China Railway Group Limited - Proxy Solicitation & Information Statement 2018

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer, bank manager, solicitor, professional accountant or other professional advisers.

If you have sold or transferred all your shares in China Railway Group Limited, you should at once hand this circular and the accompanying form of proxy and the reply slip to the purchaser or the transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or the 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 does not constitute an invitation or offer to acquire, purchase or subscribe for securities of China Railway Group Limited.

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中國中鐵股份有限公司 CHINA RAILWAY GROUP LIMITED

(A joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 390)

DISCLOSEABLE TRANSACTION – PROPOSED ISSUANCE OF NEW A SHARES FOR ACQUISITION AND NOTICE OF 2018 FIRST EXTRAORDINARY GENERAL MEETING

A notice convening the EGM to be held at 9:30 a.m. on Friday, 7 December 2018 at the Conference Room, China Railway Square, No. 69 Fuxing Road, Haidian District, Beijing, PRC, is set out on pages 48 to 52 of this circular.

If you intend to appoint a proxy to attend the EGM, you are required to complete and return the accompanying proxy form in accordance with the instructions printed thereon. For holder of H Shares, the proxy form should be returned to Computershare Hong Kong Investor Services Limited in person, by post or by facsimile not less than 24 hours before the time appointed for holding the EGM or any adjourned meeting thereof. Completion and return of the proxy form will not preclude you from attending and voting in person at the EGM or at any adjourned meeting should you so wish, but in such event the proxy form shall be deemed to be revoked.

If you intend to attend the EGM in person or by proxy, you are required to complete and return the reply slip to Computershare Hong Kong Investor Services Limited or to the Company’s Board of Directors’ Office on or before Friday, 16 November 2018.

23 October 2018

TABLE OF CONTENTS

			Page
DEFINITION . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . .	1
LETTER FROM THE BOARD
1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		. . . . . .	6
2 PROPOSED	ISSUANCE OF NEW A SHARES FOR ACQUISITION	. . . . . .	7
3 THE EGM	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . .	37
APPENDIX I –	LETTERS FROM THE BOARD AND
	PRICEWATERHOUSECOOPERS RELATING TO
	THE PROFIT FORECAST . . . . . . . . . . . . . . . . . . .	. . . . . .	38
APPENDIX II –	IMPACT ANALYSIS ON DILUTION OF IMMEDIATE
	RETURNS OF THE RESTRUCTURING AND THE
	REMEDIAL MEASURES . . . . . . . . . . . . . . . . . . . .	. . . . . .	42
NOTICE OF 2018	FIRST EXTRAORDINARY GENERAL MEETING . .	. . . . . .	48

DEFINITION

In this circular, unless context otherwise requires, the following expressions have the following meanings:

“A Share(s)”
the ordinary share(s) in the Company’s share capital, with a nominal value of RMB1.00 each, which are listed on the SSE and traded in RMB
“A Shareholder(s)”
holder(s) of A Shares
“Acquisition Benchmark Date”
the benchmark date for valuation of the Target Equity for the purpose of the Proposed Acquisition, being 30 June 2018
“Articles of Association”
The “Articles of Association of China Railway Group Limited” and its amendments from time to time
“Board”
the board of directors of the Company
“BOC Asset”
BOC Financial Asset Investment Co., Ltd. (中銀金融資產投資有限公司), a limited liability company incorporated in the PRC
“BOCOM Investment”
BOCOM Financial Asset Investment Co., Ltd. (交銀金融資產投資有限公司), a limited liability company incorporated in the PRC
“CBRC”
China Banking Regulatory Commission
“China Cinda”
China Cinda Asset Management Co., Ltd (中國信達資產管理股份有限公司), a joint stock company incorporated in the PRC
“China Great Wall”
China Great Wall Asset Management Co., Ltd. (中國長城資產管理股份有限公司), a joint stock company incorporated in the PRC
“China Orient”

China Orient Asset Management Co., Ltd. (中國東方資產管理股份有限公司), a joint stock company incorporated in the PRC

“China Railway No.2 Engineering”

China Railway No.2 Engineering Group Co., Ltd. (中鐵二局集團有限公司), formerly known as China Railway Erju Engineering Co., Ltd. (中鐵二局工程有限公司), a limited liability company incorporated in the PRC and a non wholly-owned subsidiary of the Company as at the Latest Practicable Date

– 1 –

DEFINITION

“China Railway No.3 Engineering”
“China Railway No.5 Engineering”
“China Railway No.8 Engineering”
“China Reform”
“Closing Date of Target Equity”
“Company”
“connected person(s)”
“Consideration Shares”
China Railway No.3 Engineering Group Co., Ltd. (中鐵三局集團有限公司), a limited liability company incorporated in the PRC and a non wholly-owned subsidiary of the Company as at the Latest Practicable Date
China Railway No.5 Engineering Group Co., Ltd. (中鐵五局集團有限公司), a limited liability company incorporated in the PRC and a non wholly-owned subsidiary of the Company as at the Latest Practicable Date
China Railway No.8 Engineering Group Co., Ltd. (中鐵八局集團有限公司), a limited liability company incorporated in the PRC and a non wholly-owned subsidiary of the Company as at the Latest Practicable Date
China Reform Holdings Corporation Ltd. (中國國新控股有限責任公司), a limited liability company incorporated in the PRC
the date on which the industrial and commercial registration of the transfer of the Target Equity under the name of the Company is completed
中國中鐵股份有限公司 (China Railway Group Limited), a joint stock limited company incorporated in the PRC and the H Shares and A Shares of which are listed on the Hong Kong Stock Exchange (stock code: 390) and the Shanghai Stock Exchange (stock code: 601390), respectively
has the same meaning ascribed thereto under the Hong Kong Listing Rules
new A Shares to be issued by the Company to the Transferors in accordance with the Equity Acquisition Agreements (as amended by the Equity Acquisition Supplemental Agreements) for payment of the consideration for Target Equity

– 2 –

DEFINITION

“CREC” China Railway Engineering Group Company Limited (中國鐵路工程集團有限公司), formerly known as China Railway Engineering Corporation (中國鐵路工程總公司), a state-owned enterprise incorporated in the PRC and the controlling shareholder of the Company

“CSRC” the China Securities Regulatory Commission
“Directors” the directors of the Company
“EGM”
the 2018 first extraordinary general meeting of the Company to be held on Friday, 7 December 2018
“Equity Acquisition collectively, the Equity Acquisition Agreements dated Agreements” 6 August 2018 entered into between the Company and each Transferor respectively in relation to the proposed issuance of new A Shares for acquisition
“Equity Acquisition collectively, the equity acquisition supplemental Supplemental Agreements” agreements dated 16 October 2018 entered into between the Company and each Transferor in relation to the proposed issuance of new A Shares for acquisition.
“Group” the Company and its subsidiaries
“H Shares”
overseas listed foreign shares of RMB1.00 each in the share capital of the Company which are listed on the Hong Kong Stock Exchange and traded in Hong Kong dollars
“H Shareholder(s)” holder(s) of H Shares
“HK$”
Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Hong Kong Listing Rules”
the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
“Hong Kong Stock Exchange” The Stock Exchange of Hong Kong Limited

– 3 –

DEFINITION

“ICBC Investment”
“Issuance”
“Issuance Completion Date”
“Latest Practicable Date”
“PRC”
“PRC GAAP”
“Pricing Benchmark Date”
“Proposed Acquisition”
“Restructuring”
“RMB”
“SASAC”
“Share(s)”
“Shareholder(s)”
ICBC Financial Asset Investment Co., Ltd. (工銀金融資產投資有限公司), a limited liability company incorporated in the PRC
issuance of new A Shares by the Company to the Transferors in accordance with the Equity Acquisition Agreements (as amended by the Equity Acquisition Supplemental Agreements)
the date on which the Consideration Shares issued by the Company are registered under the share accounts of the Transferors with China Securities Depository and Clearing Corporation Limited
18 October 2018, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
the People’s Republic of China
the generally accepted accounting principles of the PRC
the pricing benchmark date of the Issuance, being the date of the announcement on resolutions passed at the first Board meeting convened for consideration of the Restructuring, i.e. 7 August 2018
the acquisition of equity interests in the Target Subsidiaries by the Company from the Transferors in accordance with the Equity Acquisition Agreement (as amended by the Equity Acquisition Supplemental Agreements)
the Company’s acquisition of equity interests held by the Transferors in the Target Subsidiaries through issuance of new A Shares
Renminbi, the lawful currency of the PRC
State-owned Assets Supervision and Administration Commission of the State Council
A Share(s) and/or H Share(s)
A Shareholder(s) and/or H Shareholder(s)

– 4 –

DEFINITION

“SSE”
the Shanghai Stock Exchange
“Structural Reform Fund”
China Structural Reform Fund Corporation Limited (中國國有企業結構調整基金股份有限公司), a joint stock company incorporated in the PRC
“Suida Investment”
Suida (Jiaxing) Investment Partnership (LLP) (穗達
（嘉興）投資合夥企業（有限合夥）), a limited liability partnership incorporated in the PRC
“Target Equity”
the equity interest held by the Transferors in the Target Subsidiaries prior to the completion of the Proposed Acquisition
“Target Subsidiaries” China Railway No.2 Engineering, China Railway No.3 Engineering, China Railway No.5 Engineering and China Railway No.8 Engineering
“Transferors”
China Reform, China Great Wall, China Orient, Structural Reform Fund, Suida Investment, BOC Asset, China Cinda, ICBC Investment and BOCOM Investment, or some of them, depending on specific Equity Acquisition Agreement(s) (as amended by the Equity Acquisition Supplemental Agreements)
“Valuation Benchmark Date”
30 June 2018
“Working Day(s)”
the PRC statutory working time other than Saturday, Sunday and statutory holidays
“Zhongshuizhiyuan Appraisal”
Zhongshuizhiyuan Assets Appraisal Co., Ltd (中水致遠資產評估有限公司), a PRC qualified valuer which was engaged by the Company to evaluate the value of equity interest of the Target Subsidiaries

“%”

per cent

For reference only, an exchange rate of HK$1.00 to RMB0.88199 has been used for the conversion of Renminbi into Hong Kong dollars in this circular.

– 5 –

LETTER FROM THE BOARD

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中國中鐵股份有限公司 CHINA RAILWAY GROUP LIMITED

(A joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 390)

Executive Directors: Registered Office: Mr. LI Changjin (Chairman) 918, Block 1 Mr. ZHANG Zongyan No. 128 South 4th Ring Road West Mr. ZHOU Mengbo Fengtai District Mr. ZHANG Xian Beijing 100070 PRC

Independent Non-executive Directors: Mr. GUO Peizhang Principal Place of Business in Hong Kong: Mr. WEN Baoman Unit 1201–1203 Mr. ZHENG Qingzhi 12th Floor, APEC Plaza Mr. CHUNG Shui Ming Timpson 49 Hoi Yuen Road, Kwun Tong Kowloon Non-executive Directors: Hong Kong

Non-executive Directors: Mr. MA Zonglin

23 October 2018

To the Shareholders

Dear Sir or Madam,

DISCLOSEABLE TRANSACTION – PROPOSED ISSUANCE OF NEW A SHARES FOR ACQUISITION AND

NOTICE OF 2018 FIRST EXTRAORDINARY GENERAL MEETING

1 INTRODUCTION

At the EGM, among other things, special resolutions will be proposed to approve (1) the proposal on the fulfilment of the conditions for the acquisition of assets by issuance of shares of the Company (2) the proposal on the acquisition of assets by issuance of shares of the Company not constituting a related transaction; (3) the proposal on the plan for the acquisition of assets by issuance of shares of the Company; (4) the proposal on the acquisition of assets by issuance of shares not constituting major asset restructuring and restructuring listing; (5) the proposal on considering the Report (Draft) on the Acquisition of Assets by Issuance of Shares of China Railway Group Limited and its summary; (6) the proposal on entering into the conditional Equity Acquisition Agreements; (7) the proposal

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LETTER FROM THE BOARD

on entering into the conditional Supplemental Agreements to the Equity Acquisition Agreements; (8) the proposal on approving relevant financial reports and asset valuation reports of the acquisition of assets by issuance of shares; (9) the proposal on impact analysis on dilution of immediate returns and remedial measures of the asset restructuring of the Company; and (10) the proposal on the grant of authorisation to the Board at the shareholders general meeting to deal with relevant matters of the restructuring. The notice of EGM is set out on pages 48 to 52 of this circular. The purpose of this circular is to provide you with information regarding certain proposals to be considered at the EGM and to set out the notice of the EGM.

2 PROPOSED ISSUANCE OF NEW A SHARES FOR ACQUISITION

References are made to the announcements of the Company dated 13 June 2018 and 6 August 2018 in relation to the Restructuring.

As disclosed in the aforesaid announcements, on 6 August 2018, the Company and nine Transferors including China Reform, China Great Wall, China Orient, Structural Reform Fund, Suida Investment, BOC Asset, China Cinda, ICBC Investment and BOCOM Investment entered into the China Railway No.2 Engineering Equity Acquisition Agreement, the China Railway No.3 Engineering Equity Acquisition Agreement, the China Railway No.5 Engineering Equity Acquisition Agreement and the China Railway No.8 Engineering Equity Acquisition Agreement, respectively, pursuant to which, the Company conditionally agreed to acquire and the Transferors conditionally agreed to sell, the Target Equity at a consideration of approximately RMB11,653,711,805 (subject to final adjustment) which will be paid by the Company through issue of a total of approximately 1,696,319,023 Consideration Shares (subject to final adjustment) at an issue price of RMB6.87 per Consideration Share to the Transferors. The consideration of the Target Equity was determined based on the estimated appraised value of the Target Equity in the preliminary valuation made by Zhongshuizhiyuan Appraisal, and may be subject to adjustment depending on results of the final valuation report prepared by Zhongshuizhiyuan Appraisal and filed with the SASAC.

As at the Latest Practicable Date, the SASAC has approved the filing of the final valuation reports on the Target Subsidiaries in respect of the Restructuring. According to the filing results of the aforesaid valuation reports, on 16 October 2018, the Company and nine Transferors entered into the China Railway No.2 Engineering Equity Acquisition Supplemental Agreement, the China Railway No.3 Engineering Equity Acquisition Supplemental Agreement, the China Railway No.5 Engineering Equity Acquisition Supplemental Agreement and the China Railway No.8 Engineering Equity Acquisition Supplemental Agreement, respectively, to revise certain terms of the Equity Acquisition Agreements, including the final considerations of all Proposed Acquisitions and the number of the Consideration Shares to be issued. The total consideration under the Equity Acquisition Agreements (as amended by the Equity Acquisition Supplemental Agreements) is approximately RMB11,654,737,347 (equivalent to approximately HK$13,214,137,742) will be paid by the Company through issuance of an aggregate of approximately 1,696,468,306 Consideration Shares at an issue price of RMB6.87 (equivalent to approximately HK$7.79) per Consideration Share to the Transferors. The relevant Consideration Shares will be issued and listed on the SSE. Upon completion of

– 7 –

LETTER FROM THE BOARD

the transactions under the Equity Acquisition Agreements (as amended by the Equity Acquisition Supplemental Agreements), the total A Shares of the Company held in aggregate by the Transferors will represent approximately 10.43% of the total A Shares and approximately 8.64% of the total share capital of the Company as enlarged by the Issuance, and all of the Target Subsidiaries will become wholly-owned subsidiaries of the Company.

(1) Equity Acquisition Agreements (As Amended by the Equity Acquisition Supplemental Agreements)

The major terms of each of the Equity Acquisition Agreements (as amended by the Equity Acquisition Supplemental Agreements) are about the same, which are summarized as follows:

Date:

6 August 2018 (as amended by the Equity Acquisition Supplemental Agreements dated 16 October 2018)

Parties: (i) the Company (as the purchaser); and

(ii) the Transferors (as the sellers)

As at the Latest Practicable Date, China Reform held 424,924,009 A Shares of the Company indirectly through its wholly-owned subsidiary, CNIC Corporation Limited, representing approximately 1.86% of the total share capital of the Company. In addition, according to the Articles of Association of China Structural Reform Fund Corporation Limited and the Entrusted Management Agreement with Chengtong Fund Management Co., Ltd., Chengtong Fund Management Co., Ltd. is entrusted to manage Structural Reform Fund and is in charge of the execution of fund management affairs. Chengtong Fund Management Co., Ltd. is a wholly-owned subsidiary of China Chengtong Holdings Group Ltd. therefore China Chengtong Holdings Group Ltd. is the controlling shareholder and ultimate controller of Structural Reform Fund. As at the Latest Practicable Date, China Chengtong Holdings Group Ltd. held 424,924,009 A Shares of the Company indirectly through its wholly-owned subsidiary, Beijing Chengtong Financial Control Investment Co., Ltd., representing approximately 1.86% of the total share capital of the Company. Save as disclosed above, to the best of the Directors’ knowledge, information and belief after having made all reasonable inquiries, all Transferors and their respective ultimate beneficial owners are third parties independent of the Company and its connected persons.

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LETTER FROM THE BOARD

Consideration:

(i) China Railway No.2 Engineering Equity Acquisition Agreement (as amended by the China Railway No.2 Engineering Equity Acquisition Supplemental Agreement)

The percentage of equity interests in China Railway No.2 Engineering held by each of the Transferors prior to the completion of the Proposed Acquisition and to be taken as the Target Equity under the China Railway No.2 Engineering Equity Acquisition Agreement (as amended by the China Railway No.2 Engineering Equity Acquisition Supplemental Agreement), the consideration payable and the estimated number of the Consideration Shares to be issued by the Company are set out below:

	Percentage of
	equity interests in		Number of
	China Railway		Consideration
	No.2 Engineering	Consideration	Shares to be issued
	held by the	under the Equity	under the Equity
	Transferor prior to	Acquisition	Acquisition
	the completion of	Agreement (as	Agreement (as
	the Proposed	amended by the	amended by the
	Acquisition and to	Equity Acquisition	Equity Acquisition
	be taken as the	Supplemental	Supplemental
Transferors	Target Equity	Agreement)	Agreement)
		(RMB0’000)	(Shares)
China Great Wall	7.03%	100,296.6032	145,992,144
China Reform	6.75%	96,284.7391	140,152,458
Structural Reform
Fund	3.87%	55,163.1316	80,295,679
BOC Asset	2.04%	29,086.0149	42,337,721
ICBC Investment	1.27%	18,053.3884	26,278,585
BOCOM Investment	1.27%	18,053.3884	26,278,585
Suida Investment	3.09%	44,130.5053	64,236,543
Total	25.32%	361,067.7709	525,571,715

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LETTER FROM THE BOARD

Pursuant to the China Railway No.2 Engineering Equity Acquisition Agreement (as amended by the China Railway No.2 Engineering Equity Acquisition Supplemental Agreement), a total consideration of approximately RMB3,610,677,709 (equivalent to approximately HK$4,093,785,314) representing an aggregate of approximately 25.32% equity interests in China Railway No.2 Engineering will be paid by the Company through issuance of an aggregate of approximately 525,571,715 Consideration Shares at an issue price of RMB6.87 (equivalent to approximately HK$7.79) per Consideration Share to the Transferors. The consideration was determined based on the appraised value of equity interests of China Railway No.2 Engineering as at the Valuation Benchmark Date in the final valuation report prepared by Zhongshuizhiyuan Appraisal using the income approach and filed with the SASAC.

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LETTER FROM THE BOARD

(ii) China Railway No.3 Engineering Equity Acquisition Agreement (as amended by the China Railway No.3 Engineering Equity Acquisition Supplemental Agreement)

The percentage of equity interests in China Railway No.3 Engineering held by each of the Transferors prior to the completion of the Proposed Acquisition and to be taken as the Target Equity under the China Railway No.3 Engineering Equity Acquisition Agreement (as amended by the China Railway No.3 Engineering Equity Acquisition Supplemental Agreement), the consideration payable and the estimated number of the Consideration Shares to be issued by the Company are set out below:

	Percentage of
	equity interests in		Number of
	China Railway		Consideration
	No.3 Engineering	Consideration	Shares to be issued
	held by the	under the Equity	under the Equity
	Transferor prior to	Acquisition	Acquisition
	the completion of	Agreement (as	Agreement (as
	the Proposed	amended by the	amended by the
	Acquisition and to	Equity Acquisition	Equity Acquisition
	be taken as the	Supplemental	Supplemental
Transferors	Target Equity	Agreement)	Agreement)
		(RMB0’000)	(Shares)
China Great Wall	8.81%	90,779.8830	132,139,567
China Orient	1.96%	20,173.3072	29,364,348
China Cinda	4.89%	50,433.2683	73,410,870
China Reform	5.00%	51,441.9337	74,879,088
Structural Reform
Fund	2.84%	29,251.2957	42,578,305
BOC Asset	1.57%	16,138.6457	23,491,478
ICBC Investment	0.98%	10,086.6536	14,682,174
BOCOM Investment	0.98%	10,086.6536	14,682,174
Suida Investment	2.35%	24,207.9688	35,237,218
Total	29.38%	302,599.6096	440,465,222

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LETTER FROM THE BOARD

Pursuant to the China Railway No.3 Engineering Equity Acquisition Agreement (as amended by the China Railway No.3 Engineering Equity Acquisition Supplemental Agreement), a total consideration of approximately RMB3,025,996,096 (equivalent to approximately HK$3,430,873,475) representing an aggregate of approximately 29.38% equity interests in China Railway No.3 Engineering will be paid by the Company through issuance of an aggregate of approximately 440,465,222 Consideration Shares at an issue price of RMB6.87 (equivalent to approximately HK$7.79) per Consideration Share to the Transferors. The consideration was determined based on the appraised value of equity interests of China Railway No.3 Engineering as at the Valuation Benchmark Date in the final valuation report prepared by Zhongshuizhiyuan Appraisal using the income approach and filed with the SASAC.

(iii) China Railway No.5 Engineering Equity Acquisition Agreement (as amended by the China Railway No.5 Engineering Equity Acquisition Supplemental Agreement)

The percentage of equity interests in China Railway No.5 Engineering held by each of the Transferors prior to the completion of the Proposed Acquisition and to be taken as the Target Equity under the China Railway No.5 Engineering Equity Acquisition Agreement (as amended by the China Railway No.5 Engineering Equity Acquisition Supplemental Agreement), the consideration payable and the estimated number of the Consideration Shares to be issued by the Company are set out below:

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LETTER FROM THE BOARD

	Percentage of
	equity interests in		Number of
	China Railway		Consideration
	No.5 Engineering	Consideration	Shares to be issued
	held by the	under the Equity	under the Equity
	Transferor prior to	Acquisition	Acquisition
	the completion of	Agreement (as	Agreement (as
	the Proposed	amended by the	amended by the
	Acquisition and to	Equity Acquisition	Equity Acquisition
	be taken as the	Supplemental	Supplemental
Transferors	Target Equity	Agreement)	Agreement)
		(RMB0’000)	(Shares)
China Orient	6.29%	70,381.6636	102,447,836
China Reform	7.55%	84,457.9965	122,937,403
Structural Reform
Fund	4.41%	49,267.1645	71,713,485
BOC Asset	2.34%	26,141.7608	38,052,053
ICBC Investment	1.44%	16,087.2373	23,416,648
BOCOM Investment	1.44%	16,087.2373	23,416,648
Suida Investment	3.51%	39,212.6410	57,078,080
Total	26.98%	301,635.7010	439,062,153

Pursuant to the China Railway No.5 Engineering Equity Acquisition Agreement (as amended by the China Railway No.5 Engineering Equity Acquisition Supplemental Agreement), a total consideration of approximately RMB3,016,357,010 (equivalent to approximately HK$3,419,944,682) representing an aggregate of approximately 26.98% equity interests in China Railway No.5 Engineering will be paid by the Company through issuance of an aggregate of approximately 439,062,153 Consideration Shares at an issue price of RMB6.87 (equivalent to approximately HK$7.79) per Consideration Share to the Transferors. The consideration was determined based on the appraised value of equity interests of China Railway No.5 Engineering as at the Valuation Benchmark Date in the final valuation report prepared by Zhongshuizhiyuan Appraisal using the income approach and filed with the SASAC.

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LETTER FROM THE BOARD

(iv) China Railway No.8 Engineering Equity Acquisition Agreement (as amended by the China Railway No.8 Engineering Equity Acquisition Supplemental Agreement)

The percentage of equity interests in China Railway No.8 Engineering held by each of the Transferors prior to the completion of the Proposed Acquisition and to be taken as the Target Equity under the China Railway No.8 Engineering Equity Acquisition Agreement (as amended by the China Railway No.8 Engineering Equity Acquisition Supplemental Agreement), the consideration payable and the estimated number of the Consideration Shares to be issued by the Company are set out below:

	Percentage of
	equity interests in		Number of
	China Railway		Consideration
	No.8 Engineering	Consideration	Shares to be issued
	held by the	under the Equity	under the Equity
	Transferor prior to	Acquisition	Acquisition
	the completion of	Agreement (as	Agreement (as
	the Proposed	amended by the	amended by the
	Acquisition and to	Equity Acquisition	Equity Acquisition
	be taken as the	Supplemental	Supplemental
Transferors	Target Equity	Agreement)	Agreement)
		(RMB0’000)	(Shares)
China Great Wall	7.15%	60,153.4569	87,559,617
China Orient	7.15%	60,153.4569	87,559,617
China Reform	3.46%	29,074.1709	42,320,481
Structural Reform
Fund	2.03%	17,043.4794	24,808,558
BOC Asset	1.07%	9,023.0184	13,133,942
ICBC Investment	0.72%	6,015.3457	8,755,961
BOCOM Investment	0.72%	6,015.3457	8,755,961
Suida Investment	1.51%	12,692.3793	18,475,079
Total	23.81%	200,170.6532	291,369,216

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LETTER FROM THE BOARD

Pursuant to the China Railway No.8 Engineering Equity Acquisition Agreement (as amended by the China Railway No.8 Engineering Equity Acquisition Supplemental Agreement), a total consideration of approximately RMB2,001,706,532 (equivalent to approximately HK$2,269,534,271) representing an aggregate of approximately 23.81% equity interests in China Railway No.8 Engineering will be paid by the Company through issuance of an aggregate of approximately 291,369,216 Consideration Shares at an issue price of RMB6.87 (equivalent to approximately HK$7.79) per Consideration Share to the Transferors. The consideration was determined based on the appraised value of equity interests of China Railway No.8 Engineering as at the Valuation Benchmark Date in the final valuation report prepared by Zhongshuizhiyuan Appraisal using the income approach and filed with the SASAC.

Payment:

The total consideration under the Equity Acquisition Agreements (as amended by the Equity Acquisition Supplemental Agreements) amounts to approximately RMB11,654,737,347 (equivalent to approximately HK$13,214,137,742) which will be paid by the Company through issuance of an aggregate of approximately 1,696,468,306 Consideration Shares at an issue price of RMB6.87 (equivalent to approximately HK$7.79) per Consideration Share to the Transferors.

Arrangement during the transition period:

During the period from the Acquisition Benchmark Date to the Closing Date of Target Equity, the Company and the Transferors shall ensure the Target Subsidiaries may not conduct division, merger, increase or decrease in share capital or distribution of profit in any form. The Company shall enjoy all profits of the Target Equity incurred during the period from the Acquisition Benchmark Date to the Closing Date of Target Equity, while the Transferors shall bear all losses in proportion to their shareholding percentages in the Target Subsidiaries prior to the transfer of the Target Equity.

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LETTER FROM THE BOARD

Conditions precedent:

The Equity Acquisition Agreements (as amended by the Equity Acquisition Supplemental Agreements) shall become effective upon the satisfaction of all the following conditions precedent:

(i) the transfer of the Target Equity and the Restructuring being approved by the Board and the shareholders’ general meeting of the Company;
(ii) the appraisal results of the Target Equity being filed with the competent authority(ies);
(iii) the Restructuring being approved by the SASAC; and
(iv) the Restructuring being approved by the CSRC.

Except for condition precedent (i) which has been approved by the Board, pending approved by the shareholders’ general meeting and (ii) which has been fulfilled, the rest of the above-mentioned conditions precedent had not been fulfilled as at the Latest Practicable Date.

Completion:

The Transferors shall cooperate with the Company in execution of all documents required for transfer of the Target Equity to the Company under the constitutional documents of the Target Subsidiaries and relevant laws within 30 Working Days upon satisfaction of all the above conditions precedent. If the transfer of the Target Equity cannot be completed within the above 30 Working Days, the Company and the Transferors shall agree to complete the transfer of the Target Equity as soon as practicable within a reasonable time.

The Company shall procure each of the Target Subsidiaries to submit documents to competent industrial and commercial administration where it was registered for change of registration particulars in connection with the transfer of the Target Equity within 30 Working Days upon completion of execution of the aforementioned documents by the Transferors. The date on which the industrial and commercial registration of changes is completed shall be deemed as the Closing Date of Target Equity.

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LETTER FROM THE BOARD

Upon completion of the closing of the Target Equity, all the parties shall complete relevant procedures of the Issuance within 30 Working Days upon the Closing Date of Target Equity, including but not limited to, engaging an accounting firm to carry out capital verification and issue a capital verification report and proceeding with the procedures for issuance, registration and listing of shares with the SSE and share registrar as well as the relevant procedures for reporting to and filing with the CSRC and its agencies.

(2) Issuance of Consideration Shares

Type and Nominal Value of the Consideration Shares

The Consideration Shares to be issued by the Company are domestic listed RMB denominated ordinary A Shares, with a nominal value of RMB1.00 per share.

Way of Issuance

The Issuance by the Company will be made to specific target subscribers in a non-public way.

Targets of Issuance and Way of Subscription

The Issuance targets are the shareholders of China Railway No.2 Engineering, China Railway No.3 Engineering, China Railway No.5 Engineering and China Railway No.8 Engineering other than the Company, including China Reform, China Great Wall, China Orient, Structural Reform Fund, Suida Investment, BOC Asset, China Cinda, ICBC Investment and BOCOM Investment. Each of the targets of the Issuance will subscribe for the Shares of the Issuance by use of the equity interests held by it in the Target Subsidiaries respectively.

Target Equity to be Acquired in the Transaction

The Target Equity to be acquired in this transaction shall be the aggregate equity interests of 25.32% in China Railway No.2 Engineering, 29.38% in China Railway No.3 Engineering, 26.98% in China Railway No.5 Engineering and 23.81% in China Railway No.8 Engineering held by the Transferors.

Pricing Basis and Transaction Price of the Target Equity

The transaction price of the Target Equity shall be finally determined based on the results of the valuation issued by an asset appraisal institution qualified for securities and futures business and filed with SASAC.

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LETTER FROM THE BOARD

As at the Valuation Benchmark Date of 30 June 2018, the appraised value of the Target Equity shall be RMB11,654,737,347 (equivalent to approximately HK$13,214,137,742) and the transaction price of the Target Equity shall be RMB11,654,737,347 (equivalent to approximately HK$13,214,137,742).

Pricing Benchmark Date and Issue Price of the Issuance

Pursuant to the relevant provisions of the Measures for the Administration of the Major Asset Restructuring of Listed Companies, the issue price of the shares of the listed companies shall not be less than 90% of the market reference price of the shares. The market reference price shall be any of the average trading price of the Shares of the Company over the last 20 trading days, 60 trading days or 120 trading days prior to the date of the announcement on resolutions passed at the Board meeting of the Restructuring. Average trading price of the Shares of the Company for the last certain number of trading days prior to the date of the announcement on resolutions passed at the Board meeting = Total trading amount of the Shares of the Company for the last certain number of trading days prior to the date of the announcement on resolutions passed at the Board meeting/Total trading volume of the Shares of the Company for the last certain number of trading days prior to the date of the announcement on resolutions passed at the Board meeting.

The Pricing Benchmark Date of the Restructuring is the date of the announcement on resolutions passed at the first Board meeting convened by the Company for consideration of the Restructuring. The average trading prices of the Shares over the last 20 trading days, 60 trading days and 120 trading days prior to the date of the announcement on resolutions passed at the first Board meeting (calculated and determined after taking into account the implication of implementing the profit distribution plan of 2017 of the Company) are as follows, respectively:

Period of the days for		90% of the
calculation of the average	Average	average
trading price of the Shares	trading price	trading price
	(RMB/Share)	(RMB/Share)
Over the last 20 trading days	7.32	6.59
Over the last 60 trading days	7.75	6.98
Over the last 120 trading days	8.26	7.44

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LETTER FROM THE BOARD

After consultation, the parties to the Restructuring have agreed to select the average trading price of the Shares of the Company over the last 20 trading days prior to the date of the announcement on resolutions passed at the first Board meeting to be the market reference price for the issue price of the Restructuring, and in accordance with the principle that the issue price of the Restructuring shall not be less than 90% of the average trading price of the Shares over the last 20 trading days prior to the date of the announcement on resolutions passed at the first Board meeting, the parties have agreed to set the issue price at RMB6.87/Share.

During the period from the Pricing Benchmark Date of the Issuance to the Issuance Completion Date, in case of any ex-rights or ex-dividends events of the Company, including distribution of dividends, issuance of bonus shares, rights issue and conversion of capital reserve into share capital, etc., the issue price will be adjusted in accordance with the following formulas and the calculation results shall be rounded up to the nearest hundredth. The formulas for adjustment of issue price are as follows:

Distribution of share dividend or conversion of capital reserve to share capital: P1 = P0/(1+n);

Rights issue: P1 = (P0+A×k)/(1+k);

Where the two events above occur concurrently: P1 = (P0+A×k)/(1+n+k);

Distribution of cash dividend: P1 = P0 – D;

Where the three events above occur concurrently: P1 = (P0 – D+A×k)/(1+n+k).

Where P0 represents the effective issue price before adjustment; n represents the ratio of share dividend or conversion to share capital; k represents the ratio of the rights issue; A represents the price of the right issue; D represents the cash dividend payable for each share; and P1 represents the effective issue price after adjustment.

Number of Shares to be Issued

The number of Shares to be issued will be determined in accordance with the following formula: Total number of Shares to be issued = Sum of Shares issued to other shareholders of China Railway No.2 Engineering other than the Company for the acquisition of their equity interests in China Railway No.2 Engineering + Sum of Shares issued to other shareholders of China Railway No.3 Engineering other than the Company for the acquisition of their equity interests in China Railway No.3 Engineering + Sum of Shares issued to other shareholders of China Railway No.5 Engineering other than the Company for the acquisition of their equity interests in China Railway No.5 Engineering + Sum of Shares issued to other shareholders of China Railway No.8 Engineering other than the Company for the acquisition of their equity interests in China Railway No.8 Engineering.

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LETTER FROM THE BOARD

Number of Shares to be issued to any Transferor for payment of the transfer consideration payable to such Transferor for the acquisition of its equity interests in China Railway No.2 Engineering, China Railway No.3 Engineering, China Railway No.5 Engineering or China Railway No.8 Engineering = Transfer consideration of the equity interests held by the Transferor in China Railway No.2 Engineering, China Railway No.3 Engineering, China Railway No.5 Engineering or China Railway No.8 Engineering ÷ Issue price, wherein the number of Shares to be issued shall be an integer and rounded down to the nearest integer, and the Company is not required to pay for the fraction part of transfer consideration that is equivalent to a fractional share of the Company.

The appraised value of the Target Equity in the Restructuring is RMB11,654,737,347 (equivalent to approximately HK$13,214,137,742) and the transaction price of the Target Equity shall be RMB11,654,737,347 (equivalent to approximately HK$13,214,137,742). The number of Consideration Shares to be issued for the Issuance will be 1,696,468,306 Shares in aggregate. The number of the Consideration Shares proposed to be issued to the Transferors are set out as follows:

	Number of
	Consideration
	Shares to be
Transferors	issued
	(Shares)
China Reform	380,289,430
China Great Wall	365,691,328
China Orient	219,371,801
Chine Reform Fund	219,396,027
Suida Investment	175,026,920
BOC Asset	117,015,194
China Cinda	73,410,870
ICBC Investment	73,133,368
BOCOM Investment	73,133,368
Total	1,696,468,306

The final number of the Consideration Shares to be issued for the Issuance shall be subject to the approval by the CSRC.

In the event of an adjustment to the price of the Consideration Shares of the Issuance arising from ex-dividend, ex-right or otherwise, the number of Consideration Shares to be issued will also be adjusted accordingly.

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LETTER FROM THE BOARD

Lock-up Period Arrangement

Upon completion of the Issuance, for the Shares of the Company obtained by the Transferors as a result of the Issuance, if the equity interest in the Target Subsidiaries has been held by a Transferor for twelve months or more, the Transferor shall not transfer the Shares of the Company acquired due to its equity interests in the Target Subsidiaries under the Issuance in any way within twelve months from the completion date of the issuance of the Shares; if the equity interest in the Target Subsidiaries has been held by a Transferor for less than twelve months, the Transferor shall not transfer the Shares of the Company acquired due to its equity interests in the Target Subsidiaries under the Issuance in any way within thirty-six months from the completion date of the Issuance.

Upon completion of the Issuance, the abovementioned lock-up period arrangement shall also apply to the bonus shares, shares converted from capital reserve and other relevant Shares of the Company to which the Transferors are entitled as a result of the Restructuring.

In the event of a discrepancy between the aforesaid lock-up period arrangement and the updated regulatory opinions of the securities regulatory institutions, the lock-up period arrangement will be adjusted in accordance with the regulatory opinions of relevant securities regulatory authorities.

Upon expiry of the lock-up period set out above, the relevant regulations of the CSRC and SSE shall apply to any transfer of the Shares of the Company obtained by the Transferor.

Arrangement Regarding Gain or Loss Relating to Target Equity Incurred During the Period from the Valuation Benchmark Date to the Closing Date of Target Equity

During the period from the Valuation Benchmark Date to the Closing Date of Target Equity, Target Subsidiaries shall not carry out any division, merger, capital increase, capital reduction or distribution of profits and any gain relating to Target Equity incurred during the period from the Valuation Benchmark Date to the Closing Date of Target Equity shall be attributable to the Company while the loss relating to Target Equity incurred during that period shall be borne by the Transferors in same proportions to their respective shareholdings in the Target Subsidiaries before the Issuance. If the industrial and commercial registration date of completion of transfer of the Target Equity is a day before the fifth day (inclusive) of a month, the Closing Date of Target Equity shall be the last day of last month; if the industrial and commercial registration date of completion of transfer of the Target Equity is a day after the fifth day (exclusive) of a month, the Closing Date of Target Equity shall be the last day of current month unless otherwise agreed by the parties to the transaction.

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LETTER FROM THE BOARD

Arrangement Regarding the Undistributed Profit Carried Forward from the Periods before the Issuance

The undistributed profit of the Company carried forward from the periods before completion of the Issuance shall be shared and enjoyed by new and old shareholders after completion of the Issuance.

Transfer of Target Equity and Liability for Default

In accordance with the provisions of the Equity Acquisition Agreements, within thirty Working Days after satisfaction of all the conditions precedent to effectiveness of such agreements, the Transferors shall cooperate with the Company to execute the constitutional documents of the Target Subsidiaries and all other documents necessary for completing the transfer of the Target Equity to the Company pursuant to the relevant provisions of laws. Upon execution by the Transferors of such documents, the Company shall procure that the Target Subsidiaries will submit to the administration for industry and commerce of its registration place the documents required for a change in the industry and commerce registration within thirty Working Days and the date on which the procedures for the change in the industry and commerce registration are completed shall become the Closing Date of Target Equity.

In accordance with the provisions of the Equity Acquisition Agreements, if any party to an Equity Acquisition Agreement (the “ Breaching Party ”) breaches any provisions of the Equity Acquisition Agreement, which has resulted in any damage, loss and expenses (including without limitation the legal costs and expenses as well as the expenses incurred for investigation on any claims) incurred or suffered by the other parties (each a “ Non-breaching Party ”), the Breaching Party shall be liable for the compensation to the Non-breaching Parties without prejudice to any other rights and remedies in relation to the breach by the Breaching Party of the Equity Acquisition Agreements available to any Non-breaching Party under laws and regulations. Such rights and remedies in relation to the breach by the Breaching Party of the Equity Acquisition Agreements available to any Non-breaching Party shall survive the cancellation, termination or consummation of the Equity Acquisition Agreements.

Share Listing Place

The Consideration Shares to be issued under this Issuance will be listed on SSE.

Validity of the Resolution

The resolution in respect of the Issuance shall be valid for twelve (12) months commencing on the date on which the shareholders’ general meeting of the Company has adopted the proposal regarding the Issuance.

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LETTER FROM THE BOARD

(3) Effects on the Shareholding Structure of the Company upon Completion of the Proposed Acquisition and the Issuance

The table below sets out the shareholding structure of the Company as at the Latest Practicable Date and immediately subsequent to completion of the Proposed Acquisition and the Issuance (assuming that there is no other change in the shareholding structure of the Company before the issuance of the Consideration Shares):

				Immediately subsequent to	Immediately subsequent to
	As at the	Latest		completion of	the Proposed
Shareholder	Practicable Date			Acquisition and the Issuance
		Percentage			Percentage
		in the total			in the total
		issued share			issued share
	Number of	capital of the		Number of	capital of the
	Shares	Company		Shares	Company
	(Shares)			(Shares)
A Shares
CREC	11,410,582,290		49.95%	11,410,582,290	46.50%
China Reform_Note_	424,904,009		1.86%	805,193,439	3.28%
China Great Wall	–		–	365,691,328	1.49%
China Orient	–		–	219,371,801	0.89%
Structural Reform Fund	–		–	219,396,027	0.89%
Suida Investment	–		–	175,026,920	0.71%
BOC Asset	–		–	117,015,194	0.48%
China Cinda	–		–	73,410,870	0.30%
ICBC Investment	–		–	73,133,368	0.30%
BOCOM Investment	–		–	73,133,368	0.30%
Other public A Shareholders	6,801,425,244		29.77%	6,801,425,244	27.71%
H Shares
CREC	164,394,000		0.72%	164,394,000	0.67%
Other public H Shareholders	4,042,996,000		17.70%	4,042,996,000	16.47%
Total issued Shares	22,844,301,543	100.00%		24,540,769,849	100.00%

Note: As at the Latest Practicable Date, China Reform held 424,924,009 A Shares of the Company indirectly through its wholly-owned subsidiary, CNIC Corporation Limited.

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LETTER FROM THE BOARD

The charts below set out the simplified shareholding structure of relevant companies as at the Latest Practicable Date and immediately subsequent to completion of the Proposed Acquisition and the Issuance:

As at the Latest Practicable Date:

==> picture [314 x 203] intentionally omitted <==

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

CREC
50.67%
1.86%
Company Transferors
China Railway
74.68% No. 2 25.32%
Engineering
70.62% China Railway 29.38%
No. 3
Engineering
73.02% China Railway 26.98%
No. 5
Engineering
76.19% China Railway 23.81%
No. 8
Engineering
----- End of picture text -----

Immediately subsequent to completion of the Proposed Acquisition and the Issuance:

==> picture [218 x 193] intentionally omitted <==

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

CREC
47.17%
8.64%
Company Transferors
100%
China Railway No. 2
Engineering
100% China Railway No. 3
Engineering
100% China Railway No. 5
Engineering
100% China Railway No. 8
Engineering
----- End of picture text -----

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LETTER FROM THE BOARD

(4) Information on the Valuation

(i) The Appraised Value of the Target Equity

Zhongshuizhiyuan Appraisal, a PRC qualified valuer, has been engaged by the Company to assess the market value of the total shareholders’ equity of each of Target Subsidiaries as at the Valuation Benchmark Date in accordance with the relevant requirements of SASAC. The Valuation Benchmark Date is 30 June 2018. The appraised values of the Target Equity are set out as follows:

In RMB0’000

	Book Value of	Appraised
	the 100%	Value of the		Difference in
	Equity	100% Equity		Percentage
Target Subsidiaries	Interest	Interest	Difference	(%)
	A	B	C=B-A	D=C/A×100%
China Railway No.2
Engineering	1,220,998.33	1,426,418.29	205,419.96	16.82%
China Railway No.3
Engineering	768,181.08	1,029,847.34	261,666.26	34.06%
China Railway No.5
Engineering	787,186.21	1,117,861.91	330,675.70	42.01%
China Railway No.8
Engineering	736,573.50	840,804.97	104,231.47	14.15%

Note: The book value of net assets of each Target Subsidiaries as set out above is audited and on the parent company basis.

(ii) Assumptions for the Valuation

In conducting the aforesaid valuation, Zhongshuizhiyuan Appraisal adopted the following major assumptions (including commercial assumptions):

A. General Assumptions

(a) Transaction assumption: assuming all the assets to be valued are already in the process of transaction and the valuer carries out the valuation based on a simulated market which involves the transaction conditions of the assets to be valued.

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LETTER FROM THE BOARD

(b) Open market assumption: open market assumption is an assumption of the market conditions for the proposed entry of the assets and what is the impact of such market conditions on the assets. The open market refers to fully developed and sophisticated market conditions and a competitive market with the availability of voluntary purchasers and sellers, where the purchasers and sellers are in equal position and have opportunities and time to obtain sufficient market information, so as to make rational judgments and act voluntarily without being subject to any compulsory or restrictive conditions.
(c) Asset continuous use assumption: asset continuous use assumption is an assumption of the market conditions for the proposed entry of the assets and the condition of the assets under such market conditions. This is to assume, firstly, the assets to be valued are in use, and secondly, the assets in use will continue to be used. Given that the asset continuous use assumption does not take into account the change of use or optimised use condition of the assets, the scope of applicability of the valuation result may be restricted.
(d) Enterprise going concern assumption: assuming for the period of return in the future, there will be no significant change to the respective scope of business of the entities to be valued and each of such entities will carry on its business under the same condition and in the same manner as at the Valuation Benchmark Date, and also assuming that the entities to be valued carry out its business legally and there is nothing unforeseeable which would prevent the continuous operation of any such entity.
B. Special Assumptions
(a) The valuation assumes that the external economic environment remains unchanged and the current national macroeconomic conditions will not change significantly as at the Valuation Benchmark Date. Nor will there be any unforeseeable factor or force majeure event which will result in any material adverse effect.
(b) There will be no significant change to the social economic environment of the enterprises or to any policies of tax, exchange and tax rate adopted by the enterprises.

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LETTER FROM THE BOARD

(c) The future management members of the enterprises will duly perform their duties and continue to carry out the operation and management in the same manner as currently adopted.
(d) Assuming the Target Subsidiaries will be able to obtain the approval from relevant authorities of their qualification for conducting each of their businesses upon the expiry of the necessary qualifications and their industrial or business qualification will continue to be effective.
(e) Assuming the entities to be valued will fully comply with all relevant laws and regulations and industrial policies of the State and there will be no event of material irregularity which will affect the development of the Company or the realisation of the economic return of the Company.
(f) The valuation of each asset shall be based on the actual quantity of such asset as at the Valuation Benchmark Date, and the prevailing market value of the asset shall be determined with reference to the effective price prevailing at the place where the asset is located as at the Valuation Benchmark Date.
(g) Assuming the accounting policies to be adopted by the entities to be valued after the Valuation Benchmark Date will be consistent in all material respects with the accounting policies adopted as at the time of the preparation of the valuation report.
(h) Assuming the respective scope and mode of business of the entities to be valued after the Valuation Benchmark Date will remain the same as that currently adopted and based on the same management approach and standard as currently in effect.
(i) Assuming the enterprises will keep their existing credit policy unchanged and they will not encounter any material fund collection problem.
(j) Assuming the basic information and financial information provided by the entities to be valued are true, accurate and complete.

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LETTER FROM THE BOARD

(iii) Rules 14.60A and 14.62 of Hong Kong Listing Rules

As Zhongshuizhiyuan Appraisal has used the income approach in its valuation of China Railway No.2 Engineering, China Railway No. 3 Engineering, China Railway No. 5 Engineering and China Railway No. 8 Engineering, relevant valuation shall constitute the profit forecast under Rule 14.61 of the Hong Kong Listing Rules. Reference is made to the announcements of the Company dated 6 August 2018 and 17 August 2018. The Company has applied to Hong Kong Stock Exchange for, and Hong Kong Stock Exchange has already granted, the waiver from strict compliance with the time requirement in the Rules 14.60A and 14.62 of the Hong Kong Listing Rules subject to the conditions that: (i) the Company will announce and submit the required information under Rules 14.60A and 14.62 by October 2018; and (ii) the Company discloses details of the waiver (including reasons) by way of an announcement.

PricewaterhouseCoopers, the Company’s independent auditor, has reviewed the arithmetic accuracy of calculations of the discounted future estimated cash flows on which the business valuations are based, which does not involve the adoption of accounting policies. The Board has confirmed that the discounted future estimated cash flows, which serve as a basis for the equity prices of China Railway No.2 Engineering, China Railway No. 3 Engineering, China Railway No. 5 Engineering and China Railway No. 8 Engineering in the valuation reports, was made after prudent and detailed enquiry by the Board, and is fair and reasonable.

The letters issued by PricewaterhouseCoopers and the Board are set forth in Appendix I to this circular.

(5) Information on the Experts

The qualifications of the experts who make conclusions or give opinions in this circular are set out as follows:

		Date of Conclusion or
Name	Qualification	Opinion
PricewaterhouseCoopers	Certified Public Accountants	16 October 2018
Zhongshuizhiyuan	PRC Qualified Valuer	26 August 2018
Appraisal

As at the Latest Practicable Date, to the best of the Directors’ knowledge, neither of the experts has any beneficial interests in the share capital of any member of the Group, or has any right to subscribe for or nominate other persons to subscribe for any voting shares, convertible securities, warrants, call option or derivative securities of any member of the Group, whether legally enforceable or not.

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LETTER FROM THE BOARD

Each of the experts has given written consent to the publication of this circular and the letters contained in this circular and/or any reference to its name herein, and such written consent has not been withdrawn.

(6) Information on the Contractual Parties

The Company is a joint stock company incorporated in the PRC. The Group provides a full range of construction-related services, including infrastructure construction, survey, design and consulting services and engineering equipment and component manufacturing, and also expands to other businesses such as property development and mineral resource development.

China Reform is a limited liability company incorporated in the PRC. China Reform is a wholly state-owned enterprise incorporated upon the approval of the State Council and an investment organization authorized by the State, in which the SASAC performs the duties of a capital contributor on behalf of the State Council. Since being designated as the pilot enterprise of state-owned capital operation company in 2016, China Reform emphasized the layout of fund investment, financial service, asset management, stock equity operation and other the business sectors, and professionally carried out the state-owned capital operation from a market-oriented perspective.

China Great Wall is a joint stock company incorporated in the PRC and one of the four state-owned financial asset management companies. The main businesses of China Great Wall are acquisition, management and disposal of the non-performing assets divested from the state-owned banks.

China Orient is a joint stock company incorporated in the PRC, covering the businesses of asset management, insurance, banking, securities, trust, micro-finance, credit rating and overseas business etc.

Structural Reform Fund is a joint stock company incorporated in the PRC. Approved by the State Council and entrusted by the SASAC, Structural Reform Fund is an investment institution, established by China Chengtong Holding Group., Ltd. as the main sponsor. Since its establishment on 22 September 2016, Structural Reform Fund mainly aims to provide central government-owned enterprise with support in development, support enterprises in projects including industrial consolidation, professional reorganization, capacity adjustment and international mergers and acquisitions by establishing sub-fund as well as direct investment. Also, Structural Reform Fund plays an important role in promoting optimization of layout of state-owned enterprise in key industries and industry, improving industry concentration and capital operating rates and benefit returns.

Suida Investment is a partnership incorporated in PRC, mainly engaged in industrial investment and investment management.

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LETTER FROM THE BOARD

BOC Asset, a limited liability company incorporated in the PRC, is one of the first bank-affiliated entities established with the approval of the CBRC to specialise in market-driven debt conversion business in the PRC. It is principally engaged in market-driven debt conversion business.

China Cinda is a joint stock company incorporated in PRC, the H shares of which are listed on the Hong Kong Stock Exchange. It is principally engaged in operation of non-performing asset, investment and asset management and financial services with a focus on non-performing asset management.

ICBC Investment, a limited liability company incorporated in the PRC, is one of the first bank-affiliated entities established with the approval of the CBRC to specialise in market-driven debt conversion business in the PRC. It is principally engaged in market-driven debt conversion business.

BOCOM Investment, a limited liability company incorporated in the PRC, is one of the first bank-affiliated entities established with the approval of the CBRC to specialise in market-driven debt conversion business in the PRC. It is principally engaged in market-driven debt conversion business.

(7) Information on the Target Subsidiaries

(i) Information on China Railway No.2 Engineering

China Railway No.2 Engineering is a limited liability company incorporated in the PRC and its main businesses are construction of railway, highway, municipal project and housing, property development etc.

The profits of China Railway No.2 Engineering (both before and after tax and extraordinary items) for the years ended 31 December 2016 and 31 December 2017 based on the audited consolidated financial statements (prepared under the PRC GAAP) of China Railway No.2 Engineering are as follows:

	Year ended	Year ended
	31 December	31 December
	2016	2017
	(RMB10,000)	(RMB10,000)
Profit before tax and extraordinary	12,029.79	56,675.84
items (audited)	(equivalent to	(equivalent to
	approximately	approximately
	HK$136.3937	HK$642.5905
	million)	million)
Profit after tax and extraordinary	–497.84	29,227.84
items (unaudited)	(equivalent to	(equivalent to
	approximately	approximately
	HK$–5.6445	HK$331.3852
	million)	million)

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LETTER FROM THE BOARD

(ii) Information on China Railway No.3 Engineering

China Railway No.3 Engineering is a limited liability company incorporated in the PRC and its main businesses are transportation infrastructure construction of railway, highway, municipal project and water conservancy and other businesses.

The profits of China Railway No.3 Engineering (both before and after tax and extraordinary items) for the years ended 31 December 2016 and 31 December 2017 based on the audited consolidated financial statement (prepared under the PRC GAAP) of China Railway No.3 Engineering are as follows:

	Year ended	Year ended
	31 December	31 December
	2016	2017
	(RMB10,000)	(RMB10,000)
Profit before tax and extraordinary	92,249.58	81,856.05
items (audited)	(equivalent to	(equivalent to
	approximately	approximately
	HK$1,045.9255	HK$928.0837
	million)	million)
Profit after tax and extraordinary	77,297.21	74,210.14
items (unaudited)	(equivalent to	(equivalent to
	approximately	approximately
	HK$876.3955	HK$841.3943
	million)	million)

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LETTER FROM THE BOARD

(iii) Information on China Railway No.5 Engineering

China Railway No.5 Engineering is a limited liability company incorporated in the PRC and its main businesses are construction of railway, highway, municipal project, urban rail, housing project, hydropower project etc.

The profits of China Railway No.5 Engineering (both before and after tax and extraordinary items) for the years ended 31 December 2016 and 31 December 2017 based on the audited consolidated financial statement (prepared under the PRC GAAP) of China Railway No.5 Engineering are as follows:

	Year ended	Year ended
	31 December	31 December
	2016	2017
	(RMB10,000)	(RMB10,000)
Profit before tax and extraordinary	70,375.51	80,314.14
items (audited)	(equivalent to	(equivalent to
	approximately	approximately
	HK$797.9173	HK$910.6015
	million)	million)
Profit after tax and extraordinary	59,879.66	68,454.59
items (unaudited)	(equivalent to	(equivalent to
	approximately	approximately
	HK$678.9154	HK$776.1379
	million)	million)

(iv) Information on China Railway No.8 Engineering

China Railway No.8 Engineering is a limited liability company incorporated in the PRC and its main businesses are construction of railway, highway, water conservancy and hydropower project, housing project, municipal project, urban rail transportation etc.

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LETTER FROM THE BOARD

The profits of China Railway No.8 Engineering (both before and after tax and extraordinary items) for the years ended 31 December 2016 and 31 December 2017 based on the audited consolidated financial statement (prepared under the PRC GAAP) of China Railway No.8 Engineering are as follows:

	Year ended	Year ended
	31 December	31 December
	2016	2017
	(RMB10,000)	(RMB10,000)
Profit before tax and extraordinary	7,268.39	18,692.98
items (audited)	(equivalent to	(equivalent to
	approximately	approximately
	HK$82.4090	HK$211.9410
	million)	million)
Profit after tax and extraordinary	–28,135.21	3,458.48
items (unaudited)	(equivalent to	(equivalent to
	approximately	approximately
	HK$–318.9969	HK$39.2122
	million)	million)

(8) Reasons for and Benefits of the Proposed Acquisition and the Issuance

(i) To further strengthen the control over the Target Subsidiaries

China Railway No.2 Engineering, China Railway No. 3 Engineering, China Railway No. 5 Engineering and China Railway No. 8 Engineering are important subsidiaries of the Company and key infrastructure construction enterprises in China. The Restructuring enables the Company to have outright control over the aforesaid Target Subsidiaries, which is beneficial to the Company’s further enhancement in control over the subsidiaries and safeguard the smooth operation of key projects.

(ii) To reinforce the competitiveness and ability of continuous operations

Currently, the infrastructure construction industry is in an important strategic opportunity period. In the PRC, we are proactively promoting the concerted development of Beijing, Tianjing and Hebei Province and the development of Yangtze River Economic Belt, specifying the speeding up of reform and opening up of Xiong’an New Area and have launched the construction of a batch of key basic projects; outside the PRC, as the investment and construction in the infrastructure sector have become the leverage of countries to lever economic recovery and achieve economic growth, China has launched the construction along the “Belt and Road”, relevant projects are gradually implemented and international cooperation on capacity is deeply advanced. As a leading enterprise in the infrastructure

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LETTER FROM THE BOARD

construction industry in the PRC, the Company gives full support to the construction of high speed railways, urban rail transport, water resources and hydropower engineering, underground pipeline colligate allure and sponge city, deeply participates in the implementation and advancing of the “Belt and Road” initiative, the concerted development of Beijing, Tianjin and Hebei Provinces and the planning for Yangtze River Economic Belt and the new national urbanization planning.

Through the implementation of market-driven debt to equity swap, the Company’s debt to asset structure will be optimized, operational vitality and potential will be further optimized, and competitiveness and ability of continuous operations will be reinforced.

(iii) To increase the profits of the Company and safeguard the interests of all Shareholders

The Target Subsidiaries involved in the Restructuring are important subsidiaries of the Company. Upon completion of the Restructuring, the Company will hold 100% equity interests in the four Target Subsidiaries, thereby increasing its shareholding in the subsidiaries. In the future, China Railway No.2 Engineering, China Railway No. 3 Engineering, China Railway No. 5 Engineering and China Railway No. 8 Engineering will improve their own operational results and reduce the financial burdens, which is conducive to increasing the net profits attributable to the Shareholders of the Company and safeguarding the interests of the Company and its Shareholders as a whole.

The Directors (including the independent non-executive Directors) are of the opinion that the proposed transactions under the Equity Acquisition Agreements (as amended by the Equity Acquisition Supplemental Agreements) are entered into on normal commercial terms, fair and reasonable and in line with the interests of the Company and the shareholders as a whole.

(9) Implications under the Hong Kong Listing Rules

None of the Directors has any material interests in the transactions contemplated under the Equity Acquisition Agreements, and thus shall abstain from voting on the relevant board resolutions in respect of the Restructuring. As at the Latest Practicable Date, China Reform held 424,924,009 A Shares of the Company indirectly through its wholly-owned subsidiary, CNIC Corporation Limited, representing approximately 1.86% of the total share capital of the Company. In addition, according to the Articles of Association of China Structural Reform Fund Corporation Limited and the Entrusted Management Agreement with Chengtong Fund Management Co., Ltd., Chengtong Fund Management Co., Ltd. is entrusted to manage Structural Reform Fund and is in charge of the execution of fund management affairs. Chengtong Fund Management Co., Ltd. is a wholly-owned subsidiary of China Chengtong Holdings Group Ltd. therefore China Chengtong Holdings Group Ltd. is the controlling shareholder and ultimate controller of

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LETTER FROM THE BOARD

Structural Reform Fund. As at the Latest Practicable Date, China Chengtong Holdings Group Ltd. held 424,924,009 A Shares of the Company indirectly through its wholly-owned subsidiary, Beijing Chengtong Financial Control Investment Co., Ltd., representing approximately 1.86% of the total share capital of the Company. Both China Reform and Structural Reform Fund are the targets of the Issuance. CNIC Corporation Limited and Beijing Chengtong Financial Control Investment Co., Ltd. are considered to have a material interest in the transaction contemplated under the Equity Acquisition Agreements (as amended by the Equity Acquisition Supplemental Agreements). CNIC Corporation Limited and Beijing Chengtong Financial Control Investment Co., Ltd. shall abstain from voting on the Shareholders’ resolutions in relation to the Restructuring at the EGM.

As the highest applicable percentage ratio (as defined under the Hong Kong Listed Rules) of the transactions contemplated under the Equity Acquisition Agreements (as amended by the Equity Acquisition Supplemental Agreements) is higher than 5% but less than 25%, the transaction of the Company’s acquisition of the equity interests in the Target Subsidiaries held by the Transferors by issuance of Consideration Shares to the Transferors pursuant to the Equity Acquisition Agreements (as amended by the Equity Acquisition Supplemental Agreements) constitutes a disclosable transaction of the Company and shall be subject to reporting and announcement requirements, but exempt from shareholders’ approval requirement under Chapter 14 of the Hong Kong Listing Rules. The final number of the Consideration Shares to be issued shall be subject to the number approved by the CSRC.

(10) Impact Analysis on Dilution of Immediate Returns of the Restructuring and the Remedial Measures

In accordance with the Guiding Opinions on Matters relating to the Dilution of Immediate Returns in Initial Public Offering, Refinancing and Major Asset Restructuring issued by CSRC and relevant provisions, the Company has conscientiously analysed matters regarding dilution of immediate returns of the Restructuring and put forward measures proposed to be taken. To ensure the effective performance of the aforesaid measures, the Directors and senior management of the Company has issued the Undertaking Letter Regarding Ensuring the Effective Performance of the Remedial Measures of the Acquisition of Assets by Issuance of Shares. For details of the relevant analysis, measures and undertakings, please refer to the Appendix II to this circular.

(11) Grant of Authorisation to the Board to Deal with Relevant Matters of the Restructuring in Full Power

According to the arrangement of the Restructuring, to ensure orderly and effective progress of relevant work, it is proposed to the shareholders’ general meeting of the Company to authorise the Board to deal with relevant matters relating to the Restructuring at its full discretion within the scope of relevant laws and regulations, including but not limited to:

(i) authorising the Board to deal with relevant matters relating to the Restructuring in accordance with the plan for the Restructuring

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LETTER FROM THE BOARD

considered and approved by the shareholders’ general meeting at its full discretion, including but limited to entering into all agreements, undertakings and other documents relating to the Restructuring, adjusting the price and number of the Consideration Shares to be issued and dealing with matters in relation to issuance, registration and transfer of relevant shares and listing on SSE, dealing with matters regarding the closing of Target Equity in the Restructuring, and dealing with matters regarding, among others, amendments to the Articles of Association and industrial and commercial registration of changes for the Restructuring;

(ii) authorising the Board to deal with the application matters of the Restructuring, including but not limited to, formulating, amending, signing, supplementing, submitting, reporting, implementing and announcing relevant application documents and other legal documents of the Restructuring in accordance with the requirements of regulatory departments, and authorising the Board to sign, amend, supplement, submit, report and implement relevant documents and agreements in relation to the Restructuring (including entering into supplemental agreements or other relevant legal documents with relevant parties of the Restructuring);
(iii) authorising the Board to adjust the plan for the Restructuring in accordance with laws, regulations and policy changes in relation to major asset restructuring of listed companies and review opinions or requirements on the application of the Restructuring from the approving authorities and regulatory institutions;
(iv) authorising the Board to take all necessary actions to determine and deal with all other matters relating to the Restructuring within the scope permitted by laws, regulations, normative documents and the Articles of Association;
(v) the aforesaid authorisation shall be valid for 12 months from the date of relevant resolution being considered and approved at the shareholders’ general meeting of the Company.

To ensure the smooth progress of relevant work of the Restructuring, the Board proposed to the shareholders’ general meeting to agree that upon grant of the aforesaid authorisation to the Board, the Board may authorise the Chairman and other persons delegated by the Board in written form, within the scope of the aforesaid authorisation, to determine, deal with and handle all relevant matters relating to the Restructuring.

Any matter which is required to be approved by the shareholders’ general meeting in accordance with relevant laws, regulations, normative documents and the Article of Association shall be proposed to the shareholders’ general meeting for approval.

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LETTER FROM THE BOARD

As the completion of the Proposed Acquisition and the issuance of the Consideration Shares is subject to the fulfilment of conditions precedent of the Equity Acquisition Agreements (as amended by the Equity Acquisition Supplemental Agreements), and may or may not proceed, Shareholders and potential investors are advised to exercise caution when dealing in the Shares of the Company.

3 THE EGM

Yours faithfully, By Order of the Board of China Railway Group Limited Li Changjin Chairman

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APPENDIX I LETTERS FROM THE BOARD AND PRICEWATERHOUSECOOPERS RELATING TO THE PROFIT FORECAST

As each of the valuation of China Railway No.2 Engineering, China Railway No.3 Engineering, China Railway No.5 Engineering, and China Railway No.8 Engineering is based on the income approach, it is deemed to be a profit forecast under the Hong Kong Listing Rules. The following is the text of letters from the Board and PricewaterhouseCoopers on the profit forecast for the purpose of incorporation in this circular.

1. LETTER FROM THE BOARD

To: Listing Division

The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) 11th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong

Dear Sir/Madam,

Company: China Railway Group Limited (the “ Company ”)

Re: Profit forecast – Confirmation letter under the requirements of Rule 14.62(3) of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the “ Hong Kong Listing Rules ”)

Reference is made to the announcement of the Company dated 6 August 2018 in relation to, among other things, the valuation of China Railway No. 2 Engineering Group Co., Ltd., China Railway No.3 Engineering Group Co., Ltd., China Railway No.5 Engineering Group Co., Ltd., and China Railway No.8 Engineering Group Co., Ltd., (collectively, the “ Target Subsidiaries ”) conducted by Zhongshuizhiyuan Assets Appraisal Co., Ltd (the “ Valuer ”). Since the Company has applied to the Stock Exchange for, and the Stock Exchange has already granted, the waiver from strict compliance with the time requirement in the Rules 14.60A and 14.62 of the Hong Kong Listing Rules (the “ Waiver ”), the Company is required to comply with relevant provisions in Rules 14.60A and 14.62 of the Hong Kong Listing Rules as soon as possible after the appraised value of the equity interest to be transferred in the Target Subsidiaries is filed with and approved by the State-owned Assets Supervision and Administration Commission of the State Council (“ SASAC ”) and finally determined.

Reference is also made to the announcement of the Company dated 16 October 2018 in relation to, among other things, the SASAC approved the filing of the valuation reports on the Target Subsidiaries and the Valuer has prepared the final valuation reports dated 26 August 2018 (the “ Valuation Reports ”).

The board of directors of the Company has reviewed and discussed with the Valuer and PricewaterhouseCoopers, the independent auditor of the Company (the “ Independent Auditor ”), the basis and assumptions of the valuation. The board of directors of the Company has also considered the confirmation letter issued by the Independent Auditor on 16 October 2018 in relation to the calculations of the profit forecast in the Valuation Reports.

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APPENDIX I LETTERS FROM THE BOARD AND PRICEWATERHOUSECOOPERS RELATING TO THE PROFIT FORECAST

Pursuant to the requirements of Rule 14.62(3) of the Listing Rules and the Waiver, the board of directors of the Company confirmed that the profit forecast used in the Valuation Reports has been made after due and careful enquiry.

The Board of Directors of China Railway Group Limited 16 October 2018

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APPENDIX I

LETTERS FROM THE BOARD AND PRICEWATERHOUSECOOPERS RELATING TO THE PROFIT FORECAST

2. LETTER FROM PRICEWATERHOUSECOOPERS

INDEPENDENT AUDITOR’S ASSURANCE REPORT ON THE CALCULATIONS OF DISCOUNTED FUTURE ESTIMATED CASH FLOWS IN CONNECTION WITH THE BUSINESS VALUATIONS OF CHINA RAILWAY NO.2 ENGINEERING GROUP CO., LTD., CHINA RAILWAY NO.3 ENGINEERING GROUP CO., LTD., CHINA RAILWAY NO.5 ENGINEERING GROUP CO., LTD. AND CHINA RAILWAY NO.8 ENGINEERING GROUP CO., LTD. (THE “TARGET COMPANIES”)

TO THE BOARD OF DIRECTORS OF CHINA RAILWAY GROUP LIMITED

We have completed our assurance engagement to report on the calculations of the discounted future estimated cash flows on which the business valuations (the “ Valuations ”) dated 26 August 2018 prepared by Zhongshuizhiyuan Assets Appraisal Co., Ltd. in respect of the appraisal of the fair value of the 100% equity interests in the Target Companies are based. The Valuations are set out in the announcement of China Railway Group Limited (the “ Company ”) dated 16 October 2018 (the “ Announcement ”) in connection with the proposed issuance of consideration A shares for acquisition of the Target Companies’ equity interests. The Valuations based on the discounted future estimated cash flows are regarded as profit forecasts under Rule 14.61 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”).

Directors’ Responsibility for the Discounted Future Estimated Cash Flows

The directors of the Company are responsible for the preparation of the discounted future estimated cash flows in accordance with the bases and assumptions determined by the directors. This responsibility includes carrying out appropriate procedures relevant to the preparation of the discounted future estimated cash flows for the Valuation and applying an appropriate basis of preparation; and making estimates that are reasonable in the circumstances.

Our Independence and Quality Control

We have complied with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the Hong Kong Institute of Certified Public Accountants (the “ HKICPA ”), which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.

Our firm applies Hong Kong Standard on Quality Control 1 issued by the HKICPA and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

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APPENDIX I

LETTERS FROM THE BOARD AND PRICEWATERHOUSECOOPERS RELATING TO THE PROFIT FORECAST

Auditor’s Responsibilities

It is our responsibility to report, as required by paragraph 14.62(2) of the Listing Rules, on the calculations of the discounted future estimated cash flows on which the Valuations are based. We are not reporting on the appropriateness and validity of the bases and assumptions on which the discounted future estimated cash flows are based and our work does not constitute any valuation of the Target Companies.

We conducted our work in accordance with the Hong Kong Standard on Assurance Engagements 3000 (Revised), Assurance Engagements Other Than Audits or Reviews of Historical Financial Information issued by the HKICPA. This standard requires that we plan and perform the assurance engagement to obtain reasonable assurance on whether the discounted future estimated cash flows, so far as the calculations are concerned, has been properly compiled in accordance with the bases and assumptions made by the directors of the Company. We reviewed the arithmetical calculations and the compilation of the discounted future estimated cash flows in accordance with the bases and assumptions.

The discounted cash flows do not involve the adoption of accounting policies. The discounted cash flows depend on future events and on a number of assumptions which cannot be confirmed and verified in the same way as past results and not all of which may remain valid throughout the period. Our work has been undertaken for the purpose of reporting solely to you under paragraph 14.62(2) of the Listing Rules and for no other purpose. We accept no responsibility to any other person in respect of our work, or arising out of or in connection with our work.

Opinion

In our opinion, based on the foregoing, so far as the calculations are concerned, the discounted future estimated cash flows, have been properly compiled in all material respects in accordance with the bases and assumptions made by the directors of the Company.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, 16 October 2018

– 41 –

APPENDIX II

IMPACT ANALYSIS ON DILUTION OF IMMEDIATE RETURNS OF THE RESTRUCTURING AND THE REMEDIAL MEASURES

In accordance with the Opinions of the General Office of the State Council on Further Strengthening the Protection of Legitimate Rights and Interests of Small and Medium Investors in Capital Market (Guo Ban Fa [2013] No. 110) , Several Opinions of the State Council on Further Promoting the Sound Development of the Capital Market (Guo Fa [2014] No. 17) and the Guiding Opinions on Matters relating to the Dilution of Immediate Returns in Initial Public Offering, Refinancing and Major Asset Restructuring (CSRC Announcement [2015] No. 31) , China Railway Group Limited (“ China Railway ” or “ Company ”) has carefully, prudently and objectively analysed the anticipated dilutive effect of the acquisition of assets by issuance of shares on immediate returns. Details of the impact which the dilution of immediate returns in the issuance has on the key financial indices of the Company and the relevant measures which the Company proposes to take are set out as follows:

I. ANALYSIS OF THE IMPACT ON THE EARNINGS PER SHARE INDEX OF CHINA RAILWAY IN THE ACQUISITION OF ASSETS BY ISSUANCE OF SHARES

In accordance with the pro forma financial information as if the Proposed Acquisition had been completed as at 1 January 2017, the financial statements of the Company for the year 2017 and the six months ended 30 June 2018, the Company has estimated the impact which the dilution of immediate returns by the major asset restructuring has on the earnings per share index, with details set out below:

Items	January to	June, 2018	2017	2017
	Before the	After the	Before the	After the
	transaction	transaction	transaction	transaction
Basic earnings per
share (RMB/share)	0.39	0.37	0.67	0.63
Diluted earnings per
share (RMB/share)	0.39	0.37	0.67	0.63

Note: the financial data of the Company for January to June of 2018 is unaudited

Before the completion of the transaction, the basic earnings per share of the Company for January to June of 2018 is 0.39 RMB/share, the basic earnings per share for 2017 is 0.67 RMB/share; following the completion of the transaction, the proforma basic earnings per share of the Company for January to June of 2018 is 0.37 RMB/share, the proforma basic earnings per share for 2017 is 0.63 RMB/share. Therefore, following the completion of the transaction, the current earnings per share of the listed company is expected to decrease, meaning a dilution of the current earnings per share.

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APPENDIX II IMPACT ANALYSIS ON DILUTION OF IMMEDIATE RETURNS OF THE RESTRUCTURING AND THE REMEDIAL MEASURES

II. CONCLUSION ON DILUTION OF IMMEDIATE RETURNS ON SHARES IN THE ACQUISITION OF ASSETS BY ISSUANCE OF SHARES AND RISK WARNING

Following the implementation of the acquisition of assets by issuance of shares, the Company’s total share capital will increase. Although the acquisition of assets by issuance of shares has the benefits of lowering the overall debt to asset ratio of the listed company, increasing the ability of the target companies to maintain a sustainable growth, increasing the Company’s medium and long-term market competitiveness and profitability, there is a short-term risk of the immediate returns index of the Company being diluted. Investors are hereby reminded of the risks associated with the dilution of the immediate returns in the acquisition of assets by issuance of shares.

III. THE NECESSITY AND RATIONALE OF THE SELECTION OF THE BOARD OF DIRECTORS TO ACQUIRE ASSETS BY ISSUANCE OF SHARES

(I) To Further Increase the Control over the Target Companies

China Railway No.2 Engineering Group Co., Ltd. (“ China Railway No.2 Engineering ”), China Railway No.3 Engineering Group Co., Ltd. (“ China Railway No.3 Engineering ”), China Railway No.5 Engineering Group Co., Ltd. (“ China Railway No.5 Engineering ”) and China Railway No.8 Engineering Group Co., Ltd. (“ China Railway No.8 Engineering ”) are key enterprises under China Railway as well as important infrastructure construction enterprises in China. Through the acquisition of assets by issuance of shares, China Railway will achieve the objective of obtaining full ownership of the above target companies, which will facilitate the further increase of its control over the subsidiaries and ensure the smooth implementation of key projects.

(II) To Increase Competitiveness and Ability to Sustain Operations

We are in a period full of important strategic opportunities for the infrastructure construction sector. Inside China, the country is vigorously proceeding with the Beijing-Tianjin-Hebei integration initiative and the Yangtze Economic Belt initiative, determinately speeding up the reform and opening up of Xiong’an New Area, and has commenced the construction of a number of key infrastructure projects. Outside China, various countries are making use of infrastructure facilities investment and construction as a lever to bring about economic recovery and economic growth, with China proposing the Belt and Road initiative, gradually realising the relevant projects and furthering international production capacity cooperation. Being a leader in China’s infrastructure construction sector, China Railway fully supports the construction of high-speed railways, urban rail transit, water conservancy and hydropower projects, multi-purpose networks for underground pipelines and sponge cities, with in-depth participation in the implementation and furtherance of the Belt and Road

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APPENDIX II

IMPACT ANALYSIS ON DILUTION OF IMMEDIATE RETURNS OF THE RESTRUCTURING AND THE REMEDIAL MEASURES

initiative, the Beijing-Tianjin-Hebei integration initiative, the Yangtze Economic Belt initiative and the national planning of a new type of urbanisation.

By conducting market-oriented debt-to-equity swaps, China Railway will be able to optimise its debt to asset ratio, further tap its operating vigour and potential and increase its competitiveness and ability to sustain operations.

(III) To Increase Profitability of the Listed Company and Protect the Interests of All Shareholders

The target companies of the restructuring are key subsidiaries of the listed company. Upon the completion of the restructuring, China Railway’s shareholding in the four subsidiary target companies will reach 100%. Such increase in the shareholding of the subsidiaries will, once the operating results of China Railway No.2 Engineering, China Railway No.3 Engineering, China Railway No.5 Engineering and China Railway No.8 Engineering improve and the financial burden is reduced in the future, help to increase the net profits vested in the shareholders of the listed company and protect the interests of the listed company and that of all the shareholders of the listed company.

IV. MEASURES WHICH CHINA RAILWAY PROPOSES TO TAKE TO PREVENT AND RESPOND TO THE DILUTION OF IMMEDIATE RETURNS IN THE ACQUISITION OF ASSETS BY ISSUANCE OF SHARES

For the protection of investors’ interests, prevention of the risk of dilution of immediate returns and the enhancement of the ability to provide returns to China Railway shareholders, China Railway proposes to take the specific measures below to alleviate the possible dilution of immediate returns of China Railway in the issuance of shares to purchase assets:

(I) Focus on the Development of Principal Businesses

To further reinforce the effects of the market-oriented debt-to-equity swaps, China Railway will firmly seize the opportunities offered by China’s vigorous promotion of the policy on supply-side structural reform by focussing on the development of its principal businesses, making full use of its strengths as the engine driving the infrastructure construction sector, vigorously optimising the allocation of assets, and seizing the historical opportunities offered by the Belt and Road initiative, the Beijing-Tianjin-Hebei integration initiative, the Yangtze Economic Belt initiative and the construction of Xiong’an New Area to grow and strengthen its core businesses, enhance technological innovation and upgrading and increase its core competitiveness and ability to maintain a sustainable growth.

China Railway will continue to aim at establishing a China-leading, world-class mega comprehensive industrial conglomerate. It will focus on its principal businesses and promote high-quality development as a fundamental requirement. It will vigorously tap the full potential of existing resources and

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APPENDIX II IMPACT ANALYSIS ON DILUTION OF IMMEDIATE RETURNS OF THE RESTRUCTURING AND THE REMEDIAL MEASURES

optimise the increase of resources, so as to form a benign cycle and further improve operating efficiency. It will strive to stabilise and reduce the Company’s overall debt to asset ratio, promote further optimisation of the capital structure at the same time as it improves operating efficiency, and achieve high-quality sustainable development.

(II) Constantly Improve the Corporate Governance and Provide Assurance for the Development of the Company through a Strong System

The Company will strictly abide by the requirements under the Company Law , the Securities Law and such other laws, regulations and normative documents, constantly improve the corporate governance structure of the Company and ensure that the shareholders are able to exercise their rights sufficiently, the board of directors is able to make decisions in a scientific manner in accordance with the laws, regulations and articles of association, the independent directors are able to seriously perform their duties and safeguard the overall interests of the Company, in particular, the legitimate rights and interests of the medium and small shareholders, and the board of supervisors is able to exercise its power of supervision and surveillance over the directors, the senior management members and the financial matters of the Company independently and effectively, thereby providing assurance for the development of the Company through a strong system.

(III) Enhance the Structure of Return for the Investors

In order to improve the profit distribution policy of the listed company, motivate the listed company to establish a more scientific, sustainable and steady return structure for the shareholders, increase the transparency and practicability of the decision making concerning the profit distribution policy, effectively protect the legitimate rights and interests of the public investors, the Company has drawn up specific provisions with respect to the profit distribution policy in the Articles of Association of the Company in accordance with the Notice on the Further Implementation of Matters relating to the Cash Dividends of Listed Companies and the Guidelines on Supervision of Listed Companies No. 3 - Cash Dividends of Listed Companies and the relevant provisions of such other laws and regulations and based on the actual condition of the Company. The profit distribution policy of the Company emphasises on a reasonable return for the investors, particularly small and medium investors, which will fully reflect the opinion of the investors and the independent directors, effectively protect the rights of the shareholders to the investment returns in accordance with law and live up to the long term development philosophy of the Company to proactively reward the shareholders with returns.

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APPENDIX II

IMPACT ANALYSIS ON DILUTION OF IMMEDIATE RETURNS OF THE RESTRUCTURING AND THE REMEDIAL MEASURES

V. UNDERTAKINGS BY THE CONTROLLING SHAREHOLDER OF THE COMPANY, THE DIRECTORS AND SENIOR MANAGEMENT MEMBERS OF CHINA RAILWAY REGARDING THE REMEDIAL MEASURES TO BE ADOPTED WITH RESPECT TO THE DILUTION OF IMMEDIATE RETURNS IN THE ACQUISITION OF ASSETS BY ISSUANCE OF SHARES BY CHINA RAILWAY

The controlling shareholder of China Railway and the directors and senior management members of China Railway, in accordance with the relevant regulations of the China Securities Regulatory Commission, undertake to ensure that the remedial measures of the restructuring will be effectively performed in order to fulfil the requirement of ensuring the effective performance of the remedial measures for making up the immediate returns by the listed company.

(I) Undertakings by the Controlling Shareholder of the Company

China Railway Engineering Group Co., Ltd., the controlling shareholder of China Railway undertakes as follows:

“1. The company shall not interfere with the business operation and management activities of China Railway and shall not encroach on the interests of China Railway.
The company shall faithfully perform the foregoing representations and undertakings and bear the relevant liability therefor. If the company fails to perform any obligation or duty under these representations and undertakings, it shall bear the liability corresponding to such failure in accordance with relevant laws, regulations, rules and normative documents.”
(II) Undertakings by the Directors and Senior Management Members of the Company

All existing directors and senior management members of China Railway represent and undertake as follows:

“1. I undertake to perform my duties and uphold the legitimate rights and interests of the Company and all shareholders of the Company faithfully and diligently.
I undertake not to convey any benefits to other entities or individuals for free or on unfair terms or otherwise jeopardise the interest of the Company.
I undertake to restrict my spending in the performance of my duties.

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APPENDIX II

IMPACT ANALYSIS ON DILUTION OF IMMEDIATE RETURNS OF THE RESTRUCTURING AND THE REMEDIAL MEASURES

I undertake not to use the assets of the Company in making any investment or expenditure other than in relation to the performance of my duties.
Within the scope of my lawful authorisation, I undertake to procure that the remuneration system formulated by the board of directors or the remuneration committee is linked up with the implementation status of the remedial measures of returns of the Company.
If the Company proposes to adopt an incentive share scheme subsequently, within the scope of my lawful authorisation, I undertake to procure that the conditions for the exercise of the right of the incentive share scheme is linked up with the implementation status of the remedial measures of returns of the Company.
I undertake to strictly perform the foregoing undertakings and ensure the remedial measures of returns of the Company are effectively performed. If I breach or refuse to perform any of my undertakings, I shall perform the obligation to explain and apologise for the breach as well as other obligations under the Guiding Opinions on Matters relating to the Dilution of Immediate Returns in Initial Public Offering, Refinancing and Major Asset Restructuring and such other provisions, and agree to the taking of regulatory measures or self-disciplinary regulatory measures imposed by the China Securities Regulatory Commission, Shanghai Stock Exchange and China Association for Public Companies in accordance with the law. For any loss caused to the Company or the shareholders, I am willing to bear the liability for indemnification for such loss in accordance with the law.”

The foregoing measures formulated by the listed company do not constitute a guarantee by the listed company of its future profits and the investors shall not make investment decision based on the foregoing provisions. If an investor sustains a loss due to an investment decision made on reliance of the foregoing provisions, the listed company shall not be liable for indemnification for such loss.

VI. RELEVANT PROCEDURES FOR CONSIDERATION OF THE MATTER

The analysis of the dilutive effect of the immediate returns and the remedial measures and the undertakings by the relevant entities/persons have been considered and approved by the sixteenth meeting of the fourth session of the board of directors of the Company, and the same will be submitted to the general shareholders’ meeting of the Company for its consideration and voting, so as to further uphold the rights and interests of the small and medium investors.

– 47 –

NOTICE OF 2018 FIRST EXTRAORDINARY GENERAL MEETING

==> picture [55 x 56] intentionally omitted <==

中國中鐵股份有限公司 CHINA RAILWAY GROUP LIMITED

(A joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 390)

NOTICE OF 2018 FIRST EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the 2018 First Extraordinary General Meeting (“ EGM ”) of China Railway Group Limited (the “ Company ”) will be held at Conference Room, China Railway Square, No. 69 Fuxing Road, Haidian District, Beijing, PRC on Friday, 7 December 2018 at 9:30 a.m. to consider and approve the following as appropriate:

By way of special resolutions:

To consider and approve the proposal on the fulfilment of the conditions for the acquisition of assets by issuance of shares of the Company.
To consider and approve the proposal on the acquisition of assets by issuance of shares of the Company not constituting a related transaction.
To consider and individually approve the proposal on the plan for the acquisition of assets by issuance of shares of the Company, details of the restructuring plan for the acquisition of assets by issuance of shares are as follows:
(i) Type and nominal value of the shares
(ii) Way of issuance
(iii) Targets of issuance and way of subscription
(iv) Target assets to be acquired in the transaction
(v) Pricing basis and transaction price of the target assets
(vi) Pricing benchmark date and issue price of the issuance
(vii) Number of shares to be issued
(viii) Lock-up period arrangement
(ix) Arrangement regarding gain or loss relating to target assets incurred during the period from the valuation benchmark date to the closing date of target assets

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NOTICE OF 2018 FIRST EXTRAORDINARY GENERAL MEETING

(x) Arrangement regarding the undistributed profit carried forward from the periods before the issuance
(xi) Transfer of target assets and liability for default
(xii) Share listing place
(xiii) Validity of the resolution
To consider and approve the proposal on the acquisition of assets by issuance of shares not constituting major asset restructuring and restructuring listing.
To consider and approve the proposal on considering the Report (Draft) on the Acquisition of Assets by Issuance of Shares of China Railway Group Limited and its summary (Note 1) .
To consider and approve the proposal on entering into the conditional Equity Acquisition Agreements.
To consider and approve the proposal on entering into the conditional Supplemental Agreements to the Equity Acquisition Agreements.
To consider and approve the proposal on approving relevant financial reports and asset valuation reports of the acquisition of assets by issuance of shares (Note 2) .
To consider and approve the proposal on impact analysis on dilution of immediate returns and remedial measures of the asset restructuring of the Company.
To consider and approve the proposal on the grant of authorisation to the board of directors at the shareholders general meeting to deal with relevant matters of the restructuring, details of which are as follows:

According to the arrangement of the acquisition of assets by issuance of shares, to ensure orderly and effective progress of relevant work, it is proposed to the shareholders’ general meeting of the Company to authorise the board of directors to deal with relevant matters relating to the acquisition of assets by issuance of shares at its full discretion within the scope of relevant laws and regulations, including but not limited to:

(i) authorising the board of directors to deal with relevant matters relating to the acquisition of assets by issuance of shares in accordance with the plan for the acquisition of assets by issuance of shares considered and approved by the shareholders’ general meeting at its full discretion, including but limited to entering into all agreements, undertakings and other documents relating to the acquisition of assets by issuance of

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NOTICE OF 2018 FIRST EXTRAORDINARY GENERAL MEETING

shares, adjusting the price and number of the shares to be issued and dealing with matters in relation to issuance, registration and transfer of relevant shares and listing on SSE, dealing with matters regarding the closing of the assets to be acquired in the acquisition of assets by issuance of shares, and dealing with matters regarding, among others, amendments to the articles of association and industrial and commercial registration of changes for the acquisition of assets by issuance of shares;

(ii) authorising the board of directors to deal with the application matters of the acquisition of assets by issuance of shares, including but not limited to, formulating, amending, signing, supplementing, submitting, reporting, implementing and announcing relevant application documents and other legal documents of the acquisition of assets by issuance of shares in accordance with the requirements of regulatory departments, and authorising the board of directors to sign, amend, supplement, submit, report and implement relevant documents and agreements in relation to the acquisition of assets by issuance of shares (including entering into supplemental agreements or other relevant legal documents with relevant parties of the acquisition of assets by issuance of shares);
(iii) authorising the board of directors to adjust the plan for the acquisition of assets by issuance of shares in accordance with laws, regulations and policy changes in relation to major asset restructuring of listed companies and review opinions or requirements on the application of the acquisition of assets by issuance of shares from the approving authorities and regulatory institutions;
(iv) authorising the board of directors to take all necessary actions to determine and deal with all other matters relating to the acquisition of assets by issuance of shares within the scope permitted by laws, regulations, normative documents and the articles of association;
(v) the aforesaid authorisation shall be valid for 12 months from the date of relevant resolution being considered and approved at the shareholders’ general meeting of the Company.

To ensure the smooth progress of relevant work of the acquisition of assets by issuance of shares, the board of directors proposed to the shareholders’ general meeting to agree that upon grant of the aforesaid authorisation to the board of directors, the board of directors may authorise the Chairman and other persons delegated by the board of directors in written form, within the scope of the aforesaid authorisation, to determine, deal with and handle all relevant matters relating to the acquisition of assets by issuance of shares.

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NOTICE OF 2018 FIRST EXTRAORDINARY GENERAL MEETING

Any matter which is required to be approved by the shareholders’ general meeting in accordance with relevant laws, regulations, normative documents and the article of association shall be proposed to the shareholders’ general meeting for approval.

By Order of the Board China Railway Group Limited He Wen Tam Chun Chung Joint Company Secretaries

Beijing, the PRC 23 October 2018

Notes:

1. Main contents of the Report (Draft) on the Acquisition of Assets by Issuance of Shares of China Railway Group Limited and its summary have been set out in relevant sections of the circular of the Company dated 23 October 2018. For the full text of the Report (Draft) on the Acquisition of Assets by Issuance of Shares of China Railway Group Limited and its summary, please refer to the relevant overseas regulatory announcements of the Company dated 16 October 2018.

2. For the full text of relevant financial reports and asset valuation reports of the acquisition of assets by issuance of shares, please refer to the relevant overseas regulatory announcements of the Company dated 16 October 2018.

3. Closure of register of members and eligibility for attending the EGM

Shareholders who submit their share transfer application forms to the Company’s share registrar before close of business on Friday, 16 November 2018 and become registered as shareholders on the register of members of the Company are entitled to attend the EGM.

Holders of the Company’s H shares are advised that the register of members will be closed from Saturday, 17 November 2018 to Friday, 7 December 2018 (both days inclusive). Holders of H shares whose names appear on the register of members of the Company maintained in Hong Kong at the close of business on Friday, 16 November 2018 are entitled to attend the EGM.

Holders of H shares who wish to attend the EGM but have not registered the transfer documents are required to deposit the transfer document together with the relevant share certificates at the H share registrar of the Company, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong at or before 4:30 p.m., Friday, 16 November 2018.

4. Registration procedures for attending the EGM

Shareholders attending the EGM in person or by proxy shall present their identity certification. If the attending shareholder is the authorised legal representative of the Company’s shareholder, the Board or other decision making authority, then such attending shareholder shall present a copy of the relevant resolution of the Board or other decision making authority appointing it as its authorised legal or official representative in order to attend the EGM on behalf of such company.

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NOTICE OF 2018 FIRST EXTRAORDINARY GENERAL MEETING

5. Notice of attendance

Shareholders who intend to attend the EGM in person or by proxy should return the reply slip in person, by post or by facsimile to the Company’s Board of Directors’ Office or Computershare Hong Kong Investor Services Limited on or before Friday, 16 November 2018.

The Company’s Board of Directors’ Office is located at Room 511, Block A, China Railway Square, No. 69 Fuxing Road, Haidian District, Beijing 100039, PRC (Contact Persons: Ms. DUAN Yinhua/Mr. LI Qiang, Tel: (8610) 5187 8069/5187 8061, Fax: (8610) 5187 8417).

The address of Computershare Hong Kong Investor Services Limited is 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong (Tel: (852) 2862 8555, Fax: (852) 2865 0990).

6. Proxy

Shareholders entitled to attend and vote at the EGM may appoint one or more proxies to attend and vote in their stead. A proxy need not be a shareholder of the Company.

The instrument appointing a proxy must be in writing under the hand of a shareholder or his attorney duly authorised in writing. If the shareholder is a corporate body, the proxy form must be either executed under its common seal or under the hand of its director(s) or duly authorised attorney(s). If the proxy form is signed by an attorney of the shareholder, the power of attorney authorising that attorney to sign or other authorisations document must be notarised.

To be valid, the proxy form (and if such proxy form is executed by a person under a power of attorney or other authorisation documents, then together with such power of attorney or authorisation documents, or a copy thereof certified by a notary) must be delivered to Computershare Hong Kong Investor Services Limited (for holders of H shares) not less than 24 hours before the designated time for the holding of the EGM.

Completion and return of a form of proxy will not preclude a shareholder from attending in person and voting at the EGM if he so wishes, but in such event the proxy form shall be deemed to be revoked.

7. Other business

Shareholders and their proxies attending the EGM shall be responsible for their own travelling and accommodation expenses.

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AI assistant

China Railway Group Limited — Proxy Solicitation & Information Statement 2018

49185_rns_2018-10-22_1a41dcc9-5238-4b82-a8b1-e88ae174c469.pdf

中國中鐵股份有限公司 CHINA RAILWAY GROUP LIMITED

DISCLOSEABLE TRANSACTION – PROPOSED ISSUANCE OF NEW A SHARES FOR ACQUISITION AND NOTICE OF 2018 FIRST EXTRAORDINARY GENERAL MEETING

DEFINITION

DEFINITION

中國中鐵股份有限公司 CHINA RAILWAY GROUP LIMITED

DISCLOSEABLE TRANSACTION – PROPOSED ISSUANCE OF NEW A SHARES FOR ACQUISITION AND

NOTICE OF 2018 FIRST EXTRAORDINARY GENERAL MEETING

1 INTRODUCTION

2 PROPOSED ISSUANCE OF NEW A SHARES FOR ACQUISITION

(1) Equity Acquisition Agreements (As Amended by the Equity Acquisition Supplemental Agreements)

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

(2) Issuance of Consideration Shares

Type and Nominal Value of the Consideration Shares

Way of Issuance

Targets of Issuance and Way of Subscription

Target Equity to be Acquired in the Transaction

Pricing Basis and Transaction Price of the Target Equity

Pricing Benchmark Date and Issue Price of the Issuance

Number of Shares to be Issued

Lock-up Period Arrangement

Arrangement Regarding the Undistributed Profit Carried Forward from the Periods before the Issuance

Transfer of Target Equity and Liability for Default

Share Listing Place

Validity of the Resolution

(3) Effects on the Shareholding Structure of the Company upon Completion of the Proposed Acquisition and the Issuance

(4) Information on the Valuation

(i) The Appraised Value of the Target Equity

(ii) Assumptions for the Valuation

A. General Assumptions

LETTER FROM THE BOARD

(iii) Rules 14.60A and 14.62 of Hong Kong Listing Rules

(5) Information on the Experts

(6) Information on the Contractual Parties

(7) Information on the Target Subsidiaries

(i) Information on China Railway No.2 Engineering

(ii) Information on China Railway No.3 Engineering

(iii) Information on China Railway No.5 Engineering

(iv) Information on China Railway No.8 Engineering

(8) Reasons for and Benefits of the Proposed Acquisition and the Issuance

(i) To further strengthen the control over the Target Subsidiaries

(ii) To reinforce the competitiveness and ability of continuous operations

(iii) To increase the profits of the Company and safeguard the interests of all Shareholders

(9) Implications under the Hong Kong Listing Rules

(10) Impact Analysis on Dilution of Immediate Returns of the Restructuring and the Remedial Measures

(11) Grant of Authorisation to the Board to Deal with Relevant Matters of the Restructuring in Full Power

3 THE EGM

1. LETTER FROM THE BOARD

2. LETTER FROM PRICEWATERHOUSECOOPERS

TO THE BOARD OF DIRECTORS OF CHINA RAILWAY GROUP LIMITED

Directors’ Responsibility for the Discounted Future Estimated Cash Flows

Our Independence and Quality Control

Auditor’s Responsibilities

Opinion

PricewaterhouseCoopers

II. CONCLUSION ON DILUTION OF IMMEDIATE RETURNS ON SHARES IN THE ACQUISITION OF ASSETS BY ISSUANCE OF SHARES AND RISK WARNING

III. THE NECESSITY AND RATIONALE OF THE SELECTION OF THE BOARD OF DIRECTORS TO ACQUIRE ASSETS BY ISSUANCE OF SHARES

(I) To Further Increase the Control over the Target Companies

(II) To Increase Competitiveness and Ability to Sustain Operations

(III) To Increase Profitability of the Listed Company and Protect the Interests of All Shareholders

IV. MEASURES WHICH CHINA RAILWAY PROPOSES TO TAKE TO PREVENT AND RESPOND TO THE DILUTION OF IMMEDIATE RETURNS IN THE ACQUISITION OF ASSETS BY ISSUANCE OF SHARES

(I) Focus on the Development of Principal Businesses

(II) Constantly Improve the Corporate Governance and Provide Assurance for the Development of the Company through a Strong System

(III) Enhance the Structure of Return for the Investors

(I) Undertakings by the Controlling Shareholder of the Company

VI. RELEVANT PROCEDURES FOR CONSIDERATION OF THE MATTER

中國中鐵股份有限公司 CHINA RAILWAY GROUP LIMITED

(Stock Code: 390)

NOTICE OF 2018 FIRST EXTRAORDINARY GENERAL MEETING

By way of special resolutions:

4. Registration procedures for attending the EGM

5. Notice of attendance

6. Proxy

7. Other business

China Railway Group Limited Proxy Solicitation & Information Statement 2018