COSCO SHIPPING Development Co., Ltd. — Capital/Financing Update 2016

Sep 5, 2016

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, 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 announcement.

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

(Stock code: 02866)

DISCLOSEABLE TRANSACTION SUBSCRIPTION OF SHARES IN JINAN DIESEL ENGINE COMPANY LIMITED

The Board is pleased to announce that on 5 September 2016, the Company (as the subscriber) and Jinan Diesel Engine Company Limited (as the issuer) entered into the Subscription Agreement, pursuant to which the Company has conditionally agreed to subscribe for and the Issuer has conditionally agreed to allot and issue the Subscription Shares for a total consideration of RMB950,000,000.00.

As the highest applicable percentage ratio set out in the Listing Rules for the Subscription exceeds 5% but less than 25%, the Subscription constitutes discloseable transaction of the Company under Rule 14.06(2) of the Listing Rules and is therefore subject to notification and announcement requirements under Chapter 14 of the Listing Rules but exempt from shareholders’ approval requirement under the Listing Rules.

Since the completion of the Subscription is subject to fulfillment of the conditions under the Subscription Agreement, the Subscription may or may not proceed. Shareholders and potential investors are reminded to exercise caution when dealing in the shares of the Company.

The Board is pleased to announce that on 5 September 2016, the Company (as the subscriber) and Jinan Diesel Engine Company Limited (as the issuer) entered into the Subscription Agreement, pursuant to which the Company has conditionally agreed to subscribe for and the Issuer has conditionally agreed to allot and issue the Subscription Shares for a total consideration of RMB950,000,000.00.

I. THE SUBSCRIPTION AGREEMENT

The principal terms of the Subscription Agreement are set out below:

Date: 5 September 2016

Parties: (a) The Company (as the subscriber); and

• (b) Jinan Diesel Engine Company Limited (as the issuer).

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Subscription Shares:

Pursuant to the Subscription Agreement, the Company (as one of the specific targets of the Ancillary Financing) has conditionally agreed to subscribe for and the Issuer has conditionally agreed to allot and issue the Subscription Shares at the Subscription Price for a total consideration of RMB950,000,000.00.

The number of the Subscription Shares shall be determined by dividing the total consideration (i.e. RMB950,000,000.00) by the Subscription Price. If the above calculation results in fractional shares, the number of the Subscription Shares to be issued will be rounded down to the nearest whole share.

Based on the Subscription Price of RMB10.81 per Subscription Share, the total number of the Subscription Shares will be 87,881,591, representing approximately (i) 30.56% of the Issuer’s total share capital as at the date of this announcement; and (ii) 0.97% of the Issuer’s total share capital as enlarged by the Ancillary Financing and share issue relating to its restructuring, assuming that there will be no change in the Issuer’s total share capital between the date of this announcement and the completion date of the Ancillary Financing and share issue relating to its restructuring. The aggregate nominal value of the Subscription Shares will be RMB87,881,591.00.

If there is any change to the total amount of the Ancillary Financing, the total consideration for the Subscription Shares to be subscribed by the Company will be changed in proportion, and the number of the Subscription Shares will also be adjusted accordingly.

The total number of shares to be issued under the Ancillary Financing is 1,757,631,822. The actual number is subject to the final approval of the CSRC. If there is any adjustment to or decrease in the total number of shares to be issued under the Ancillary Financing according to the requirements from securities regulatory authorities or changes in regulatory policies, the actual number of the Subscription Shares to be subscribed by the Company will be adjusted and confirmed by the Issuer in accordance with the actual shares issued under the Ancillary Financing.

The Subscription Shares, when issued and fully paid, will rank pari passu among themselves and with the Shiyoujichai Shares in issue at the time of allotment and issue of the Subscription Shares. The Issuer will apply to the Shenzhen Stock Exchange for the listing of, and permission to deal in, the Subscription Shares.

The abovementioned total consideration will be funded from internal resources of the Company.

Subscription Price:

The Subscription Price of RMB10.81 per Subscription Share is determined based on 90% of the average trading price of the Shiyoujichai Shares for the 20 trading days immediately preceding the Pricing Benchmark Date.

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In the event that the Issuer distributes dividends, grants bonus shares, converts capital reserve into share capital or carries out any other exrights or ex-dividends activities during the period commencing from the Pricing Benchmark Date to the completion date of the Ancillary Financing, the corresponding adjustments shall be made to the Subscription Price. The amount of the Subscription Shares shall be adjusted accordingly based on the adjustment to the Subscription Price.

Conditions Precedent:

The effectiveness of the Subscription Agreement and the implementation of the Subscription is conditional upon:

• (1) the execution and sealing with official chop of the Subscription Agreement by the legal representative or authorised representative of each party thereto;

• (2) the approval by the Issuer’s board of directors and general meeting of the Ancillary Financing;

• (3) the approval by the State-owned Assets Supervision and Administration Commission of the State Council of the Ancillary Financing and relevant matters; and

• (4) the taking effect of the Agreement between Jinan Diesel Engine Company Limited and China National Petroleum Corporation on the Assets Swap of the 100% Equity Interests in Petrochina Company Limited and Issuance of Shares and Assets Purchase with Cash entered into between the Issuer and China National Petroleum Corporation (“ CNPC ”).

• (5) the approval by the CSRC of the Issuer’s transactions involving the restructuring and the Ancillary Financing.

Lock-up Undertaking:

Termination:

• The Subscription Shares subscribed by the Company shall not be traded or transferred within 36 months upon the completion of issuance. In the event that the Company is entitled to bonus shares, converts capital reserve into share capital etc., based on the Subscription, such additional shares shall also comply with the above lock-up period.

• (1) Prior to its taking effect, the Subscription Agreement may be terminated by parties thereto upon negotiation and mutual agreement.

• (2) The Subscription cannot be implemented due to force majeure or other objective reasons out of the control of both parties thereto.

• (3) The Issuer is entitled to unilaterally terminate the Subscription Agreement under the circumstances that the Company materially breaches its obligation under or violates its representations and warranties made in the Subscription Agreement, or that the restructuring and the Ancillary Financing cannot proceed due to the reasons articulated in the Subscription Agreement.

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Guarantee/Payment:

The Company has paid RMB47,500,000.00, representing 5% of the total consideration, to the Issuer on 30 August 2016 as the deposit for the Subscription.

After the Subscription Agreement takes effect, the Company will pay the total consideration in one lump sum into the specific proceeds account designated by the underwriter of this Ancillary Financing within five Business Days after the Company’s receipt of a payment notice from the Issuer.

The Issuer will return the abovementioned deposit and interests (calculated based on the People’s Bank of China’s benchmark demand deposit interest rate) accrued thereon to the Company within three Business Days after the date of the payment of the total consideration by the Company in full.

Completion:

Upon the completion of the subscription procedures, the Issuer will apply for share registration formalities with Shenzhen Branch of China Securities Depository and Clearing Corporation Limited in a timely manner in accordance with relevant rules.

II. REASONS FOR AND BENEFITS OF ENTERING INTO THE SUBSCRIPTION AGREEMENT

The Company is currently undergoing major assets restructuring. The Company and its subsidiaries will principally engage in integrated financial services with diversified leasing businesses such as vessel leasing, container leasing and non-shipping finance leasing as core upon the completion of the restructuring. As CNPC intends to inject its quality financial assets entirely into the Issuer, participation in such major assets restructuring and Ancillary Financing of the Issuer is in line with the business positioning of the Company and will benefit the mutual development of the financial services of the Company and CNPC. Through strategic investment in the Issuer, the Company could absorb the valuable experience from CNPC’s financial services development and also pursue opportunity to cooperate with CNPC, which would in turn accelerate the development of its financial services.

In light of the above, the Board (including the independent non-executive Directors) believes that the terms of the Subscription Agreement are fair and reasonable and on normal commercial terms. The Subscription contemplated under the Subscription Agreement is in the interest of the Company and the Shareholders as a whole.

III. GENERAL INFORMATION

The Group is principally engaged in integrated financial services with diversified leasing businesses such as vessel leasing, container leasing and non-shipping finance leasing as core.

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The Issuer was established in June 1996 with the approval of China National Petroleum Company. In August 1996, National Committee of Economic Systems Reform (國家經濟體制改革委員會) approved that the Jinan Diesel Plant (濟南柴油廠), as the sole promoter, could establish Jinan Diesel Engine Company Limited (Contemplating) (濟南柴油機股份有限公司(籌)) by way of share offer of 80,000,000 shares in total, of which Jinan Diesel Plant held 55,000,000 shares, representing 68.75% of the share capital, and public offering of 25,000,000 shares, representing 31.25% of the share capital. On 16 October 1996, the Shenzhen Stock Exchange issued the Notice of Listing (Sheng Zheng Fa [1996] No. 323) to approve the listing and trading of Shiyoujichai Shares on the Shenzhen Stock Exchange. The total Shiyoujichai Shares were 80,000,000 A shares, including 22,500,000 tradable shares in the stock name of “Shiyoujichai” (stock code: 000617), with listing and trading commenced on 22 October 1996. As of 19 April 2016 prior to the Issuer’s trading suspension, CNPC Jichai Power Equipment Company (“ Jichai Power ”) directly holds 60% shares in the Issuer and is the controlling shareholder of the Issuer, while CNPC holds 100% shares in Jichai Power and is the actual controller of the Issuer. Currently, the major products of the Issuer are 190mm medium and high-speed diesel engines, gas engines and generating units that were principally used in petroleum and petrochemical, offshore and inland shipping and fishing, and gas power generation such as coalbed methane, blast furnace tail gas and biogas.

The table below sets out the major financial data of the Issuer as at and for periods ended 31 December 2014, 31 December 2015 and 31 May 2016.

1. Major Financial Data in the Balance Sheet

		Unit: RMB10,000	Unit: RMB10,000
	As at	As at	As at
	31 May	31 December	31 December
	2016	2015	2014
Total assets	199,036.73	221,506.40	220,483.45
Total liabilities	161,157.75	168,798.55	160,583.90
Net assets	37,878.98	52,707.85	59,899.55
Major Financial Data in the Income Statement
		Unit: RMB10,000
	For the	For the	For the
	five months	year ended	year ended
	ended 31 May	31 December	31 December
	2016	2015	2014
Revenue	17,092.50	90,178.78	92,951.87
Total profit	-13,066.44	-7,820.76	-11,689.51
Net profit	-14,848.27	-7,618.11	-11,518.06

2. Major Financial Data in the Income Statement

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Unit: RMB10,000

3. Major Financial Data in the Cash Flow Statement

	For the	For the	For the
	five months	year ended	year ended
	ended	31 December	31 December
	31 May 2016	2015	2014
Net cash flows from operating activities	-5,213.57	-2,495.42	1,778.83
Net cash flows from investing activities	-25.79	-38.80	-85.31
Net cash flows from financing activities	-954.63	685.73	429.44
Net increase in cash and cash equivalents	-6,193.99	-1,848.50	2,112.10

Source: The auditors’ report (Jonten [2016] Shen Zi No.90874) issued by Jonten Certified Public Accountants (Special General Partnership)

As at 30 June 2016, the number of the Issuer’s total shares is 287,539,200 and the top ten shareholders of the Issuer are as follows:

		Shareholding
No.	Name of shareholders	(%)
1	Jichai Power	60.00
2	China Construction Bank Corporation – Huashang Shuangzhai Fengli Bond	2.38
	Equity Investment Fund (中國建設銀行股份有限公司－華商雙債豐利債券
	型證券投資基金)
3	Industrial and Commercial Bank of China Limited – Huaxia Leading Stock	0.70
	Equity Investment Fund (中國工商銀行股份有限公司－華夏領先股票型證
	券投資基金)
4	Gu Liping (顧力平)	0.61
5	Gu Liquan (顧力權)	0.51
6	Bank of Communications Co., Ltd. – ICBCCS State-owned Enterprises	0.37
	Reform Stock Equity Investment Fund (交通銀行股份有限公司－工銀瑞信
	國企改革主題股票型證券投資基金)
7	Zuo Benxia (左本霞)	0.31
8	China Construction Bank Corporation – Shangtou Morgan Demand of	0.28
	Livelihood Stock Equity Investment Fund (中國建設銀行股份有限公司－
	上投摩根民生需求股票型證券投資基金)
9	Tang Leijian (唐磊建)	0.27
10	Hu Jing (胡晶)	0.25
	Total	65.68

Source: The interim report for 2016 of the Issuer

The Issuer’s controlling shareholder, Jichai Power, is contemplating certain major asset restructuring matters which involve the Issuer. The Issuer has published a relevant announcement on the Shenzhen Stock Exchange on 12 May 2016, confirming that it was contemplating major asset restructuring procedures. The Subscription constitutes a part of the Ancillary Financing contemplated by the Issuer in connection with such major asset restructuring. Please refer to the Issuer’s announcement published on the Shenzhen Stock Exchange on 5 September 2016 for details.

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To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Issuer and its ultimate beneficial owners are third parties independent of the Company and connected persons of the Company.

IV. IMPLICATIONS UNDER THE LISTING RULES

As the highest applicable percentage ratio set out in the Listing Rules for the Subscription exceeds 5% but less than 25%, the Subscription constitutes discloseable transaction of the Company under Rule 14.06(2) of the Listing Rules and is therefore subject to notification and announcement requirements under Chapter 14 of the Listing Rules but exempt from shareholders’ approval requirement under the Listing Rules.

Since the completion of the Subscription is subject to fulfillment of the conditions under the Subscription Agreement, the Subscription may or may not proceed. Shareholders and potential investors are reminded to exercise caution when dealing in the shares of the Company.

V. RISK ANALYSIS

1. Market risks

There will be a lock-up period of three years for the Subscription. The Subscription Shares can only be traded in market upon the expiry of lock-up period. Looking forward, the equity markets in the PRC will still be fluctuated with high level of uncertainty. Although the share price of the Issuer still presents to be profitable in long-term after its restructuring, sometimes its share price may become lower than the Subscription Price in short-term due to market fluctuation. By that time, book investment loss may be incurred. Hence, there is uncertainty in respect of the investment return.

2. Approval risks

The Issuer’s restructuring proposal involves assets injection and ancillary financing of a listed company. There is uncertainty in respect of project approval by regulators, which may affect the progress of the transaction.

VI. DEFINITIONS

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

“Ancillary Financing”

the proposed issuance and private placement of new Shiyoujichai Shares by the Issuer at the Subscription Price to up to ten specific investors (including the Company), in order to raise funds for assets acquisition under its contemplated major asset restructuring, please refer to the Issuer’s announcement published on the Shenzhen Stock Exchange on 5 September 2016 for details

“Board”

the board of Directors of the Company

“Business Day” all calendar days save for Saturday, Sunday and public holiday of the PRC

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“Company”	China Shipping Container Lines Company Limited (中海集裝箱運
	輸股份有限公司), a joint stock limited company incorporated in
	the PRC, of which 3,751,000,000 H shares are listed on the Stock
	Exchange and 7,932,125,000 A shares are listed on the Shenzhen
	Stock Exchange
“connected person”	has the meaning ascribed thereto under the Listing Rules
“CSRC”	the China Securities Regulatory Commission (中國證券監督管理委
	員會)
“Director(s)”	the director(s) of the Company
“Group”	the Company and its subsidiaries
“Issuer”	Jinan Diesel Engine Company Limited (濟南柴油機股份有限公司),
	a joint stock limited company incorporated in the PRC, of which
	287,539,200 Shiyoujichai Shares are listed on the Shenzhen Stock
	Exchange under the stock code of 000617
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock Exchange
“percentage ratios”	has the meaning ascribed to such term under the Listing Rules
“PRC”	the People’s Republic of China, and for the purpose of this
	announcement, excludes the Hong Kong Special Administrative
	Region, the Macau Special Administrative Region and Taiwan
“Pricing Benchmark Date”	5 September 2016, the publication date of the board resolution
	announcement of the Issuer in relation to its restructuring and the
	Ancillary Financing on the Shenzhen Stock Exchange
“RMB”	Renminbi, the lawful currency of the PRC
“Shareholder(s)”	the shareholder(s) of the Company
“Shiyoujichai Share(s)”	the ordinary share(s) of RMB1.00 each in the share capital of the
	Issuer, which are listed and traded on the Shenzhen Stock Exchange
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscription”	the subscription of the Subscription Shares by the Company
	pursuant to the Subscription Agreement for a total consideration of
	RMB950,000,000.00
“Subscription Agreement”	the share subscription agreement dated 5 September 2016 in relation
	to the Subscription entered into between the Company and the Issuer
“Subscription Price”	the subscription price of RMB10.81 per Subscription Share, subject
	to adjustment

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“Subscription Share(s)”

the new Shiyoujichai Shares to be subscribed by the Company and issued by the Issuer at the Subscription Price pursuant to the Subscription Agreement

“%”

per cent.

By order of the Board of China Shipping Container Lines Company Limited Yu Zhen Joint Company Secretary

Shanghai, the PRC 5 September 2016

The Board as at the date of this announcement comprises of Ms. Sun Yueying, Mr. Wang Daxiong, Mr. Liu Chong and Mr. Xu Hui, being executive Directors, Mr. Yang Jigui, Mr. Feng Boming and Mr. Huang Jian, being non-executive Directors, and Mr. Cai Hongping, Mr. Tsang Hing Lun, Ms. Hai Chi Yuet and Mr. Graeme Jack, being independent non-executive Directors.

• The Company is a registered non-Hong Kong company as defined in the Companies Ordinance (Chapter 622 of the Laws of Hong Kong) and it is registered under its Chinese name and under the English name “China Shipping Container Lines Company Limited”.

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