experience in the valuation of properties in the PRC.

We have had no reason to doubt the truth and accuracy of the information provided to us by the Group. We have also sought confirmation from the Group that no material factors have been omitted from the information supplied. We consider that we have been provided with sufficient information to arrive an informed view, and we have no reason to suspect that any material information has been withheld.

Our valuation is summarized below and the valuation certificates are attached.

Yours faithfully, For and on behalf of

Jones Lang LaSalle Corporate Appraisal and Advisory Limited Eddie T.W. Yiu

MRICS MHKIS RPS (GP)

Director

Notes: Eddie T.W. Yiu is a Chartered Surveyor who has 19 years’ experience in the valuation of properties in Hong Kong and the PRC as well as relevant experience in the Asia-Pacific region.

– VI-3 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

SUMMARY OF VALUES

Group I – Property interest held and occupied by the Group in the PRC

				Capital value
		Capital value in	Interest	attributable to
		existing state as	attributable to	the Group as at
No.	Property	at 31 March 2013	the Group	31 March 2013
		RMB		RMB
1.	Unit 701 on Level 7	13,963,000	51%	7,121,000
	1 Hanzhong Road
	Suhao Building
	Baixia District
	Nanjing City
	Jiangsu Province
	The PRC
	Sub-total:	13,963,000		7,121,000

Group II – Property interests held for sale by the Group in the PRC

				Capital value
		Capital value in	Interest	attributable to
		existing state as	attributable to	the Group as at
No.	Property	at 31 March 2013	the Group	31 March 2013
		RMB		RMB
2.	The unsold portion of	1,518,990,000	51%	774,685,000
	Phases II, III and IV
	of Jinshan Valley
	located at Fei E Ling
	of Zhongcun Town
	Shatou Street
	Panyu District
	Guangzhou City
	The PRC

– VI-4 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

				Capital value
		Capital value in	Interest	attributable to
		existing state as	attributable to	the Group as at
No.	Property	at 31 March 2013	the Group	31 March 2013
		RMB		RMB
3.	The unsold portion	439,000,000	50%	219,500,000
	of Phases I and II of
	Evian Upper City
	located at the northern
	side of Kuiqi Road and
	the western side of
	Guilan Road
	Chancheng District
	Foshan City
	Guangdong Province
	The PRC
4.	The unsold portion of	1,380,514,000	25.5%	352,031,000
	Phases II, III and IV of
	Evian Water Bank
	located at the northern
	side of Yuhe Road and
	eastern side of
	Fenjiang South Road
	Dongping New Town
	Foshan City
	The PRC
5.	3 unsold units of	41,652,000	51%	21,243,000
	Evian Valley
	8 Huitong Road
	Qixia District
	Nanjing City
	Jiangsu Province
	The PRC
6.	The unsold portion of	1,050,000,000	51%	535,500,000
	Phase I of Project G67
	Zijinshan No.1
	Northeast Corner of
	Zhongshanmen Avenue
	and Taiyangcheng Road
	Qixia District
	Nanjing City
	Jiangsu Province
	The PRC
	Sub-total:	4,430,156,000		1,902,959,000

– VI-5 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Group III – Property interests held under development by the Group in the PRC

					Capital value
			Capital value in	Interest	attributable to
			existing state as	attributable to	the Group as at
No.	Property	at 31 March 2013		the Group	31 March 2013
			RMB		RMB
7.	Phase II of Project G67		773,000,000	51%	394,230,000
	Garden City
	Northeast Corner of
	Zhongshanmen Avenue	and
	Taiyangcheng Road
	Qixia District
	Nanjing City
	Jiangsu Province
	The PRC
8.	Phases I of Yonghuafu		No commercial	51%	No commercial
	Southeast Corner of		value		value
	Yikang Road and
	Taishan Road
	Jianye District
	Nanjing City
	Jiangsu Province
	The PRC
9.	The Portion of		1,236,000,000	50%	618,000,000
	Chongqing Changjiahui
	under development
	located at Danzi Stone
	Area of South Bank
	District Chongqing
	The PRC
10.	Phase VIII of Jinshan Valley		273,811,000	51%	139,644,000
	located at Fei E Ling of
	Zhongcun Town
	Shatou Street
	Panyu District
	Guangzhou City
	The PRC
11.	Phase I of the Creative		576,176,000	51%	293,850,000
	Park of Jinshan Valley
	located at Fei E Ling
	of Zhongcun Town
	Shatou Street
	Panyu District
	Guangzhou City
	The PRC

– VI-6 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

				Capital value
		Capital value in	Interest	attributable to
		existing state as	attributable to	the Group as at
No.	Property	at 31 March 2013	the Group	31 March 2013
		RMB		RMB
12.	Phase III of Evian	934,000,000	50%	467,000,000
	Upper City located at
	the northern side of
	Kuiqi Road and the
	western side of
	Guilan Road
	Chancheng District
	Foshan City
	Guangdong Province
	The PRC
13.	Various buildings	2,232,000,000	25.5%	569,160,000
	of Evian Tianhui
	located near the
	Qiandenghu Park on
	Nanping Road
	Nanhai District
	Foshan City
	Guangdong Province
	The PRC
14.	Phases I & II of	775,990,000	50%	387,995,000
	Evian Xicheng
	located at the junction
	between Boai Road Central
	and Keji Road
	North Shishan Town
	Nanhai District
	Foshan City
	Guangdong Province
	The PRC
	Sub-total:	6,800,977,000		2,869,879,000

– VI-7 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Group IV – Property interests held for future development by the Group in the PRC

				Capital value
		Capital value in	Interest	attributable to
		existing state as	attributable to	the Group as at
No.	Property	at 31 March 2013	the Group	31 March 2013
		RMB		RMB
15.	Phases III, IV & V of	405,700,000	50%	202,850,000
	Evian Xicheng
	located at the junction
	between Boai Road Central
	and Keji Road
	North Shishan Town
	Nanhai District
	Foshan City
	Guangdong Province
	The PRC
16.	Phase II of Yonghuafu	No commercial	51%	No commercial
	Southeast Corner of	value		value
	Yikang Road and
	Taishan Road
	Jianye District
	Nanjing City
	Jiangsu Province
	The PRC
17.	14 parcels of land	2,127,000,000	50%	1,063,500,000
	of Chongqing Changjiahui
	located at Danzi Stone Area
	of South Bank District
	Chongqing
	The PRC
18.	The reserved land for	1,387,243,000	51%	707,494,000
	the remaining phases
	of Jinshan Valley
	located at Fei E Ling
	of Zhongcun Town
	Shatou Street
	Panyu District
	Guangzhou City
	The PRC
	Sub-total:	3,919,943,000		1,973,844,000

– VI-8 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Group V – Property interest contracted to be acquired by the Group in the PRC

					Capital value
			Capital value in	Interest	attributable to
			existing state as	attributable to	the Group as at
No.	Property		at 31 March 2013	the Group	31 March 2013
			RMB		RMB
19.	A parcel of	land of	No commercial	50%	No commercial
	Chongqing	Changjiahui	value		value
	located at Danzi Stone Area
	of South Bank District
	Chongqing
	The PRC
		Sub-total:	Nil		Nil

Group VI – Property interests rented and occupied by the Group in the PRC

No. Property 20. Level 9 of Block C Tianwangxing Commercial Building No. 68 Xingguang Avenue Gaoxin Park Northern part of New District Chongqing The PRC 21. Former site of French Marine Barrack No. 142 Shiqiantai Lane Danzi Stone Area of South Bank District Chongqing The PRC Sub-total: Grand total: 15,165,039,000	Capital value in existing state as at 31 March 2013 RMB No commercial value No commercial value Nil
	6,753,803,000

– VI-9 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

VALUATION CERTIFICATE

Group I – Property interest held and occupied by the Group in the PRC

				Capital value in
			Particulars of	existing state as
No.	Property	Description and tenure	occupancy	at 31 March 2013
				RMB
1.	Unit 701 on Level 7	The property comprises a unit on	The property is	13,963,000
	1 Hanzhong Road	level 7 of a 29-storey office	currently
	Suhao Building	building completed in 2008.	occupied by the	51% interest
	Baixia District		Group for office	attributable to
	Nanjing City	The property has a gross floor	purpose.	the Group:
	Jiangsu Province	area of approximately 860.84		RMB7,121,000
	The PRC	sq.m.

Notes:

Pursuant to a Building Ownership Certificate – Ning Fang Quan Zheng Bai Zhuan Zi Dai No. 307319, issued by the Real Estate Administrative Bureau of Nanjing City, an office unit with gross floor area of approximately 860.84 sq.m. is owned by Merchants Nanjing Real Estate Co., Ltd. (“Merchants Nanjing Real Estate”, a 51% interest owned subsidiary of Eureka).
We have not been provided with State-owned Land Use Rights Certificate of the property.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The land use rights and building ownership rights of the property are owned by Merchants Nanjiang Real Estate. Merchants Nanjing Real Estate has the rights to occupy, use, transfer, lease, mortgage or otherwise legally dispose of the property.

– VI-10 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

VALUATION CERTIFICATE

Group II – Property interests held for sale by the Group in the PRC

Capital value in Particulars of existing state as No. Property Description and tenure occupancy at 31 March 2013 RMB 2. The unsold portion of The property comprises the The property was 1,518,990,000 Phases II, III and IV unsold portion of Phases II, III vacant as at the of Jinshan Valley and IV of a large scale composite valuation date 51% interest located at Fei E Ling development known as Jinshan except for 3 retail attributable to the of Zhongcun Town Valley completed in various units with a total Enlarged Group: Shatou Street stages between 2010 and 2012. lettable area of RMB774,685,000 Panyu District approximately Guangzhou City The property is located at the 3,901.49 sq.m. The PRC southern side of Xinguang which were Avenue, the eastern side of rented to 2 Jinshan Avenue and the northern independent third side of Shiguang Road in Panyu parties for District of Guangzhou City. The commercial subject area of the property is purpose. well-served by public transportation with 20 minutes driving distance to the city centre and close to Guangzhou South Railway Station. The locality of the property is a newly-developed residential area served by a good and natural environment and commercial facilities with reasonable proximity to Dafushan Forest Park, Changlong Holiday Resort, Jinshan Lake Reservoir as well as Qixinggang Sports Park.

The property has a total gross floor area of 58,901.50 sq.m. The details are set out as below:

Use Residential Retail Car parking space (1,002 lots) Total:	Gross Floor Area (sq.m.) 41,082.70 4,675.21 13,143.54
	58,901.50

The land use rights of the property have been granted for a term of 70 years expiring on 1 November 2075 for residential and commercial uses.

– VI-11 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Notes:

Pursuant to 2 State-owned Land Use Rights Grant Contracts both dated 23 December 2003 entered into between the State-owned Land Resources and Building Administration Bureau of Panyu District, Guangzhou City and Merchants Property Development (Guangzhou) Ltd. (“Merchants Property Development (Guangzhou)”, a 51% interest owned subsidiary of Eureka), the land use rights of 2 parcels of land (land parcel Nos. G32-000250 and G32-000252, including the land on which this property is erected), were contracted to be granted to Merchants Property Development (Guangzhou) with the particulars as follows:

Site Area : 312,519.5 sq.m. (52,758.8 sq.m. for land parcel No. G32-000250 and 259,760.7 sq.m. for land parcel No. G32-000252) Land Use : Residential Land Term : 70 years Plot Ratio : ≤2.8 for land parcel No. G32-000250 ≤0.83 for land parcel No. G32-000252 Land Premium : RMB47,455,933 for land parcel No. G32-000250 RMB233,651,758 for land parcel No. G32-000252

Pursuant to 2 State-owned Land Use Rights Certificates – Nos. G32-000250 and G32-000252, the land use rights of 2 parcels of land with a total site area of approximately 312,519.7 sq.m. (on which the property is located) have been granted to Merchants Property Development (Guangzhou) for a common term of 70 years expiring on 1 November 2075 for residential and commercial uses.
Pursuant to 2 Construction Land Planning Permits – Hui Gui Di Zheng (2006) Nos. 1672 and 1673, permission towards the planning of the aforesaid land parcels has been granted to Merchants Property Development (Guangzhou).
Pursuant to 4 Construction Work Planning Permits issued by the Urban Planning Bureau of Guangzhou City in favour of Merchants Property Development (Guangzhou), the construction works of Phases II, III and IV of Jinshan Valley have been approved:

Permit No. Phase Hui Gui Jian Zheng (2009) No. 792 Phase II of Jinshan Valley Hui Gui Jian Zheng (2009) No. 100 Phase III-1 of Jinshan Valley Hui Gui Jian Zheng (2011) No. 417 Phase III-2 of Jinshan Valley Hui Gui Jian Zheng (2009) No. 3179 Phase IV of Jinshan Valley Total:	Gross Floor Area Issued Date (sq.m.) 61,115 2009-3-24 33,553 2009-1-14 34,683 2011-3-15 266,369 2009-7-20 395,720

Pursuant to 6 Construction Work Commencement Permits issued by the Construction Bureau of Panyu District of Guangzhou City in favour of Merchants Property Development (Guangzhou), the commencement of the construction works of Phases II, III and IV of Jinshan Valley have been permitted:

Permit No. Phase 440126200809040101 Phase II of Jinshan Valley 440126201105200401 Phase III-1 of Jinshan Valley 440126200904150201 Phase III-2 of Jinshan Valley 440126200912170201 Phase IV of Jinshan Valley 440126201003310301 Phase IV of Jinshan Valley 440126200912170101 Phase IV of Jinshan Valley Total:	Gross Floor Area Issued Date (sq.m.) 61,095 2008-9-4 34,683 2011-5-20 33,553 2009-4-15 98,093 2009-12-17 88,743 2010-3-31 79,533 2009-12-17 395,700

– VI-12 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Pursuant to 6 Pre-sales Permits – Sui Fang Yu (Wang) Zi Di Nos. 20090086, 20090434, 20100467, 20100468-2, 20100635 and 20100831-2, Merchants Property Development (Guangzhou) is entitled to sell portions of Phases II, III-1 and IV of Jinshan Valley with a total gross floor area of approximately 269,223.53 sq.m. to purchasers.
As advised by Merchants Property Development (Guangzhou), portions of the property with a total gross floor area of approximately 5,935.48 sq.m. have been pre-sold to various purchasers at a total consideration of RMB167,177,102. Such portions of the property have not been legally and virtually transferred to purchasers and therefore have been included in our valuation. In arriving at our opinion of the capital value of the property, we have taken into account the contracted price of such portions.
Pursuant to 5 Construction Work Completion and Inspection Certificates – Sui Gui Yan Zheng (2010) Nos. 432 and 1207 and Sui Gui Yan Zheng (2012) Nos. 125, 434 and 552, Phases II, III and IV of Jinshan Valley have been approved to be complied with the urban and rural planning requirements.
According to 2 Tenancy Agreements, 3 retail units of the property with a total lettable area of approximately 3,901.49 sq.m. were rented to 2 independent third parties for terms expiring on 31 October 2018 and 31 August 2020 at a total monthly rent of RMB273,573 as at the valuation date, inclusive of property tax, land use tax, house leasing administration fee and stamp duty but exclusive of management fees, water and electricity charges.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. Merchants Property Development (Guangzhou) is the legal user of the land use rights of the property. The aforesaid State-owned Land Use Rights Grant Contracts are legal and valid and the land premiums have been paid. Merchants Property Development (Guangzhou) has the rights to occupy, use, lease or otherwise transfer the land use rights of the property in compliance with the laws. According to the PRC legal advisors’ verification, the land use rights of the property are not subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights;
b. Merchants Property Development (Guangzhou) has the rights to pre-sell the property in accordance with the limits prescribed in the pre-sale permits mentioned above;
c. For the buildings of the property that have not been sold or pre-sold, Merchants Property Development (Guangzhou) is in possession of the ownership of such buildings and their corresponding land use rights in accordance with the laws and therefore has the rights to occupy, use, transfer, lease, mortgage or otherwise dispose of such buildings by other legal ways;
d. For the units of the property that have been pre-sold but are pending for completion of transfer, Merchants Property Development (Guangzhou) still holds the pre-sold units and land use rights, however, Merchants Property Development (Guangzhou) cannot transfer, mortgage or otherwise dispose of such buildings; and
e. According to Merchants Property Development (Guangzhou)’s written confirmation, the property is neither subject to any compulsory expropriation, litigation, dispute or other situation that may have material adverse effect on the property nor subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights.
A summary of major certificates/approvals is shown as follows:

a.	State-owned Land Use Rights Certificate	Yes
b.	Construction Land Planning Permit	Yes
c.	Construction Work Planning Permit	Yes
d.	Construction Work Commencement Permit	Yes
e.	Pre-sales Permit/Sales Permit	Portion
f.	Construction Work Completion and Inspection Certificate/Table	Yes
g.	Building Ownership Certificate	N/A

– VI-13 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

VALUATION CERTIFICATE

No. Property Description and tenure

The unsold portion of Phases I and II of Evian Upper City located at the northern side of Kuiqi Road and the western side of Guilan Road Chancheng District Foshan City Guangdong Province The PRC
The property comprises the unsold portion of a residential and commercial development known as Evian Upper City completed in October 2012.

The project is located at the northern side of Kuiqi Road and the western side of Guilan Road. Kuiqi Road is one of the main roads in Foshan, however, only a few buses and taxies are serviced around Kuiqi Road. The immediate locality is currently undeveloped and the Panyang Village is located nearby.

Capital value in Particulars of existing state as occupancy at 31 March 2013 RMB The property was 439,000,000 vacant as at the valuation date. 50% interest attributable to the Group: RMB219,500,000

The property has a total gross floor area of approximately 59,681.75 sq.m. The details are set out as below:

Use Residential Commercial Car parking spaces (1,243 lots) Sub-total:	Gross Floor Area (sq.m.) 7,443.40 14,948.35 37,290.00
	59,681.75

The land use rights of the property have been granted for terms of 70 years expiring on 17 May 2078 for residential use and 40 years expiring on 17 May 2048 for commercial use.

– VI-14 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Notes:

Pursuant to a State-owned Land Use Rights Grant Contract – No. 440601-2007-000791 dated 18 January 2008 entered into between Foshan State-owned Land Resources Bureau and Foshan Xin Jie Real Estate Company Limited (“Foshan Xin Jie”, a 50% interest owned subsidiary of Eureka), the land use rights of a parcel of land (this property and property no. 12) were contracted to be granted to Foshan Xin Jie with the particulars as follows:

Total Site Area : 150,426 sq.m. Net Site area : 107,299 sq.m. Land Use : residential and commercial Land Term : 70 years for residential use and 40 years for commercial use Plot Ratio : less than 2.5 Land Premium : RMB1,505,000,000

Pursuant to 3 State-owned Land Use Rights Certificates – Fo Chan Guo Yong (2012) Di Nos. 1010901, 1010902 and 1005365, the land use rights of a parcel of land (land parcel of this property and property no. 12) were granted to Foshan Xin Jie for terms of 40 years and 70 years respectively with the expiry date on 17 May 2048 and 17 May 2078 for commercial and residential uses.
Pursuant to 11 Pre-sales Permits in favour of Foshan Xin Jie, the Group is freely entitled to sell portion of the construction scale of Phases I and II of Evian Upper City (including the property) with a total gross floor area of approximately 177,267.97 sq.m. to purchasers. The details of which are as follows:

Permit No.
Building
No. 2010004301
Block 24 of Phase I
of the property
No. 2011002701
Commercial Portion of the
property
No. 2009007401
Block 1 of Phase I
of the property
No. 2011000401
Block 22 of Phase I
of the property
No. 2010005901
Block 23 of Phase I
of the property
No. 2010001701
Blocks 3 and 4
of Phase I of the property
No. 2011004301
Commercial Portion of the
property
No. 2011004901
Blocks 5 and 6
of Phase II of the property
No. 2011007201
Blocks 15 to 18 and 20
of Phase II of the property
No. 2011005401
Block 19 of Phase II
of the property
No. 2011006001
Block 21 of Phase II
of the property
Total:

Gross Floor
Area
Issued Date
(sq.m.)
11,184.18
20 August 2010
4,495.72
26 April 2011
9,860.90
10 December 2009
12,325.19
13 January 2011
10,184.69
10 September 2010
21,472.63
23 April 2010
8,995.23
22 June 2011
19,340.39
20 July 2011
51,400.23
30 September 2012
14,467.46
19 August 2011
13,561.35
15 September 2011
177,287.97

Pursuant to 3 Construction Work Completion Acceptance Reports in favour of Foshan Xin Jie, the buildings with a total gross floor area of approximately 238,061.25 sq.m. (including the property) have been completed and passed the inspection acceptance.

– VI-15 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

As advised by Foshan Xin Jie, portions of the property with a total gross floor area of approximately 5,009.03 sq.m. have been pre-sold to various purchasers at a total consideration of RMB55,938,689. Such portions of the property have not been legally and virtually transferred to purchasers and therefore have been included in our valuation. In arriving at our opinion of the capital value of the property, we have taken into account the contracted price of such portions.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. Foshan Xin Jie is the legal user of the land use rights of the property. The aforesaid State-owned Land Use Rights Grant Contract is legal and valid and the land premium has been paid. Foshan Xin Jie has the rights to occupy, use, lease or otherwise transfer the land use rights of the property in compliance with the laws. According to the PRC legal advisors’ verification, the land use rights of the property are not subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights;
b. Foshan Xin Jie has the rights to pre-sell the property in accordance with the limits prescribed in the pre-sale permits mentioned above;
c. For the units of the property that have been pre-sold but are pending for completion of transfer, Foshan Xin Jie still holds the pre-sold units and land use rights, however, Foshan Xin Jie cannot transfer, mortgage or otherwise dispose of such buildings; and
d. According to Foshan Xin Jie’s written confirmation, the property is neither subject to any compulsory expropriation, litigation, dispute or other situation that may have material adverse effect on the property nor subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights.
A summary of major certificates/approvals is shown as follows:

a.	State-owned Land Use Rights Certificate	Yes
b.	Construction Land Planning Permit	Yes
c.	Construction Work Planning Permit	Yes
d.	Construction Work Commencement Permit	Yes
e.	Pre-sales Permit	Yes
f.	Construction Work Completion Acceptance Report	Yes
g.	Building Ownership Certificate	N/A

– VI-16 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

VALUATION CERTIFICATE

No. Property

The unsold portion of Phases II, III and IV of Evian Water Bank located at the northern side of Yuhe Road eastern side of Fenjiang South Road Dongping New Town Foshan City The PRC

Description and tenure

The property comprises the unsold portion of Phases II, III and IV of a large scale residential development known as Evian Water Bank completed in various stages between 2009 and 2012.

The property is located at the core area of Dongping New City which is planned to be a Central Business District, media centre, Foshan Park and cultural integrated project complimented with a wide range of ancillary facilities. The economic and cultural hubs of Chancheng and Shunde are at about 20-minute’s drive and an extension of a metro station located at the southern side of the property is currently under construction and will open by 2015.

Capital value in Particulars of existing state as occupancy at 31 March 2013 RMB

The property was 1,380,514,000 vacant as at the valuation date. 25.5% interest attributable to the Enlarged Group: RMB352,031,000

The property has a total gross floor area of 114,303.08 sq.m. The details are set out as below:

Use Residential Commercial Kindergarten Others Car parking spaces (1,243 lots) Total:	Gross Floor Area (sq.m.) 39,443.64 4,902.16 5,358.19 4,459.00 60,140.09
	114,303.08

The land use rights of the property have been granted for various terms with the expiry dates of 5 November 2047, 5 November 2057 and 5 November 2077 for commercial, office and residential uses respectively.

– VI-17 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Notes:

Pursuant to a State-owned Land Use Rights Grant Contract of Foshan City dated 7 December 2007 entered into between the State-owned Land and Resources Bureau of Foshan City and Foshan Xin Cheng Property Development Co., Ltd. (“Foshan Xin Cheng”, a 50% interest owned subsidiary of Eureka), the land use rights of 2 parcels of land (land parcel A and B) on which the property is located, were contracted to be granted to Foshan Xin Cheng with the particulars as follows:
Site Area : 202,755 sq.m. (106,326 sq.m. for land parcel A and 96,429 sq.m. for land parcel B)
Land Use : Commercial, Office and Residential Land Term : 40 years for Commercial, 50 years for Office and 70 years for Residential
Plot Ratio : ≤1.6 for land parcel A ≤3.0 for land parcel B
Land Premium : RMB950,000,000
Pursuant to 4 State-owned Land Use Rights Certificates – Fo Fu (Shun) Guo Yong (2007) Di Nos. 0500900 to 0500903, the land use rights of 4 parcels of land with a total site area of approximately 173,104.93 sq.m. (on which the property is located) have been granted to Foshan Xin Cheng for various terms with the expiry dates of 5 November 2047, 5 November 2057 and 5 November 2077 for commercial, office and residential uses respectively.
Pursuant to 4 Construction Land Planning Permits – Fo Gui Di Zheng (2007) Nos. 23 to 26, permission towards the planning of the aforesaid land parcels has been granted to Foshan Xin Cheng.
Pursuant to 5 Construction Work Planning Permits issued by the Planning Bureau of Foshan City in favour of Foshan Xin Cheng, the construction works of 64 buildings of Phases II, III and IV of Evian Water Bank have been approved:

Permit No. Phase Jian Zi Di No. 440600200800023 Phase II of Evian Water Bank Jian Zi Di No. 440600200800024 Phase II of Evian Water Bank Jian Zi Di No. 440600201000012 Phase IV of Evian Water Bank Jian Zi Di No. 440600201000013 Phase III of Evian Water Bank Jian Zi Di No. 440600201000014 Phase III of Evian Water Bank Total:	Gross Floor Area Issued Date (sq.m.) 133,837.00 2008-9-17 85,751.46 2008-9-17 63,034.50 2010-4-7 102,560.00 2010-5-6 140,560.00 2010-5-6 525,742.96

Pursuant to 5 Construction Work Commencement Permits issued by the Construction Bureau of Foshan City in favour of Foshan Xin Cheng, the commencement of the construction works of 64 buildings of Phases II, III and IV of Evian Water Bank have been permitted:

Permit No. Phase 440600200812160201 Phase II of Evian Water Bank 440600200812160101 Phase II of Evian Water Bank 440600201006230101 Phase IV of Evian Water Bank 440600201008030101 Phase III of Evian Water Bank 440600201007210101 Phase III of Evian Water Bank Total:	Gross Floor Area Issued Date (sq.m.) 133,837.00 2008-12-16 85,751.46 2008-12-16 63,034.50 2010-6-23 102,560.00 2010-8-3 140,560.00 2010-7-23 525,742.96

– VI-18 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Pursuant to 9 Pre-sales Permits – Shun Yu Xu Zi Nos. 2011001603, 2011001903, 2011002803, 2011005903, 2011010303, 2011011103, 2011017303, 2012001803 and 2012003103, Foshan Xin Cheng is entitled to sell 1,302 residential and retail units of Phases III and IV of Evian Water Bank (exclusive of the car parking spaces) with a total gross floor area of approximately 224,729.07 sq.m. to purchasers.
Pursuant to 6 Construction Work Completion and Inspection Certificates, 64 buildings of Phases II, III and IV of Evian Water Bank have been approved to be complied with the urban and rural planning requirements.
As advised by the Group, portions of the property with a total gross floor area of approximately 63,259.51 sq.m. have been pre-sold to various third parties at a total consideration of RMB628,105,905. Such portions of the property have not been legally and virtually transferred to purchasers and therefore have been included in our valuation. In arriving at our opinion of the capital value of the property, we have taken into account the contracted price of such portions.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. Foshan Xin Cheng is the legal user of the land use rights of the property. The aforesaid State-owned Land Use Rights Grant Contract is legal and valid and the land premium has been paid. Foshan Xin Cheng has the rights to occupy, use, lease or otherwise transfer the land use rights of the property in compliance with the laws. According to the PRC legal advisors’ verification, the land use rights of the property are not subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights;
b. Foshan Xin Cheng is in possession of the ownership of the units of the property and their corresponding land use rights in accordance with the laws and therefore has the rights to occupy, use, transfer, lease, mortgage or otherwise dispose of such buildings by other legal ways;
c. For the units of the property that have been pre-sell but are pending for completion of transfer, Foshan Xin Cheng still holds the pre-sold units and land use rights, however, Foshan Xin Cheng cannot transfer, mortgage or otherwise dispose of such buildings; and
d. According to Foshan Xin Cheng’s written confirmation, the property is neither subject to any compulsory expropriation, litigation, dispute or other situation that may have material adverse effect on the property nor subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights;
A summary of major certificates/approvals is shown as follows:
a. State-owned Land Use Rights Certificate Yes b. Construction Land Planning Permit Yes c. Construction Work Planning Permit Yes d. Construction Work Commencement Permit Yes e. Pre-sales Permit/Sales Permit Portion f. Construction Work Completion and Inspection Certificate/Table Yes g. Building Ownership Certificate N/A

– VI-19 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

VALUATION CERTIFICATE

Description and tenure

No. Property

3 unsold units of The property comprises 3 unsold Evian Valley units of Evian Valley completed 8 Huitong Road in March 2011. Qixia District Nanjing City The property is located at the Jiangsu Province southern part of Xianlin Avenue, The PRC and the western side of Xianxia Road and near to the Metro Line 2. The locality is a newly-built residential area.

Capital value in Particulars of existing state as occupancy at 31 March 2013 RMB The property was 41,652,000 vacant as at the valuation date. 51% interest attributable to the Group: RMB21,243,000

The property is well-served by public transportation along main roads nearby and the Xuezelu metro station. The property has a total gross floor area of 1,572.27 sq.m.

The land use rights of the property have been granted for terms of 70 years commencing from 12 June 2006 and expiring on 11 June 2076 for residential use.

Notes:

Pursuant to 2 Nanjing Commodity Housing Initial Registration Certificates – Ning Fang Shang Chu Zi Di Nos. 20111147015 and 20111147041 dated 21 March 2011 issued by Office of the Commissioner of Nanjing Housing Rights in favour of Merchants Nanjing Real Estate Co., Ltd. (“Merchants Nanjing Real Estate”, a 51% interest owned subsidiary of Eureka), 2 units of the property with a total gross floor area of approximately 1,043.68 sq.m. have been approved to register.
As advised by the Group, the 3 units with a total gross floor area of 1,572.27 sq.m. have been pre-sold to 3 purchasers at a total consideration of RMB41,652,000. Such 3 units of the property have not been legally and virtually transferred and therefore we have included them in our valuation. In arriving at our opinion of the capital value of the property, we have taken into account the contracted prices of such 3 units.
We have not been provided with Commodity Housing Initial Registration Certificate of a unit with a gross floor area of approximately 528.59 sq.m.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. For the units of the property that have been signed sales contacts without transferring their corresponding land use rights, Merchants Nanjing Real Estate still hold the ownership of these units. However, Merchants Nanjing Real Estate cannot transfer, lease, mortgage or otherwise dispose of such property.

– VI-20 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

VALUATION CERTIFICATE

Description and tenure

No. Property

The unsold portion The property comprises the of Phase I of unsold portion of Phase I of Project G67 Project G67 known as Zijinshan Zijinshan No.1 No.1 completed in December Northeast Corner of 2011. Zhongshanmen Avenue and The property is located at the Taiyangcheng Road northern part of Zhongshanmen Qixia District Avenue, the eastern side of Nanjing City Taiyangcheng Road and near to Jiangsu Province the Metro Line 2. The locality is The PRC a residential area.

The property is located at the northern part of Zhongshanmen Avenue, the eastern side of Taiyangcheng Road and near to the Metro Line 2. The locality is a newly-built residential area. The property is well-served by public transportation along main roads nearby and the Maqun metro station.

Capital value in Particulars of existing state as occupancy at 31 March 2013 RMB The property was 1,050,000,000 vacant as at the valuation date. 51% interest attributable to the Group: RMB535,500,000

The property has a total gross floor area of 54,805.04 sq.m. The details are set out as following:

Use Residential Car parking spaces (373 lots) Total:	Gross Floor Area (sq.m.) 49,097.54 5,707.50
	54,805.04

The land use rights of the property have been granted commencing from 30 June 2010 for terms of 70 years for residential use and 40 years for commercial use respectively.

Notes:

Pursuant to a State-owned Construction Land Use Rights Grant Contract dated 30 December 2009 entered into between Nanjing State-owned Land Resources Administration Bureau and Merchants Nanjing Real Estate Co., Ltd. (“Merchants Nanjing Real Estate”, a 51% interest owned subsidiary of Eureka), the land use rights of the property were contracted to be granted to Merchants Nanjing Real Estate with the particulars as follows:

Site Area : 72,778.6 sq.m. (including river, ancillary and road land) Land Use : Residential, retail, commercial and finance Land Term : 70 years for residential use and 40 years for commercial use Plot Ratio : 1.7 for Lot 01, 2.4 for Lot 02 Land Premium : RMB1,390,000,000

– VI-21 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Pursuant to a State-owned Land Use Rights Certificates – Ning Qi Guo Yong (2010) Di No. 13092 dated 18 August 2010, the land use rights of a parcel of land with a site area of approximately 44,039.2 sq.m. (on which the property is located) were granted to Merchants Nanjing Real Estate commencing from 30 June 2010 for terms of 70 years for residential use and 40 years for commercial use respectively.
Pursuant to a Construction Land Planning Permit – Di Zi Di 320113201011279 in favour of Merchants Nanjing Real Estate, permission towards the planning of the parcel of land of Zijinshan No.1 has been granted to Merchants Nanjing Real Estate.
Pursuant to a Construction Work Planning Permit – Jian Zi Di 320113201011372 dated 15 November 2010 issued by Nanjing Administration Bureau of Urban Planning in favour of Merchants Nanjing Real Estate, the construction works of Zijinshan No.1 have been approved.
Pursuant to a Construction Work Commencement Permit – Ning Jian Jian Jian Xu (2011) No. 039 dated 26 January 2011 issued by Nanjing Housing and Construction Commission in favour of Merchants Nanjing Real Estate, the commencement of the construction works of Zijinshan No.1 has been permitted.
Pursuant to 6 Pre-sales Permits – Ning Fang Xiao Di Nos. 201110028, 201110172W, 201110111W, 2012100138W, 201110121W and 201210177W in favour of Merchants Nanjing Real Estate, the Group is entitled to sell the property.
As advised by the Group, portions of the property with a total gross floor area of 29,616.71 sq.m. have been pre-sold to various purchasers at a total consideration of RMB644,649,000. Such portions of the property have not been legally and virtually transferred and therefore we have included the portions in our valuation. In arriving at our opinion of the capital value of the property, we have taken into account the contracted prices of such portions. In arriving at our opinion of the capital value of the property, we have taken into account the contracted price of such portions.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. Merchants Nanjing Real Estate is the legal user of the land use rights of the property. The aforesaid State-owned Land Use Rights Grant Contract is legal and valid and the land premium has been paid. Merchants Nanjing Real Estate has the rights to occupy, use, lease or otherwise transfer the land use rights of the property in compliance with the laws. According to the PRC legal advisors’ verification, the land use rights of the property are not subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights;
b. After the project has been completed and passed final acceptance of construction, Merchants Nanjing Real Estate can use the relevant Land Use Rights certificate, Construction Land Planning Permit, Construction Work Planning Permit, Construction Work Commencement Permit and documents of Construction Work Completion and Inspection to apply for certificate of property ownership from relevant real estate administrative bureau. There is no material legal impediment for Merchants Nanjing Real Estate to obtain certificate of the property ownership;
c. Merchants Nanjing Real Estate has the rights to pre-sell the property in accordance with the scope of the pre-sales permit requirements;
d. For the buildings that have been completed, Merchants Nanjing Real Estate is in possession of the ownership of the buildings of the property and their corresponding land use rights in accordance with the laws and therefore has the rights to occupy, use, transfer, lease, mortgage or otherwise dispose of such buildings by other legal ways;
e. For the units of the property that have been pre-sold but are pending for completion of transfer, Merchants Nanjing Real Estate still holds the pre-sold units and land use rights, however, Merchants Nanjing Real Estate cannot transfer, lease, mortgage or otherwise dispose of such buildings by other ways without obtaining the consent of purchasers or the relevant sales contracts have not been revoked; and

– VI-22 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

f. According to Merchants Nanjing Real Estate’s written confirmation, the property (including but not limited to its buildings and car parking spaces) is neither subject to any compulsory expropriation, litigation, dispute or other situation that may have material adverse effect on the property nor subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights.
A summary of major certificates/approvals is shown as follows:

a. State-owned Land Use Rights Certificate Yes b. Construction Land Planning Permit Yes c. Construction Work Planning Permit Yes d. Construction Work Commencement Permit Yes e. Pre-sales Permit Yes f. Construction Work Completion and Inspection Certificate/Table N/A g. Building Ownership Certificate N/A

– VI-23 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

VALUATION CERTIFICATE

Group III – Property interests held under development by the Group in the PRC

				Capital value in
			Particulars of	existing state as
No.	Property	Description and tenure	occupancy	at 31 March 2013
				RMB
7.	Phase II of Project G67	The property comprises a parcel	The property was	773,000,000
	Garden City	of land with a site area of	under
	Northeast Corner	approximately 22,532.30 sq.m.	construction as at	51% interest
	of Zhongshanmen	and a composite commercial	the valuation	attributable to the
	Avenue and	building (Phases II, known as	date.	Group:
	Taiyangcheng Road	Garden City) which was being		RMB394,230,000
	Qixia District	constructed thereon as at the
	Nanjing City	valuation date.
	Jiangsu Province
	The PRC	The property is located at the

The property is located at the northern part of Zhongshanmen Avenue and the eastern side of Taiyangcheng Road and near to the Metro Line 2. The locality is a newly-built residential area. The property is well-served by public transportation along main roads nearby and the Maqun metro station.

The development is scheduled to be completed in October 2013. Upon completion, the development will have a total gross floor area of approximately 106,596.87 sq.m. and the details are set out below:

Use Commercial Serviced apartment Car parking spaces Ancillary room Total:	Gross Floor Area (sq.m.) 46,957.73 17,339.49 14,747.71 27,551.94
	106,596.87

The total construction cost is estimated to be approximately RMB582,487,000 of which RMB310,973,000 had been paid as at the valuation date.

The land use rights of the property have been granted commencing from 30 June 2010 for terms of 70 years for residential use and 40 years for commercial use.

– VI-24 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Notes:

Pursuant to a State-owned Construction Land Use Rights Grant Contract dated 30 December 2009 entered into between Nanjing State-owned Land Resources Administration Bureau and Merchants Nanjing Real Estate Co., Ltd. (“Merchants Nanjing Real Estate”, a 51% interest owned subsidiary of Eureka), the land use rights of 2 parcels of land (including this property) were contracted to be granted to Merchants Nanjing Real Estate with the particulars as follows:
Site Area : 72,778.6 sq.m. (including river, ancillary and road land) Land Use : Residential, retail, commercial and finance Land Term : 70 years for residential use and 40 years for commercial use Plot Ratio : 1.7 for Lot 01, 2.4 for Lot 02 Land Premium : RMB1,390,000,000
Pursuant to a State-owned Land Use Rights Certificate – Ning Qi Guo Yong (2010) Di No. 13094 date 18 August 2010, the land use rights of a parcel of land with a site area of approximately 22,532.3 sq.m. (on which the property is located) were granted to Merchants Nanjing Real Estate commencing from 30 June 2010 for terms of 70 years for residential use and 40 years for commercial use.
Pursuant to a Construction Land Planning Permit – Di Zi Di 320113201011362 in favour of Merchants Nanjing Real Estate, permission towards the planning of the parcel of land of the property has been granted to Merchants Nanjing Real Estate.
Pursuant to 2 Construction Work Planning Permits issued by Nanjing Administration Bureau of Urban Planning in favour of Merchants Nanjing Real Estate, the construction works of the following have been approved:

Gross Permit No. Building Floor Area Issued Date (sq.m.) Jian Zi Di 320113201111439 Serviced apartment of 19,090.9 28 November 2011 Garden City Jian Zi Di 320113201111463 Commercial Building 88,343.9 12 December 2011 of Garden City Total: 107,434.8

Pursuant to a Construction Work Commencement Permit – 320100020120003 dated 10 January 2012 issued by Nanjing Housing and Construction Commission in favour of Merchants Nanjing Real Estate, the commencement of the construction works of the property has been permitted.
Pursuant to a Pre-sales Permit – Ning Fang Xiao Di No. 2012100006W in favour of Merchants Nanjing Real Estate, the Group is entitled to sell portion of the property with a total gross floor area of approximately 17,350 sq.m. to purchasers.
As advised by the Group, portions of the property with a total gross floor area of 17,020.4 sq.m. have been pre-sold to various purchasers at a total consideration of RMB258,487,000. Such portions of the property have not been legally and virtually transferred and therefore we have included the portions in our valuation. In arriving at our opinion of the capital value of the property, we have taken into account the contracted prices of such portions.
The capital value of the property as if completed as at the valuation date under the development proposals as described above and which can be freely transferred in the market, would be RMB1,018,000,000.

– VI-25 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Pursuant to a Tenancy Agreement dated 19 December 2012, entered into between Wan Jidong (宛繼東, an independent third party to the Group, the “Lessor”) and Merchants Nanjing Real Estate, Unit 302 on level 3 of the property with a gross floor area of approximately 762 sq.m. ( leasable area of approximately 419 sq.m.) is leased to the Lessor for a term of 5 years commencing on 19 September 2013 and expiring on 18 September 2018 for commercial use (food and beverage and restaurant) at a total monthly basic rent of RMB58,660 plus turnover rent of 8 percent of after-tax turnover for the first 2 years, commencing on 19 September 2015 and expiring on 18 September 2016 at a total monthly basic rent of RMB61,593 plus turnover rent of 9 percent of after-tax turnover, commencing on 19 September 2016 and expiring on 18 September 2017 at a total monthly basic rent of RMB64,526 plus turnover rent of 9 percent of after-tax turnover, at a total monthly basic rent of RMB67,878 plus turnover rent of 10 percent of after-tax turnover for the 5th year, exclusive of management fees, water and electricity charges.
Pursuant to a Tenancy Agreement dated 19 December 2012, entered into between Wan Jidong (宛繼東, an independent third party to the Group, the “Lessor”) and Merchants Nanjing Real Estate, Unit 301 on level 3 of the property with a gross floor area of approximately 282 sq.m. ( leasable area of approximately 155 sq.m.) is leased to the Lessor for a term of 5 years commencing on 19 September 2013 and expiring on 18 September 2018 for commercial use (food and beverage and restaurant) at a total monthly basic rent of RMB23,405 plus turnover rent of 9 percent of after-tax turnover for the first 2 years, commencing on 19 September 2015 and expiring on 18 September 2016 at a total monthly basic rent of RMB24,645 plus turnover rent of 10 percent of after-tax turnover, commencing on 19 September 2016 and expiring on 18 September 2017 at a total monthly basic rent of RMB25,730 plus turnover rent of 10 percent of after-tax turnover, at a total monthly basic rent of RMB27,125 plus turnover rent of 11 percent of after-tax turnover for the 5th year, exclusive of management fees, water and electricity charges.
Pursuant to a Tenancy Agreement dated 23 January 2013, entered into between Nanjing Xin Duo Li Food Management Co., Ltd. (南京新多麗餐飲管理有限公司, an independent third party to the Group, the “Lessor”) and Merchants Nanjing Real Estate, Units 107 and 244 on levels 1 and 2 of the property with a total gross floor area of approximately 200 sq.m. (total leasable area of approximately 110 sq.m.) is leased to the Lessor for a term of 6 years commencing on 19 September 2013 and expiring on 18 September 2019 for commercial (food and beverage and restaurant) at a total monthly basic rent of RMB29,700 plus turnover rent of 8 percent of turnover for the first 2 years, commencing on 19 September 2015 and expiring on 18 September 2017 at a total monthly basic rent of RMB36,300 plus turnover rent of 10 percent of turnover, at a total monthly basic rent of RMB46,200 plus turnover rent of 13 percent of turnover for the last 2 years, exclusive of management fees, water and electricity charges.

– VI-26 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. Merchants Nanjing Real Estate is the legal user of the land use rights of the property. The aforesaid State-owned Land Use Rights Grant Contract is legal and valid and the land premium has been paid. Merchants Nanjing Real Estate has the rights to occupy, use, lease or otherwise transfer the land use rights of the property in compliance with the laws. According to the PRC legal advisors’ verification, the land use rights of the property are not subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights;
b. Merchants Nanjing Real Estate has obtained the necessary permits and approvals for the construction of the property from relevant government departments according to PRC laws. Such permits and approvals have not been revoked, amended or terminated. Merchants Nanjing Real Estate has the rights to construct the property according to such permits and approvals;
c. Merchants Nanjing Real Estate has the rights to pre-sell the property in the scope of the pre-sales permit requirements;
d. After the project is completed and passed final acceptance of construction, Merchants Nanjing Real Estate can use the relevant Land Use Rights certificate, Construction Land Planning Permit, Construction Work Planning Permit, Construction Work Commencement Permit and documents of Construction Work Completion and Inspection to apply for certificate of property ownership from relevant real estate administrative bureau. There is no material legal impediment for Merchants Nanjing Real Estate to obtain certificate of the property ownership;
e. For the buildings of the property that have been pre-sold but are pending for completion of transfer, Merchants Nanjing Real Estate still holds the pre-sold units and land use rights. However, Merchants Nanjing Real Estate cannot transfer, mortgage or otherwise dispose of such buildings;
f. According to Merchants Nanjing Real Estate’s written consent, the property is neither subject to any compulsory expropriation, litigation, dispute or other situation that may have material adverse effect on the property nor subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights; and
g. These Tenancy Agreements are valid until the project is completed and passed final acceptance of construction.
A summary of major certificates/approvals is shown as follows:

a.	State-owned Land Use Rights Certificate	Yes
b.	Construction Land Planning Permit	Yes
c.	Construction Work Planning Permit	Yes
d.	Construction Work Commencement Permit	Yes
e.	Pre-sales Permit	Yes
f.	Construction Work Completion and Inspection Certificate/Table	N/A

– VI-27 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

VALUATION CERTIFICATE

No. Property Description and tenure

Phases I of Yonghuafu The property comprises a parcel Southeast Corner of of land with a site area of Yikang Road and approximately 25,792.55 sq.m. Taishan Road and various residential buildings Jianye District erected thereon which were Nanjing City under construction as at the Jiangsu Province valuation date. The PRC The property is located at the south-eastern corner of Yikang Road and Taishan Road. The locality is a residential area well-served by various retail stores.

Capital value in Particulars of existing state as occupancy at 31 March 2013 RMB The property was No commercial under value construction as at the valuation date.

The property is scheduled to be completed in March 2015. Upon completion, the development will have a total gross floor area of approximately 91,305.56 sq.m. and the details are set out as below:

Use Gross
Floor Area
(sq.m.)
Residential 75,143.00
Car parking
spaces (198 lots) 16,162.56
Total: 91,305.56

The total construction cost is
estimated to be approximately
RMB1,308,545,000 of which
RMB105,086,000 had been paid
as at the valuation date.
The land use rights of the
property have been granted for
terms of 70 years for residential
use and 40 years for commercial
use.

Notes:

Pursuant to a State-owned Construction Land Use Rights Grant Contract dated 31 December 2010 entered into between Nanjing State-owned Land Resources Administration Bureau and Nanjing China Merchants Rui Sheng Property Co., Ltd. (“Nanjing China Merchants Rui Sheng”, a 51% interest owned subsidiary of Eureka), the land use rights of a parcel of land

– VI-28 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

(including this property and property no. 16) were contracted to be granted to Nanjing China Merchants Rui Sheng with the particulars as follows:

Site Area : 58,384.4 sq.m. (including river, ancillary and road land) Land Use : Residential and kindergarten Land Term : 70 years for residential use and 40 years for commercial use Plot Ratio : 3 Land Premium : RMB1,860,000,000

Pursuant to a Construction Land Planning Permit – Di Zi Di 32010520130206 in favour of Nanjing China Merchants Rui Sheng, permission towards the planning of the parcel of land of the property (including the land parcel of Property No. 16) has been granted to Nanjing China Merchants Rui Sheng.
Pursuant to a Construction Work Planning Permit issued by Nanjing Administration Bureau of Urban Planning in favour of Nanjing China Merchants Rui Sheng, the construction works of the following have been approved:

Gross Permit No. Building Floor Area Issued Date (sq.m.) Jian Zi Di 320105201310028 Phase I of Yonghuafu 109,054.40 22 January 2013

Pursuant to a Construction Work Commencement Permit – No. 320100020130079 dated 28 March 2013 issued by Nanjing Housing and Construction Commission in favour of Nanjing China Merchants Rui Sheng, the commencement of the construction works of the property has been permitted.
Pursuant to a Pre-sales Permit — Ning Fang Xiao Di No. 2013100029W dated 24 April 2013 in favour of Nanjing China Merchants Rui Sheng, the Group is entitled to sell Blocks 1 and 2 of the property to purchasers.
In the valuation of the property, we have attributed no commercial value to the property which has not obtained any land use rights certificate and proper construction permits but under construction as at the valuation date. However, for reference purpose, we are of the opinion that the capital value of the property as at the valuation date would be RMB1,109,000,000 assuming all relevant land use rights certificate and construction permits have been obtained and it could be freely transferred.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. Nanjing China Merchants Rui Sheng has paid all land premium, there is no material legal impediment for Nanjing China Merchants Rui Sheng to obtain the State-owned Land Use Rights Certificate of the property. There is little risk of being punished or be charged due to delaying in payment of land premium;
b. Nanjing China Merchants Rui Sheng has obtained the necessary permits and approvals for the construction of the property from relevant government departments according to PRC laws. Such permits and approvals have not been revoked, amended or terminated;
c. There is no material legal impediment for Nanjing China Merchants Rui Sheng in applying for the Building Ownership Certificate after completion of the property;
d. For the portion of the property that have been pre-sold but are pending for completion of transfer, Nanjing China Merchants Rui Sheng still holds the pre-sold units and land use rights. However, Nanjing China Merchants Rui Sheng cannot transfer, mortgage or otherwise dispose of such buildings; and
e. According to Nanjing China Merchants Rui Sheng’s written consent, the property is neither subject to any compulsory expropriation, litigation, dispute or other situation that may have material adverse effect on the property nor subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights.

– VI-29 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

A summary of major certificates/approvals is shown as follows:

a. State-owned Land Use Rights Certificate No b. Construction Land Planning Permit Yes c. Construction Work Planning Permit Yes d. Construction Work Commencement Permit Yes e. Pre-sales Permit No f. Construction Work Completion and Inspection Certificate/Table N/A

– VI-30 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

VALUATION CERTIFICATE

No. Property

The portion of Chongqing Changjiahui under development located at Danzi Stone Area of South Bank District Chongqing The PRC

Description and tenure

The property comprises a parcel of land with a site area of approximately 51,016 sq.m., several residential and commercial buildings (known as Phase I of Chongqing Changjiahui) which were being constructed thereon as at the valuation date.

Capital value in Particulars of existing state as occupancy at 31 March 2013 RMB The property was 1,236,000,000 under construction as at 50% interest the valuation attributable to the date. Group: RMB618,000,000

The property is located at Danzi Stone Area of South Bank District in Chongqing, which is at the corner of Yangtze River and Jialing River. It is close to the Nanbin Road and public transportation is available along the main roads nearby. The locality enjoys a open river view.

The development is scheduled to be completed in October 2014. Upon completion, the development will have a total gross floor area of approximately 239,036.89 sq.m. and the details are set out as below:

Phase I	Planned Gross
	Floor Area
	(sq.m.)
Residential	173,747.19
Commercial	5,837.60
Car Park	16,275.00
Ancillary
(non-saleable)	43,177.10
Total:	239,036.89

The total construction cost is estimated to be approximately RMB892,736,000, of which RMB522,216,000 had been paid as at the valuation date.

The land use rights of the property have been granted for a term of 50 years expiring on 6 June 2060 for residential use and 40 years expiring on 6 June 2050 for commercial use.

– VI-31 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Notes:

Pursuant to a State-owned Land Use Rights Grant Contract dated 7 June 2010 entered into between Chongqing City State-owned Land Resources and Building Administration Bureau and China West Premier Housing Development Co, Ltd. (“Chongqing China Merchants”, a 50% interest owned subsidiary of Eureka), land parcel of this property and property nos. 17 and 19 were contracted to be granted to Chongqing China Merchants with the particulars as follows:
Site Area : 336,600.00 sq.m. Land Use : Residential and commercial Land Term : 50 years for residential, 40 years for commercial Plot Ratio : N/A Land Premium : RMB5,002,970,000
Pursuant to a State-owned Land Use Rights Certificate – 106D Fang Di Zheng 2012 Zi No. 00529., the land use rights of a parcel of land with a site area of approximately 51,016 sq.m. have been granted to Chongqing China Merchants for terms of 40 and 50 years with the expiry dates on 6 June 2050 and 6 June 2060 for commercial and residential uses respectively.
Pursuant to a Construction Land Planning Permit – Di Zi No. 500108201100019 in favour of Chongqing China Merchants, permission towards the planning of the land parcel with a site area of approximately 336,600.00 sq.m. (including this property and property nos. 17 and 19) has been granted to Chongqing China Merchants.
Pursuant to 4 Construction Work Planning Permits issued by Chongqing Planning Bureau in favour of Chongqing China Merchants, the construction works below have been approved:

Permit No. Building Jian Zi No. 500108201100071 Block 2 on land parcel of G2-1-1/03 of Changjiahui Jian Zi No. 500108201100070 Block 3 on land parcel of G2-1-1/03 of Changjiahui Jian Zi No. 500108201100069 Block 4 & 6 on land parcel of G2-1-1/03 of Changjiahui Jian Zi No. 500108201100072 Block 5, 7-12 & 14 on land parcel of G2-1-1/03 of Changjiahui Total:	Gross Floor Area Issued Date (sq.m.) 38,164.16 11 November 2011 36,708.60 11 November 2011 42,232.65 11 November 2011 121,932.13 11 November 2011 239,037.54

Pursuant to 2 Construction Work Commencement Permits issued by Urban Construction Committee of Chongqing South Bank District in favour of Chongqing China Merchants, the commencement of the following construction works has been permitted:

Permit No. Building 500108201112060101 Block 3,5,7-11and 14 on land parcel of G2-1-1/03 of Changjiahui 500108201206250101 Block 2,4,6 and 12 on land parcel of G2-1-1/03 of Changjiahui Total:	Gross Floor Area Issued Date (sq.m.) 103,338.00 6 December 2011 135,698.89 25 June 2012 239,036.89

Pursuant to 5 Pre-sales Permits in favour of Chongqing China Merchants, the Group is freely entitled to sell portions of the development with a total gross floor area of approximately 175,270.41 sq.m. to purchasers.

– VI-32 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

As advised by Chongqing China Merchants, portions of the property with a total gross floor area of approximately 105,992.35 sq.m. have been pre-sold to various purchasers at a total consideration of RMB974,001,048. Such portions of the property have not been legally and virtually transferred to purchasers and therefore have been included in our valuation. In arriving at our opinion of the capital value of the property, we have taken into account the contracted price of such portions.
The capital value of the property as if completed as at the valuation date under the development proposals as described above and which can be freely transferred in the market, would be RMB1,870,000,000.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. Chongqing China Merchants is the legal user of the land use rights of the property. The aforesaid State-owned Land Use Rights Grant Contract is legal and valid and the land premium has been paid. Chongqing China Merchants has the rights to occupy, use, lease or otherwise transfer the land use rights of the property in compliance with the laws. According to the PRC legal advisors’ verification, the land use rights of the property are not subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights;
b. Chongqing China Merchants has obtained the relevant State-owned Land Use Rights Certificate, Construction Land Planning Permit, Construction Work Planning Permit and Construction Work Commencement Permit in respect of the construction of the property. Such certificate and permits are valid and had not been revoked, modified or abolished;
c. Chongqing China Merchants has the rights to pre-sell the property in accordance with the limits prescribed in the pre-sale permits mentioned above;
d. For the buildings of the property that have been pre-sold but are pending for completion of transfer, Chongqing China Merchants still holds the pre-sold units and land use rights. However, Chongqing China Merchants cannot transfer, mortgage or otherwise dispose of such buildings; and
e. According to Chongqing China Merchants’ written confirmation, the property is neither subject to any compulsory expropriation, litigation, dispute or other situation that may have material adverse effect on the property nor subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights.
A summary of major certificates/approvals is shown as follows:

a.	State-owned Land Use Rights Certificate	Yes
b.	Construction Land Planning Permit	Yes
c.	Construction Work Planning Permit	Yes
d.	Construction Work Commencement Permit	Yes
e.	Pre-sales Permit	Portion
f.	Construction Work Completion and Inspection Certificate/Table	N/A

– VI-33 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

VALUATION CERTIFICATE

No. Property

10 Phase VIII of Jinshan Valley located at Fei E Ling of Zhongcun Town Shatou Street Panyu District Guangzhou City The PRC

Description and tenure

The property comprises a portion of a parcel of land with a site area of approximately 8,322 sq.m. and a residential and commercial development (known as Phase VIII of Jinshan Valley) which was being constructed thereon as at the valuation date.

Capital value in Particulars of existing state as occupancy at 31 March 2013 RMB

The property was 273,811,000 under construction as at 51% interest the valuation attributable to the date. Enlarged Group: RMB139,644,000

The property is located at the southern side of Xinguang Avenue, the eastern side of Jinshan Avenue and the northern side of Shiguang Road in Panyu District of Guangzhou City. The subject area of the property is well-served by public transportation with 20 minutes driving distance to the city centre and close to Guangzhou South Railway Station. The locality of the property is a newly-developed residential area served by a good and natural environment and commercial facilities with reasonable proximity to Dafushan Forest Park, Changlong Holiday Resort, Jinshan Lake Reservoir as well as Qixinggang Sports Park.

The development of the property was scheduled to be completed in May 2013 and has been completed as at the date of this report. Upon completion, the development will have a total gross floor area of approximately 45,005 sq.m. and the details are set out as below:

Use Apartment Commercial Underground (including 302 car parking lots) Ancillary (non-saleable) Total:	Gross Floor Area (sq.m.) 18,731 7,000 13,378 5,896
	45,005

– VI-34 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

No. Property

Description and tenure

Capital value in Particulars of existing state as occupancy at 31 March 2013 RMB

The total construction cost is estimated to be approximately RMB189,390,000, of which approximately RMB96,120,000 had been paid as at the valuation date.

The land use rights of the property have been granted for a term of 70 years expiring on 1 November 2075 for residential and commercial uses.

Notes:

Pursuant to a State-owned Land Use Rights Grant Contract dated 23 December 2003 entered into between the State-owned Land Resources and Building Administration Bureau of Panyu District, Guangzhou City and Merchants Property Development (Guangzhou) Ltd. (“Merchants Property Development (Guangzhou)”, a 51% interest owned subsidiary of Eureka), the land use rights of a parcel of land (land parcel No. G32-000252, including the land on which this property is erected) were contracted to be granted to Merchants Property Development (Guangzhou) with the particulars as follows:

Site Area : 259,760.7 sq.m. (land parcel No. G32-000252) Land Use : Residential Land Term : 70 years Plot Ratio : �0.83 Land Premium : RMB233,651,758

Pursuant to a State-owned Land Use Rights Certificate – No. G32-000252, the land use rights of a parcel of land with a site area of approximately 259,760.7 sq.m. (including the land on which this property is erected) have been granted to Merchants Property Development (Guangzhou) for a term of 70 years expiring on 1 November 2075 for residential and commercial uses.
Pursuant to a Construction Land Planning Permit – Hui Gui Di Zheng (2006) No. 1673, permission towards the planning of the aforesaid land parcel has been granted to Merchants Property Development (Guangzhou).
Pursuant to a Construction Work Planning Permit issued by the Urban Planning Bureau of Guangzhou in favour of Merchants Property Development (Guangzhou), the construction works of Phase VIII of Jinshan Valley have been approved:

Gross Permit No. Phase Floor Area Issued Date (sq.m.) Sui Gui Jian Zheng (2011) No. 1032 Phase VIII 45,005 2011-5-30

– VI-35 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Pursuant to a Construction Work Commencement Permit issued by the Construction Bureau of Panyu District of Guangzhou City in favour of Merchants Property Development (Guangzhou), the commencement of the construction works of Phase VIII of Jinshan Valley have been permitted:

		Gross
Permit No.	Phase	Floor Area	Issued Date
		(sq.m.)
440126201112060101	Phase VIII	45,005	2011-12-6

Pursuant to a Pre-sales Permit – Sui Fang Yu (Wang) Zi Di No. 20111102, Merchants Property Development (Guangzhou) is entitled to sell portions of Phase VIII of Jinshan Valley with a total gross floor area of approximately 25,347.84 sq.m. to purchasers.
As advised by Merchants Property Development (Guangzhou), portions of the property with a total gross floor area of approximately 18,568.29 sq.m. have been pre-sold to various purchasers at a total consideration of RMB194,701,141. Such portions of the property have not been legally and virtually transferred to purchasers and therefore have been included in our valuation. In arriving at our opinion of the capital value of the property, we have taken into account the contracted price of such portions.
The capital value of the property, as if completed as at the valuation date according to the development proposal as described above and which can be freely transferred in the market, would be RMB371,623,000.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. Merchants Property Development (Guangzhou) is the legal user of the land use rights of the property. The aforesaid State-owned Land Use Rights Grant Contract is legal and valid and the land premium has been paid. Merchants Property Development (Guangzhou) has the rights to occupy, use, lease or otherwise transfer the land use rights of the property in compliance with the laws. According to the PRC legal advisors’ verification, the land use rights of the property are not subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights;
b. Merchants Property Development (Guangzhou) has obtained the necessary permits and approvals in respect of the construction of the property from the relevant government authorities. Such permits and approvals are valid and had not been revoked, modified or abolished. Merchants Property Development (Guangzhou) has the rights to develop the property in accordance with the aforesaid permits and approvals;
c. Merchants Property Development (Guangzhou) has the rights to pre-sell the property in accordance with the limits prescribed in the pre-sale permits mentioned above;
d. After the construction is completed and passed the inspection acceptance, Merchants Property Development (Guangzhou) can apply for Building Ownership Certificate by using the State-owned Land Use Rights Certificates, Construction Land Planning Permits, Construction Work Planning Permits, Construction Work Commencement Permits and the Acceptance of the Completion of the Construction Work from the relevant real estate management departments. Since Merchants Property Development (Guangzhou) has obtained the Construction Work Commencement Permits, there is no legal impediment to apply for the Building Ownership Certificate;
e. For the units of the property that have been pre-sold but are pending for completion of transfer, Merchants Property Development (Guangzhou) still holds the pre-sold units and land use rights, however, Merchants Property Development (Guangzhou) cannot transfer, mortgage or otherwise dispose of such buildings; and
f. According to Merchants Property Development (Guangzhou)’s written confirmation, the property is currently neither subject to any compulsory expropriation, litigation, dispute or other situation that may have material adverse effect on the property nor subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights.

– VI-36 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

A summary of major certificates/approvals is shown as follows:

a. State-owned Land Use Rights Certificate Yes b. Construction Land Planning Permit Yes c. Construction Work Planning Permit Yes d. Construction Work Commencement Permit Yes e. Pre-sales Permit/Sales Permit Portion f. Construction Work Completion and Inspection Certificate/Table N/A

– VI-37 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

VALUATION CERTIFICATE

No. Property

Phase I of the Creative Park of Jinshan Valley located at Fei E Ling of Zhongcun Town Shatou Street Panyu District Guangzhou City The PRC

Description and tenure

The property comprises a portion of a parcel of land with a site area of approximately 75,000 sq.m. and an office and commercial development (known as Phase I of the Creative Park of Jinshan Valley) which was being constructed thereon as at the valuation date.

Capital value in Particulars of existing state as occupancy at 31 March 2013 RMB The property was 576,176,000 under construction as at 51% interest the valuation attributable to the date. Enlarged Group: RMB293,850,000

The development of the property is scheduled to be completed in September 2014. Upon completion, the development will have a total gross floor area of approximately 152,378 sq.m. and the details are set out as below:

Use Office Commercial Underground (including 900 car parking lots) Total:	Gross Floor Area (sq.m.) 74,813 26,748 50,817
	152,378

– VI-38 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

No. Property

Description and tenure

Capital value in Particulars of existing state as occupancy at 31 March 2013 RMB

The total construction cost is estimated to be approximately RMB794,169,000, of which approximately RMB126,498,000 had been paid as at the valuation date.

The land use rights of the property have been granted for a term of 40 years commencing from 2 November 2005 for commercial use.

Notes:

Pursuant to a State-owned Land Use Rights Grant Contract dated 23 December 2003 entered into between the State-owned Land Resources and Building Administration Bureau of Panyu District, Guangzhou City and Merchants Property Development (Guangzhou) Ltd. (“Merchants Property Development (Guangzhou)”, a 51% interest owned subsidiary of Eureka), the land use rights of a parcel of land (land parcel No. G32-000251, including the land on which this property is erected), were contracted to be granted to Merchants Property Development (Guangzhou) with the particulars as follows:

Site Area : 276,036 sq.m. (land parcel No. G32-000251) Land Use : Commercial Land Term : 40 years Plot Ratio : �1.0 Land Premium : RMB248,291,293

Pursuant to a State-owned Land Use Rights Certificate – No. G32-000251, the land use rights of a parcel of land with a site area of approximately 276,036 sq.m. (including the land on which this property is erected) have been granted to Merchants Property Development (Guangzhou) for a term expiring on 1 November 2045 for commercial use.
Pursuant to a Construction Land Planning Permit – Hui Gui Di Zheng (2010) No. 107, permission towards the planning of the aforesaid land parcel has been granted to Merchants Property Development (Guangzhou).
Pursuant to a Construction Work Planning Permit issued by the Urban Planning Bureau of Guangzhou in favour of Merchants Property Development (Guangzhou), the construction works of Phase I-1of the Creative Park of Jinshan Valley have been approved:

		Gross
Permit No.	Phase	Floor Area	Issued Date
		(sq.m.)
Sui Gui Jian Zheng (2013)	Phase I-1 of the Creative Park	36,909	2013-2-7
No. 322	of Jinshan Valley

Pursuant to a Construction Work Commencement Permit – No. 440126201304250501 issued by Construction Bureau of Panyu District, Guangzhou City in favour of Merchants Property Development (Guangzhou), the commencement of the construction works of Phase I-1 of the Creative Park of Jinshan Valley have been approved.

– VI-39 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

As advised by Merchants Property Development (Guangzhou), the construction works of the remaining portion of Phase I (i.e. Phases I-2) of the Creative Park of Jinshan Valley had not been commenced as at the valuation date and the relevant planning and construction permit of such portion are still under application.
The capital value of the property as if completed as at the valuation date according to the development proposal as described above and which can be freely transferred in the market, would be RMB1,818,283,000.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:
a. Merchants Property Development (Guangzhou) is the legal user of the land use rights of the property. The aforesaid State-owned Land Use Rights Grant Contract is legal and valid and the land premium has been paid. Merchants Property Development (Guangzhou) has the rights to occupy, use, lease or otherwise transfer the land use rights of the property in compliance with the laws. According to the PRC legal advisors’ verification, the land use rights of the property are not subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights;
b. After the construction is completed and passed the inspection acceptance, Merchants Property Development (Guangzhou) can apply for Building Ownership Certificate by using the State-owned Land Use Rights Certificates, Construction Land Planning Permits, Construction Work Planning Permits, Construction Work Commencement Permits and the Acceptance of the Completion of the Construction Work from the relevant real estate management departments. Since Merchants Property Development (Guangzhou) has obtained the Construction Work Commencement Permits, there is no legal impediment to apply for the Building Ownership Certificate; and
c. According to Merchants Property Development (Guangzhou)’s written confirmation, the property is currently neither subject to any compulsory expropriation, litigation, dispute or other situation that may have material adverse effect on the property nor subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights.
A summary of major certificates/approvals is shown as follows:

a.	State-owned Land Use Rights Certificate	Yes
b.	Construction Land Planning Permit	Yes
c.	Construction Work Planning Permit	Portion
d.	Construction Work Commencement Permit	Portion
e.	Pre-sales Permit / Sales Permit	N/A
f.	Construction Work Completion and Inspection Certificate/Table	N/A

– VI-40 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

VALUATION CERTIFICATE

No. Property

Phase III of Evian Upper City located at the northern side of Kuiqi Road and the western side of Guilan Road Chancheng District Foshan City Guangdong Province The PRC

Description and tenure

The property comprises a portion of a parcel of land with a site area of approximately 40,218.73 sq.m. and 4 residential buildings (known as Buildings 9 to 12 of Phase III of Evian Upper City) which were being constructed thereon as at the valuation date.

Capital value in Particulars of existing state as occupancy at 31 March 2013 RMB

The property was 934,000,000 under construction as at 50% interest the valuation attributable to the date. Group: RMB467,000,000

The development is scheduled to be completed in October 2013. Upon completion, the development will have a total gross floor area of approximately 123,002.67 sq.m. and the details are set out below:

Use Residential Retail Other facilities Car parking space (1,024 lots) Total:	Gross Floor Area (sq.m.) 76,279.00 155.30 15,848.37 30,720.00
	123,002.67

The total construction cost is estimated to be approximately RMB375,000,000, of which RMB283,000,000 had been paid as at the valuation date.

The land use rights of the property have been granted for a term of 70 years expiring on 17 May 2078 for residential use and 40 years expiring on 17 May 2048 for commercial use.

– VI-41 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Notes:

Pursuant to a State-owned Land Use Rights Grant Contract – No. 440601-2007-000791 dated 18 January 2008 entered into between Foshan State-owned Land Resources Bureau and Foshan Xin Jie Property Development Co., Ltd. (“Foshan Xin Jie”, a 50% interest owned subsidiary of Eureka), the land use rights of a parcel of land (this property and property no. 3) were contracted to be granted to Foshan Xin Jie with the particulars as follows:

Pursuant to a State-owned Land Use Rights Certificate – Fo Fu Guo Yong (2012) Di No. 1010902, the land use rights of a parcel of land (land parcel of this property and property no. 3) were granted to Foshan Xin Jie for terms of 40 years and 70 years respectively with the expiry date on 17 May 2048 and 17 May 2078 for commercial and residential uses.
Pursuant to a Construction Land Planning Permit – Di Zi Di Fo Gui (Chan) Di Zheng 2008 No. 009 in favour of Foshan Xin Jie, permission towards the planning of the subject land with a site area of approximately 107,299 sq.m. has been granted to Foshan Xin Jie.
Pursuant to 2 Construction Work Planning Permits issued by the Development Planning and Statistics Bureau of Foshan City, Chancheng District and Foshan Municipal Planning Bureau, Sub-bureau in favour of Foshan Xin Jie, the construction works of the property of the following have been approved:

		Gross
Permit No.	Building	Floor Area	Issued Date
		(sq.m.)
Jian Zi Di No. 440604201100075	Buildings 9 to 12 of the	123,002.67	22 March 2011
	property (above the ground)
Jian Zi Di No. 440604200890006	Below±0.00 of the property	–	5 March 2009

Pursuant to a Construction Work Commencement Permit issued by the State-owned Land Urban Planning and Water Conservancy in favour of Foshan Xin Jie, the commencement of the construction work of the property of the following has been permitted:

		Gross
Permit No.	Building	Floor Area	Issued Date
		(sq.m.)
440601201107150101	Buildings 9 to 12 of the	123,002	18 July 2011
	property

– VI-42 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Pursuant to 3 Pre-sales Permits in favour of Foshan Xin Jie, the Group is freely entitled to sell the property with a total gross floor area of approximately 78,737.67 sq.m. to purchasers. The details of which are as follows:

Permit No. Building No. 2012009801 Blocks 11 to 14 of Phase III of the property No. 2012006601 Blocks 9 and 10 of Phase III of the property No. 2012004801 Blocks 7 and 8 of Phase III of the property Total:	Gross Floor Area Issued Date (sq.m.) 37,858.11 25 October 2012 20,963.52 20 July 2012 19,916.04 20 June 2012 78,737.67

As advised by Foshan Xin Jie, portions of the property with a total gross floor area of 27,477.61 sq.m. have been pre-sold to various purchasers at a total consideration of RMB297,811,338. Such portions of the property have not been legally and virtually transferred and therefore we have included the portions in our valuation. In arriving at our opinion of the capital value of the property, we have taken into account the contracted prices of such portions.
The capital value of the property as if completed as at the valuation date under the development proposals as described above and which can be freely transferred in the market, would be RMB1,265,000,000.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. Foshan Xinjie has obtained the necessary permits and approvals for the construction of the property from the relevant government departments in accordance with the PRC law and regulations and such permits and approvals have not been revoked, amended or terminated. Foshan Xinjie is entitled to carry out the construction of the property in accordance with the permits and approvals;
b. Foshan Xin Jie has the rights to pre-sell the property in accordance with the limits prescribed in the pre-sale permits mentioned above;
c. After the construction is completed and passed the acceptance inspection, Foshan Xin Jie can apply for Building Ownership Certificate by using the State-owned Land Use Rights Certificates, Construction Land Planning Permits, Construction Work Planning Permits, Construction Work Commencement Permits and the Acceptance of the Completion of the Construction Work from the relevant real estate management departments. Since Foshan Xin Jie has obtained the Construction Work Commencement Permits, there is no material legal impediment to apply for the Building Ownership Certificate;
d. For the units of the property that have been pre-sold but are pending for completion of transfer, Foshan Xin Jie still holds the pre-sold units and land use rights, however, Foshan Xin Jie cannot transfer, mortgage or otherwise dispose of such buildings;

– VI-43 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

e. The completion date of the property is overdue, according to the relevant stipulation, Foshan Xin Jie will have a risk to pay the penalty of RMB6,803,400 of land premium of the property to Foshan State-owned Land Use Resource and Urban Planning Bureau; and
f. According to Foshan Xin Jie’s written confirmation, the property is neither subject to any compulsory expropriation, litigation, dispute or other situation that may have material adverse effect on the property nor subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights.
A summary of major certificates/approvals is shown as follows:

– VI-44 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

VALUATION CERTIFICATE

No. Property

Various buildings of Evian Tianhui located near the Qiandenghu Park on Nanping Road Nanhai District Foshan City Guangdong Province The PRC

Description and tenure

The property comprises 2 parcels of land with a total site area of approximately 56,101.70 sq.m., various residential, commercial buildings and car parking spaces which were being constructed thereon as at the valuation date.

Capital value in Particulars of existing state as occupancy at February 2013 RMB The property was 2,232,000,000 under construction as at 25.5% interest the valuation attributable to the date. Group: RMB569,160,000

The property is located beside the Nanping Road, near Qiandaohu Park of Nanhai District in Foshan City and well-served by good facilities and public transportation, which are along the main roads and near the Qiandenghu Subway Station. The locality is a residential area supported by retail stores and commercial facilities.

The development is scheduled to be completed in September 2014. Upon completion, the development will have a total gross floor area of approximately 301,818.24 sq.m. and the details are set out as following:

Use Residential Commercial Car parking space (2,204 lots) Others Sub-total:	Gross Floor Area (sq.m.) 204,248.70 16,963.67 71,973.49 8,632.38
	301,818.24

The total construction cost is estimated to be approximately RMB1,171,000,000, of which RMB669,500,000 had been paid as at the valuation date.

The land use rights have been granted for terms of 70 years expiring on 22 July 2080 for residential use and 40 years expiring on 22 July 2050 for commercial use respectively.

– VI-45 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Notes:

Pursuant to 2 State-owned Land Use Rights Grant Contracts – No. 440605-2010-000145 and 440605-2010-000142 entered into among Foshan State-owned Land Resources Bureau, Merchants Property Development (Guangzhou) Ltd. (“Merchants Property Development (Guangzhou)”, a 100% interest owned subsidiary of Eureka) and Huidefeng Real Estate Guangzhou Company Limited (“Guangzhou Huidefeng”, an independent third party), Merchants Property Development (Guangzhou) and Guangzhou Huidefeng comprised Foshan Yi Yun Property Development Co., Ltd. (“Foshan Yi Yun”, a 25.5% interest owned subsidiary of Eureka), and the land use rights of the property were contracted to be granted to Merchants Property Development (Guangzhou) and Guangzhou Huidefeng with the particulars as follows:

Site Area : 56,101.70 sq.m. Land Use : residential and commercial Land Term : 70 years for residential use and 40 years for commercial use Plot Ratio : 4.0 Land Premium : RMB1,104,000,000 Municipal facilities fee : N/A

Pursuant to 2 State-owned Land Use Rights Certificates, the land use rights of the property were granted to Foshan Yi Yun for terms of 70 years and 40 years with the particulars as follows:

Land Use Rights				Issued
Certificate	Site Area	Usage	Expiry Date	Date
	(sq.m.)
Fo Fu Nan Guo Yong	25,914.9	Residential	Residential: 2080-7-22	2011-6-1
2011 Di No. 0107304
Fo Fu Nan Guo Yong	30,186.8	Residential and	Residential: 2080-7-22	2011-6-1
2011 Di No. 0107305		Commercial	Commercial: 2050-7-22
Total:	56,101.7

Pursuant to 12 Construction Work Planning Permits issued by Foshan Nanhai State-owned Land construction and Water Bureau in favour of Foshan Yi Yun, the construction works of the following have been approved:

Permit No.
Building
440605201101266
Building No. 1 of A21
440605201101267
Building No. 2 of A21
440605201101268
Building No. 3 of A21
440605201101269
Commercial building of A21
440605201101053
Building No. 1 of A18
440605201101054
Building No. 2 of A18
440605201101055
Building No. 3 of A18
440605201101056
Building No. 4-5 of A18
440605201101052
Commercial building of A18
440605201101051
Building No. 4 of A21
440605201101050
Building No. 5 of A21
440605201101049
Market building of A21
Total:

Gross
Floor Area
Issued Date
(sq.m.)
29,193.99
28 September 2011
26,898.53
28 September 2011
35,447.30
28 September 2011
8,570.53
28 September 2011
25,047.68
24 August 2011
22,883.05
24 August 2011
28,880.15
24 August 2011
54,161.51
24 August 2011
8,194.80
24 August 2011
30,036.95
24 August 2011
27,866.30
24 August 2011
4,637.47
24 August 2011
301,818.26

– VI-46 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Pursuant to 12 Construction Work Commencement Permits issued by Foshan Nanhai State-owned Land construction and Water Bureau in favour of Foshan Yi Yun, the commencement of the construction works has been permitted:

Permit No.
Building
440622201111250101
Building No. 1 of A18
440622201111250201
Building No. 2 of A18
440622201111250301
Building No. 3 of A18
440622201111250501
Building No. 4-5 of A18
440622201111250401
Commercial building of A18
440622201112020101
Building No. 1 of A21
440622201112020201
Building No. 2 of A21
440622201112020301
Building No. 3 of A21
440622201112020401
Building No. 4 of A21
440622201112020501
Building No. 5 of A21
440622201112020601
Market building of A21
440622201112020701
Commercial building of A21
Total:

Gross
Floor Area
Issued Date
(sq.m.)
25,047.68
25 November 2011
22,883.05
25 November 2011
28,880.15
25 November 2011
54,161.51
25 November 2011
8,194.80
25 November 2011
29,193.99
2 December 2011
26,898.53
2 December 2011
35,447.30
2 December 2011
30,036.95
2 December 2011
27,866.30
2 December 2011
4,637.47
2 December 2011
8,570.53
2 December 2011
301,818.26

Pursuant to 7 Pre-sales Permits issued by Foshan Housing and Urban and Rural Construction Bureau in favour of Foshan Yi Yun, the followings are entitled to sell to purchasers of Foshan Yi Yun:

Permit No. Building Nan Fang Yu Zi Di No. 2012003002 Building No. 4 Nan Fang Yu Zi Di No. 2012003102 Building No. 5 Nan Fang Yu Zi Di No. 2012003202 Building No. 6 Nan Fang Yu Zi Di No. 2012009102 Building No. 7 Nan Fang Yu Zi Di No. 2012020302 Building No. 8 Nan Fang Yu Zi Di No. 2013003002 Building No. 10 Nan Fang Yu Zi Di No. 2013003202 Building No. 1 Total:	Gross Floor Area Valid Date (sq.m.) 20,301.82 29 May 2013 21,635.36 29 May 2013 23,387.64 29 May 2013 23,208.73 29 May 2013 25,866.73 29 May 2013 21,073.34 29 May 2013 18,932.56 29 May 2013 154,406.18

As advised by Foshan Yi Yun, portions of the property with a total gross floor area of 80,112.95 sq.m. have been pre-sold to various purchasers at a total consideration of RMB937,850,344. Such portions of the property have not been legally and virtually transferred and therefore we have included the portions in our valuation. In arriving at our opinion of the capital value of the property, we have taken into account the contracted prices of such portions.
The capital value of the property as if completed as at the valuation date under the development proposals as described above and which can be freely transferred in the market, would be RMB2,953,000,000.

– VI-47 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. Foshan Yi Yun is the legal user of the land use rights of the property. The aforesaid State-owned Land Use Rights Grant Contract is legal and valid and the land premium has been paid. Foshan Yi Yun has the rights to occupy, use, lease or otherwise transfer the land use rights of the property in compliance with the laws. According to the PRC legal advisors’ verification, the land use rights of the property are not subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights;
b. Foshan Yi Yun has obtained the necessary permits and approvals for the construction of the property from the relevant government departments in accordance with the PRC law and regulations and such permits and approvals have not been revoked, amended or terminated. Foshan Yi Yun is entitled to carry out the construction of the property in accordance with the permits and approvals;
c. Foshan Yi Yun has the rights to pre-sell the property in accordance with the limits prescribed in the pre-sale permits mentioned above;
d. After the construction is completed and passed the inspection acceptance, Foshan Yi Yun can apply for Building Ownership Certificate by using the State-owned Land Use Rights Certificates, Construction Land Planning Permits, Construction Work Planning Permits, Construction Work Commencement Permits and the Acceptance of the Completion of the Construction Work from the relevant real estate management departments. Since Foshan Yi Yun has obtained the Construction Work Commencement Permits, there is no legal impediment to apply for the Building Ownership Certificate;
e. For the buildings of the property that have been pre-sold but are pending for completion of transfer, Foshan Yi Yun still holds their ownership and land use rights, however, Foshan Yi Yun cannot transfer, lease, mortgage or otherwise dispose of such buildings; and
f. According to Foshan Yi Yun’s written confirmation, the property is neither subject to any compulsory expropriation, litigation, dispute or other situation that may have material adverse effect on the property nor subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights.
A summary of major certificates/approvals is shown as follows:

a.	State-owned Land Use Rights Certificate	Yes
b.	Construction Land Planning Permit	Yes
c.	Construction Work Planning Permit	Yes
d.	Construction Work Commencement Permit	Yes
e.	Pre-sales Permit	Portion
f.	Construction Work Completion and Inspection Certificate/Table	N/A

– VI-48 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

VALUATION CERTIFICATE

No. Property Description and tenure

Phases I & II of Evian Xicheng located at the junction between Boai Road Central and Keji Road North Shishan Town Nanhai District Foshan City Guangdong Province The PRC
The property comprises a parcel of land with a site area of approximately 62,016.92 sq.m. and various residential buildings which were being constructed thereon as at the valuation date.

The project is located at the southern side of Boai Road Central and the eastern side of Keji Road North. Shishan Town is the largest town of Nanhai District and is well-served by public transportation along the main roads. The immediate locality is currently undeveloped and the Shishan Town Government is located nearby.

Capital value in Particulars of existing state as occupancy at 31 March 2013 RMB The property was 775,990,000 under construction as at 50% interest the valuation attributable to the date. Group: RMB387,995,000

The development (Phases I & II) is scheduled to be completed in October 2014. Upon completion, the development will have a total gross floor area of approximately 205,887 sq.m. and the details are set out below:

Use Residential Other facilities Car parking space Total:	Gross Floor Area (sq.m.) 144,260 4,364 57,263
	205,887

The total construction cost is estimated to be approximately RMB729,588,000, of which RMB225,690,000 had been paid as at the valuation date.

The land use rights of the property have been granted for a term of 58 years expiring on 13 April 2070 for residential use.

Notes:

Pursuant to a State-owned Land Use Rights Exchange Contract – Fo Fu Nan Guo Yong (2009) Di No. 0604940 dated 16 May 2010 entered into between Nanhai Development Holdings Co., Ltd. and Foshan Merchants Wharf Property Development Co., Ltd. (“Foshan Merchants Wharf”, a 50%

– VI-49 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

interest owned subsidiary of Eureka), the land use rights of this property and a portion of land use rights of property no. 15 were contracted to be granted to Foshan Merchants Wharf with the particulars as follows:

Total Site Area : 116,545.10 sq.m. Land Use : Residential Land Term : 58 years for residential use Land Transaction Fee : RMB524,945,709

Pursuant to a State-owned Land Use Rights Certificate – Fo Fu Nan Guo Yong (2012) Di No. 0601781, the land use rights of this property and property no. 15 were granted to Foshan Merchants Wharf for terms of 58 years with the expiry date on 13 April 2070 for residential use.
Pursuant to 2 Construction Land Planning Permits – No. 440605201060036 and 440605201060037 in favour of Foshan Merchants Wharf, permission towards the planning of the subject land with a site area of approximately 139,857.20 (comprising the land parcel of this property and property no. 15) sq.m. has been granted to Foshan Merchants Wharf.
Pursuant to 35 Construction Work Planning Permits issued by the Urban Construction and Water Supplies Department of Nanhai District of Foshan City, in favour of Foshan Merchants Wharf, the construction works of the property of the following have been approved:

Permit No.	Building	Gross Floor Area	Issued Date
		(sq.m.)
Jian Zi Di No.	Block 29 of the property	1,459.29 (above the ground)	20 January 2011
40605201160040		and 518.15 (basement)
Jian Zi Di No.	Block 28 of the property	1,439.26 (above the ground)	20 January 2011
40605201160041		and 498.17 (basement)
Jian Zi Di No.	Block 27 of the property	2,088.89 (above the ground)	20 January 2011
40605201160042		and 719.95 (basement)
Jian Zi Di No.	Block 30 of the property	1,067.73 (above the ground)	20 January 2011
40605201160043		and 351.63 (basement)
Jian Zi Di No.	Block 31 of the property	1,067.71 (above the ground)	20 January 2011
40605201160044		and 351.60 (basement)
Jian Zi Di No.	Block 32 of the property	1,065.89 (above the ground)	20 January 2011
40605201160045		and 351.60 (basement)
Jian Zi Di No.	Block 33 of the property	2,080.95 (above the ground)	20 January 2011
40605201160046		and 753.47 (basement)
Jian Zi Di No.	Block 4 of the property	13,055.68 (above the ground)	13 April 2011
406052011600166
Jian Zi Di No.	Block 5 of the property	12,820.03 (above the ground)	13 April 2011
40605201160167
Jian Zi Di No.	Block 6 of the property	12,658.69 (above the ground)	13 April 2011
40605201160168
Jian Zi Di No.	Block 7 of the property	11,956.53 (above the ground)	13 April 2011
40605201160169
Jian Zi Di No.	Block 12 of the property	12,262.36 (above the ground)	13 April 2011
40605201160170
Jian Zi Di No.	Block 13 of the property	12,262.36 (above the ground)	13 April 2011
40605201160171
Jian Zi Di No.	Block 1 of the property	12,518.96 (above the ground)	13 April 2011
40605201160172
Jian Zi Di No.	Block 2 and 3 of the	1,027.16 (above the ground)	13 April 2011
40605201160173	property
Jian Zi Di No.	Block 19 of the property	1,934.76 (above the ground)	13 April 2011
40605201160174		and 624.09 (basement)
Jian Zi Di No.	Block 20 of the property	1,934.76 (above the ground)	13 April 2011
40605201160175		and 624.09 (basement)
Jian Zi Di No.	Activity Centre of the	377.16 (above the ground)	13 April 2011
40605201160176	property

– VI-50 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Permit No. Building Gross Floor Area Issued Date (sq.m.) Jian Zi Di No. Basement of the property 45,823.08 (basement) 22 March 2011 40605201160177 Jian Zi Di No. Block 26 of the property 1,427.71 (above the ground) 8 September 2011 40605201160543 and 491.64 (basement) Jian Zi Di No. Block 23 of the property 1,908.36 (above the ground) 8 September 2011 40605201160544 and 976.88 (basement) Jian Zi Di No. Block 22 of the property 1,912.96 (above the ground) 8 September 2011 40605201160545 and 980.79 (basement) Jian Zi Di No. Block 21 of the property 2,581.55 (above the ground) 8 September 2011 40605201160546 and 1,216.11 (basement) Jian Zi Di No. Block 10 of the property 14,227.89 (above the ground) 8 September 2011 40605201160547 and 2,264.82 (basement) Jian Zi Di No. Block 8 of the property 13,868.52 (above the ground) 8 September 2011 40605201160549 and 1,907.81 (basement) Jian Zi Di No. Block 9 of the property 14,953.90 (above the ground) 8 September 2011 40605201160550 and 1,962.48 (basement) Jian Zi Di No. Block 35 of the property 1,067.70 (above the ground) 8 September 2011 40605201160551 and 351.62 (basement) Jian Zi Di No. Block 34 of the property 1,480.79 (above the ground) 8 September 2011 40605201160552 and 529.14 (basement) Jian Zi Di No. Block 24 of the property 2,104.80 (above the ground) 8 September 2011 40605201160553 and 736.75 (basement) Jian Zi Di No. Block 25 of the property 1,435.59 (above the ground) 8 September 2011 40605201160554 and 499.52 (basement) Jian Zi Di No. Block 14 of the property 11,207.17 (above the ground) 8 November 2012 440605201260488 and 2,300.69 (basement) Jian Zi Di No. Block 15 of the property 4,468.53 (above the ground) 8 November 2012 440605201260487 and 2,542.63 (basement) Jian Zi Di No. Block 16 of the property 11,494.63 (above the ground) 8 November 2012 440605201260486 and 1,674.47 (basement) Jian Zi Di No. Block 17 of the property 14,801.32 (above the ground) 8 November 2012 440605201260485 and 2,615.94 (basement) Jian Zi Di No. Block 18 of the property 15,011.52 (above the ground) 8 November 2012 440605201260484 and 2,297.57 (basement)

Total: 217,031.10 (above the ground) 73,964.66 (basement)

– VI-51 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Pursuant to 25 Construction Work Commencement Permits issued by the Urban Construction and Water Supplies Department of Nanhai District of Foshan City in favour of Foshan Merchants Wharf, the commencements of the construction work of the property of the following have been permitted:

Permit No.
Building
Phase I
440622201107223101
Block 1 of the property
440622201107222601
Blocks 2-3 of the property
440622201107222201
Block 4 of the property
440622201107222301
Blocks 5 of the property
440622201107222401
Block 6 of the property
440622201107222501
Block 7 of the property
440622201107222901
Block 12 of the property
440622201107223001
Block 13 of the property
440622201107223301
Block 19 of the property
440622201107223401
Block 20 of the property
440622201107223701
Block 27 of the property
440622201107223601
Block 28 of the property
440622201107223501
Block 29 of the property
440622201107223801
Block 30 of the property
440622201107223901
Block 31 of the property
440622201107224001
Block 32 of the property
440622201107224101
Block 33 of the property
440622201107223201
Basement
440622201107223701
Basement
440622201107223801
Activity Centre
Phase II
440622201301100100
Block 14 of the property
440622201301100200
Block 15 of the property
440622201301100300
Block 16 of the property
440622201301100400
Block 17 of the property
440622201301100500
Block 18 of the property
Total:

Gross Floor
Area
Issued Date
(sq.m.)
12,518.96
22 July 2011
1,207.16
22 July 2011
13,055.68
22 July 2011
12,820.03
22 July 2011
12,658.69
22 July 2011
11,956.53
22 July 2011
12,262.36
22 July 2011
12,262.36
22 July 2011
1,934.76
22 July 2011
1,934.76
22 July 2011
2,088.89
22 July 2011
1,439.26
22 July 2011
1,459.29
22 July 2011
1,067.73
22 July 2011
1,067.71
22 July 2011
1,065.89
22 July 2011
2,080.95
22 July 2011
23,351.60
22 July 2011
22,471.48
22 July 2011
377.16
22 July 2011
11,207.17
10 January 2013
4,468.53
10 January 2013
11,494.63
10 January 2013
14,801.32
10 January 2013
15,011.52
10 January 2013
206,064.40

Pursuant to 8 Pre-sales Permits in favour of Foshan Merchants Wharf, the Group is freely entitled to sell the property with a total gross floor area of approximately 98,630.60 sq.m. to purchasers. The details of which are as follows:

Permit No. Building No. 2012005002 Block 1 of the property No. 2012004902 Block 4 of the property No. 2012007202 Block 5 of the property No. 2012005102 Block 6 of the property No. 2012007102 Block 7 of the property No. 2012002102 Block 13 of the property No. 2012007602 Blocks 19-20,27-33 of the property No. 2012001002 Block 12 of the property Total:	Gross Floor Area Issued Date (sq.m.) 12,076.72 19 April 2012 12,737.37 19 April 2012 12,507.90 9 May 2012 12,244.96 19 April 2012 11,553.14 9 May 2012 11,872.02 29 December 2012 13,768.79 12 September 2012 11,869.70 23 May 2012 98,630.60

– VI-52 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

As advised by Foshan Merchants Wharf, portions of the property with a total gross floor area of 76,472 sq.m. have been pre-sold to various purchasers at a total consideration of RMB594,701,000. Such portions of the property have not been legally and virtually transferred and therefore we have included the portions in our valuation. In arriving at our opinion of the capital value of the property, we have taken into account the contracted prices of such portions.
The capital value of the property as if completed as at the valuation date under the development proposals as described above and which can be freely transferred in the market, would be RMB1,350,000,000.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. Foshan Merchants Wharf is the legal user of the land use rights of the property. The aforesaid State-owned Land Use Rights Grant Contract is legal and valid and the land premium has been paid. Foshan Merchants Wharf has the rights to occupy, use, lease or otherwise transfer the land use rights of the property in compliance with the laws. According to the PRC legal advisors’ verification, the land use rights of the property are not subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights;
b. Foshan Merchants Wharf has the rights to pre-sell the property in accordance with the limits prescribed in the pre-sale permits mentioned above;
c. After the construction is completed and passed the inspection acceptance, Foshan Merchants Wharf can apply for Building Ownership Certificate by using the State-owned Land Use Rights Certificates, Construction Land Planning Permits, Construction Work Planning Permits, Construction Work Commencement Permits and the Acceptance of the Completion of the Construction Work from the relevant real estate management departments. Since China Merchants Wharf has obtained the Construction Work Commencement Permits, there is no material legal impediment to apply for the Building Ownership Certificate;
d. For the units of the property that have been pre-sold but are pending for completion of transfer, Foshan Merchants Wharf still holds the pre-sold units and land use rights, however, Foshan Merchants Wharf cannot transfer, mortgage or otherwise dispose of such buildings; and
e. According to Foshan Merchants Wharf’s written confirmation, the property is neither subject to any compulsory expropriation, litigation, dispute or other situation that may have material adverse effect on the property nor subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights.
A summary of major certificates/approvals is shown as follows:

a.	State-owned Land Use Rights Certificate	Yes
b.	Construction Land Planning Permit	Yes
c.	Construction Work Planning Permit	Yes
d.	Construction Work Commencement Permit	Portion
e.	Pre-sales Permit	Portion
f.	Construction Work Completion and Inspection Certificate/Table	N/A

– VI-53 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

VALUATION CERTIFICATE

Group IV– Property interests held for future development by the Group in the PRC

				Capital value in
			Particulars of	existing state as
No.	Property	Description and tenure	occupancy	at 31 March 2013
				RMB
15.	Phases III, IV & V of	The property comprises a parcel	The property was	405,700,000
	Evian Xicheng located	of land with a site area of	vacant as at the
	at the junction	approximately 77,840.33 sq.m.	valuation date.	50% interest
	between Boai Road	which is planned to be		attributable to the
	Central and Keji Road	developed into a composite		Group:
	North Shishan Town	residential/commercial		RMB202,850,000
	Nanhai District	development.
	Foshan City
	Guangdong Province	The project is located at the
	The PRC	southern side of Boai Road
		Central and the eastern side of
		Keji Road North. Shishan Town
		is the largest town of Nanhai
		District and is well-served by
		public transportation along the
		main roads. The immediate
		locality is currently being
		developed and the Shishan Town
		Government is located nearby.

The property is scheduled to be completed in April 2016. Upon completion, the development will have a total gross floor area of approximately 217,075 sq.m. and the details are set out as below:

Use Residential Ancillary Retail Car parking spaces Total:	Gross Floor Area (sq.m.) 140,127 5,335 37,200 34,413
	217,075

The land use rights of the property have been granted for a term of 58 years for residential use.

– VI-54 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Notes:

Pursuant to a State-owned Land Use Rights Exchange Contract – Fo Fu Nan Guo Yong (2009) Di No. 060493 dated 16 May 2010 entered into between Nanhai Development Holdings Co., Ltd and Foshan Merchants Wharf Property Development Co., Ltd. (“Foshan Merchants Wharf”, a 50% interest owned subsidiary of Eureka), the land use rights of the portion of land of the property were contracted to be granted to Foshan Merchants Wharf with the particulars as follows:

Total Site Area : 23,312.80 sq.m. Land Use : Residential Land Term : 58 years for residential use Land Transaction Fee : RMB153,950,730

Pursuant to a State-owned Land Use Rights Exchange Contract – Fo Fu Nan Guo Yong (2009) Di No. 0604940 dated 16 May 2010 entered into between Nanhai Development Holdings Co., Ltd and Foshan Merchants Wharf, the land use rights of a portion of the property and the land use rights of the property no. 14 were contracted to be granted to Foshan Merchants Wharf with the particulars as follows:

Total Site Area : 116,545.10 sq.m. Land Use : Residential Land Term : 58 years for residential use Land Transaction Fee : RMB524,945,709

Pursuant to a State-owned Land Use Rights Certificate – Fo Fu Nan Guo Yong (2012) Di No. 0601781, a portion of the land use rights of the property and the land use rights of the property no. 14 were granted to Foshan Merchants Wharf for terms of 58 years with the expiry date on 13 April 2070 for residential use.
Pursuant to a State-owned Land Use Rights Certificate – Fo Fu Nan Guo Yong (2012) Di No. 0601782, the land use rights of a parcel of land of the property were granted to Foshan Merchants Wharf for a term of 58 years with the expiry date on 13 April 2070 for residential use.
Pursuant to 2 Construction Land Planning Permits– Nos. 440605201060036 and 440605201060037 in favour of Foshan Merchants Wharf, permission towards the planning of the subject land with a site area of approximately 139,857.20 sq.m. (comprising the land parcel of this property and the property no. 14) has been granted to Foshan Merchants Wharf.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:

Foshan Merchants Wharf is the legal user of the land use rights of the property. The aforesaid State-owned Land Use Rights Grant Contract is legal and valid and the land premium has been paid. Foshan Merchants Wharf has the rights to occupy, use, lease or otherwise transfer the land use rights of the property in compliance with the laws.

A summary of major certificates/approvals is shown as follows:

a. State-owned Land Use Rights Certificate Yes b. Construction Land Planning Permit Yes c. Construction Work Planning Permit N/A d. Construction Work Commencement Permit N/A e. Pre-sales Permit N/A f. Construction Work Completion and Inspection Certificate/Table N/A

– VI-55 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

VALUATION CERTIFICATE

No. Property

Phases II of Yonghuafu Southeast Corner of Yikang Road and Taishan Road Jianye District Nanjing City Jiangsu province The PRC

Description and tenure

The property comprises a parcel of land with a site area of approximately 22,685.05 sq.m which is planned to be developed into a residential development.

The property is located at the southeastern corner of Yikang Road and Taishan Road. The locality is a residential area served by retail stores.

Capital value in Particulars of existing state as occupancy at 31 March 2013 RMB The property was No commercial vacant as at the value valuation date.

The property is scheduled to be completed in 30 November 2015. Upon completion, the development will have a total gross floor area of approximately 91,928.18 sq.m. and the details are set out as following:

Use Residential Car parking spaces (559 lots) Total:	Gross Floor Area (sq.m.) 66,089.60 25,838.58
	91,928.18

The land use rights of the property have been granted for terms of 70 years for residential use and 40 years for commercial use.

Notes:

Pursuant to a State-owned Construction Land Use Rights Grant Contract dated 31 December 2010 entered into between Nanjing State-owned Land Resources Administration Bureau and Nanjing China Merchants Rui Sheng Property Co., Ltd. (“Nanjing China Merchants Rui Sheng”, a 51% interest owned subsidiary of Eureka), the land use rights of a parcel of land (including this property and property no. 8) were contracted to be granted to Nanjing China Merchants Rui Sheng with the particulars as follows:

Pursuant to a Construction Land Planning Permit – Di Zi Di 32010520130206 in favour of Merchants Nanjing Real Estate, permission towards the planning of the parcel of land of the property (including the land parcel of Property No. 8) has been granted to Nanjing China Merchants Rui Sheng.

– VI-56 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

In the valuation of the property, we have attributed no commercial value to the property which has not obtained any land use rights certificate. However, for reference purpose, we are of the opinion that the capital value of the property as at the valuation date would be RMB773,000,000 assuming all relevant land use rights certificate has been obtained and it could be freely transferred.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. Nanjing China Merchants Rui Sheng has paid all the land premium, there is no material legal impediment for Nanjing China Merchants Rui Sheng in obtaining the State-owned Land Use Rights Certificate of the property. There is little risk of being punished or be charged due to delay in payment of land premium.
A summary of major certificates/approvals is shown as follows:

a. State-owned Land Use Rights Certificate No b. Construction Land Planning Permit No c. Construction Work Planning Permit N/A d. Construction Work Commencement Permit N/A e. Pre-sales Permit N/A f. Construction Work Completion and Inspection Certificate/Table N/A

– VI-57 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

VALUATION CERTIFICATE

No. Property

Description and tenure

Capital value in Particulars of existing state as occupancy at 31 March 2013 RMB

14 parcels of land of Chongqing Changjiahui located at Danzi Stone Area of South Bank District Chongqing The PRC

The property comprises 14 parcels of land with a total site area of approximately 136,816 sq.m. which is planned to be developed into a composite residential/commercial development.

The property was 2,127,000,000 vacant as at the valuation date. 50% interest attributable to the Group: RMB1,063,500,000

The property is located at Danzi Stone Area of South Bank District in Chongqing, and it is at the corner of Yangtze River and Jialing River. It is close to Nanbin Road and well-served by public transportation along the main roads. The project enjoys an open river view.

The development is scheduled to be completed in October 2020. Upon completion, the development will have a total plot ratio accountable gross floor area of approximately 630,890.54 sq.m.

The land use rights of the property have been granted for terms of 50 years expiring on 7 June 2060 for residential use and 40 years expiring on 7 June 2050 for commercial use respectively.

Notes:

Pursuant to a State-owned Land Use Rights Grant Contract dated 7 June 2010 entered into between Chongqing City State-owned Land Resources and Building Administration Bureau and China West Premier Housing Development Co, Ltd. (“Chongqing China Merchants”, a 50% interest owned subsidiary of Eureka), the land use rights of this property and property nos. 9 and 19 were contracted to be granted to Chongqing China Merchants with the particulars as follows:

Site Area : 336,600.00 sq.m. Land Use : Residential and commercial Land Term : 50 years for residential, 40 years for commercial Plot Ratio : Nil Land Premium : RMB5,002,970,000

– VI-58 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Pursuant to 14 State-owned Land Use Rights Certificates, the land use rights the 14 parcels of land with a total site area of approximately 136,816 sq.m. have been granted to Chongqing China Merchants for terms of 40 and 50 years with the expiry dates on 6 June 2050 and 6 June 2060 for commercial and residential uses respectively with the particulars as follows:

Land Use Right
Certificate
106D Fang Di Zheng
2011 Zi No. 50019
106D Fang Di Zheng
2011 Zi No. 50020
106D Fang Di Zheng
2011 Zi No. 50021
106D Fang Di Zheng
2011 Zi No. 50022
106D Fang Di Zheng
2011 Zi No. 50023
106D Fang Di Zheng
2012 Zi No. 00682
106D Fang Di Zheng
2012 Zi No. 00683
106D Fang Di Zheng
2012 Zi No. 00684
106D Fang Di Zheng
2012 Zi No. 00685
106D Fang Di Zheng
2012 Zi No. 00686
106D Fang Di Zheng
2012 Zi No. 00687
106D Fang Di Zheng
2012 Zi No. 00688
106D Fang Di Zheng
2012 Zi No. 00689
106D Fang Di Zheng
2012 Zi No. 00690
Total:

Site Area
Usage
Expiry Date
Issued
Date
(sq.m.)
22,097
Residential and
Commercial
2050-06-06/2060-06-06
2011-09-14
5,959
Residential and
Commercial
2050-06-06/2060-06-06
2011-09-14
17,710
Residential and
Commercial
2050-06-06/2060-06-06
2011-09-14
14,510
Residential and
Commercial
2050-06-06/2060-06-06
2011-09-14
22,792
Residential and
Commercial
2050-06-06/2060-06-06
2011-09-14
432.00
Residential and
Commercial
2050-06-07/2060-06-07
2012-12-24
6,592.00
Residential and
Commercial
2050-06-07/2060-06-07
2012-12-24
5,327.00
Residential and
Commercial
2050-06-07/2060-06-07
2012-12-24
10,488.00
Residential and
Commercial
2050-06-07/2060-06-07
2012-12-07
5,037.00
Residential and
Commercial
2050-06-07/2060-06-07
2012-12-24
718.00
Residential and
Commercial
2050-06-07/2060-06-07
2012-12-24
55.00
Residential and
Commercial
2050-06-07/2060-06-07
2012-12-07
23,920.00
Residential and
Commercial
2050-06-07/2060-06-07
2012-12-24
1,179.00
Residential and
Commercial
2050-06-07/2060-06-07
2012-12-24
136,816.00

Pursuant to a Construction Land Planning Permit – Di Zi No. 500108201100019 in favour of Chongqing China Merchants, permission towards the planning of the land parcel (including this property and property nos. 9 and 19) with a site area of approximately 336,600.00 sq.m. has been granted to Chongqing China Merchants.

– VI-59 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:

Chongqing China Merchants is the legal user of the land use rights of the property. The aforesaid State-owned Land Use Rights Grant Contract is legal and valid and the land premium has been paid. Chongqing China Merchants has the rights to occupy, use, lease or otherwise transfer the land use rights of the property in compliance with the laws. Except for 2 parcels of land with a total site area of approximately 37,302 sq.m. which are subject to mortgage, the land use rights of the remaining land are not subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights.

A summary of major certificates/approvals is shown as follows:

a. State-owned Land Use Rights Certificate Yes b. Construction Land Planning Permit Yes c. Construction Work Planning Permit Portion d. Construction Work Commencement Permit N/A e. Pre-sales Permit N/A f. Construction Work Completion and Inspection Certificate/Table N/A

– VI-60 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

VALUATION CERTIFICATE

No. Property

The reserved land for the remaining phases of Jinshan Valley located at Fei E Ling of Zhongcun Town Shatou Street Panyu District Guangzhou City The PRC

Description and tenure

The property comprises the whole of 3 parcels of land and the remaining portions of 2 parcels of land (together as the “Reserved Land”) with a total site area of approximately 372,233.6 sq.m. which is planned to be developed into a composite development.

Capital value in Particulars of existing state as occupancy at 31 March 2013 RMB

The property 1,387,243,000 was vacant as at the valuation 51% interest date. attributable to the Enlarged Group: RMB707,494,000

As advised by the Group, the Reserved Land is for the development of Phases V, VI, VII and IX of Jinshan Valley and Phases II and III of the Creative Park of Jinshan Valley.

The property is located at the southern side of Xinguang Avenue, the eastern side of Jinshan Avenue and northern side of Shiguang Road in Panyu District of Guangzhou City. The subject area of the property is well-served by convenient traffic with 20 minutes, driving distance to the city centre and close to Guangzhou South Railway Station. The surrounding environment of the property is a new developed residential area served by good natural environment and commercial facilities with reasonable proximity to Dafushan Forest Park, Changlong Holiday Resort, Jinshan Lake Reservoir as well as Qixinggang Sports Park.

– VI-61 –

APPENDIX VI

PROPERTY VALUATION OF THE TARGET GROUP

No. Property

Description and tenure

Capital value in Particulars of existing state as occupancy at 31 March 2013 RMB

As advised by the Group, the development of the property was planned to be commenced in May 2013 and completed in August 2016 in phases. Upon completion, the development will have a total gross floor area of approximately 695,182 sq.m. and the details are set out as below:

Use Residential Commercial Office SOHO apartment Hotel Underground (including 3,976 car parking lots) Ancillary Total:	Gross Floor Area (sq.m.) 252,858 7,650 133,786 69,060 26,864 195,155 9,809
	695,182

The land use rights of the property have been granted for terms of 70 years expiring on 1 November 2075 for residential and commercial uses, 40 years expiring on 1 November 2045 for commercial use and 40 years expiring on 20 December 2045 and 20 April 2046 for commercial service use.

– VI-62 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Notes:

Pursuant to 5 State-owned Land Use Rights Grant Contracts all dated 23 December 2003 entered into between the State-owned Land Resources and Building Administration Bureau of Panyu District, Guangzhou City and Merchants Property Development (Guangzhou) Ltd. (“Merchants Property Development (Guangzhou)”, a 51% interest owned subsidiary of Eureka), the land use rights of 5 parcels of land (land parcel Nos. G32-000249, G32-000268, G32-000283, G32-000251 and G32-000252, including the land parcel of the property) were contracted to be granted to Merchants Property Development (Guangzhou) with the particulars as follows:

Land parcel No. G32-000249 Site Area : 105,051.4 sq.m. Land Use : Residential Land Term : 70 years Plot Ratio : �3.0 Land Premium : RMB94,492,524 Land parcel No. G32-000268 Site Area : 13,447.6 sq.m. Land Use : Commercial service Land Term : 40 years Plot Ratio : �1.0 Land Premium : RMB12,095,962 Land parcel No. G32-000283 Site Area : 37,380 sq.m. Land Use : Commercial service Land Term : 40 years Plot Ratio : ≤1.0 Land Premium : RMB33,622,970 Land parcel No. G32-000251 Site Area : 276,036 sq.m. Land Use : Commercial Land Term : 40 years Plot Ratio : ≤1.0 Land Premium : RMB248,291,293 Land parcel No. G32-000252 Site Area : 259,760.7 sq.m. Land Use : Residential Land Term : 70 years Plot Ratio : ≤0.83 Land Premium : RMB233,651,758

– VI-63 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Pursuant to 5 State-owned Land Use Rights Certificates, the land use right of 5 parcels of land (including the land use rights of the property) have been granted to Merchants Property Development (Guangzhou) for various terms with the particulars as follows:

Land Use Rights Certificate No. G32-000249 G32-000268 G32-000283 G32-000251 G32-000252 Total:	Site Area Usage Land Use Rights Expiry Date (sq.m.) 105,051 Residential and commercial 2075-11-1 13,447.6 Commercial service 2045-12-20 37,380 Commercial service 2046-4-20 276,036 Commercial 2045-11-1 259,760.7 Residential and Commercial 2075-11-1 691,675.3	Site Area of the Property 105,051 13,447.6 37,380 201,036 15,319
		372,233.6

Pursuant to 3 Construction Land Planning Permits – Hui Gui Di Zheng (2006) Nos. 1673 and 1674 and Hui Gui Di Zheng (2010) No. 107, permission towards the planning of the aforesaid land parcels has been granted to Merchants Property Development (Guangzhou).
Pursant to a Land Compensation Agreement dated 22 August 2012, entered into between Guangzhou Province Panyu District Land Development Centre (“the Centre”) and Merchants Property Development (Guangzhou), the Centre resumed portions of 2 parcels of land with State-owned Land Use Rights Certificates Nos. G32-000268 (“Land Parcel 1”) and G32-000283 (“Land Parcel 2”) respectively. The area to be resumed of the former land is 16,567 sq.m and that of the latter one is 13,447 sq.m which makes it a total of 30,014 sq.m. According to Sui Gui Di Zheng (2010) Di No. 107, the plot ratio of these land parcels is 1 and the respective gross floor area for development is 30,014 sq.m. The gross floor area is allocated to the land with State-owned Land Use Rights Certificates No. G32-000251 (“Land Parcel 3”) of which orginal gross floor area of 20,813 sq.m. is exchanged to Land Parcel 2. The total compensation for the resumption is RMB3,081,237. The Centre would pay RMB1,000,000 to Merchants Property Development (Guangzhou) within 15 working days from the signing of the agreement. Merchants Property Development (Guangzhou) would carry out the transfer procedure within 20 working days from the signing of the agreement. The Centre would pay the remaining RMB2,081,237 to Merchants Property Development (Guangzhou) after the transfer confirmation letter is signed and Merchants Property Development (Guangzhou) has completed the cancellation of the registration of the State-owned Land Use Rights Certificates of Land Parcel 1 and 2.
After verification, the Centre has paid the RMB1,000,000 to Merchants Property Development (Guangzhou) on 11 April 2013. However, Merchants Property Development (Guangzhou) has yet to apply for the transfer.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:
a. Merchants Property Development (Guangzhou) is the legal user of the land use rights of the property. The aforesaid State-owned Land Use Rights Grant Contracts are legal and valid and the land premiums have been paid. Merchants Property Development (Guangzhou) has the rights to occupy, use, lease or otherwise transfer the land use rights of the property in compliance with the laws. According to the PRC legal advisors’ verification, the land use rights of the property are not subject to any restrictions arising from any sequestration, mortgage or any other third party’s rights.

– VI-64 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

b. Except the planning adjustment that still needs approval from the government, the Land Compensation Agreement mentioned in note.4 is valid. Once Merchants Property Development (Guangzhou) has completed the cancellation the registration of the State-owned Land Use Rights Certificates of Land Parcel 1 and 2, Merchants Property Development (Guangzhou) would lost the ownership of these 2 lands.
A summary of major certificates/approvals is shown as follows:

a. State-owned Land Use Rights Certificate Yes b. Construction Land Planning Permit Yes c. Construction Work Planning Permit N/A d. Construction Work Commencement Permit N/A e. Pre-sales Permit/Sales Permit N/A f. Construction Work Completion and Inspection Certificate/Table N/A

– VI-65 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

VALUATION CERTIFICATE

Group V – Property interest contracted to be acquired by the Group in the PRC

				Capital value in
			Particulars of	existing state as
No.	Property	Description and tenure	occupancy	at 31 March 2013
				RMB
19.	A parcel of land of	The property comprises a parcel	The property was	No commercial
	Chongqing	of land with a site area of	vacant with some	value
	Changjiahui	approximately 148,768 sq.m.	old houses to be
	located at Danzi		demolished as at
	Stone Area of	The property is located at Danzi	the valuation
	South Bank District,	Stone Area of South Bank	date.
	Chongqing	District in Chongqing, which is
	The PRC	at the corner of Yangtze River
		and Jialing River. It is close to
		Nanbin Road and public
		transportation is available along
		the main roads nearby. The
		locality enjoys an open river
		view.

Notes:

Pursuant to a State-owned Land Use Rights Grant Contract dated 7 June 2010 entered into between Chongqing City State-owned Land Resources and Building Administration Bureau and China West Premier Housing Development Co, Ltd. (重慶招商置地開發有限公司) (“Chongqing China Merchants”, a 50% interest owned subsidiary of Eureka), the land parcel of this property and property nos. 9 and 17 were contracted to be granted to Chongqing China Merchants with the particulars as follows:

Site Area : 336,600.00 sq.m. Land Use : Residential and commercial Land Term : 50 years for residential, 40 years for commercial Plot Ratio : Nil Land Premium : RMB5,002,970,000

Pursuant to a Construction Land Planning Permit – Di Zi No. 500108201100019 in favour of Chongqing China Merchants, permission towards the planning of the land parcel (including this property and property nos. 9 and 17) with a total site area of approximately 336,600.00 sq.m. has been granted to Chongqing China Merchants.
As at the valuation date, the property has not been assigned to the Group and thus the title of the property has not been vested in the Group. Therefore we have attributed no commercial value to the property. However, for reference purpose, we are of the opinion that the capital value of the property as at the valuation date would be RMB2,313,000,000, on condition that the property is acquired and is a clear site, the relevant title certificates have been obtained by the Group and the Group is entitled to freely transfer, lease, mortgage or otherwise dispose of the property.
As confirmed by the Group, there is only one State-owned Land Use Rights Grant Contract entered into without any payments made by the Group to purchase the property up to the date of valuation.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The aforesaid State-owned Land Use Rights Grant Contract is legal and valid; and
b. There is no material legal impediment for Chongqing China Merchants to obtain the land use rights certificates after the existing old houses has been demolished and the land premium has been fully paid.

– VI-66 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

Pursuant to a Construction Work Planning Permit issued by Chongqing Planning Bureau in favour of Chongqing China Merchants, the construction work of the following has been approved:

Gross Floor Permit No. Building Area Issuing Date (sq.m.) Jian Zi No. 500108201100073 Kid-garden and Block 1 on 40,138.52 11 November 2011 land parcel of G2-1-1/03 of Changjiahui

Permit No.

A summary of major certificates/approvals is shown as follows:

a. State-owned Land Use Rights Certificate No b. Construction Land Planning Permit Yes c. Construction Work Planning Permit N/A d. Construction Work Commencement Permit N/A e. Pre-sales Permit/Sales Permit N/A f. Construction Work Completion and Inspection Certificate/Table N/A

– VI-67 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

VALUATION CERTIFICATE

Group VI – Property interests rented and occupied by the Group in the PRC

				Capital value in
			Particulars of	existing state as
No.	Property	Description and tenure	occupancy	at 31 March 2013
				RMB
20.	Level 9 of Block C	The property comprises Level 9	The property was	No commercial
	Tianwangxing	of a 26-storey office building	occupied by the	value
	Commercial Building	completed in about 2010.	Group for office
	No. 68 Xingguang		purpose as at the
	Avenue Gaoxin Park	The property has a lease area of	valuation date.
	Northern part of	approximately 662 sq.m.
	New District
	Chongqing	The property is leased to China
	The PRC	West Premier Housing
		Development Co., Ltd. from
		Chongqing Zhaochi Economic
		and Trade Co., Ltd. for a term of
		3 years.

Notes:

Pursuant to a Lease Agreement, the property is leased to China West Premier Housing Development Co., Ltd. (“Chongqing China Merchants”, a 50% interest owned subsidiary of Eureka) from Chongqing Zhaochi Economic and Trade Co., Ltd (重慶兆馳經貿有限公司), an independent third party, for a term of 3 years expiring on 31 May 2013 at a current monthly rent of RMB44,629.
We have been provided with a legal opinion on the legality of the tenancy agreement to the property issued by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. Since the lessor does not provide any ownership certificate of the property or license to lease the property, we cannot determine whether the lessor is entitled to lease the property; if the lessor is not entitled to lease the property, the validity of the lease agreement is at risk.

– VI-68 –

APPENDIX VI PROPERTY VALUATION OF THE TARGET GROUP

VALUATION CERTIFICATE

Capital value in Particulars of existing state as No. Property Description and tenure Occupancy at 31 March 2013 RMB 21. Former site of French The property is a 2-storey The property was No commercial Marine Barrack barrack. It is a historic scenic vacant and under value No. 142 spot which was completed in renovation as at Shiqiantai Lane Danzi about 1902. the valuation Stone Area of South date. Bank District The property has a lease area of Chongqing City approximately 1,617.8 sq.m. The PRC The property is leased to China West Premier Housing Development Co., Ltd. from Danzi Stone Area Building Management Bureau of Chongqing City South Bank District Building Management Office for a term of 15 years.

Notes:

Pursuant to a Lease Agreement, the property is leased to China West Premier Housing Development Co., Ltd. (“Chongqing China Merchants”, a 50% interest owned subsidiary of Eureka) from Danzi Stone Area Building Management Department of Chongqing City South Bank District Building Management Bureau (重慶市南岸區房屋管理局彈子石房管所, an independent third party, for a term of 15 years expiring on 31 August 2026 at a current monthly rent of RMB84,934.5.
We have been provided with a legal opinion on the legality of the tenancy agreement to the property issued by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The lessor is the lease registration organization, therefore, the lease agreement is legal, valid and no other registration procedure is needed.

– VI-69 –

APPENDIX VII SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

SUMMARY OF THE CONSTITUTION OF THE COMPANY

1 Memorandum of Association

The memorandum of association of the Company states, inter alia, that the liability of the members of the Company is limited, that the objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by the Companies Law of the Cayman Islands (2012 Revision) (the “ Companies Law ”) or any other law of the Cayman Islands.

The memorandum of association of the Company is available for inspection at the address specified in the section headed “Documents Available for Inspection” in Appendix IX to this Circular.

2 Articles of Association

The articles of association of the Company include provisions to the following effect:

2.1 Classes of Shares

The share capital of the Company consists of ordinary shares. The authorised share capital of the Company is HK$300,000,000 divided into 30,000,000,000 shares of HK$0.01 each.

2.2 Directors

(a) Power to allot and issue Shares

Subject to the provisions of the Companies Law and the memorandum of association and articles of association of the Company, the unissued shares in the Company (whether forming part of its original or any increased capital) shall be at the disposal of the Directors, who may offer, allot, grant options over or otherwise dispose of them to such persons, at such times and for such consideration, and upon such terms, as the Directors shall determine.

Subject to the provisions of the articles of association of the Company and to any direction that may be given by the Company in general meeting and without prejudice to any special rights conferred on the holders of any existing shares or attaching to any class of shares, any share may be issued with or have attached thereto such preferred, deferred, qualified or other special rights or restrictions, whether in regard to dividend, voting, return of capital or otherwise, and to such persons at such times and for such consideration as the Directors may determine. Subject to the Companies Law and to any special rights conferred on any shareholders or attaching to any class of shares, any share may, with the sanction of a special resolution, be issued on terms that it is, or at the option of the Company or the holder thereof is, liable to be redeemed.

– VII-1 –

APPENDIX VII SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

(b) Power to dispose of the assets of the Company or any subsidiary

The management of the business of the Company shall be vested in the Directors who, in addition to the powers and authorities by the articles of association of the Company expressly conferred upon them, may exercise all such powers and do all such acts and things as may be exercised or done or approved by the Company and are not by the articles of association of the Company or the Companies Law expressly directed or required to be exercised or done by the Company in general meeting, but subject nevertheless to the provisions of the Companies Law and of the articles of association of the Company and to any regulation from time to time made by the Company in general meeting not being inconsistent with such provisions or the articles of association of the Company, provided that no regulation so made shall invalidate any prior act of the Directors which would have been valid if such regulation had not been made.

(c) Compensation or payment for loss of office

Payment to any Director or past Director of any sum by way of compensation for loss of office or as consideration for or in connection with his retirement from office (not being a payment to which the Director is contractually entitled) must first be approved by the Company in general meeting.

(d) Loans to Directors

There are provisions in the articles of association of the Company prohibiting the making of loans to Directors or their respective associates which are equivalent to the restrictions imposed by the Companies Ordinance.

(e) Financial assistance to purchase Shares

Subject to all applicable laws, the Company may give financial assistance to Directors and employees of the Company, its subsidiaries or any holding company or any subsidiary of such holding company in order that they may buy shares in the Company or any such subsidiary or holding company. Further, subject to all applicable laws, the Company may give financial assistance to a trustee for the acquisition of shares in the Company or shares in any such subsidiary or holding company to be held for the benefit of employees of the Company, its subsidiaries, any holding company of the Company or any subsidiary of any such holding company (including salaried Directors).

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

(f) Disclosure of interest in contracts with the Company or any of its subsidiaries

No Director or proposed Director shall be disqualified by his office from contracting with the Company either as vendor, purchaser or otherwise nor shall any such contract or any contract or arrangement entered into by or on behalf of the Company with any person, company or partnership of or in which any Director shall be a member or otherwise interested be capable on that account of being avoided, nor shall any Director so contracting or being any member or so interested be liable to account to the Company for any profit so realised by any such contract or arrangement by reason only of such Director holding that office or the fiduciary relationship thereby established, provided that such Director shall, if his interest in such contract or arrangement is material, declare the nature of his interest at the earliest meeting of the Board at which it is practicable for him to do so, either specifically or by way of a general notice stating that, by reason of the facts specified in the notice, he is to be regarded as interested in any contracts of a specified description which may be made by the Company.

A Director shall not be entitled to vote on (nor shall be counted in the quorum in relation to) any resolution of the Directors in respect of any contract or arrangement or any other proposal in which the Director or any of his associates has any material interest, and if he shall do so his vote shall not be counted (nor is he to be counted in the quorum for the resolution), but this prohibition shall not apply to any of the following matters, namely:

(i) the giving to such Director or any of his associates of any security or indemnity in respect of money lent or obligations incurred or undertaken by him or any of them at the request of or for the benefit of the Company or any of its subsidiaries;
(ii) the giving of any security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which the Director or any of his associates has himself/themselves assumed responsibility in whole or in part and whether alone or jointly under a guarantee or indemnity or by the giving of security;
(iii) any proposal concerning an offer of shares, debentures or other securities of or by the Company or any other company which the Company may promote or be interested in for subscription or purchase where the Director or any of his associates is/are or is/are to be interested as a participant in the underwriting or sub-underwriting of the offer;

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APPENDIX VII

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

(iv) any proposal or arrangement concerning the benefit of employees of the Company or any of its subsidiaries including:
(A) the adoption, modification or operation of any employees’ share scheme or any share incentive scheme or share option scheme under which the Director or any of his associates may benefit; or
(B) the adoption, modification or operation of a pension or provident fund or retirement, death or disability benefits scheme which relates both to Directors, their associates and employees of the Company or any of its subsidiaries and does not provide in respect of any Director or any of his associates, as such any privilege or advantage not generally accorded to the class of persons to which such scheme or fund relates; and
(v) any contract or arrangement in which the Director or any of his associates is/are interested in the same manner as other holders of shares or debentures or other securities of the Company by virtue only of his/their interest in shares or debentures or other securities of the Company.

(g) Remuneration

The Directors shall be entitled to receive by way of remuneration for their services such sum as shall from time to time be determined by the Directors, or the Company in general meeting, as the case may be, such sum (unless otherwise directed by the resolution by which it is determined) to be divided amongst the Directors in such proportions and in such manner as they may agree, or failing agreement, equally, except that in such event any Director holding office for less than the whole of the relevant period in respect of which the remuneration is paid shall only rank in such division in proportion to the time during such period for which he has held office. Such remuneration shall be in addition to any other remuneration to which a Director who holds any salaried employment or office in the Company may be entitled by reason of such employment or office.

The Directors shall also be entitled to be paid all expenses, including travel expenses, reasonably incurred by them in or in connection with the performance of their duties as Directors including their expenses of travelling to and from board meetings, committee meetings or general meetings or otherwise incurred whilst engaged on the business of the Company or in the discharge of their duties as Directors.

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APPENDIX VII SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

The Directors may grant special remuneration to any Director who shall perform any special or extra services at the request of the Company. Such special remuneration may be made payable to such Director in addition to or in substitution for his ordinary remuneration as a Director, and may be made payable by way of salary, commission or participation in profits or otherwise as may be agreed.

The remuneration of an executive Director or a Director appointed to any other office in the management of the Company shall from time to time be fixed by the Directors and may be by way of salary, commission or participation in profits or otherwise or by all or any of those modes and with such other benefits (including share option and/or pension and/or gratuity and/or other benefits on retirement) and allowances as the Directors may from time to time decide. Such remuneration shall be in addition to such remuneration as the recipient may be entitled to receive as a Director.

(h) Retirement, appointment and removal

The Directors shall have power at any time and from time to time to appoint any person to be a Director, either to fill a casual vacancy or as an addition to the existing Directors. Any Director so appointed shall hold office only until the next general meeting of the Company and shall then be eligible for re-election at that meeting.

The Company may by ordinary resolution remove any Director (including a managing Director or other executive Directors) before the expiration of his period of office notwithstanding anything in the articles of association of the Company or in any agreement between the Company and such Director (but without prejudice to any claim for compensation or damages payable to him in respect of the termination of his appointment as Director or of any other appointment of office as a result of the termination of this appointment as Director). The Company may by ordinary resolution appoint another person in his place. Any Director so appointed shall hold office during such time only as the Director in whose place he is appointed would have held the same if he had not been removed. The Company may also by ordinary resolution elect any person to be a Director, either to fill a casual vacancy or as an addition to the existing Directors. Any Director so appointed shall hold office only until the next following general meeting of the Company and shall then be eligible for re-election but shall not be taken into account in determining the Directors who are to retire by rotation at such meeting. No person shall, unless recommended by the Directors, be eligible for election to the office of Director at any general meeting unless, during the period, which shall be at least seven days, commencing no earlier than the day after the despatch of the notice of the meeting appointed for such election and ending no later than seven days prior to the date of such meeting, there has been given to the Secretary of the Company notice in writing by a member of the Company (not being the person to be proposed) entitled to attend and vote at the meeting for which such notice is given of his intention to propose such

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APPENDIX VII SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

person for election and also notice in writing signed by the person to be proposed of his willingness to be elected.

There is no shareholding qualification for Directors nor is there any specified age limit for Directors.

The office of a Director shall be vacated:

(i) if he resigns his office by notice in writing to the Company at its registered office or its principal office in Hong Kong;
(ii) if an order is made by any competent court or official on the grounds that he is or may be suffering from mental disorder or is otherwise incapable of managing his affairs and the Directors resolve that his office be vacated;
(iii) if, without leave, he is absent from meetings of the Directors (unless an alternate Director appointed by him attends) for 12 consecutive months, and the Directors resolve that his office be vacated;
(iv) if he becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors generally;
(v) if he ceases to be or is prohibited from being a Director by law or by virtue of any provision in the articles of association of the Company;
(vi) if he is removed from office by notice in writing served upon him signed by not less than three-fourths in number (or, if that is not a round number, the nearest lower round number) of the Directors (including himself) for the time being then in office; or
(vii) if he shall be removed from office by an ordinary resolution of the members of the Company under the articles of association of the Company.

At every annual general meeting of the Company one-third of the Directors for the time being, or, if their number is not three or a multiple of three, then the number nearest to, but not less than, one-third, shall retire from office by rotation, provided that every Director (including those appointed for a specific term) shall be subject to retirement by rotation at least once every three years. A retiring Director shall retain office until the close of the meeting at which he retires and shall be eligible for re-election thereat. The Company at any annual general meeting at which any Directors retire may fill the vacated office by electing a like number of persons to be Directors.

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APPENDIX VII SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

(i) Borrowing powers

The Directors may from time to time at their discretion exercise all the powers of the Company to raise or borrow or to secure the payment of any sum or sums of money for the purposes of the Company and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof.

(j) Proceedings of the Board

The Directors may meet together for the despatch of business, adjourn and otherwise regulate their meetings and proceedings as they think fit in any part of the world. Questions arising at any meeting shall be determined by a majority of votes. In the case of an equality of votes, the chairman of the meeting shall have a second or casting vote.

2.3 Alteration to constitutional documents

No alteration or amendment to the memorandum of association or articles of association of the Company may be made except by special resolution.

2.4 Variation of rights of existing shares or classes of shares

If at any time the share capital of the Company is divided into different classes of shares, all or any of the rights attached to any class of shares for the time being issued (unless otherwise provided for in the terms of issue of the shares of that class) may, subject to the provisions of the Companies Law, be varied or abrogated either with the consent in writing of the holders of not less than three-fourths in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class. To every such separate meeting all the provisions of the articles of association of the Company relating to general meetings shall mutatis mutandis apply, but so that the quorum for the purposes of any such separate meeting and of any adjournment thereof shall be a person or persons together holding (or representing by proxy or duly authorised representative) at the date of the relevant meeting not less than one-third in nominal value of the issued shares of that class.

The special rights conferred upon the holders of shares of any class shall not, unless otherwise expressly provided in the rights attaching to or the terms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

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APPENDIX VII

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

2.5 Alteration of capital

The Company in general meeting may, from time to time, whether or not all the shares for the time being authorised shall have been issued and whether or not all the shares for the time being issued shall have been fully paid up, by ordinary resolution, increase its share capital by the creation of new shares, such new capital to be of such amount and to be divided into shares of such respective amounts as the resolution shall prescribe.

The Company may from time to time by ordinary resolution:

(a) consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares. On any consolidation of fully paid shares and division into shares of larger amount, the Directors may settle any difficulty which may arise as they think expedient and in particular (but without prejudice to the generality of the foregoing) may as between the holders of shares to be consolidated determine which particular shares are to be consolidated into each consolidated share, and if it shall happen that any person shall become entitled to fractions of a consolidated share or shares, such fractions may be sold by some person appointed by the Directors for that purpose and the person so appointed may transfer the shares so sold to the purchaser thereof and the validity of such transfer shall not be questioned, and so that the net proceeds of such sale (after deduction of the expenses of such sale) may either be distributed among the persons who would otherwise be entitled to a fraction or fractions of a consolidated share or shares rateably in accordance with their rights and interests or may be paid to the Company for the Company’s benefit;
(b) cancel any shares which at the date of the passing of the resolution have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled subject to the provisions of the Companies Law; and
(c) sub-divide its shares or any of them into shares of smaller amount than is fixed by the memorandum of association of the Company, subject nevertheless to the provisions of the Companies Law, and so that the resolution whereby any share is sub-divided may determine that, as between the holders of the shares resulting from such sub-division, one or more of the shares may have any such preferred or other special rights, over, or may have such deferred rights or be subject to any such restrictions as compared with the others as the Company has power to attach to unissued or new shares.

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APPENDIX VII SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

The Company may by special resolution reduce its share capital or any capital redemption reserve in any manner authorised and subject to any conditions prescribed by the Companies Law.

2.6 Special resolution – majority required

A “special resolution” is defined in the articles of association of the Company to have the meaning ascribed thereto in the Companies Law, for which purpose, the requisite majority shall be not less than three-fourths of the votes of such members of the Company as, being entitled to do so, vote in person or, in the case of corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which notice specifying the intention to propose the resolution as a special resolution has been duly given and includes a special resolution approved in writing by all of the members of the Company entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of such members, and the effective date of the special resolution so adopted shall be the date on which the instrument or the last of such instruments (if more than one) is executed.

In contrast, an “ordinary resolution” is defined in the articles of association of the Company to mean a resolution passed by a simple majority of the votes of such members of the Company as, being entitled to do so, vote in person or, in the case of corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting held in accordance with the articles of association of the Company and includes an ordinary resolution approved in writing by all the members of the Company aforesaid.

2.7 Voting rights

Subject to any special rights, privileges or restrictions as to voting for the time being attached to any class or classes of shares, at any general meeting on a poll every member present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy shall have one vote for each share registered in his name in the register of members of the Company.

Where any member is, under the Listing Rules, required to abstain from voting on any particular resolution or restricted to voting only for or only against any particular resolution, any votes cast by or on behalf of such member in contravention of such requirement or restriction shall not be counted.

In the case of joint registered holders of any share, any one of such persons may vote at any meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto; but if more than one of such joint holders be present at any meeting personally or by proxy, that one of the said persons so present being the most or, as the case may be, the more senior shall alone be entitled to vote in respect of the relevant joint holding and, for this purpose, seniority shall be determined by reference to the order in which the names of the joint holders stand on the register in respect of the relevant joint holding.

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APPENDIX VII SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

A member of the Company in respect of whom an order has been made by any competent court or official on the grounds that he is or may be suffering from mental disorder or is otherwise incapable of managing his affairs may vote by any person authorised in such circumstances to do so and such person may vote by proxy.

Save as expressly provided in the articles of association of the Company or as otherwise determined by the Directors, no person other than a member of the Company duly registered and who shall have paid all sums for the time being due from him payable to the Company in respect of his shares shall be entitled to be present or to vote (save as proxy for another member of the Company), or to be reckoned in a quorum, either personally or by proxy at any general meeting.

At any general meeting a resolution put to the vote of the meeting shall be decided by way of a poll.

If a recognised clearing house (or its nominee(s)) is a member of the Company it may authorise such person or persons as it thinks fit to act as its proxy(ies) or representative(s) at any general meeting of the Company or at any general meeting of any class of members of the Company provided that, if more than one person is so authorised, the authorisation shall specify the number and class of shares in respect of which each such person is so authorised. A person authorised pursuant to this provision shall be entitled to exercise the same rights and powers on behalf of the recognised clearing house (or its nominee(s)) which he represents as that recognised clearing house (or its nominee(s)) could exercise as if it were an individual member of the Company holding the number and class of shares specified in such authorisation.

2.8 Annual general meetings

The Company shall in each year hold a general meeting as its annual general meeting in addition to any other general meeting in that year and shall specify the meeting as such in the notice calling it; and not more than 15 months (or such longer period as the Stock Exchange may authorise) shall elapse between the date of one annual general meeting of the Company and that of the next.

2.9 Accounts and audit

The Directors shall cause to be kept such books of account as are necessary to give a true and fair view of the state of the Company’s affairs and to show and explain its transactions and otherwise in accordance with the Companies Law.

The Directors shall from time to time determine whether, and to what extent, and at what times and places and under what conditions or regulations, the accounts and books of the Company, or any of them, shall be open to the inspection of members of the Company (other than officers of the Company) and no such member shall have any right of inspecting any accounts or books or documents of the Company except as conferred by the Companies Law or any other relevant law or regulation or as authorised by the Directors or by the Company in general meeting.

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APPENDIX VII SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

The Directors shall, commencing with the first annual general meeting, cause to be prepared and to be laid before the members of the Company at every annual general meeting a profit and loss account for the period, in the case of the first account, since the incorporation of the Company and, in any other case, since the preceding account, together with a balance sheet as at the date to which the profit and loss account is made up and a Director’s report with respect to the profit or loss of the Company for the period covered by the profit and loss account and the state of the Company’s affairs as at the end of such period, an auditor’s report on such accounts and such other reports and accounts as may be required by law. Copies of those documents to be laid before the members of the Company at an annual general meeting shall not less than 21 days before the date of the meeting, be sent in the manner in which notices may be served by the Company as provided in the articles of association of the Company to every member of the Company and every holder of debentures of the Company provided that the Company shall not be required to send copies of those documents to any person of whose address the Company is not aware or to more than one of the joint holders of any shares or debentures.

The Company shall at any annual general meeting appoint an auditor or auditors of the Company who shall hold office until the next annual general meeting. The remuneration of the auditors shall be fixed by the Company at the annual general meeting at which they are appointed provided that in respect of any particular year the Company in general meeting may delegate the fixing of such remuneration to the Directors.

2.10 Notice of meetings and business to be conducted thereat

An annual general meeting and any extraordinary general meeting called for the passing of a special resolution shall be called by not less than 21 days’ notice in writing and any other extraordinary general meeting shall be called by not less than 14 days’ notice in writing. The notice shall be inclusive of the day on which it is served or deemed to be served and of the day for which it is given, and shall specify the time, place and agenda of the meeting, particulars of the resolutions to be considered at the meeting and, in the case of special business, the general nature of that business. The notice convening an annual general meeting shall specify the meeting as such, and the notice convening a meeting to pass a special resolution shall specify the intention to propose the resolution as a special resolution. Notice of every general meeting shall be given to the auditors and all members of the Company (other than those who, under the provisions of the articles of association of the Company or the terms of issue of the shares they hold, are not entitled to receive such notice from the Company).

– VII-11 –

APPENDIX VII SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

Notwithstanding that a meeting of the Company is called by shorter notice than that mentioned above, it shall be deemed to have been duly called if it is so agreed:

(a) in the case of a meeting called as an annual general meeting, by all members of the Company entitled to attend and vote thereat or their proxies; and
(b) in the case of any other meeting, by a majority in number of the members having a right to attend and vote at the meeting, being a majority together holding not less than 95% in nominal value of the shares giving that right.

All business shall be deemed special that is transacted at an extraordinary general meeting and also all business shall be deemed special that is transacted at an annual general meeting with the exception of the following, which shall be deemed ordinary business:

(a) the declaration and sanctioning of dividends;
(b) the consideration and adoption of the accounts and balance sheets and the reports of the Directors and the auditors and other documents required to be annexed to the balance sheet;
(c) the election of Directors in place of those retiring;
(d) the appointment of auditors;
(e) the fixing of, or the determining of the method of fixing of, the remuneration of the Directors and of the auditors;
(f) the granting of any mandate or authority to the Directors to offer, allot, grant options over or otherwise dispose of the unissued shares of the Company representing not more than 20% (or such other percentage as may from time to time be specified in the Listing Rules) in nominal value of its then existing issued share capital and the number of any securities repurchased pursuant to sub-paragraph (g) below; and
(g) the granting of any mandate or authority to the Directors to repurchase securities of the Company.

– VII-12 –

APPENDIX VII SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

2.11 Transfer of shares

Transfers of shares may be effected by an instrument of transfer in the usual common form or in such other form as the Directors may approve which is consistent with the standard form of transfer as prescribed by the Stock Exchange.

The instrument of transfer shall be executed by or on behalf of the transferor and, unless the Directors otherwise determine, the transferee, and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the register of members of the Company in respect thereof. All instruments of transfer shall be retained by the Company.

The Directors may refuse to register any transfer of any share which is not fully paid up or on which the Company has a lien. The Directors may also decline to register any transfer of any shares unless:

(a) the instrument of transfer is lodged with the Company accompanied by the certificate for the shares to which it relates (which shall upon the registration of the transfer be cancelled) and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer;
(b) the instrument of transfer is in respect of only one class of shares;
(c) the instrument of transfer is properly stamped (in circumstances where stamping is required);
(d) in the case of a transfer to joint holders, the number of joint holders to whom the share is to be transferred does not exceed four;
(e) the shares concerned are free of any lien in favour of the Company; and
(f) a fee of such maximum as the Stock Exchange may from time to time determine to be payable (or such lesser sum as the Directors may from time to time require) is paid to the Company in respect thereof.

If the Directors refuse to register a transfer of any share they shall, within two months after the date on which the transfer was lodged with the Company, send to each of the transferor and the transferee notice of such refusal.

The registration of transfers may, on 14-day notice being given by advertisement published on the Stock Exchange’s website, or, subject to the Listing Rules, by electronic communication in the manner in which notices may be served by the Company by electronic means as provided in the articles of association of the Company or by advertisement published in the newspapers, be suspended and the register of members of the Company closed at such times for such periods as the

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APPENDIX VII SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

Directors may from time to time determine, provided that the registration of transfers shall not be suspended or the register closed for more than 30 days in any year (or such longer period as the members of the Company may by ordinary resolution determine provided that such period shall not be extended beyond 60 days in any year).

2.12 Power of the Company to purchase its own shares

The Company is empowered by the Companies Law and the articles of association of the Company to purchase its own shares subject to certain restrictions and the Directors may only exercise this power on behalf of the Company subject to the authority of its members in general meeting as to the manner in which they do so and to any applicable requirements imposed from time to time by the Stock Exchange and the Securities and Futures Commission of Hong Kong. Shares which have been repurchased will be treated as cancelled upon the repurchase.

2.13 Power of any subsidiary of the Company to own shares

There are no provisions in the articles of association of the Company relating to the ownership of shares by a subsidiary.

2.14 Dividends and other methods of distribution

Subject to the Companies Law and articles of association of the Company, the Company in general meeting may declare dividends in any currency but no dividends shall exceed the amount recommended by the Directors. No dividend may be declared or paid other than out of profits and reserves of the Company lawfully available for distribution, including share premium.

Unless and to the extent that the rights attached to any shares or the terms of issue thereof otherwise provide, all dividends shall (as regards any shares not fully paid throughout the period in respect of which the dividend is paid) be apportioned and paid pro rata according to the amounts paid up on the shares during any portion or portions of the period in respect of which the dividend is paid. For these purposes no amount paid up on a share in advance of calls shall be treated as paid up on the share.

The Directors may from time to time pay to the members of the Company such interim dividends as appear to the Directors to be justified by the profits of the Company. The Directors may also pay half-yearly or at other intervals to be selected by them at a fixed rate if they are of the opinion that the profits available for distribution justify the payment.

The Directors may retain any dividends or other moneys payable on or in respect of a share upon which the Company has a lien, and may apply the same in or towards satisfaction of the debts, liabilities or engagements in respect of which the lien exists. The Directors may also deduct from any dividend or other moneys

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APPENDIX VII SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

payable to any member of the Company all sums of money (if any) presently payable by him to the Company on account of calls, instalments or otherwise.

No dividend shall carry interest against the Company.

Whenever the Directors or the Company in general meeting have resolved that a dividend be paid or declared on the share capital of the Company, the Directors may further resolve: (a) that such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up on the basis that the shares so allotted are to be of the same class as the class already held by the allottee, provided that the members of the Company entitled thereto will be entitled to elect to receive such dividend (or part thereof) in cash in lieu of such allotment; or (b) that the members of the Company entitled to such dividend will be entitled to elect to receive an allotment of shares credited as fully paid up in lieu of the whole or such part of the dividend as the Directors may think fit on the basis that the shares so allotted are to be of the same class as the class already held by the allottee. The Company may upon the recommendation of the Directors by ordinary resolution resolve in respect of any one particular dividend of the Company that notwithstanding the foregoing a dividend may be satisfied wholly in the form of an allotment of shares credited as fully paid without offering any right to members of the Company to elect to receive such dividend in cash in lieu of such allotment.

Any dividend, interest or other sum payable in cash to a holder of shares may be paid by cheque or warrant sent through the post addressed to the registered address of the member of the Company entitled, or in the case of joint holders, to the registered address of the person whose name stands first in the register of members of the Company in respect of the joint holding or to such person and to such address as the holder or joint holders may in writing direct. Every cheque or warrant so sent shall be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first on the register of members of the Company in respect of such shares, and shall be sent at his or their risk and the payment of any such cheque or warrant by the bank on which it is drawn shall operate as a good discharge to the Company in respect of the dividend and/or bonus represented thereby, notwithstanding that it may subsequently appear that the same has been stolen or that any endorsement thereon has been forged. The Company may cease sending such cheques for dividend entitlements or dividend warrants by post if such cheques or warrants have been left uncashed on two consecutive occasions. However, the Company may exercise its power to cease sending cheques for dividend entitlements or dividend warrants after the first occasion on which such a cheque or warrant is returned undelivered. Any one of two or more joint holders may give effectual receipts for any dividends or other moneys payable or property distributable in respect of the shares held by such joint holders.

Any dividend unclaimed for six years from the date of declaration of such dividend may be forfeited by the Directors and shall revert to the Company.

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APPENDIX VII SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

The Directors may, with the sanction of the members of the Company in general meeting, direct that any dividend be satisfied wholly or in part by the distribution of specific assets of any kind, and in particular of paid up shares, debentures or warrants to subscribe securities of any other company, and where any difficulty arises in regard to such distribution the Directors may settle it as they think expedient, and in particular may disregard fractional entitlements, round the same up or down or provide that the same shall accrue to the benefit of the Company, and may fix the value for distribution of such specific assets and may determine that cash payments shall be made to any members of the Company upon the footing of the value so fixed in order to adjust the rights of all parties, and may vest any such specific assets in trustees as may seem expedient to the Directors.

2.15 Proxies

Any member of the Company entitled to attend and vote at a meeting of the Company shall be entitled to appoint another person who must be an individual as his proxy to attend and vote instead of him and a proxy so appointed shall have the same right as the member to speak at the meeting. A proxy need not be a member of the Company.

Instruments of proxy shall be in common form or in such other form as the Directors may from time to time approve provided that it shall enable a member to instruct his proxy to vote in favour of or against (or in default of instructions or in the event of conflicting instructions, to exercise his discretion in respect of) each resolution to be proposed at the meeting to which the form of proxy relates. The instrument of proxy shall be deemed to confer authority to vote on any amendment of a resolution put to the meeting for which it is given as the proxy thinks fit. The instrument of proxy shall, unless the contrary is stated therein, be valid as well for any adjournment of the meeting as for the meeting to which it relates provided that the meeting was originally held within 12 months from such date.

The instrument appointing a proxy shall be in writing under the hand of the appointor or his attorney authorised in writing or if the appointor is a corporation either under its seal or under the hand of an officer, attorney or other person authorised to sign the same.

The instrument appointing a proxy and (if required by the Directors) the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority, shall be delivered at the registered office of the Company (or at such other place as may be specified in the notice convening the meeting or in any notice of any adjournment or, in either case, in any document sent therewith) not less than 48 hours before the time appointed for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote or, in the case of a poll taken subsequently to the date of a meeting or adjourned meeting, not less than 48 hours before the time appointed for the taking of the poll and in default the instrument of proxy shall not be treated as valid. No instrument appointing a proxy shall be valid after the expiration of 12 months

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APPENDIX VII SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

from the date named in it as the date of its execution. Delivery of any instrument appointing a proxy shall not preclude a member of the Company from attending and voting in person at the meeting or poll concerned and, in such event, the instrument appointing a proxy shall be deemed to be revoked.

2.16 Calls on shares and forfeiture of shares

The Directors may from time to time make calls upon the members of the Company in respect of any moneys unpaid on their shares (whether on account of the nominal amount of the shares or by way of premium or otherwise) and not by the conditions of allotment thereof made payable at fixed times and each member of the Company shall (subject to the Company serving upon him at least 14-day notice specifying the time and place of payment and to whom such payment shall be made) pay to the person at the time and place so specified the amount called on his shares. A call may be revoked or postponed as the Directors may determine. A person upon whom a call is made shall remain liable on such call notwithstanding the subsequent transfer of the shares in respect of which the call was made.

A call may be made payable either in one sum or by instalments and shall be deemed to have been made at the time when the resolution of the Directors authorising the call was passed. The joint holders of a share shall be jointly and severally liable to pay all calls and instalments due in respect of such share or other moneys due in respect thereof.

If a sum called in respect of a share shall not be paid before or on the day appointed for payment thereof, the person from whom the sum is due shall pay interest on the sum from the day appointed for payment thereof to the time of actual payment at such rate, not exceeding 15% per annum, as the Directors may determine, but the Directors shall be at liberty to waive payment of such interest wholly or in part.

If any call or instalment of a call remains unpaid on any share after the day appointed for payment thereof, the Directors may at any time during such time as any part thereof remains unpaid serve a notice on the holder of such shares requiring payment of so much of the call or instalment as is unpaid together with any interest which may be accrued and which may still accrue up to the date of actual payment.

The notice shall name a further day (not being less than 14 days from the date of service of the notice) on or before which, and the place where, the payment required by the notice is to be made, and shall state that in the event of non-payment at or before the time and at the place appointed, the shares in respect of which such call was made or instalment is unpaid will be liable to be forfeited.

If the requirements of such notice are not complied with, any share in respect of which such notice has been given may at any time thereafter, before payment of all calls or instalments and interest due in respect thereof has been made, be

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APPENDIX VII SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

forfeited by a resolution of the Directors to that effect. Such forfeiture shall include all dividends and bonuses declared in respect of the forfeited shares and not actually paid before the forfeiture. A forfeited share shall be deemed to be the property of the Company and may be re-allotted, sold or otherwise disposed of.

A person whose shares have been forfeited shall cease to be a member of the Company in respect of the forfeited shares but shall, notwithstanding the forfeiture, remain liable to pay to the Company all moneys which at the date of forfeiture were payable by him to the Company in respect of the shares, together with (if the Directors shall in their discretion so require) interest thereon at such rate not exceeding 15% per annum as the Directors may prescribe from the date of forfeiture until payment, and the Directors may enforce payment thereof without being under any obligation to make any allowance for the value of the shares forfeited, at the date of forfeiture.

2.17 Inspection of register of members

The register of members of the Company shall be kept in such manner as to show at all times the members of the Company for the time being and the shares respectively held by them. The register may, on 14-day notice being given by advertisement published on the Stock Exchange’s website, or, subject to the Listing Rules, by electronic communication in the manner in which notices may be served by the Company by electronic means as provided in the articles of association of the Company or by advertisement published in the newspapers, be closed at such times and for such periods as the Directors may from time to time determine either generally or in respect of any class of shares, provided that the register shall not be closed for more than 30 days in any year (or such longer period as the members of the Company may by ordinary resolution determine provided that such period shall not be extended beyond 60 days in any year).

Any register of members kept in Hong Kong shall during normal business hours (subject to such reasonable restrictions as the Directors may impose) be open to inspection by any member of the Company without charge and by any other person on payment of such fee not exceeding HK$2.50 (or such higher amount as may from time to time be permitted under the Listing Rules) as the Directors may determine for each inspection.

2.18 Quorum for meetings and separate class meetings

No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business, but the absence of a quorum shall not preclude the appointment, choice or election of a chairman which shall not be treated as part of the business of the meeting.

Two members of the Company present in person or by proxy shall be a quorum provided always that if the Company has only one member of record the quorum shall be that one member present in person or by proxy.

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APPENDIX VII SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

A corporation being a member of the Company shall be deemed for the purpose of the articles of association of the Company to be present in person if represented by its duly authorised representative being the person appointed by resolution of the directors or other governing body of such corporation or by power of attorney to act as its representative at the relevant general meeting of the Company or at any relevant general meeting of any class of members of the Company.

The quorum for a separate general meeting of the holders of a separate class of shares of the Company is described in paragraph 2.4 above.

2.19 Rights of minorities in relation to fraud or oppression

There are no provisions in the articles of association of the Company concerning the rights of minority shareholders in relation to fraud or oppression.

2.20 Procedure on liquidation

If the Company shall be wound up, and the assets available for distribution amongst the members of the Company as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the members of the Company in proportion to the capital paid up, or which ought to have been paid up, at the commencement of the winding up on the shares held by them respectively. And if in a winding up the assets available for distribution amongst the members of the Company shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed amongst the members of the Company in proportion to the capital paid up at the commencement of the winding up on the shares held by them respectively. The foregoing is without prejudice to the rights of the holders of shares issued upon special terms and conditions.

If the Company shall be wound up, the liquidator may with the sanction of a special resolution of the Company and any other sanction required by the Companies Law, divide amongst the members of the Company in specie or kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may, for such purpose, set such value as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members of the Company. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the members of the Company as the liquidator, with the like sanction and subject to the Companies Law, shall think fit, but so that no member of the Company shall be compelled to accept any assets, shares or other securities in respect of which there is a liability.

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APPENDIX VII

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

2.21 Untraceable members

The Company shall be entitled to sell any shares of a member of the Company or the shares to which a person is entitled by virtue of transmission on death or bankruptcy or operation of law if: (a) all cheques or warrants, not being less than three in number, for any sums payable in cash to the holder of such shares have remained uncashed for a period of 12 years; (b) the Company has not during that time or before the expiry of the three month period referred to in (d) below received any indication of the whereabouts or existence of the member; (c) during the 12 year period, at least three dividends in respect of the shares in question have become payable and no dividend during that period has been claimed by the member; and (d) upon expiry of the 12 year period, the Company has caused an advertisement to be published in the newspapers or subject to the Listing Rules, by electronic communication in the manner in which notices may be served by the Company by electronic means as provided in the articles of association of the Company, giving notice of its intention to sell such shares and a period of three months has elapsed since such advertisement and the Stock Exchange has been notified of such intention. The net proceeds of any such sale shall belong to the Company and upon receipt by the Company of such net proceeds it shall become indebted to the former member for an amount equal to such net proceeds.

SUMMARY OF CAYMAN ISLANDS COMPANY LAW AND TAXATION

1. Introduction

The Companies Law is derived, to a large extent, from the older Companies Act of England, although there are significant differences between the Companies Law and the current Companies Act of England. Set out below is a summary of certain provisions of the Companies Law, although this does not purport to contain all applicable qualifications and exceptions or to be a complete review of all matters of corporate law and taxation which may differ from equivalent provisions in jurisdictions with which interested parties may be more familiar.

2. Incorporation

The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 24 April 1997 under the Companies Law. As such, its operations must be conducted mainly outside the Cayman Islands. The Company is required to file an annual return each year with the Registrar of Companies of the Cayman Islands and pay a fee which is based on the size of its authorised share capital.

3. Share Capital

The Companies Law permits a company to issue ordinary shares, preference shares, redeemable shares or any combination thereof.

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APPENDIX VII SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

The Companies Law provides that where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount of the value of the premiums on those shares shall be transferred to an account called the “share premium account”. At the option of a company, these provisions may not apply to premiums on shares of that company allotted pursuant to any arrangement in consideration of the acquisition or cancellation of shares in any other company and issued at a premium. The Companies Law provides that the share premium account may be applied by a company, subject to the provisions, if any, of its memorandum and articles of association, in such manner as the company may from time to time determine including, but without limitation:

(a) paying distributions or dividends to members;
(b) paying up unissued shares of the company to be issued to members as fully paid bonus shares;
(c) in the redemption and repurchase of shares (subject to the provisions of section 37 of the Companies Law);
(d) writing-off the preliminary expenses of the company;
(e) writing-off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company; and
(f) providing for the premium payable on redemption or purchase of any shares or debentures of the company.

No distribution or dividend may be paid to members out of the share premium account unless immediately following the date on which the distribution or dividend is proposed to be paid the company will be able to pay its debts as they fall due in the ordinary course of business.

The Companies Law provides that, subject to confirmation by the Grand Court of the Cayman Islands, a company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles of association, by special resolution reduce its share capital in any way.

Subject to the detailed provisions of the Companies Law, a company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles of association, issue shares which are to be redeemed or are liable to be redeemed at the option of the company or a shareholder. In addition, such a company may, if authorised to do so by its articles of association, purchase its own shares, including any redeemable shares. The manner of such a purchase must be authorised either by the articles of association or by an ordinary resolution of the company. The articles of association may provide that the manner of purchase may be determined by the directors of the company. At no time may a company redeem or purchase its shares unless they are fully paid. A company may not redeem or purchase any of its shares if, as a result of the

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APPENDIX VII SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

redemption or purchase, there would no longer be any member of the company holding shares. A payment out of capital by a company for the redemption or purchase of its own shares is not lawful unless immediately following the date on which the payment is proposed to be made, the company shall be able to pay its debts as they fall due in the ordinary course of business.

There is no statutory restriction in the Cayman Islands on the provision of financial assistance by a company for the purchase of, or subscription for, its own or its holding company’s shares. Accordingly, a company may provide financial assistance if the directors of the company consider, in discharging their duties of care and to act in good faith, for a proper purpose and in the interests of the company, that such assistance can properly be given. Such assistance should be on an arm’s-length basis.

4. Dividends and Distributions

With the exception of section 34 of the Companies Law, there are no statutory provisions relating to the payment of dividends. Based upon English case law which is likely to be persuasive in the Cayman Islands in this area, dividends may be paid only out of profits. In addition, section 34 of the Companies Law permits, subject to a solvency test and the provisions, if any, of the company’s memorandum and articles of association, the payment of dividends and distributions out of the share premium account (see paragraph 3 above for details).

5. Shareholders’ Suits

The Cayman Islands courts can be expected to follow English case law precedents. The rule in Foss v. Harbottle (and the exceptions thereto which permit a minority shareholder to commence a class action against or derivative actions in the name of the company to challenge (a) an act which is ultra vires the company or illegal, (b) an act which constitutes a fraud against the minority where the wrongdoers are themselves in control of the company, and (c) an action which requires a resolution with a qualified (or special) majority which has not been obtained) has been applied and followed by the courts in the Cayman Islands.

6. Protection of Minorities

In the case of a company (not being a bank) having a share capital divided into shares, the Grand Court of the Cayman Islands may, on the application of members holding not less than one-fifth of the shares of the company in issue, appoint an inspector to examine into the affairs of the company and to report thereon in such manner as the Grand Court shall direct.

Any shareholder of a company may petition the Grand Court of the Cayman Islands which may make a winding up order if the court is of the opinion that it is just and equitable that the company should be wound up.

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APPENDIX VII SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

Claims against a company by its shareholders must, as a general rule, be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by the company’s memorandum and articles of association.

The English common law rule that the majority will not be permitted to commit a fraud on the minority has been applied and followed by the courts of the Cayman Islands.

7. Disposal of Assets

The Companies Law contains no specific restrictions on the powers of directors to dispose of assets of a company. As a matter of general law, in the exercise of those powers, the directors must discharge their duties of care and to act in good faith, for a proper purpose and in the interests of the company.

8. Accounting and Auditing Requirements

The Companies Law requires that a company shall cause to be kept proper books of account with respect to:

(a) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place;
(b) all sales and purchases of goods by the company; and
(c) the assets and liabilities of the company.

Proper books of account shall not be deemed to be kept if there are not kept such books as are necessary to give a true and fair view of the state of the company’s affairs and to explain its transactions.

9. Register of Members

An exempted company may, subject to the provisions of its articles of association, maintain its principal register of members and any branch registers at such locations, whether within or without the Cayman Islands, as its directors may from time to time think fit. There is no requirement under the Companies Law for an exempted company to make any returns of members to the Registrar of Companies of the Cayman Islands. The names and addresses of the members are, accordingly, not a matter of public record and are not available for public inspection.

10. Inspection of Books and Records

Members of a company will have no general right under the Companies Law to inspect or obtain copies of the register of members or corporate records of the company. They will, however, have such rights as may be set out in the company’s articles of association.

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APPENDIX VII SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

11. Special Resolutions

The Companies Law provides that a resolution is a special resolution when it has been passed by a majority of not less than two-thirds (or such greater number as may be specified in the articles of association of the company) of such members as, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a general meeting of which notice specifying the intention to propose the resolution as a special resolution has been duly given. Written resolutions signed by all the members entitled to vote for the time being of the company may take effect as special resolutions if this is authorised by the articles of association of the company.

12. Subsidiary Owning Shares in Parent

The Companies Law does not prohibit a Cayman Islands company acquiring and holding shares in its parent company provided its objects so permit. The directors of any subsidiary making such acquisition must discharge their duties of care and to act in good faith, for a proper purpose and in the interests of the subsidiary.

13. Mergers and Consolidations

The Companies Law permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies. For these purposes, (a) “merger” means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company; and (b) “consolidation” means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must then be authorised by (a) a special resolution of each constituent company; and (b) such other authorisation, if any, as may be specified in such constituent company’s articles of association. The written plan of merger or consolidation must be filed with the Registrar of Companies together with a declaration as to the solvency of the consolidated or surviving company, a list of the assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company and that notification of the merger or consolidation will be published in the Cayman Islands Gazette. Dissenting shareholders have the right to be paid the fair value of their shares (which, if not agreed between the parties, will be determined by the Cayman Islands court) if they follow the required procedures, subject to certain exceptions. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.

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APPENDIX VII SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

14. Reconstructions

There are statutory provisions which facilitate reconstructions and amalgamations approved by a majority in number representing 75% in value of shareholders or creditors, depending on the circumstances, as are present at a meeting called for such purpose and thereafter sanctioned by the Grand Court of the Cayman Islands. Whilst a dissenting shareholder would have the right to express to the Grand Court his view that the transaction for which approval is sought would not provide the shareholders with a fair value for their shares, the Grand Court is unlikely to disapprove the transaction on that ground alone in the absence of evidence of fraud or bad faith on behalf of management and if the transaction were approved and consummated the dissenting shareholder would have no rights comparable to the appraisal rights (i.e. the right to receive payment in cash for the judicially determined value of his shares) ordinarily available, for example, to dissenting shareholders of United States corporations.

15. Take-overs

Where an offer is made by a company for the shares of another company and, within four months of the offer, the holders of not less than 90% of the shares which are the subject of the offer accept, the offeror may at any time within two months after the expiration of the said four months, by notice require the dissenting shareholders to transfer their shares on the terms of the offer. A dissenting shareholder may apply to the Grand Court of the Cayman Islands within one month of the notice objecting to the transfer. The burden is on the dissenting shareholder to show that the Grand Court should exercise its discretion, which it will be unlikely to do unless there is evidence of fraud or bad faith or collusion as between the offeror and the holders of the shares who have accepted the offer as a means of unfairly forcing out minority shareholders.

16. Indemnification

Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy (e.g. for purporting to provide indemnification against the consequences of committing a crime).

17. Liquidation

A company may be placed in liquidation compulsorily by an order of the court, or voluntarily (a) by a special resolution of its members if the company is solvent, or (b) by an ordinary resolution of its members if the company is insolvent. The liquidator’s duties are to collect the assets of the company (including the amount (if any) due from the contributories (shareholders)), settle the list of creditors and discharge the company’s liability to them, rateably if insufficient assets exist to discharge the liabilities in full, and to settle the list of contributories and divide the surplus assets (if any) amongst them in accordance with the rights attaching to the shares.

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APPENDIX VII SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN COMPANIES LAW

18. Stamp Duty on Transfers

No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those which hold interests in land in the Cayman Islands.

19. Taxation

Pursuant to section 6 of the Tax Concessions Law (2011 Revision) of the Cayman Islands, the Company has obtained an undertaking from the Governor in Cabinet:

(a) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations shall apply to the Company or its operations; and
(b) in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable by the Company:
(i) on or in respect of the shares, debentures or other obligations of the Company; or
(ii) by way of the withholding in whole or in part of any relevant payment as defined in section 6(3) of the Tax Concessions Law (2011 Revision).

The undertaking is for a period of twenty years from 10 June 1997.

The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman Islands save certain stamp duties which may be applicable, from time to time, on certain instruments executed in or brought within the jurisdiction of the Cayman Islands. The Cayman Islands are not party to any double tax treaties that are applicable to any payments made by or to the Company.

20. Exchange Control

There are no exchange control regulations or currency restrictions in the Cayman Islands.

21. General

Maples and Calder, the Company’s legal advisers on Cayman Islands law, have sent to the Company a letter of advice summarising aspects of Cayman Islands company law. This letter, together with a copy of the Companies Law, is available for inspection as referred to in the section headed “Documents Available for Inspection” in Appendix IX to this Circular. Any person wishing to have a detailed summary of Cayman Islands company law or advice on the differences between it and the laws of any jurisdiction with which he/she is more familiar is recommended to seek independent legal advice.

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APPENDIX VIII

STATUTORY AND GENERAL INFORMATION

A. FURTHER INFORMATION ABOUT THE GROUP

1. Incorporation of the Company

The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 24 April 1997. As at the date of its incorporation, the Company had an authorised share capital of HK$120,000,000 divided into 1,200,000,000 shares of a nominal or par value of HK$0.10 each. By a special resolution dated 3 December 2010, the Company’s authorised share capital was increased to HK$300,000,000 divided into 30,000,000,000 shares of HK$0.01 each. The Company has established a place of business in Hong Kong at Room 3111, 31/F., China Merchants Tower, Shun Tak Centre, No. 168–200 Connaught Road Central, Hong Kong and was registered in Hong Kong under Part XI of the Hong Kong Companies Ordinance on 7 September 1997. Mr. Liu Zhuogen and Mr. Yu Zhiliang have been appointed as the authorised representatives of the Company for the acceptance of service of process and notices on behalf of the Company at the address of the Company’s place of business in Hong Kong.

As the Company was incorporated in the Cayman Islands, it operates in accordance with the relevant laws of the Cayman Islands and its memorandum of association and articles of association. A summary of certain relevant provisions of the memorandum of association and the articles of association and certain relevant aspects of Companies Law of the Cayman Islands is set out in Appendix VII to this Circular.

2. Changes in share capital

There has been no alternation in the share capital of the Company or any other members of the Group within the two years immediately preceding the date of this Circular.

B. FURTHER INFORMATION ABOUT THE TARGET GROUP

1. Incorporation of the PRC Operating Subsidiaries

Merchants Property Development (Guangzhou)

Merchants Property Development (Guangzhou) (formerly known as 廣州招商置業發展有限公司) was incorporated on 10 August 2004 in the PRC. At the date of its incorporation, it was owned by Shenzhen China Merchants, Converge and Eureka as to 49%, 30% and 21%, respectively. On 25 March 2013, Eureka entered into a share transfer agreement with Sino Action pursuant to which Eureka transferred its 21% equity interest in Merchants Property Development (Guangzhou) to Sino Action. Such share transfer has been completed on 19 April 2013. Since the completion of the share transfer, Merchants Property Development (Guangzhou) has been owned as to 49% by Shenzhen China Merchants, 30% by Converge and 21% by Sino Action.

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APPENDIX VIII

STATUTORY AND GENERAL INFORMATION

Merchants Property Development (Guangzhou) has a registered capital of RMB200,000,000 which has been fully paid up.

Foshan Xin Cheng

Foshan Xin Cheng was incorporated on 30 April 2007 in the PRC. It is owned as to 50% by Merchants Property Development (Guangzhou) and as to 50% by Total Up International Limited, which is a subsidiary of Wharf Properties (China) Limited and is an independent third party. It has a registered capital of US$127,000,000, which has been fully paid up.

Merchants Nanjing Real Estate

Merchants Nanjing Real Estate was incorporated on 13 December 2005. At the date of its incorporation, it was owned as to 51% by CMPD and as to 49% by Eureka. On 10 May 2006, CMPD and Eureka entered into a share transfer agreement, pursuant to which CMPD transferred its 2% equity interest in Merchants Nanjing Real Estate to Eureka at a consideration of RMB600,000. On 25 March 2013, Eureka entered into a share transfer agreement with Happy City pursuant to which Eureka transferred its 51% equity interest in Merchants Nanjing Real Estate to Happy City. Such share transfer has been completed on 13 May 2013. Since the completion of the transfer, Merchants Nanjing Real Estate has been owned as to 51% by Happy City and as to 49% by CMPD. Merchants Nanjing Real Estate has a registered capital of RMB30,000,000, which has been totally paid up.

Chongqing China Merchants

Chongqing China Merchants was incorporated on 28 December 2009, which is wholly owned by Cosmo City. It has a registered capital of US$569,960,000 and a paid-up capital of US$533,960,015.

Foshan Xin Jie

Foshan Xin Jie was incorporated on 30 October 2007, which is wholly owned by Harpen. It has a registered capital of US$264,670,000 and a paid-up capital of US$228,774,000.

Nanjing China Merchants Rui Sheng

Nanjing China Merchants Rui Sheng was incorporated on 21 January 2011, which is wholly owned by Merchants Nanjing Real Estate. It has a registered capital of RMB30,000,000, which has been fully paid up.

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APPENDIX VIII

STATUTORY AND GENERAL INFORMATION

Foshan Yi Yun

Foshan Yi Yun was incorporated on 24 August 2010 and is owned as to 50% by Merchants Property Development (Guangzhou) and as to 50% by Wharf Property Development (Guangzhou). Wharf Property Development (Guangzhou) (formerly known as Wheelock Properties (Guangzhou) Co., Ltd.) is a limited liability company established under the PRC laws and is an independent third party. Foshan Yi Yun has a registered capital of RMB30,000,000, which has been fully paid up.

Foshan Merchants Wharf

Foshan Merchants Wharf was incorporated on 11 March 2010. At the date of its incorporation, it was owned as to 50% by Eureka and as to 50% by Favour Year Holdings Limited, which is a subsidiary of Wharf Properties (China) Limited and is an independent third party. On 23 April 2013, Eureka entered into a share transfer agreement with Sino Action pursuant to which Eureka will transfer its 50% equity interest in Foshan Merchants Wharf to Sino Action. Such share transfer has been completed on 9 June 2013. Since the completion of the share transfer, Foshan Merchants Wharf has been owned as to 50% by Sino Action and as to 50% by Favour Year Holdings Limited. It has a registered capital of US$99,900,000, which has been fully paid up.

2. Changes in share capital of the PRC Operating Subsidiaries

The following are the changes in the share capital of the PRC Operating Subsidiaries that took place within the two years immediately preceding the date of this Circular.

(a) Foshan Xin Jie

As at the date of its incorporation on 30 October 2007, the registered share capital of Foshan Xin Jie was US$99,900,000. On 25 August 2011, its registered share capital was increased to US$264,670,000.

(b) Chongqing China Merchants

As at the date of its incorporation on 28 December 2009, the registered share capital of Chongqing China Merchants was US$99,990,000. On 6 April 2011, its registered share capital was increased to US$399,960,000. On 28 February 2012, its registered share capital was further increased to US$569,960,000.

(c) Merchants Property Development (Guangzhou)

As at the date of its incorporation on 10 August 2004, the registered share capital of Merchants Property Development (Guangzhou) was RMB50,000,000. On 10 April 2013, its registered share capital was increased to RMB200,000,000.

– VIII-3 –

APPENDIX VIII

STATUTORY AND GENERAL INFORMATION

(d) Foshan Merchants Wharf

As at the date of its incorporation on 11 March 2010, the registered share capital of Foshan Merchants Wharf was US$99,900,000. On 21 May 2013, its registered share capital was increased to US$149,890,000.

Save as disclosed above, there has been no other changes in the share capital of any other members of the Target Group within the two years immediately preceding the date of this Circular.

3. Restructuring of the Target Group

In preparation for the Acquisition, the Target Group carried out the following Restructuring:

On 6 March 2013, Sino Action was incorporated in Hong Kong as a limited liability company.
On 6 March 2013, Happy City was incorporated in Hong Kong as a limited liability company.
On 25 March 2013, Eureka entered into a share transfer agreement with Sino Action pursuant to which Eureka transferred its 21% equity interest in Merchants Property Development (Guangzhou) to Sino Action. Such share transfer was completed on 19 April 2013.
On 25 March 2013, Eureka entered into a share transfer agreement with Happy City pursuant to which Eureka transferred its 51% equity interest in Merchants Nanjing Real Estate to Happy City. Such share transfer was completed on 13 May 2013.
On 27 March 2013, Eureka entered into a share transfer agreement with Converge pursuant to which Converge transferred its 100% equity interest in Sino Action to Eureka. Such transfer was completed on the same date.
On 27 March 2013, Eureka entered into a share transfer agreement with Converge pursuant to which Converge transferred its 100% equity interest in Happy City to Eureka. Such transfer was completed on the same date.
On 23 April 2013, Eureka entered into a share transfer agreement with Sino Action pursuant to which Eureka transferred its 50% equity interest in Foshan Merchants Wharf to Sino Action. Such share transfer was completed on 9 June 2013.

– VIII-4 –

APPENDIX VIII

STATUTORY AND GENERAL INFORMATION

4. Intellectual property rights of the Enlarged Group

As at the Latest Practicable Date, the Enlarged Group had registered or had applied for the registration of the following intellectual property rights which are material in relation to the business of the Enlarged Group.

(a) Trademarks

As at the Latest Practicable Date, members of the Enlarged Group had registered the following trademarks which are material in relation to the business of the Enlarged Group.

	Type and	Place of	Registered	Registration
Trademarks	class	registration	owner	number	Expiry date
	36	PRC	Merchants	7723770	27/04/2021
			Property
			Development
			(Guangzhou)
	36	PRC	Merchants	7723754	27/01/2021
			Property
			Development
			(Guangzhou)

(b) Domain names

As at the Latest Practicable Date, members of the Enlarged Group had registered the following domain names which are material in relation to the business of the Enlarged Group.

Domain Name	Registrant	Expiry Date
http://www.tonic.com.hk	Tonic Industries	1 October
	Holdings Limited	2014
http://www.cqlandmark.com	China West	26 September
	Premier Housing	2015
	Development
	Co., Ltd.

– VIII-5 –

APPENDIX VIII

STATUTORY AND GENERAL INFORMATION

C. DISCLOSURE OF INTERESTS

1. Interests of Directors

Immediately following the Closing, the interests or short position of the Directors (including the Proposed Directors) in the Shares, underlying Shares and debentures of the Company or its associated corporations (within the meaning in Part XV of the SFO) which are (i) 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 he is taken or deemed to have under such provisions of SFO); (ii) required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein; or (iii) required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies as set out in Appendix 10 to the Listing Rules, to be notified to the Company and the Stock Exchange, will be as follows:

Long positions in ordinary shares of the Company

Name of Director So Shu Fai	Nature of interest Through controlled corporations (Note)	Number of ordinary shares held 32,054,066	Approximate percentage of the Company’s issued share capital immediately after Closing
			0.65%

Note: These Shares are held by Skill China Limited. Fortune Alliance Group Limited is entitled to exercise or control the exercise of more than one-third of the voting power at general meetings (“control”) of Skill China Limited. Hence Fortune Alliance Group Limited is deemed to be interested in the Shares held by Skill China. Fortune Alliance Group Limited is in turn controlled by Joint Profit Limited, which is beneficially wholly owned by So Shu Fai, an executive Director of the Company. Hence So Shu Fai is deemed to be interested in the Shares held by Skill China Limited. Skill China Limited, Fortune Alliance Group Limited and Joint Profit Limited are companies incorporated in the British Virgin Islands with limited liability.

2. Interests of substantial shareholders

So far as is known to any Director or chief executive of the Company, immediately following the Closing, the following persons (other than a Director or chief executive of the Company) will have an interest or short position in the Shares or the underlying Shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or

– VIII-6 –

APPENDIX VIII STATUTORY AND GENERAL INFORMATION

are, 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 Enlarged Group:

Long Position in the Shares and Underlying Shares

Name CMG China Merchants Shekou Industrial Zone(1) CMPD(2) Success Well	Capacity and nature of interests Through controlled corporations Through controlled corporations Through controlled corporations Beneficial interest	Number of ordinary shares held immediately after Closing 3,646,889,329 3,646,889,329 3,646,889,329 3,646,889,329	Approximate percentage of the Company’s issued share capital immediately after Closing
			74.35% 74.35% 74.35% 74.35%

Notes:

(1) By virtue of China Merchants Shekou Industrial Zone’s approximate 51.89% interest in CMPD, which holds 100% interest in Success Well, China Merchants Shekou Industrial Zone will be deemed to be interested in the 3,646,889,329 Shares directly held by Success Well upon Closing.

(2) By virtue of CMPD’s 100% interest in Success Well through Eureka and Good Ease, CMPD will be deemed to be interested in the 3,646,889,329 Shares directly held by Success Well upon Closing.

3. Directors’ remuneration

The remunerations (including fees, salaries, allowances and benefits in kind and pension scheme contribution) paid to the Directors in aggregate for the financial years ended 31 March 2011, 31 March 2012 and the nine months ended 31 December 2012 were approximately HK$4,218,000, HK$1,705,000 and HK$1,093,000, respectively.

Save as disclosed above, no other payments have been paid or are payable, or any benefits in kind granted, in respect of the two years ended 31 March 2011, 31 March 2012 and the nine months ended 31 December 2012, by any member of the Enlarged Group to the Directors.

Based on the existing remuneration package, the Company estimates the aggregate remuneration payable to, and benefits in kind receivable by, the Directors (including the Proposed Directors) from any member of the Enlarged Group in respect of the year ending 31 December 2013 to be approximately HK$495,000.

– VIII-7 –

APPENDIX VIII

STATUTORY AND GENERAL INFORMATION

D. SUMMARY OF MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) were entered into by the Company or any member of the Enlarged Group within two years preceding the date of the Circular and are or may be material:

(a) the Agreement entered into between the Company (as the purchaser), Eureka (as the seller) and CMPD dated 24 April 2013, pursuant to which the Company has conditionally agreed to acquire, and Eureka has conditionally agreed to sell, the Sale Shares and the Shareholder’s Loans;
(b) the Placing Agreement entered into between the Company, Eureka, CMPD and Goldman Sachs dated 19 June 2013, pursuant to which the Company has agreed to appoint the Placing Agent and the Placing Agent has agreed to act as agent for the Company to procure purchasers to purchase or failing which to purchase itself, a total of 939,760,297 Placement Shares and the Company has agreed to allot and issue to placees procured by the Placing Agent and/or (as the case may be) the Placing Agent itself the Placement Shares;
(c) the indemnity agreement entered into between the Company and CMPD dated 19 June 2013, pursuant to which CMPD shall indemnify the Company against any losses and expenses arising out of or in connection with various non-compliance matters of the Target Group;
(d) the Non-Competition Deed entered into between the Company and CMPD dated 19 June 2013 pursuant to which CMPD and the Company have agreed to (i) maintain a clear business delineation between the Enlarged Group and the CMPD Group, (ii) formalise the principles for managing the potential competition between them, and (iii) enhance the corporate governance of the Company following Closing of the Acquisition.
(e) a deed of guarantee dated 23 April 2012 entered into between Grand Golden Profit Limited, Total Ally Holdings Limited and Success Forever Limited, pursuant to which Success Forever Limited guaranteed the prepayment and advancement in the sum of HK$14 million to be made by Grand Golden Profit Limited to Total Ally Holdings Limited under a subcontracting and agency agreement;
(f) a deed of novation dated 23 April 2012 entered into between Champion Apex, Tonic Electronics (B.V.I.) Limited and So Shu Fai, pursuant to which So Shu Fai agreed to release and discharge Champion Apex on the terms that Tonic Electronics (B.V.I.) Limited should be substituted as debtor and borrower to So Shu Fai in respect of the outstanding loan, interests and other amounts due and owing by Champion Apex to So Shu Fai in the aggregate amount of HK$2,000,000;

– VIII-8 –

APPENDIX VIII

STATUTORY AND GENERAL INFORMATION

(g) a deed of novation dated 23 April 2012 entered into between Champion Apex, Tonic Electronics (B.V.I.) Limited and Skill China Limited, pursuant to which Skill China Limited agreed to release and discharge Champion Apex on the terms that Tonic Electronics (B.V.I.) Limited should be substituted as debtor and borrower to Skill China Limited in respect of the outstanding loan, interests and other amounts due and owing by Champion Apex to Skill China Limited in the aggregate amount of HK$14,729,102 as at 31 March 2012;
(h) a deed of novation dated 23 April 2012 entered into between Grand Golden Profit Limited, Tonic Electronics (B.V.I.) Limited and Success Forever Limited, pursuant to which Success Forever Limited agreed to release and discharge Grand Golden Profit Limited on the terms that Tonic Electronics (B.V.I.) Limited should be substituted as debtor to Success Forever Limited in respect of the outstanding loan, interests and other amounts in the aggregate amount of HK$32,189,000 as at 31 March 2012;
(i) a deed of novation and set off dated 23 April 2012 entered into between Grand Golden Profit Limited, Tonic Electronics (B.V.I.) Limited and Skill China Limited, pursuant to which Grand Golden Profit Limited and Tonic Electronics (B.V.I.) Limited agreed to set off an indebtedness of HK$37,500,000 owing by Tonic Electronics (B.V.I.) Limited to Grand Golden Profit Limited as at 31 March 2012 and Skill China Limited agreed to release and discharge Grand Golden Profit Limited, on the terms that Tonic Electronics (B.V.I.) Limited should be substituted as debtor to Skill China Limited in respect of the outstanding loan, interests and other amounts in the aggregate amount of HK$58,695,000 due and owing by Grand Golden Profit Limited to Skill China Limited as at 31 March 2012under a loan agreement and a facility agreement;
(j) a release of debenture dated 23 April 2012 entered into between Grand Golden Profit Limited and Skill China Limited, pursuant to which Skill China Limited agreed to release and discharge Grand Golden Profit Limited from all its liabilities and obligations owing to Skill China Limited under a deed of debenture dated 15 January 2010 and agreed to release and assign and discharge unto Grand Golden Profit Limited all Grand Golden Profit Limited’s rights to its own assets and any other subject matter;
(k) a release of share charge dated 23 April 2012 entered into between the Company and Skill China Limited, pursuant to which Skill China Limited agreed to release and discharge the Company from all its liabilities and obligations owing to Skill China Limited under a share charge dated 15 January 2010 and agreed to release and assign and discharge unto the Company all of the Company’s rights to its shareholding in Grand Golden Profit Limited and any other subject matter;
(l) a share transfer agreement entered into between Eureka and Sino Action on 25 March 2013, pursuant to which Eureka will transfer its 21% equity interest in Merchants Property Development (Guangzhou) to Sino Action at a consideration of RMB288,028,205.1 which will be paid in Hong Kong dollar;

– VIII-9 –

APPENDIX VIII

STATUTORY AND GENERAL INFORMATION

(m) a share transfer agreement entered into between Eureka and Happy City on 25 March 2013, pursuant to which Eureka will transfer its 51% equity interest in Merchants Nanjing Real Estate to Happy City at a consideration of RMB113,177,828.3 which will be paid in Hong Kong dollar;
(n) a share transfer agreement entered into between Eureka and Converge on 27 March 2013, pursuant to which Converge will transfer its 100% equity interest in Sino Action to Eureka at a consideration of HK$100;
(o) a share transfer agreement entered into between Eureka and Converge on 27 March 2013, pursuant to which Converge will transfer its 100% equity interest in Happy City to Eureka at a consideration of HK$100; and
(p) a share transfer agreement entered into between Eureka and Sino Action on 23 April 2013, pursuant to which Eureka will transfer its 50% equity interest in Foshan Merchants Wharf to Sino Action at a consideration of US$54,949,000 or an equal amount in Hong Kong dollar.

E. LEGAL PROCEEDINGS OF THE ENLARGED GROUP

As at the Latest Practicable Date, no member of the Enlarged Group was engaged in any litigation or arbitration of material importance and no litigation, arbitration or claim of material importance was known to the Directors to be pending or threatened against any member of the Enlarged Group.

F. CONSENTS AND QUALIFICATIONS OF EXPERTS

Each of Goldman Sachs, Altus Capital Limited, Shu Jin Law Firm, Maples and Calder, Deloitte Touche Tohmatsu and Jones Lang LaSalle has given and has not withdrawn their respective written consents to the issue of this Circular with copies of their reports, valuation certificates, letters, opinions or summaries of opinions (as the case may be) and the references to their names included herein in the form and context in which they are respectively included. The qualifications of the experts who have given opinions in this Circular are as follows:

– VIII-10 –

APPENDIX VIII

STATUTORY AND GENERAL INFORMATION

Name

Qualification

Goldman Sachs (Asia) L.L.C.

Licensed under the SFO to conduct Type 1 (dealing in securities), Type 4 (advising on securities), Type 5 (advising on futures contracts), Type 6 (advising on corporate finance) and Type 7 (providing automated trading services) and Type 9 (asset management) regulated activities

Altus Capital Limited

Corporation licensed to carry on type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO, being the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition and the Non-Exempt Continuing Connected Transactions

Shu Jin Law Firm PRC Lawyers

Maples and Calder Cayman Islands legal adviser

Deloitte Touche Tohmatsu Certificated public accountants

Jones Lang LaSalle Independent property valuer Corporate Appraisal and Advisory Limited

G. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors (including the Proposed Directors) has entered into any service contracts with any member of the Enlarged Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)).

H. SHARE OPTION SCHEME

Pursuant to a resolution passed by the Shareholders at the annual general meeting of the Company on 27 September 2011, the Company adopted a share option scheme (the 2011 Share Option Scheme ). Particulars of the 2011 Share Option Scheme are set out in Appendix II to the circular to the Shareholders on 26 July 2011.

As at the Latest Practicable Date, there are no options outstanding under the 2011 Share Option Scheme.

– VIII-11 –

APPENDIX VIII

STATUTORY AND GENERAL INFORMATION

I. TOTAL EXPENSES

J. INFORMATION RELATED TO EUREKA AND CMPD

(a) The registered address of Eureka is at Room 1812 West Tower, Shun Tak Centre, 200 Connaught Road, Central, Hong Kong. The directors of Eureka are Huang Peikun, Liu Zhuogen, Zhong Tao and Feng Bohai;
(b) CMPD, whose registered office is at No.3 Building, Nanhai Ecool Innovation Park, No.6 Xinghua Road, Shekou Nanshan District, Shenzhen, the PRC, is directly holding 100% interest in Eureka. The directors of CMPD are Lin Shaobin, He Jianya, Huang Peikun, Yang Tianping, Wang Hong, Hua Li, Hu Yong, Chai Qiang, Liu Hongyu, Lu Weixiong and Zhang Wei.

K. ESTATE DUTY

Our Directors have been advised that no material liability for estate duty is likely to fall on any member of our Group in the Cayman Islands, Hong Kong, the PRC and other jurisdictions in which the companies comprising our Group are incorporated.

L. MISCELLANEOUS

Save as disclosed in this Circular:

(a) Save as disclosed in this Circular, within the two years immediately preceding the date of this Circular:
(i) no share or loan capital of Company or any member of the Enlarged Group has been issued or agreed to be issued fully or partly paid either for cash or for a consideration other than cash;
(ii) no share or loan capital of the Company or any member of the Enlarged Group is under option or is agreed conditionally or unconditionally to be put under option;
(iii) neither the Company nor any member of the Enlarged Group have issued or agreed to issue any founder shares, management shares or deferred shares;
(iv) no commissions, discounts, brokerage or other special terms have been granted in connection with the issue or sale of any shares or loan capital of any member of the Enlarged Group; and

– VIII-12 –

APPENDIX VIII

STATUTORY AND GENERAL INFORMATION

(v) the Company has no outstanding convertible debt securities.
(b) none of the persons whose names are listed in the section headed “Consents and qualifications of experts” in this appendix had any shareholding in any member of the Enlarged Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Enlarged Group;
(c) the Shares are accepted as eligible securities of the Central Cleaning and Settlement System established and carried on by Hong Kong Securities Cleaning Company Limited;
(d) none of the Directors nor any of the persons whose names are listed in the section headed “Consents and qualifications of experts” in this appendix is interested in the promotion of the Company or in any assets which have within the two years immediately preceding the issue of this Circular been acquired or disposed of by or leased to any member of the Enlarged Group, or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group;
(e) none of the Directors is materially interested in any contract or arrangement subsisting at the date of this Circular which is significant in relation to the business of the Enlarged Group; and
(f) Other than the Shares listed on the Stock Exchange, none of the equity or debt securities of the Company is currently listed on or dealt in on any other stock exchange or trading system, and no such listing or permission to list on any other stock exchange is currently being or agreed to be sought.
(g) The English text of this Circular shall prevail over the Chinese text.

– VIII-13 –

APPENDIX IX

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the office of the Company at Room 3111, 31/F., China Merchants Tower, Shun Tak Centre, Nos. 168–200 Connaught Road Central, Hong Kong during 9:30 a.m. to 5:30 p.m., Monday to Friday (other than public holidays) from the date of this Circular up to and including the date of the EGM:

(a) the memorandum of association and articles of association of the Company;
(b) the letter from the Board, the text of which is set out in the section headed “Letter from the Board” in this Circular;
(c) the letter of recommendation from the Independent Board Committee to the Independent Shareholders, the text of which is set out in the section headed “Letter from the Independent Board Committee” in this Circular;
(d) the letter of advice from Altus Capital Limited to the Independent Board Committee and the Independent Shareholders, the text of which is set out in the section headed “Letter from the Independent Financial Adviser” in this Circular;
(e) the audited consolidated financial statements of the Company and its subsidiaries for each of the two years ended 31 March 2011 and 2012;
(f) the Accountants’ Report on the Target Group prepared by Deloitte Touche Tohmatsu, the text of which is set out in Appendix III to this Circular;
(g) the Auditor’s Report and Audited Consolidated Financial Statements of the Group for the nine months period from 1 April 2012 to 31 December 2012 prepared by Deloitte Touche Tohmatsu, the text of which is set out in Appendix IV to this Circular;
(h) the report on the Unaudited Pro Forma Financial Information of the Enlarged Group prepared by Deloitte Touche Tohmatsu, the text of which is set out in Appendix V to this Circular;
(i) the statement of adjustments for the companies comprising the Target Group for each of the three years ended 31 December 2010, 2011 and 2012;
(j) the Property Valuation Report of the Target Group prepared by JLL, the text of which is set out in Appendix VI to this Circular;
(k) the letter summarising certain aspects of Cayman Companies Law prepared by Maples and Calder referred to in Appendix VII to this Circular;
(l) the Companies Law of the Cayman Islands;
(m) the PRC legal opinions issued by Shu Jin Law Firm, the PRC legal advisers of the Company;

– IX-1 –

APPENDIX IX

DOCUMENTS AVAILABLE FOR INSPECTION

(n) the material contracts set out in the section headed “Statutory and General Information — Summary of material contracts” in Appendix VIII to this Circular;
(o) the Agreement dated 24 April 2013 entered into between the Company, Eureka and CMPD in respect of the Acquisition;
(p) the Operation Agreement entered into between CMPD and the Company on 19 June 2013;
(q) the Property Management Agreement entered into between Merchants Property Management Co., Ltd., a wholly-owned subsidiary of CMPD and the Company on 19 June 2013;
(r) a copy of this Circular; and
(s) the written letters of consent referred to in the section headed “Statutory and General Information — Consents and qualifications of experts” in Appendix VIII to this Circular.

– IX-2 –

NOTICE OF EGM

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this notice, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this notice. TONIC INDUSTRIES HOLDINGS LIMITED 東力實業控股有限公司*

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 978)

Website: http://www.tonic.com.hk

NOTICE OF THE EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (“ EGM ”) of Tonic Industries Holdings Limited (the “ Company ”) will be held at Golden Dynasty Court, Macau Jockey Club, Hong Kong Club House, 3/F., Shun Tak Centre, Connaught Road Central, Hong Kong on 8 July 2013 at 11:00 a.m., for the purpose of considering and, if thought fit, passing, with or without modifications, the following resolutions. Capitalised terms defined in the circular dated 20 June 2013 issued by the Company (the “ Circular ”) shall have the same meanings when used in this notice unless otherwise specified.

ORDINARY RESOLUTIONS

Resolution in relation to the Acquisition

“ THAT
(a) the Agreement and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
(b) the Directors be and are hereby authorised to do all such acts and things and execute all such documents for and on behalf of the Company as they may consider necessary or desirable in connection with paragraph (a) of this resolution no. 1.”

Resolution in relation to the grant of specific mandate for the allotment and issue of the Consideration Shares and the Placement Shares

“THAT
(a) subject to the passing of resolution no. 1 and conditional upon the Listing Committee of The Stock Exchange of Hong Kong Limited granting the listing of, and the permission to deal in, the Consideration Shares and the Placement Shares, the grant of a specific mandate for the allotment and issue of the Consideration Shares and the Placement Shares in accordance with the terms of the Agreement and the Placing Agreement be and is hereby approved;

* For identification purpose only

– EGM-1 –

NOTICE OF EGM

(b) the Directors be and are hereby authorised to do all such acts and things and execute all such documents for and on behalf of the Company as they may consider necessary or desirable in connection with paragraph (a) of this resolution no. 2.”

Resolution in relation to the Non-Exempt Continuing Connected Transactions under the Property Management Agreement and the Annual Caps

“ THAT
(a) subject to the passing of resolution no. 1, the Non-Exempt Continuing Connected Transactions under the Property Management Agreement and the Annual Caps be and are hereby approved;
(b) the Directors be and are hereby authorised to do all such acts and things and execute all such documents for and on behalf of the Company as they may consider necessary or desirable in connection with paragraph (a) of this resolution no. 3.”

Resolution in relation to the Non-Exempt Continuing Connected Transactions under the Operation Agreement and the Annual Caps

“ THAT
(a) subject to the passing of resolution no. 1, the Non-Exempt Continuing Connected Transactions under the Operation Agreement and the Annual Caps be and are hereby approved;
(b) the Directors be and are hereby authorised to do all such acts and things and execute all such documents for and on behalf of the Company as they may consider necessary or desirable in connection with paragraph (a) of this resolution no. 4.”

By Order of the Board Tonic Industries Holdings Limited Chan Wing Yan Company Secretary

Hong Kong, 20 June 2013

Notes:

Any member of the Company entitled to attend and vote at the above meeting is entitled to appoint a proxy to attend and vote instead of him. A proxy need not be a member of the Company. A member who is the holder of two or more shares of the Company may appoint more than one proxy to represent him to attend and vote on his behalf. If more than one proxy is so appointed, the appointment shall specify the number and class of shares in respect of which each such proxy is so appointed.

– EGM-2 –

NOTICE OF EGM

To be effective, a form of proxy together with the power of attorney or other authority, if any, under which it is signed or a certified copy of that power or authority, must be deposited at the Company’s Share Registrar in Hong Kong, Tricor Tengis Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for the holding of the meeting or any adjournment thereof. Delivery of the form of proxy shall not preclude a member of the Company from attending and voting in person at the meeting and, in such event, the instrument appointing a proxy shall be deemed to be revoked.
All the resolutions at the meeting will be taken by poll pursuant to the Listing Rules and the results of the poll will be published on the websites of Hong Kong Exchanges and Clearing Limited and the Company in accordance with the Listing Rules.
The Chinese translation of this notice (including the contents of the proposed resolutions set out herein) is for reference only. In case of inconsistency, the English version shall prevail.

As at the date of this notice, the Board comprises Mr. Huang Peikun, Dr. So Shu Fai, Mr. Liu Zhuogen, Mr. Yu Zhiliang as executive Directors; Ms. Liu Ning as a non-executive Director and Dr. Wong Wing Kuen, Albert, Ms. Chen Yanping and Dr. Shi Xinping as independent non-executive Directors.

– EGM-3 –

AI assistant

Billion Industrial Holdings Limited — Proxy Solicitation & Information Statement 2013

50506_rns_2013-06-19_2682748e-81f3-4c51-b0f4-7d49e2f7640f.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

TONIC INDUSTRIES HOLDINGS LIMITED 東力實業控股有限公司*

(Stock Code: 978)

(1) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION

(2) REVERSE TAKEOVER INVOLVING A NEW LISTING APPLICATION

(3) PROPOSED ISSUE OF THE CONSIDERATION SHARES AND PROPOSED PLACING OF THE PLACEMENT SHARES UNDER SPECIFIC MANDATE AND

(4) CONTINUING CONNECTED TRANSACTIONS

ING Bank N.V.

CONTENTS

EXPECTED TIMETABLE

Note:

THE ACQUISITION

BUSINESS DELINEATION

IMPLICATIONS OF THE ACQUISITION UNDER THE LISTING RULES

BUSINESS OF THE TARGET GROUP

SELECTED FINANCIAL INFORMATION OF THE TARGET GROUP

Combined Statements of Comprehensive Income

Selected Combined Statements of Cash Flows

SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

SUMMARY

RECENT DEVELOPMENT SINCE 31 DECEMBER 2012

Newly Acquired Land Parcel

Contracted ASP for the Three Months Ended 31 March 2013

Total Revenue of the Target Group for the three months ended 31 March 2013

REASONS AND BENEFITS OF THE ACQUISITION

RISK FACTORS

CONTINUING CONNECTED TRANSACTIONS

RECOMMENDATIONS

DEFINITIONS

DEFINITIONS

GLOSSARY OF TECHNICAL TERMS

DIRECTORS

TONIC INDUSTRIES HOLDINGS LIMITED 東力實業控股有限公司*

(Stock Code: 978)

Board of Directors:

Company secretary:

(1) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION (2) REVERSE TAKEOVER INVOLVING A NEW LISTING APPLICATION

(3) PROPOSED ISSUE OF THE CONSIDERATION SHARES AND PROPOSED PLACING OF THE PLACEMENT SHARES UNDER SPECIFIC MANDATE AND

(4) CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

THE AGREEMENT

Parties

The Acquisition

Conditions Precedent

The Consideration

The minimum Issue Price

Closing

PLACING

LETTER FROM THE BOARD

THE CONSIDERATION SHARES, THE PLACEMENT SHARES AND THE PROPOSED GRANT OF THE SPECIFIC MANDATE

EFFECT OF THE ACQUISITION AND THE PLACING ON THE SHAREHOLDING STRUCTURE OF THE COMPANY

FINANCIAL EFFECT OF THE ACQUISITION ON THE COMPANY

INFORMATION ON THE TARGET GROUP

Corporate Structure of the Target Group

Business of the Target Group

Financial information of the Target Group

INFORMATION ON THE GROUP

INFORMATION ON EUREKA AND CMPD

REASONS FOR AND BENEFITS OF THE ACQUISITION

IMPLICATIONS OF THE ACQUISITION UNDER THE LISTING RULES

BUSINESS DELINEATION BETWEEN THE CMPD GROUP AND THE ENLARGED GROUP

CONTINUING CONNECTED TRANSACTIONS

EGM

SOLE FINANCIAL ADVISER, SOLE SPONSOR, INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

APPLICATION FOR LISTING OF THE CONSIDERATION SHARES AND THE PLACEMENT SHARES

RESPONSIBILITY STATEMENTS

RECOMMENDATIONS

FURTHER INFORMATION

(1) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION (2) REVERSE TAKEOVER INVOLVING A NEW LISTING APPLICATION (3) PROPOSED ISSUE OF THE CONSIDERATION SHARES AND PROPOSED PLACING OF THE PLACEMENT SHARES UNDER SPECIFIC MANDATE AND

(4) CONTINUING CONNECTED TRANSACTIONS

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION AND NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

THE INDEPENDENT BOARD COMMITTEE

BASIS OF OUR ADVICE

(I) THE ACQUISITION

Principal factors and reasons considered

1. Background of the Group

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