CITIC Limited — Capital/Financing Update 2003

May 9, 2003

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of contents of this announcement.

This announcement appears for information only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities.

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(Incorporated in Hong Kong with limited liability)

LETTER OF ADVICE FROM THE INDEPENDENT FINANCIAL ADVISER REGARDING

WAIVER ON ASSURED ENTITLEMENT TO SHARES IN JIANGSU CP XINGCHENG SPECIAL STEEL CO., LTD. (江蘇泰富興澄特殊鋼股份有限公司) UNDER ITS PROPOSED SPIN-OFF AND SEPARATE LISTING

ON THE SHANGHAI STOCK EXCHANGE A SHARE MARKET

The Board announced on 2 April 2003 that Jiangsu CP Xingcheng, a 54.7% owned subsidiary of CITIC Pacific, made an application to the China Securities Regulatory Commission for the listing of its A shares in its capital on the Shanghai Stock Exchange A Share Market.

The Listing Committee of the Stock Exchange has granted a waiver to CITIC Pacific from providing its existing shareholders with an assured entitlement of shares in Jiangsu CP Xingcheng (the “Waiver”) as required under Paragraph 3(f) of Practice Note 15 of the Listing Rules.

Commerzbank AG Hong Kong Branch (“Commerzbank AG”) has been appointed as the independent financial adviser to advise the Independent Board Committee on the implications of not providing the assured entitlement and whether the spin-off proposal and the Waiver are fair and reasonable and are in the interests of CITIC Pacific and its shareholders as a whole.

Commerzbank AG considers that the spin-off proposal and the Waiver are fair and reasonable so far as CITIC Pacific and its shareholders are concerned and are in the interests of CITIC Pacific and its shareholders as a whole.

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The text of the letter of advice from Commerzbank AG is set out below. No shareholders meeting of CITIC Pacific is required to be held to consider the spin-off proposal or the Waiver and no circulars to shareholders of CITIC Pacific will be issued in this regard.

BACKGROUND

Reference is made to CITIC Pacific’s announcement dated 2 April 2003 (the “Previous Announcement”). Unless otherwise stated, capitalized terms used in this announcement shall have the same meanings as given to them in the Previous Announcement.

According to existing PRC laws, regulations and practices and the relevant policies of China Securities Regulatory Commission, Jiangsu CP Xingcheng is not permitted to allocate any percentage of its shares as an assured entitlement tranche offered to CITIC Pacific or its shareholders. Accordingly, no assured entitlement to shares in Jiangsu CP Xingcheng can be offered to shareholders of CITIC Pacific.

The Listing Committee of the Stock Exchange has granted the Waiver to CITIC Pacific and has requested CITIC Pacific to obtain the advice of an independent financial adviser in respect of the implications of not providing the assured entitlement and whether the spin-off proposal and the Waiver are fair and reasonable and are in the interests of CITIC Pacific and its shareholders as a whole. Commerzbank AG has been appointed as the independent financial adviser for this purpose.

LETTER OF ADVICE FROM COMMERZBANK AG

The text of the letter dated 9 May 2003 from Commerzbank AG to the Independent Board Committee is set out below in its entirety.

“We have been appointed as the independent financial adviser to the Independent Board Committee to provide recommendation in respect of the Waiver, details of which are contained in the announcement dated 9 May 2003 (the “Announcement”) to shareholders of the Company which this letter forms part. The expressions used here shall have the same meanings as in the Announcement. Where amounts in RMB are translated into HK$, the exchange rate of RMB1.00 equivalent to HK$0.943 has been used.

The Company announced on 2 April 2003 that a formal application was submitted to the China Securities Regulatory Commission for the listing of A shares in Jiangsu CP Xingcheng on the Shanghai Stock Exchange A Share Market by way of a Share Offer.

The Company has made an application to the Stock Exchange for a Waiver from compliance with the requirement under paragraph 3(f) of Practice Note 15 of the Listing Rules to provide an assured entitlement of shares in Jiangsu CP Xingcheng to the Company’s shareholders. No shareholders meeting of the Company is required to consider the Share Offer or the Waiver.

Our role as the independent financial adviser is to give our opinion as to whether the Share Offer Proposal and the Waiver are fair and reasonable and are in the interests of the Company and its shareholders as a whole.

In formulating our recommendation, we have relied on the information and facts supplied to us by the Company. We have assumed that all information, opinions and representations contained or referred to in the Announcement and previous announcements of the Company are true, complete and accurate and we

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have relied on the same. We have also relied on the representations of the Directors that having made all due enquiries and careful decisions, and to the best of their knowledge and belief, there are no other facts or representations, the omission of which would make any statement contained in the Announcement, including this letter, misleading. We have also assumed that all information and statements and representations made or referred to in the Announcement, which have been provided to us by the Directors, and for which they are wholly responsible, are true, accurate and complete at the time they were made and continue to be so at the date of despatch of the Announcement.

We consider that we have reviewed sufficient information to enable us to reach an informed view regarding the Waiver and to provide us with a reasonable basis for our recommendation. We have no reason to suspect that any material facts have been omitted or withheld, nor are we aware of any facts or circumstances which would render the information and the representations made to us untrue, inaccurate or misleading. We have not however carried out any independent verification of the information provided by the Directors, nor have we conducted any independent in-depth investigation into the business and affairs of the Company, Jiangsu CP Xingcheng or Jiangsu CP Xingcheng’s investments or subsidiaries, and it is not within our terms of reference to comment on the terms and the prospect of the Share Offer.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the Waiver, we have considered the following principal factors and reasons:

1. Background

Jiangsu CP Xingcheng is principally engaged in manufacturing, processing and marketing of special steel and their related industrial materials. At present, Jiangsu CP Xingcheng is a 54.7% owned subsidiary of the Company with its existing shareholding structure as follows:

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Other
The Company Jiangyin Steel Mill independent
shareholders
54.7% 40.8% 4.5%
Jiangsu CP Xingcheng
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Jiangsu CP Xingcheng proposes to offer 180,000,000 new A shares representing 46.15% and 31.58% respectively of its existing and enlarged share capital (or up to a maximum of 200,000,000 new A shares representing 51.28% and 33.90% respectively of its existing and enlarged share capital).

The issue price per share under the Share Offer has not been fixed but it is expected by the Company that the total value of the A shares to be issued under the Share Offer will not exceed RMB1.4 billion (i.e. approximately HK$1.3 billion) or 3% of the Company’s audited consolidated net tangible assets as at 31 December 2002. We are informed by the Company that part of the net proceeds arising from the Share Offer will be applied to acquire new machinery and equipment for improving the production capacity and efficiency of Jiangsu CP Xingcheng. Jiangsu CP Xingcheng

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currently owns a 20% interest in Special Steel Co. and a 45% interest in Special Materials Co. We are informed by the Company that part of the net proceeds will also be applied to subscribe for additional capital in Special Steel Co. to increase Jiangsu CP Xingcheng’s shareholding from 20% to 45%.

The Company expects that the Share Offer will materialise in the fourth quarter of 2003 but no definitive timetable of the Share Offer is available as it would depend on the approval process in the PRC.

If 180,000,000 A shares are offered, the shareholding structure of Jiangsu CP Xingcheng upon completion of the Share Offer will be as follows:

			Jiangyin	Jiangyin	Other	Other	Public
			Steel		independent		investors on the
_The _	Company		Mill		shareholders		A Share Market
		37.44%		27.90%		3.08%	31.58%

Jiangsu CP Xingcheng

If 200,000,000 A shares are offered, the shareholding structure of Jiangsu CP Xingcheng upon completion of the Share Offer will be as follows:

			Jiangyin	Jiangyin	Other	Other	Public
			Steel		independent		investors on the
_The _	Company		Mill		shareholders		A Share Market
		36.17%		26.96%		2.97%	33.90%

Jiangsu CP Xingcheng

In both cases, Jiangsu CP Xingcheng will cease to be a subsidiary of the Company.

2. Reasons for the Share Offer

We concur with the Director’s view that the Share Offer of Jiangsu CP Xingcheng will provide diversified funding sources for Jiangsu CP Xingcheng to finance its existing operations and future expansion. We also concur with the Director’s view based on our analysis of the positive financial impact of the Share Offer on the profitability and net tangible asset value of Jiangsu CP Xingcheng that the Share Offer of Jiangsu CP Xingcheng will allow Jiangsu CP Xingcheng to achieve its valuation potential which in turn will be beneficial to shareholders of the Company. Further, we concur with the Director’s view that upon completion of the Share Offer, Jiangsu CP Xingcheng can obtain an independent source of funding via debt and equity as well as gaining direct access to capital markets.

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Having taken these reasons into account and based on the information provided but subject to the actual terms of the Share Offer at the relevant time, we are of the view that the Share Offer proposal is in principle fair and reasonable and in the interests of the Company and its shareholders as a whole.

3. Reasons for the Waiver

Under paragraph 3(f) of Practice Note 15 of the Listing Rules, the Company is required to provide its existing shareholders with an assured entitlement to shares in Jiangsu CP Xincheng as part of the Share Offer. However, having taken into account our discussions with the Directors in relation to the requirements of the PRC referred to below, we consider that provision of assured entitlement under the Share Offer will not be feasible:

• i. According to the existing laws and regulations and practice of the PRC, Jiangsu CP Xincheng is not permitted to allocate any percentage of its shares as the assured entitlement tranche to be offered to the Company’s shareholders. It is not possible to give preferential allocations to the Company’s shareholders in respect of the Share Offer;

• ii. According to the existing laws and regulations of the PRC, investors are only allowed to be offered with A shares by way of placement if they are specifically qualified. As such, it would be not feasible for the Company to provide the assured entitlement on an equal basis to all shareholders as required under paragraph 3(f) of Practice Note 15 of the Listing Rules given that the Company’s individual shareholders are not qualified investors for A shares placement; and

• iii. The Company and its shareholders must comply with the PRC regulations aforementioned.

In view of the above, the Company has applied for and the Stock Exchange has granted the Waiver. Having taken all these into account, we consider that the Waiver is in the interests of the Company and its shareholders as a whole.

4. Financial Impact on the Company and its Shareholders

The issue price per Jiangsu CP Xingcheng’s new A shares to be offered under the Share Offer is yet to be determined.

Our analysis on the possible effects to the Company following completion of the Share Offer is based on the assumption as provided by the Company that the indicated issue price range is between RMB5.00 (equivalent to approximately HK$4.72) and RMB7.00 (equivalent to approximately HK$6.60) for the Share Offer. We consider that the assumption is fair and reasonable and in line with price/earnings multiples of comparable companies under the current sentiment of the A Share Market of the PRC of which the underlying factors of the A Share Market are nonetheless dynamic in nature subject to the relevant prevailing market sentiment and timing of the Share Offer.

Jiangsu CP Xingcheng’s audited profits (before taxation, minority interests and extraordinary items) of HK$140 million for the year ended 31 December 2002 represented approximately 3% of the audited consolidated pre-tax profits of CITIC Pacific as at 31 December 2002. Its audited profits (before taxation, minority interests and extraordinary items) of HK$81 million for the year ended 31 December 2001 represented approximately 3% of the audited consolidated pre-tax profits of the

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Company as at 31 December 2001. Upon completion of the Share Offer, there is no immediate impact on the earnings of Jiangsu CP Xingcheng. The net proceeds received from the Share Offer can be used for expansion of Jiangsu CP Xingcheng’s asset base and business scope to operate with greater financial strengths.

Jiangsu CP Xingcheng’s audited net tangible assets as at 31 December 2002 and 31 December 2001 were approximately HK$520 million and HK$398 million which translate into a net tangible asset per share of approximately HK$1.33 and HK$1.02 respectively (based on the existing number of issued shares in Jiangsu CP Xingcheng of 390,000,000). Based on the assumed issue price range of the Share Offer as provided by the Company, the pro forma net tangible asset value per share of Jiangsu CP Xingcheng as at 31 December 2002 will be at approximately HK$2.40 to HK$3.00 if 180,000,000 new A shares are offered or at approximately HK$2.48 to HK$3.12 if 200,000,000 new A shares are offered. This works out at an increase on the net tangible asset per share of Jiangsu CP Xingcheng as at 31 December 2002 held by the Company of approximately 0.80 to 1.26 times with 180,000,000 new A shares offered or of approximately 0.86 to 1.35 times with 200,000,000 new A shares offered.

5. Implications and Dilution effect of the Share Offer on the Company and its Shareholders

In the absence of an assured entitlement to the Company’s shareholders under paragraph 3(f) of Practice Note 15 of the Listing Rules, the Company’s shareholders will not be entitled by way of preferred application to participate in the Share Offer. Also, the effective shareholding of the Company in Jiangsu CP Xingcheng will upon completion of the Share Offer be reduced from approximately 54.7% to approximately a minimum of 36.17% or a maximum of 37.44% depending on whether 200,000,000 or 180,000,000 new A shares are offered in Jiangsu CP Xingcheng respectively.

Although there is no assured entitlement and the shareholding of the Company in Jiangsu CP Xingcheng will be diluted upon completion of the Share Offer, the Company will remain the single largest shareholder of Jiangsu CP Xingcheng. The Share Offer will provide the benefit of a diversified independent funding sources for Jiangsu CP Xingcheng to finance its existing operations and expansion. With these funding sources, Jiangsu CP Xingcheng will be able to expand its asset base and business scope with greater financial strengths and to become more competitive in the PRC steel industry. Further, our analysis above indicates that the financial impact of the Share Offer is positive on the Company and its shareholders as it allows the potentials of achieving higher profitability and net tangible asset value. Having taken into account these as a whole, we consider that the absence of an assured entitlement and the dilution effect of the Share Offer on the Company and its shareholders shall be considered as fair and reasonable.

RECOMMENDATIONS

Having considered the above principal factors and reasons, we consider that the Share Offer proposal and the Waiver are fair and reasonable so far as the Company and its shareholders are concerned and are in the interests of the Company and its shareholders as a whole.”

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ADVICE FROM THE INDEPENDENT BOARD COMMITTEE

Mr. Willie Chang and Mr. Hansen Loh Chung Hon, the independent non-executive directors of the Company, have been appointed by the Board of the Company to constitute the Independent Board Committee to advise the Company’s shareholders as to whether, in their opinion, the Share Offer proposal and the Waiver are fair and reasonable so far as the Company and its shareholders are concerned and are in the interests of the Company and its shareholders as a whole. Commerzbank AG has been appointed as the independent financial adviser to advise the Independent Board Committee in this respect.

Having considered the principal factors and reasons considered by, and the advice of Commerzbank AG as set out in its letter of advice, the Independent Board Committee considers that the Share Offer proposal and the Waiver are fair and reasonable so far as the Company and its shareholders are concerned and are in the interests of the Company and its shareholders as a whole.

By Order of the Board Alice Tso Mun Wai Secretary

Hong Kong, 9 May 2003

“Please also refer to the published version of this announcement in The Standard and Hong Kong Economic Times”.

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