COSCO SHIPPING Development Co., Ltd. - Proxy Solicitation & Information Statement 2014

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 a stockbroker and other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

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

This circular does not constitute an invitation or offer to acquire, purchase or subscribe for the securities of China Shipping Container Lines Company Limited.

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

(Stock code: 02866)

REVISION OF ANNUAL CAPS FOR CONTINUING CONNECTED TRANSACTIONS IN RESPECT OF 2014 AND 2015

AND

PROPOSED PROVISION OF GUARANTEE FOR A WHOLLY-OWNED SUBSIDIARY AND RELEVANT AUTHORIZATION TO THE BOARD

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

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A letter from the Board is set out on pages 5 to 18 of this circular. A letter from the Independent Board Committee of the Company is set out on pages 19 to 20 of this circular. A letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders is set out on pages 21 to 31 of this circular.

* 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”.

10 September 2014

	Pages
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . .	19
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . .	21
APPENDIX I – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .	32

– i –

DEFINITIONS

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

“associate”
has the meaning ascribed thereto 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 wholly PRC state-owned enterprise and the controlling Shareholder, together with its subsidiaries having an approximately 47.05% shareholding interest in the Company as at the Latest Practicable Date
“China Shipping Group”
China Shipping and its subsidiaries (excluding the Group)
“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 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 (Hong Kong) Co., Ltd. (中海集裝箱運輸(香港)有限公司), a limited liability company incorporated in Hong Kong, which is whollyowned by the Company as at the Latest Practicable Date
“CSTD”
China Shipping Terminal Development Co., Ltd. (中海碼頭發展有限公司), a limited liability company incorporated in the PRC, which is wholly-owned by CSTD HK as at the Latest Practicable Date, an indirect subsidiary of China Shipping and a connected person of the Company
“CSTD HK”
China Shipping Terminal Development (H.K.) Co., Ltd. (中海碼頭發展(香港)有限公司), a company incorporated in Hong Kong with limited liability, which is owned as to 51% by China Shipping as at the Latest Practicable Date
“Dalian Terminal”
Dalian Dagang China Shipping Container Terminal Co., Ltd. (大連大港中海集裝箱碼頭有限公司), which is owned as to 35% by CSTD as at the Latest Practicable Date, an associate of China Shipping and a connected person of the Company

– 1 –

DEFINITIONS

“Directors”

the directors of the Company

“EGM”

the extraordinary general meeting of the Company to be convened at 2:30 p.m. on Thursday, 25 September 2014 at Holiday Inn Shanghai Jinxiu, No. 399 Jinzun Road, Pudong New Area, Shanghai, the PRC

“Existing Annual Caps”
the annual caps for the continuing connected transaction contemplated under the Master Loading and Unloading Agreements for the years ending 31 December 2014 and 2015 previously approved by the Independent Shareholders, which are RMB860 million and RMB989 million, respectively
“First Master Loading and Unloading Agreement”
the master loading and unloading agreement dated 10 May 2004 entered into between the Company, China Shipping, Shanghai Terminal, Zhanjiang Terminal and Dalian Terminal
“Group” the Company and its subsidiaries
“Hong Kong”
Hong Kong Special Administrative Region of the PRC
“Independent Board Committee”
a committee of the Board comprising all the independent non-executive Directors, namely, Ms. Zhang Nan, Mr. Teo Siong Seng, Mr. Chen Lishen, Mr. Guan Yimin and Mr. Shi Xin
“Independent Financial Adviser”
Guotai Junan Capital Limited
“Independent Shareholders”
the shareholders of the Company except the China Shipping Group and its associates who are legally and/or beneficially interested in the shares of the Company
“Latest Practicable Date”
5 September 2014, 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
“Master Loading and Unloading the First Master Loading and Unloading Agreement and Agreements” Second Master Loading and Unloading Agreement

– 2 –

DEFINITIONS

“Model Code”
“New Continuing Connected Transaction”
“percentage ratio”
“PRC”
“Proposed Authorization”
“Revised Annual Caps”
“RMB”
“Second Master Loading and Unloading Agreement”
“SFO”
the Model Code for Securities Transactions by Directors of Listed Issuers, as set out in Appendix 10 to the Listing Rules
the continuing connected transaction between the Group and CSTD as a result of the disposal of 100% equity interest in CSTD by the Company to CSTD HK, which is related to the provision of container loading and unloading services and other related and ancillary services and constitutes a continuing connected transaction of the Company under the Master Loading and Unloading Agreements
has the meaning ascribed thereto under the Listing Rules
the People’s Republic of China which for the purposes of this circular excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan
the proposed authorization for the Board to approve the provision of guarantee for CSCL HK, details of which are set out in this circular
the annual caps for the continuing connected transaction contemplated under the Master Loading and Unloading Agreements for the years ending 31 December 2014 and 2015 as adjusted by the Board on 8 August 2014 subject to the approval of the Independent Shareholders, which are RMB1,330 million and RMB2,120 million, respectively
Renminbi, the lawful currency of the PRC
the master loading and unloading agreement dated 10 May 2004 entered into between the Company and West Basin
the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as amended and supplemented from time to time

– 3 –

DEFINITIONS

“Shanghai Terminal” Shanghai China Shipping Container Terminal Co., Ltd. (上海港中海集裝箱碼頭有限公司), which is owned as to 50% by CSTD as at the Latest Practicable Date, an indirect subsidiary of China Shipping and a connected person of the Company

“Shareholder(s)” the shareholder(s) of the Company
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“subsidiary” has the meaning ascribed thereto under the Listing Rules
“Supervisors” the supervisors of the Company
“TEU” twenty-foot equivalent unit, 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

“USD” United States dollars, the lawful currency of the United States

“West Basin” West Basin Container Terminal LLC. (洛杉磯西港池碼頭有限公司), which is owned as to 40% by China Shipping as at the Latest Practicable Date, an associate of China Shipping and a connected person of the Company

“Zhanjiang Terminal” Zhanjiang China Shipping Container Terminal Co. Ltd. (湛江港中海集裝箱碼頭有限公司), which was deregistered in December 2013 and owned as to 50% by the Group immediately before its deregistration

“%” per cent

– 4 –

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: 02866)

Executive Directors: Mr. Zhang Guofa Mr. Huang Xiaowen Mr. Zhao Hongzhou

Non-executive Directors:

Ms. Su Min Mr. Ding Nong Mr. Liu Xihan Mr. Yu Zenggang Mr. Chen Jihong

Independent non-executive Directors: Ms. Zhang Nan Mr. Teo Siong Seng Mr. Chen Lishen Mr. Guan Yimin Mr. Shi Xin

Legal address in the PRC: Room A-538 International Trade Center China (Shanghai) Pilot Free Trade Zone Shanghai The PRC

Principal place of business in the PRC: Maritime Research Building 628 Minsheng Road Pudong New Area Shanghai The PRC

Principal place of business in Hong Kong: 31/F, Tower 2 Kowloon Commerce Centre 51 Kwai Cheong Road, Kwai Chung New Territories, Hong Kong

10 September 2014

To the Shareholders

Dear Sir or Madam,

(1) REVISION OF ANNUAL CAPS FOR CONTINUING CONNECTED TRANSACTIONS IN RESPECT OF 2014 AND 2015 AND

(2) PROPOSED PROVISION OF GUARANTEE FOR A WHOLLY-OWNED SUBSIDIARY AND RELEVANT AUTHORIZATION TO THE BOARD

I. INTRODUCTION

Reference is made to the announcement of the Company dated 8 August 2014 on (1) the revision of annual caps for continuing connected transactions in respect of 2014 and 2015, and (2) the proposed provision of guarantee for a wholly-owned subsidiary of the Company and relevant authorization to the Board.

* 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”.

– 5 –

LETTER FROM THE BOARD

The main purpose of this circular is to provide you with, among other things:

further information as is necessary to enable you to make an informed decision on whether to vote for or against the resolutions to be proposed at the EGM relating to:
(a) the Revised Annual Caps for the Master Loading and Unloading Agreements; and
(b) the proposed provision of guarantee for a wholly-owned subsidiary of the Company and the Proposed Authorization as described in this circular;
the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders relating to the continuing connected transactions under the Master Loading and Unloading Agreements (including the New Continuing Connected Transaction) and the Revised Annual Caps; and
the letter of recommendation from the Independent Board Committee to the Independent Shareholders relating to the continuing connected transactions under the Master Loading and Unloading Agreements (including the New Continuing Connected Transaction) and the Revised Annual Caps.

II. REVISION OF ANNUAL CAPS FOR CONTINUING CONNECTED TRANSACTIONS IN RESPECT OF 2014 AND 2015

1. Introduction

On 10 May 2004, the Company entered into the First Master Loading and Unloading Agreement with China Shipping, Shanghai Terminal, Zhanjiang Terminal and Dalian Terminal for the provision of container loading and unloading services and other related and ancillary services: (i) by China Shipping, Shanghai Terminal, Zhanjiang Terminal and Dalian Terminal and their respective subsidiaries and associates; and (ii) to the Group.

On 10 May 2004, the Company also entered into the Second Master Loading and Unloading Agreement with West Basin for the provision of the same services aforesaid: (i) by West Basin and its subsidiaries and associates; and (ii) to the Group.

The estimated annual caps of these continuing connected transactions for 2013, 2014 and 2015 were RMB748 million, RMB860 million and RMB989 million, respectively. Based on such estimated annual caps of these continuing connected transactions, such continuing connected transactions are subject to the requirements of reporting, announcement, annual review and independent shareholders’ approval under Chapter 14A of the Listing Rules for the years of 2013, 2014 and 2015.

On 11 October 2013, the Company, CSTD HK and China Shipping (HK) Holdings Co., Ltd. entered into a share purchase agreement, pursuant to which the Company agreed to sell its 100% equity interest in CSTD to CSTD HK. The proposed transfer was approved by the

– 6 –

LETTER FROM THE BOARD

Shareholders on 12 December 2013. CSTD is primarily engaged in the investment, management and operation of container terminal in the PRC and has been providing container loading and unloading services and other related and ancillary services to the Group since its incorporation. Upon the completion of such disposal on 16 June 2014, CSTD became an indirect subsidiary of China Shipping and will continue to provide the same services aforesaid to the Group. The estimated transaction volume for the year ending 31 December 2014 (excluding 1 January 2014 to 15 June 2014) and the year ending 31 December 2015 are RMB609 million and RMB1,259 million, respectively.

China Shipping is our controlling Shareholder, together with its subsidiaries holding approximately 47.05% equity interest in the total issued share capital of the Company as at the Latest Practicable Date. China Shipping and its associates are therefore connected persons of the Company as defined under Chapter 14A of the Listing Rules. Accordingly, the above New Continuing Connected Transaction constitutes a continuing connected transaction of the Company under the Master Loading and Unloading Agreements, which is subject to the reporting, annual review and disclosure requirements under Rule14A.60 of the Listing Rules. With the New Continuing Connected Transaction, the estimated annual caps for the transactions contemplated under the Master Loading and Unloading Agreements for the years ending 31 December 2014 and 2015 are proposed by the Board to be increased to RMB1,330 million and RMB2,120 million, respectively. The highest applicable percentage ratio (excluding profit ratio) of the Revised Annual Caps for the years ending 31 December 2014 and 2015 is expected to be more than 5% but less than 25% under the Listing Rules, therefore the continuing connected transactions contemplated under the Master Loading and Unloading Agreements would constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules which shall be subject to reporting, announcement, annual review and independent shareholders’ approval requirements.

On 8 August 2014, the Board approved the Revised Annual Caps.

2. Summary of the Master Loading and Unloading Agreements

Summary

Agreement : First Master Loading and Unloading Agreement Date of agreement : 10 May 2004 Parties : • the Company • China Shipping • Shanghai Terminal • Zhanjiang Terminal • Dalian Terminal

Subject Matter : provision of container loading and unloading services and other related and ancillary services: (i) by China Shipping, Shanghai Terminal, Zhanjiang Terminal and Dalian Terminal and their respective subsidiaries and associates; and (ii) to the Group

– 7 –

LETTER FROM THE BOARD

Term	:	three years, automatically extended for further terms of
		three years, unless any relevant party gives to the other
		parties a written notice of termination at least three
		months prior to the expiry of the relevant term
Agreement	:	Second Master Loading and Unloading Agreement
Date of agreement	:	10 May 2004
Parties	:	• the Company
		• West Basin
Subject Matter	:	provision of container loading and unloading services and
		other related and ancillary services: (i) by West Basin and
		its subsidiaries and associates; and (ii) to the Group
Term	:	three years, automatically extended for further terms of
		three years, unless any relevant party gives to the other
		party a written notice of termination at least three months
		prior to the expiry of the relevant term

The Master Loading and Unloading Agreements were renewed for further terms of three years after 10 May 2007, 10 May 2010 and 10 May 2013. The transactions contemplated under these agreements (before inclusion of the New Continuing Connected Transaction) are subject to the requirements of reporting, announcement, annual review and independent shareholders’ approval under Chapter 14A of the Listing Rules.

Annual caps and basis of determination

The table below sets out the annual caps duly approved by the Directors and by the Independent Shareholders at a general meeting for the three years ended/ending 31 December 2013, 2014 and 2015 for the transactions contemplated under the Master Loading and Unloading Agreements (before inclusion of the New Continuing Connected Transaction) and the basis of determination (comprising the historical amounts for 2010, 2011 and six months ended 30 June 2012):

			Historical
			amount for
			six months
	Historical amount for the		ended 30	Approved	annual cap for the year
	year ended 31 December		June	ended/ending 31 December
	2010	2011	2012	2013	2014	2015
	(RMB’000)				(RMB’000)
Actual and
estimated
transaction
volume	483,778	461,889	230,427	748,000	860,000	989,000

The duly approved annual caps for 2013, 2014 and 2015 were worked out by reference to the historical amounts set out above, as well as the market conditions at that time.

– 8 –

LETTER FROM THE BOARD

Pricing basis

The pricing basis under the Master Loading and Unloading Agreements is:

(i) state-prescribed prices;
(ii) where there is no state-prescribed price, then according to relevant market prices and on principle of fairness and reasonableness; or
(iii) where there is no market price, then according to the contracted price.

For the purpose of the Master Loading and Unloading Agreements:

“state-prescribed price” means the price set by the relevant laws, regulations and other governmental regulatory documents issued by the relevant departments of the PRC government. For the continuing connected transactions under the Master Loading and Unloading Agreements, certain categories of services (such as container stevedore lump-sum-fee, cargo shifting fee and port carriage fee for the domestic trade lanes and international trade lanes) are pertained to state-prescribed guidance prices whose sources are the Rules of Port Charging, the Measures of Port Charging on Domestic Water Route Container and relevant notices promulgated by the PRC Ministry of Transport and other authorities, which rules are of a guidance nature;

“market price” means the price at which the same or comparable type of products or services are provided from or to (as appropriate) independent third parties in the same area on normal commercial terms in the ordinary course of business. Procedures and mechanism for determining market price are as follows: (i) the relevant department of the Company will collect applicable data and market information (including quotes from independent third parties) and prepare draft proposal; (ii) the relevant department will seek advice (such as conditions of facilities and quality of services) from shipping route operation department and relevant agents and submit revised proposal to its supervising department’s review; (iii) the relevant department will negotiate with transaction counterparties (including connect persons) based on such reviewed proposal; (iv) the Company will enter into implementation agreement based on results of negotiation; and (v) the executed implementation agreement will be forwarded to audit centre, finance department and shipping route operation department of the Company and relevant agents for recording and implementation; and

“contracted price” means the relevant cost incurred in providing such products or services plus a profit margin ranging from 0% to 12.25% thereof. Currently, none of the loading and unloading continuing connected transactions of the Company adopts contracted price.

Payments under the Master Loading and Unloading Agreements are calculated based on services fees charged at a unit rate for each container, which rate is determined in the applicable implementation agreements entered into under the Master Loading and Unloading Agreements.

– 9 –

LETTER FROM THE BOARD

The Directors then believed that the prices charged by the relevant connected persons and the terms for payment for the continuing connected transactions set out above were and would be no less favourable to the Group than those offered by other independent third parties and are in the interests of the Company and the Shareholders as a whole.

Internal control procedures over the pricing basis of the transactions contemplated under the Master Loading and Unloading Agreements

Before entering into any implementation agreements for any specific transaction contemplated under the Master Loading and Unloading Agreements, the Company will implement the following procedures to ensure the terms offered by the relevant connected parties are no less favourable than those available from independent third parties:

(i) the relevant executives of the operation department of Company will review contemporaneous prices and other relevant terms offered by at least two independent third parties operating at the same or nearby ports before the commencement of the relevant transaction, and ensure the terms offered by the relevant connected persons, including but not limited to the unit rate per container, are fair and reasonable and comparable to those offered by independent third parties. In the case where the offers made by independent third parties are more favourable to the Company, the Company may take up those offers; and
(ii) the supervision department of the Company will periodically review and inspect the process of the continuing connected transactions under the Master Loading and Unloading Agreements.

By implementing the above procedures, the Directors consider that the Company has established sufficient internal control measures to ensure the pricing basis of the Master Loading and Unloading Agreements will be on market terms and on normal commercial terms and will be fair and reasonable to the Company and the Shareholders as a whole.

The operation department of the Company will also collect statistics of the continuing connected transactions under the Master Loading and Unloading Agreements on a quarterly basis to ensure the annual caps approved by the Independent Shareholders are not exceeded.

Reasons and benefits for continuing transactions

The Company is engaged in container shipping and has established long and close business relationship with the China Shipping Group, including transactions relating to loading and unloading services at terminals, which are significant and essential to the core business and operation of the Company. The Company will be able to make better development by leveraging on advantages of China Shipping Group as a large-scale comprehensive conglomerate that operates across different sectors and regions.

– 10 –

LETTER FROM THE BOARD

3. New Continuing Connected Transaction as a Result of Disposal

CSTD used to be a wholly-owned subsidiary of the Company and has been providing container loading and unloading services and other related and ancillary services to the Group since its incorporation. After the completion of the disposal of 100% equity interest in CSTD by the Company to CSTD HK, CSTD became an indirect subsidiary of China Shipping. Therefore, continuing transactions between CSTD on one hand and any member of the Group on the other hand have become continuing connected transactions of the Company since 16 June 2014, which is subject to the reporting, annual review and disclosure requirements pursuant to Rule14A.60 of the Listing Rules. Such transactions have also become continuing connected transactions of the Company under the Master Loading and Unloading Agreements.

Annual caps and basis of determination

The table below sets out the historical amounts of transaction volume between CSTD and the Group for the years ended 31 December 2012 and 2013 and the six months ended 30 June 2014, as well as the estimated amounts of the New Continuing Connected Transaction for the two years ending 31 December 2014 and 2015:

		Historical amount	Historical amount	for		Proposed annual cap for	Proposed annual cap for
					six
	the year		the year	months		the year	the year
	ended 31		ended 31	ended 30		ending 31	ending 31
	December		December	June		December	December
		2012	2013	2014	Note 1	2014 Note 2	2015
			(RMB’000)			(RMB’000)
Actual and
estimated
transaction
volume	996,000		962,000	488,000		609,000	1,259,000

Note 1: Including actual transaction volume for the period of 16 June 2014 to 30 June 2014 in the amount of approximately RMB0.48 million, which constituted continuing connected transactions of the Company under the Master Loading and Unloading Agreements as the disposal of CSTD to CSTD HK was completed on 16 June 2014.
Note 2: Excluding 1 January 2014 to 15 June 2014 which is before the completion of the disposal of CSTD to CSTD HK.

The proposed annual caps for the two years ending 31 December 2014 and 2015 have been reached by reference to (1) historical transaction volume; (2) the continuous increase in the Company’s shipping capacity and the expected continuous increase in the Company’s container freight volume due to the improvement of operation and management of shipping routes; (3) the expected development of the shipping market as a result of the gradual recovery of European and American economic in next few years according to professional organisations’ estimates; and (4) the expected increase in loading and unloading rates driven up by factors such as rising labour costs and energy price.

– 11 –

LETTER FROM THE BOARD

Pricing basis

To the best knowledge of the Directors, after CSTD became an indirect subsidiary of China Shipping, the New Continuing Connected Transaction has adopted and will adopt the same pricing basis as that under the Master Loading and Unloading Agreements in the future.

The Directors (including the independent non-executive Directors) believe that the prices charged by CSTD and the terms of payment for the New Continuing Connected Transaction will be no less favourable to the Group than those offered by other independent third parties and are in the interests of the Company and the Shareholders as a whole.

Reasons and benefits for continuing transactions

CSTD has been providing container loading and unloading services and other related and ancillary services to the Group since its incorporation. The New Continuing Connected Transaction is in substance an extension of the transactions between CSTD and the Group carried out before CSTD ceases to be a wholly-owned subsidiary of the Company, which will ensure the normal operation of CSTD and the Group. The New Continuing Connected Transaction will be conducted in accordance with the terms of the Master Loading and Unloading Agreements, which will ensure that the New Continuing Connected Transaction will be conducted on normal commercial terms.

4. Adjustment of Existing Annual Caps and Determination of Revised Annual Caps

In light of the New Continuing Connected Transaction, the Directors believe that the Existing Annual Caps are not sufficient to satisfy the Group’s current need. Therefore, on 8 August 2014, the Board proposed to revise the Existing Annual Caps to RMB1,330 million and RMB2,120 million for the years ending 31 December 2014 and 2015.

When determining the Revised Annual Caps, on top of the same factors as those considered when estimating the transaction volume of the New Continuing Connected Transaction for the years ending 31 December 2014 and 2015, the Directors have also considered the actual transaction volume of the continuing connected transactions under the Master Loading and Unloading Agreements. The actual transaction volume of the continuing connected transactions under the Master Loading and Unloading Agreements for 2012 and 2013 were lower than the approved annual caps of RMB849.93 million and RMB748 million for relevant period, respectively. For six months ended 30 June 2014, the actual transaction volume under the Master Loading and Unloading Agreements (before the inclusion of the New Continuing Connected Transaction) was RMB339 million which is lower than half of the Existing Annual Caps for 2014. This is primarily due to change in market conditions from the time when the Existing Annual Caps were determined.

On such basis, the Directors proposed to adjust the annual caps for the continuing connected transactions under the Master Loading and Unloading Agreements (excluding the New Continuing Connected Transaction) from RMB860 million and RMB989 million to RMB721 million and RMB857 million for the years ending 31 December 2014 and 2015, respectively.

– 12 –

LETTER FROM THE BOARD

The table below sets out the actual transaction volume of the continuing connected transactions under the Master Loading and Unloading Agreements (before and after the inclusion of the New Continuing Connected Transaction, respectively) for the years ended 31 December 2012 and 2013 and the six months ended 30 June 2014, as well as the estimated amounts of the continuing connected transactions under the Master Loading and Unloading Agreements (before and after the inclusion of the New Continuing Connected Transaction, respectively) for the two years ending 31 December 2014 and 2015:

	Historical amount	Historical amount	for		Proposed annual cap for	Proposed annual cap for
	the year	the year	six	months	the year	the year
	ended	ended		ended	ending	ending
Actual and estimated	31 December	31 December		30 June	31 December	31 December
transaction volume	2012	2013		2014	2014	2015
		(RMB’000)			(RMB’000)
Before inclusion of the New Continuing
Connected Transaction	551,652	583,709		339,000	721,000	857,000
The New Continuing Connected
Transaction	–	–		48,000 Note 1	609,000	1,259,000
After inclusion of the New Continuing
Connected Transaction	–	–		387,000	1,330,000	2,120,000

Note 1: Only including actual transaction volume between CSTD and the Group for the period of 16 June 2014 to 30 June 2014, which constituted continuing connected transactions of the Company under the Master Loading and Unloading Agreements as the disposal of CSTD to CSTD HK was completed on 16 June 2014.

5. Listing Rules Implication

After the completion of the disposal of 100% equity interest in CSTD by the Company to CSTD HK, CSTD became an indirect subsidiary of China Shipping. Therefore, continuing transactions between CSTD on one hand and any member of the Group on the other hand have become continuing connected transactions of the Company, which is subject to the reporting, annual review and disclosure requirements pursuant to Rule14A.60 of the Listing Rules.

The highest applicable percentage ratio (excluding profit ratio) of the Revised Annual Caps for the years ending 31 December 2014 and 2015 is expected to be more than 5% but less than 25% under the Listing Rules, therefore the continuing transactions contemplated under the Master Loading and Unloading Agreements (after the inclusion of the New Continuing Connected Transaction) will constitute connected transactions of the Company under Chapter 14A of the Listing Rules which shall be subject to reporting, announcement, annual review and independent shareholders’ approval requirements.

6. Opinions of the Board

Mr. Zhang Guofa, Mr. Huang Xiaowen, Ms. Su Min, Mr. Ding Nong, Mr. Liu Xihan, Mr. Yu Zenggang, Mr. Zhao Hongzhou and Mr. Chen Jihong, all being Directors, hold directorship(s) or act as senior management in China Shipping Group and its associates and thus have material interests in the continuing connected transactions under the Master Loading and Unloading Agreements (including the New Continuing Connected Transaction) and the Revised Annual Caps, have therefore abstained from voting on the relevant board resolution approving the Revised Annual Caps.

– 13 –

LETTER FROM THE BOARD

The Directors (including the independent non-executive Directors) consider that the continuing connected transactions under the Master Loading and Unloading Agreements (including the New Continuing Connected Transaction) are conducted on normal commercial terms or on terms no less favourable than those offered by other independent third parties and are entered into in the ordinary and usual course of business of the Company, thus the continuing connected transactions under the Master Loading and Unloading Agreements (including the New Continuing Connected Transaction) and the Revised Annual Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

An Independent Board Committee has been formed to advise the Independent Shareholders in respect of, among others, the Revised Annual Caps for the continuing connected transactions contemplated under the Master Loading and Unloading Agreements. An Independent Financial Adviser has been appointed to advise the Independent Board Committee on the above.

7. General Information

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

China Shipping is a large shipping conglomerate involved in import and export business, trading, coastal and ocean cargo transportation, dry bulk cargo transportation, supply of food for vessels, management of docks and other services in relation to the above, and operates in different regions of the PRC and across the world.

CSTD is principally engaged in the investment, management and operation of container terminal in the PRC.

CSTD HK is an investment holding company which holds investments in various port and port-related companies which are mainly located overseas.

Each of Dalian Terminal, Shanghai Terminal and West Basin is principally engaged in the loading and unloading of containers and related services.

Zhanjiang Terminal was principally engaged in the loading and unloading of containers and related services before its deregistration.

– 14 –

LETTER FROM THE BOARD

III. PROPOSED PROVISION OF GUARANTEE FOR A WHOLLY-OWNED SUBSIDIARY OF THE COMPANY AND RELEVANT AUTHORIZATION TO THE BOARD

1. Summary of the Guarantee

The Board intends to table a resolution at the EGM to approve the provision of guarantee for CSCL HK, a wholly-owned subsidiary of the Company, in the amount not exceeding USD500 million or its equivalent in RMB during the period of 6 December 2014 to 30 June 2015, and the authorization to the Board to consider and approve each guarantee within the approved cap. Details are as follows:

(1) Provision of guarantee by the Company for CSCL HK shall include the situations where:
(i) the debt to asset ratio of CSCL HK exceeds 70%;
(ii) the amount of a single guarantee exceeds 10% of the latest audited net assets of the Company.
(2) It shall be tabled at the extraordinary general meeting of the Company to authorize the Board to consider and approve the matters in relation to each guarantee within the approved cap, including but not limited to the manner, type, term and amount of the guarantee. Apart from obtaining the approval of over 50% of all the Directors, approval by more than two-thirds of the Directors present at the relevant meeting of the Board when considering matters in relation to such guarantee shall also be obtained.
(3) At the time of actual implementation, the Company will perform in accordance with the guarantee agreement to be entered into with the lending bank and comply with the relevant disclosure obligation.

This resolution was approved by the Board on 8 August 2014 and shall be tabled for Shareholders’ consideration at the EGM.

2. Basic Information of the Entity to be Guaranteed

The entity to be guaranteed in relation to the Proposed Authorization is CSCL HK, a wholly-owned subsidiary of the Company. It is principally engaged in international container transportation and its basic information is as follows:

Registered address: 59/F, One Island East, 18 Westlands Road, Island East, Hong Kong

Legal representative: Zhao Hongzhou

Registered capital: USD1,627.6 million and HKD1 million

Scope of business: International container transportation

– 15 –

LETTER FROM THE BOARD

As at 31 December 2013 (audited figures), CSCL HK’s total assets were USD3,914 million, net assets were USD987 million, total liabilities were USD2,927 million, total current liabilities were USD1,703 million and total bank borrowings were USD2,435 million. Revenue for the year of 2013 was USD2,318 million and net profit was USD-45 million.

As at 31 March 2014 (unaudited figures), CSCL HK’s total assets were USD4,455 million, net assets were USD1,023 million, total liabilities were USD3,432 million, total current liabilities were USD1,423 million, and total bank borrowings were USD2,742 million. Revenue for three months ended 31 March 2014 was USD815 million and net profit was USD-16 million.

According to the business plan of CSCL HK, it is expected that CSCL HK will enter into working capital loans with a total amount up to USD500 million in the first half of 2015. The Company proposes to provide guarantee for CSCL HK for such loans to ensure the operation of CSCL HK.

3. Opinions of the Board

The Board is of the view that the aforementioned matters in relation to provision of guarantee is in line with the operational development needs of the Company. The entity to be guaranteed is a wholly-owned subsidiary of the Company, the guarantee-related risks can be effectively controlled and prevented and the interest of the Company will not therefore be impaired.

4. Shareholders’ Approval

Pursuant to the relevant requirements of the Shanghai Stock Exchange, the proposed provision of guarantee and the Proposed Authorization shall be subject to the approval of the Shareholders.

5. The Accumulated Amount of Guarantees and the Amount of Overdue Guarantees of the Company

As at the Latest Practicable Date, the accumulated amount of external guarantees provided by the Company and its controlled subsidiaries was USD1,280.5 million, representing 15.51% of the Company’s total assets and 32.55% of the Company’s net assets as per its latest audited financial statements; and the accumulated amount of guarantees provided by the Company for its controlled subsidiaries was USD1,280.5 million (which is equal to the amount of guarantees actually provided for CSCL HK), representing 15.51% of the Company’s total assets and 32.55% of the Company’s net assets as per its latest audited financial statements. Amount of overdue guarantees was nil.

– 16 –

LETTER FROM THE BOARD

IV. EGM

A notice convening the EGM to be held at 2:30 p.m. on Thursday, 25 September 2014 at Holiday Inn Shanghai Jinxiu, No. 399 Jinzun Road, Pudong New Area, Shanghai, the PRC for the Shareholders to consider and, if thought fit, approve (i) the Revised Annual Caps and (ii) proposed provision of guarantee for a wholly-owned subsidiary of the Company and the Proposed Authorization was despatched to the Shareholders on 11 August 2014 pursuant to Rule 19A.39A of the Listing Rules.

China Shipping is the controlling Shareholder of the Company. Pursuant to Rule 14A.70(12) of the Listing Rules, where independent shareholders’ approval is required with regard to a connected transaction, any shareholder with a material interest in such transaction will not vote on such transaction. Accordingly, the China Shipping Group and its associates shall at the EGM abstain from voting on the Revised Annual Caps, which must be taken by way of poll as required under the Listing Rules except where the chairman of the EGM, in good faith, decides to allow a resolution which relates purely to a procedural or administrative matter to be voted on by a show of hands. As at the Latest Practicable Date, the China Shipping Group and its associates controlled or were entitled to exercise control over the voting rights in respect of 5,361,837,500 A shares and 134,761,000 H shares in the Company, representing approximately 47.05% of the entire issued share capital of the Company. To the extent that the Company is aware having made all reasonable enquiries, as at the Latest Practicable Date:

(i) there was no voting trust or other agreement or arrangement or understanding entered into by or binding upon the China Shipping Group;
(ii) the China Shipping Group were not subject to any obligation or entitlement whereby they had or might have temporarily or permanently passed control over the exercise of the voting right in respect of their shares in the Company to a third party, whether generally or on a case-by-case basis; and
(iii) it was not expected that there would be any discrepancy between the China Shipping Group’s beneficial shareholding interest in the Company and the number of shares in the Company in respect of which they would control or would be entitled to exercise control over the voting right at the EGM.

As far as the Directors are aware, other than the China Shipping Group and its associates, no other Shareholder has a material interest in the continuing connected transactions under the Master Loading and Unloading Agreements (including the New Continuing Transaction) and has to abstain from voting at the EGM on the Revised Annual Caps.

The Independent Board Committee has been established to advise the Independent Shareholders on the continuing connected transactions under the Master Loading and Unloading Agreements (including the New Continuing Transaction) and the Revised Annual Caps. The Independent Financial Adviser has been appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the continuing connected transactions under the Master Loading and Unloading Agreements (including the New Continuing Transaction) and the Revised Annual Caps. The letter from the Independent Board

– 17 –

LETTER FROM THE BOARD

Committee and its recommendations to the Independent Shareholders is set out on pages 19 to 20 of this circular, and the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders is set out on pages 21 to 31 of this circular.

A proxy form and a reply slip were also despatched to the Shareholders on 11 August 2014 for use at the EGM. Whether or not you are able to attend the EGM, you are requested to complete, sign and return the proxy form for the EGM in accordance with the instructions printed thereon as soon as possible and in any event not less than 24 hours before the time for holding the EGM or any adjournment thereof. Shareholders who intend to attend the EGM are also requested to complete, sign and return the reply slips for the EGM in accordance with the instructions printed thereon as soon as possible and in any event not later than 20 days before the date of the EGM.

V. RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee which is set out on pages 19 to 20 of this circular, and the letter from the Independent Financial Adviser which is set out on pages 21 to 31 of this circular.

Having taken into account the advice of the Independent Financial Adviser, the Independent Board Committee considers that the terms of (i) the Revised Annual Caps; and (ii) the continuing connected transactions under the Master Loading and Unloading Agreements (including the New Continuing Connected Transaction) are fair and reasonable, on normal commercial terms or on terms no less favourable than those available to or from independent third parties, and are entered into on a continuing and regular basis in the ordinary and usual course of business of the Company, and that they are in the best interest of the Company and its Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the ordinary resolution in respect of the Revised Annual Caps to be proposed at the EGM.

The Directors (including the independent non-executive Directors) consider that the ordinary resolution in respect of the proposed provision of guarantee and the Proposed Authorization is in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Shareholders should vote in favour of this resolution at the EGM. None of the Directors should abstain from voting on this resolution.

By Order of the Board China Shipping Container Lines Company Limited Yu Zhen

Joint Company Secretary

– 18 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(a joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock code: 02866)

10 September 2014

To the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS UNDER THE MASTER LOADING AND UNLOADING AGREEMENTS (INCLUDING THE NEW CONTINUING CONNECTED TRANSACTION) AND

REVISION OF ANNUAL CAPS FOR CONTINUING CONNECTED TRANSACTIONS IN RESPECT OF 2014 AND 2015

We refer to the circular dated 10 September 2014 (the “ Circular ”) to the shareholders of China Shipping Container Lines Company Limited (the “ Company ”) of which this letter forms part. Unless otherwise specified, terms defined in the Circular shall have the same meanings when used in this letter.

We have been appointed as members of the Independent Board Committee, which has been established to advise the Independent Shareholders in respect of:

(i) the continuing connected transactions under the Master Loading and Unloading Agreements (including the New Continuing Connected Transaction); and
(ii) the Revised Annual Caps.

((i) and (ii) collectively, the “ Proposed Transactions ”), details of which are set out in the letter from the Board contained in the Circular. None of us has a material interest in the Proposed Transactions.

China Shipping is the controlling Shareholder. Therefore, the China Shipping Group and its associates are connected persons of the Company under the Listing Rules. The Proposed Transactions entered into between the Company and the China Shipping Group constitute continuing connected transactions of the Company.

* 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”.

– 19 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

In respect of the Proposed Transactions, the highest applicable percentage ratio is expected to be more than 5% but less than 25% under the Listing Rules. Therefore, the Proposed Transactions are subject to the Independent Shareholders’ approval as required under Chapter 14A of the Listing Rules.

Guotai Junan Capital Limited has been appointed as the independent financial adviser to advise us in respect of the Proposed Transactions. We wish to draw your attention to the letter of advice from Guotai Junan Capital Limited set out on pages 21 to 31 of the Circular.

As members of the Independent Board Committee, we have discussed with the management of the Company in relation to the Proposed Transactions, and the basis upon which the terms of such Proposed Transactions have been determined and the said annual caps have been calculated. We have also taken into account the principal factors and reasons considered by Guotai Junan Capital Limited in forming its opinion in relation to the Proposed Transactions, and have discussed with Guotai Junan Capital Limited its letter of advice.

On the basis of the above, we consider, and agree with the view of Guotai Junan Capital Limited, that the terms of the Proposed Transactions are fair and reasonable, on normal commercial terms or on terms no less favourable than those available to or from independent third parties, and are entered into on a continuing and regular basis in the ordinary and usual course of business of the Company, and that they are in the best interest of the Company and its Shareholders as a whole.

Accordingly, we recommend you to vote in favour of the ordinary resolution in respect of the Proposed Transactions to be proposed at the EGM.

Yours faithfully, Ms. Zhang Nan, Mr. Teo Siong Seng, Mr. Chen Lishen, Mr. Guan Yimin and Mr. Shi Xin

Independent Board Committee

– 20 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of the letter of advice dated 10 September 2014 from Guotai Junan Capital Limited to the Independent Board Committee and the Independent Shareholders in respect of the continuing connected transactions under the Master Loading and Unloading Agreements (including the New Continuing Connected Transaction) and the Revised Annual Caps prepared for the purpose of incorporation into this circular:

==> picture [121 x 35] intentionally omitted <==

27th Floor, Lower Block, Grand Millennium Plaza, 181 Queen’s Road Central Hong Kong

10 September 2014

To the Independent Board Committee and the Independent Shareholders of China Shipping Container Lines Company Limited

Dear Sirs,

REVISION OF ANNUAL CAPS FOR CONTINUING CONNECTED TRANSACTIONS IN RESPECT OF 2014 AND 2015

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the revision of the annual caps for the continuing connected transactions pursuant to the Master Loading and Unloading Agreements (including the New Continuing Connected Transaction), particulars of which are set out in the circular of the Company to the Shareholders dated 10 September 2014 (the “ Circular ”) of which this letter forms part. Unless the context requires otherwise, terms used in this letter shall have the same meanings as those defined in the Circular.

The continuing connected transactions and its Existing Annual Caps for the two years ending 31 December 2014 and 2015 were approved by the Independent Shareholders at the extraordinary general meeting of the Company on 5 December 2012 (the “ 2012 EGM ”). Due to the reasons set out in the sub-section headed “Principal Factors Considered – Background and Reasons for the Continuing Connected Transactions (including the New Continuing Connected Transaction)” below, the Directors estimate that the Existing Annual Caps for the two years ending 31 December 2014 and 2015 will be exceeded. As the highest of all applicable percentage ratios for Revised Annual Caps for the Master Loading and Unloading Agreements, on an annual basis, is more than 5% but less than 25% and the annual consideration is more than HK$10,000,000, the continuing connected transactions (including the New Continuing Connected Transaction) and the Revised Annual Caps shall be subject to the reporting, announcement, annual review and independent shareholders’ approval requirements under the Listing Rules.

– 21 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

THE INDEPENDENT BOARD COMMITTEE

An Independent Board Committee, comprising all the independent non-executive Directors, namely Ms. Zhang Nan, Mr. Teo Siong Seng, Mr. Chen Lishen, Mr. Guan Yimin and Mr. Shi Xin, has been appointed to advise the Independent Shareholders on whether the continuing connected transactions pursuant to the Master Loading and Unloading Agreements (including the New Continuing Connected Transaction) are fair and reasonable, on normal commercial terms or on terms no less favourable than those available to or from independent third parties, and are entered into in the ordinary and usual course of business of the Company, and they are in the interest of the Company and its Shareholders as a whole. We, Guotai Junan Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in such respect.

BASIS OF OUR OPINION

In formulating our opinion, we have relied on the information and facts supplied, and the opinion expressed, by the executive Directors and management of the Company and have assumed that the information and facts provided and opinions expressed to us are true, accurate and complete in all material aspects at the time they were made and up to the date of the EGM. We have also sought and received confirmation from the Company that no material facts have been omitted from the information supplied and opinion expressed to us. We have relied on such information and consider that the information we have received is sufficient for us to reach our advice and recommendation as set out in this letter and to justify our reliance on such information. We have no reason to doubt the truth, accuracy and completeness of the statements, information, opinions and representations provided to us by the Company, the Directors and the management of the Group and their respective advisers or to believe that material information has been withheld or omitted from the information provided to us or referred to in the aforesaid documents. We consider that we have reviewed sufficient information to reach an informed view, to justify relying on the accuracy of the information contained in the Circular and to provide a reasonable basis for our opinion. We have not, however, carried out any independent verification of the information, nor have we conducted any form of in-depth investigation into the business affairs, operations, financial position or future prospect of the Company, China Shipping, CSTD or CSTD HK.

– 22 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS CONSIDERED

In arriving at our recommendation, we have considered the following principal factors:

1. Background and Reasons for the Continuing Connected Transactions (including the New Continuing Connected Transaction)

As disclosed in the Letter from the Board, on 10 May 2004, the Company entered into the Master Loading and Unloading Agreement with China Shipping, Shanghai Terminal, Zhanjiang Terminal, Dalian Terminal and West Basin. The estimated annual caps of these continuing connected transactions pursuant to the Master Loading and Unloading Agreements for 2013, 2014 and 2015 were RMB748 million, RMB860 million and RMB989 million, respectively. Such annual caps were approved by the Independent Shareholders at 2012 EGM. Please refer to the Company’s circular to the Shareholders dated 12 November 2012 for further details of the continuing connected transactions under the Master Loading and Unloading Agreements, the Existing Annual Caps (including basis in arriving such) and a letter from us, being the independent financial adviser, setting out our view, among others, that the terms of the relevant continuing connected transactions are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole, and the entering into of the Master Loading and Unloading Agreements are in the ordinary course of business and the Existing Annual Caps are fair and reasonable so far as the Independent Shareholders are concerned.

On 11 October 2013, CSTD HK and China Shipping (HK) Holdings Co., Ltd. entered into a share purchase agreement, pursuant to which the Company agreed to sell its 100% equity interest in CSTD to CSTD HK, and the disposal was completed on 16 June 2014. Please refer to the Company’s circular to the Shareholders dated 27 November 2013 for further details of the disposal. After the completion of such disposal, CSTD became an indirect subsidiary of China Shipping. Therefore, continuing transactions between CSTD and any member of the Group have become continuing connected transactions of the Company since 16 June 2014, which is subject to the reporting, annual review and disclosure requirements pursuant to Rule 14A.60 of the Listing Rules. Any provision of container loading and unloading services and other related and ancillary services have become New Continuing Connected Transactions under the Master Loading and Unloading Agreements.

– 23 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. Key Terms of the Master Loading and Unloading Agreements

Summary

Agreement	:	First Master Loading and Unloading Agreement
Date of agreement	:	10 May 2004
Parties	:	• the Company
		• China Shipping
		• Shanghai Terminal
		• Zhanjiang Terminal
		• Dalian Terminal
Subject Matter	:	provision of container loading and unloading
		services and other related and ancillary services: (i)
		by China Shipping, Shanghai Terminal, Zhanjiang
		Terminal and Dalian Terminal and their respective
		subsidiaries and associates; and (ii) to the Group
Term	:	three years, automatically extended for further
		terms of three years, unless any relevant party gives
		to the other parties a written notice of termination at
		least three months prior to the expiry of the relevant
		term
Agreement	:	Second Master Loading and Unloading Agreement
Date of agreement	:	10 May 2004
Parties	:	• the Company
		• West Basin
Subject Matter	:	provision of container loading and unloading
		services and other related and ancillary services: (i)
		by West Basin and Its subsidiaries and associates;
		and (ii) to the Group
Term	:	three years, automatically extended for further
		terms of three years, unless any relevant party gives
		to the other parties a written notice of termination at
		least three months prior to the expiry of the relevant
		term

– 24 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Pricing basis

As disclosed in the Letter from the Board, the pricing basis under the Master Loading and Unloading Agreements is:

(i) state-prescribed prices;
(ii) where there is no state-prescribed price, then according to relevant market prices and on principle of fairness and reasonableness; or
(iii) where there is no market price, then according to the contracted price.

“state-prescribed price” means the price set by the relevant laws, regulations and other governmental regulatory documents issued by the relevant departments of the PRC government. For the continuing connected transactions under the Master Loading and Unloading Agreements, certain categories of services (such as container stevedore lump-sum-fee, cargo shifting fee and port carriage fee for the domestic trade lanes and international trade lanes) are pertained to state-prescribed guidance prices whose sources are the Rules of Port Charging, the Measures of Port Chargin on Demestic Water Route Container and relevant notices promulgated by the PRC Ministry of Transport and other authorities, which rules are of a guidance nature;

– 25 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In accordance with the Internal Control Procedures of Pricing Basis for Transaction Contemplated under the Master Loading and Unloading Agreements (“裝卸總協議下擬進行交易的定價基準的內部監控程序”), the internal policy governing the relevant pricing basis adopted by the Company, before entering into any implementation agreements for any specific transaction contemplated under the Master Loading and Unloading Agreements, the Company will carry out the following procedures:

(i) To ensure the terms offered by the relevant connected parties are in accordance with the state-prescribed price (if applicable):
the relevant executives of the Operation Department of the Company will review the contemporaneous prices and other relevant terms offered by the relevant connected persons to ensure the terms are in compliance with the review the Rules of Port Charging, the Measures of Port Charging on Domestic Water Route Container and other relevant notices promulgated by the PRC Ministry of Transport and other authorities, from time to time; and
(ii) To ensure the terms offered by the relevant connected parties are no less favourable than those available from independent third parties:
the relevant executives of the Operation Department of the Company will review contemporaneous prices and other relevant terms offered by at least two independent third parties operating at the same or nearby ports before the commencement of the relevant transaction, and ensure the terms offered by the relevant connected persons, including but not limited to the unit rate per container, are fair and reasonable and comparable to those offered by independent third parties. In the case where the offers made by independent third parties are more favourable to the Company, the Company may take up those offers; and
the Supervision Department of the Company will periodically review and inspect the process of the continuing connected transactions under the Master Loading and Unloading Agreements.

– 26 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Moreover, the Directors have advised that the Operation Department of the Company will review the actual amount of the continuing connected transactions incurred under the Master Loading and Unloading Agreements on a quarterly basis, which the Directors considered such frequency is sufficient, to ensure the annual caps approved by the Independent Shareholders will not be exceeded.

Having considered the above, we concur with the Directors’ view that the Company has adopted internal control measures to ensure the pricing basis of the individual transactions will be conducted in accordance with the pricing terms of the Master Loading and Unloading Agreements and the annual cap will not be exceeded.

We have obtained from the Company and reviewed (i) several contracts entered into between the Company and certain subsidiaries of China Shipping and CSTD in year 2014; and (ii) certain contracts entered into between the Company and several independent third parties in the year 2014. Based on the contracts reviewed by us, we noted that the price charged by the certain subsidiaries of China Shipping and CSTD were no less favourable when compared with the price charged by the relevant independent third parties. Moreover, we also noted that the payment terms offered by China Shipping and CSTD were no less favourable to those offered by independent third parties.

Based on the above, we consider that the pricing basis and the payment terms of the continuous connected transactions (including the New Continuing Connected Transaction) under the Master Loading and Unloading Agreements are fair and reasonable and on normal commercial terms so far as the Independent Shareholders are concerned.

3. Revised Annual Caps

As stated in the Letter from the Board, the Revised Annual Caps have been reached by reference to (1) historical transaction volume; (2) the continuous increase in the Company’s shipping capacity and the expected continuous increase in the Company’s container freight volume due to the improvement of operation and management of shipping routes; (3) the expected development of the shipping market as a result of the gradual recovery of European and American economic in the next few years according to professional organisations’ estimates; and (4) the expected increase in loading and unloading rates driven up by factors such as rising labour costs and energy price.

– 27 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	Historical amount	Historical amount	for		Proposed	annual cap
	the year	the year	Six	months	for the year	for the year
	ended	ended		ended	ending	ending
Actual and estimated	31 December	31 December		30 June	31 December	31 December
transaction volume	2012	2013		2014	2014	2015
		(RMB’000)			(RMB’000)
Before inclusion of the New Continuing
Connected Transaction	551,652	583,709		339,000	721,000	857,000
The New Continuing Connected
Transaction				48,000 Note 1	609,000	1,259,000
After inclusion of the New Continuing
Connected Transaction				387,000	1,330,000	2,120,000

Note 1: Only including actual transaction volume between CSTD and the Group for the period of 16 June 2014 to 30 June 2014, which constituted continuing connected transactions of the Company under the Master Loading and Unloading Agreements as the disposal of CSTD to CSTD HK was completed on 16 June 2014.

Based on information provided by the management, we noted that in arriving at the Revised Annual Cap of RMB1,330 million for the year 2014, the Directors have assumed that the loading and unloading rates being constant and also considered the following factors and information:

In relation to the estimated amount of RMB721 million (being the continuing connected transactions with China Shipping but excluding those with CSTD and its subsidiaries):
(i) the actual transaction amount of RMB339 million for the period from 1 January 2014 to 30 June 2014;
(ii) the estimated transaction amount of RMB382 million for the period from 1 July 2014 to 31 December 2014, representing 12.7% increase from the actual transaction amount for the period from 1 January 2014 to 30 June 2014; and

– 28 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In relation to the estimated amount of RMB609 million (being the continuing connected transaction between the Group and CSTD and its subsidiaries (i.e. the New Continuing Connected Transactions)):
(i) the actual transaction amount of RMB48 million for the period from 16 June 2014 to 30 June 2014;
(ii) the estimated transaction amount of RMB561 million for the period from 1 July 2014 to 31 December 2014, representing 15% increase from the actual transaction amount of RMB488 million between the Company and CSTD for the period from 1 January 2014 to 30 June 2014.

We also noted that in arriving at the Revised Annual Cap of RMB2,120 million for the year ending 31 December 2015, the Directors have considered the following factors:

In relation to the estimated amount of RMB857 million (being the continuing connected transactions with China Shipping but excluding those with CSTD and its subsidiaries), for the year ending 31 December 2015, which represents an 18.9% increase on the estimated transaction amount of RMB721 million for the year ending 31 December 2014; and
In relation to the estimated amount of RMB1,259 million (being the continuing connected transactions between the Group and CSTD and its subsidiaries (i.e. the New Continuing Connected Transaction)) for the year ending 31 December 2015, which represents an 20% increase on the estimated annual transaction amount of RMB1,049 million for the year ending 31 December 2014, which was a summation of (a) the actual transaction amount of RMB488 million between the Company and CSTD for the period from 1 January 2014 to 30 June 2014; and (b) the estimated transaction amount of RMB561 million for the period from 1 July 2014 to 31 December 2014.

To assess the fairness and reasonableness of the Revised Annual Caps, we have discussed with the management of the Company and we have obtained the historical shipping capacity of the Company as at 31 December 2013, and an estimation of the shipping capacity of the Company as at 31 December 2014 and 2015:

	As at the	year ending 31	December
	2013	2014	2015
	TEU	TEU	TEU
	(Historical)	(Estimated)	(Estimated)
Shipping Capacity	610,642	752,000	855,000
Estimated Growth		23%	14%

Source: The shipping capacity for the year 2013 was extracted from the Company’s annual report for the year 2013. The estimated shipping capacity for the year 2014 and 2015 were based on management estimation provided by the Company.

– 29 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We noted that the estimated growth rate of the shipping capacity for the year 2014 and 2015 were 23% and 14% respectively. In this respect, we have discussed with the management of the Company and noted that this was estimated based on the new vessels ordered by the Company and to be put into operation. We considered that such estimation is reasonable.

We noted that the growth rates used by the management to estimate the transaction amount before inclusion of the New Continuing Connected Transaction and the New Continuing Connected Transaction were 12.7% and 15% respectively, for the period from 1 July 2014 to 31 December 2014, which are both lower than the 23% expected increase in shipping capacity as at 31 December 2014 from that of 2013. In this respect, we have discussed with the management of the Company and noted that this was mainly due to the fact that several new vessels are expected to be put into operation only until fourth quarter in 2014 and may not have full year contribution to the actual annual shipping volume and thus, lesser amount of continuing connected transactions under the Master Loading and Unloading Agreement is expected. We considered that such consideration is reasonable.

On the other hand, we noted that the growth rates used by the management to estimate the transaction amount before inclusion of the New continuing connected Transaction and the New Continuing Connected Transaction were 18.9% and 20% respectively, for the year ending 31 December 2015, which are both higher than the 14% expected increase in shipping capacity as at 31 December 2015 from that of 2014. We have discussed this with the management of the Company and understand that, in addition to the expected increase in shipping capacity as stated in the above, they have also taken into consideration of the expected increase in loading and unloading rates driven up by the factors such as rising labour costs and energy price. In this respect, we noted that the target consumer price index inflation rate will be controlled approximately at 3.5% for the year 2014, which was addressed in Government Report 2014 of PRC (2014 年政府工作報告). We also noted that the average salary in China is expected to increase by 8.8% in year 2014, which was stated in the China Economic Net. Taking into consideration of this, we considered that the basis in estimating the increase in the amount of continuing connected transactions for year 2015 is reasonable.

Taking into account the above factors, we consider that the Revised Annual Caps for the continuing connected transaction under Master Loading and Unloading Agreements to be provided to the Group for the two years ending 31 December 2015 determined are fair and reasonable.

– 30 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

Taking into consideration of the above factors, we consider that (i) the continuing connected transactions has been entered into in the ordinary and usual course of business of the Group; (ii) the terms contained therein are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole; and (iii) the Revised Annual Caps are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM to approve the Revised Annual Caps.

Yours faithfully, For and on behalf of Guotai Junan Capital Limited Anthony Wong Managing Director

– 31 –

GENERAL INFORMATION

APPENDIX I

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 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 respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. INTERESTS AND SHORT POSITIONS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVES IN SHARES, UNDERLYING SHARES AND DEBENTURES

As at the Latest Practicable Date, the interests or short positions of the Directors, Supervisors or chief executive(s) of the Company 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 or 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 were as follows:

(a) Interests in the shares of the Company

Number of Capacity in which underlying H underlying H Percentage figure Name shares involved shares were held in the H shares Director Teo Siong Seng 200,000 Beneficial owner 0.005% (Long position)

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GENERAL INFORMATION

APPENDIX I

(b) Interests in the shares of the Company under the rights scheme[(1)]

	Number of	Capacity in which
	underlying H	underlying H	Percentage figure
Name	shares involved	shares were held	in the H shares
Directors
Zhang Guofa	2,218,050	Beneficial owner	0.059% (Long position)
Huang Xiaowen	3,334,050	Beneficial owner	0.089% (Long position)
Zhao Hongzhou	2,604,000	Beneficial owner	0.069% (Long position)
Supervisor
Tu Shiming	246,450	Beneficial owner	0.007% (Long position)

Notes:

In accordance with the “Resolution Regarding Adoption and Approval of the H Share Appreciation Rights Scheme and Implementation Methods” passed at the Company’s second special general meeting in 2005 held on 12 October 2005, the Company implemented a H share appreciation rights scheme as appropriate incentive policy. Details of the original scheme were set out in the Company’s circular to the Shareholders dated 26 August 2005 and each amended scheme was produced to the annual general meetings of the Company held on 20 June 2006, 26 June 2007 and 26 June 2008, respectively. The above disclosed represents the interests in H Shares of the Company held by the Directors and the Supervisors under the share appreciation rights scheme.

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 or 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 adopted by the Company.

3. POSITIONS HELD BY DIRECTORS AND SUPERVISORS OF THE COMPANY IN SUBSTANTIAL SHAREHOLDER(S)

As at the Latest Practicable Date:

(a) Zhang Guofa, an executive Director, is also the director, general manager and member of the Party Committee of China Shipping;
(b) Huang Xiaowen, an executive Director, is also the deputy general manager and member of the Party Committee of China Shipping;

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GENERAL INFORMATION

APPENDIX I

(c) Su Min, a non-executive Director, is also the chief accountant and member of the Party Committee of China Shipping;
(d) Ding Nong, a non-executive Director, is also the deputy general manager and member of the Party Committee of China Shipping;
(e) Liu Xihan, a non-executive Director, is also the deputy general manager and member of the Party Committee of China Shipping;
(f) Yu Zenggang, a non-executive Director, is also the deputy general manager and member of the Party Committee of China Shipping;
(g) Xu Wenrong, a Supervisor, is also the deputy general manager and member of the Party Committee of China Shipping; and
(h) Ye Hongjun, a Supervisor, is also the chief legal adviser of China Shipping.

Save as disclosed above, none of the Directors or Supervisors of the Company was, as at the Latest Practicable Date, a director or employee of a company which had an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

4. SERVICE CONTRACTS

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

5. DIRECTORS’ AND SUPERVISORS’ INTERESTS

As at the Latest Practicable Date:

(a) none of the Directors or Supervisors had any direct or indirect interest in any assets which had been, since 31 December 2013 (being the date to which the latest published audited accounts of the Company were made up) acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group; and
(b) none of the Directors or Supervisors was materially interested in any contract or arrangement subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group.

6. NO MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2013 (being the date to which the latest published audited accounts of the Company were made up).

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GENERAL INFORMATION

APPENDIX I

7. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors and any of their associate(s) had interest in a business which competes or may compete with the business of the Group, or may have any conflicts of interest with the Group pursuant to Rule 8.10 of the Listing Rules.

8. CONSENT OF EXPERT

(a) The Independent Financial Adviser, which is a licensed corporation to carry out type 6 (advising on corporate finance) regulated activities under the SFO, has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and reference to its name in the form and context in which they respectively appear.
(b) As at the Latest Practicable Date, the Independent Financial Adviser neither had any shareholding in any member of the Group nor had any right (whether legally enforceable or not) to subscribe for or nominate persons to subscribe for any securities in any member of the Group.
(c) As at the Latest Practicable Date, the Independent Financial Adviser did not have any direct or indirect interest in any assets which had been, since 31 December 2013 (being the date to which the latest published audited accounts of the Company were made up) acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

9. LITIGATION

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

10. MISCELLANEOUS

(a) The joint company secretaries of the Company are Mr. Yu Zhen and Ms. Ng Sau Mei.
(b) The legal address in the PRC of the Company is Room A-538, International Trade Center, China (Shanghai) Pilot Free Trade Zone, Shanghai, the PRC and the principal place of business in the PRC of the Company is Maritime Research Building, 628 Minsheng Road, Pudong New Area, Shanghai, the PRC. The Hong Kong H Share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(c) The English text of this circular shall prevail over their respective Chinese text in case of inconsistency.

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GENERAL INFORMATION

APPENDIX I

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the principal place of business of the Company in Hong Kong at 31/F, Tower 2, Kowloon Commerce Centre, 51 Kwai Cheong Road, Kwai Chung, New Territories, Hong Kong from the date of this circular up to 25 September 2014 (both days inclusive):

(a) the Master Loading and Unloading Agreements;
(b) the letter of advice dated 10 September 2014 from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 21 to 31 of this circular;
(c) the written consent issued by the Independent Financial Adviser to the Company as referred to in the paragraph headed “Consent of Expert” in this Appendix;
(d) the letter of recommendation dated 10 September 2014 from the Independent Board Committee to the Independent Shareholders, the text of which is set out on pages 19 to 20 of this circular; and
(e) this circular.

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AI assistant

COSCO SHIPPING Development Co., Ltd. — Proxy Solicitation & Information Statement 2014

50782_rns_2014-09-09_43647037-42f1-45e3-9ca0-d72821ee013b.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

(Stock code: 02866)

REVISION OF ANNUAL CAPS FOR CONTINUING CONNECTED TRANSACTIONS IN RESPECT OF 2014 AND 2015

AND

PROPOSED PROVISION OF GUARANTEE FOR A WHOLLY-OWNED SUBSIDIARY AND RELEVANT AUTHORIZATION TO THE BOARD

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

(Stock code: 02866)

To the Shareholders

(1) REVISION OF ANNUAL CAPS FOR CONTINUING CONNECTED TRANSACTIONS IN RESPECT OF 2014 AND 2015 AND

(2) PROPOSED PROVISION OF GUARANTEE FOR A WHOLLY-OWNED SUBSIDIARY AND RELEVANT AUTHORIZATION TO THE BOARD

I. INTRODUCTION

LETTER FROM THE BOARD

II. REVISION OF ANNUAL CAPS FOR CONTINUING CONNECTED TRANSACTIONS IN RESPECT OF 2014 AND 2015

1. Introduction

LETTER FROM THE BOARD

2. Summary of the Master Loading and Unloading Agreements

Summary

LETTER FROM THE BOARD

Annual caps and basis of determination

Pricing basis

LETTER FROM THE BOARD

Internal control procedures over the pricing basis of the transactions contemplated under the Master Loading and Unloading Agreements

Reasons and benefits for continuing transactions

LETTER FROM THE BOARD

3. New Continuing Connected Transaction as a Result of Disposal

Annual caps and basis of determination

LETTER FROM THE BOARD

Pricing basis

Reasons and benefits for continuing transactions

4. Adjustment of Existing Annual Caps and Determination of Revised Annual Caps

LETTER FROM THE BOARD

5. Listing Rules Implication

6. Opinions of the Board

LETTER FROM THE BOARD

7. General Information

LETTER FROM THE BOARD

1. Summary of the Guarantee

2. Basic Information of the Entity to be Guaranteed

LETTER FROM THE BOARD

3. Opinions of the Board

4. Shareholders’ Approval

5. The Accumulated Amount of Guarantees and the Amount of Overdue Guarantees of the Company

LETTER FROM THE BOARD

IV. EGM

LETTER FROM THE BOARD

V. RECOMMENDATION

By Order of the Board China Shipping Container Lines Company Limited Yu Zhen

CONTINUING CONNECTED TRANSACTIONS UNDER THE MASTER LOADING AND UNLOADING AGREEMENTS (INCLUDING THE NEW CONTINUING CONNECTED TRANSACTION) AND

REVISION OF ANNUAL CAPS FOR CONTINUING CONNECTED TRANSACTIONS IN RESPECT OF 2014 AND 2015

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

REVISION OF ANNUAL CAPS FOR CONTINUING CONNECTED TRANSACTIONS IN RESPECT OF 2014 AND 2015

INTRODUCTION

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

THE INDEPENDENT BOARD COMMITTEE

BASIS OF OUR OPINION

PRINCIPAL FACTORS CONSIDERED

1. Background and Reasons for the Continuing Connected Transactions (including the New Continuing Connected Transaction)

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Summary

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Pricing basis

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. Revised Annual Caps

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

1. RESPONSIBILITY STATEMENT

2. INTERESTS AND SHORT POSITIONS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVES IN SHARES, UNDERLYING SHARES AND DEBENTURES

(a) Interests in the shares of the Company

(b) Interests in the shares of the Company under the rights scheme[(1)]

COSCO SHIPPING Development Co., Ltd. Proxy Solicitation & Information Statement 2014