COSCO SHIPPING Development Co., Ltd. — Capital/Financing Update 2017

Sep 19, 2017

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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中遠海運發展股份有限公司 COSCO SHIPPING Development Co., Ltd.*

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

(Stock Code: 02866)

CONNECTED TRANSACTIONS INVESTMENT IN PARTNERSHIP

INVESTMENT IN PARTNERSHIP

The Board is pleased to announce that, on 19 September 2017, the Company, COSCO SHIPPING Logistics, Qingdao City Construction, Henan Modern Service and Shanghai Qianlin Industry, each as Limited Partner, entered into the Partnership Agreement with the Fund Management Company, as General Partner. Pursuant to the Partnership Agreement, the Company has agreed to contribute RMB150 million (equivalent to approximately HK$180 million) to the capital of the Partnership, representing approximately 1.50% of the partnership interest in the Partnership.

IMPLICATIONS UNDER THE LISTING RULES

As at the date of this announcement, COSCO SHIPPING and its associates control or are entitled to exercise control over the voting rights in respect of 4,458,195,175 A Shares and 100,944,000 H Shares, representing approximately 39.02% of the total issued share capital of the Company. Accordingly, COSCO SHIPPING is an indirect controlling shareholder of the Company and therefore a connected person of the Company. COSCO SHIPPING Logistics is a wholly-owned subsidiary of COSCO SHIPPING and therefore is a connected person of the Company.

Pursuant to Rule 14A.81 of the Listing Rules, the entering into of the Partnership Agreement and the transactions contemplated thereunder should be aggregated with the establishment of the Fund Management Company. After the aggregation, as one or more of the applicable percentage ratios calculated in accordance with the Listing Rules exceed 0.1% but are less than 5%, the entering into of the Partnership Agreement and the transactions contemplated thereunder constitute a connected transaction of the Company which is subject to the reporting and announcement requirements but is exempt from independent shareholders’ approval requirement under Chapter 14A of the Listing Rules.

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INTRODUCTION

The Board is pleased to announce that, on 19 September 2017, the Company, COSCO SHIPPING Logistics, Qingdao City Construction, Henan Modern Service and Shanghai Qianlin Industry, each as Limited Partner, entered into the Partnership Agreement with the Fund Management Company, as General Partner. Pursuant to the Partnership Agreement, the Company has agreed to contribute RMB150 million (equivalent to approximately HK$180 million) to the capital of the Partnership, representing approximately 1.50% of the partnership interest in the Partnership.

THE PARTNERSHIP AGREEMENT

The principal terms of the Partnership Agreement are as follows:

Date:	19 September 2017
Parties:	(1) the Fund Management Company, as General Partner;
	(2) Qingdao City Construction, as Limited Partner;
	(3) Henan Modern Service, as Limited Partner;
	(4) Shanghai Qianlin Industry, as Limited Partner;
	(5) the Company, as Limited Partner; and
	(6) COSCO SHIPPING Logistics, as Limited Partner.
Business scope:	The Partnership shall be engaged in non-security equity investment and
	the provision of related investment consultancy services.
Capital	Pursuant to the Partnership Agreement, the initial total committed capital
contribution:	contribution of the Partnership is RMB10,001 million (equivalent to
	approximately HK$12,001.20 million), which shall be made by the
	Partners in cash in the following manner:

		Approximate
		percentage of
	Committed	partnership
	capital	interest in the
	contribution	Partnership
	(RMB’ million)	(%)
The Fund Management Company	1	0.01
Qingdao City Construction	5,000	50.00
Henan Modern Service	2,500	25.00
Shanghai Qianlin Industry	2,300	23.00
The Company	150	1.50
COSCO SHIPPING Logistics	50	0.50
Total (Note)	10,001	100.00
Note:

The approximate percentage of the partnership interest in the Partnership is rounded to the nearest two decimal places and the total percentage of the partnership interest in the Partnership may not add up to 100% due to rounding.

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The first instalment of the capital contribution, being 5% of the respective committed capital contribution, shall be paid by each of the Partners before 30 November 2017. Each of the Limited Partners shall pay the subsequent instalments of its respective committed capital contribution in accordance with the payment notices to be issued by the General Partner. The committed capital contribution shall be paid in full by the Partners before 30 November 2022.

The amount of the committed capital contribution was determined after arm’s length negotiations among the Partners with reference to the initial investment scale and the capital requirements of the Partnership. The capital contribution to be made by the Company will be funded by the internal resources of the Group.

• Further increase of capital:

• During the period of 12 months from the First Closing Date, subject to the approval by way of ordinary resolution at the Partners’ meeting, the Partnership may increase its capital through (i) capital contribution by new Limited Partner(s), or (ii) additional capital contribution by the existing Limited Partner(s) (provided that such existing Limited Partner(s) proposing to make further capital contribution submit a prior written application to the then existing Partners).

Subject term:

The term of the Partnership shall be seven years, commencing from the First Closing Date and being divided into two periods:

• (a) the Investment Period, being the initial five years commencing from the First Closing Date; and

• (b) the Recoupment Period, being the ensuing two years.

The Recoupment Period may be extended twice, with each extension not exceeding one year subject to the unanimous consent of all the Partners and based on the operational needs of the Partnership.

Liabilities of The liabilities of the General Partner under the Partnership Agreement are Partners: unlimited, while the liabilities of the Limited Partners are limited to their respective capital contribution.

• Investment strategy: The Partnership shall leverage on the background of the Partners to make equity investments or quasi-equity investments, such as convertible debts or convertible preferred shares, in the modern logistics and relevant sectors.

Subject to compliance with applicable laws, the Partnership may adopt various types of investment and transaction structures, with at least 60% of the aggregate paid-in capital being invested in projects in the Henan Province.

The Partnership may manage its idle cash assets in a risk-averse manner through bank deposits, subscription of government bonds or other capitalprotected investment products.

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Investment Committee:

The Partnership shall establish the Investment Committee which shall be responsible for the investment decisions of the Partnership.

The Investment Committee shall comprise nine members, whereby (i) the Fund Management Company shall be entitled to appoint three members of the Investment Committee; (ii) Qingdao City Construction shall be entitled to appoint two members of the Investment Committee; and (iii) each of the Company, COSCO SHIPPING Logistics, Henan Modern Service and Shanghai Qianlin Industry shall be entitled to appoint one member of the Investment Committee. The chairman of the Investment Committee shall be assumed by a member appointed by the Fund Management Company.

Each member of the Investment Committee shall have one vote. The decisions of the Investment Committee on the matters regarding the Partnership shall be made by the affirmative votes of at least seven members of the Investment Committee. For matters involving connected transactions, the decisions shall be made by the affirmative votes of 75% or more of the members of the Investment Committee (excluding member(s) who are connected with such transactions and shall abstain from voting).

Management fee:

• During the term of the Partnership (excluding any extension thereafter), the Fund Management Company is entitled to receive an annual management fee payable by the Partnership calculated in the following manner:

• (a) during the Investment Period, 2% of the aggregate paid-in capital contributed by all the Limited Partners; and

• (b) during the Recoupment Period, 2% of the aggregate paid-in capital contributed by all the Limited Partners after deduction of the aggregate amount of exited investment projects.

Distribution of income:

The Partnership may make cash distribution to the Partners out of (i) the cash income generated from the sale or disposal of the investment projects; (ii) the dividend income, interest income, income from idle cash management and other cash income attributable to the Partnership; (iii) unused capital contribution; and (iv) other cash income (including but not limited to income from the breach of contract by counterparties).

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The cash distribution shall be made in the following order:

• (a) the cash distribution shall first be made to all the Limited Partners until each of the Limited Partners has received an aggregate distribution equal to its aggregate paid-in capital contribution;

• (b) if there is surplus after distribution under item (a) above, the surplus shall be distributed to the General Partner until the General Partner has received an aggregate distribution equal to its aggregate paid-in capital contribution; and

• (c) if there is surplus after distribution under items (a) and (b) above, (i) if the annualized rate of return of the Partnership is less than or equal to 6%, the surplus shall be distributed to all the Partners in proportion to their paid-in capital contributions in the Partnership; and (ii) if the annualized rate of return of the Partnership is greater than 6%, the portion of the surplus representing the said 6% annualized rate of return shall be distributed to all the Partners in proportion to their paid-in capital contributions in the Partnership, and for the portion of the surplus in excess of the said 6% annualized rate of return, 80% of which shall be distributed to the Limited Partners in proportion to their paid-in capital contributions in the Partnership and 20% of which shall be distributed to the General Partner.

• Restriction on The transfer of the partnership interest in the Partnership by the General transfer of interest Partner shall be subject to the unanimous consent of all the Limited Partners.

The Limited Partners may transfer its partnership interest in the Partnership in accordance with the terms and conditions of the Partnership Agreement:

• (a) if the intended transferee is an existing Limited Partner, the transfer shall be subject to the giving of a prior written notice to all the other Partners by the transferring Limited Partner; and

• (b) if the intended transferee is a third party other than the Partners, the transferring Limited Partner shall submit to all the Partners a written application in respect of the proposed transfer, which shall be subject to the unanimous consent of all the Partners at the Partners’ meeting, and unless the intended transferee is a connected person of the transferring Limited Partner, the transfer shall also be subject to the pre-emptive rights of the other Partners.

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REASONS FOR AND BENEFITS OF ENTERING INTO THE PARTNERSHIP AGREEMENT

By virtue of the “Belt and Road” initiative, the “Rise of Central China” plan and the launch of the Henan Pilot Free Trade Zone, it is expected that the Partnership will be able to seize the investment opportunities by leveraging on the Partners’ competitive advantages in the logistics industry. The investment in the Partnership is in line with the strategic planning and development of the Group as an integrated financial services platform with leasing businesses.

It is expected that the investment in the Partnership will generate considerable investment income for the Company.

The terms of the Partnership Agreement were agreed after arm’s length negotiations among the parties thereto. The Board (including the independent non-executive Directors) considers that the terms of the Partnership Agreement and the transactions contemplated thereunder are on normal commercial terms which are fair and reasonable, and are in the interests of the Company and the Shareholders as a whole. As stated in the section headed “Implications under the Listing Rules”, all the executive Directors and non-executive Directors have abstained from voting on the relevant Board resolutions approving the Partnership Agreement and the transactions contemplated thereunder.

INFORMATION ON THE GROUP AND THE PARTIES TO PARTNERSHIP AGREEMENT

Information on the Company and the Group

The Company is a joint stock limited company incorporated in the PRC with limited liability, the H Shares of which are listed on the Main Board of the Hong Kong Stock Exchange and the A Shares of which are listed on the Shanghai Stock Exchange.

The Group is principally engaged in providing integrated financial services with diversified leasing businesses such as vessel leasing, container leasing and non-shipping finance leasing, supply chain finance, shipping insurance, logistic infrastructure investment and other financial assets investment services.

Information on COSCO SHIPPING Logistics

COSCO SHIPPING Logistics is a company established under the laws of the PRC with limited liability and is a wholly-owned subsidiary of COSCO SHIPPING. It is principally engaged in the provision of cargo logistics, international freight agency services and related consultancy services.

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Information on the Fund Management Company

The Fund Management Company is a company established under the laws of the PRC with limited liability. It is principally engaged in the management of non-security equity investment and the provision of related consultancy services.

The Fund Management Company was established on 23 January 2017 by Tianjin COSCO SHIPPING Guanghua Investment Management Co., Ltd.[#] (天津中遠海運光華投資管理有限 公司) (a wholly-owned subsidiary of the Company), COSCO SHIPPING Logistics and Henan Hi-Tech Venture Capital Co., Ltd.[#] (河南高科技創業投資股份有限公司) with capital contribution of RMB13.5 million, RMB6 million and RMB10.5 million, representing 45%, 20% and 35% of the equity interest of the Fund Management Company, respectively. Please refer to the overseas regulatory announcement of the Company dated 15 February 2017 for further details.

As all the applicable percentage ratios calculated in accordance with the Listing Rules in respect of the establishment of the Fund Management Company were less than 0.1%, the establishment of the Fund Management Company constituted a connected transaction of the Company which was fully exempt pursuant to Rule 14A.76 of the Listing Rules.

Information on Qingdao City Construction

Qingdao City Construction is a company established under the laws of the PRC with limited liability. It is principally engaged in urban redevelopment, construction of transportation system and development of land. To the best of the knowledge, information and belief of the Directors having made all reasonable enquiries, Qingdao City Construction and its ultimate beneficial owner(s) are third parties independent of the Company and its connected persons.

Information on Henan Modern Service

Henan Modern Service is a company established under the laws of the PRC with limited liability. It is principally engaged in the management of non-security equity investment and the provision of related consultancy services. To the best of the knowledge, information and belief of the Directors having made all reasonable enquiries, Henan Modern Service and its ultimate beneficial owner(s) are third parties independent of the Company and its connected persons.

Information on Shanghai Qianlin Industry

Shanghai Qianlin Industry is a company established under the laws of the PRC with limited liability. It is principally engaged in sale of consumer and industrial products. To the best of the knowledge, information and belief of the Directors having made all reasonable enquiries, Shanghai Qianlin Industry and its ultimate beneficial owner(s) are third parties independent of the Company and its connected persons.

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IMPLICATIONS UNDER THE LISTING RULES

As at the date of this announcement, COSCO SHIPPING and its associates control or are entitled to exercise control over the voting rights in respect of 4,458,195,175 A Shares and 100,944,000 H Shares, representing approximately 39.02% of the total issued share capital of the Company. Accordingly, COSCO SHIPPING is an indirect controlling shareholder of the Company and therefore a connected person of the Company. COSCO SHIPPING Logistics is a wholly-owned subsidiary of COSCO SHIPPING and therefore is a connected person of the Company.

Pursuant to Rule 14A.81 of the Listing Rules, the entering into of the Partnership Agreement and the transactions contemplated thereunder should be aggregated with the establishment of the Fund Management Company. After the aggregation, as one or more of the applicable percentage ratios calculated in accordance with the Listing Rules exceed 0.1% but are less than 5%, the entering into of the Partnership Agreement and the transactions contemplated thereunder constitute a connected transaction of the Company which is subject to the reporting and announcement requirements but is exempt from independent shareholders’ approval requirement under Chapter 14A of the Listing Rules.

Ms. Sun Yueying, Mr. Wang Daxiong, Mr. Liu Chong and Mr. Xu Hui, all being executive Directors, hold directorship(s) or act as senior management in China Shipping and its associates, and Mr. Feng Boming, Mr. Huang Jian and Mr. Chen Dong, all being non-executive Directors were nominated by China Shipping to the Board. Accordingly, Ms. Sun Yueying, Mr. Wang Daxiong, Mr. Liu Chong, Mr. Xu Hui, Mr. Feng Boming, Mr. Huang Jian and Mr. Chen Dong have therefore abstained from voting on the relevant Board resolutions approving the Partnership Agreement and the transactions contemplated thereunder. Save as aforementioned, none of the other Directors has a material interest in the Partnership Agreement and the transactions contemplated thereunder and hence no other Director has abstained from voting on such Board resolutions.

DEFINITIONS

Unless the context requires otherwise, capitalized terms used in this announcement shall have the meanings as follow:

“A Share(s)”	the domestic share(s) in the ordinary share capital of the Company
	with a par value of RMB1.00 each, which are listed on the
	Shanghai Stock Exchange
“associate”	has the meaning ascribed to it under the Listing Rules
“Board”	the board of directors of the Company
“China Shipping”	China Shipping (Group) Company#(中國海運(集團)總公司), a
	PRC state-owned enterprise, the controlling shareholder of the
	Company and a wholly-owned subsidiary of COSCO SHIPPING

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“Company”

COSCO SHIPPING Development Co., Ltd.* (中遠海運發展股份 有限公司), a joint stock limited company incorporated in the PRC with limited liability, the H Shares and A Shares of which are listed on Main Board of the Hong Kong Stock Exchange (Stock Code: 2866) and the Shanghai Stock Exchange (Stock Code: 601866), respectively

“COSCO SHIPPING” China COSCO SHIPPING Corporation Limited[#] (中國遠洋海 運集團有限公司), a PRC state-owned enterprise and an indirect controlling shareholder of the Company “COSCO SHIPPING COSCO SHIPPING Logistics Co., Ltd.[#] (中遠海運物流有限 Logistics” 公司), a company established under the laws of the PRC with limited liability and is a wholly-owned subsidiary of COSCO SHIPPING “connected person” has the meaning ascribed to it under the Listing Rules “controlling shareholder” has the meaning ascribed to it under the Listing Rules “Director(s)” director(s) of the Company “First Closing Date” a date falling within 30 days after the aggregate amount of the capital contribution made by the Limited Partners having reached RMB500 million and to be designated by the General Partner “Fund Management Henan Yuan Hai Zhong Yuan Logistics Industry Development Company” Fund Management Co., Ltd.[# ] (河南遠海中原物流產業發展基金管 理有限公司), a company established under the laws of the PRC with limited liability “General Partner” the general partner of the Partnership from time to time, initially being the Fund Management Company “Group” the Company and its subsidiaries “H Share(s)” the overseas listed foreign shares in the ordinary share capital of the Company with a par value of RMB1.00 each, which are listed on Main Board of the Hong Kong Stock Exchange “Henan Modern Service” Henan Province Modern Service Industry Investment Fund Co., Ltd.[#] (河南省現代服務業產業投資基金有限公司), a company established under the laws of the PRC with limited liability “HK$” Hong Kong dollars, the lawful currency of Hong Kong “Hong Kong” the Hong Kong Special Administrative Region of the PRC “Hong Kong Stock Exchange” The Stock Exchange of Hong Kong Limited

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“Investment Committee”	a committee to be established by the Partnership pursuant to the
	terms of the Partnership Agreement, which shall be responsible
	for the investment decisions of the Partnership
“Investment Period”	the initial five years commencing from the First Closing Date
	during the term of the Partnership
“Limited Partner(s)”	the limited partner(s) of the Partnership from time to time,
	initially being the Company, COSCO SHIPPING Logistics,
	Qingdao City Construction, Henan Modern Service and Shanghai
	Qianlin Industry
“Listing Rules”	the Rules Governing the Listing of Securities on The Stock
	Exchange of Hong Kong Limited
“Partners”	collectively, the General Partner and the Limited Partners
“Partnership”	Henan Yuan Hai Zhong Yuan Logistics Industry Development
	Fund (Limited Partnership)#(河南遠海中原物流產業發展基
	金（有限合夥）), a limited partnership to be established under
	the laws of the PRC pursuant to the terms of the Partnership
	Agreement
“Partnership Agreement”	the partnership agreement dated 19 September 2017 entered into
	by and among the Fund Management Company, the Company,
	COSCO SHIPPING Logistics, Qingdao City Construction, Henan
	Modern Service and Shanghai Qianlin Industry in relation to the
	establishment and management of the Partnership
“percentage ratios”	has the meaning ascribed to it under the Listing Rules
“PRC”	the People’s Republic of China, and for the purpose of this
	announcement only, excluding Hong Kong, the Macau Special
	Administrative Region of the People’s Republic of China and
	Taiwan
“Qingdao City Construction”	Qingdao City Construction Investment (Group) Co., Ltd.#(青島城
	市建設投資（集團）有限責任公司), a company established under
	the laws of the PRC with limited liability
“Recoupment Period”	the ensuing two years following the end of the Investment Period
	during the term of the Partnership
“RMB”	Renminbi, the lawful currency of the PRC
“Shanghai Qianlin Industry”	Shanghai Qianlin Industry Co., Ltd.#(上海千臨實業有限公司),
	a company established under the laws of the PRC with limited
	liability

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“Share(s)”

A Share(s) and H Share(s)

“Shareholder(s)”

holder(s) of the Share(s)

“%”

per cent

By order of the Board COSCO SHIPPING Development Co., Ltd. Yu Zhen

Company Secretary

Shanghai, the People’s Republic of China 19 September 2017

For the purpose of this announcement, translations of RMB into HK$ or vice versa have been calculated by using an exchange rate of RMB1.00 equal to HK$1.20. Such exchange rate has been used, where applicable, for the purpose of illustration only and does not constitute a representation that any amounts were, may have been or will be exchanged at such rate or any other rates or at all.

As at the date of this announcement, the Board comprises Ms. Sun Yueying, Mr. Wang Daxiong, Mr. Liu Chong and Mr. Xu Hui, being executive Directors, Mr. Feng Boming, Mr. Huang Jian and Mr. Chen Dong, being non-executive Directors, and Mr. Cai Hongping, 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 “COSCO SHIPPING Developments Co., Ltd.”.

• For identification purposes only.

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