CLP Holdings Limited

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

中電控股有限公司 CLP HOLDINGS LIMITED

(incorporated in Hong Kong with limited liability)

(Stock Code: 00002)

Major Transaction Acquisition of further 30% Interest in Castle Peak Power Company Limited and remaining 51% Interest in Hong Kong Pumped Storage Development Company, Limited

Financial advisers to the Company

A letter from the Chairman of CLP Holdings Limited (the “Company”) is set out on pages 4 to 15 of this circular.

A notice convening the Extraordinary General Meeting of Shareholders of the Company to be held at Lower Level I, Kowloon Shangri-La Hong Kong, 64 Mody Road, Kowloon, Hong Kong on Wednesday, 22 January 2014 at 2:30 p.m. (the “EGM”) is set out on pages 92 to 97 of this circular. A proxy form for use at the EGM is enclosed. Whether or not you propose to attend the EGM, you are requested to complete the enclosed proxy form in accordance with the instructions printed thereon and deposit the same at the Company’s Registrars, Computershare Hong Kong Investor Services Limited, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not less than 48 hours before the time for holding the EGM or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting in person at the EGM or any adjournment thereof, should you so wish.

10 December 2013

	Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Letter from the Chairman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The CAPCO Acquisition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The PSDC Acquisition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Source of funding for the Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Financial information on CAPCO and PSDC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Shareholding structure of CAPCO and PSDC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Reasons for, and benefits of, the Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Information on the CLP Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Financial and other effects of the Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Financial and trading prospects of the Enlarged CLP Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Listing Rules implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Business dealings between the CLP Group and the CSG Group . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Appendix I – Financial Information of the CLP Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Appendix II – Accountant’s Report on CAPCO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Appendix III – Management Discussion and Analysis on CAPCO. . . . . . . . . . . . . . . . . . . . . . . . . 50
Appendix IV – Accountant’s Report on PSDC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Appendix V – Management Discussion and Analysis on PSDC. . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Appendix VI – Unaudited Pro Forma Financial Information of the Enlarged CLP Group. . . . . . 78
Appendix VII – General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Notice of Extraordinary General Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . 92

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions shall have the meanings respectively set out below:–

“A$”	Australian dollars, the lawful currency of Australia
“Acquisitions”	collectively, the CAPCO Acquisition and the PSDC Acquisition
“Acquisition Agreements”	collectively, the CAPCO Acquisition Agreement and the PSDC
	Acquisition Agreement
“Board”	the board of Directors
“CAPCO”	Castle Peak Power Company Limited, a company incorporated in Hong
	Kong with limited liability which is currently owned as to 40% and 60%
	by CLP Power and EMEL, respectively
“CAPCO Acquisition”	pursuant to the CAPCO Acquisition Agreement, the acquisition by each
	of CLP Power and CSG HK of half of Exxon Mobil Corporation’s 60%
	equity interest in, and associated shareholder’s advances to, CAPCO,
	currently held by EMEL
“CAPCO Acquisition Agreement”	the sale and purchase agreement dated 19 November 2013 entered into
	between EMEL, EMIHI, CLP Power, CSG HK and CSG in respect of the
	CAPCO Acquisition
“Chairman”	the Chairman of the Board
“CLP Group”or“Group”	CLP Holdings and its subsidiaries
“CLP Holdings”or“Company”	CLP Holdings Limited, a company incorporated in Hong Kong with
	limited liability and whose Shares are listed on the Main Board of the
	Stock Exchange (stock code: 00002)
“CLP Power”	CLP Power Hong Kong Limited, a company incorporated in Hong Kong
	with limited liability which is a direct wholly-owned subsidiary of CLP
	Holdings
“Completion”	the simultaneous completion of the CAPCO Acquisition and the PSDC
	Acquisition
“CSG”	China Southern Power Grid Co., Limited, a company established in the
	PRC with limited liability and a state-owned enterprise
“CSG Group”	CSG and its subsidiaries
“CSG HK”	China Southern Power Grid International (HK) Co., Limited, a company
	incorporated in Hong Kong with limited liability and a wholly-owned
	subsidiary of CSG

DEFINITIONS

“Directors”	the directors of the Company
“EGM”	the extraordinary general meeting of the Company to be convened
	to consider and, if thought fit, approve, amongst other things, the
	Acquisitions, the Acquisition Agreements and the transactions
	contemplated thereunder
“EMEL”	ExxonMobil Energy Limited, a company incorporated in Hong Kong
	with limited liability and an indirect wholly-owned subsidiary of EMIHI
“EMIHI”	ExxonMobil International Holdings Inc, a company incorporated in the
	State of Delaware, United States of America with limited liability and a
	direct wholly-owned subsidiary of Exxon Mobil Corporation
“EnergyAustralia”	a group of companies wholly-owned by CLP Holdings engaging in
	integrated energy business in Australia
“Enlarged Group”or	the Group as enlarged by the Acquisitions
“Enlarged CLP Group”
“Exxon Mobil Corporation”	Exxon Mobil Corporation, a company incorporated in the State of
	New Jersey, United States of America with limited liability and whose
	common stocks are traded on the New York Stock Exchange
“HKFRS”	the Hong Kong Financial Reporting Standards issued by the Hong Kong
	Institute of Certified Public Accountants
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“HK$M”	Hong Kong dollars, in millions
“Hong Kong Government”	the Government of Hong Kong, Special Administrative Region, PRC
“HSBC”	The Hongkong and Shanghai Banking Corporation Limited
“Latest Practicable Date”	4 December 2013, being the latest practicable date prior to the printing
	of this circular for ascertaining certain information herein
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock Exchange
“MW”	Megawatt (one million watts)
“PRC”	People’s Republic of China
“PSDC”	Hong Kong Pumped Storage Development Company, Limited, a
	company incorporated in Hong Kong with limited liability and which
	is currently owned as to 49% and 51% by CLP Power and EMEL,
	respectively

DEFINITIONS

“PSDC Acquisition”	pursuant to the PSDC Acquisition Agreement, the acquisition by CLP
	Power of all of Exxon Mobil Corporation’s 51% equity interest in, and
	associated shareholder’s advances to, PSDC, currently held by EMEL
“PSDC Acquisition Agreement”	the sale and purchase agreement dated 19 November 2013 entered
	into between EMEL, EMIHI and CLP Power in respect of the PSDC
	Acquisition
“Rs”	Indian rupee, the lawful currency of India
“SFO”	Securities and Futures Ordinance (Chapter 571 of the Laws of Hong
	Kong)
“Shareholders”	holders of Shares
“Shares”	ordinary shares of HK$5.00 each in the capital of the Company
“SoC”	the Scheme of Control Agreement executed on 7 January 2008 by the
	Hong Kong Government, CLP Power, CAPCO and EMEL
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“%”	per cent
“2013 Interim Report”	the interim report of the Company for the six months ended 30 June 2013

LETTER FROM THE CHAIRMAN

中電控股有限公司

(incorporated in Hong Kong with limited liability) (stock code: 00002)

==> picture [161 x 31] intentionally omitted <==

Non-executive Directors:

The Hon. Sir Michael Kadoorie Mr. William Mocatta Mr. R. J. McAulay Mr. J. A. H. Leigh Mr. I. D. Boyce Dr. Y. B. Lee Mr. Paul A. Theys (Mr. David Moore as Mr. Theys’ alternate)

Registered Office:

8 Laguna Verde Avenue Hung Hom, Kowloon Hong Kong

Independent Non-executive Directors:

Mr. V. F. Moore Professor Judy Tsui Sir Rod Eddington Mr. Nicholas C. Allen Mr. Vincent Cheng Mrs. Fanny Law Ms. Irene Lee Dr. Rajiv Lall

Executive Directors:

Mr. Richard Lancaster Mr. Andrew Brandler

10 December 2013

To the Shareholders

Dear Sir or Madam,

Major Transaction Acquisition of further 30% Interest in Castle Peak Power Company Limited and remaining 51% Interest in Hong Kong Pumped Storage Development Company, Limited

1. INTRODUCTION

On 19 November 2013 (before trading hours in Hong Kong), CLP Power (a wholly-owned subsidiary of CLP Holdings) entered into: (a) the CAPCO Acquisition Agreement with EMEL and EMIHI (being indirect and direct wholly-owned subsidiaries of Exxon Mobil Corporation, respectively), CSG HK and CSG, whereby each of CLP Power and CSG HK will acquire half of Exxon Mobil Corporation’s 60% equity interest in, and associated shareholder’s advances to, CAPCO currently held by EMEL; and (b) the

LETTER FROM THE CHAIRMAN

PSDC Acquisition Agreement with EMEL and EMIHI, whereby CLP Power agreed to acquire all of Exxon Mobil Corporation’s 51% equity interest in, and associated shareholder’s advances to, PSDC currently held by EMEL. The Acquisitions were announced by the Company on 19 November 2013.

As certain of the applicable percentage ratios for the Acquisitions are more than 25% but less than 100% as calculated in accordance with Rule 14.07 of the Listing Rules, the Acquisitions constitute a major transaction for CLP Holdings under Chapter 14 of the Listing Rules, and are therefore subject to the notification, announcement, circular and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

The purpose of this circular is to provide you with, among other things, (i) further details of the Acquisitions; (ii) financial information on the CLP Group; (iii) the accountant’s reports on CAPCO and PSDC; (iv) the unaudited pro forma financial information of the Enlarged CLP Group; (v) a recommendation from the Board; (vi) a notice of the EGM; and (vii) other information on CAPCO and PSDC as required to be disclosed under the Listing Rules.

2. THE CAPCO ACQUISITION AGREEMENT

Date

19 November 2013 (before trading hours in Hong Kong)

Parties

(1) CLP Power, as a purchaser
(2) CSG HK, as the other purchaser
(3) CSG, to be jointly and severally responsible with CSG HK to perform their obligations under the CAPCO Acquisition Agreement
(4) EMEL, as vendor
(5) EMIHI, as EMEL’s warrantor

CSG is a company established in the PRC with limited liability and is a state-owned enterprise principally engaged in the investment, construction and operation of power networks in Guangdong, Guangxi, Yunnan, Guizhou and Hainan provinces and regions in the PRC.

CSG HK is a company incorporated in Hong Kong with limited liability and is a direct wholly-owned subsidiary of CSG.

Exxon Mobil Corporation is the world’s largest publicly traded oil and gas company which explores for, produces and distributes crude oil, natural gas and petroleum products. Common stocks in Exxon Mobil Corporation are traded on the New York Stock Exchange. Exxon Mobil Corporation (through its indirect wholly-owned subsidiary EMEL) currently owns 60% and 51% equity interests in CAPCO and PSDC respectively.

LETTER FROM THE CHAIRMAN

EMIHI is a company incorporated in the State of Delaware, United States of America with limited liability and a direct wholly-owned subsidiary of Exxon Mobil Corporation. EMEL is a company incorporated in Hong Kong with limited liability and an indirect wholly-owned subsidiary of EMIHI.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, (a) EMEL, EMIHI and their ultimate beneficial owner Exxon Mobil Corporation, and (b) CSG HK and its ultimate beneficial owner CSG, are third parties independent of CLP Holdings and its connected persons (as defined in the Listing Rules).

Assets to be acquired

CAPCO is incorporated in Hong Kong with limited liability and is currently owned as to 40% and 60% by CLP Power and EMEL respectively. CAPCO owns three power stations in Hong Kong with a total power generation capacity of 6,908MW, namely, (a) Castle Peak Power Station (coal-fired with gas and oil as back-up fuel, with a total capacity of 4,108MW), (b) Black Point Power Station (natural gas-fired, with a total capacity of 2,500MW) and (c) Penny’s Bay Power Station (diesel-fired, with a total capacity of 300MW).

Pursuant to the CAPCO Acquisition Agreement, CLP Power and CSG HK will each acquire half of EMEL’s 60% equity interest in, and associated shareholder’s advances to, CAPCO. As at 30 June 2013, the total shareholder’s advances made by EMEL to CAPCO were HK$13.6 billion and Shareholders can find this figure in Note 17 to the Accountant’s Report on CAPCO set out in Appendix II to this circular. After Completion, CAPCO will be 70% and 30% owned by CLP Power and CSG HK respectively and its financial results and position will be consolidated into the financial statements of CLP Group with a noncontrolling interest of 30% held by CSG HK.

Consideration

Subject to the consideration adjustment mechanism set out in the CAPCO Acquisition Agreement, the unadjusted consideration payable by CLP Power in respect of the CAPCO Acquisition is HK$12 billion, which will be payable to EMEL fully in cash at Completion. The consideration adjustment mechanism is principally a dollar-for-dollar adjustment for dividends or movements in shareholder’s advances between EMEL and CAPCO from 1 July 2013 onwards up to Completion.

Basis of consideration

The consideration for the CAPCO Acquisition was arrived at after arm’s length negotiations between the parties to the CAPCO Acquisition Agreement and was determined after taking into account CLP Holdings’ internal valuation of CAPCO using a range of valuation metrics and parameters that are customary for transactions of this nature, and which reflect expectations of the future prospects of CAPCO’s business.

Conditions precedent

Completion of the CAPCO Acquisition is conditional upon:

(a) Shareholders approving the CAPCO Acquisition by way of an ordinary resolution at a general meeting; and

LETTER FROM THE CHAIRMAN

(b) CSG obtaining approvals from regulatory bodies in the PRC including the National Development and Reform Commission, the State-owned Assets Supervision and Administration Commission of the State Council, the Ministry of Commerce, and Guangdong Branch of the State Administration of Foreign Exchange.

Under the terms of the CAPCO Acquisition Agreement, CLP Power and CSG HK may jointly waive any or all the conditions set out in paragraphs (a) and (b) above by written notice to EMEL. However, to ensure compliance with the Listing Rules regarding the shareholders’ approval requirements for the CAPCO Acquisition, CLP Power will not consent to the waiver of the condition in paragraph (a) above.

If any of the conditions above is not fulfilled within 7 months after the date of the CAPCO Acquisition Agreement, then unless the relevant parties otherwise agree, the CAPCO Acquisition Agreement shall lapse and become null and void and the parties to the CAPCO Acquisition Agreement shall be released from all obligations thereunder, save for liabilities for any antecedent breaches of the CAPCO Acquisition Agreement.

Completion

Completion of the CAPCO Acquisition shall take place 3 months after satisfaction of the conditions precedent set out in the CAPCO Acquisition Agreement or such later date as the parties to the CAPCO Acquisition Agreement may agree. The purchasers, jointly, have the right to accelerate Completion within such 3 month period.

Completion of the CAPCO Acquisition is inter-conditional on the completion of the PSDC Acquisition, such that completion of the CAPCO Acquisition can only take place simultaneously with completion of the PSDC Acquisition.

EMIHI

EMIHI, as a party to the CAPCO Acquisition Agreement, will be responsible with EMEL for certain obligations and responsibilities of EMEL under the CAPCO Acquisition Agreement.

CSG

CSG and CSG HK, as parties to the CAPCO Acquisition Agreement, will be jointly and severally responsible to perform all their obligations under the CAPCO Acquisition Agreement.

3. THE PSDC ACQUISITION AGREEMENT

Date

19 November 2013 (before trading hours in Hong Kong)

Parties

(1) CLP Power, as purchaser
(2) EMEL, as vendor
(3) EMIHI, as EMEL’s warrantor

LETTER FROM THE CHAIRMAN

Assets to be acquired

PSDC is a company incorporated in Hong Kong with limited liability and is currently owned as to 49% and 51% by CLP Power and EMEL respectively. PSDC has a contractual right to use, until 2034, 600MW, being half of the 1,200MW pumped storage capacity of Phase 1 of the Guangzhou Pumped Storage Power Station which is situated in Guangdong Province, the PRC.

Pursuant to the PSDC Acquisition Agreement, CLP Power will acquire all of EMEL’s 51% equity interest in, and associated shareholder’s advances to, PSDC. As at 30 June 2013, the total shareholder’s advances made by EMEL to PSDC were HK$67.4 million and Shareholders can find this figure in Note 16 to the Accountant’s Report on PSDC set out in Appendix IV to this circular. After Completion, PSDC will become a wholly-owned subsidiary of CLP Power and its financial results and position will be fully consolidated into the financial statements of CLP Group.

Consideration

Subject to the consideration adjustment mechanism set out in the PSDC Acquisition Agreement, the unadjusted consideration payable by CLP Power in respect of the PSDC Acquisition is HK$2 billion, which will be payable to EMEL fully in cash at Completion. The consideration adjustment mechanism is principally a dollar-for-dollar adjustment for dividends or movements in shareholder’s advances between EMEL and PSDC from 1 July 2013 onwards up to Completion.

Basis of consideration

The consideration for the PSDC Acquisition was arrived at after arm’s length negotiations between the parties to the PSDC Acquisition Agreement and was determined after taking into account CLP Holdings’ internal valuation of PSDC using a range of valuation metrics and parameters that are customary for transactions of this nature, and which reflect expectations of the future prospects of PSDC’s business.

Condition precedent

Completion of the PSDC Acquisition is conditional upon the Shareholders approving the PSDC Acquisition by way of an ordinary resolution at a general meeting.

Under the terms of the PSDC Acquisition Agreement, CLP Power is entitled to waive the condition set out above by written notice to EMEL. However, to ensure compliance with the Listing Rules regarding shareholders’ approval requirements for the PSDC Acquisition, CLP Power will not waive the condition above.

If the condition above is not fulfilled within 7 months after the date of the PSDC Acquisition Agreement, then unless the relevant parties otherwise agree, the PSDC Acquisition Agreement shall lapse and become null and void and the parties to the PSDC Acquisition Agreement shall be released from all obligations thereunder, save for liabilities for any antecedent breaches of the PSDC Acquisition Agreement.

Completion

Completion of the PSDC Acquisition shall take place 3 months after satisfaction of the condition precedent set out in the PSDC Acquisition Agreement or such later date as the parties to the PSDC Acquisition Agreement may agree. The purchaser has the right to accelerate Completion within such 3 month period.

LETTER FROM THE CHAIRMAN

Completion of the PSDC Acquisition is inter-conditional on the completion of the CAPCO Acquisition, such that completion of the PSDC Acquisition can only take place simultaneously with completion of the CAPCO Acquisition.

EMIHI

EMIHI, as a party to the PSDC Acquisition Agreement, will be responsible with EMEL for certain obligations and responsibilities of EMEL under the PSDC Acquisition Agreement.

4. SOURCE OF FUNDING FOR THE ACQUISITIONS

The consideration for the Acquisitions is to be wholly satisfied by the CLP Group in cash. In addition to internal available resources and existing available banking facilities, the CLP Group has secured from HSBC an irrevocable written commitment to enter into loan facility agreements in agreed form for HK$10 billion to fund the Acquisitions. The HK$10 billion facilities will be available for draw down at Completion and comprise a HK$5 billion facility with a maturity of 1 year from Completion and a HK$5 billion facility with a maturity of 2 years from Completion.

The Company will continue to assess its long term financing needs generally, as it does from time to time. These options may include, but are not limited to, loans, bonds, hybrid securities and equity. The timing and nature of any re-financing will be driven by several factors including prevailing market conditions, the maintenance of a strong balance sheet and the interests of shareholders.

5. FINANCIAL INFORMATION ON CAPCO AND PSDC

CAPCO

Set out below is a summary of the audited net profits (before and after tax) of CAPCO prepared in accordance with HKFRS for the years ended 31 December 2011 and 2012, and the audited net assets of CAPCO as at 31 December 2011 and 2012:

	2012	2011
	HK$M	HK$M
Net profits before tax	3,786	3,688
Net profits after tax	3,132	3,049
Net assets	540	514

PSDC

Set out below is a summary of the audited net profits (before and after tax) of PSDC prepared in accordance with HKFRS for the years ended 31 December 2011 and 2012, and the audited net assets of PSDC as at 31 December 2011 and 2012:

	2012	2011
	HK$M	HK$M
Net profits before tax	218	207
Net profits after tax	163	155
Net assets	26	26

LETTER FROM THE CHAIRMAN

6. SHAREHOLDING STRUCTURE OF CAPCO AND PSDC

The following charts show the shareholding structure of CAPCO and PSDC (i) as at the Latest Practicable Date and (ii) immediately after Completion.

(i) Shareholding structure of CAPCO and PSDC as at the Latest Practicable Date:

==> picture [287 x 197] intentionally omitted <==

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

CLP Holdings
100%
CLP Power EMEL
40% 60%
CAPCO
49% 51%
PSDC
----- End of picture text -----

(ii) Shareholding structure of CAPCO and PSDC immediately after Completion:

==> picture [287 x 198] intentionally omitted <==

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

CLP Holdings
100%
CLP Power CSG HK
70% 30%
CAPCO
100%
PS DC
----- End of picture text -----

7. REASONS FOR, AND BENEFITS OF, THE ACQUISITIONS

This transaction presents an opportunity for CLP Holdings, through its wholly-owned subsidiary, CLP Power, to become a majority shareholder in CAPCO and the sole shareholder in PSDC and thus be in a position to manage better the coordination of its Hong Kong generation business with its transmission and distribution business. In addition, CLP Holdings has developed a number of commercial arrangements with CSG over the years and it welcomes the opportunity to partner with CSG HK in CAPCO and develop further what will become a strategic relationship. Finally, CLP Power has been providing reliable electricity to fuel Hong Kong’s growth for more than 100 years and the Acquisitions reaffirm CLP Holdings’ commitment to Hong Kong.

LETTER FROM THE CHAIRMAN

The Directors consider that the terms of the Acquisitions are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

8. INFORMATION ON THE CLP GROUP

CLP Holdings is the holding company of the CLP Group. The CLP Group owns and operates a vertically integrated electricity generation, transmission and distribution business in Hong Kong (through CLP Power), and invests in the power sector in Australia, the Chinese mainland, India, Southeast Asia and Taiwan.

CLP Power is a direct wholly-owned subsidiary of CLP Holdings and is the largest electricity utility in Hong Kong serving the business and domestic community in Kowloon, the New Territories, Lantau and most of the outlying islands. CLP Power supplies electricity to approximately 2.4 million customer accounts in its supply area.

9. FINANCIAL AND OTHER EFFECTS OF THE ACQUISITIONS

Upon Completion, CLP Power will appoint a majority of directors to the board of directors of CAPCO and all of the directors to the board of directors of PSDC. In addition, CLP Power and CSG HK have agreed to enter into a joint venture agreement to govern their shareholding relationship in CAPCO after Completion. The joint venture agreement relating to CAPCO will not contain any provisions which oblige either CLP Power or CSG HK to make any capital commitment (whether by way of equity, loan or otherwise) or to provide any guarantee or indemnity in support of CAPCO.

Upon Completion, CLP Power and CAPCO will also enter into:

(a) a Power Purchase Agreement whereby CLP Power will agree to purchase all of CAPCO’s commercially available generating capacity at a price sufficient to cover all of CAPCO’s operating expenses under the SoC, including fuel cost, depreciation, interest and taxes, as well as CAPCO’s share of the return permitted under the SoC; and
(b) an Operating and Maintenance Agreement whereby CLP Power will be responsible to CAPCO for the efficient operation and maintenance of CAPCO’s facilities, in return for CAPCO reimbursing CLP Power for all costs incurred by CLP Power in performing the agreement.
These arrangements are broadly similar to the economic arrangements currently in place between CLP Power and CAPCO which are described in the Company’s Annual Report for the year ended 31 December 2012.

As EMEL and EMIHI will be exiting CAPCO’s and PSDC’s businesses after many years of participation and ownership, EMEL and EMIHI requested certain indemnities in respect of claims or liabilities which might be asserted against them after Completion by reason of EMEL’s ownership in CAPCO and PSDC prior to Completion. CLP Power has agreed to provide such indemnities in the relevant Acquisition Agreements on a limited basis as to time period and quantum and restricted to events arising from the operation of CAPCO’s or PSDC’s (as the case may be) business or assets after Completion or in respect of any acts or omissions of CAPCO or PSDC (as the case may be) which occur after Completion.

LETTER FROM THE CHAIRMAN

Effect on assets and liabilities

As disclosed in the Company’s 2013 Interim Report, the unaudited consolidated total assets and total liabilities of the CLP Group were approximately HK$214,763 million and HK$127,917 million respectively as at 30 June 2013. Assuming that Completion had taken place on 30 June 2013 and the consideration was funded from available banking facilities as at 30 June 2013 and the HK$10 billion loan facilities which HSBC has committed to enter into, the Enlarged CLP Group’s total assets and total liabilities according to the unaudited pro forma financial information of the Enlarged CLP Group as contained in Appendix VI to this circular would be approximately HK$227,443 million and HK$134,872 million respectively as at 30 June 2013.

Effect on earnings

In light of the past financial performance of CAPCO and PSDC, the Directors are of the view that the Acquisitions are expected to have a positive impact on the future earnings of the Enlarged CLP Group.

Goodwill recognition

According to the unaudited pro forma financial information of the Enlarged CLP Group as contained in Appendix VI to this circular and assuming that Completion had taken place as at 30 June 2013, the Enlarged CLP Group would have recorded goodwill of approximately HK$7,904 million with respect to the Acquisitions. This represents the future economic benefits arising from assets acquired that are not currently individually identified and separately recognised.

10. FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED CLP GROUP

For the year ended 31 December 2012, the CLP Group’s operating earnings were HK$9,406 million, a decline of 8.8% compared to the previous year. The CLP Group’s total earnings attributable to Shareholders, which include non-recurring items, amounted to HK$8,312 million, a 10.5% decline compared to the previous year. The CLP Group’s turnover was HK$104,861 million, a 14.4% increase over the previous year. Earnings per Share for the year ended 31 December 2012 were HK$3.45.

The CLP Group’s business in Hong Kong is through the 100% ownership of CLP Power, which owns and operates the electricity transmission and distribution systems in Kowloon, the New Territories, Lantau and most of the outlying islands, and, prior to Completion, 40% ownership of CAPCO, which provides approximately 68% of the power requirements of CLP Power’s customer base, the remainder coming largely under long term contracts from the Guangdong Daya Bay Nuclear Power Station. For the year ended 31 December 2012, the business in Hong Kong remained the largest source of profit contribution for the CLP Group, amounting to operating earnings of HK$6,654 million, an increase of 5.0% as compared to the previous year. This increase was due to a higher permitted return on higher net fixed assets, partially offset by higher interest costs on increased borrowings for the financing of fixed assets. More recently, relatively cool weather has reduced local sales of electricity by 1.2% in the first nine months of 2013 as compared to the corresponding period in the previous year.

The CLP Group’s Australia business, through EnergyAustralia, operates a balanced portfolio of selfowned generation capacity and capacity purchases, which includes gas, coal and wind and energy retail business serving approximately 2.7 million customer accounts. Operating earnings for the year ended 31 December 2012 were HK$1,685 million, a decrease of 42.1% from the previous year. This decrease was largely due to difficult operating conditions in a market which is exhibiting weak wholesale prices due

LETTER FROM THE CHAIRMAN

to declining demand growth and consequent over-capacity in generation and a fiercely competitive retail sector. These factors have continued into 2013 where the wholesale market is continuing to see suppressed prices resulting from an over-supply of generation and falling demand. Intense retail competition continues, driven by potentially unsustainable price discounting. On 18 October 2013, Standard & Poor’s announced that it had revised EnergyAustralia’s rating from BBB to BBB-.

The CLP Group’s portfolio in the Chinese mainland is spread across a number of coal-fired, wind, solar, hydro and nuclear generating stations in which the CLP Group has various equity interests. The contribution to operating earnings from this portfolio for the year ended 31 December 2012 was HK$1,411 million, a 22.2% increase over the previous year. In 2013, a variety of factors, such as declining coal prices which are partially offset by reductions in on-grid tariffs for coal-fired power stations, improved wind speeds but counterbalanced by severe grid restrictions in some areas and positive outlook on hydropower stations as a result of heavy rainfalls in summer, are all likely to impact overall portfolio profitability.

In India, where the CLP Group has investments in coal and gas-fired generating plants and renewable energy, the contribution to operating earnings for the year ended 31 December 2012 was a loss of HK$182 million, as compared to earnings of HK$154 million in the previous year. This was primarily due to an operating loss at the Jhajjar coal-fired power station resulting from severe difficulties in coal supply. During 2013, agreement was reached to enable imported coal to be made available to this station and its availability has been about 85% in the third quarter. The output from the Group’s Paguthan gas-fired plant continues to be constrained due to an acute shortage of domestic gas supplies. The power purchase agreement protects Paguthan’s revenue as the plant continues to declare availability. However, the plant’s offtaker, Gujarat Urja Vikas Nigam Limited, has sought concessions on the fixed capacity charges in light of low off-take and withheld certain payments under the power purchase agreement. Discussions over this are ongoing.

The CLP Group also operates in Southeast Asia and Taiwan, where its principal activity is an interest in Ho-Ping Power Company in Taiwan. The contribution to operating earnings for the year ended 31 December 2012 was HK$243 million, an increase of 182.6% over the previous year. In 2013, Ho-Ping Power Company agreed to a tariff reduction under the power purchase agreement with Taiwan Power Company.

The Company considers that it has a sound and diversified portfolio across different parts of the electricity value chain and is optimistic about its future prospects.

The Company announced the Acquisitions on 19 November 2013 and Completion is expected to take place mid 2014, although this could be later or earlier as described in the sub-sections entitled “Completion” in each of the sections entitled “CAPCO Acquisition Agreement” and “PSDC Acquisition Agreement”. Financial information of CAPCO and PSDC for each of the years ended 31 December 2010, 2011 and 2012 and each of the six months ended 30 June 2012 and 2013 are set out in Appendix II and IV to this circular. Following Completion of the Acquisitions, this will enable the financial results and position of CAPCO and PSDC to be consolidated on a line-by-line basis in the financial statements of the CLP Group. It is also expected that the Company will be able to consolidate its regulated businesses in Hong Kong and allow it to exercise a greater degree of control over its generation activities.

LETTER FROM THE CHAIRMAN

11. LISTING RULES IMPLICATIONS

As certain of the applicable percentage ratios for the Acquisitions are more than 25% but less than 100% as calculated in accordance with Rule 14.07 of the Listing Rules, the Acquisitions constitute a major transaction for CLP Holdings under Chapter 14 of the Listing Rules and are therefore subject to the notification, announcement, circular and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

As at the Latest Practicable Date, no Shareholder has a material interest in the Acquisitions that is materially different from other Shareholders and no Shareholder is required to abstain from voting on the relevant ordinary resolution at the EGM in respect of the Acquisitions, the Acquisition Agreements and the transactions contemplated thereunder.

12. BUSINESS DEALINGS BETWEEN THE CLP GROUP AND THE CSG GROUP

CSG HK will become a substantial shareholder of CAPCO upon Completion and thus together with the other companies within the CSG Group will each be regarded as a connected person of CLP Holdings for the purposes of the Listing Rules.

As mentioned above, members of the CLP Group have, in the ordinary course of business, entered into a number of commercial arrangements with members of the CSG Group over the years. Currently, the following arrangements are in place:

(a) an electricity supply arrangement whereby CLP Power supplies power to a member of the CSG Group with operations in the Chinese mainland;
(b) a number of power purchase arrangements whereby members of the CLP Group with operations in the Chinese mainland sell power to the relevant local power grid companies (which are members of the CSG Group); and
(c) the arrangement referred to above under the heading “Assets to be acquired” in the section “The PSDC Acquisition Agreement” whereby PSDC has a contractual right to use, until 2034, 600MW, being half of the 1,200MW pumped storage capacity of Phase 1 of the Guangzhou Pumped Storage Power Station which is owned by a member of the CSG Group and PSDC makes payment to the CSG Group for this usage right.

These arrangements will become continuing connected transactions (as referred to in the Listing Rules) for CLP Holdings to the extent that they, and any further arrangements with the CSG Group, are in place at Completion. Further particulars of any such arrangements with the CSG Group will be provided in a separate announcement to be published by CLP Holdings shortly after Completion. Thereafter, CLP Holdings will comply with the applicable reporting, disclosure and, if applicable, independent shareholders’ approval requirements under Chapter 14A of the Listing Rules upon any variation or renewal of any such arrangements.

13. GENERAL

Completion of the Acquisitions is subject to fulfilment of the conditions set out in the Acquisition Agreements, and therefore may or may not proceed. Shareholders and investors should exercise caution in dealing with Shares.

LETTER FROM THE CHAIRMAN

14. EGM

A notice convening the EGM to be held at Lower Level I, Kowloon Shangri-La Hong Kong, 64 Mody Road, Kowloon, Hong Kong on Wednesday, 22 January 2014 at 2:30 p.m. is set out on pages 92 to 97 of this circular.

In addition to the ordinary resolution proposed to approve the Acquisitions, ordinary resolutions to approve the election of Mr. Richard Lancaster and Dr. Rajiv Lall will be proposed at the EGM. Mr. Richard Lancaster and Dr. Rajiv Lall were appointed as Directors with effect from 3 June 2013 and 13 August 2013, respectively. As these appointments were made by the Board, Mr. Richard Lancaster and Dr. Rajiv Lall will, as required under the CLP Code on Corporate Governance, retire at the EGM, being the first general meeting after their appointment but will be eligible, and offer themselves, for election by the Shareholders. These proposed appointments are unrelated to the Acquisitions and have arisen coincidentally upon the convening of the EGM. Further details and biographical information regarding Mr. Richard Lancaster and Dr. Rajiv Lall are set out in Explanatory Notes 7 to 10 to the notice of the EGM.

A proxy form for use by the Shareholders at the EGM is enclosed with this circular. Whether or not you propose to attend the EGM, you are requested to complete the enclosed proxy form in accordance with the instructions printed thereon and deposit the same at the Company’s Registrars, Computershare Hong Kong Investor Services Limited, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting in person at the EGM or any adjournment thereof, should you so wish.

15. RECOMMENDATION

The Directors consider that the terms of the Acquisitions are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM to approve the Acquisitions, the Acquisition Agreements and the transactions contemplated thereunder.

Each of The Hon. Sir Michael Kadoorie and Mr. R. J. McAulay has, in his own personal capacity, indicated his support for the Acquisitions and will, in respect of any Shares held personally, vote in favour of the Acquisitions, and in respect of his interest in Shares representing not less than 1,000,000 Shares that are held through trusts, request the relevant trustees to procure to vote in favour of the Acquisitions.

16. ADDITIONAL INFORMATION

Your attention is drawn to the additional information as set out in the appendices to this circular.

Yours faithfully, For and on behalf of the Board The Hon. Sir Michael Kadoorie Chairman

FINANCIAL INFORMATION OF THE CLP GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP FOR THE LAST THREE FINANCIAL YEARS

The audited consolidated financial statements of the Group for the year ended 31 December 2012 (the “2012 Financial Statements”) are included on pages 148 to 220 in the annual report for the year of 2012 of the Company (the “2012 Annual Report”) published on 8 March 2013.

The audited consolidated financial statements of the Group for the year ended 31 December 2011 (the “2011 Financial Statements”) are included on pages 140 to 210 in the annual report for the year of 2011 of the Company (the “2011 Annual Report”) published on 9 March 2012.

The audited consolidated financial statements of the Group for the year ended 31 December 2010 (the “2010 Financial Statements”) are included on pages 140 to 206 in the annual report for the year of 2010 of the Company (the “2010 Annual Report”) published on 9 March 2011.

Each of the 2012 Financial Statements, the 2011 Financial Statements and the 2010 Financial Statements (but not any other part of the 2012 Annual Report, the 2011 Annual Report and the 2010 Annual Report, respectively) are incorporated by reference into this circular and form part of this circular.

The 2012 Annual Report, the 2011 Annual Report and the 2010 Annual Report have been released on the website of the Stock Exchange (www.hkexnews.hk) and the website of the Company (www.clpgroup.com). Internet links to the relevant annual reports are set out below:

2012 Annual Report:

https://www.clpgroup.com/ourcompany/aboutus/resourcecorner/investmentresources/Documents/2012/ CLP_2012AR_English_Full.pdf

2011 Annual Report:

https://www.clpgroup.com/ourcompany/aboutus/resourcecorner/investmentresources/Documents/2011/ CLP_2011AR_English_Full.pdf

2010 Annual Report:

https://www.clpgroup.com/ourcompany/aboutus/resourcecorner/investmentresources/Documents/2010/ CLP_AR_2010_Eng_Full.pdf

Other acquisitions since last published audited financial statements

Since 31 December 2012, the date to which the latest published audited financial statements of the CLP Group have been made up, EnergyAustralia Pty Ltd and EnergyAustralia NSW Pty Ltd, both being wholly-owned subsidiaries of the Company, entered into an acquisition agreement on 25 July 2013 with Delta Electricity in respect of the acquisitions of the Mount Piper and Wallerawang power stations and associated infrastructure. Mount Piper Power Station is in the Central West region of the State of New South Wales, Australia. It is a 1,400MW power station comprising two 700MW black coal-fired steam turbine generators, commissioned in two stages over 1992 and 1993. Wallerawang Power Station is a 1,000MW power station comprising two 500MW black coal-fired generating units, which was commissioned in 1976.

FINANCIAL INFORMATION OF THE CLP GROUP

APPENDIX I

The net cash consideration for the acquisitions was A$160 million which was funded by the then existing financing facilities of EnergyAustralia. The total purchase price for the acquisitions was approximately A$475 million which included the balance of the deposits paid by EnergyAustralia under the GenTrader Agreements and held by the New South Wales State Government of approximately A$315 million at completion. Both acquisitions were completed on 2 September 2013. No remuneration payable to, or benefits in kind receivable by, any Directors will be varied in consequence of these acquisitions.

2. INDEBTEDNESS

A. Borrowings

As at the close of business on 31 October 2013, being the latest practicable date for the purpose of this indebtedness statement, the Enlarged Group had outstanding borrowings of HK$64,283 million, which comprised unsecured bank loans and other borrowings of HK$52,435 million, bank loans of HK$12,197 million secured over certain assets of the Enlarged CLP Group and obligations under finance leases of HK$35 million net of derivative financial instruments assets with a fair value of HK$384 million being used to hedge debt items.

B. Contingent Liabilities

(a) CLP India – Deemed Generation Incentive Payment and Interest on Deemed Loans

Under the original power purchase agreement between CLP India Private Limited (“CLP India”) and its off-taker Gujarat Urja Vikas Nigam Limited (“GUVNL”), GUVNL was required to make a “deemed generation incentive” payment to CLP India when the plant availability of the Paguthan Plant (“Paguthan”) was above 68.5% (70% as revised subsequently). GUVNL has been making such payments since December 1997.

In September 2005, GUVNL filed a petition before the Gujarat Electricity Regulatory Commission (“GERC”) claiming that the “deemed generation incentive” payment should not be paid for the periods when Paguthan is declared with availability to generate on “naphtha” as fuel rather than on “gas”. GUVNL’s contention is based on a 1995 Government of India notification which disallowed “deemed generation incentive” for naphtha-based power plants. The total amount of the claim plus interest calculated up to June 2005 amounts to about Rs.7,260 million (HK$919 million). CLP India’s position, amongst other arguments, is that Paguthan is not naphtha-based and therefore the Government of India notification does not apply to disallow the payments of the “deemed generation incentive”.

GUVNL also claimed that CLP India has wrongly received interest on “deemed loans” under the existing power purchase agreement. GUVNL’s claim rests on two main grounds: (i) CLP India had agreed that interest paid by GUVNL for the period from December 1997 to 1 July 2003 was to be refunded; and (ii) interest was to be calculated on a reducing balance rather than on the basis of a bullet repayment on expiry of the loan term. The total amount of the claim plus interest for the “deemed loans” amounts to a further Rs.830 million (HK$105 million).

FINANCIAL INFORMATION OF THE CLP GROUP

APPENDIX I

On 18 February 2009, the GERC made an adjudication on GUVNL’s claims. On the issue related to the payment to CLP India of “deemed generation incentive”, the GERC decided that the “deemed generation incentive” was not payable when Paguthan was declared with availability to generate on naphtha. However, the GERC also decided that GUVNL’s claim against CLP India in respect of deemed generation incentive up to 14 September 2002 was time-barred under the Limitations Act of India. Hence, the total amount of the claim allowed by the GERC was reduced to Rs.2,896 million (HK$367 million). The GERC also dismissed GUVNL’s claim to recover interest on the “deemed loans”.

CLP India filed an appeal with the Appellate Tribunal for Electricity (“ATE”) against the decision of the GERC. GUVNL also filed an appeal in the ATE against an order of the GERC rejecting GUVNL’s claims on interest on deemed loans and the time barring of the deemed generation claim to 14 September 2002. On 19 January 2010, the ATE dismissed both CLP India and GUVNL’s appeals and upheld the decision of the GERC. CLP India has filed an appeal against the ATE order in the Supreme Court of India. The appeal petition was admitted on 16 April 2010 but the next date of hearing has not yet been fixed by the court. GUVNL has also filed a cross appeal challenging those parts of the ATE judgment which held that GUVNL’s claims before September 2002 were time barred and which disallowed its claims for interest on “deemed loans”.

Following the issue of the ATE’s judgment, GUVNL deducted Rs.3,731 million (HK$472 million) from January to March 2010 invoices after adjustment for a previous deposit of Rs.500 million (HK$63 million), which included tax on incentive relating to deemed generation on naphtha, and delayed payment charges on associated incentive calculated up to March 2010.

Subsequent to the above deduction, CLP India represented to GUVNL that during April 2004 to March 2006, gas was available for generation and therefore should not be considered as availability (deemed generation) on naphtha. GUVNL accepted the representation and refunded the base amount of Rs.292 million (HK$37 million) and interest of Rs.150 million (HK$19 million) in March 2011. However, during the first and last quarter of 2011, with the spot gas availability being constrained, Paguthan was forced to declare availability on naphtha for certain periods, which resulted in deduction of incentive revenue by GUVNL under deemed generation of Rs.17 million (HK$2 million). At 31 October 2013, the total amount of the claim plus interest and tax with respect to the “deemed generation incentive” amounted to Rs.8,543 million (HK$1,082 million).

On the basis of legal advice obtained, the Directors are of the opinion that CLP India has a strong case on appeal to the Supreme Court. In consequence, no provision has been made.

(b) Indian Wind Power Projects – WWIL’s Contracts

CLP Wind Farms (India) Private Limited, CLP India and its subsidiaries (“CLP India group”) have invested (or are committed to invest) in around 680MW of wind power projects to be developed with Wind World India Limited (“WWIL”). WWIL’s major shareholder, Enercon GmbH, has commenced litigation against WWIL claiming infringement of intellectual property rights. CLP India group, as a customer of WWIL, has been named as a defendant. Enercon GmbH is also seeking an injunction restraining CLP India group’s use of certain rotor blades acquired from WWIL. As at 31 October 2013, the Group considered that CLP India group has good prospects of defending these claims and the legal proceedings are unlikely to result in any material outflow of economic benefits from the Group.

FINANCIAL INFORMATION OF THE CLP GROUP

APPENDIX I

Jhajjar Power Limited (“JPL”) had disputes with its off-takers over the applicable tariff of capacity charges, energy charges relating to transit loss, coal-handling agent charges and Unscheduled Interchange charges payable as per the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2009. Total disputed amounts were Rs.1,194 million (HK$151 million) at 31 October 2013. JPL has filed a petition against its off-takers since March 2013. The Group considered that JPL has a strong case and hence, no provision has been made.

(d) Land Premium of a Property in Hong Kong

As at 31 October 2013, the Group had received a demand note from the relevant authorities in the Hong Kong Government in an amount of HK$280 million as land premium relating to the Group’s new office at Laguna Verde Avenue, Hung Hom, Kowloon, Hong Kong. The Group considers, including on the basis of legal and other professional advice, that no payment is due. Exchanges are continuing regarding both the principle and quantum of any such premium.

Save as aforesaid and apart from intra-group liabilities, the Enlarged Group did not have any material mortgages, charges, debentures, loan capital, debt securities, loans, bank overdraft or other similar indebtedness, finance lease or hire purchase commitments, liabilities under acceptances (other than normal trade bills), acceptance credits or guarantees or other contingent liabilities at the close of business on 31 October 2013.

3. WORKING CAPITAL OF THE ENLARGED GROUP

The Directors are of the opinion that, after taking into account completion of the Acquisitions and the present financial resources available to the Enlarged Group, including internally generated revenue and funds, the HK$10 billion committed loan facilities to be provided to CLP Holdings and CLP Power by HSBC, and other available banking facilities, the Enlarged Group will have sufficient working capital to meet its present requirements for at least 12 months from the date of this circular.

4. NO MATERIAL ADVERSE CHANGE

In the section of this circular entitled “Financial and Trading Prospects of the Enlarged CLP Group” in the “Letter from the Chairman”, reference is made to parts of the CLP Group’s business outside Hong Kong which have continued to face operational challenges in 2013. The impact of these challenges on the CLP Group’s results for 2013 cannot, as at the Latest Practicable Date, be assessed.

Save as aforesaid and as at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the CLP Group since 31 December 2012, the date to which the latest published audited financial statements of the Group were made up.

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

The following is the text of a report received from the Company’s reporting accountant, PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

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10 December 2013

The Directors CLP Holdings Limited

Dear Sirs,

We report on the financial information of Castle Peak Power Company Limited (“CAPCO”) which comprises the statements of financial position of CAPCO as at 31 December 2010, 2011 and 2012 and 30 June 2013, and the statements of profit or loss, the statements of profit or loss and other comprehensive income, the statements of changes in equity and the statements of cash flows of CAPCO for each of the years ended 31 December 2010, 2011, 2012 and the six months ended 30 June 2013 (the “Relevant Periods”) and a summary of significant accounting policies and other explanatory information. This financial information has been prepared by the directors of CLP Holdings Limited (the “Company”) and is set out in Sections I to III below for inclusion in Appendix II to the circular of the Company dated 10 December 2013 (the “Circular”) in connection with the proposed acquisition of CAPCO by the Company.

CAPCO was incorporated in Hong Kong on 10 July 1981 as a limited liability company.

The financial statements of CAPCO for each of the years ended 31 December 2010, 31 December 2011 and 31 December 2012 and the interim financial statements of CAPCO for the six months ended 30 June 2013 were audited by PricewaterhouseCoopers pursuant to separate terms of engagement with CAPCO.

The directors of CAPCO during the Relevant Periods are responsible for the preparation of the financial statements of CAPCO that give a true and fair view in accordance with Hong Kong Financial Reporting Standards (“HKFRS”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”), and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

The financial information has been prepared based on the audited financial statements of CAPCO with no adjustment made thereon.

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

Directors’ Responsibility for the Financial Information

The directors of the Company are responsible for the preparation of the financial information that gives a true and fair view in accordance with HKFRS and accounting policies adopted by the Company and its subsidiaries (together, the “Group”) as set out in the interim report of the Company for the period ended 30 June 2013.

Reporting Accountant’s Responsibility

Our responsibility is to express an opinion on the financial information and to report our opinion to you. We carried out our procedures in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

Opinion

In our opinion, the financial information gives, for the purpose of this report, a true and fair view of the state of affairs of CAPCO as at 31 December 2010, 2011 and 2012 and 30 June 2013 and of CAPCO’s results and cash flows for the Relevant Periods then ended.

Review of stub period comparative financial information

We have reviewed the stub period comparative financial information set out in Sections I to II below included in Appendix II to the Circular which comprises the statement of profit or loss, the statement of profit or loss and other comprehensive income, the statement of changes in equity and the statement of cash flows of CAPCO for the six months ended 30 June 2012 and a summary of significant accounting policies and other explanatory information (the “Stub Period Comparative Financial Information”).

The directors of the Company are responsible for the preparation and presentation of the Stub Period Comparative Financial Information in accordance with the accounting policies adopted by the Group as set out in the interim report of the Company for the period ended 30 June 2013.

Our responsibility is to express a conclusion on the Stub Period Comparative Financial Information based on our review. We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA. A review of Stub Period Comparative Financial Information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Based on our review, nothing has come to our attention that causes us to believe that the Stub Period Comparative Financial Information, for the purpose of this report is not prepared, in all material respects, in accordance with the accounting policies set out in Note 2 of Section II below.

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

I FINANCIAL INFORMATION OF CAPCO

The following is the financial information of CAPCO as at 31 December 2010, 2011 and 2012 and 30 June 2013 and for each of the years ended 31 December 2010, 2011 and 2012 and the six months ended 30 June 2012 and 2013 (“Financial Information”):

1. Statements of Profit or Loss

Note HK$’000 Revenue 5 Expenses Fuel Operating expenses Amortisation 10(b) Staff expenses 6 Operating profit 6 Finance costs/(income) 7 Profit before income tax Income tax expense 8 Profit for the year/period attributable to shareholders Dividends 9 Interim dividends paid Final dividend proposed	Six months Year ended 31 December ended 30 June 2010 2011 2012 2012 2013 (unaudited) 12,606,830 13,802,830 14,695,880 6,898,702 6,775,311 7,921,663 8,919,194 9,716,623 4,446,728 4,347,895 798,018 821,749 842,123 419,210 390,520 63,453 70,869 94,824 35,457 41,518 261,403 269,178 282,398 141,941 128,449 9,044,537 10,080,990 10,935,968 5,043,336 4,908,382 3,562,293 3,721,840 3,759,912 1,855,366 1,866,929 104,898 34,237 (26,348) (13,720) 26,326 3,457,395 3,687,603 3,786,260 1,869,086 1,840,603 605,342 638,795 654,353 320,878 311,394 2,852,053 3,048,808 3,131,907 1,548,208 1,529,209 2,572,200 2,660,300 2,721,900 907,300 912,300 279,800 388,600 410,000 – – 2,852,000 3,048,900 3,131,900 907,300 912,300	Six months Year ended 31 December ended 30 June 2010 2011 2012 2012 2013 (unaudited) 12,606,830 13,802,830 14,695,880 6,898,702 6,775,311 7,921,663 8,919,194 9,716,623 4,446,728 4,347,895 798,018 821,749 842,123 419,210 390,520 63,453 70,869 94,824 35,457 41,518 261,403 269,178 282,398 141,941 128,449 9,044,537 10,080,990 10,935,968 5,043,336 4,908,382 3,562,293 3,721,840 3,759,912 1,855,366 1,866,929 104,898 34,237 (26,348) (13,720) 26,326 3,457,395 3,687,603 3,786,260 1,869,086 1,840,603 605,342 638,795 654,353 320,878 311,394 2,852,053 3,048,808 3,131,907 1,548,208 1,529,209 2,572,200 2,660,300 2,721,900 907,300 912,300 279,800 388,600 410,000 – – 2,852,000 3,048,900 3,131,900 907,300 912,300
		4,347,895 390,520 41,518 128,449
		4,908,382
		1,866,929 26,326
		1,840,603 311,394
		1,529,209

		912,300 –
		912,300

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

I FINANCIAL INFORMATION OF CAPCO (continued)

2. Statements of Profit or Loss and Other Comprehensive Income

HK$’000
Profit for the year/period
Other comprehensive income
Items that may be reclassified
to profit or loss in subsequent
period
Cash flow hedges
Net fair value (losses)/gains
Reclassify to profit or loss
(Note 7)
Reclassify to initial carrying
amount of hedged items
(Note 12)
Tax (expense)/credit on the
above items
Other comprehensive income/(loss)
for the year/period, net of tax
Total comprehensive income
attributable to shareholders

Six months
Year ended 31 December
ended 30 June
2010
2011
2012
2012
2013
(unaudited)
2,852,053
3,048,808
3,131,907
1,548,208
1,529,209
(4,473)
3,231
(70)
1,681
(7,479)
36,301
19,757
5,433
3,332
–
16,963
9,028
–
–
1,293
(8,050)
(5,283)
(885)
(827)
1,021
40,741
26,733
4,478
4,186
(5,165)
2,892,794
3,075,541
3,136,385
1,552,394
1,524,044

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

I FINANCIAL INFORMATION OF CAPCO (continued)

3. Statements of Financial Position

HK$’000 Note Non-current assets Property, plant and equipment under construction 10(a) Leasehold land 10(b) Finance lease receivables 11 Derivative financial instruments 12 Current assets Inventory – stores and fuel Sundry debtors and prepayments Current account with CLP Power Hong Kong Limited 13 Finance lease receivables 11 Derivative financial instruments 12 Bank balances and cash Current liabilities Bank loans and other borrowings 14 Trade and other payables 15 Advances from shareholders 17 Derivative financial instruments 12 Income tax payable Net current liabilities Total assets less current liabilities Financed by: Equity Share capital 16 Reserves – Proposed dividend – Others Shareholders’ funds Non-current liabilities Bank loans and other borrowings Deferred tax liabilities 18 Derivative financial instruments 12 Asset decommissioning liabilities 19 Equity and non-current liabilities	As at 31 December 2010 2011 2012 911,294 1,193,039 1,995,148 2,490,528 2,523,864 3,043,099 25,070,275 25,128,721 24,581,470 9 11 – 28,472,106 28,845,635 29,619,717 1,454,335 1,432,499 2,496,099 178,835 36,621 39,027 1,373,746 1,623,043 1,405,118 1,994,236 2,199,578 2,405,275 477 84 11 46 144 103 5,001,675 5,291,969 6,345,633 (3,101,869) (3,250,381) (6,177,931) (1,672,964) (1,842,067) (2,301,406) (21,801,433) (22,171,402) (22,645,968) (29,324) (5,433) (2,084) (154,312) (340,365) (225,219) (26,759,902) (27,609,648) (31,352,608) (21,758,227) (22,317,679) (25,006,975) 6,713,879 6,527,956 4,612,742 50,000 50,000 50,000 279,800 388,600 410,000 48,669 75,310 79,795 378,469 513,910 539,795 2,560,752 2,063,000 – 3,524,240 3,581,983 3,571,527 11,427 2,764 750 238,991 366,299 500,670 6,335,410 6,014,046 4,072,947 6,713,879 6,527,956 4,612,742	As at 30 June 2013 2,010,556 3,001,786 24,216,008 – 29,228,350 2,400,794 66,980 1,325,718 2,382,808 – 135 6,176,435 (6,390,268) (1,142,265) (22,673,157) (8,831) (447,926) (30,662,447) (24,486,012) 4,742,338 50,000 – 691,539 741,539 – 3,512,806 178 487,815 4,000,799 4,742,338

Equity and non-current liabilities

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

I FINANCIAL INFORMATION OF CAPCO (continued)

4. Statements of Changes in Equity

HK$’000 Balance at 1 January 2010 Total comprehensive income for the year Dividends 2009 final 2010 interim Balance at 31 December 2010 Balance at 1 January 2011 Total comprehensive income for the year Dividends 2010 final 2011 interim Balance at 31 December 2011 Balance at 1 January 2012 Total comprehensive income for the year Dividends 2011 final 2012 interim Balance at 31 December 2012 Balance at 1 January 2012 Total comprehensive income for the period (unaudited) Dividends 2011 final 2012 interim Balance at 30 June 2012 (unaudited) Balance at 1 January 2013 Total comprehensive (loss)/income for the period Dividends 2012 final 2013 interim Balance at 30 June 2013	Share capital 50,000 – – – 50,000 50,000 – – – 50,000 50,000 – – – 50,000 50,000 – – – 50,000 50,000 – – – 50,000	Hedging reserve (74,309) 40,741 – – (33,568) (33,568) 26,733 – – (6,835) (6,835) 4,478 – – (2,357) (6,835) 4,186 – – (2,649) (2,357) (5,165) – – (7,522)	Retained profits (Note) 554,284 2,852,053 (472,100) (2,572,200) 362,037 362,037 3,048,808 (279,800) (2,660,300) 470,745 470,745 3,131,907 (388,600) (2,721,900) 492,152 470,745 1,548,208 (388,600) (907,300) 723,053 492,152 1,529,209 (410,000) (912,300) 699,061	Total 529,975 2,892,794 (472,100) (2,572,200) 378,469 378,469 3,075,541 (279,800) (2,660,300) 513,910 513,910 3,136,385 (388,600) (2,721,900) 539,795 513,910 1,552,394 (388,600) (907,300) 770,404 539,795 1,524,044 (410,000) (912,300) 741,539

Note: CAPCO’s retained profits as at 31 December 2010, 2011 and 2012, 30 June 2012 and 30 June 2013 include an amount of HK$82,089,000 being the difference between the deferred taxation provision on accelerated tax depreciation using enacted tax rate at the end of the reporting period under HKFRS, and that amount calculated using tax rate applicable to each respective year under the Scheme of Control. Such amount of profits shall be retained within CAPCO until it may be required to pay tax and is therefore not to be distributed.

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

I FINANCIAL INFORMATION OF CAPCO (continued)

5. Statements of Cash Flows

Note
HK$’000
Operating activities
Net cash inflow from
operations
20
Income tax paid
Net cash inflow from
operating activities
Investing activities
Capitalisation of assets
under construction
Capital repayment of
finance lease receivables
Net cash outflow from
investing activities
Net cash inflow before
financing activities
Financing activities
Repayment of long-term
borrowings
(Decrease)/increase in
short-term borrowings
Increase/(decrease) in
shareholders’ advances
Interest paid
Dividends paid
Net cash outflow from
financing activities
Net (decrease)/increase in
cash and cash equivalents
Cash and cash equivalents
at beginning of year/period
Cash and cash equivalents
at end of year/period
Analysis of balances of
cash and cash equivalents
Bank balances and cash

Six months
Year ended 31 December
ended 30 June
2010
2011
2012
2012
2013
(unaudited)
3,202,256
3,558,274
3,369,937
2,144,356
2,038,034
(186,401)
(400,282)
(780,840)
(81,286)
(146,387)
3,015,855
3,157,992
2,589,097
2,063,070
1,891,647
(3,308,380) (2,362,995) (3,032,499) (1,616,299) (1,869,263)
1,764,655
2,219,727
2,274,095
1,108,427
1,134,694
(1,543,725)
(143,268)
(758,404)
(507,872)
(734,569)
1,472,130
3,014,724
1,830,693
1,555,198
1,157,078
(745,369)
(497,703)
(497,652)
(248,825)
–
(1,636,957)
148,525
1,362,289
833,371
212,337
4,110,963
384,268
524,171
(789,228)
9,332
(156,481)
(109,616)
(109,042)
(54,703)
(56,415)
(3,044,300) (2,940,100) (3,110,500) (1,295,900) (1,322,300)
(1,472,144) (3,014,626) (1,830,734) (1,555,285) (1,157,046)
(14)
98
(41)
(87)
32
60
46
144
144
103
46
144
103
57
135
46
144
103
57
135

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

II NOTES TO THE FINANCIAL INFORMATION OF CAPCO

1 GENERAL INFORMATION

The financial operations of CAPCO and its 40% shareholder CLP Power Hong Kong Limited (“CLP Power”) are governed by a Scheme of Control (“SoC”) Agreement entered with the Government of the HKSAR.

The principal activity of CAPCO is the generation and sale of electricity exclusively to CLP Power under the Electricity Supply Contract at cost plus profit calculated in accordance with the SoC Agreement. Under HKFRS, this contract is accounted for as a lease.

CAPCO is a limited liability company incorporated in Hong Kong. The address of its registered office is 8 Laguna Verde Avenue, Hung Hom, Kowloon, Hong Kong.

2 SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation

The principal accounting policies adopted in the preparation of the Financial Information are set out below. These policies have been consistently applied to all the periods presented except for HKFRS 13 “Fair Value Measurement” which has not been retrospectively applied to the periods beginning before 1 January 2013 as it is considered that the measurement impact and disclosure of this to be immaterial to the users of the Financial Information.

The Financial Information has been prepared in accordance with HKFRS issued by the HKICPA.

The preparation of the Financial Information in conformity with HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying CAPCO’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the Financial Information are disclosed in Note 4 below.

The Financial Information has been prepared under the historical cost convention, as modified by the revaluation of certain financial assets and financial liabilities (including derivative financial instruments) which are stated at fair values.

CAPCO has assessed the net current liabilities position as at the end of each reporting period and believe that CAPCO can continue in operational existence for the foreseeable future based on a stable operating cash flow from the SoC and continued support from shareholders. Therefore, CAPCO continues to adopt the going concern basis in preparing the Financial Information.

The following new/revised HKFRS have been issued and are mandatory for adoption by CAPCO for accounting periods beginning on or after 1 January 2014, but CAPCO has not early adopted:

Amendments to HKAS 32 “Offsetting Financial Assets and Financial Liabilities”
Amendments to HKAS 36 “ Recoverable Amount Disclosures for Non-Financial Assets”
HKFRS 9 “Financial Instruments”

The adoption of these new/revised HKFRS will have no significant impact on the results and the financial position of CAPCO.

(b) Accounting under the non Scheme of Control activities

Commencing 1 October 1991, CAPCO is entitled to 60% of the profit allowed to CLP Power and CAPCO (“Companies”) that derive from the sale of electricity by CLP Power to customers located in the Chinese mainland, in accordance with the arrangement agreed between the Companies and the Government of the HKSAR.

(c) Revenue

Revenue primarily represents finance lease income, operating lease and lease service income from CLP Power, together with CAPCO’s income earned on the sale of electricity by CLP Power to customers located in the Chinese mainland. Finance lease income is recognised in accordance with Note 2(e). Revenue on operating lease and lease service income is recognised when it is paid or becomes payable by CLP Power to CAPCO when the related services are rendered. The income earned on sale of electricity by CLP Power to the Chinese mainland is recognised in accordance with the arrangement referred to in Note 2(b).

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

II NOTES TO THE FINANCIAL INFORMATION OF CAPCO (continued)

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(d) Property, plant and equipment under construction and leasehold land

Property, plant and equipment of CAPCO are constructed for deployment for the generation of electricity supplied to CLP Power under the Electricity Supply Contract. Following the completion of construction, these assets are derecognised from assets under construction as they become the leased assets of the lessee in accordance with HKFRS-Int 4 and HKAS 17. Assets under construction are not subject to depreciation, and hence CAPCO is subject to no depreciation charge on these assets.

Leasehold land is amortised uniformly over the unexpired term of the lease.

(e) Leases

An electricity supply contractual arrangement is to be treated as containing a lease if the fulfillment of the arrangement is dependent on the use of specific assets and the arrangement conveys the right to use these specific assets. Payments from service and the cost of inputs of the arrangement are excluded from the calculation of minimum lease payments and are recognised as lease service payments.

(i) Finance lease

Leases of assets where CAPCO has transferred substantially all the risks and rewards of ownership to the lessee are classified as finance leases. Assets held under a finance lease are presented in the statement of financial position as a receivable at an amount equal to the net investment in the lease. The difference between the gross receivable and the net investment is recognised as unearned finance income.

Lease payments relating to the period are applied against the gross investment in the lease to reduce both the principal and the unearned finance income. Finance lease income shall be recognised so as to produce a constant periodic rate of return on the net investment in the finance lease.

The Electricity Supply Contract between CAPCO and CLP Power was assessed to contain finance leases with effective interest rate being a variable rate which moves with reference to the return allowed under the SoC Agreement and accordingly, the finance charge has been treated as contingent rent. Contingent rent is recognised in profit or loss in the period in which it is incurred.

(ii) Operating lease

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Operating lease income is recognised in profit or loss on a systematic basis representative of the time pattern of benefit derived from the use of the asset.

(f) Derivative financial instruments and hedging activities

A derivative is initially recognised at fair value on the date a derivative contract is entered into and is subsequently remeasured at its fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. CAPCO designates certain derivatives as hedges of the cash flows of recognised financial assets or financial liabilities or highly probable forecast transactions (cash flow hedges).

CAPCO documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking the hedge transactions. CAPCO also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in the cash flows of hedged items.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss.

Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged items affect profit and loss. However, when the highly probable forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously deferred in equity are reclassified from equity and included in the measurement of the initial cost or carrying amount of the asset or liability.

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

II NOTES TO THE FINANCIAL INFORMATION OF CAPCO (continued)

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(f) Derivative financial instruments and hedging activities (continued)

When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is reclassified from equity to profit or loss in the same period when the hedged forecast cash flows ultimately affect profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is immediately reclassified to profit or loss.

(g) Inventory

Inventory comprises stores and fuel which are stated at the lower of cost and net realisable value. The cost of fuel oil is measured on the ‘first-in, first-out’ basis. Cost for coal and stores are measured using the weighted average basis. Net realisable value is determined on the basis of anticipated sales proceeds less estimated selling expenses.

(h) Cash and cash equivalents

Cash and cash equivalents comprise cash at banks and on hand, demand deposits with banks and other financial institutions, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position.

(i) Current and deferred tax

Income tax expense for the year comprises current and deferred tax. Tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or equity respectively.

The current tax charge is calculated on the basis of the tax laws enacted or substantially enacted at the end of the reporting period in Hong Kong where CAPCO operates and generate taxable income.

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax liability is settled.

(j) Borrowings and interest

Borrowings are recognised initially at fair value, net of transaction costs incurred. Transaction costs are incremental costs that are directly attributable to the acquisition or issue of a financial liability. Borrowings are subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is amortised to profit or loss or capitalised as cost of the qualifying assets over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless CAPCO has an unconditional right to defer settlement of the liabilities for at least 12 months after the end of reporting period.

Interest on borrowings arranged to finance the acquisition, construction or production of fixed assets is:

(i) incorporated in capital expenditure during the period of time that is required to complete and prepare the assets for its intended use;
(ii) charged to finance costs when incurred after commissioning.

(k) Trade and other payables

Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

II NOTES TO THE FINANCIAL INFORMATION OF CAPCO (continued)

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(l) Foreign currency

The Financial Information is presented in Hong Kong dollars which is CAPCO’s functional and presentation currency.

Foreign currency transactions are translated into Hong Kong dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at periodend exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except when deferred in equity as qualifying cash flow hedges.

(m) Related parties

Related parties are individuals and companies, including key management personnel, where the individual or company has the ability, directly or indirectly, to control or joint control the other party or exercise significant influence over the other party in making financial and operating decisions. A close family member of any such individual is considered to be a related party. Parties are also considered to be related if they are joint ventures of the same third party, or one party is a joint venture and the other is an associate of the same third party.

3 FINANCIAL RISK MANAGEMENT

(a) Financial risk factors

CAPCO’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and interest rate risk), credit risk and liquidity risk. CAPCO’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise the impact of exchange rate and interest rate fluctuations on CAPCO’s financial performance. CAPCO uses different derivative financial instruments to manage its exposure in these areas. All derivative financial instruments are employed solely for hedging purposes.

Risk management for CAPCO is carried out by CLP Group’s central treasury department (Group Treasury) under policies approved by the Board of Directors or the Finance Committee of CAPCO. CAPCO has written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and cash management.

(i) Foreign exchange risk

CAPCO’s major foreign exchange risk arises from U.S. dollar payment obligations with regard to shareholders’ advances repayment and non-Hong Kong dollar payment obligations for spare parts and capital projects. CAPCO uses forward contracts to manage its foreign exchange risk arising from major capital projects. Foreign exchange gains and losses, other than those arising from capital project payments which will be capitalised, are ultimately recoverable from CLP Power under the current Electricity Supply Contract and as a result CAPCO does not retain any foreign exchange risk on such exposures over the long term.

(ii) Interest rate risk

CAPCO’s interest rate risk arises from debt borrowings. Borrowings issued at variable rates expose CAPCO to cash flow interest rate risk, whilst borrowings issued at fixed rates expose CAPCO to fair value interest rate risk. CAPCO manages its interest rate risks with a mix between fixed and floating rate borrowings appropriate for its business profile, and the use of interest rate swaps. The percentage of CAPCO’s borrowings with interest rates fixed to maturity over the reporting periods is as follows:

		As at 31 December		As at 30 June
	2010	2011	2012	2013
Percentage of total borrowings
with interest fixed to maturity	54%	48%	33%	32%

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

II NOTES TO THE FINANCIAL INFORMATION OF CAPCO (continued)

3 FINANCIAL RISK MANAGEMENT (continued)

(a) Financial risk factors (continued)

(ii) Interest rate risk (continued)

The extent of the impact of the movements in interest rates, with all other variables held constant, on CAPCO’s post-tax profit for the year/period (as a result of change in interest expense on floating rate borrowings) is shown in the table below:

		As at 31 December		As at 30 June
HK$’000	2010	2011	2012	2013
If interest rates were higher by:	0.25%	0.1%	0.1%	0.1%
Post-tax profit for the year/period	(952)	(178)	(852)	(605)
Equity – hedging reserve	1,294	93	–	–
If interest rates were lower by:	0.1%	0.1%	0.1%	0.1%
Post-tax profit for the year/period	381	178	852	605
Equity – hedging reserve	(868)	(109)	–	–

(iii) Credit risk

All CAPCO’s revenue comes from CLP Power which has investment grade credit ratings of A and A1 from Standard & Poor’s and Moody’s respectively as at 31 December 2010, 2011 and 2012 and 30 June 2013. The receivables from CLP Power under the Electricity Supply Contract are the only trade receivables of CAPCO. The outstanding trade receivables from CLP Power for a given month will be settled in the following month. None of the balance outstanding at each of the reporting dates is past due and no provision for impairment is recorded.

CAPCO’s exposure to credit risk from treasury transactions arises from default of the counterparty, with a maximum exposure equal to the carrying amount of the respective financial instruments as reported on the statement of financial position. All finance-related hedging transactions and deposits of CAPCO are made with counterparties with investment grade credit rating to minimise credit risk. CAPCO further assigns mark-to-market limits to its financial counterparties to reduce credit risk concentration and monitors potential exposures to all counterparties.

(iv) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and making available an adequate amount of committed credit facilities with staggered maturities to reduce refinancing risk in any year and to fund working capital, debt servicing, dividend payments and capital investments. CAPCO maintains significant flexibility to respond to opportunities and events by ensuring that adequate committed credit lines are available and shareholders’ advances can be called upon to meet future funding requirements. Management monitors rolling forecasts of CAPCO’s undrawn borrowing facilities and cash and cash equivalents on the basis of expected cash flows.

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

II NOTES TO THE FINANCIAL INFORMATION OF CAPCO (continued)

3 FINANCIAL RISK MANAGEMENT (continued)

(a) Financial risk factors (continued)

(iv) Liquidity risk (continued)

The table below analyses the remaining contractual maturities at the end of the reporting period of CAPCO’s non-derivative financial liabilities and derivative financial liabilities (both net settled and gross settled), which are based on contractual undiscounted cash flows:

HK$’000 As at 31 December 2010 Non-derivative financial liabilities Bank loans and other borrowings Trade and other payables Shareholders’ advances Derivative financial liabilities Net settled: Forward foreign exchange contracts Interest rate swaps Gross settled: Forward foreign exchange contracts – Outflow – Inflow As at 31 December 2011 Non-derivative financial liabilities Bank loans and other borrowings Trade and other payables Shareholders’ advances Derivative financial liabilities Net settled: Forward foreign exchange contracts Interest rate swaps Gross settled: Forward foreign exchange contracts – Outflow – Inflow	Within 1 Year 3,188,477 1,672,964 21,801,433 26,662,874 7,494 27,532 31,589 29,487 3,342,854 1,842,067 22,171,402 27,356,323 – 9,294 – –	Between 1 to 2 years 559,000 – – 559,000 – 9,055 – – 2,121,803 – – 2,121,803 1,105 – 11,696 10,026	Between 2 to 5 years 2,121,641 – – 2,121,641 799 – 11,696 10,006 – – – – – – – –	Over 5 years – – – – – – – – – – – – – – – –	Total 5,869,118 1,672,964 21,801,433
					29,343,515

					8,293 36,587

					43,285 39,493

					5,464,657 1,842,067 22,171,402
					29,478,126

					1,105 9,294

					11,696 10,026

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

II NOTES TO THE FINANCIAL INFORMATION OF CAPCO (continued)

3 FINANCIAL RISK MANAGEMENT (continued)

(a) Financial risk factors (continued)

(iv) Liquidity risk (continued)

HK$’000 As at 31 December 2012 Non-derivative financial liabilities Bank loans and other borrowings Trade and other payables Shareholders’ advances Derivative financial liabilities Net settled: Forward foreign exchange contracts Gross settled: Forward foreign exchange contracts – Outflow – Inflow As at 30 June 2013 Non-derivative financial liabilities Bank loans and other borrowings Trade and other payables Shareholders’ advances Derivative financial liabilities Net settled: Forward foreign exchange contracts Gross settled: Forward foreign exchange contracts – Outflow – Inflow	Within 1 Year 6,293,601 2,301,406 22,645,968 31,240,975 861 11,696 10,481 6,482,231 1,142,265 22,673,157 30,297,653 609 131,997 123,737	Between 1 to 2 years – – – – – 132,749 131,996 – – – – – 2,892 2,712	Between 2 to 5 years – – – – – – – – – – – – – –	Over 5 years – – – – – – – – – – – – – –	Total 6,293,601 2,301,406 22,645,968
					31,240,975

					861

					144,445 142,477

					6,482,231 1,142,265 22,673,157
					30,297,653

					609

					134,889 126,449

(b) Accounting for derivative financial instruments and hedging activities

These are covered under the Significant Accounting Policies Note 2(f).

(c) Fair value estimation

The fair value of financial instruments that are not traded in an active market is determined by using appropriate valuation techniques and making assumptions that are based on market conditions existing at the end of each reporting period. A discounted cash flow method is used to determine the fair value of long-term borrowings. The fair value of forward foreign exchange contracts is calculated as the present value of expected future cash flows relating to the difference between the contract rates and the market forward rates at the end of the reporting period. The fair value of interest rate swaps is the net present value of the estimated future cash flows discounted at the market quoted swap rates.

The carrying amounts of the current account with CLP Power Hong Kong Limited and advances from shareholders and other current financial assets and liabilities approximate their fair values.

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

II NOTES TO THE FINANCIAL INFORMATION OF CAPCO (continued)

3 FINANCIAL RISK MANAGEMENT (continued)

(d) Fair value hierarchy of financial instruments

The fair value of a financial instrument is determined using quoted prices for an identical instrument in active markets (Level 1). If quoted prices for an identical instrument in active markets are not available, the fair value is determined using valuationtechniques based on observable market data (Level 2). Otherwise valuation-techniques, for which any significant input is not based on observable market data, are used (Level 3).

The following table presents the fair value hierarchy for those financial instruments carried at fair value in the statement of financial position at end of each of the reporting date.

HK$’000 At 31 December 2010 Assets Forward foreign exchange contracts Liabilities Forward foreign exchange contracts Interest rate swaps At 31 December 2011 Assets Forward foreign exchange contracts Liabilities Forward foreign exchange contracts Interest rate swaps At 31 December 2012 Assets Forward foreign exchange contracts Liabilities Forward foreign exchange contracts At 30 June 2013 Assets Forward foreign exchange contracts Liabilities Forward foreign exchange contracts The valuation technique and inputs used in the fair value measu	Level 1 Level 2 Level 3 – 486 – – 11,992 – – 28,759 – – 40,751 – – 95 – – 2,764 – – 5,433 – – 8,197 – – 11 – – 2,834 – – – – – 9,009 – rements within Level 2 are as follows:	Total 486

		11,992 28,759
		40,751

		95

		2,764 5,433
		8,197

		11

		2,834

		–

		9,009


Valuation technique Significant inputs
Financial assets/liabilities: Forward foreign exchange contracts Discounted cash flow Observable exchange r interest rate curves Interest rate swaps Discounted cash flow Interest rate curves		ates and

CAPCO’s policy is to recognise transfers into/out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer. During the respective reporting periods, there were no transfers between Level 1 and Level 2 of the fair value hierarchy.

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

II NOTES TO THE FINANCIAL INFORMATION OF CAPCO (continued)

3 FINANCIAL RISK MANAGEMENT (continued)

(e) Capital management

The primary objective of CAPCO’s capital management is to safeguard CAPCO’s ability to continue as a going concern and maintain a healthy capital ratio to support the business and enhance shareholder value.

CAPCO manages its capital structure and makes adjustments to it in light of changes in economic conditions and business strategies. To maintain or adjust the capital structure, CAPCO may adjust the dividend payments to shareholders or raise and repay debts and shareholders’ advances. CAPCO’s capital management objectives, policies or processes were unchanged during each of the reporting years/periods.

Pursuant to a deed of subordination, shareholders’ advances to CAPCO are subordinated to certain debt financing of CAPCO and may be repaid up to a defined ratio of CAPCO’s borrowed moneys to shareholders’ funds. CAPCO has complied with this requirement during each of the reporting years/periods.

CAPCO monitors capital using “total debt to total capital” ratio. Total debt comprises CAPCO’s bank loans and other borrowings. For the purpose of the calculation of total debt to total capital ratio, shareholders’ funds comprise shareholders’ advances and shareholders’ equity. The total debt to total capital ratios at end of each of the reporting years/periods were as follows:

HK$’000 Total debt Shareholders’ funds Total capital Total debt to total capital ratio	2010 5,662,621 22,179,902 27,842,523 20.3%	As at 31 December As at 30 June 2011 2012 2013 5,313,381 6,177,931 6,390,268 22,685,312 23,185,763 23,414,696 27,998,693 29,363,694 29,804,964 19.0% 21.0% 21.4%	As at 31 December As at 30 June 2011 2012 2013 5,313,381 6,177,931 6,390,268 22,685,312 23,185,763 23,414,696 27,998,693 29,363,694 29,804,964 19.0% 21.0% 21.4%
			29,804,964

			21.4%

(f) Master netting or similar arrangements

CAPCO enters into derivative transactions under International Swaps and Derivatives Association (ISDA) master agreements in which there is a set-off provision. In certain circumstances, e.g. when a credit event such as a default occurs, all outstanding transactions under the agreement are terminated, the termination value is assessed and only a single net amount is payable in settlement of all transactions.

The ISDA agreements do not meet the criteria for offsetting in the statement of financial position. This is because CAPCO does not have any currently legally enforceable right to offset recognised amounts, because the right to offset is enforceable only on the occurrence of future events such as a default on the bank loans or other credit events.

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

II NOTES TO THE FINANCIAL INFORMATION OF CAPCO (continued)

3 FINANCIAL RISK MANAGEMENT (continued)

(f) Master netting or similar arrangements (continued)

The table below analyses financial assets subject to offsetting, enforceable master netting arrangements and similar agreements:

Gross amounts of financial assets recognised in the Related financial statement of liabilities that HK$’000 financial position are not set off At 31 December 2010 Forward foreign exchange contracts 486 (241) 486 (241) At 31 December 2011 Forward foreign exchange contracts 95 (84) 95 (84) At 31 December 2012 Forward foreign exchange contracts 11 – 11 – At 30 June 2013 Forward foreign exchange contracts – – – –	Net amount 245
	245

	11
	11

	11
	11

	–
	–

The table below analyses financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements:

Gross amounts of financial liabilities recognised in the Related financial statement of assets that HK$’000 financial position are not set off At 31 December 2010 Forward foreign exchange contracts 11,992 (241) Interest rate swaps 28,759 – 40,751 (241) At 31 December 2011 Forward foreign exchange contracts 2,764 (84) Interest rate swaps 5,433 – 8,197 (84) At 31 December 2012 Forward foreign exchange contracts 2,834 – 2,834 – At 30 June 2013 Forward foreign exchange contracts 9,009 – 9,009 –	Net amount 11,751 28,759
	40,510

	2,680 5,433
	8,113

	2,834
	2,834

	9,009
	9,009

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

II NOTES TO THE FINANCIAL INFORMATION OF CAPCO (continued)

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

(a) Lease accounting

The application of HKFRS-Interpretation 4 “Determining whether an Arrangement contains a Lease” has resulted in finance lease accounting being applied to CAPCO as lessor for its Electricity Supply Contract with CLP Power. To apply finance lease accounting, a number of assumptions in the lease models have been made, such as minimum lease payments, implicit interest rates and residual values of the power plants at the end of contract periods. In determining the minimum lease payments the assumption has been made that the return contained in the lease is a variable rate return which moves with reference to the return allowed under the SoC and accordingly the finance charge has been treated as contingent rent. Any future changes to these assumptions will affect the value of the lease receivables recognised and the corresponding lease income in CAPCO’s financial statements.

(b) Asset retirement obligation

CAPCO has been investing in power stations for generation of electricity to meet the demand of CLP Power’s customers in Hong Kong. As CAPCO expects its generation facilities will continue to be used to maintain the electricity supply in Hong Kong for the foreseeable future, it is our assessment that removal of the generation facilities is remote. As such, an asset retirement obligation has not been recognised upfront in the financial statements in accordance with the requirements of accounting standards.

5 REVENUE

Revenue comprises: HK$’000 Operating lease income from CLP Power Lease service charges to CLP Power Finance lease income from CLP Power_(Note)_ Sale of electricity by CLP Power to customers in the Chinese Mainland Other revenue	Year ended 31 December 2010 2011 2012 316,698 322,592 365,305 9,781,672 10,704,729 11,572,071 2,454,927 2,730,519 2,726,965 52,573 44,810 31,356 960 180 183 12,606,830 13,802,830 14,695,880	Six months ended 30 June 2012 2013 (unaudited) 165,127 183,550 5,360,462 5,238,474 1,353,365 1,338,644 19,565 14,376 183 267 6,898,702 6,775,311	Six months ended 30 June 2012 2013 (unaudited) 165,127 183,550 5,360,462 5,238,474 1,353,365 1,338,644 19,565 14,376 183 267 6,898,702 6,775,311
			6,775,311

Note: The finance lease income from CLP Power is all contingent rent.

6 OPERATING PROFIT

	Year	ended 31 December	ended 31 December	Six months ended 30 June	Six months ended 30 June
	2010	2011	2012	2012	2013
HK$’000				(unaudited)
Operating profit is stated after charging the following:
Staff expenses_(Note)_	261,403	269,178	282,398	141,941	128,449
Auditors’ remuneration
Audit	1,387	1,485	1,580	790	841
Permissible non-audit services	44	69	81	37	40
Net exchange loss/(gain)	657	803	240	903	(250)

Note: The staff expenses represented the amounts recharged from CLP Power under the Operating Service Agreement with CAPCO.

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

II NOTES TO THE FINANCIAL INFORMATION OF CAPCO (continued)

7 FINANCE COSTS/(INCOME)

HK$’000 Interest expenses on Bank loans and overdrafts Other borrowings wholly repayable within five years Fair value loss on derivative financial instruments Interest rate swaps: cash flow hedges, reclassified from equity Finance charges Exchange loss/(gain) Less: Amount capitalised	Year ended 31 December 2010 2011 2012 41,526 17,438 22,058 58,803 58,803 58,964 36,301 19,757 5,433 1,308 1,280 4,840 38,576 (14,361) (49,692) 176,514 82,917 41,603 (71,616) (48,680) (67,951) 104,898 34,237 (26,348)	Six months ended 30 June 2012 2013 (unaudited) 10,502 14,390 29,321 29,160 3,332 – 4,151 1,013 (28,112) 17,857 19,194 62,420 (32,914) (36,094) (13,720) 26,326

8 INCOME TAx ExPENSE

Hong Kong profits tax has been provided at the rate of 16.5% on the estimated assessable profits of all the reporting periods.

HK$’000 Current income tax Hong Kong profits tax (Over)/under-provision in prior year Deferred tax Accelerated/(declining) temporary differences Under/(over)-provision in prior year Total income tax expense	Year ended 31 December 2010 2011 2012 324,182 585,373 665,530 (8,831) 962 164 315,351 586,335 665,694 281,160 53,422 (11,165) 8,831 (962) (176) 289,991 52,460 (11,341) 605,342 638,795 654,353	Six months ended 30 June 2012 2013 (unaudited) 323,002 369,094 – – 323,002 369,094 (2,124) (57,700) – – (2,124) (57,700) 320,878 311,394

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

II NOTES TO THE FINANCIAL INFORMATION OF CAPCO (continued)

8 INCOME TAx ExPENSE (continued)

The income tax on CAPCO’s profit before income tax differs from the theoretical amount that would arise using the Hong Kong profits tax rate as follows:

HK$’000 Profit before income tax Calculated at an income tax rate at: Calculated income tax amount Expenses not deductible for tax purposes Income not subject to tax Over-provision for prior year Total income tax expense DIVIDENDS HK$’000 Interim dividends paid Final dividend proposed HK$’000 per share Interim dividends paid Final dividend proposed	Year ended 31 December 2010 2011 2012 3,457,395 3,687,603 3,786,260 16.5% 16.5% 16.5% 570,470 608,454 624,733 34,872 30,341 29,632 – – – – – (12) 605,342 638,795 654,353 Year ended 31 December 2010 2011 2012 2,572,200 2,660,300 2,721,900 279,800 388,600 410,000 2,852,000 3,048,900 3,131,900 Year ended 31 December 2010 2011 2012 5,144.40 5,320.60 5,443.80 559.60 777.20 820.00 5,704.00 6,097.80 6,263.80	Six months ended 30 June 2012 2013 (unaudited) 1,869,086 1,840,603 16.5% 16.5% 308,399 303,699 17,108 7,695 (4,629) – – – 320,878 311,394 Six months ended 30 June 2012 2013 907,300 912,300 – – 907,300 912,300 Six months ended 30 June 2012 2013 1,814.60 1,824.60 – – 1,814.60 1,824.60	Six months ended 30 June 2012 2013 (unaudited) 1,869,086 1,840,603 16.5% 16.5% 308,399 303,699 17,108 7,695 (4,629) – – – 320,878 311,394 Six months ended 30 June 2012 2013 907,300 912,300 – – 907,300 912,300 Six months ended 30 June 2012 2013 1,814.60 1,824.60 – – 1,814.60 1,824.60
			1,824.60

9 DIVIDENDS

The proposed final dividend is not reflected as dividend payable in the Financial Information, but as a separate component of the shareholders’ funds in the Statement of Financial Position. The final dividend proposed in each year end was paid in the first sixmonth periods of the following year.

Subsequent to 30 June 2013, an interim dividend in the amount of HK$912,400,000 (HK$1,824.80 per share) was paid on 16 September 2013, and another interim dividend of HK$912,300,000 (HK$1,824.60 per share) was declared on 25 November 2013 to be paid on 16 December 2013.

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

II NOTES TO THE FINANCIAL INFORMATION OF CAPCO (continued)

10 PROPERTY, PLANT AND EQUIPMENT UNDER CONSTRUCTION AND LEASEHOLD LAND

(a) Property, plant and equipment under construction

HK$’000 Cost Accumulated depreciation Net book value at 1 January 2010 Net book value at 1 January 2010 Additions De-recognised as finance lease receivable Net book value at 31 December 2010 Cost Accumulated depreciation Net book value at 31 December 2010 Net book value at 1 January 2011 Additions De-recognised as finance lease receivable Net book value at 31 December 2011 Cost Accumulated depreciation Net book value at 31 December 2011 Net book value at 1 January 2012 Additions De-recognised as finance lease receivable Net book value at 31 December 2012 Cost Accumulated depreciation Net book value at 31 December 2012 Net book value at 1 January 2013 Additions De-recognised as finance lease receivable Net book value at 30 June 2013 Cost Accumulated depreciation Net book value at 30 June 2013	Plant, machinery Buildings and equipment 1,461,376 3,245,622 – – 1,461,376 3,245,622 1,461,376 3,245,622 304,300 2,893,229 (1,727,371) (5,265,862) 38,305 872,989 38,305 872,989 – – 38,305 872,989 38,305 872,989 120,563 2,648,126 (152,502) (2,334,442) 6,366 1,186,673 6,366 1,186,673 – – 6,366 1,186,673 6,366 1,186,673 307,294 2,430,658 (246,033) (1,689,810) 67,627 1,927,521 67,627 1,927,521 – – 67,627 1,927,521 67,627 1,927,521 62,589 699,701 (62,920) (683,962) 67,296 1,943,260 67,296 1,943,260 – – 67,296 1,943,260	Total 4,706,998 – 4,706,998 4,706,998 3,197,529 (6,993,233) 911,294 911,294 – 911,294 911,294 2,768,689 (2,486,944) 1,193,039 1,193,039 – 1,193,039 1,193,039 2,737,952 (1,935,843) 1,995,148 1,995,148 – 1,995,148 1,995,148 762,290 (746,882) 2,010,556 2,010,556 – 2,010,556

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

II NOTES TO THE FINANCIAL INFORMATION OF CAPCO (continued)

10 PROPERTY, PLANT AND EQUIPMENT UNDER CONSTRUCTION AND LEASEHOLD LAND (continued)

(a) Property, plant and equipment under construction (continued)

With the adoption of lease accounting for the Electricity Supply Contract with CLP Power, the operational generating plants and associated fixed assets of CAPCO used for the generation of electricity supply to CLP Power under the Electricity Supply Contract were recognised as leased assets of CLP Power. CAPCO’s assets under construction are de-recognised and accounted for as net finance lease receivable when they become part of the operational generating plants and associated fixed assets under finance lease.

(b) Leasehold land

CAPCO’s interest in leasehold land represents operating lease prepayments and their net book value is analysed as follows:

Cost
Accumulated amortisation
Net book value at 1 January 2010
Net book value at 1 January 2010
Additions
Transfers
Amortisation
Net book value at 31 December 2010
Cost
Accumulated amortisation
Net book value at 31 December 2010
Net book value at 1 January 2011
Additions
Amortisation
Net book value at 31 December 2011
Cost
Accumulated amortisation
Net book value at 31 December 2011

HK$’000
2,933,447
(379,255)
2,554,192
2,554,192
–
(211)
(63,453)
2,490,528
2,933,236
(442,708)
2,490,528
2,490,528
104,205
(70,869)
2,523,864
3,037,441
(513,577)
2,523,864

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

II NOTES TO THE FINANCIAL INFORMATION OF CAPCO (continued)

10 PROPERTY, PLANT AND EQUIPMENT UNDER CONSTRUCTION AND LEASEHOLD LAND (continued)

(b) Leasehold land (continued)

Net book value at 1 January 2012 Additions Amortisation Net book value at 31 December 2012 Cost Accumulated amortisation Net book value at 31 December 2012 Net book value at 1 January 2013 Additions Amortisation Net book value at 30 June 2013 Cost Accumulated amortisation Net book value at 30 June 2013 The tenure of the leasehold land is as follows: HK$’000 Held in Hong Kong: On medium-term lease (10 - 50 years) On short-term lease (below 10 years) 11 FINANCE LEASE RECEIVABLES HK$’000 Amounts receivable from finance lease: Within one year After one year but within five years Over five years	2010 2,490,357 171 2,490,528 2010 1,994,236 7,947,850 17,122,425 27,064,511	HK$’000 2,523,864 614,059 (94,824) 3,043,099 3,651,500 (608,401) 3,043,099 3,043,099 205 (41,518) 3,001,786 3,651,705 (649,919) 3,001,786 As at 31 December As at 30 June 2011 2012 2013 2,523,731 3,043,004 3,001,710 133 95 76 2,523,864 3,043,099 3,001,786 As at 31 December As at 30 June 2011 2012 2013 2,199,578 2,405,275 2,382,808 8,761,022 9,490,187 9,341,412 16,367,699 15,091,283 14,874,596 27,328,299 26,986,745 26,598,816

The effective interest rate of the finance lease receivable is a floating rate which moves with reference to the return allowed under the SoC and accordingly the finance income has been treated as contingent rent. The interest rate was 9.99% for the years ended 31 December 2010, 2011 and 2012, and for six months ended 30 June 2013. The finance income associated with the finance leases was recognised to profit and loss in the reporting period in which the income was actually incurred.

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

II NOTES TO THE FINANCIAL INFORMATION OF CAPCO (continued)

12 DERIVATIVE FINANCIAL INSTRUMENTS

HK$’000 Assets Cash flow hedge Forward foreign exchange contracts Less: Current portion of derivative financial instruments Non-current portion of derivative financial instruments Liabilities Cash flow hedge Interest rate swaps Forward foreign exchange contracts Less: Current portion of derivative financial instruments Non-current portion of derivative financial instruments	2010 486 486 (477) 9 28,759 11,992 40,751 (29,324) 11,427	As at 31 December As at 30 June 2011 2012 2013 95 11 – 95 11 – (84) (11) – 11 – – 5,433 – – 2,764 2,834 9,009 8,197 2,834 9,009 (5,433) (2,084) (8,831) 2,764 750 178

As at 31 December 2010 and 2011, CAPCO had two interest rate swap contracts under which CAPCO pays fixed rate and receives floating rate interest. The notional amounts of the outstanding interest rate swaps were HK$953,171,000 as at 31 December 2010 and HK$476,585,000 as at 31 December 2011. As at 31 December 2010, 2011 and 2012 and 30 June 2013, CAPCO had forward foreign exchange contracts which are hedges of highly probable forecast transactions. The notional amounts of the outstanding forward foreign exchange contracts were HK$162,849,000 as at 31 December 2010, HK$48,452,000 as at 31 December 2011, HK$160,377,000 as at 31 December 2012 and HK$146,090,000 as at 30 June 2013.

The net fair value and remaining terms of the derivative financial instruments are set out below:

HK$’000 Interest rate swaps Within one year Between one and two years Forward foreign exchange contracts Within one year Between one and two years Between two and five years	2010 (19,757) (9,002) (28,759) (9,091) – (2,415) (11,506)	As at 31 December As at 30 June 2011 2012 2013 (5,433) – – – – – (5,433) – – 84 (2,073) (8,831) (2,753) (750) (178) – – – (2,669) (2,823) (9,009)

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

II NOTES TO THE FINANCIAL INFORMATION OF CAPCO (continued)

12 DERIVATIVE FINANCIAL INSTRUMENTS (continued)

The maturities of the derivative financial instruments used for hedging will correlate to the timing of the cash flows associated with the corresponding hedged items which are highly probable forecast transactions. Gains and losses recognised in the hedging reserve in equity on forward foreign exchange contracts as of 31 December 2010, 2011 and 2012, and 30 June 2013 are to be included in the initial cost of fixed assets in the period or periods during which the hedged transactions result in the recognition of the related fixed assets. Gain and losses recognised in the hedging reserve in equity on interest rate swaps as of 31 December 2010 and 2011 are continuously released to profit or loss until the repayment of bank loans and the expiry of the derivative contracts as set out in the above table.

13 CURRENT ACCOUNT WITH CLP POWER HONG KONG LIMITED

CAPCO’s only trade receivables are the amounts due from CLP Power under the Electricity Supply Contract. The amounts due from CLP Power as at 31 December 2010, 2011 and 2012 and 30 June 2013 mainly represent the trade receivables for the month of December 2010, 2011, 2012 and June 2013 respectively, to be settled in their following month and with aging of 30 days or below. The carrying amounts approximate their fair values.

14 BANK LOANS AND OTHER BORROWINGS

HK$’000 Current Short-term bank loans Current portion of long-term bank loans Current portion of other borrowings Non-current Long-term bank loans Other Borrowings Total bank loans and other borrowings	2010 2,604,117 497,752 – 3,101,869 497,752 2,063,000 2,560,752 5,662,621	As at 31 December As at 30 June 2011 2012 2013 2,752,642 4,114,931 4,327,268 497,739 – – – 2,063,000 2,063,000 3,250,381 6,177,931 6,390,268 – – – 2,063,000 – – 2,063,000 – – 5,313,381 6,177,931 6,390,268	As at 31 December As at 30 June 2011 2012 2013 2,752,642 4,114,931 4,327,268 497,739 – – – 2,063,000 2,063,000 3,250,381 6,177,931 6,390,268 – – – 2,063,000 – – 2,063,000 – – 5,313,381 6,177,931 6,390,268
			6,390,268
			– –
			–
			6,390,268

The other borrowings are from ExxonMobil Hong Kong Limited, a fellow subsidiary of CAPCO’s 60% shareholder ExxonMobil Energy Limited, and are unsecured, bear fixed interest rate of 2.85% per annum as at 31 December 2010, 2011 and 2012 and 30 June 2013. Such other borrowings are repayable in full on 31 December 2013 and will be subject to refinancing at such time.

The maturity of the bank loans and other borrowings is as follows:

HK$’000 Within one year Between one and two years Between two and five years	2010 3,101,869 497,752 2,063,000 5,662,621	As at 31 December As at 30 June 2011 2012 2013 3,250,381 6,177,931 6,390,268 2,063,000 – – – – – 5,313,381 6,177,931 6,390,268	As at 31 December As at 30 June 2011 2012 2013 3,250,381 6,177,931 6,390,268 2,063,000 – – – – – 5,313,381 6,177,931 6,390,268
			6,390,268

For the total bank loans and other borrowings, 54% as at 31 December 2010, 48% as at 31 December 2011, 33% as at 31 December 2012, and 32% as at 30 June 2013 were with interest rates fixed to maturity.

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

II NOTES TO THE FINANCIAL INFORMATION OF CAPCO (continued)

14 BANK LOANS AND OTHER BORROWINGS (continued)

The denomination of the loans and borrowings was:

HK$’000 U.S. dollars HK dollars	2010 42,334 5,620,287 5,662,621	As at 31 December As at 30 June 2011 2012 2013 21,154 – – 5,292,227 6,177,931 6,390,268 5,313,381 6,177,931 6,390,268	As at 31 December As at 30 June 2011 2012 2013 21,154 – – 5,292,227 6,177,931 6,390,268 5,313,381 6,177,931 6,390,268
			6,390,268

The effective interest rates at the end of the reporting period were as follows:

		As at 31 December	As at 31 December	As at 30 June
	2010	2011	2012	2013
Fixed rate loans and loans swapped to fixed rates	2.9% – 7.2%	2.9% – 7.2%	2.9%	2.9%
Variable rate loans	0.6% – 0.8%	0.7% – 2.8%	0.6% – 2.0%	0.9% – 1.5%

The carrying amounts of bank loans and other borrowings approximate their fair values. The fair value of long-term bank loans and other borrowings is determined using the expected future payments discounted at market interest rates prevailing at each of the reporting period end.

15 TRADE AND OTHER PAYABLES

HK$’000 Trade payables Accrued expenses	2010 424,202 1,248,762 1,672,964	As at 31 December As at 30 June 2011 2012 2013 498,260 1,095,058 218,595 1,343,807 1,206,348 923,670 1,842,067 2,301,406 1,142,265	As at 31 December As at 30 June 2011 2012 2013 498,260 1,095,058 218,595 1,343,807 1,206,348 923,670 1,842,067 2,301,406 1,142,265
			1,142,265

The aging analysis of CAPCO’s trade payables (based on invoice date) is as follows:

HK$’000 30 days or below 31 – 90 days Over 90 days SHARE CAPITAL HK$’000 Authorised: 1,000,000 shares of HK$100 each Issued and fully paid: 500,000 shares of HK$100 each	2010 424,163 3 36 424,202 2010 100,000 50,000	As at 31 December As at 30 June 2011 2012 2013 490,703 1,094,842 217,801 723 – 757 6,834 216 37 498,260 1,095,058 218,595 As at 31 December As at 30 June 2011 2012 2013 100,000 100,000 100,000 50,000 50,000 50,000	As at 31 December As at 30 June 2011 2012 2013 490,703 1,094,842 217,801 723 – 757 6,834 216 37 498,260 1,095,058 218,595 As at 31 December As at 30 June 2011 2012 2013 100,000 100,000 100,000 50,000 50,000 50,000

			50,000

16 SHARE CAPITAL

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

II NOTES TO THE FINANCIAL INFORMATION OF CAPCO (continued)

17 ADVANCES FROM SHAREHOLDERS

The advances shown in current liabilities are from shareholders as follows:

HK$’000 ExxonMobil Energy Limited CLP Power	2010 13,081,438 8,719,995 21,801,433	As at 31 December As at 30 June 2011 2012 2013 13,302,827 13,587,531 13,603,820 8,868,575 9,058,437 9,069,337 22,171,402 22,645,968 22,673,157	As at 31 December As at 30 June 2011 2012 2013 13,302,827 13,587,531 13,603,820 8,868,575 9,058,437 9,069,337 22,171,402 22,645,968 22,673,157
			22,673,157

The advances from shareholders are unsecured, interest free and have no fixed terms of repayment. The shareholder advances are mainly denominated in U.S. dollars and the carrying values approximate their fair values.

18 DEFERRED TAx LIABILITIES

Deferred tax is calculated in full on temporary differences under the liability method using the tax rate enacted at each of the end of the reporting periods of 16.5%. Most of the deferred tax balance is to be recovered or settled after more than twelve months.

The movement on the deferred tax liabilities account is as follows:

Derivative and Accelerated tax other Financial HK$’000 depreciation instruments Balance as at 1 January 2010 3,241,268 (15,069) Charge/(credit) to profit or loss 290,022 (31) Charge to other comprehensive income – 8,050 Balance as at 31 December 2010 3,531,290 (7,050) Balance as at 1 January 2011 3,531,290 (7,050) Charge to profit or loss 52,429 31 Charge to other comprehensive income – 5,283 Balance as at 31 December 2011 3,583,719 (1,736) Balance as at 1 January 2012 3,583,719 (1,736) Credit to profit or loss (11,329) (12) Charge to other comprehensive income – 885 Balance as at 31 December 2012 3,572,390 (863) Balance as at 1 January 2013 3,572,390 (863) Credit to profit or loss (57,700) – Credit to other comprehensive income – (1,021) Balance as at 30 June 2013 3,514,690 (1,884)	Total 3,226,199 289,991 8,050
	3,524,240

	3,524,240 52,460 5,283
	3,581,983

	3,581,983 (11,341) 885
	3,571,527

	3,571,527 (57,700) (1,021)
	3,512,806

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

II NOTES TO THE FINANCIAL INFORMATION OF CAPCO (continued)

19 ASSET DECOMMISSIONING LIABILITIES

Under the current SoC Agreement, CAPCO is to charge a periodic amount of the estimated expenditure for dismantling and removing fixed assets to an asset decommissioning liabilities account. The balance of the asset decommissioning liabilities account of HK$238,991,000 as at 31 December 2010, HK$366,299,000 as at 31 December 2011, HK$500,670,000 as at 31 December 2012, and HK$487,815,000 as at 30 June 2013 recognised under the SoC represents a liability to CAPCO. The carrying amounts of the asset decommissioning liabilities approximate their fair values.

20 RECONCILIATION OF PROFIT BEFORE INCOME TAx TO NET CASH INFLOW FROM OPERATIONS

HK$’000 Profit before income tax Adjustment for: Finance costs/(income) Operating profit Adjustments for: Amortisation Other financing costs Operating profit before working capital changes (Increase)/decrease in inventory – stores and fuel Decrease/(increase) in sundry debtors and prepayments (Increase)/decrease in current account with CLP Power Increase/(decrease) in asset decommissioning liabilities (Decrease)/increase in trade and other payables Net cash inflow from operations	Year ended 31 December Six months ended 30 June 2010 2011 2012 2012 2013 (unaudited) 3,457,395 3,687,603 3,786,260 1,869,086 1,840,603 104,898 34,237 (26,348) (13,720) 26,326 3,562,293 3,721,840 3,759,912 1,855,366 1,866,929 63,453 70,869 94,824 35,457 41,518 8,021 9,191 15,351 4,750 11,199 3,633,767 3,801,900 3,870,087 1,895,573 1,919,646 (335,001) 21,836 (1,063,600) (414,258) 95,305 13,735 142,215 (2,406) (21,284) (27,953) (114,013) (249,297) 217,925 140,300 79,400 108,916 127,308 134,371 68,228 (12,855) (105,148) (285,688) 213,560 475,797 (15,509) 3,202,256 3,558,274 3,369,937 2,144,356 2,038,034	Year ended 31 December Six months ended 30 June 2010 2011 2012 2012 2013 (unaudited) 3,457,395 3,687,603 3,786,260 1,869,086 1,840,603 104,898 34,237 (26,348) (13,720) 26,326 3,562,293 3,721,840 3,759,912 1,855,366 1,866,929 63,453 70,869 94,824 35,457 41,518 8,021 9,191 15,351 4,750 11,199 3,633,767 3,801,900 3,870,087 1,895,573 1,919,646 (335,001) 21,836 (1,063,600) (414,258) 95,305 13,735 142,215 (2,406) (21,284) (27,953) (114,013) (249,297) 217,925 140,300 79,400 108,916 127,308 134,371 68,228 (12,855) (105,148) (285,688) 213,560 475,797 (15,509) 3,202,256 3,558,274 3,369,937 2,144,356 2,038,034
		1,866,929 41,518 11,199
		1,919,646 95,305 (27,953) 79,400 (12,855) (15,509)
		2,038,034

21 COMMITMENTS

(a) Capital expenditure on fixed assets and leasehold land authorised but not brought into the Financial Information is as follows:

HK$’000 Contracted but not provided for Authorised but not contracted for	2010 647,411 2,635,491 3,282,902	As at 31 December As at 30 June 2011 2012 2013 1,036,259 664,525 838,124 2,672,877 1,896,915 1,408,703 3,709,136 2,561,440 2,246,827	As at 31 December As at 30 June 2011 2012 2013 1,036,259 664,525 838,124 2,672,877 1,896,915 1,408,703 3,709,136 2,561,440 2,246,827
			2,246,827

(b) Natural gas for the Black Point Power Station is purchased by CAPCO on a take-or-pay basis pursuant to two contracts, with a 20year one commencing in January 1996 and another one with a 5-year plateau supply commencing in May 2012 respectively. The prices for the gas under both contracts are determined by reference to certain market and economic indices.

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

II NOTES TO THE FINANCIAL INFORMATION OF CAPCO (continued)

22 FUTURE MINIMUM LEASE PAYMENTS RECEIVABLE UNDER OPERATING LEASES

The future aggregate minimum lease payments receivable in respect of the operating leases contained in the Electricity Supply Contract with CLP Power are as follows:

HK$’000 Within one year Later than one year and not later than five years Over five years	2010 291,862 1,103,971 5,146,398 6,542,231	As at 31 December As at 30 June 2011 2012 2013 318,542 364,953 360,805 1,203,316 1,376,777 1,360,173 5,451,589 6,056,254 5,893,493 6,973,447 7,797,984 7,614,471	As at 31 December As at 30 June 2011 2012 2013 318,542 364,953 360,805 1,203,316 1,376,777 1,360,173 5,451,589 6,056,254 5,893,493 6,973,447 7,797,984 7,614,471
			7,614,471

23 RELATED PARTY TRANSACTIONS

(a) The following is a summary of significant related party transactions in addition to those disclosed in Notes 13, 14 and 17, which were carried out in the normal course of business during the year ended 31 December 2010, 2011 and 2012, and the six months ended 30 June 2012 and 2013:

HK$’000 Payment from CLP Power under Electricity Supply Contract (i) Operating lease income Lease service charges Finance lease income Total related party income_(note 5)_ Payment for finance lease receivable and other charges Costs reimbursed to CLP Power (ii)	Year ended 31 December Six months ended 30 June 2010 2011 2012 2012 2013 (unaudited) 316,698 322,592 365,305 165,127 183,550 9,781,672 10,704,729 11,572,071 5,360,462 5,238,474 2,454,927 2,730,519 2,726,965 1,353,365 1,338,644 12,553,297 13,757,840 14,664,341 6,878,954 6,760,668 1,827,615 2,259,799 2,402,292 1,171,443 1,085,579 14,380,912 16,017,639 17,066,633 8,050,397 7,846,247 1,273,484 1,311,957 1,358,149 667,035 489,111	Year ended 31 December Six months ended 30 June 2010 2011 2012 2012 2013 (unaudited) 316,698 322,592 365,305 165,127 183,550 9,781,672 10,704,729 11,572,071 5,360,462 5,238,474 2,454,927 2,730,519 2,726,965 1,353,365 1,338,644 12,553,297 13,757,840 14,664,341 6,878,954 6,760,668 1,827,615 2,259,799 2,402,292 1,171,443 1,085,579 14,380,912 16,017,639 17,066,633 8,050,397 7,846,247 1,273,484 1,311,957 1,358,149 667,035 489,111
		6,760,668 1,085,579
		7,846,247

		489,111

(i) CAPCO sells electricity under the Electricity Supply Contract to CLP Power at cost plus profit calculated in accordance with the SoC. CLP Power owns a 40% share in CAPCO.

Pursuant to the requirements of HKFRS, the electricity supply arrangement was assessed to contain leases with service payments. The payment receivable from CLP Power pursuant to the contract has been allocated to the different leases and service elements according to the requirements of HKFRS.

(ii) In accordance with the Operating Service Agreement between CLP Power and CAPCO, CLP Power is responsible to CAPCO for the efficient and proper construction, commissioning, operation and maintenance of the electricity generating facilities of CAPCO. In return, CAPCO reimburses CLP Power for all costs incurred in performance of the agreement. The portion of the amount recharged by CLP Power which is accounted for as operating expenses by CAPCO is covered under the amount payable under the electricity supply arrangement in (i) above.

ACCOUNTANT’S REPORT ON CAPCO

APPENDIX II

II NOTES TO THE FINANCIAL INFORMATION OF CAPCO (continued)

23 RELATED PARTY TRANSACTIONS (continued)

(b) Total remuneration of CAPCO’s directors, who are the key management personnel of CAPCO, is as follows:

HK$’000 Directors’ remuneration – fees: Mr. Muschalik, James Frederick Mr. Neo, Kim Teck Mr. Chu, Richard Yiu Wah Mr. Ho, David Ms. Lee, Sharon Therese Mr. Leung, Kin Chung Jonathan Ms. Luk, Siu-Kuen Rebecca Mr. Tsao, Kwai Wah Andrew Mr. Tho, Yow Yin Mr. Mocatta, William Elkin Mr. Brandler, Andrew Clifford Winawer Mr. Crighton, David John Mr. Lancaster, Richard Kendall Mr. Truscott, James Richarde Mrs. Yuen So, Siu Mai Betty	Year ended 31 December Six months ended 30 June 2010 2011 2012 2012 2013 (unaudited) – 29 250 124 124 250 221 – – – 180 180 90 90 – 180 180 180 89 90 – – 90 – 89 180 180 180 90 89 180 180 180 89 90 180 44 – – – – 136 180 89 89 180 180 180 90 89 180 180 180 90 89 180 22 – – – 180 180 180 89 90 – 158 180 90 89 180 180 180 89 89 2,050 2,050 2,050 1,019 1,017	Year ended 31 December Six months ended 30 June 2010 2011 2012 2012 2013 (unaudited) – 29 250 124 124 250 221 – – – 180 180 90 90 – 180 180 180 89 90 – – 90 – 89 180 180 180 90 89 180 180 180 89 90 180 44 – – – – 136 180 89 89 180 180 180 90 89 180 180 180 90 89 180 22 – – – 180 180 180 89 90 – 158 180 90 89 180 180 180 89 89 2,050 2,050 2,050 1,019 1,017
		1,017

(c) CAPCO has no employees and the staff costs are recharged from CLP Power under the Operating Service Agreement with CLP Power.

24 ULTIMATE AND IMMEDIATE HOLDING COMPANY

CAPCO is 60% owned by ExxonMobil Energy Limited (“EMEL”) and 40% owned by CLP Power which is responsible for CAPCO’s day to day operations. The ultimate holding company of ExxonMobil Energy Limited is Exxon Mobil Corporation, a company incorporated in the United States of America. The ultimate holding company of CLP Power is CLP Holdings Limited, a company incorporated in Hong Kong.

25 SUBSEQUENT EVENTS

On 19 November 2013, EMEL, CLP Power and China Southern Power Grid International (HK) Co., Limited (“CSG HK”) entered into a sale and purchase agreement, whereby CLP Power and CSG HK will each acquire half of EMEL’s 60% equity interest in, and the associated shareholder’s advances to, CAPCO, subject to certain conditions being satisfied.

III SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by CAPCO in respect of any period subsequent to 30 June 2013 up to the date of this report. Subsequent to 30 June 2013, an interim dividend in the amount of HK$912,400,000 was paid on 16 September 2013, and another interim dividend in the amount of $912,300,000 was declared on 25 November 2013 to be paid on 16 December 2013.

Yours faithfully, PricewaterhouseCoopers

Certified Public Accountants Hong Kong

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON CAPCO

The following discussion and analysis is based on the Financial Information from the Accountant’s report on CAPCO contained in Appendix II to this circular.

REVENUE

Revenue of CAPCO for each of the three years ended 31 December 2010, 2011 and 2012 was HK$12,607 million, HK$13,803 million and HK$14,696 million respectively. Revenue of CAPCO for each of the six-month periods ended 30 June 2012 and 2013 was HK$6,899 million and HK$6,775 million respectively.

CAPCO sells electricity to CLP Power under an Electricity Supply Contract where CLP Power is obliged to purchase the total electricity output of CAPCO. It provides that CLP Power is responsible for the payment of all of CAPCO’s operating expenses as well as CAPCO’s share of the return permitted under the SoC. Under HKFRS, this contract constitutes a lease arrangement which is accounted for as a finance lease. Revenue of CAPCO primarily consists of finance lease income, operating lease and lease service income from CLP Power.

Revenue of CAPCO also includes income earned on sales of electricity by CLP Power to the Chinese mainland. The SoC contemplates a special arrangement for supply to the Chinese mainland. Pursuant to a separate agreement between CLP Power, CAPCO and the Hong Kong Government, 80% of the profit from sales to the Chinese mainland is credited to a SoC Tariff Stabilisation Fund for the benefit of the customers of CLP Power. The remaining 20% of the profit from such sales is shared between CAPCO and CLP Power in the ratio of 60% and 40% respectively.

As compared to the previous year, revenue increased by HK$1,196 million in 2011 and HK$893 million in 2012 mainly attributable to higher fuel expenses over these two years. Revenue decreased by HK$124 million for the first half of 2013 as compared to the same period in 2012 mainly attributable to lower fuel expenses.

PROFIT BEFORE INCOME TAx

Profit before income tax of CAPCO for each of the three years ended 31 December 2010, 2011 and 2012 was HK$3,457 million, HK$3,688 million and HK$3,786 million respectively. Profit before income tax of CAPCO for each of the six-month periods ended 30 June 2012 and 2013 was HK$1,869 million and HK$1,841 million respectively. The increases in profit before income tax during the three years ended 31 December 2010, 2011 and 2012 were primarily due to increases in operating lease income and finance lease income from finance lease receivables as CAPCO continued to invest as described below under “Financial Position”, and the decreases in interest on lower interest rates and loan balances. The decrease in profit before income tax for the first half of 2013 as compared to the same period in 2012 was mainly due to the unrealised exchange loss on retranslation of shareholders’ advances at the end of the reporting periods.

CAPITAL STRUCTURE

As at 31 December 2010, 2011 and 2012, and 30 June 2013, CAPCO had outstanding bank loans of HK$3,600 million, HK$3,250 million, HK$4,115 million and HK$4,327 million (of which HK$3,102 million, HK$3,250 million, HK$4,115 million and HK$4,327 million were due in less than one year) respectively. Bank loans were mainly denominated in Hong Kong dollars and since July 2012, all have been at variable rates. The other borrowings of HK$2,063 million as at 31 December 2010, 2011 and 2012, and 30 June 2013 are from ExxonMobil Hong Kong Limited, a fellow subsidiary of EMEL, and are unsecured, bear fixed interest rate of 2.85% per annum and are repayable in full on 31 December 2013, and will be subject to refinancing at such time. The effective interest rates of fixed rate loans and loans swapped to fixed rates were 2.9% to 7.2%, 2.9% to 7.2%, 2.9% and 2.9%, and variable rate loans were 0.6% to 0.8%, 0.7% to 2.8%, 0.6% to 2.0% and 0.9% to 1.5% as at 31 December 2010, 2011 and 2012, and 30 June 2013 respectively.

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON CAPCO

As at 31 December 2010, 2011 and 2012, and 30 June 2013, CAPCO had total debt to total capital ratios of 20.3%, 19.0%, 21.0% and 21.4% respectively. For the purpose of the calculation of total debt to total capital ratios, shareholders’ funds comprise shareholders’ advances and shareholders’ equity. Shareholders’ advances are mainly denominated in U.S. dollars, unsecured, interest free and have no fixed terms of repayment.

CAPCO adopts prudent liquidity risk management which implies maintaining sufficient cash and making available an adequate amount of committed credit facilities with staggered maturities to reduce refinancing risk in any year and to fund working capital, debt servicing, dividend payments and capital investments.

FOREIGN ExCHANGE RISK MANAGEMENT

Under the terms of the Electricity Supply Contract with CLP Power, CAPCO is permitted to charge CLP Power for all properly incurred foreign exchange payments, converted into Hong Kong dollars.

FINANCIAL POSITION

The total assets of CAPCO were HK$33,474 million as at 31 December 2010, and increased to HK$34,138 million as at 31 December 2011 mainly due to the increase in the finance lease receivables balance as a result of the increase in assets leased to CLP Power upon the commissioning of emissions control asset and from the replacement and refurbishment of assets for the operational generating plants, partly offset by the repayment of finance lease receivables. The total assets of CAPCO increased to HK$35,965 million as at 31 December 2012 mainly due to the increase in property, plant and equipment under construction in relation to facilities for receiving new gas supply, and increase in fuel inventory partly offset by the repayment of finance lease receivables. The total assets decreased to HK$35,405 million as at 30 June 2013 mainly due to the repayment of finance lease receivables.

As at 31 December 2010, CAPCO had total liabilities of HK$33,095 million which were increased to HK$33,624 million as at 31 December 2011 mainly due to the increase in shareholders’ advances. The total liabilities increased to HK$35,426 million as at 31 December 2012 mainly due to the increase in borrowings for financing assets under construction and the increase in shareholders’ advances. The total liabilities decreased to HK$34,663 million as at 30 June 2013 mainly due to the decrease in creditors for capital works.

EMPLOYEES AND REMUNERATION POLICIES

CAPCO does not have any of its own employees. CLP Power operates CAPCO’s generating facilities under an Operating Service Agreement with CAPCO. The staff expenses of CAPCO represented the amounts recharged from CLP Power under the Operating Service Agreement. Total staff expenses for each of the three years ended 31 December 2010, 2011 and 2012 were HK$261 million, HK$269 million and HK$282 million respectively. Total staff expenses for each of the six-month periods ended 30 June 2012 and 2013 were HK$142 million and HK$128 million respectively. The increase in total staff expenses in 2012 was mainly due to higher actual inposts and pay increases. The decrease in total staff expenses for the first half of 2013 as compared to the same period in 2012 was mainly due to lower provision for annual incentives in 2013.

CLP Power’s remuneration policy is broadly aligned with companies with whom CLP Power competes for human resources and remuneration reflects performance, complexity and responsibility.

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON CAPCO

CAPITAL COMMITMENTS, CHARGES ON ASSETS AND CONTINGENT LIABILITIES

As at 31 December 2010, 2011 and 2012 and 30 June 2013, CAPCO had capital commitments amounting to HK$3,283 million, HK$3,709 million, HK$2,561 million and HK$2,247 million respectively. These commitments mainly relate to the maintenance and refurbishment of the operational generating plants, the budgets of which had been authorised or their contracts had been placed but the amounts had not yet been brought into the financial statements. The higher capital commitments in 2010 and 2011 were mainly due to an emissions control project and gas receiving facilities projects under construction. These projects were gradually completed after 2011. CAPCO had no charges on assets and contingent liabilities as at 31 December 2010, 2011 and 2012 and 30 June 2013.

ACCOUNTANT’S REPORT ON PSDC

APPENDIX IV

==> picture [75 x 54] intentionally omitted <==

10 December 2013

The Directors CLP Holdings Limited

Dear Sirs,

We report on the financial information of Hong Kong Pumped Storage Development Company, Limited (“PSDC”) which comprises the statements of financial position of PSDC as at 31 December 2010, 2011 and 2012 and 30 June 2013, and the statements of profit or loss, the statements of profit or loss and other comprehensive income, the statements of changes in equity and the statements of cash flows of PSDC for each of the years ended 31 December 2010, 2011, 2012 and the six months ended 30 June 2013 (the “Relevant Periods”) and a summary of significant accounting policies and other explanatory information. This financial information has been prepared by the directors of CLP Holdings Limited (the “Company”) and is set out in Sections I to III below for inclusion in Appendix IV to the circular of the Company dated 10 December 2013 (the “Circular”) in connection with the proposed acquisition of PSDC by the Company.

PSDC was incorporated in Hong Kong on 28 April 1989 as a limited liability company.

The financial statements of PSDC for each of the years ended 31 December 2010, 31 December 2011 and 31 December 2012 and the interim financial statements of PSDC for the six months ended 30 June 2013 were audited by PricewaterhouseCoopers pursuant to separate terms of engagement with PSDC.

The directors of PSDC during the Relevant Periods are responsible for the preparation of the financial statements of PSDC that give a true and fair view in accordance with Hong Kong Financial Reporting Standards (“HKFRS”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”), and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

The financial information has been prepared based on the audited financial statements of PSDC with no adjustment made thereon.

ACCOUNTANT’S REPORT ON PSDC

APPENDIX IV

Directors’ Responsibility for the Financial Information

Reporting Accountant’s Responsibility

Opinion

In our opinion, the financial information gives, for the purpose of this report, a true and fair view of the state of affairs of PSDC as at 31 December 2010, 2011 and 2012 and 30 June 2013 and of PSDC’s results and cash flows for the Relevant Periods then ended.

Review of stub period comparative financial information

We have reviewed the stub period comparative financial information set out in Sections I to II below included in Appendix IV to the Circular which comprises the statement of profit or loss, the statement of profit or loss and other comprehensive income, the statement of changes in equity and the statement of cash flows of PSDC for the six months ended 30 June 2012 and a summary of significant accounting policies and other explanatory information (the “Stub Period Comparative Financial Information”).

ACCOUNTANT’S REPORT ON PSDC

APPENDIX IV

I FINANCIAL INFORMATION OF PSDC

The following is the financial information of PSDC as at 31 December 2010, 2011 and 2012 and 30 June 2013 and for each of the years ended 31 December 2010, 2011 and 2012 and the six months ended 30 June 2012 and 2013 (“Financial Information”):

1. Statements of Profit or Loss

Note
HK$’000
Revenue
4
Expenses
Operating expenses
5
Depreciation
9
Amortisation
10
Staff expenses
5
Operating profit
5
Finance costs
6
Finance income
6
Profit before income tax
Income tax expense
7
Profit for the year/period
attributable to shareholders
Dividends
Interim dividends paid
8
Final dividends proposed
8

Six months
Year ended 31 December
ended 30 June
2010
2011
2012
2012
2013
(unaudited)
403,068
419,024
433,446
217,065
223,898
155,732
159,817
163,449
82,340
83,998
1,412
1,328
1,296
663
620
37,660
37,735
37,934
18,958
18,975
8,503
8,962
8,986
4,830
3,484
203,307
207,842
211,665
106,791
107,077
199,761
211,182
221,781
110,274
116,821
(2,184)
(3,734)
(3,920)
(1,366)
(2,450)
3
5
3
1
1
(2,181)
(3,729)
(3,917)
(1,365)
(2,449)
197,580
207,453
217,864
108,909
114,372
(49,489)
(51,957)
(54,593)
(27,274)
(28,655)
148,091
155,496
163,271
81,635
85,717
133,200
139,900
147,000
49,000
51,400
14,900
15,600
16,300
–
–
148,100
155,500
163,300
49,000
51,400

ACCOUNTANT’S REPORT ON PSDC

APPENDIX IV

I FINANCIAL INFORMATION OF PSDC (continued)

2. Statements of Profit or Loss and Other Comprehensive Income

HK$’000 Profit for the year/period Other comprehensive income for the year/period, net of tax Total comprehensive income attributable to shareholders	Six months Year ended 31 December ended 30 June 2010 2011 2012 2012 2013 (unaudited) 148,091 155,496 163,271 81,635 85,717 – – – – – 148,091 155,496 163,271 81,635 85,717	Six months Year ended 31 December ended 30 June 2010 2011 2012 2012 2013 (unaudited) 148,091 155,496 163,271 81,635 85,717 – – – – – 148,091 155,496 163,271 81,635 85,717
		85,717

ACCOUNTANT’S REPORT ON PSDC

APPENDIX IV

I FINANCIAL INFORMATION OF PSDC (continued)

3. Statements of Financial Position

HK$’000 Note Non-current assets Fixed assets 9 Intangible assets 10 Deferred tax asset 11 Current assets Sundry debtors and prepayments 12 Current account with CLP Power Hong Kong Limited 13 Bank balances and cash Current liabilities Trade and other payables 14 Bank loans 15 Tax payable Advances from shareholders 16 Net current liabilities Total assets less current liabilities Financed by: Equity Share capital 17 Retained profits Proposed dividend Non-current liabilities Bank loans 15 Deferred revenue 18 Equity and non-current liabilities	As at 31 December 2010 2011 2012 3,815 2,487 1,257 888,951 861,428 828,603 250,786 268,273 286,188 1,143,552 1,132,188 1,116,048 94,010 92,017 92,236 36,447 30,155 40,642 295 325 425 130,752 122,497 133,303 (2,348) (1,931) (1,827) (119,005) (308,810) (197,762) (18,186) (7,239) (7,703) (422,105) (295,721) (196,021) (561,644) (613,701) (403,313) (430,892) (491,204) (270,010) 712,660 640,984 846,038 10,000 10,000 10,000 61 57 28 14,900 15,600 16,300 24,961 25,657 26,328 165,000 – 110,000 522,699 615,327 709,710 687,699 615,327 819,710 712,660 640,984 846,038	As at 30 June 2013 1,001 815,045 295,141 1,111,187 43,220 32,372 439 76,031 (1,110) (121,990) (20,601) (132,193) (275,894) (199,863) 911,324 10,000 34,345 – 44,345 110,000 756,979 866,979 911,324

ACCOUNTANT’S REPORT ON PSDC

APPENDIX IV

I FINANCIAL INFORMATION OF PSDC (continued)

4. Statements of Changes in Equity

HK$’000 Share capital Balance at 1 January 2010 10,000 Total comprehensive income for the year – Dividends 2009 final – 2010 interim – Balance at 31 December 2010 10,000 Balance at 1 January 2011 10,000 Total comprehensive income for the year – Dividends 2010 final – 2011 interim – Balance at 31 December 2011 10,000 Balance at 1 January 2012 10,000 Total comprehensive income for the year – Dividends 2011 final – 2012 interim – Balance at 31 December 2012 10,000 Balance at 1 January 2012 10,000 Total comprehensive income for the period (unaudited) – Dividends 2011 final – 2012 interim – Balance at 30 June 2012 (unaudited) 10,000 Balance at 1 January 2013 10,000 Total comprehensive income for the period – Dividends 2012 final – 2013 interim – Balance at 30 June 2013 10,000	Retained profits 14,170 148,091 (14,100) (133,200) 14,961 14,961 155,496 (14,900) (139,900) 15,657 15,657 163,271 (15,600) (147,000) 16,328 15,657 81,635 (15,600) (49,000) 32,692 16,328 85,717 (16,300) (51,400) 34,345	Total 24,170 148,091 (14,100) (133,200) 24,961 24,961 155,496 (14,900) (139,900) 25,657 25,657 163,271 (15,600) (147,000) 26,328 25,657 81,635 (15,600) (49,000) 42,692 26,328 85,717 (16,300) (51,400) 44,345

ACCOUNTANT’S REPORT ON PSDC

APPENDIX IV

I FINANCIAL INFORMATION OF PSDC (continued)

5. Statements of Cash Flows

Note
HK$’000
Operating activities
Net cash inflow from
operations
19
Interest received
PRC business tax, and
other taxes/fees paid
Income tax paid – outside
Hong Kong
Net cash inflow from
operating activities
Investing activities
Capital expenditure
Proceeds from disposal
of fixed assets
Net cash outflow from
investing activities
Net cash inflow before
financing activities
Financing activities
Decrease in shareholders’
advances
Proceeds from long-term
borrowings
Repayment of long-term
borrowings
(Decrease)/increase in
short-term borrowings
Interest paid
Dividends paid
Net cash outflow from
financing activities
Increase/(decrease) in cash and
cash equivalents
Cash and cash equivalents at
beginning of year/period
Cash and cash equivalents at
end of year/period
Analysis of cash and
cash equivalents
Bank balances and cash

Six months
Year ended 31 December
ended 30 June
2010
2011
2012
2012
2013
(unaudited)
343,376
366,207
361,547
233,216
249,455
3
5
3
1
1
(14,829)
(16,794)
(17,561)
(8,632)
(9,108)
(66,190)
(80,434)
(72,251)
(23,878)
(24,857)
262,360
268,984
271,738
200,707
215,491
(6,161)
(10,212)
(5,175)
(552)
(5,781)
–
–
–
–
127
(6,161)
(10,212)
(5,175)
(552)
(5,654)
256,199
258,772
266,563
200,155
209,837
(106,337)
(126,403)
(99,209)
(98,948)
(63,950)
165,000
–
110,000
–
–
(145,000)
–
(165,000)
–
–
(20,208)
24,805
53,952
(35,197)
(75,772)
(2,249)
(2,344)
(3,606)
(1,471)
(2,401)
(147,300)
(154,800)
(162,600)
(64,600)
(67,700)
(256,094)
(258,742)
(266,463)
(200,216)
(209,823)
105
30
100
(61)
14
190
295
325
325
425
295
325
425
264
439
295
325
425
264
439

ACCOUNTANT’S REPORT ON PSDC

APPENDIX IV

II NOTES TO THE FINANCIAL INFORMATION OF PSDC

1 GENERAL INFORMATION

The principal activity of PSDC is providing pumped storage services to CLP Power Hong Kong Limited (“CLP Power”) in the Chinese mainland in accordance with the Pumped Storage Services Agreement.

PSDC is a limited liability company incorporated in Hong Kong. The address of its registered office is 8 Laguna Verde Avenue, Hung Hom, Kowloon, Hong Kong.

2 SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation

The principal accounting policies adopted in the preparation of the Financial Information are set out below. These policies have been consistently applied to all the periods presented.

The Financial Information has been prepared in accordance with HKFRS issued by HKICPA.

The Financial Information has been prepared under the historical cost convention.

PSDC has assessed the net current liabilities position as at the end of each reporting period and believe that PSDC can continue in operational existence for the foreseeable future based on a stable operating cash flow from the Pumped Storage Services Agreement with CLP Power and continued support from shareholders. Therefore, PSDC continues to adopt the going concern basis in preparing the Financial Information.

The following new/revised HKFRS have been issued and are mandatory for adoption by PSDC for accounting periods beginning on or after 1 January 2014, but PSDC has not early adopted:

Amendments to HKAS 32 “Offsetting Financial Assets and Financial Liabilities”
Amendments to HKAS 36 “Recoverable Amount Disclosures for Non-Financial Assets”
HKFRS 9 “Financial Instruments”

The adoption of these new/revised HKFRS will have no significant impact on the results and financial position of PSDC.

(b) Revenue

Revenue primarily represents service fee income from providing pumped storage services to CLP Power. The service fee income is recognised when pumped storage services are rendered and is determined based on the annual fee earned plus the expenses recognised by PSDC in the period. The portion of the amount received from CLP Power which is in excess of the service fee income recognised as revenue in a period is deferred in the statements of financial position as deferred revenue.

(c) Fixed assets

Fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the fixed asset. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to PSDC and the cost of the item can be measured reliably. For any asset replacement, the carrying amount of the replaced part is derecognised. All other repairs and maintenance are recognised as expenses in the period in which they are incurred.

ACCOUNTANT’S REPORT ON PSDC

APPENDIX IV

II NOTES TO THE FINANCIAL INFORMATION OF PSDC (continued)

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(c) Fixed assets (continued)

Depreciation of fixed assets is provided on a straight line basis commencing from the date of commissioning over the depreciation period as follows:

Land use right and Buildings	20 years
Furniture, construction equipment, tools, communication and office equipment	10 years
Computers and office automation equipment	5 years
Motor vehicles	5 years

The gain or loss on disposal of a fixed asset is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in profit or loss.

The assets’ residual values are reviewed and adjusted, if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

(d) Intangible assets

Intangible assets are stated at cost less accumulated amortisation and accumulated impairment losses. Intangible assets are amortised on a straight-line basis over their useful life. PSDC’s intangible assets comprise the pumped storage capacity right which expires in 2034. The remaining useful life of the capacity right as at 1 January 2010 was 24 years.

(e) Cash and cash equivalents

Cash and cash equivalents comprise cash at banks and on hand.

(f) Trade and other payables

Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

(g) Current and deferred tax

The tax expense for the period comprises current and deferred tax.

The current tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the People’s Republic of China.

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Financial Information. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred tax asset is realised. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

ACCOUNTANT’S REPORT ON PSDC

APPENDIX IV

II NOTES TO THE FINANCIAL INFORMATION OF PSDC (continued)

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(h) Borrowings and interest

Borrowings are recognised initially at fair value, net of transaction costs incurred. Transaction costs are incremental costs that are directly attributable to the acquisition or issue of a financial liability. Borrowings are subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is amortised to profit or loss or to the cost of the qualifying assets over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless PSDC has an unconditional right to defer settlement of the liabilities for at least 12 months after the end of the reporting period.

Interest on borrowings arranged to finance the acquisition, construction or production of fixed assets is:

(i) incorporated in capital expenditure during the period of time that is required to complete and prepare the asset for its intended use; and
(ii) charged to finance costs when incurred after commissioning.
(i) Foreign currency

The Financial Information is presented in Hong Kong dollars which is PSDC’s functional and presentation currency.

Foreign currency transactions are translated into Hong Kong dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rate of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

(j) Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under an operating lease are charged to profit or loss on a straight-line basis over the period of the lease.

(k) Related parties

Related parties are individuals and companies, including key management personnel, where the individual or company has the ability, directly or indirectly, to control or joint control the other party or exercise significant influence over the other party in making financial and operating decisions. A close family member of any such individual is considered to be a related party. Parties are also considered to be related if they are joint ventures of the same third party; or one party is a joint venture and the other is an associate of the same third party.

3 FINANCIAL RISK MANAGEMENT

(a) Financial risk factors

PSDC’s activities expose it to a variety of financial risks: market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk. PSDC’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise the impact of exchange rate and interest rate fluctuations on PSDC’s financial performance.

Risk management for PSDC is carried out by the CLP Group’s central treasury department (Group Treasury) under policies approved by the Board of Directors of PSDC.

(i) Foreign exchange risk

PSDC’s major foreign exchange risk arises from U.S. dollar payment obligations with regard to shareholders’ advances repayment. Foreign exchange gains and losses are ultimately recovered from CLP Power under the current Pumped Storage Services Agreement and as a result PSDC does not retain any foreign exchange risk.

ACCOUNTANT’S REPORT ON PSDC

APPENDIX IV

II NOTES TO THE FINANCIAL INFORMATION OF PSDC (continued)

3 FINANCIAL RISK MANAGEMENT (continued)

(a) Financial risk factors (continued)

(ii) Interest-rate risk

PSDC’s interest-rate risk arises from debt borrowings. Borrowings issued at variable rates expose PSDC to cash flow interest rate risk whilst borrowings issued at fixed rate expose PSDC to fair value interest rate risk. PSDC is currently not exposed to interest rate risk as all the interest paid by PSDC can be recoverable from CLP Power under the Pumped Storage Services Agreement.

(iii) Credit risk

All PSDC’s revenue comes from CLP Power which has investment grade credit ratings of A and A1 from S&P and Moody’s respectively as at 31 December 2010, 2011 and 2012 and 30 June 2013. The receivables from CLP Power under the Pumped Storage Services Agreement are the only trade receivables of PSDC. The outstanding trade receivables from CLP Power for a given month will be settled in the following month. None of the balance outstanding at the end of the reporting period is past due and no provision for impairment is recorded.

PSDC’s exposure to credit risk from treasury transactions arises from default of the counterparty, with a maximum exposure equal to the carrying amount of the respective financial instrument as reported on the statement of financial position. All finance-related transactions and deposits of PSDC are made with counterparties with investment grade credit rating to minimise credit risk.

(iv) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and making available an adequate amount of committed credit facilities with staggered maturities to reduce refinancing risk in any year and to fund working capital, debt servicing, dividend payments and capital investments. PSDC maintains significant flexibility to respond to opportunities and events by ensuring that adequate committed credit lines are available and shareholders’ advances can be called upon to meet future funding requirements. Management monitors rolling forecasts of PSDC’s undrawn borrowing facilities and cash and cash equivalents on the basis of expected cash flows.

The table below analyses the remaining contractual maturities at the end of the reporting period of PSDC’s nonderivative financial liabilities, which are based on contractual undiscounted cash flows:

HK$’000 As at 31 December 2010 Non-derivative financial liabilities Bank loans Trade & other payables Advances from shareholders	Within 1 year 122,588 2,348 422,105 547,041	Between 1 to 2 years 166,788 – – 166,788	Between 2 to 5 years – – – –	Over 5 years – – – –	Total 289,376 2,348 422,105
					713,829

ACCOUNTANT’S REPORT ON PSDC

APPENDIX IV

II NOTES TO THE FINANCIAL INFORMATION OF PSDC (continued)

3 FINANCIAL RISK MANAGEMENT (continued)

(a) Financial risk factors (continued)

(iv) Liquidity risk (continued)

HK$’000 As at 31 December 2011 Non-derivative financial liabilities Bank loans Trade & other payables Advances from shareholders As at 31 December 2012 Non-derivative financial liabilities Bank loans Trade & other payables Advances from shareholders As at 30 June 2013 Non-derivative financial liabilities Bank loans Trade & other payables Advances from shareholders	Within 1 Year 311,299 1,931 295,721 608,951 202,691 1,827 196,021 400,539 125,748 1,110 132,193 259,051	Between 1 to 2 years – – – – 2,150 – – 2,150 2,521 – – 2,521	Between 2 to 5 years – – – – 111,162 – – 111,162 110,025 – – 110,025	Over 5 years – – – – – – – – – – – –	Total 311,299 1,931 295,721
					608,951

					316,003 1,827 196,021
					513,851

					238,294 1,110 132,193
					371,597

(b) Fair value estimation

The nominal value of the current account with CLP Power and advances from shareholders and other current assets and liabilities approximate their fair values.

ACCOUNTANT’S REPORT ON PSDC

APPENDIX IV

II NOTES TO THE FINANCIAL INFORMATION OF PSDC (continued)

3 FINANCIAL RISK MANAGEMENT (continued)

(c) Capital management

The primary objective of PSDC’s capital management is to safeguard PSDC’s ability to continue as a going concern and maintain a healthy capital ratio to support the business and to enhance shareholder value.

PSDC manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, PSDC may adjust the dividend payment to shareholders or raise and repay debts and shareholders’ advances. PSDC’s capital management objectives, policies or processes were unchanged during each of the reporting periods.

Pursuant to a bank covenant, PSDC undertakes to maintain a defined ratio of borrowed moneys to shareholders’ fund. PSDC has complied with this requirement during each of the reporting periods.

PSDC monitors capital using a total debt to total capital ratio. Total debt comprises PSDC’s bank loans. For the purpose of the calculation of total debt to total capital ratio, shareholders’ funds comprise shareholders’ advances and shareholders’ equity. The total debt to total capital ratios at each of the reporting periods is set out in the table below:

HK$’000 Bank loans_(Note 15)_ Shareholders’ funds Total capital Total debt to total capital ratio	2010 284,005 447,066 731,071 38.85%	As at 31 December As at 30 June 2011 2012 2013 308,810 307,762 231,990 321,378 222,349 176,538 630,188 530,111 408,528 49.00% 58.06% 56.79%	As at 31 December As at 30 June 2011 2012 2013 308,810 307,762 231,990 321,378 222,349 176,538 630,188 530,111 408,528 49.00% 58.06% 56.79%
			408,528

			56.79%

4 REVENUE

Revenue represents income from pumped storage services rendered to CLP Power. Revenue is recognised when services are rendered.

5 OPERATING PROFIT

Operating profit is stated after charging/(crediting) the following:

	Year	ended 31 December	ended 31 December	Six months ended	30 June
	2010	2011	2012	2012	2013
HK$’000				(unaudited)
Staff expenses_(Note (a))_	8,503	8,962	8,986	4,830	3,484
Auditor’s remuneration	59	63	67	32	36
Operating lease expense_(Note (b))_	100,000	100,000	100,000	49,913	49,913
Operating lump sum service charge to GPSC	31,952	32,674	34,399	17,106	18,130
PRC business tax, and other local taxes/fees	14,986	16,837	17,768	8,832	9,254
Net exchange loss/(gain)	355	164	340	(29)	483

Note:

(a) The staff expenses represented the amounts recharged from CLP Power under the Operating Services Agreement with PSDC.
(b) Under the Capacity Purchase Contract with Guangdong Pumped Storage Company, Limited (“GPSC”), a fixed annual payment of HK$100,000,000 is payable to Guangzhou Pumped Storage Power Station every year commencing from 1 December 2009 for the use of the land, other resources and infrastructural facilities. The arrangement is treated as operating lease. The fixed annual payment made will be recognised as prepayment in the statements of financial position and amortised evenly as operating lease expense over twelve months.

ACCOUNTANT’S REPORT ON PSDC

APPENDIX IV

II NOTES TO THE FINANCIAL INFORMATION OF PSDC (continued)

6 FINANCE COSTS AND INCOME

HK$’000 Finance costs: Interest expenses on bank loans Loan charges Exchange (gain)/loss Finance income: Interest income on bank deposits	Year ended 31 December Six months ended 30 June 2010 2011 2012 2012 2013 (unaudited) 2,489 2,307 3,524 1,435 2,130 458 124 1,487 582 170 (763) 1,303 (1,091) (651) 150 2,184 3,734 3,920 1,366 2,450 3 5 3 1 1	Year ended 31 December Six months ended 30 June 2010 2011 2012 2012 2013 (unaudited) 2,489 2,307 3,524 1,435 2,130 458 124 1,487 582 170 (763) 1,303 (1,091) (651) 150 2,184 3,734 3,920 1,366 2,450 3 5 3 1 1
		2,450

		1

7 INCOME TAx ExPENSE

People’s Republic of China (“PRC”) profits tax has been provided for at the rate of 25% on the estimated assessable profits for each of the reporting period.

HK$’000 Taxation in the statement of profit or loss represents: PRC profits tax – current year/period – under provision in prior years Deferred taxation relating to temporary differences_(Note 11)_ – credit for the year/period – under provision in prior years Income tax expense	Year ended 31 December Six months ended 30 June 2010 2011 2012 2012 2013 (unaudited) 66,867 69,444 72,508 36,217 37,608 88 – – – – 66,955 69,444 72,508 36,217 37,608 (17,378) (17,487) (17,915) (8,943) (8,953) (88) – – – – (17,466) (17,487) (17,915) (8,943) (8,953) 49,489 51,957 54,593 27,274 28,655	Year ended 31 December Six months ended 30 June 2010 2011 2012 2012 2013 (unaudited) 66,867 69,444 72,508 36,217 37,608 88 – – – – 66,955 69,444 72,508 36,217 37,608 (17,378) (17,487) (17,915) (8,943) (8,953) (88) – – – – (17,466) (17,487) (17,915) (8,943) (8,953) 49,489 51,957 54,593 27,274 28,655
		37,608
		(8,953) –
		(8,953)
		28,655

The taxation on PSDC’s profit before taxation is calculated as follows:

HK$’000 Profit before taxation in the profit or loss Taxation charge calculated at the PRC taxation rate of 25% Revenue not subject to tax Expenses not deductible for tax purpose Taxation expenses	Year ended 31 December Six months ended 30 June 2010 2011 2012 2012 2013 (unaudited) 197,580 207,453 217,864 108,909 114,372 49,395 51,863 54,466 27,227 28,593 (31) (31) – (15) – 125 125 127 62 62 49,489 51,957 54,593 27,274 28,655	Year ended 31 December Six months ended 30 June 2010 2011 2012 2012 2013 (unaudited) 197,580 207,453 217,864 108,909 114,372 49,395 51,863 54,466 27,227 28,593 (31) (31) – (15) – 125 125 127 62 62 49,489 51,957 54,593 27,274 28,655
		28,655

No Hong Kong profits tax has been provided for the years ended 31 December 2010, 2011 and 2012 and for the six-month periods ended 30 June 2012 and 30 June 2013 as PSDC has no estimated profit assessable to Hong Kong profits tax for these periods.

ACCOUNTANT’S REPORT ON PSDC

APPENDIX IV

II NOTES TO THE FINANCIAL INFORMATION OF PSDC (continued)

8 DIVIDENDS

HK$’000 Interim dividends paid Final dividend proposed HK$ per share Interim dividends paid Final dividend proposed	Year ended 31 December Six months ended 30 June 2010 2011 2012 2012 2013 133,200 139,900 147,000 49,000 51,400 14,900 15,600 16,300 – – 148,100 155,500 163,300 49,000 51,400 Year ended 31 December Six months ended 30 June 2010 2011 2012 2012 2013 1,332 1,399 1,470 490 514 149 156 163 – – 1,481 1,555 1,633 490 514	Year ended 31 December Six months ended 30 June 2010 2011 2012 2012 2013 133,200 139,900 147,000 49,000 51,400 14,900 15,600 16,300 – – 148,100 155,500 163,300 49,000 51,400 Year ended 31 December Six months ended 30 June 2010 2011 2012 2012 2013 1,332 1,399 1,470 490 514 149 156 163 – – 1,481 1,555 1,633 490 514
		514

The proposed final dividend is not reflected as dividend payable in the Financial Information, but as a separate component of the shareholders’ funds in the statement of financial position. The final dividend proposed in each year end was paid in the first sixmonth periods of the following year.

Subsequent to 30 June 2013, an interim dividend in the amount of HK$51,400,000 (HK$514 per share) was paid on 16 September 2013, and another interim dividend of HK$51,400,000 (HK$514 per share) was declared on 25 November 2013 to be paid on 16 December 2013.

ACCOUNTANT’S REPORT ON PSDC

APPENDIX IV

II NOTES TO THE FINANCIAL INFORMATION OF PSDC (continued)

9 FIxED ASSETS

HK$’000 At 1 January 2010 Cost Accumulated depreciation Net book value Year ended 31 December 2010 Net book value at 1 January 2010 Additions Depreciation Net book value at 31 December 2010 At 1 January 2011 Cost Accumulated depreciation Net book value Year ended 31 December 2011 Net book value at 1 January 2011 Depreciation Net book value at 31 December 2011 At 1 January 2012 Cost Accumulated depreciation Net book value Year ended 31 December 2012 Net book value at 1 January 2012 Additions Depreciation Net book value at 31 December 2012	Land use right and buildings 16,832 (12,505) 4,327 4,327 – (1,082) 3,245 16,832 (13,587) 3,245 3,245 (1,082) 2,163 16,832 (14,669) 2,163 2,163 – (1,081) 1,082	Furniture, equipment, tools and vehicles 4,636 (3,749) 887 887 13 (330) 570 4,609 (4,039) 570 570 (246) 324 4,609 (4,285) 324 324 66 (215) 175	Total 21,468 (16,254) 5,214 5,214 13 (1,412) 3,815 21,441 (17,626) 3,815 3,815 (1,328) 2,487 21,441 (18,954) 2,487 2,487 66 (1,296) 1,257

ACCOUNTANT’S REPORT ON PSDC

APPENDIX IV

II NOTES TO THE FINANCIAL INFORMATION OF PSDC (continued)

9 FIxED ASSETS (continued)

				Furniture,
		Land use		equipment,
		right and		tools and
HK$’000		buildings		vehicles	Total
At 1 January 2013
Cost		16,832		4,566	21,398
Accumulated depreciation		(15,750)		(4,391)	(20,141)
Net book value		1,082		175	1,257

Six months ended 30 June 2013
Net book value at 1 January 2013		1,082		175	1,257
Additions		–		364	364
Depreciation		(541)		(79)	(620)
Net book value at 30 June 2013		541		460	1,001

At 30 June 2013
Cost		16,832		4,306	21,138
Accumulated depreciation		(16,291)		(3,846)	(20,137)
Net book value		541		460	1,001

The land use right is held in Conghua, Guangdong Province, People’s Republic of China.
INTANGIBLE ASSETS
The intangible assets of PSDC comprise the right to pumped	storage capacity of Guangzhou Pumped Storage Power Station in
Conghua.
				Six months ended
		Year ended	31 December		30 June
HK$’000	2010 2011			2012	2013
Net carrying value
At beginning of year/period	920,463 888,951			861,428	828,603
Additions	6,148 10,212			5,109	5,417
Amortisation	(37,660) (37,735)			(37,934)	(18,975)
Net carrying value at end of year/period	888,951 861,428			828,603	815,045

Cost	2,411,835 2,422,047			2,427,156	2,432,573
Accumulated amortisation	(1,522,884) (1,560,619)			(1,598,553)	(1,617,528)
Net carrying value at end of year/period	888,951 861,428			828,603	815,045

10 INTANGIBLE ASSETS

The cost of pumped storage capacity represents the capitalised purchase price and the related costs in relation to the development of Guangzhou Pumped Storage Power Station (“GPS”) in Conghua. The capitalised purchase price is for the right to use 50% of the capacity of Phase 1 of the GPS, as well as the corresponding right to use the associated transmission facilities. These rights have been valid since 1994 with the commencement of the commercial operation of the Pumped Storage unit and will end in 2034.

ACCOUNTANT’S REPORT ON PSDC

APPENDIX IV

II NOTES TO THE FINANCIAL INFORMATION OF PSDC (continued)

11 DEFERRED TAx ASSET

Deferred tax is calculated in full on temporary differences under the liability method using the tax rates enacted or substantively enacted by the end of respective reporting period in the PRC tax jurisdiction. The deferred tax asset is recognised at the applicable PRC tax rate of 25%. Most of the deferred tax balance is to be recovered or settled after more than twelve months.

The movement on the deferred tax asset account is as follows:

Tax depreciation on pumped HK$’000 storage capacity Balance as at 1 January 2010 145,696 (Charge)/credit to profit or loss (5,584) Balance as at 31 December 2010 140,112 Balance as at 1 January 2011 140,112 (Charge)/credit to profit or loss (5,670) Balance as at 31 December 2011 134,442 Balance as at 1 January 2012 134,442 (Charge)/credit to profit or loss (5,681) Balance as at 31 December 2012 128,761 Balance as at 1 January 2013 128,761 (Charge)/credit to profit or loss (2,864) Balance as at 30 June 2013 125,897	Deferred revenue 87,624 23,050 110,674 110,674 23,157 133,831 133,831 23,596 157,427 157,427 11,817 169,244	Total 233,320 17,466
		250,786

		250,786 17,487
		268,273

		268,273 17,915
		286,188

		286,188 8,953
		295,141

12 SUNDRY DEBTORS AND PREPAYMENTS

HK$’000 Sundry debtors Operating lease prepayment Other prepayments	2010 962 91,507 1,541 94,010	As at 31 December As at 30 June 2011 2012 2013 492 709 826 91,507 91,507 41,594 18 20 800 92,017 92,236 43,220	As at 31 December As at 30 June 2011 2012 2013 492 709 826 91,507 91,507 41,594 18 20 800 92,017 92,236 43,220
			43,220

13 CURRENT ACCOUNT WITH CLP POWER HONG KONG LIMITED

PSDC’s only trade receivables are the amounts due from CLP Power under the Pumped Storage Services Agreement with CLP Power. The amounts due from CLP Power as at 31 December 2010, 2011 and 2012 and 30 June 2013 mainly represent the trade receivables under the Pumped Storage Services Agreement for the month of December 2010, 2011, 2012 and June 2013 respectively, to be settled in their following month and with aging of 30 days or below. The carrying amounts approximate their fair values.

ACCOUNTANT’S REPORT ON PSDC

APPENDIX IV

II NOTES TO THE FINANCIAL INFORMATION OF PSDC (continued)

14 TRADE AND OTHER PAYABLES

			As at 31 December	As at 31 December	As at 30 June
	HK$’000	2010	2011	2012	2013
	Trade payables	62	83	80	62
	Accrued expenses	2,286	1,848	1,747	1,048
		2,348	1,931	1,827	1,110

	The aging analysis of PSDC’s trade payables (based on invoice date) is as follows:
			As at 31 December		As at 30 June
	HK$’000	2010	2011	2012	2013
	30 days or below	62	83	80	62
	31 – 90 days	–	–	–	–
	Over 90 days	–	–	–	–
		62	83	80	62

15	BANK LOANS
			As at 31 December		As at 30 June
	HK$’000	2010	2011	2012	2013
	Current
	– Short-term bank loan	119,005	143,810	197,762	121,990
	– Current portion of long-term bank loan	–	165,000	–	–
		119,005	308,810	197,762	121,990
	Non-current
	– Long-term bank loan	165,000	–	110,000	110,000
		284,005	308,810	307,762	231,990

	The maturity of the bank loans is as follows:
			As at 31 December		As at 30 June
	HK$’000	2010	2011	2012	2013
	Within one year	119,005	308,810	197,762	121,990
	Between one and two years	165,000	–	–	–
	Between two and five years	–	–	110,000	110,000
		284,005	308,810	307,762	231,990

The denomination of the bank loans was in Hong Kong dollars.

All of PSDC’s borrowings at the end of the reporting period were at variable rates as follows:

			As at 31 December	As at 31 December	As at 30 June
		2010	2011	2012	2013
Variable rate loans	0.7% –	1.0%	0.9% – 1.0%	1.4% – 1.8%	1.0% – 1.8%

The carrying amounts of the bank loans as at the end of each of the reporting period approximate their fair value.

ACCOUNTANT’S REPORT ON PSDC

APPENDIX IV

II NOTES TO THE FINANCIAL INFORMATION OF PSDC (continued)

16 ADVANCES FROM SHAREHOLDERS

HK$’000 ExxonMobil Energy Limited CLP Power	2010 215,272 206,833 422,105	As at 31 December As at 30 June 2011 2012 2013 150,817 99,971 67,418 144,904 96,050 64,775 295,721 196,021 132,193	As at 31 December As at 30 June 2011 2012 2013 150,817 99,971 67,418 144,904 96,050 64,775 295,721 196,021 132,193
			132,193

The advances from shareholders are unsecured, interest free and have no fixed terms of repayment. The shareholders’ advances are denominated in U.S. dollars and the carrying values approximate their fair values.

17 SHARE CAPITAL

18

HK$’000 Authorised, issued and fully-paid 100,000 shares of HK$100 each DEFERRED REVENUE HK$’000 At beginning of year/period Revenue deferred during the year/period At end of year/period	2010 10,000 2010 430,502 92,197 522,699	As at 31 December As at 30 June 2011 2012 2013 10,000 10,000 10,000 31 December 30 June 2011 2012 2013 522,699 615,327 709,710 92,628 94,383 47,269 615,327 709,710 756,979	As at 31 December As at 30 June 2011 2012 2013 10,000 10,000 10,000 31 December 30 June 2011 2012 2013 522,699 615,327 709,710 92,628 94,383 47,269 615,327 709,710 756,979

			30 June 2013 709,710 47,269
			756,979

The deferred revenue represents the portion of the pumped storage service payments received from CLP Power which is in excess of the amount recognised as income. The balance of the deferred revenue accumulated in the statements of financial position is expected to be recognised to income commencing from year 2015 to 2034.

ACCOUNTANT’S REPORT ON PSDC

APPENDIX IV

II NOTES TO THE FINANCIAL INFORMATION OF PSDC (continued)

19 RECONCILIATION OF PROFIT BEFORE TAxATION TO NET CASH INFLOW FROM OPERATIONS

HK$’000 Profit before income tax Adjustments for: Finance costs Finance income Operating profit Adjustments for: Depreciation Amortisation Gain on disposal of fixed assets Other finance costs PRC business tax, and other local taxes/fees Operating profit before working capital changes (Increase)/decrease in sundry debtors and prepayments Decrease/(increase) in current account with CLP Power (Decrease)/increase in creditors Increase in deferred revenue Net cash inflow from operations	Year ended 31 December Six months ended 30 June 2010 2011 2012 2012 2013 (unaudited) 197,580 207,453 217,864 108,909 114,372 2,184 3,734 3,920 1,365 2,450 (3) (5) (3) (1) (1) 199,761 211,182 221,781 110,273 116,821 1,412 1,328 1,296 663 620 37,660 37,735 37,934 18,958 18,975 – – – – (127) (458) (124) (1,487) (582) (170) 14,986 16,837 17,768 8,832 9,254 253,361 266,958 277,292 138,144 145,373 (1,711) 1,332 (219) 49,031 49,016 84 6,292 (10,487) (1,144) 8,270 (555) (1,003) 578 71 (473) 92,197 92,628 94,383 47,114 47,269 343,376 366,207 361,547 233,216 249,455	Year ended 31 December Six months ended 30 June 2010 2011 2012 2012 2013 (unaudited) 197,580 207,453 217,864 108,909 114,372 2,184 3,734 3,920 1,365 2,450 (3) (5) (3) (1) (1) 199,761 211,182 221,781 110,273 116,821 1,412 1,328 1,296 663 620 37,660 37,735 37,934 18,958 18,975 – – – – (127) (458) (124) (1,487) (582) (170) 14,986 16,837 17,768 8,832 9,254 253,361 266,958 277,292 138,144 145,373 (1,711) 1,332 (219) 49,031 49,016 84 6,292 (10,487) (1,144) 8,270 (555) (1,003) 578 71 (473) 92,197 92,628 94,383 47,114 47,269 343,376 366,207 361,547 233,216 249,455
		116,821 620 18,975 (127) (170) 9,254
		145,373 49,016 8,270 (473) 47,269
		249,455

20 COMMITMENTS

(a) Capital expenditure authorised but not brought into the Financial Information is as follows:

HK$’000 Contracted but not provided for Authorised but not contracted for	2010 – 10,583 10,583	As at 31 December As at 30 June 2011 2012 2013 – – – 10,736 19,353 32,172 10,736 19,353 32,172	As at 31 December As at 30 June 2011 2012 2013 – – – 10,736 19,353 32,172 10,736 19,353 32,172
			32,172

(b) The future aggregate minimum operating lease payments to GPSC in respect of the use of the land, other resources and infrastructural facilities are as follows:

HK$’000 Within one year Later than one year but no later than five years Over five years	2010 100,000 400,000 1,891,507 2,391,507	As at 31 December As at 30 June 2011 2012 2013 100,000 100,000 100,000 400,000 400,000 400,000 1,791,507 1,691,507 1,641,507 2,291,507 2,191,507 2,141,507	As at 31 December As at 30 June 2011 2012 2013 100,000 100,000 100,000 400,000 400,000 400,000 1,791,507 1,691,507 1,641,507 2,291,507 2,191,507 2,141,507
			2,141,507

ACCOUNTANT’S REPORT ON PSDC

APPENDIX IV

II NOTES TO THE FINANCIAL INFORMATION OF PSDC (continued)

21 RELATED PARTY TRANSACTIONS

(a) Related party transactions in the normal course of business

Summary of significant related party transactions, in addition to those disclosed in Notes 13 and 16, which were carried out in the normal course of business:

	Year	ended 31 December	ended 31 December	Six months ended	30 June
	2010	2011	2012	2012	2013
HK$’000				(unaudited)
Pumped storage service fee received
from CLP Power (i)
– Pumped storage services to
CLP Power	403,068	419,024	433,446	217,065	223,898
– Revenue received in advance
of providing pumped service	92,197	92,628	94,383	47,114	47,269
Costs reimbursed to CLP Power (ii)	12,309	12,817	13,932	6,705	4,174

(i) Under the Pumped Storage Services Agreement between PSDC and CLP Power, PSDC renders pumped storage services to CLP Power and receives an amount comprising an annual fee plus the costs as stipulated under the agreement. CLP Power owns a 49% share in PSDC.
(ii) In accordance with the Operating Services Agreement between CLP Power and PSDC, CLP Power is responsible to PSDC for the efficient and proper construction, commissioning, operation and maintenance of the Power Station and the Associated Transmission Facilities. In return, PSDC reimburses CLP Power for all costs incurred in performance of the agreement. The portion of the amount recharged by CLP Power which is accounted for as operating expenses by PSDC is covered under the pumped storage services in (i) above.

(b) Emoluments of key management personnel

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of PSDC. It comprises all the Directors of PSDC’s board. Total Directors’ remuneration is as follows:

HK$’000 Directors’ remuneration – fees: Mr. Muschalik, James Frederick Mr. Mocatta, William Elkin Mr. Ho, David Mr. Brandler, Andrew Clifford Winawer Mr. Lancaster, Richard Kendall Mr. Chu, Richard Yiu Wah Mr. Neo, Kim Teck Mr. Cheung, Wai Man Mr. Leung, Kin Chung Jonathan Ms. Luk, Siu-Kuen Rebecca Mrs Yuen So, Siu Mai Betty	Year ended 31 December Six months ended 30 June 2010 2011 2012 2012 2013 (unaudited) – 8 48 24 33 67 48 67 33 24 48 48 48 24 24 48 48 48 24 24 47 48 48 24 24 48 48 24 24 – 48 59 – – – – – 24 – 24 48 12 – – – – 36 48 24 24 1 – – – – 355 355 355 177 177	Year ended 31 December Six months ended 30 June 2010 2011 2012 2012 2013 (unaudited) – 8 48 24 33 67 48 67 33 24 48 48 48 24 24 48 48 48 24 24 47 48 48 24 24 48 48 24 24 – 48 59 – – – – – 24 – 24 48 12 – – – – 36 48 24 24 1 – – – – 355 355 355 177 177
		177

(c) PSDC has no employees and the staff costs are recharged from CLP Power under the Operating Services Agreement with CLP Power.

ACCOUNTANT’S REPORT ON PSDC

APPENDIX IV

II NOTES TO THE FINANCIAL INFORMATION OF PSDC (continued)

22 ULTIMATE AND IMMEDIATE HOLDING COMPANY

PSDC is 51% owned by ExxonMobil Energy Limited (“EMEL”) and 49% owned by CLP Power which is responsible for PSDC’s day to day operations. The ultimate holding company of EMEL is Exxon Mobil Corporation, a company incorporated in the United States of America. The ultimate holding company of CLP Power is CLP Holdings Limited, a company incorporated in Hong Kong.

23 SUBSEQUENT EVENTS

On 19 November 2013, EMEL and CLP Power entered into a sale and purchase agreement, whereby CLP Power will acquire EMEL’s 51% equity interest in, and the associated shareholder’s advances to, PSDC, subject to certain conditions being satisfied.

III SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by PSDC in respect of any period subsequent to 30 June 2013 up to the date of this report. Subsequent to 30 June 2013, an interim dividend in the amount of $51,400,000 was paid on 16 September 2013, and another interim dividend in the amount of $51,400,000 was declared on 25 November 2013 to be paid on 16 December 2013.

Yours faithfully, PricewaterhouseCoopers Certified Public Accountants Hong Kong

MANAGEMENT DISCUSSION AND ANALYSIS ON PSDC

APPENDIX V

The following discussion and analysis is based on the Financial Information from the Accountant’s report on PSDC contained in Appendix IV to this circular.

REVENUE

Revenue of PSDC for each of the three years ended 31 December 2010, 2011 and 2012 was HK$403 million, HK$419 million and HK$433 million respectively. Revenue of PSDC for each of the six-month periods ended 30 June 2012 and 2013 was HK$217 million and HK$224 million respectively. Revenue of PSDC primarily consists of service fee income from providing pumped storage services to CLP Power based on a Pumped Storage Services Agreement with CLP Power. Under the Pumped Storage Services Agreement, the price paid by CLP Power to PSDC for the pumped storage services is sufficient to cover all of PSDC’s operating expenses and net return.

Revenue increased by HK$16 million and HK$14 million in the year 2011 and 2012 respectively, and increased by HK$7 million for the first half of 2013 as compared to the same period in 2012, mainly attributable to the increases in operating expenses and net return.

PROFIT BEFORE INCOME TAx

Profit before income tax of PSDC for each of the three years ended 31 December 2010, 2011 and 2012 was HK$198 million, HK$207 million and HK$218 million respectively. Profit before income tax of PSDC for each of the six-month periods ended 30 June 2012 and 2013 was HK$109 million and HK$114 million respectively. Under the Pumped Storage Services Agreement, PSDC’s net return is based on a percentage of its net fixed assets in a manner analogous to the SoC, subject to a minimum return level. The minimum return is HK$50 million escalated at 5% per annum compounded from 1988. The increases in profit before income tax over the years/ periods represent the 5% escalation stipulated in the minimum return provision.

CAPITAL STRUCTURE

As at 31 December 2010, 2011 and 2012, and 30 June 2013, PSDC had outstanding bank loans of HK$284 million, HK$309 million, HK$308 million and HK$232 million (of which HK$119 million, HK$309 million, HK$198 million and HK$122 million were due in less than one year) respectively. All bank loans were denominated in Hong Kong dollars and carried at variable interest rates of 0.7% to 1.0%, 0.9% to 1.0%, 1.4% to 1.8% and 1.0% to 1.8% as at 31 December 2010, 2011 and 2012, and 30 June 2013 respectively.

As at 31 December 2010, 2011 and 2012, and 30 June 2013, PSDC had total debt to total capital ratios of 38.85%, 49.00%, 58.06% and 56.79% respectively. For the purpose of the calculation of total debt to total capital ratios, shareholders’ funds comprise shareholders’ advances and shareholders’ equity. Shareholders’ advances are denominated in U.S. dollars, unsecured, interest free and have no fixed terms of repayment.

Pursuant to a bank covenant, PSDC undertakes to maintain a defined ratio of borrowed moneys to shareholders’ funds.

PSDC adopts prudent liquidity risk management which implies maintaining sufficient cash and making available an adequate amount of committed credit facilities with staggered maturities to reduce refinancing risk in any year and to fund working capital, debt servicing, dividend payments and capital investments.

MANAGEMENT DISCUSSION AND ANALYSIS ON PSDC

APPENDIX V

FOREIGN ExCHANGE RISK MANAGEMENT

Under the terms of the Pumped Storage Services Agreement, PSDC is permitted to charge CLP Power for all properly incurred foreign exchange payments, converted into Hong Kong dollars.

FINANCIAL POSITION

As at 31 December 2010, 2011 and 2012, and 30 June 2013, PSDC had total assets of HK$1,274 million, HK$1,255 million, HK$1,249 million and HK$1,187 million respectively. The decreases in total assets during the years 2010 to 2012 were mainly due to the amortisation of the pumped storage capacity right, which is treated as an intangible asset. The decrease in total assets as at 30 June 2013 from 31 December 2012 was mainly due to the amortisation of the HK$100 million fixed annual payment made to Guangdong Pumped Storage Company, Limited in December 2012.

As at 31 December 2010, 2011 and 2012, and 30 June 2013, PSDC had total liabilities of HK$1,249 million, HK$1,229 million, HK$1,223 million and HK$1,143 million respectively. The decreases in total liabilities during the reporting periods were mainly due to the repayment of advances from shareholders.

EMPLOYEES AND REMUNERATION POLICIES

PSDC does not have any of its own employees. CLP Power operates PSDC’s pumped storage facilities under an Operating Services Agreement with PSDC. The staff expenses of PSDC represented the amounts recharged from CLP Power under the Operating Services Agreement. Total staff expenses for each of the three years ended 31 December 2010, 2011 and 2012 were HK$8.5 million, HK$9.0 million and HK$9.0 million respectively. Total staff expenses for each of the six-month periods ended 30 June 2012 and 2013 were HK$4.8 million and HK$3.5 million respectively. The increases in total staff expenses in 2011 and 2012 were mainly due to pay increases. The decrease in total staff expenses for the first half of 2013 as compared to the same period in 2012 was mainly due to lower average salary costs as a result of staff movements during 2012.

CLP Power’s remuneration policy is broadly aligned with companies with whom CLP Power competes for human resources and remuneration reflects performance, complexity and responsibility.

CAPITAL COMMITMENTS, CHARGES ON ASSETS AND CONTINGENT LIABILITIES

As at 31 December 2010, 2011 and 2012 and 30 June 2013, PSDC had capital commitments amounting to HK$10.6 million, HK$10.7 million, HK$19.4 million and HK$32.2 million respectively. These commitments mainly relate to overhaul and refurbishment projects for the pumped storage power station and associated transmission facilities, the budgets of which had been authorised or their contracts had been placed but the amounts had not yet been brought into the financial statements. PSDC had no charges on assets and contingent liabilities as at 31 December 2010, 2011 and 2012 and 30 June 2013.

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED CLP GROUP

APPENDIX VI

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED CLP GROUP

The following is an illustrative and unaudited pro forma statement of assets and liabilities of the Enlarged Group (the “Unaudited Pro Forma Financial Information”), which has been prepared on the basis of the notes set out below and in accordance with Rule 4.29 of the Listing Rules for the purpose of illustrating the effects of the Acquisitions on the Group, assuming that the Acquisitions had been completed on 30 June 2013.

The Unaudited Pro Forma Financial Information has been prepared using accounting policies consistent with that of the Group, as set out in the Company’s 2013 Interim Report.

The Unaudited Pro Forma Financial Information of the Enlarged Group should be read in conjunction with the financial information contained in this circular and the accountant’s report on CAPCO as set out in Appendix II and the accountant’s report on PSDC as set out in Appendix IV to this circular.

The Unaudited Pro Forma Financial Information has been prepared by the Directors for illustrative purposes only and is based on a number of assumptions, estimates, uncertainties and currently available information. Because of its hypothetical nature, the Unaudited Pro Forma Financial Information may not reflect the true picture of the financial position of the Enlarged Group had the Acquisitions been completed at 30 June 2013 or at any future date.

APPENDIX VI

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED CLP GROUP

B. UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP AT 30 JUNE 2013

GROUP AT 30 JUNE 2013
Unaudited consolidated statement of assets and liabilities of the Group at 30 June 2013 HK$M Note 1 Non-current assets Fixed assets 127,582 Leasehold land and land use rights under operating leases 1,826 Goodwill and other intangible assets 25,496 Interests in joint ventures 19,272 Interest in an associate 1,358 Finance lease receivables 1,523 Deferred tax assets 890 Derivative financial instruments 3,228 Available-for-sale investments 1,263 Other non-current assets 131 182,569 Current assets Inventories – stores and fuel 1,772 Renewable energy certificates 940 Trade and other receivables 20,498 Finance lease receivables 86 Derivative financial instruments 1,258 Bank balances, cash and other liquid funds 7,640 32,194 Current liabilities Customers’ deposits (4,434) Trade and other payables (17,140) Income tax payable (363) Bank loans and other borrowings (10,612) Obligations under finance leases (2,393) Derivative financial instruments (1,482) (36,424) Net current liabilities (4,230) Total assets less current liabilities 178,339 Non-current liabilities Bank loans and other borrowings (52,043) Obligations under finance leases (24,247) Deferred tax liabilities (8,464) Derivative financial instruments (3,806) Fuel clause account (711) Scheme of Control reserve accounts (264) Other non-current liabilities (1,958) (91,493) Net assets 86,846	CAPCO HK$M Note 2 2,010 3,002 – – – 24,216 – – – – 29,228 2,401 – 1,393 2,383 – – 6,177 – (23,816) (448) (6,390) – (9) (30,663) (24,486) 4,742 – – (3,513) – – – (488) (4,001) 741	PSDC HK$M Note 3 1 – 815 – – – 295 – – – 1,111 – – 76 – – – 76 – (133) (21) (122) – – (276) (200) 911 (110) – – – – – (757) (867) 44			Pro Forma Adjustments			Unaudited pro forma statement of assets and liabilities of the Enlarged Group at 30 June 2013 HK$M HK$M Note 8 – 129,593 – 5,771 – 39,210 – 9,819 – 1,358 – 1,523 – 890 – 3,228 – 1,263 – 131 – 192,786 – 4,173 – 940 – 20,609 – 86 – 1,258 – 7,591 – 34,657 – (4,434) (48) (23,775) – (832) – (22,095) – (10) – (1,491) (48) (52,637) (48) (17,980) (48) 174,806 – (61,133) – (31) – (13,087) – (3,806) – (711) – (264) – (3,203) – (82,235) (48) 92,571
			HK$M Note 4 – – – 14,000 – – – – – – 14,000 – – – – – (49) (49) – – – (4,971) – – (4,971) (5,020) 8,980 (8,980) – – – – – – (8,980) –	HK$M Note 5 – – – (4,508) – (24,216) – – – – (28,724) – – – (2,383) – – (2,383) – – – – 2,383 – 2,383 – (28,724) – 24,216 – – – – – 24,216 (4,508)	HK$M Note 6 – – – 8,470 – – – – – – 8,470 – – – – – – – – – – – – – – – 8,470 – – – – – – – – 8,470	HK$M Note 7(a) – 943 7,904 (23,493) – – – – – – (14,646) – – (1,326) – – – (1,326) – 17,198 – – – – 17,198 15,872 1,226 – – (156) – – – – (156) 1,070	HK$M Note 7(b) – – 4,995 (3,922) – – (295) – – – 778 – – (32) – – – (32) – 164 – – – – 164 132 910 – – (954) – – – – (954) (44)
									192,786
									4,173 940 20,609 86 1,258 7,591
									34,657
									(4,434) (23,775) (832) (22,095) (10) (1,491)
									(52,637)
									(17,980)
									174,806
									(61,133) (31) (13,087) (3,806) (711) (264) (3,203)
									(82,235)
									92,571

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED CLP GROUP

APPENDIX VI

C. NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Amounts are extracted from the unaudited consolidated statement of financial position of the Group at 30 June 2013 as set out in the Company’s 2013 Interim Report.
Amounts are derived from the audited statement of financial position of CAPCO at 30 June 2013 as set out in Appendix II to this circular.
Amounts are derived from the audited statement of financial position of PSDC at 30 June 2013 as set out in Appendix IV to this circular.
Pursuant to the Acquisition Agreements, the consideration for the Acquisitions is HK$14 billion in aggregate, of which HK$12 billion is attributable to the acquisition of 30% equity interest in, and associated shareholder’s advances to, CAPCO and HK$2 billion is attributable to the acquisition of 51% equity interest in, and associated shareholder’s advances to, PSDC. The consideration shall be payable by the Group at Completion. For the purposes of the Unaudited Pro Forma Financial Information, it is assumed that the consideration is wholly funded from available banking facilities at 30 June 2013 and the loan facilities of HK$10 billion which HSBC has committed to enter into.
For the purposes of the Unaudited Pro Forma Financial Information and for illustrative purpose only, the Group has carried out a consideration allocation exercise in accordance with Hong Kong Financial Reporting Standard 3 (Revised) “Business Combinations” (“HKFRS 3”), which is illustrated as follows:

Settlement of a pre-existing finance lease payable by the CLP Group to CAPCO Acquisition of shareholder’s advances from EMEL to CAPCO/PSDC Acquisition of identifiable net assets and liabilities	CAPCO (Note 7(a)) HK$M 4,508 6,802 690 12,000	PSDC (Note 7(b)) HK$M – 67 1,933
		2,000

With respect to CAPCO, the consideration allocated to the settlement of a pre-existing finance lease payable of HK$4,508 million is calculated as the difference between the fair value of the finance lease payable of HK$31,998 million and its carrying amount of HK$26,599 million, net of deferred tax of HK$891 million. This amount of HK$4,508 million is recognised in the Group’s consolidated statement of profit or loss as required by HKFRS 3.

This adjustment reflects the settlement of the current and non-current portions of the pre-existing finance lease payable by the Group to CAPCO totalling HK$26,599 million at 30 June 2013 and a further adjustment to allocate consideration.

APPENDIX VI UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED CLP GROUP

C. NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP (continued)

The Group owns a 40% equity interest in CAPCO and a 49% equity interest in PSDC (“Initial Equity Investments”) before the Acquisitions. The acquisition of the additional 30% equity interest in CAPCO and 51% equity interest in PSDC gives the Group control over CAPCO and PSDC and thus CAPCO and PSDC will become subsidiaries of the Group upon Completion. The acquisitions of the 30% equity interest in CAPCO and 51% equity interest in PSDC are treated as “step acquisitions” under HKFRS 3.

According to HKFRS 3, a step acquisition is accounted for using the acquisition method of accounting, and the Initial Equity Investments are remeasured to fair value at the Completion date and any gain or loss arising thereon is recognised in the statement of profit or loss. As such, the Initial Equity Investments are deemed to have been disposed of in return, together with the consideration transferred, for the total 70% equity interest in CAPCO and the total 100% equity interest in PSDC. Upon Completion, the fair values of the Initial Equity Investments form one of the components to calculate goodwill, along with the consideration transferred and non-controlling interests, if any, less the fair value of the identifiable net assets of CAPCO and PSDC.

This adjustment reflects the fair value gains upon the deemed disposal of the Initial Equity Investments (which are presented as interests in joint ventures in the unaudited consolidated statement of financial position of the Group at 30 June 2013) of HK$6,635 million with respect to CAPCO and HK$1,835 million with respect to PSDC.

These adjustments reflect the fair value adjustments on acquisition and the elimination of intragroup balances.

Upon Completion, the identifiable assets and liabilities of CAPCO and PSDC will be accounted for in the consolidated financial statements of the Enlarged Group at their fair values under the acquisition method of accounting in accordance with HKFRS 3.

For the purposes of the Unaudited Pro Forma Financial Information and for illustrative purpose only, the Directors have determined the fair values of the identifiable net assets and liabilities of CAPCO and PSDC at 30 June 2013. The fair values and carrying amounts of the assets and liabilities of CAPCO and PSDC at 30 June 2013 and the financial effects of the Acquisitions are analysed as follows:

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED CLP GROUP

APPENDIX VI

C. NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP (continued)

(a) CAPCO

Fixed assets Leasehold land and land use rights under operating leases Finance lease receivable Inventories – stores and fuel Trade and other receivables Trade and other payables Income tax payable Bank loans and other borrowings Derivative financial instruments Deferred tax liabilities Other non-current liabilities Net assets Consideration for 70% equity interest in CAPCO Cash consideration_(see Note 5)_ Fair value of existing 40% interest in joint venture Total consideration for 70% equity interest in CAPCO Non-controlling interests Less: Fair value of net assets Consolidation adjustment on settlement of the pre-existing finance lease and the associated deferred tax Fair value of net assets attributable to the Group Goodwill	Carrying amount HK$M 2,010 3,002 26,599 2,401 1,393 (23,816) (448) (6,390) (9) (3,513) (488) 741 HK$M 690 6,931* (6,036) 4,508	Fair value HK$M 2,010 3,945 31,998 2,401 1,393 (23,816) (448) (6,390) (9) (4,560) (488) 6,036 HK$M 7,621 1,811 (1,528) 7,904

The fair value of existing 40% interest in CAPCO is implied from the consideration paid for the acquisition of the 30% interest of HK$5,198 million (being the consideration of HK$12 billion less the amount paid for the acquisition of the shareholder’s advances of HK$6,802 million).

The Enlarged Group recognises the non-controlling interest in CAPCO at the non-controlling interest’s proportionate share of the fair value of CAPCO’s identifiable net assets and liabilities as set out above. The total non-controlling interests for the Enlarged Group at 30 June 2013, amounted to HK$1,924 million (being the original non-controlling interests of HK$113 million plus the non-controlling interest that arises from the acquisition of HK$1,811 million). Based on the assumptions set out above, goodwill of HK$7,904 million is recognised which represents the excess of consideration and non-controlling interest over the fair values of the identifiable net assets and liabilities of CAPCO at 30 June 2013.

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED CLP GROUP

APPENDIX VI

C. NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP (continued)

(b) PSDC Fixed assets Intangible assets Deferred tax assets Trade and other receivables Trade and other payables Income tax payable Bank loans and other borrowings Deferred tax liabilities Other non-current liabilities Net assets Consideration for 100% equity interest in PSDC Cash consideration_(see Note 5)_ Fair value of existing 49% interest in joint venture Total consideration for 100% equity interest in PSDC Less: Fair value of net assets Goodwill	Carrying amount HK$M 1 815 295 76 (133) (21) (232) – (757) 44 HK$M 1,933 1,857	Fair value HK$M 1 5,810 295 76 (133) (21) (232) (1,249) (757) 3,790 HK$M 3,790 (3,790) –

The Directors have determined that the consideration is equal to the fair value of the identifiable net assets of PSDC at 30 June 2013 and therefore no goodwill is recognised.

The adjustments also include the elimination of intra-group balances between CLP Power and CAPCO of HK$17,198 million, which comprise shareholder’s advances of HK$15,872 million and current accounts of HK$1,326 million, and intra-group balances between CLP Power and PSDC of HK$164 million, which comprise shareholder’s advances of HK$132 million and current accounts of HK$32 million, upon the Acquisitions.

Since the fair values and the carrying amounts of the identifiable net assets and liabilities of CAPCO and PSDC as at the Completion date may be materially different from their respective values used in the preparation of the Unaudited Pro Forma Financial Information, the actual amounts of the assets, liabilities and goodwill to be recorded in the consolidated financial statements of the Enlarged Group upon Completion may be materially different from the estimated amounts shown in this Appendix.

The adjustment represents the estimated amounts for legal and professional fees and other expenses payable by the Group relating to the Acquisitions of approximately HK$48 million.
No other adjustments have been made to reflect any trading result or other transactions of the Group, CAPCO and PSDC entered into subsequent to 30 June 2013. Unless otherwise stated, the adjustments above do not have a recurring effect.

APPENDIX VI UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED CLP GROUP

D. REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the text of a report received from PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

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INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION INCLUDED IN A CIRCULAR

TO THE DIRECTORS OF CLP HOLDINGS LIMITED

We have completed our reasonable assurance engagement to report on the compilation of unaudited pro forma financial information of CLP Holdings Limited (the “Company”) and its subsidiaries (collectively the “Group”) and, CAPCO and PSDC (together the “Target Companies”, and collectively the Group and the Target Companies form the “Enlarged Group”) as prepared by the directors for illustrative purpose only. The unaudited pro forma financial information consists of the unaudited pro forma statement of assets and liabilities as at 30 June 2013, and related notes (the “Unaudited Pro Forma Financial Information”) as set out on pages 78 to 83 of the Company’s circular dated 10 December 2013, in connection with the proposed acquisition of the Target Companies (the “Transaction”) by the Company. The applicable criteria on the basis of which the directors have compiled the Unaudited Pro Forma Financial Information are described in notes 1 to 9.

The Unaudited Pro Forma Financial Information has been compiled by the directors to illustrate the impact of the Transaction on the Group’s financial position as at 30 June 2013 as if the Transaction had taken place at 30 June 2013. As part of this process, information about the Group’s financial position has been extracted by the directors from the Group’s financial statements for the period ended 30 June 2013, on which a review report has been published.

Directors’ Responsibility for the Unaudited Pro Forma Financial Information

The directors are responsible for compiling the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” (“AG 7”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED CLP GROUP

APPENDIX VI

D. REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP (continued)

Reporting Accountant’s Responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 “Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus”, issued by the HKICPA. This standard requires that the reporting accountant complies with ethical requirements and plans and performs procedures to obtain reasonable assurance about whether the directors have compiled the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA.

For the purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the Unaudited Pro Forma Financial Information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the Unaudited Pro Forma Financial Information.

The purpose of unaudited pro forma financial information included in a circular is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the entity as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the Transaction at 30 June 2013 would have been as presented.

A reasonable assurance engagement to report on whether the unaudited pro forma financial information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the directors in the compilation of the unaudited pro forma financial information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether:

The related pro forma adjustments give appropriate effect to those criteria; and
The unaudited pro forma financial information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountant’s judgment, having regard to the reporting accountant’s understanding of the nature of the company, the event or transaction in respect of which the unaudited pro forma financial information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the unaudited pro forma financial information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED CLP GROUP

APPENDIX VI

D. REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP (continued)

Opinion

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

PricewaterhouseCoopers

Certified Public Accountants Hong Kong, 10 December 2013

GENERAL INFORMATION

APPENDIX VII

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the CLP Group. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material aspects and is not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

Interests of Directors and Chief Executive Officer

This section sets out, as at the Latest Practicable Date, the interests and short positions (or a negative statement) of the Directors and the Chief Executive Officer of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required under (a), (b) or (c) below (the “Required Disclosures”):

(a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or
(b) pursuant to section 352 of the SFO, to be entered in the register of the Company referred to therein; or
(c) pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers, to be notified to the Company and the Stock Exchange.
(1) Aggregate long position in the shares, underlying shares and debentures of the Company and its associated corporations

		Total interests in	% of the
Directors	Capacity	number of Shares	issued Shares
The Hon. Sir Michael Kadoorie	Note (a)	479,372,780	18.97416
Mr. William Mocatta	Note (b)	400,000	0.01583
Mr. R. J. McAulay	Note (c)	288,811,649	11.43152
Mr. J. A. H. Leigh	Note (d)	224,314,077	8.87863
Dr. Y. B. Lee	Note (e)	15,806	0.00063
Mrs. Fanny Law	Personal	16,800	0.00066
Mr. Nicholas C. Allen	Note (f)	12,000	0.00047
Mr. Richard Lancaster
(Chief Executive Officer)	Personal	600	0.00002
Mr. Andrew Brandler	Note (g)	10,600	0.00042

GENERAL INFORMATION

APPENDIX VII

Notes:

(a) The Hon. Sir Michael Kadoorie was deemed (by virtue of the SFO) to be interested in 479,372,780 Shares. These Shares were held in the following capacity:
i) 1,243 Shares were held by his spouse, Lady Kadoorie in a personal capacity.
ii) 70,146,655 Shares were ultimately held by discretionary trusts, of which The Hon. Sir Michael Kadoorie is one of the discretionary objects.
iii) 233,044,212 Shares were ultimately held by a discretionary trust, of which The Hon. Sir Michael Kadoorie is one of the beneficiaries and the founder.
iv) 170,180,670 Shares were ultimately held by a discretionary trust, of which The Hon. Sir Michael Kadoorie is one of the beneficiaries and the founder.
v) 2,000,000 Shares were ultimately held by each of three discretionary trusts, all of which The Hon. Sir Michael Kadoorie is one of the beneficiaries and the founder.

For the purpose of the SFO, the spouse of The Hon. Sir Michael Kadoorie was taken to have a discloseable duty in Hong Kong in relation to the Shares referred to in (ii) to (v) above. The spouse of The Hon. Sir Michael Kadoorie was therefore deemed to be interested in 479,372,780 Shares representing approximately 18.97% of the issued share capital of the Company, of which 1,243 Shares were held by her in a personal capacity and an aggregate of 479,371,537 Shares were attributed to her pursuant to the SFO for disclosure purposes. Nevertheless, she has no interest, legal or beneficial, in these 479,371,537 Shares attributed to her for disclosure purposes.

(b) Mr. William Mocatta was deemed (by virtue of the SFO) to be interested in 400,000 Shares. These Shares were held in the following capacity:
i) 250,000 Shares were held in the capacity as the founder of a discretionary trust.
ii) 150,000 Shares were held by a trust of which Mr. William Mocatta is one of the beneficiaries.
(c) Mr. R. J. McAulay was deemed (by virtue of the SFO) to be interested in 288,811,649 Shares. These Shares were held in the following capacity:
i) 13,141 Shares were held in a personal capacity.
ii) 70,146,655 Shares were ultimately held by discretionary trusts, of which Mr. R. J. McAulay is one of the discretionary objects.
iii) 218,651,853 Shares were ultimately held by a discretionary trust, of which Mr. R. J. McAulay, his wife and members of his family are discretionary objects.
(d) Mr. J. A. H. Leigh was deemed (by virtue of the SFO) to be interested in 224,314,077 Shares. These Shares were held in the following capacity:
i) 100,000 Shares were held in a beneficial owner capacity.
ii) 5,562,224 Shares were ultimately held by a discretionary trust. Mr. J. A. H. Leigh was deemed to be interested in such 5,562,224 Shares in his capacity as one of the trustees of a trust which was deemed to be interested in such 5,562,224 Shares.
iii) 218,651,853 Shares were ultimately held by a discretionary trust. Mr. J. A. H. Leigh was deemed to be interested in such 218,651,853 Shares in his capacity as one of the trustees of a trust which was deemed to be interested in such 218,651,853 Shares.
(e) 600 Shares were held in a personal capacity and 15,206 Shares were held jointly with spouse.
(f) 12,000 Shares were held in a beneficial owner capacity and jointly with spouse.
(g) 600 Shares were held in a personal capacity and 10,000 Shares were held in a beneficial owner capacity.

GENERAL INFORMATION

APPENDIX VII

Messrs. I. D. Boyce, V. F. Moore, Paul A. Theys and Vincent Cheng, Ms. Irene Lee, Professor Judy Tsui, Sir Rod Eddington and Dr. Rajiv Lall who are Directors of the Company, and Mr. David Moore who is an Alternate Director, have each confirmed that they had no interests in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) for the purposes of the Required Disclosures.

(2) Aggregate short position in the shares, underlying shares and debentures of the Company and its associated corporations

None of the Directors and the Chief Executive Officer of the Company had any short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) for the purposes of the Required Disclosures.

3. DIRECTORS’ INTERESTS IN CONTRACTS AND ASSETS

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which, since 31 December 2012, being the date to which the latest published audited consolidated financial statements of the CLP Group were made up, had been acquired, or disposed of by, or leased to any member of the Enlarged Group, or was proposed to be acquired, or disposed of by, or leased to any member of the Enlarged Group.

As at the Latest Practicable Date, there was no contract or arrangement subsisting in which any Director was materially interested and which was significant in relation to any business of the Enlarged Group.

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with any member of the CLP Group which will not expire or is not determinable by the CLP Group within one year without payment of any compensation (other than statutory compensation).

4. DIRECTORS’ INTEREST IN COMPETING BUSINESSES

As at the Latest Practicable Date, so far as the Directors were aware, none of the Directors and their respective associates had any interest in businesses that competed or was likely to compete, whether directly or indirectly, with the business of the CLP Group.

5. MATERIAL CONTRACTS

Save as disclosed below, no material contracts (not being contracts entered into in the ordinary course of business carried out by the Enlarged Group) had been entered into by any member of the Enlarged Group within the two years preceding the Latest Practicable Date:

(a) the placing agreement dated 13 December 2012 entered into between the Company and Goldman Sachs (Asia) L.L.C., J.P Morgan Securities plc and UBS AG, Hong Kong Branch, as placing agents in relation to the placing of 120,307,170 new Shares at HK$63.25 per Share;
(b) the acquisition agreement dated 25 July 2013 entered into between EnergyAustralia Pty Ltd, EnergyAustralia NSW Pty Ltd and EnergyAustralia Holdings Limited, all being wholly-owned subsidiaries of CLP Group, and Delta Electricity, and the NSW State Government (Australia) in respect of the acquisitions of the Mount Piper Power Station and the Wallerawang Power Station;

GENERAL INFORMATION

APPENDIX VII

(c) the CAPCO Acquisition Agreement; and
(d) the PSDC Acquisition Agreement.

6. LITIGATION

Save as disclosed below and in Appendix I to this circular under the paragraph “B. Contingent Liabilities” of the section entitled “2. Indebtedness” which relates to litigation, arbitration or claims of material importance, neither the Company nor any member of the Enlarged Group was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened by or against the Company or any member of the Enlarged Group as at the Latest Practicable Date.

CLP Power is challenging the amount of rent and rates levied by the Hong Kong Government dating back to the year of assessment 1999/2000. While the Lands Tribunal judgment was received in CLP Power’s favour in April 2013, final resolution of the appeals will be subject to further appeals on detailed valuation matters and possible subsequent appeals against the Lands Tribunal judgment on points of law. The Hong Kong Government has made interim refunds to CLP Power in relation to CLP Power’s claims and as reported in the 2013 Interim Report, HK$1,641 million in interim refunds have been received. Refunds received by CLP Power have been fully expended by way of rent and rates special rebate to CLP Power’s customers. The interim refunds were made by the Hong Kong Government without prejudice to the final outcome of the appeals which means that these amounts will be adjusted by reference to the decision of the Lands Tribunal and subsequent appeals. CLP Power maintains that it would recover no less than interim refunds received to date in the final outcome of these appeals.

7. ExPERTS AND CONSENTS

The following is the qualification of the professional advisor who has given an opinion or advice, which is contained in this circular:

Name Qualification PricewaterhouseCoopers Certified Public Accountants

PricewaterhouseCoopers has given and has not withdrawn its written consent to the issue of this circular with the inclusion therein of its reports and reference to its name in the form and context in which they are included.

As at the Latest Practicable Date, PricewaterhouseCoopers did not have any shareholding in any member of the CLP Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the CLP Group.

As at the Latest Practicable Date, PricewaterhouseCoopers did not have any direct or indirect interest in any assets which had been, since 31 December 2012, the date to which the latest published audited financial statements of the CLP Group were made up, acquired, or disposed of by, or leased to any member of the CLP Group, or which were proposed to be acquired, or disposed of by, or leased to any member of the CLP Group.

GENERAL INFORMATION

APPENDIX VII

8. GENERAL

(a) The secretary of the Company is Mrs. April Chan Yiu Wai Yee, who is a Fellow of The Institute of Chartered Secretaries & Administrators and a Fellow of The Hong Kong Institute of Chartered Secretaries.
(b) The registered office of the Company is at 8 Laguna Verde Avenue, Hung Hom, Kowloon, Hong Kong.
(c) The Company’s Registrars and transfer office is Computershare Hong Kong Investor Services Limited, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(d) The English text of this circular and proxy form shall prevail over the Chinese text, in case of any inconsistency.

9. DOCUMENTS AVAILABLE FOR PUBLIC INSPECTION

Copies of the following documents are available for inspection during normal business hours on any weekday other than public holidays, up to and including the date of the EGM at 8 Laguna Verde Avenue, Hung Hom, Kowloon, Hong Kong:

(a) the memorandum and articles of association of the Company;
(b) the accountant’s report from PricewaterhouseCoopers on CAPCO, the text of which is set out in Appendix II to this circular;
(c) the accountant’s report from PricewaterhouseCoopers on PSDC, the text of which is set out in Appendix IV to this circular;
(d) the report from PricewaterhouseCoopers on the unaudited pro forma financial information of the Enlarged CLP Group, the text of which is set out in Appendix VI to this circular;
(e) the written consent as referred to in the paragraph headed “Experts and Consents” in this Appendix;
(f) the material contracts referred to in the paragraph headed “Material Contracts” in this Appendix;
(g) the annual reports of the Company for each of the three financial years ended 31 December 2010, 2011 and 2012 respectively;
(h) the interim report of the Company for the six months ended 30 June 2013; and
(i) this circular.

NOTICE OF EXTRAORDINARY GENERAL MEETING

中電控股有限公司

CLP Holdings Limited

(incorporated in Hong Kong with limited liability) (stock code: 00002)

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NOTICE OF ExTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting (“EGM”) of CLP Holdings Limited 中電控股有限公司 (“CLP Holdings” or “Company”) will be held at Lower Level I, Kowloon Shangri-La Hong Kong, 64 Mody Road, Kowloon, Hong Kong on Wednesday, 22 January 2014, at 2:30 p.m. for the purpose of considering and, if thought fit, passing (with or without amendments) the following ordinary resolutions:

(1) “THAT the CAPCO Acquisition Agreement and PSDC Acquisition Agreement (each as defined in the circular dated 10 December 2013 (the “Circular”) despatched to the shareholders (the “Shareholders”) of the Company), copies of which have been produced to this meeting marked “A” and “B” respectively, and signed by the Chairman of this meeting for the purpose of identification, and the transactions contemplated therein (including, without limitation, the CAPCO Acquisition and the PSDC Acquisition, each as defined in the Circular), be and are hereby generally and unconditionally approved, confirmed and ratified and the Directors of the Company be and are hereby authorised on behalf of the Company to do such things or acts (including but not limited to signing any further documents, instruments and agreements) as they may consider necessary, desirable or expedient to give effect to such transactions.”
(2) “THAT Mr. Richard Kendall Lancaster be elected as Director of the Company.”
(3) “THAT Dr. Rajiv Behari Lall be elected as Director of the Company.”

By order of the Board April Chan Company Secretary

Hong Kong, 10 December 2013

Registered Office:

8 Laguna Verde Avenue Hung Hom, Kowloon Hong Kong

NOTICE OF EXTRAORDINARY GENERAL MEETING

ExPLANATORY NOTES TO THE NOTICE OF EGM

Proxy Information and Voting Record Date

A Shareholder entitled to attend and vote at the EGM to be held on 22 January 2014 convened by the notice of EGM (the “Notice”) is entitled to appoint not more than two proxies to attend and vote in his/her stead. The proxy need not be a Shareholder.
Proxy forms for use at the EGM were sent to Shareholders together with the Notice on 10 December 2013. The proxy form is published on the website of the Stock Exchange and can be downloaded from CLP Group website www.clpgroup.com. In order to be valid, proxy forms must be completed, signed and deposited at the Company’s Registrars, Computershare Hong Kong Investor Services Limited, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time for holding the EGM or any adjournment thereof.
Completion and return of the form of proxy will not preclude Shareholders from attending and voting in person at the EGM or any adjournment thereof, should they so wish.
The Register of Shareholders will be closed from 21 January 2014 to 22 January 2014, both days inclusive, during which period the registration of transfers of shares will be suspended. To be entitled to attend and vote at the EGM, all transfers should be lodged with the Company’s Registrars, Computershare Hong Kong Investor Services Limited, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, for registration not later than 4:30 p.m. on Monday, 20 January 2014.

Acquisitions

In relation to the proposed Resolution (1) regarding the Acquisitions, Shareholders are advised to refer to the Company’s Circular on Major Transaction dated 10 December 2013 which was despatched to Shareholders together with this Notice.

Directors

As at the date of the Notice, the Directors of the Company are:
Non-executive Directors:
- The Hon. Sir Michael Kadoorie, Mr. William Mocatta, Mr. R. J. McAulay, Mr. J. A. H. Leigh, Mr. I. D. Boyce, Dr. Y. B. Lee and Mr. Paul A. Theys (Mr. David Moore as Mr. Theys’ alternate)
Independent Non-executive Directors: Mr. V. F. Moore, Professor Judy Tsui, Sir Rod Eddington, Mr. Nicholas C. Allen, Mr. Vincent Cheng, Mrs. Fanny Law, Ms. Irene Lee and Dr. Rajiv Lall
Executive Directors: Mr. Richard Lancaster and Mr. Andrew Brandler
In relation to the proposed Resolutions (2) and (3) in the Notice regarding election of Directors, Mr. Richard Lancaster and Dr. Rajiv Lall were respectively appointed by the Board with effect from 3 June 2013 and 13 August 2013. As mentioned in the announcements of their appointments dated 20 May 2013 and 31 May 2013, Mr. Richard Lancaster and Dr. Rajiv Lall will retire at the EGM, being the first general meeting after their appointment, in accordance with the CLP Code on Corporate Governance and, being eligible, offer themselves for election by Shareholders at the EGM. The election of these retiring Directors will be individually voted on by Shareholders. The biographical details, including qualifications, previous experience, length of service with the Company, interests in the Shares and remuneration of Mr. Richard Lancaster and Dr. Rajiv Lall, as required by rule 13.51(2) of the Listing Rules as at 4 December 2013 (being the latest practicable date prior to the printing of this Notice), are set out below to enable Shareholders to make an informed decision on their election.

NOTICE OF EXTRAORDINARY GENERAL MEETING

Mr. Richard Kendall Lancaster (aged 51)
8.1 Mr. Richard Lancaster is the Chief Executive Officer (“CEO”) of the Company, the Chairman of the Sustainability Committee and a Member of the Finance & General Committee of the Board. He also serves on the boards of various wholly-owned subsidiaries of the Company; namely the Chairman and Director of CLP India Private Limited, the Chairman and Executive Director of CLP Power Asia Limited (and the Chairman of its Finance and General Committee), the Deputy Chairman of EnergyAustralia Holdings Limited (and a member of its Nomination and Remuneration Committee), the Deputy Chairman and Executive Director of CLP Properties Limited, the Deputy Chairman of CLP Property Investment Limited (formerly known as Kar Ho Development Company Limited), and a Director of CLP Power Hong Kong Limited (and a member of its Finance & General Committee), CLP Energy Infrastructure Limited, CLP Nuclear Investment Company Limited, CLP Enterprises Limited and CLP Treasury Services Limited. Mr. Lancaster also serves as a Director of Castle Peak Power Company Limited (and a member of its Finance Committee) and Hong Kong Pumped Storage Development Company, Limited. He is also a Director of The Business Environment Council. In the past three years, Mr. Lancaster has not served as a director of any other listed public companies in Hong Kong or overseas.
8.2 Mr. Lancaster holds a bachelor degree in electrical engineering from the University of New South Wales. Before assuming his role as CEO on 30 September 2013, Mr. Lancaster was the Managing Director of CLP Power Hong Kong Limited since 2010, and as such, held overall responsibility for the operations of the Hong Kong business. Mr. Lancaster began his career with the Electricity Commission of New South Wales in Australia and has 30 years’ experience in the power industry and in other industrial operations in Australia, U.K. and Hong Kong. He joined the CLP Group in 1992 and has wide management experience in the operations, projects, commercial and finance areas.
8.3 Mr. Lancaster has a personal interest in 600 Shares within the meaning of Part XV of the Securities and Futures Ordinance (“SFO”). He has no financial or family relationships with any other Directors, Senior Management or substantial or controlling shareholders of the Company.
8.4 Being the CEO of the Company effective from 30 September 2013, Mr. Lancaster is entitled to a base compensation of HK$7.1 million per annum together with other non-remuneration related employment benefits. He is also entitled to participate in (i) the Senior Executive Annual Incentive Scheme; (ii) the Senior Executive Long-term Incentive Scheme; and (iii) the CLP Group Provident Fund Scheme, in accordance with terms as implemented by the Company from time to time. Details of the Annual Incentive, Long-term Incentive and Group Provident Fund schemes for Senior Management, of which Mr. Lancaster is a member, are set out in the Human Resources & Remuneration Committee Report, which forms part of the Company’s 2012 Annual Report and is available on the CLP Group website www.clpgroup.com.

NOTICE OF EXTRAORDINARY GENERAL MEETING

Dr. Rajiv Behari Lall (aged 56)
9.1 Dr. Rajiv Lall is currently the Executive Chairman of IDFC Limited (formerly known as Infrastructure Development Finance Company Limited), a company listed on the National Stock Exchange of India Limited and the Bombay Stock Exchange. Dr. Rajiv Lall is an Independent Nonexecutive Director of the Company appointed on 13 August 2013. He is a Member of the Finance & General Committee of the CLP Holdings Board. He has submitted to the Stock Exchange a written confirmation concerning his independence to the Company. In his written confirmation, Dr. Lall has advised that he has no material interest in any principal business activity of or is not involved in any material business dealings with CLP Holdings or its subsidiaries or with any connected persons of CLP Holdings. He has also confirmed that: a) he has no personal involvement in any of the loan arrangements between CLP India Private Limited (CLP Holdings’ wholly-owned subsidiary) and IDFC Limited; b) such loans were obtained in the normal course of business to finance CLP India’s power projects and were not material to the business of CLP Holdings and its subsidiaries, nor to IDFC Limited; and c) since his appointment to the Board of CLP Holdings, Dr. Lall has not participated in any decisions related to those loans and will not do so in future for as long as he serves on the Board of CLP Holdings. He has also given to the Company a confirmation of his independence. The Board, therefore, considers him to be independent and believes that he should be elected.
9.2 Dr. Lall holds a Bachelor of Arts Degree in Politics, Philosophy and Economics from Oxford University and a Ph. D. in Economics from Columbia University. He has over 30 years’ experience with leading global investment banks, multilateral agencies and in academia. His areas of expertise include project finance, private equity/venture capital, international capital markets, trade, infrastructure and macroeconomic policy issues with a focus on emerging markets including India and China in particular.
9.3 Dr. Lall is also a director of The Great Eastern Shipping Co. Ltd., a company listed on the Bombay Stock Exchange, National Stock Exchange of India Limited and with its global depository receipts listed on the Luxembourg Stock Exchange. Dr Lall is a former independent director of SATS Ltd. (2008-2011), a company listed on the Main Board of Singapore Exchange Securities Trading Limited, and a former director of National Stock Exchange of India Limited (20072012). He has been a director of NSDL e-Governance Infrastructure Limited (formerly known as National Securities Depository Limited) since 2005. He is also holding directorships in the Group Companies of IDFC Limited and a few overseas subsidiaries namely IDFC Capital (Singapore) Pte Limited and IDFC Securities Singapore Pte Limited. In addition to the above, Dr. Lall chairs the board of IDFC Foundation and Lok Social Services, which are engaged in activities pertaining to corporate social responsibility.
9.4 Dr. Lall chairs the Infrastructure Council of CII (Confederation of Indian Industry) a leading business chamber in India and is the Vice Chair of the Global Agenda Council on Infrastructure of the World Economic Forum. He is a member of the Managing Committee of the Associated Chambers of Commerce and Industry of India and was President of Bombay Chamber of Commerce and Industry. In India, he is also member of the Planning Commission’s Steering Committee on Urban Development Management set up to help formulate the country’s 12th Five-Year Plan; the Prime Minister’s Committees on Infrastructure Finance and Transport Sector Development; Expert Group on Modernization of Indian Railways of Ministry of Railways Government of India, and the Reserve Bank of India’s Committee on Non-Banking Finance Companies. Dr. Lall has served on several other Government committees including those focused on urban infrastructure, bond market development and financial sector reform. Internationally, he is also a member of the Advisory Board of the Columbia Global Centres, South Asia, set up by the Columbia University, New York. He is also on the International Advisory Board of the Centre for the Advanced Study of India at the University of Pennsylvania.

NOTICE OF EXTRAORDINARY GENERAL MEETING

9.5 Dr. Lall was India’s representative to the G20 Workgroup on Infrastructure and a member of the City of London’s Advisory Council on India. Prior to joining IDFC Limited, Dr. Lall was variously, a Partner with Warburg Pincus in New York; Head of Asian Economic Research with Morgan Stanley in Hong Kong; a senior staff member of the World Bank in Washington, D.C. and of the Asian Development Bank in Manila respectively; and faculty member of the Florida Atlantic University Department of Economics.
9.6 Dr. Lall has no interest in the Shares within the meaning of the SFO. He has no financial or family relationships with any other Directors, Senior Management or substantial or controlling shareholders of the Company.
9.7 Dr. Lall, as an Independent Non-executive Director, is entitled to receive a fee of HK$424,000 per annum, together with HK$282,400 being additional fees per annum for service on the Finance & General Committee of the Company; both fees are payable to Dr. Lall on a pro-rata basis for his service in 2013. Level of fees for each Non-executive Director and Board Committee for each of the financial years ending 31 December 2013, 2014 and 2015 are set out in the Human Resources & Remuneration Committee Report, which forms part of CLP Holdings’ 2012 Annual Report and is available on the CLP Group website www.clpgroup.com. These fees were approved by Shareholders at the Annual General Meeting of the Company held on 30 April 2013.
Save for the information set out in this paragraph 10 and in paragraphs 6 to 9 above, there is no information to be disclosed pursuant to any of the requirements of the provisions under paragraphs 13.51(2)(h) to 13.51(2)(v) of the Listing Rules nor are there other matters that need to be brought to the attention of Shareholders in respect of the Directors who stand for election at the EGM.

Recommendation

The Board considers that the Resolutions (1) to (3) as set out in the Notice of EGM are in the best interests of the Company and its Shareholders as a whole and, accordingly, recommends Shareholders to vote in favour of the Resolutions (1) to (3) to be proposed at the EGM.

Right to demand a poll

The Listing Rules have been amended in 2009 to require any vote of shareholders at a general meeting be taken by poll and in 2012, the Listing Rules have been further revised to allow a resolution which relates purely on a procedural or administrative matter to be voted on by a show of hands. Since 2004, the Chairman has demanded a poll on each of the resolutions submitted for determination at Annual General Meetings. The Chairman will continue to demand a poll on each of the questions submitted for determination at the forthcoming EGM. The results of the poll will be published on the Company’s and the Stock Exchange’s websites not later than the business day following the EGM, as well as in the Minutes of the EGM which will also be published on the CLP Group website.

NOTICE OF EXTRAORDINARY GENERAL MEETING

Procedure for Shareholders to put forward proposals at the EGM

Pursuant to Article 106 of the Articles of Association of the Company, if a Shareholder wishes to propose a person other than a Director of the Company for election as a director at the EGM, he/she can deposit a written notice to that effect at the registered office of the Company for the attention of the Company Secretary. In order for the Company to inform Shareholders of that proposal, the written notice must state the full name of the person proposed for election as a director, include the person’s biographical details as required by rule 13.51(2) of the Listing Rules, and be signed by the Shareholder concerned and that person indicating his/her willingness to be elected. The period for lodgment of such a written notice will commence no earlier than 11 December 2013 being the day after the despatch of the Notice and end no later than 15 January 2014 which is seven days prior to the date of the EGM. If the notice is received less than 15 days prior to the EGM, the Company will need to consider the adjournment of the EGM in order to allow Shareholders 14 days’ notice of the proposal.
For other proposals including requisitions to move a resolution at the EGM, Shareholders are requested to follow the requirements and procedures as set out in section 115A of the Hong Kong Companies Ordinance and further explained on the CLP Group website. A hard copy of this procedure can be obtained free of charge on request to the Company Secretary.

Guide for Shareholders to attend the EGM

How to Vote?

As a registered member of the Company, a Shareholder is entitled to attend the EGM and cast his/her vote in person. If you are a registered Shareholder and do not plan to attend the EGM, you may appoint a proxy and instruct your proxy to cast your vote at the EGM. For appointment of proxy, please refer to Explanatory Notes 1 to 4 of this Notice.

As a non-registered member of the Company (i.e. your Shares are held through a nominee), you may instruct your broker to appoint you as a corporate representative to attend and vote at the EGM.

A voting paper/device will be given to every Shareholder/proxy upon his/her registration at the EGM. Please use the voting paper/device to cast your votes on a poll at the EGM.

Typhoon or Black Rainstorm Warning

Shareholders are requested to telephone the Company’s hotline on (852) 2678 8228 for arrangements of the EGM in the event that a No. 8 (or above) typhoon or black rainstorm warning is hoisted on the day of the EGM.

Others

Shareholders are asked not to take items such as large bags, cameras, audio recording equipment or video recorders to the EGM. For security reasons, Shareholders may have their bags searched and will be requested to leave all such items at the entrance of the EGM venue before entering.

Choice of language and means of receipt of corporate communications

You may change your choice of language (i.e. the English language version only, the Chinese language version only or both the English language version and the Chinese language version) and means of receipt (in printed form or through our website) of the Company’s future corporate communications[(Note)] , free of charge, at any time by reasonable notice in writing (not less than 7 days) to the Company or the Company’s Registrars or via e-mail ([email protected] or [email protected]).

If you prefer to receive a printed copy of this document in another language (English or Chinese), please write to the Company or the Company’s Registrars, Computershare Hong Kong Investor Services Limited or via e-mail to [email protected] or [email protected]. The document of your choice of language in printed form will be sent to you promptly free of charge. In case you have previously chosen (or have been deemed to have consented) to receive the Company’s corporate communications by electronic means, but for any reason you have difficulty in receiving or gaining access to this document, we will promptly, upon your request, send the document of your choice of language in printed form to you free of charge.

Note: Corporate communications refer to Interim/Annual Reports, Quarterly Statements, notices, documents or other publications of the Company (including any “corporate communication” as defined in the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited).

AI assistant

CLP Holdings Limited — Proxy Solicitation & Information Statement 2013

48862_rns_2013-12-10_7fae2ada-1541-405e-b621-947239974b55.pdf

中電控股有限公司 CLP HOLDINGS LIMITED

Financial advisers to the Company

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE CHAIRMAN

中電控股有限公司

CLP Holdings Limited

Non-executive Directors:

Registered Office:

Independent Non-executive Directors:

Executive Directors:

Major Transaction Acquisition of further 30% Interest in Castle Peak Power Company Limited and remaining 51% Interest in Hong Kong Pumped Storage Development Company, Limited

1. INTRODUCTION

2. THE CAPCO ACQUISITION AGREEMENT

Date

Parties

Assets to be acquired

Consideration

Basis of consideration

Conditions precedent

Completion

EMIHI

CSG

3. THE PSDC ACQUISITION AGREEMENT

Date

Parties

Assets to be acquired

Consideration

Basis of consideration

Condition precedent

Completion

EMIHI

4. SOURCE OF FUNDING FOR THE ACQUISITIONS

5. FINANCIAL INFORMATION ON CAPCO AND PSDC

CAPCO

PSDC

6. SHAREHOLDING STRUCTURE OF CAPCO AND PSDC

7. REASONS FOR, AND BENEFITS OF, THE ACQUISITIONS

8. INFORMATION ON THE CLP GROUP

9. FINANCIAL AND OTHER EFFECTS OF THE ACQUISITIONS

Effect on assets and liabilities

Effect on earnings

Goodwill recognition

10. FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED CLP GROUP

11. LISTING RULES IMPLICATIONS

12. BUSINESS DEALINGS BETWEEN THE CLP GROUP AND THE CSG GROUP

13. GENERAL

14. EGM

15. RECOMMENDATION

16. ADDITIONAL INFORMATION

1. FINANCIAL INFORMATION OF THE GROUP FOR THE LAST THREE FINANCIAL YEARS

2012 Annual Report:

2011 Annual Report:

2010 Annual Report:

Other acquisitions since last published audited financial statements

APPENDIX I

2. INDEBTEDNESS

A. Borrowings

B. Contingent Liabilities

APPENDIX I

(b) Indian Wind Power Projects – WWIL’s Contracts

3. WORKING CAPITAL OF THE ENLARGED GROUP

4. NO MATERIAL ADVERSE CHANGE

Directors’ Responsibility for the Financial Information

Reporting Accountant’s Responsibility

Opinion

Review of stub period comparative financial information

I FINANCIAL INFORMATION OF CAPCO

1. Statements of Profit or Loss

I FINANCIAL INFORMATION OF CAPCO (continued)

2. Statements of Profit or Loss and Other Comprehensive Income

I FINANCIAL INFORMATION OF CAPCO (continued)

3. Statements of Financial Position

I FINANCIAL INFORMATION OF CAPCO (continued)

4. Statements of Changes in Equity

CLP Holdings Limited Proxy Solicitation & Information Statement 2013