COSCO SHIPPING Development Co., Ltd. — Proxy Solicitation & Information Statement 2008

Jun 24, 2008

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt about any of the contents of this Circular, you should obtain independent professional advice.

If you have sold or transferred all your H shares in China Shipping Container Lines Company Limited , you should at once hand this Circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

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(A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock code: 2866)

DISCLOSEABLE TRANSACTION ACQUISITION OF VESSELS

• The Company is registered as a non-Hong Kong company under Part XI of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) under its Chinese name and the English name “China Shipping Container Lines Company Limited”.

24 June 2008

CONTENTS

		Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
Letter From The Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		4
1.	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
2.	Acquisition of the Vessels under the Agreements . . . . . . . . . . . . . . . . . . . .	5
3.	Reasons for and Benefits of the Acquisition . . . . . . . . . . . . . . . . . . . . . . .	7
4.	General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
5.	Effect of the Acquisition on Earnings and Assets and Liabilities . . . . . . . .	8
6.	Additional Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Appendix	General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9

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DEFINITIONS

In this Circular, unless the context otherwise requires, the following terms shall have the following meanings:

“Acquisition”	the acquisition of the Vessels by CSCL (HK) from the	the acquisition of the Vessels by CSCL (HK) from the	the acquisition of the Vessels by CSCL (HK) from the	the acquisition of the Vessels by CSCL (HK) from the
	Vendors pursuant to the Agreements
“Agreement(s)”	eight ship building contracts entered on 10 June	2008
	between CSCL (HK) and the Vendors, pursuant to which
	the Vendors have agreed to design, build, launch, equip,
	complete and sell, and CSCL (HK) has agreed		to
	purchase, the Vessels
“associate”	has the meaning ascribed thereto under the Listing Rules
“Board” “China Shipping”	the board of Directors China Shipping (Group) Company ( ), a wholly PRC state-owned enterprise and the
	controlling shareholder of the Company
“Company”	China Shipping Container Lines Company Limited
	( ), a joint stock limited
	company established 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 Shanghai Stock
	Exchange
“CSCL (HK)”	China Shipping Container Lines Company (Hong Kong)
	Co., Ltd. ( ), a limited
	company incorporated in Hong Kong and a wholly-
	owned subsidiary of the Company
“Defect(s)”	all damage and breakdown to the hull structure,
	materials, mechanical equipments and electronic devices
	caused by design error, shipbuilding quality issue and
	deficiency of material and equipment of the Vendors
	and/or their subcontractors
“Director(s)”	the director(s) of the Company
“Group”	the Company and its subsidiaries
“HKICPA”	the Hong Kong Institute of Certified Public Accountants

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DEFINITIONS

“HK$”	Hong Kong dollars, the lawful currency of the Hong
	Kong Special Administrative Region of the PRC
“Hong Kong”	Hong Kong Special Administrative Region of the PRC
“Latest Practicable Date”	23 June 2008, being the latest practicable date prior to the
	printing of this Circular for the purpose of ascertaining
	certain information contained in this Circular
“Listing Rules”	the Rules Governing the Listing of Securities on the
	Stock Exchange
“Model Code”	the Model Code for Securities Transactions by Directors
	of Listed Issuers, as set out in Appendix 10 to the Listing
	Rules
“percentage ratios”	has the meaning ascribed to such term under the Listing
	Rules
“PRC”	the People’s Republic of China
“Rights”	the H share appreciation rights granted under the H Share
	Appreciation Rights Scheme adopted by the Company on
	12 October 2005 and amended on 20 June 2006 and 26
	June 2007
“RMB”	Renminbi, the lawful currency of the PRC
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong) as amended and supplemented from
	time to time
“Shareholder(s)”	the holder(s) of H shares of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“TEU”	twenty-foot equivalent units, a standard unit of
	measurement of the volume of a container with a length
	of 20 feet, height of 8 feet and 6 inches and width of 8
	feet
“US$”	United States Dollars, the lawful currency of the United
	States of America

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DEFINITIONS

“Vendors”	(i)	China Shipbuilding Trading Co., Ltd. ( ), a limited liability company incorporated in the PRC; and
	(ii)	Shanghai Jiangnan Changxing Heavy Industry Co., Ltd. ( ), a limited
		liability company incorporated in the PRC
“Vessel(s)”	eight	ocean going single screw diesel engine driven fully
	cellular container vessels, each with a capacity of 4,250
	TEU,	to be acquired by CSCL (HK) from the Vendors
	under the Agreements

The exchange rate adopted in this Circular for illustration purpose only is US$1.00 = HK$7.80.

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LETTER FROM THE BOARD

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

(Stock code: 2866)

Legal address and principle place of principal place of business in the PRC: 27th Floor 450 Fu Shan Road Pudong New District Shanghai the PRC

Executive Directors:

Mr. Li Shaode Mr. Zhang Guofa Mr. Huang Xiaowen Mr. Zhao Hongzhou

Non-executive Directors:

Mr. Ma Zehua the PRC Mr. Zhang Jianhua Mr. Lin Jianqing Principal place of business Mr. Wang Daxiong in Hong Kong: Mr. Yao Zuozhi Level 69 Mr. Xu Hui The Center 99 Queen’s Road Central Independent non-executive Directors: Hong Kong

Mr. Hu Hanxiang

Mr. Jim Poon (also known as Pan Zhanyuan) Mr. Wang Zongxi Mr. Shen Kangchen Mr. Shen Zhongying

24 June 2008

To the holders of H shares of the Company

Dear Sir or Madam,

DISCLOSEABLE TRANSACTION ACQUISITION OF VESSELS

1. INTRODUCTION

On 10 June 2008, the Board announced that CSCL (HK), a wholly owned subsidiary of the Company, entered into the Agreements with the Vendors to purchase eight Vessels. The aggregate consideration payable for the Acquisition under the Agreements is US$559,840,000 (equivalent to approximately HK$4,366,752,000).

• The Company is registered as a non-Hong Kong company under Part XI of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) under its Chinese name and the English name “China Shipping Container Lines Company Limited”.

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LETTER FROM THE BOARD

The Acquisition constitutes a discloseable transaction for the Company under Chapter 14 of the Listing Rules.

Further to the announcement of the Company dated 10 June 2008, the purpose of this Circular is to provide you with further details of the Acquisition of the Vessels under the Agreements.

2. ACQUISITION OF THE VESSELS UNDER THE AGREEMENTS

• (a) Date: 10 June 2008

• (b) Parties

Purchaser: CSCL (HK)

Vendors: (i) China Shipbuilding Trading Co., Ltd.; and

(ii) Shanghai Jiangnan Changxing Heavy Industry Co., Ltd.

• (c) General Nature of the Agreements

Pursuant to the Agreements, the Vendors have agreed to design, build, launch, equip, complete and sell, and CSCL (HK) has agreed to purchase, the Vessels.

• (d) Consideration and Payment Terms

The aggregate consideration payable for the Acquisition under the Agreements is US$559,840,000 (equivalent to approximately HK$4,366,752,000), subject to adjustment, if any (as described below). The said consideration was agreed after arm’s length negotiations between the parties by reference to recent transacted prices for similar container vessels in the PRC, which CSCL (HK) is aware of. The said consideration will be funded from bank financing and internal resources of the Group.

The consideration for each Vessel is payable in US$ by CSCL (HK) to the Vendors in five equal instalments of US$13,996,000 (equivalent to approximately HK$109,168,800) in accordance with the following milestones as stated in each Agreement:

• i. First instalment: To be remitted within seven working days after signing of the Agreement. This instalment was remitted on 20 June 2008;

• ii. Second instalment: After commencement of the construction work of the Vessel, to be remitted by telegraphic transfer within five working days after CSCL (HK)’s receipt from the Vendors of the original payment request approved by CSCL (HK);

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LETTER FROM THE BOARD

• iii. Third instalment: After keel laying of the Vessel, to be remitted by telegraphic transfer within five working days after CSCL (HK)’s receipt from the Vendors of the original payment request approved by CSCL (HK);

• iv. Fourth instalment: After launching of the Vessel, to be remitted by telegraphic transfer within five working days after CSCL (HK)’s receipt from the Vendors of the original payment request approved by CSCL (HK); and

• v. Fifth instalment: After delivery of the Vessel to CSCL (HK), to be remitted within five working days after CSCL (HK)’s receipt of the full set of the original delivery documents of the Vessel.

The consideration for each Vessel is subject to adjustment if: (i) there is any delay in the delivery of such Vessel; (ii) the actual deadweight of such Vessel is less than the guaranteed deadweight of such Vessel by a certain figure; (iii) the actual speed of such Vessel is less than the guaranteed speed of such Vessel by a certain figure; (iv) the actual fuel consumption of such Vessel exceeds the guaranteed fuel consumption of such Vessel by a certain percentage; and/or (v) the actual container capacity of such Vessel is less than the guaranteed container capacity of such Vessel by a certain figure.

Under each Agreement, CSCL (HK) and the Vendors further agreed to adjust the consideration in light of the fluctuation of the exchange rate of US$ against RMB announced by the People’s Bank of China. The reference exchange rate under each Agreement is US$1.00 to RMB7.1763. If RMB appreciates, the consideration for each Vessel will be upwardly adjusted and vice versa.

There is no cap on the aforesaid adjustment to the consideration under each Agreement.

(e) Delivery Time

The respective delivery date for each Vessel is on or before 31 October 2011, 30 November 2011, 31 December 2011, 31 January 2012, 28 February 2012, 31 March 2012, 31 May 2012 and 30 June 2012.

• (f) Guarantee in Relation to the Acquisition

Under each Agreement, the Vendors guarantee the principal dimensions and performance (including speed, fuel consumption, deadweight and container capacity) of the relevant Vessel.

Under each Agreement, the Vendors guarantee that the relevant Vessel is free from Defect(s), provided that: (i) such Defect(s) arise within 12 months from the date the relevant Vessel is delivered to CSCL (HK); and (ii) such Defect(s) are not the result of any misuse by CSCL (HK).

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LETTER FROM THE BOARD

3. REASONS FOR AND BENEFITS OF THE ACQUISITION

The purchase of the Vessels will expand fleet size for foreign trade businesses, strengthen shipping capacity in the Europe, Mediterranean and North America market, satisfy the development plan and operational needs of the Group, improve the Group’s economic benefits and strengthen the Group’s market competitiveness.

The Board (including the independent non-executive Directors) believes that the terms of the Agreements are fair and reasonable, on normal commercial terms and in the interest of the Shareholders and the Company as a whole.

4. GENERAL INFORMATION

(a) Principal Business Activities

• (i) The Group

The Group is principally engaged in the operation and management of international and domestic container marine transportation.

• (ii) China Shipbuilding Trading Co., Ltd.

China Shipbuilding Trading Co., Ltd. is principally engaged in the import and export business and trading of vessels.

• (iii) Shanghai Jiangnan Changxing Heavy Industry Co., Ltd.

Shanghai Jiangnan Changxing Heavy Industry Co., Ltd. is principally engaged in designing, building, launching and equipping vessels.

The Board confirms that, to the best of its knowledge, information and belief after having made all reasonable enquiries, the Vendors and their respective ultimate beneficial owners are third parties independent of the Company and connected persons of the Company.

(b) Implications under the Listing Rules

As the relevant percentage ratios applicable to the Acquisition for the purpose of Chapter 14 of the Listing Rules exceed 5% but are less than 25%, it constitutes a discloseable transaction of the Company under Rule 14.06(2) of the Listing Rules.

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LETTER FROM THE BOARD

5. EFFECT OF THE ACQUISITION ON EARNINGS AND ASSETS AND LIABILITIES

It is expected that approximately 80% of the consideration for the Acquisition will be funded by bank financing and the remaining 20% by internal resources of the Group. Thus, the Group’s fixed assets will increase by the amount of the total consideration for the Acquisition. The Group’s current assets will decrease by the amount of the consideration to be funded by internal resources and the Group’s liabilities will increase by the amount of the consideration to be funded by bank financing. The Directors do not envisage that the Acquisition will have any material impact on the earnings of the Group.

6. ADDITIONAL INFORMATION

Your attention is also drawn to the additional information contained in the Appendix to this Circular.

By order of the Board of China Shipping Container Lines Company Limited Li Shaode Chairman

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GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This Circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement herein misleading.

2. DIRECTORS’, SUPERVISORS’ AND CHIEF EXECUTIVES’ INTERESTS

9 Directors and 4 supervisors were granted Rights under the Rights scheme adopted on 12 October 2005 and amended on 20 June 2006 and 26 June 2007. Details of the Rights scheme were set out in the Company’s circular to Shareholders dated 26 August 2005 and the amended scheme was produced to the annual general meetings of the Company held on 20 June 2006 and 26 June 2007. The interests of such Directors and supervisors in the underlying H shares of the Company as at the Latest Practicable Date were as follows:

	Number of	Capacity in which
	underlying H	underlying H
Name	shares involved	shares were held
Directors
Li Shaode	2,182,000	Beneficial owner
Zhang Guofa	1,431,000	Beneficial owner
Huang Xiaowen	2,151,000	Beneficial owner
Zhao Hongzhou	1,680,000	Beneficial owner
Ma Zehua	981,000	Beneficial owner
Zhang Jianhua	800,000	Beneficial owner
Wang Daxiong	800,000	Beneficial owner
Xu Hui	700,000	Beneficial owner
Yao Zuozhi	700,000	Beneficial owner
Lin Jianqing	339,000	Beneficial owner
Supervisors
Chen Decheng	612,000	Beneficial owner
Yao Guojian	1,600,000	Beneficial owner
Wang Xiuping	900,000	Beneficial owner
Tu Shiming	260,000	Beneficial owner

Percentage figure in the H shares

0.09% (Long position) 0.06% (Long position) 0.09% (Long position) 0.07% (Long position) 0.04% (Long position) 0.03% (Long position) 0.03% (Long position) 0.03% (Long position) 0.03% (Long position) 0.01% (Long position)

0.03% (Long position) 0.07% (Long position) 0.04% (Long position) 0.01% (Long position)

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APPENDIX

GENERAL INFORMATION

Each of Li Shaode, Zhang Jianhua, Lin Jianqing, Wang Daxiong and Zhang Guofa was as at the Latest Practicable Date the President, a Vice-President, a Vice-President, a VicePresident and a Vice-President respectively of China Shipping, which was a company having, as at the Latest Practicable Date, an interest or short position in the Company’s shares and underlying shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors, supervisors or chief executive(s) of the Company had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which was required 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 any such Directors, supervisors or chief executive(s) is taken or deemed to have under such provisions of the SFO) or which was required to be entered in the register required to be kept by the Company pursuant to Section 352 of the SFO or which was otherwise required to be notified to the Company and the Stock Exchange pursuant to the Model Code (which shall be deemed to apply to the Company’s supervisors to the same extent as it applies to the Directors).

3. DIRECTORS’ SERVICE CONTRACTS

None of the Directors has entered into any service contract with the Company or any of its subsidiaries which is not expiring or determinable by the Company within one year without any payment of compensation, other than statutory compensation.

4. DIRECTORS’ INTERESTS IN COMPETING BUSINESS

As at the Latest Practicable Date, none of the Directors or their respective associates has any interests in a business, which competes or may compete with the business of the Group.

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GENERAL INFORMATION

APPENDIX

5. SHAREHOLDINGS OF SUBSTANTIAL SHAREHOLDERS WITH NOTIFIABLE INTERESTS

As at the Latest Practicable Date, so far as the Directors, supervisors or chief executive(s) of the Company are aware, the following persons (other than a Director, supervisor or chief executive of the Company) had interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO:

		Number of		Percentage in
		shares/		the relevant	Percentage in
	Class of	underlying		class of share	total share
Name of shareholder	shares	shares held	Capacity	capital	capital
China Shipping (Group)	A shares	5,595,500,000	Beneficial owner	70.54%	47.89%
Company		(Long position)
JPMorgan Chase & Co.	H shares	110,490,378	Beneficial owner	2.95%	0.95%
		(Long position)		(Long position)	(Long position)
		238,843,000	Investment manager	6.37%	2.04%
		(Long position)		(Long position)	(Long position)
		291,892,905	Custodian	7.78%	2.50%
		(Long position)		(Long position)	(Long position)
		79,401,346	Beneficial owner	2.12%	0.68%
		(Short position)		(Short position)	(Short position)
		291,892,905	Custodian	7.78%	2.50%
		(Lending pool)		(Lending pool)	(Lending pool)
Hutchison International	H shares	374,724,900	Beneficial owner	9.99%	2.07%
Limited		(Long position)
UBS AG	H shares	92,742,066	Beneficial owner	2.47%	0.79%
		(Long position)		(Long position)	(Long position)
		67,349,162	Person having a	1.80%	0.58%
		(Long position)	security interest	(Long position)	(Long position)
		33,774,000	Interest of controlled	0.90%	0.29%
		(Long position)	corporation	(Long position)	(Long position)
		6,101,150	Beneficial owner	0.16%	0.05%
		(Short position)		(Short position)	(Short position)
		32,440,000	Interest of controlled	0.86%	0.28%
		(Short position)	corporation	(Short position)	(Short position)

Save as disclosed above and so far as the Directors, supervisors or chief executive(s) of the Company are aware, as at the Latest Practicable Date, no other person had interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 10 per cent. or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the Company.

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APPENDIX

GENERAL INFORMATION

As at the Latest Practicable Date, so far as the Directors, supervisors or chief executive(s) are aware, each of the following persons, not being: (i) a Director, supervisor or chief executive of the Company or (ii) a member of the Group, were directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group:

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||||||||||
|---|---|---|---|---|---|---|---|---|
|Percentage|of|
|Name|of|subsidiary|(Note)|Name|of|shareholder|(Note)|shareholding|
|Shanghai|HaiXin|YuanCang|(i)|Bermuda|YuanCang|40%|
|International|Logistics|Co.,|Ltd.|International|Co.,|Ltd.|
|(|(|
|)|)|
|(ii)|Shanghai|YiHua|20%|
|Enterprises|Company|
|(|)|

----- End of picture text -----

Note: The English names of certain companies referred herein represent management’s best efforts at translating the Chinese names of these companies as no English names have been registered.

Save as disclosed above and so far as the Directors, supervisors or chief executive(s) are aware, as at the Latest Practicable Date, no other person, not being: (i) a Director, supervisor or chief executive of the Company; or (ii) a member of the Group, were directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group.

6. LITIGATION

As at the Latest Practicable Date, no litigation or claim of material importance is known to the Directors to be pending or threatened against any member of the Group.

7. MISCELLANEOUS

• (a) The secretary of the Company is Mr. Ye Yu Mang. Mr. Ye graduated from Shanghai Maritime University in 1989 with a Masters degree in mechanical engineering and was the company secretary of China Shipping Development Company Limited from April 2001 to March 2003.

• (b) The qualified accountant of the Company pursuant to Rule 3.24 of the Listing Rules is Mr. Zhao Xiaoming, who is able to meet all the requirements set out in Rule 3.24 of the Listing Rules (except that he is not a fellow or an associate member of the HKICPA or a similar body of accountants recognized by the HKICPA for the purpose of granting exemptions from the examination requirement for membership of the HKICPA). Pursuant to the conditions of the waiver from the Stock Exchange from strict compliance with Rule 3.24 of the Listing Rules, the Company has engaged Mr.

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GENERAL INFORMATION

APPENDIX

Mak Po Lung, a fellow member of the HKICPA, to assist Mr. Zhao Xiaoming during the period of the waiver, commencing from 1 October 2006 and expiring on (i) 30 September 2009, being the expiry date of three years commencing from 1 October 2006; or (ii) when the Company fails to fulfill any of the conditions for the said waiver, whichever is earlier.

• (c) The legal address and principal place of business in the PRC of the Company is 27th Floor, 450 Fu Shan Lu, Pudong New District, Shanghai, the PRC. The Hong Kong H Share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Limited at 46th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

• (d) The English text of this Circular shall prevail over the Chinese text in case of any inconsistency.

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