COSCO SHIPPING Development Co., Ltd. - Proxy Solicitation & Information Statement 2017

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 licensed securities dealer or registered institution in securities, a bank manager, solicitor, professional accountant, or other professional adviser.

If you have sold or transferred all your shares in COSCO SHIPPING Development Co., Ltd.*, you should at once hand this circular, the form of proxy and the reply slip to the purchaser or transferee or to licensed securities dealer or registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

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

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

(Stock Code: 02866)

(1) MAJOR AND CONNECTED TRANSACTION MERGER OF CS FINANCE AND COSCO FINANCE (2) PROPOSED APPOINTMENT OF INDEPENDENT NON-EXECUTIVE DIRECTOR AND (3) NOTICE OF EGM

Independent Financial Adviser to the Independent Board Committee and Independent Shareholders

Capitalised terms used in this cover shall have the same meanings as those defined in this circular.

A letter from the Board is set out on pages 8 to 29 of this circular. A letter from the Independent Board Committee to the Independent Shareholders is set out on pages 30 to 31 of this circular. A letter from TC Capital, the Independent Financial Adviser, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 32 to 48 of this circular.

A notice convening the EGM to be held at 1:30 p.m. on Thursday, 28 December 2017 at Level 3, Ocean Hotel Shanghai, 1171 Dong Da Ming Road, Hong Kou District, Shanghai, the PRC was despatched to the Shareholders on 13 November 2017, which is reproduced on pages EGM-1 to EGM-3 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 “COSCO SHIPPING Development Co., Ltd.”.

12 December 2017

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . .	30
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . .	32
APPENDIX I – FINANCIAL INFORMATION OF THE GROUP . . . . .	I-1
APPENDIX II – GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . .	II-1
NOTICE OF EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	EGM-1

– i –

DEFINITIONS

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

“A Share(s)”
the domestic share(s) in the ordinary share capital of the Company with a par value of RMB1.00 each, which are listed on the Shanghai Stock Exchange
“Appointment Announcements”
the announcements of the Company dated 13 November 2017 and 20 November 2017 in relation to, among other things, the Proposed Appointment
“associate” has the meaning ascribed to it under the Listing Rules
“Board” the board of directors of the Company
“CBRC”
the China Banking Regulatory Commission (中國銀行業監督管理委員會)
“China Agency”
China Ocean Shipping Agency Co., Ltd.[#] (中國外輪代理有限公司), a company established under the laws of the PRC with limited liability and a wholly-owned subsidiary of COSCO SHIPPING
“China Bunker” China Marine Bunker (Petro China) Co., Ltd.[#] (中國船舶燃料有限責任公司), a company established under the laws of the PRC with limited liability and a non-wholly owned subsidiary of COSCO Company
“China Shipping”
China Shipping (Group) Company[#] (中國海運(集團)總公司), a PRC state-owned enterprise, the controlling shareholder of the Company and COSCO SHIPPING Energy and a wholly-owned subsidiary of COSCO SHIPPING
“China Tally”
China Ocean Shipping Tally Co., Ltd.[#] (中國外輪理貨有限公司), a company established under the laws of the PRC with limited liability and a wholly-owned subsidiary of COSCO Company

– 1 –

DEFINITIONS

“Company”

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

“Completion”
completion of the Merger and the Simultaneous Transfer
“connected person”
has the meaning ascribed to it under the Listing Rules
“controlling shareholder” has the meaning ascribed to it under the Listing Rules
“COSCO Bulk Carrier”
COSCO Bulk Carrier Co., Ltd.[#] (中遠散貨運輸有限公司), a company established under the laws of the PRC with limited liability and a wholly-owned subsidiary of COSCO SHIPPING
“COSCO Company”
China Ocean Shipping (Group) Company (中國遠洋運輸 (集團)總公司), a PRC state-owned enterprise, the controlling shareholder of COSCO SHIPPING Holdings, COSCO SHIPPING Specialized and Other COSCO Company Subsidiaries and a wholly-owned subsidiary of COSCO SHIPPING
“COSCO Finance”
COSCO Finance Co., Ltd.[#] (中遠財務有限責任公司), a company established under the laws of the PRC with limited liability and an indirect non-wholly owned subsidiary of COSCO Company as at the Latest Practicable Date
“COSCO International Freight”
COSCO International Freight Co., Ltd[#] (中遠海運國際貨運有限公司), a company established under the laws of the PRC with limited liability and a wholly-owned subsidiary of COSCO SHIPPING Holdings
“COSCO Shipbuilding”
COSCO Shipbuilding Industry Company[#] (中遠造船工業公司), a collectively-owned enterprise established under the laws of the PRC and a wholly-owned subsidiary of COSCO Company
“COSCO SHIPPING”
China COSCO Shipping Corporation Limited[#] (中國遠洋海運集團有限公司), a PRC state-owned enterprise and an indirect controlling shareholder of the Company

– 2 –

DEFINITIONS

“COSCO SHIPPING Energy”

COSCO SHIPPING Energy Transportation Co., Ltd.[#] (中遠海運能源運輸股份有限公司), a joint stock limited company incorporated in the PRC with limited liability, the H shares and A shares of which are listed on the Main Board of the Hong Kong Stock Exchange (Stock Code: 1138) and the Shanghai Stock Exchange (Stock Code: 600026), respectively

“COSCO SHIPPING Energy Group”

COSCO SHIPPING Energy and its subsidiaries

“COSCO SHIPPING Finance”
COSCO SHIPPING Finance Company Limited[#] (中遠海運集團財務有限責任公司) (the name of which is subject to the confirmation of the relevant industry and commerce authority), being CS Finance as the surviving entity of the Merger after Completion
“COSCO SHIPPING Holdings”
COSCO SHIPPING Holdings Co., Ltd.[#] (中遠海運控股股份有限公司), a joint stock company incorporated in the PRC with limited liability, the H shares and A shares of which are listed on the Main Board of the Hong Kong Stock Exchange (Stock Code: 1919) and the Shanghai Stock Exchange (Stock Code: 601919), respectively
“COSCO SHIPPING Holdings Group”
COSCO SHIPPING Holdings and its subsidiaries
“COSCO SHIPPING Lines”
COSCO SHIPPING Lines Co., Ltd.[#] (中遠海運集裝箱運輸有限公司), a company established under the laws of the PRC with limited liability and a wholly-owned subsidiary of COSCO SHIPPING Holdings
“COSCO SHIPPING Specialized”
COSCO SHIPPING Specialized Carriers Co., Ltd[#] (中遠海運特種運輸股份有限公司), a joint stock limited company incorporated in the PRC with limited liability and the A shares of which are listed on the Shanghai Stock Exchange (Stock Code: 600428)
“COSCO SHIPPING Specialized COSCO SHIPPING Specialized and its subsidiaries Group”
“COSCO Shipyard”

COSCO Shipyard Group Co., Ltd.[#] (中遠船務工程集團有限公司), a company established under the laws of the PRC with limited liability and a non-wholly owned subsidiary of COSCO Company

– 3 –

DEFINITIONS

“COSCO Xiamen”

COSCO (Xiamen) Co., Ltd.[#] (中遠海運(廈門)有限公司), a company established under the laws of the PRC with limited liability and a wholly-owned subsidiary of COSCO Company

“CS Finance”
China Shipping Finance Company Limited[#] (中海集團財務有限責任公司), a company established under the laws of the PRC with limited liability, which was owned as to 65% by the Company, 25% by COSCO SHIPPING Energy and 10% by China Shipping as at the Latest Practicable Date and a connected subsidiary of the Company
“Dalian Tanker”
COSCO Shipping Tanker (Dalian) Co., Ltd.[#] (大連中遠海運油品運輸有限公司), a company established under the laws of the PRC with limited liability and a whollyowned subsidiary of COSCO SHIPPING Energy
“Director(s)” director(s) of the Company
“EGM”
the extraordinary general meeting of the Company to be convened to consider and, if thought fit, approve, among other things, (i) the Merger, the Shareholders Agreement and the transactions contemplated thereunder and (ii) the Proposed Appointment
“Group”
the Company and its subsidiaries
“Guangzhou Ocean”
Guangzhou Ocean Shipping Co., Ltd[#] (廣州遠洋運輸有限公司), a company established under the laws of the PRC with limited liability and a wholly-owned subsidiary of COSCO SHIPPING Specialized
“H Share(s)”
the overseas listed foreign shares in the ordinary share capital of the Company with a par value of RMB1.00 each, which are listed on the Main Board of the Hong Kong Stock Exchange
“Hong Kong”
the Hong Kong Special Administrative Region of the PRC
“Hong Kong Stock Exchange”
The Stock Exchange of Hong Kong Limited

– 4 –

DEFINITIONS

“Independent Board Committee”
“Independent Financial Adviser” or “TC Capital”
“Independent Shareholders”
“Latest Practicable Date”
“Listing Rules”
“Merger”
“Merger Agreement”
“Merger Announcement”
“Mr. Lu”
“Notice of EGM”
the independent board committee of the Company comprising Mr. Cai Hongping, Ms. Hai Chi Yuet and Mr. Graeme Jack, being all the independent non-executive Directors, which is formed to advise the Independent Shareholders in respect of the Merger, the Shareholders Agreement and the transactions contemplated thereunder
TC Capital International Limited, a corporation licensed to conduct Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO, which has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Merger, the Shareholders Agreement and the transactions contemplated thereunder
the Shareholders other than (i) COSCO SHIPPING and its associates and (ii) any other Shareholders who have a material interest in the Merger, the Shareholders Agreement and the transactions contemplated thereunder 8 December 2017, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained herein
the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
the merger by absorption under which CS Finance will absorb and merge with COSCO Finance in accordance with the Merger Agreement
the merger agreement to be entered into between CS Finance and COSCO Finance in relation to the Merger
the announcement of the Company dated 13 November 2017 in relation to, among other things, the Merger, the Shareholders Agreement and the transactions contemplated thereunder
Mr. Lu Jianzhong (陸建忠)
the notice of the EGM dated 13 November 2017, which was despatched to the Shareholders on 13 November 2017

– 5 –

DEFINITIONS

“Other COSCO Company Subsidiaries”
“Other COSCO SHIPPING Subsidiaries”
“Overseas Regulatory Announcements”
“percentage ratios”
“Post-Merger Shareholders”
“PRC”
“PRC GAAP”
“Proposed Appointment”
“Qingdao Ocean”
“RMB”
“SASAC”
“SFO”
collectively, COSCO Shipbuilding, COSCO Shipyard, China Bunker, COSCO Xiamen and China Tally
collectively, COSCO Bulk Carrier, China Agency and Qingdao Ocean
the overseas regulatory announcements of the Company dated 13 November 2017 in relation to, among other things, the Merger, the Shareholders Agreement and the transactions contemplated thereunder
has the meaning ascribed to it under the Listing Rules
the shareholders of COSCO SHIPPING Finance after the Merger, being COSCO SHIPPING, the Company, COSCO SHIPPING Energy, COSCO SHIPPING Lines, COSCO Bulk Carrier, China Agency, Guangzhou Ocean, COSCO International Freight, COSCO SHIPPING Specialized, Qingdao Ocean, Dalian Tanker, COSCO Shipbuilding, COSCO Shipyard, China Bunker, COSCO Xiamen and China Tally
the People’s Republic of China, and for the purpose of this circular only, excluding Hong Kong, the Macau Special Administrative Region of the People’s Republic of China and Taiwan
the general accepted accounting principles in the PRC
the proposed appointment of Mr. Lu as an independent non-executive Director
Qingdao Ocean Shipping Co., Ltd.[#] (青島遠洋運輸有限公司), a company established under the laws of the PRC with limited liability and a wholly-owned subsidiary of COSCO SHIPPING
Renminbi, the lawful currency of the PRC
the State-owned Assets Supervision and Administration Commission of the State Council of the PRC (中華人民共和國國務院國有資產監督管理委員會)
the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

– 6 –

DEFINITIONS

“Share(s)”

A Share(s) and H Share(s)

“Shareholder(s)” holder(s) of the Share(s)
“Shareholders Agreement”
the shareholders agreement dated 13 November 2017 entered into among the Post-Merger Shareholders to govern their respective rights and obligations in COSCO SHIPPING Finance
“Simultaneous Transfer” the simultaneous transfer of the respective direct equity interests in COSCO SHIPPING Finance from China Shipping and COSCO Company to COSCO SHIPPING at nil consideration pursuant to the Transfer Agreement
“Supervisor(s)” supervisor(s) of the Company
“Transfer Agreement”
the transfer agreement dated 13 November 2017 entered into among China Shipping, COSCO Company and COSCO SHIPPING in relation to the Simultaneous Transfer
“Update Announcement”
the announcement of the Company dated 4 December 2017 in relation to the completion of the filing procedures for the Valuation Reports
“US$”
United States dollar, the lawful currency of the United States of America
“Valuation Reports”
the valuation reports dated 9 November 2017 prepared by the Valuer in respect of each of CS Finance and COSCO Finance, with the valuation date being 30 June 2017
“Valuer”
China Tong Cheng Assets Appraisal Co., Ltd.[#] (中通誠資產評估有限公司), an independent valuer
“%”
per cent
The Company is a registered non-Hong Kong company as defined in the Companies Ordinance (Chapter 622 of the Laws of Hong Kong) and it is registered under its Chinese name and under the English name “COSCO SHIPPING Development Co., Ltd.”.
# For identification purpose only.

– 7 –

LETTER FROM THE BOARD

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

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

(Stock Code: 02866)

Executive Directors Legal address in the PRC Ms. Sun Yueying Room A-538 Mr. Wang Daxiong International Trade Center Mr. Liu Chong China (Shanghai) Pilot Free Trade Zone Mr. Xu Hui Shanghai The PRC Non-executive Directors Mr. Feng Boming Principal place of business in the PRC Mr. Huang Jian Maritime Research Building Mr. Chen Dong 628 Minsheng Road Pudong New Area Independent non-executive Directors Shanghai Mr. Cai Hongping The PRC Ms. Hai Chi Yuet Mr. Graeme Jack Principal place of business in Hong Kong 33/F, Tower 2, Kowloon Commerce Centre 51 Kwai Cheong Road, Kwai Chung New Territories Hong Kong

12 December 2017

To the Shareholders

Dear Sir or Madam,

(1) MAJOR AND CONNECTED TRANSACTION MERGER OF CS FINANCE AND COSCO FINANCE AND

(2) PROPOSED APPOINTMENT OF INDEPENDENT NON-EXECUTIVE DIRECTOR

I. INTRODUCTION

Reference is made to (i) the Merger Announcement; (ii) the Appointment Announcements; (iii) the Update Announcement; (iv) the Notice of EGM; and (v) the Overseas Regulatory Announcements.

– 8 –

LETTER FROM THE BOARD

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

(a) further details of (i) the Merger, the Shareholders Agreement and the transactions contemplated thereunder and (ii) the Proposed Appointment;
(b) a letter from the Independent Board Committee to the Independent Shareholders containing its recommendation in respect of the Merger, the Shareholders Agreement and the transactions contemplated thereunder; and
(c) a letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders containing its recommendation in respect of the Merger, the Shareholders Agreement and the transactions contemplated thereunder.

At the EGM, ordinary resolutions will be proposed to approve:

(a) the Merger by CS Finance;
(b) the Shareholders Agreement entered into among the Post-Merger Shareholders; and
(c) the Proposed Appointment.

II. THE MERGER

Reference is made to the Merger Announcement and the Overseas Regulatory Announcements whereby the Board announced that on 13 November 2017, it approved the Merger between CS Finance (a non-wholly owned subsidiary of the Company) and COSCO Finance, pursuant to which CS Finance will absorb and merge with COSCO Finance.

Upon Completion, (i) CS Finance will continue as the surviving company and be renamed as COSCO SHIPPING Finance and (ii) COSCO Finance will cease to exist as a legal entity and become a branch of COSCO SHIPPING Finance, and the assets, liabilities, businesses and employees of which shall be succeeded by COSCO SHIPPING Finance.

The principal terms of the Merger are as follows:

Parties: (1) CS Finance; and (2) COSCO Finance.

Merger: CS Finance will absorb and merge with COSCO Finance according to the method of business combination under common control.

Upon Completion:

(1) CS Finance will continue as the surviving company with its company type, business term and business scope remaining unchanged, and will be renamed as COSCO SHIPPING Finance (subject to the confirmation of the relevant industry and commerce authority); and

– 9 –

LETTER FROM THE BOARD

(2) COSCO Finance will cease to exist as a legal entity and become a branch of COSCO SHIPPING Finance, and the assets, liabilities, businesses and employees of which shall be succeeded by COSCO SHIPPING Finance.

Simultaneous As part of the Merger, China Shipping and COSCO Company will Transfer simultaneously transfer their respective equity interests in COSCO SHIPPING Finance, directly owned by them, to COSCO SHIPPING at nil consideration.

Upon Completion, (i) COSCO SHIPPING, (ii) the existing shareholders of CS Finance (excluding China Shipping) and (iii) the existing shareholders of COSCO Finance (excluding COSCO Company) will become the Post-Merger Shareholders of COSCO SHIPPING Finance, and COSCO SHIPPING will become the holding company, controlling shareholder and actual controller of COSCO SHIPPING Finance.

Shareholding Upon Completion, the registered capital of COSCO SHIPPING structure upon Finance will be the aggregate of the registered capital of CS Completion Finance and COSCO Finance prior to the Merger, being RMB2.8 billion.

The amount of contributed registered capital of each of the Post-Merger Shareholders and their respective shareholding in COSCO SHIPPING Finance will be determined in accordance with their respective shareholding in CS Finance and/or COSCO Finance prior to the Merger with reference to the assessed value of the equity interest of CS Finance and COSCO Finance based on the assessed net asset value of CS Finance and COSCO Finance stated in the Valuation Reports and the valuation results to be confirmed by the filing procedures (as disclosed in the section headed “III. The Shareholders Agreement – Adjustment to valuation results” below).

– 10 –

LETTER FROM THE BOARD

Based on the Valuation Reports, the shareholding structure of COSCO SHIPPING Finance upon Completion will be as follows:

	Amount of	Assessed	Approximate
	contributed	value of	percentage
	registered	equity	of equity
Name of shareholders	capital	interest	interest
	(RMB’000)	(RMB’000)	(%)
(1) COSCO SHIPPING	873,828.171	1,470,020.7	31.21
(2) The Company	654,752.268	1,101,474.4	23.38
(3) Other COSCO SHIPPING
Subsidiaries
COSCO Bulk Carrier	179,268.882	301,579.8	6.40
China Agency	125,488.217	211,105.9	4.48
Qingdao Ocean	71,707.553	120,631.9	2.56
Subtotal	376,464.652	633,317.7	13.45
(4) COSCO SHIPPING Energy
Group
COSCO SHIPPING Energy	251,827.795	423,644.0	8.99
Dalian Tanker	53,780.665	90,474.0	1.92
Subtotal	305,608.460	514,118.0	10.91
(5) COSCO SHIPPING Holdings
Group
COSCO SHIPPING Lines	219,604.380	369,435.3	7.84
COSCO International Freight	89,634.441	150,789.9	3.20
Subtotal	309,238.821	520,225.2	11.04
(6) COSCO SHIPPING Specialized
Group
COSCO SHIPPING Specialized	89,634.441	150,789.9	3.20
Guangzhou Ocean	98,597.885	165,868.9	3.52
Subtotal	188,232.326	316,658.8	6.72
(7) Other COSCO Company
Subsidiaries
COSCO Shipbuilding	33,612.915	56,546.2	1.20
COSCO Shipyard	22,408.610	37,697.5	0.80
China Bunker	17,926.888	30,158.0	0.64
COSCO Xiamen	8,963.444	15,079.0	0.32
China Tally	8,963.444	15,079.0	0.32
Subtotal	91,875.301	154,559.7	3.28
Total	2,800,000.000	4,710,374.4	100.00

– 11 –

LETTER FROM THE BOARD

Note:

The amount of contributed registered capital, the assessed value of equity interest and the approximate percentage of equity interest are rounded to the nearest three, one and two decimal places, respectively, and may not add up to the sub-total and total due to rounding.

Conditions Precedent to the Merger

The Merger will take place upon the satisfaction of, or the waiver by CS Finance and COSCO Finance in writing of, all of the following conditions:

(1) the Merger Agreement having become effective;
(2) the shareholders’ meeting of each of CS Finance and COSCO Finance having approved the Merger;
(3) the approvals for any matters in relation to the Merger requiring banking regulatory administrative approvals having been obtained from the relevant governmental authorities regulating banking industry; and
(4) the Simultaneous Transfer having been approved by the relevant governmental authorities regulating state-owned assets.

Completion

The Merger will be completely implemented upon all of the following events having been completed:

(1) CS Finance having completed the registrations with the relevant industry and commerce authority necessary for the Merger, including corporate merger, change of registered capital, change of shareholding structure and amendments to the articles of association;
(2) COSCO Finance having transferred all its assets, liabilities and businesses to COSCO SHIPPING Finance, and having completed the registrations for changes necessary for the assets changes or the re-execution of the necessary agreements;
(3) COSCO SHIPPING Finance having accepted all the employees who have maintained an employment relationship with COSCO Finance prior to the Merger and having possessed with and undertaken the rights and obligations under the employment relationships; and
(4) COSCO Finance having ceased to exist as a legal entity and having become a branch of COSCO SHIPPING Finance.

– 12 –

LETTER FROM THE BOARD

III. THE SHAREHOLDERS’ AGREEMENT

On 13 November 2017, the Post-Merger Shareholders (including the Company) entered into the Shareholders Agreement to govern their respective rights and obligations in COSCO SHIPPING Finance.

The principal terms of the Shareholders Agreement are as follows:

Date: 13 November 2017

Parties: (1) COSCO SHIPPING;

(2) the Company;
(3) COSCO SHIPPING Energy;
(4) Dalian Tanker;
(5) COSCO SHIPPING Lines;
(6) COSCO International Freight;
(7) COSCO SHIPPING Specialized;
(8) Guangzhou Ocean;
(9) each of the Other COSCO SHIPPING Subsidiaries; and
(10) each of the Other COSCO Company Subsidiaries.

Merger, Simultaneous Transfer and shareholding structure upon Completion

The Shareholders Agreement sets out the terms of the Merger substantially similar to the terms set out in the paragraphs headed “Merger”, “Simultaneous Transfer” and “Shareholding structure upon Completion” in the section headed “II. The Merger” above.

Adjustment to valuation results

As the Valuation Reports are subject to the filing procedures in respect of state-owned assets in accordance with the relevant PRC laws and regulations, the Post-Merger Shareholders have agreed and confirmed that in the event of any adjustments to the valuation results during the filing procedures, the respective shareholding and contributed registered capital in COSCO SHIPPING Finance will be adjusted according to the valuation as confirmed upon completion of the filing procedures.

– 13 –

LETTER FROM THE BOARD

As disclosed in the Update Announcement, the abovementioned filing procedures were completed and no adjustment to the valuation results is required pursuant to such filing procedures. Accordingly, no adjustment will be made to the amount of contributed registered capital of each of the Post-Merger Shareholders and their respective shareholding in COSCO SHIPPING Finance as disclosed in the section headed “II. The Merger – Shareholding structure upon Completion” above.

Effectiveness of the Shareholders Agreement

The Shareholders Agreement shall be effective upon the satisfaction of all of the following conditions:

(1) the Shareholders Agreement having been duly executed by the Post-Merger Shareholders;
(2) the internal authorities of each of the Post-Merger Shareholders having approved the Merger;
(3) the approvals for any matters in relation to the Merger requiring banking regulatory administrative approvals having been obtained from the relevant governmental authorities regulating banking industry; and
(4) the Simultaneous Transfer having been approved by the relevant governmental authorities regulating state-owned assets.

The approvals from the internal authorities of the Post-Merger Shareholders referred to in item (2) above include the Independent Shareholders’ approval at the EGM.

– 14 –

LETTER FROM THE BOARD

Rights and obligations of the Post-Merger Shareholders

The Post-Merger Shareholders shall be entitled to, among other things, the following shareholders’ rights: (i) receiving dividends and other forms of distributions proportional to their respective capital contribution, (ii) convening, participating and voting in shareholders’ meetings, (iii) assigning, transferring or pledging their equity interests, (iv) accessing to corporate documents, including but not limited to the articles of association, minutes, resolutions, accountant’s reports and accounting records, (v) distributions of assets according to capital contribution in the event of the winding-up of COSCO SHIPPING Finance and (vi) requesting for share redemption pursuant to the relevant requirements.

The shareholders’ obligations include, among other things, (i) observing the relevant laws, regulations and the articles of association, (ii) making capital contribution proportional to their respective shareholding, (iii) not withdrawing their capital contribution unless otherwise provided by the relevant laws, regulations and the articles of association and (iv) refraining from harming the interests of COSCO SHIPPING Finance and other Post-Merger Shareholders.

Termination

In the event of any of the following circumstances, each of the Post-Merger Shareholders will be entitled to unilaterally terminate the Shareholders Agreement by notice in writing to all the other Post-Merger Shareholders:

(1) an objection from any governmental department or judiciary authorities to the content and performance of the Shareholders Agreement, resulting in the Shareholders Agreement being terminated, revoked, deemed invalid, or the purpose of the execution of the Shareholders Agreement being materially affected as the material principal terms of which are made impossible to perform;
(2) an explicit objection to the Merger from the banking regulatory authorities; or
(3) a change to any law, regulation or normative document relied upon by the Shareholders Agreement rendering the main content of the Shareholders Agreement illegal, or an introduction of any state policy or order rendering any of the Post-Merger Shareholders unable to perform its main obligations under the Shareholders Agreement.

– 15 –

LETTER FROM THE BOARD

IV. INFORMATION ON THE PARTIES TO THE MERGER

Information on CS Finance

CS Finance is a company established under the laws of the PRC with limited liability and a connected subsidiary of the Company. It is principally engaged in deposit services, credit services, financial and financing consultation, credit verification and related consultation and agency services, settlement, and liquidation.

As at the Latest Practicable Date, the shareholding structure of CS Finance was as follows:

		Approximate
		percentage of
Name	of shareholders	equity interest
		(%)
(1)	The Company	65.00
(2)	COSCO SHIPPING Energy	25.00
(3)	China Shipping	10.00
Total		100.00

Based on the financial statements of CS Finance prepared in accordance with the PRC GAAP, the financial information of CS Finance for the two years ended 31 December 2015 and 2016 and the six months ended 30 June 2017 was approximately as follows:

				For the
				six months
		For the year ended 31 December		ended
		2015	2016	30 June 2017
		(audited)	(audited)	(audited)
		(RMB’000)	(RMB’000)	(RMB’000)
Profit	before taxation	263,259	139,941	124,623
Profit	after taxation	208,081	107,105	93,760

The audited net asset value of CS Finance as at 30 June 2017 was approximately RMB1,598,657,000.

Information on COSCO Finance

COSCO Finance is a company established under the laws of the PRC with limited liability. It is principally engaged in the provision of financial services, credit verification and related consultation and agency services.

– 16 –

LETTER FROM THE BOARD

As at the Latest Practicable Date, the shareholding structure of COSCO Finance was as follows:

		Approximate
		percentage of
Name	of shareholders	equity interest
		(%)
(1)	COSCO Company	43.13
(2)	Other COSCO SHIPPING Subsidiaries
	COSCO Bulk Carrier	10.00
	China Agency	7.00
	Qingdao Ocean	4.00
	Subtotal	21.00
(3)	COSCO SHIPPING Holdings Group
	COSCO SHIPPING Lines	12.25
	COSCO International Freight	5.00
	Subtotal	17.25
(4)	COSCO SHIPPING Specialized Group
	COSCO SHIPPING Specialized	5.00
	Guangzhou Ocean	5.50
	Subtotal	10.50
(5)	Other COSCO Company Subsidiaries
	COSCO Shipbuilding	1.88
	COSCO Shipyard	1.25
	China Bunker	1.00
	COSCO Xiamen	0.50
	China Tally	0.50
	Subtotal	5.13
(6)	COSCO SHIPPING Energy Group
	Dalian Tanker	3.00
	Subtotal	3.00
Total		100.00

Note:

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

– 17 –

LETTER FROM THE BOARD

Based on the financial statements of COSCO Finance prepared in accordance with the PRC GAAP, the financial information of COSCO Finance for the two years ended 31 December 2015 and 2016 and the six months ended 30 June 2017 was approximately as follows:

				For the
				six months
		For the year ended 31 December		ended
		2015	2016	30 June 2017
		(audited)	(audited)	(audited)
		(RMB’000)	(RMB’000)	(RMB’000)
Profit	before taxation	596,604	303,814	275,729
Profit	after taxation	446,776	233,229	210,681

The audited net asset value of COSCO Finance as at 30 June 2017 was approximately RMB2,792,406,000.

Valuation of CS Finance and COSCO Finance

Valuer and valuation date

The Valuation Reports were prepared by China Tong Cheng Assets Appraisal Co., Ltd.[#] (中通誠資產評估有限公司), an independent valuer, in respect of each of CS Finance and COSCO Finance, with the valuation date being 30 June 2017.

Assessed values

According to the Valuation Reports, the total value of shareholders’ equity of CS Finance and COSCO Finance as at 30 June 2017 was approximately RMB1,694,576,000 and RMB3,015,798,400, respectively, and both of which were determined based on the market approach.

Valuation methodologies

According to the Valuation Reports, there are three generally accepted methodologies to assess the value of a company, which are known as the market approach, the asset-based approach and the income approach.

The market approach was considered in the Valuation Reports, as there were operation and financial data of companies in the industries similar to CS Finance and COSCO Finance available in the open market, as well as cases of mergers and acquisitions involving companies in the identical or similar industries with CS Finance and COSCO Finance.

The asset-based approach was also considered in the Valuation Reports, as the assets and liabilities of CS Finance and COSCO Finance may be assessed individually, which met the criteria for asset-based approach.

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LETTER FROM THE BOARD

The income approach was not considered in the Valuation Reports, primarily for the reason that it was difficult to predict the profit of CS Finance and COSCO Finance, and therefore the income approach may not reasonably reflect their market values in the open market.

According to the Valuation Reports, the asset-based approach assessed the values of CS Finance and COSCO Finance based on the values and liabilities of all types of assets which may not have taken into account the value of the intangible assets which were not reflected in their accounts, such as the management system and experienced management team. By comparison, the market approach assessed the values of CS Finance and COSCO Finance based on comparable transactions, and determined their values by adopting price-to-book ratios as the multiples for the valuation and conducting the necessary comparison, analysis and adjustments, which would better reflect the market values of CS Finance and COSCO Finance as at the benchmark valuation date. Accordingly, the valuation results derived from the market approach was adopted as the conclusion of the Valuation Reports.

Selection of comparable transactions

Based on the announcements of certain listed companies in the PRC, the Valuer obtained transaction data and financial data of comparable transactions in respect of the merger and acquisition of certain finance companies which were engaged in similar businesses as CS Finance and COSCO Finance. The comparable transactions were selected based on (i) whether the businesses operated by the companies were identical or similar to CS Finance and COSCO Finance; (ii) whether the date of the comparable transactions was close to the valuation date of the Valuation Reports; and (iii) whether the status of control and minority interests in the comparable transactions was similar to that in CS Finance and COSCO Finance.

Selection of multiples

According to the Valuation Reports, the revenue and profit of finance companies in the PRC fluctuate due to volatility of the capital market in the PRC. As the price-to-earnings ratio is more applicable to cases where the profit is relatively stable, the price-to-earnings ratio was not adopted. On the contrary, as the price-to-book ratio reflects the market value of a company and its deviation from its book value, which illustrates the appreciation or deprecation of its net asset value and is relatively less vulnerable to market fluctuation, the price-to-book ratio was adopted as the multiple for calculating the assessed values of CS Finance and COSCO Finance.

According to the Valuation Reports, the price-to-book ratio of each of the comparable transactions was adjusted with reference to various factors, including, among other things, (i) the Shanghai Stock Exchange Composite Index on the valuation date as compared to the transaction date; (ii) the business structures, operation models and business scales of the companies; (iii) the asset allocation and utilization and the stages of operation of the business; (iv) the characteristics of the industry of the holding company and the overall capabilities of the holding company; and (v) certain financial indicators, each in the comparable transactions as compared to those of CS Finance and COSCO Finance.

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LETTER FROM THE BOARD

Shareholding structure chart of CS Finance and COSCO Finance immediately prior to the Merger

The following chart illustrates the simplified shareholding structures of CS Finance and COSCO Finance as at the Latest Practicable Date:

==> picture [408 x 153] intentionally omitted <==

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

COSCO SHIPPING
100% 100%
COSCO Company China Shipping
100%
45.47% 50.46% 38.56% 39.02%
Other COSCO COSCO SHIPPING COSCO SHIPPING Other COSCO COSCO SHIPPING
Company Subsidiaries Holdings Group Specialized Group SHIPPING Subsidiaries Energy Group The Company
5.13% 17.25% 10.50% 25.00% 65.00%
43.13% 21.00% 3.00% 10.00%
COSCO Finance CS Finance
----- End of picture text -----

Note:

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

Shareholding structure chart of COSCO SHIPPING Finance immediately upon Completion

The following chart illustrates the simplified shareholding structure of COSCO SHIPPING Finance immediately upon Completion:

==> picture [400 x 125] intentionally omitted <==

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

COSCO SHIPPING
100% 100%
COSCO Company China Shipping
100%
45.47% 50.46% 38.56% 39.02%
Other COSCO COSCO SHIPPING COSCO SHIPPING Other COSCO COSCO SHIPPING
Company Subsidiaries Holdings Group Specialized Group SHIPPING Subsidiaries Energy Group The Company
3.28% 11.04% 6.72% 13.45% 31.21% 10.91% 23.38%
----- End of picture text -----

COSCO SHIPPING Finance

Note:

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

– 20 –

LETTER FROM THE BOARD

V. INFORMATION ON THE PARTIES TO THE SHAREHOLDERS AGREEMENT

Information on the Company and the Group

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

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

Information on COSCO SHIPPING

COSCO SHIPPING is a company established under the laws of the PRC, and is a state-owned enterprise wholly-owned and controlled by SASAC. It is the controlling shareholder of COSCO Company and China Shipping.

The scope of business of COSCO SHIPPING includes international shipping, ancillary business in international maritime transportation, import and export of goods and technologies, international freight agency business, leasing of self-owned vessels, sales of vessels, containers and steel and maritime engineering.

Information on COSCO SHIPPING Energy Group

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

COSCO SHIPPING Energy Group is principally engaged in the business of shipment of oil and cargoes along the coast of the PRC, international shipment and vessel chartering.

Dalian Tanker is a company established under the laws of the PRC with limited liability and is a wholly-owned subsidiary of COSCO SHIPPING Energy. It is principally engaged in oil transportation and vessel chartering.

Information on COSCO SHIPPING Holdings Group

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

COSCO SHIPPING Holdings Group provides a wide range of container shipping and terminal services covering the whole shipping value chain for both international and domestic customers.

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LETTER FROM THE BOARD

COSCO SHIPPING Lines is a company established under the laws of the PRC with limited liability and is a wholly-owned subsidiary of COSCO SHIPPING Holdings. It is principally engaged in container shipping.

COSCO International Freight is a company established under the laws of the PRC with limited liability and is a wholly-owned subsidiary of COSCO SHIPPING Holdings. It is principally engaged in freight forwarding and transportation.

Information on COSCO SHIPPING Specialized Group

COSCO SHIPPING Specialized is a joint stock company established under the laws of the PRC with limited liability and the A shares of which are listed on the Shanghai Stock Exchange. COSCO SHIPPING Specialized Group is principally engaged in the operations and management of vessels and carriers and cargo transportation.

Guangzhou Ocean is a company established under the laws of the PRC with limited liability and is a wholly-owned subsidiary of COSCO SHIPPING Specialized. It is principally engaged in cargo transportation.

Information on Other COSCO SHIPPING Subsidiaries

COSCO Bulk Carrier is a company established under the laws of the PRC with limited liability and is a wholly-owned subsidiary of COSCO SHIPPING. It is principally engaged in international bulk transportation service.

Qingdao Ocean is a company established under the laws of the PRC with limited liability and is a wholly-owned subsidiary of COSCO SHIPPING. It is principally engaged in international dry and bulk cargo shipping.

China Agency is a company established under the laws of the PRC with limited liability and is a wholly-owned subsidiary of COSCO SHIPPING. It is principally engaged in shipping agency and freight forwarding.

Information on Other COSCO Company Subsidiaries

COSCO Xiamen is a company established under the laws of the PRC with limited liability and is a wholly-owned subsidiary of COSCO Company. It is principally engaged in international transportation of dry bulk cargos and general cargos.

China Tally is a company established under the laws of the PRC with limited liability and is a wholly-owned subsidiary of COSCO Company. It is principally engaged in ocean shipping tally.

COSCO Shipbuilding is a collectively-owned enterprise established under the laws of the PRC and is a wholly-owned subsidiary of COSCO Company. It is principally engaged in ship building, ship equipment and steel structure building.

– 22 –

LETTER FROM THE BOARD

COSCO Shipyard is a company established under the laws of the PRC with limited liability and is a non-wholly owned subsidiary of COSCO Company. It is principally engaged in large vessels buildings, marine engineering’s construction and conversion.

China Bunker is a company established under the laws of the PRC with limited liability and is a non-wholly owned subsidiary of COSCO Company. It is principally engaged in global supply of bunker oil, marine lubricants and fresh water to vessels, as well as the transportation and storage of oil products.

VI. FINANCIAL EFFECTS OF THE MERGER

Upon Completion, the Company, which is originally interested in 65% of the equity interest in CS Finance, will be interested in approximately 23.38% in COSCO SHIPPING Finance. Therefore, CS Finance will cease to be a non-wholly owned subsidiary of the Company and the assets and liabilities and financial results of CS Finance (which will be renamed as COSCO SHIPPING Finance) will no longer be consolidated into the consolidated financial statements of the Group. The Company will retain an equity interest of 23.38% in COSCO SHIPPING Finance upon Completion.

It is estimated that the Group will recognise a gain before taxation attributable to the Shareholders of approximately RMB10,841,400 from the Merger, which is calculated based on the sum of (i) the difference between (a) the fair value of the investment in COSCO SHIPPING Finance based on the Valuation Reports and the shareholding of the Company in COSCO SHIPPING Finance upon Completion of approximately RMB1,101,474,400 and (b) the carrying amount of the net asset value of CS Finance attributable to the shareholders of the Company of approximately RMB1,096,647,000, which was included in the consolidated financial statements of the Group as at 30 June 2017, and (ii) the accumulated gain on fair value of available-for-sale investments of CS Finance attributable to the Company of approximately RMB6,014,000, which was previously recorded in the statement of other comprehensive income and will be reclassified to the statement of profit or loss after Completion.

Earnings

As disclosed above, it is estimated that the Group will recognise a gain before taxation attributable to the Shareholders of approximately RMB10,841,400 from the Merger. Assuming that Completion had taken place on 30 June 2017, for illustration purpose only, taking into account the gain from the Merger, the profit of the Group for the six months ended 30 June 2017 would have increased.

Assets

Based on the audited financial statements of CS Finance and COSCO Finance prepared in accordance with the PRC GAAP, the total asset of CS Finance and COSCO Finance as at 30 June 2017 was approximately RMB13,088,908,000 and approximately RMB30,071,724,000,

– 23 –

LETTER FROM THE BOARD

respectively. Assuming that Completion had taken place on 30 June 2017, for illustration purpose only, taking into account (i) the asset of CS Finance (including the relevant intra-group eliminations between CS Finance and the Group) would no longer be consolidated into the consolidated financial statements of the Group; and (ii) the effect of which would be partially off-set by the following factors: (a) COSCO SHIPPING Finance would become an associate of the Company and its financial position would be accounted for in the consolidated financial statements of the Group using equity method; and (b) certain deposits at CS Finance, which would have been eliminated prior to Completion, would become the assets of the Group upon Completion, the total asset of the Group as at 30 June 2017 would have decreased.

Liabilities

Based on the audited financial statements of CS Finance and COSCO Finance prepared in accordance with the PRC GAAP, the total liabilities of CS Finance and COSCO Finance as at 30 June 2017 was approximately RMB11,490,252,000 and approximately RMB27,279,319,000, respectively. Assuming that Completion had taken place on 30 June 2017, for illustration purpose only, taking into account (i) the liabilities of CS Finance (including the relevant intra-group eliminations between CS Finance and the Group) would no longer be consolidated into the consolidated financial statements of the Group; and (ii) the effect of which would be partially offset by the fact that certain borrowings from CS Finance, which would have been eliminated prior to Completion, would become the liabilities of the Group upon Completion, the total liabilities of the Group as at 30 June 2017 would have decreased.

VII. REASONS FOR AND BENEFITS OF THE MERGER AND THE SHAREHOLDERS AGREEMENT

CS Finance has been maintaining a stable growth in terms of its size of assets since its establishment, and has continued to optimise its quality and structure of assets and achieve steady profitability. Accordingly, the Company has also benefited from the investment returns of CS Finance since its investment in CS Finance in 2009.

Pursuant to the policy of “one financial company only per enterprise group” implemented by the CBRC, and as principally agreed by the CBRC, the Group proposes to restructure and consolidate CS Finance and COSCO Finance by way of the Merger.

Prior to the Merger, pursuant to the relevant regulatory requirements of the CBRC and the SASAC, each of CS Finance and COSCO Finance could only provide services to the qualified subsidiaries of China Shipping and COSCO Company, respectively. Upon Completion, the scope of services of COSCO SHIPPING Finance, being the surviving entity after the Merger, will be expanded to cover all qualified subsidiaries of COSCO SHIPPING. The size of assets of COSCO SHIPPING Finance and the scale of operation is expected to achieve further growth, which is expected to enhance its capability in investment, financing and guarantee businesses in the future. The quality of service to be rendered by COSCO SHIPPING Finance, as well as the quality of assets and profitability of COSCO SHIPPING Finance, are also expected to be enhanced as a result of the Merger.

– 24 –

LETTER FROM THE BOARD

As the second-largest shareholder of COSCO SHIPPING Finance, the Company will continue to maintain considerable degree of influence over the operations of COSCO SHIPPING Finance by participating in the formulation of its policies and decision-making processes. Meanwhile, the Company will also be entitled to the economic benefits resulting from the enhanced quality of service rendered by COSCO SHIPPING Finance, and to maintain its steady investment returns from COSCO SHIPPING Finance.

The terms of the Merger, the Shareholders Agreement and the transactions contemplated thereunder were agreed after arm’s length negotiations between the parties thereto. The Board (including the independent non-executive Directors, after considering the advice from the Independent Financial Adviser) is of the view that while the Merger, the Shareholders Agreement and the transactions contemplated thereunder are not conducted in the ordinary and usual course of business of the Group, the Merger, the Shareholders Agreement and the transactions contemplated thereunder are on normal commercial terms which are fair and reasonable so far as the Independent Shareholders are concerned, and are in the interests of the Company and the Shareholders as a whole.

VIII. IMPLICATIONS UNDER THE LISTING RULES

As (i) one or more of the applicable percentage ratios calculated in respect of the deemed disposal of the equity interest of the Company in CS Finance in accordance with the Listing Rules exceed 25% but are less than 75%, and (ii) one or more of the applicable percentage ratios calculated in respect of the acquisition of the equity interest in COSCO Finance by the Group in accordance with the Listing Rules exceed 5% but are less than 25%, the Merger, the Shareholders Agreement and the transactions contemplated thereunder constitute (a) a major disposal of the Company which is subject to the reporting, announcement and Shareholders’ approval requirements under Chapter 14 of the Listing Rules and (b) a discloseable acquisition of the Company which is subject to the reporting and announcement requirements under Chapter 14 of the Listing Rules. Under Rule 14.24 of the Listing Rules, each of the acquisition and disposal are subject to the content requirements applicable to their respective transaction classification.

As COSCO Finance is an indirect non-wholly owned subsidiary of COSCO SHIPPING, it is an associate of COSCO SHIPPING and therefore a connected person of the Company. In addition, each of the Post-Merger Shareholders (excluding COSCO SHIPPING and the Company) is an associate of COSCO SHIPPING and therefore a connected person of the Company.

Accordingly, the Merger, the Shareholders Agreement and the transactions contemplated thereunder also constitute a connected transaction of the Company which is subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

– 25 –

LETTER FROM THE BOARD

The Merger, the Shareholders Agreement and the transactions contemplated thereunder are subject to the Independent Shareholders’ approval at the EGM.

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

IX. INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee (comprising all the independent non-executive Directors) has been formed in accordance with Chapter 14A of the Listing Rules to advise the Independent Shareholders on the Merger, the Shareholders Agreement and the transactions contemplated thereunder.

In this connection, the Company has appointed the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Merger, the Shareholders Agreement and the transactions contemplated thereunder.

X. PROPOSED APPOINTMENT OF INDEPENDENT NON-EXECUTIVE DIRECTOR

Reference is made to the Appointment Announcements, whereby the Board announced, among other things, that Mr. Lu Jianzhong was proposed by the Board to be appointed as an independent non-executive Director. According to the articles of association of the Company, the Proposed Appointment is subject to the approval by the Shareholders at a general meeting of the Company. An ordinary resolution in relation to the Proposed Appointment will be proposed at the EGM.

The biographical details of Mr. Lu are set out as follows:

Mr. Lu, aged 63, holds a bachelor’s degree in accounting from Shanghai University of Finance and Economics and is a chartered accountant in the PRC. Mr. Lu was formerly a partner of the audit department of PricewaterhouseCoopers Zhong Tian LLP (普華永道中天會計師事務所) from October 1997 to June 2012. Between July 2012 and September 2016, Mr. Lu served as a partner of Shanghai De’an Certified Public Accountants LLP (上海德安會計師事務所), the marketing director of Daxin Certified Public Accountants LLP (大信會計師事務所) and a partner of Zhongxinghua Certified Public Accountants LLP (中興華會計師事務所). Further, Mr. Lu was a lecturer and an Associate Professor of Finance and Accounting at the Shanghai Maritime University from September 1986 to August 1997. Mr. Lu is currently a chartered accountant at Da Hua Certified Public Accountants LLP (大華會計師事務所).

– 26 –

LETTER FROM THE BOARD

Mr. Lu is an independent director of (i) Hangzhou Hikvision Digital Technology Co., Ltd. (杭州海康威視數字技術股份有限公司), a joint stock limited company incorporated in the PRC and listed on the Shenzhen Stock Exchange (Stock Code: 002415); (ii) Changshu Fengfan Power Equipment Co., Ltd. (常熟風範電力設備股份有限公司), a joint stock limited company incorporated in the PRC and listed on the Shanghai Stock Exchange (Stock Code: 601700); (iii) Shanghai Moons’ Electric Co., Ltd. (上海鳴志電器股份有限公司), a joint stock limited company incorporated in the PRC and listed on the Shanghai Stock Exchange (Stock Code: 603728); and (iv) Ningbo Lehui International Engineering Equipment Co., Ltd. (寧波樂惠國際工程裝備股份有限公司), a joint stock limited company incorporated in the PRC and listed on the Shanghai Stock Exchange (Stock Code: 603076).

Mr. Lu currently also serves as an enterprise mentor for the Master of Professional Accounting and the Master of Auditing programs of Antai College of Economics and Management of Shanghai Jiao Tong University and an external expert of the Asset Securitization Task Group under the Economic Research Center of the State Council (國務院經濟研究中心資產證券化課題組), and formerly served as a member of the Expert Group for Evaluation and Assessment of Economic Indicators of State-owned Enterprises under the Ministry of Finance (財政部央企經濟指標評估與考核專家組).

Subject to the approval by the Shareholders of the Proposed Appointment at the EGM, Mr. Lu will enter into a service contract with the Company for a term of service commencing from the date of his appointment until the end of the term of the current session of the Board. The remuneration of Mr. Lu will be determined in accordance with the remuneration standards for the onshore independent non-executive Directors. In addition, it is intended that Mr. Lu will be appointed as the chairman of the audit committee of the Company, a member of the nomination committee of the Company and a member of the risk control committee of the Company by the Board after the Proposed Appointment is approved by the Shareholders at the EGM.

Save as disclosed above, as at the Latest Practicable Date, Mr. Lu (i) did not have any relationship with any directors, senior management or substantial or controlling shareholders of the Company; (ii) did not have any interests in the shares of the Company within the meaning of Part XV of the SFO; (iii) did not hold any other directorships in public companies the securities of which are listed on any securities market in Hong Kong or overseas in the last three years; and (iv) did not hold any other positions with other members of the Group.

Save as disclosed above, there are no other matters that need to be brought to the attention of the Shareholders in connection with the Proposed Appointment and there is no other information that is required to be disclosed pursuant to Rules 13.51(2)(h) to (v) of the Listing Rules.

– 27 –

LETTER FROM THE BOARD

XI. EGM

The EGM will be convened at 1:30 p.m. on Thursday, 28 December 2017 at Level 3, Ocean Hotel Shanghai, 1171 Dong Da Ming Road, Hong Kou District, Shanghai, the PRC, for the Shareholders to consider and, if thought fit, approve the aforementioned resolutions. The Notice of EGM was despatched to the Shareholders on 13 November 2017, which is reproduced on pages EGM-1 to EGM-3 of this circular.

As at the Latest Practicable Date, COSCO SHIPPING and its associates controlled or were entitled to exercise control over the voting rights in respect of 4,458,195,175 A Shares and 100,944,000 H Shares, representing approximately 39.02% of the total issued share capital of the Company. Accordingly, COSCO SHIPPING is an indirect controlling shareholder of the Company and therefore a connected person of the Company. COSCO SHIPPING and its associates and those who are interested in the Merger, the Shareholders Agreement and the transactions contemplated thereunder will be required to abstain from voting on the resolutions in relation to the Merger, the Shareholders Agreement and the transactions contemplated thereunder. Save as aforementioned, to the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, no other Shareholder has a material interest in the Merger, the Shareholders Agreement and the transactions contemplated thereunder and therefore no other Shareholder is required to abstain from voting at the EGM for the relevant resolutions.

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, no Shareholder has a material interest in the Proposed Appointment and no Shareholder is required to abstain from voting at the EGM for the relevant resolution.

If you intend to appoint a proxy to attend the EGM, you are required to complete and return the accompanying form of proxy in accordance with the instructions printed thereon. The forms of proxy must be delivered to Computershare Hong Kong Investor Services Limited not less than 24 hours before the time for holding the EGM or any adjourned thereof in order for such documents to be valid.

Completion and return of the form of proxy will not preclude a Shareholder from attending in person and voting at the EGM or any adjournment thereof should he/she so wish.

Shareholders who intend to attend the EGM must complete the reply slip and return them to the Directorate Secretary Office of the Company not later than 20 days before the date of the EGM (i.e. not later than 7 December 2017).

XII. RECOMMENDATION

The Independent Board Committee, after considering the advice from the Independent Financial Adviser, is of the view that while the Merger, the Shareholders Agreement and the transactions contemplated thereunder are not conducted in the ordinary and usual course of business of the Group, the Merger, the Shareholders Agreement and the transactions

– 28 –

LETTER FROM THE BOARD

contemplated thereunder are on normal commercial terms which are fair and reasonable so far as the Independent Shareholders are concerned, and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of all the resolutions to be proposed at the EGM to approve the Merger, the Shareholders Agreement and the transactions contemplated thereunder.

The Board (including the independent non-executive Directors) is of the view that the Proposed Appointment is in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends all the Shareholders to vote in favour of the relevant resolution to be proposed at the EGM to approve the Proposed Appointment.

XIII. FURTHER INFORMATION

Your attention is drawn to (i) the letter from the Independent Board Committee set out on pages 30 to 31 of this circular, containing its recommendation in respect of the Merger, the Shareholders Agreement and the transactions contemplated thereunder, (ii) the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders set out on pages 32 to 48 of this circular, containing its recommendation in respect of the Merger, the Shareholders Agreement and the transactions contemplated thereunder and (iii) the additional information set out in the appendices to this circular.

The Independent Shareholders are advised to read the aforesaid letters and appendices before deciding as to how to vote on the resolutions approving, among other things, the Merger, the Shareholders Agreement and the transactions contemplated thereunder.

As Completion is subject to, among other things, the fulfillment of a number of conditions, the Merger and the Simultaneous Transfer may or may not proceed. Shareholders and potential investors should exercise caution when dealing in the securities of the Company.

By order of the Board

COSCO SHIPPING Development Co., Ltd. * Yu Zhen

Company Secretary

The Company is a registered non-Hong Kong company as defined in the Companies Ordinance (Chapter 622 of the Laws of Hong Kong) and it is registered under its Chinese name and under the English name “COSCO SHIPPING Development Co., Ltd.”.

– 29 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [91 x 32] intentionally omitted <==

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

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

(Stock Code: 02866)

12 December 2017

To the Independent Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION MERGER OF CS FINANCE AND COSCO FINANCE

We refer to the circular of the Company dated 12 December 2017 (the “ Circular ”), of which this letter forms part. Unless otherwise defined, capitalised terms used herein shall have the same meanings as those defined in the Circular.

We have been appointed as members of the Independent Board Committee to advise the Independent Shareholders in respect of the Merger, the Shareholders Agreement and the transactions contemplated thereunder, details of which are set out in the “Letter from the Board” in the Circular. TC Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regards.

We wish to draw your attention to (i) the “Letter from the Board” set out on pages 8 to 29 of the Circular, (ii) the “Letter from the Independent Financial Adviser” set out on pages 32 to 48 of the Circular and (iii) the additional information set out in the appendices to the Circular.

Having taken into account, among other things, the principal factors and reasons considered by, and the advice of, the Independent Financial Adviser as set out in the “Letter from the Independent Financial Adviser” in the Circular, we concur with the view of the Independent Financial Adviser and consider that while the Merger, the Shareholders Agreement and the transactions contemplated thereunder are not conducted in the ordinary and usual course of business of the Group, the Merger, the Shareholders Agreement and the transactions contemplated thereunder are on normal commercial terms which are fair and reasonable so far as the Independent Shareholders are concerned, and are in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Accordingly, we recommend the Independent Shareholders to vote in favour of all the resolutions to be proposed at the EGM to approve the Merger, the Shareholders Agreement and the transactions contemplated thereunder.

Yours faithfully, Independent Board Committee Mr. Cai Hongping Ms. Hai Chi Yuet Mr. Graeme Jack Independent non-executive Directors

The Company is a registered non-Hong Kong company as defined in the Companies Ordinance (Chapter 622 of the Laws of Hong Kong) and it is registered under its Chinese name and under the English name “COSCO SHIPPING Development Co., Ltd.”.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is the text of a letter received from TC Capital, the Independent Financial Adviser, to the Independent Board Committee and the Independent Shareholders, in respect of the Merger, the Shareholders Agreement and the transactions contemplated thereunder for the purpose of inclusion in this circular.

==> picture [44 x 59] intentionally omitted <==

12 December 2017

The Independent Board Committee and the Independent Shareholders COSCO SHIPPING Development Co., Ltd.

Dear Sirs,

MAJOR AND CONNECTED TRANSACTION MERGER OF CS FINANCE AND COSCO FINANCE

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in relation to, the Merger, the Shareholders Agreement and the transactions contemplated thereunder, the details of which are set out in the letter from the Board (the “ Letter from the Board ”) in the circular of COSCO SHIPPING Development Co., Ltd. (the “ Company ”) to the Shareholders dated 12 December 2017 (the “ Circular ”), of which this letter forms part. Capitalized terms used in this letter have the same meanings as those defined in the Circular unless the context otherwise requires.

On 13 November 2017, the Board has approved the Merger between CS Finance, the Company’s non-wholly owned subsidiary, and COSCO Finance, pursuant to which CS Finance will absorb and merge with COSCO Finance and upon Completion, (i) CS Finance will continue as the surviving company and be renamed as COSCO SHIPPING Finance; and (ii) COSCO Finance will cease to exist as a legal entity and become a branch of COSCO SHIPPING Finance, and the assets, liabilities, businesses and employees of which shall be succeeded by COSCO SHIPPING Finance.

On 13 November 2017, the Post-Merger Shareholders (including the Company) entered into the Shareholders Agreement to govern their respective rights and obligations in COSCO SHIPPING Finance.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

ratios calculated in respect of the acquisition of the equity interest in COSCO Finance by the Group in accordance with the Listing Rules exceed 5% but are less than 25%, the Merger, the Shareholders Agreement and the transactions contemplated thereunder will constitute (i) a major disposal of the Company which is subject to the reporting, announcement and Shareholders’ approval requirements under Chapter 14 of the Listing Rules; and (ii) a discloseable acquisition of the Company which is subject to the reporting and announcement requirements under Chapter 14 of the Listing Rules. Under Rule 14.24 of the Listing Rules, each of the acquisition and disposal are subject to the content requirements applicable to their respective transaction classification.

As at the Latest Practicable Date, COSCO SHIPPING and its associates controlled or were entitled to exercise control over the voting rights in respect of 4,458,195,175 A Shares and 100,944,000 H Shares, representing approximately 39.02% of the total issued share capital of the Company. Accordingly, COSCO SHIPPING is an indirect controlling shareholder of the Company and therefore a connected person of the Company. As COSCO Finance is an indirect non-wholly owned subsidiary of COSCO SHIPPING, it is an associate of COSCO SHIPPING and therefore a connected person of the Company. In addition, each of the Post-Merger Shareholders (excluding COSCO SHIPPING and the Company) is an associate of COSCO SHIPPING and therefore a connected person of the Company. Accordingly, the Merger, the Shareholders Agreement and the transactions contemplated thereunder also constitute a connected transaction of the Company which is subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The Independent Board Committee, comprising all the independent non-executive Directors, namely Mr. Cai Hongping, Ms. Hai Chi Yuet and Mr. Graeme Jack, has been established in accordance with Chapter 14A of the Listing Rules to give advice and recommendation to the Independent Shareholders in respect of the terms of the Merger, the Shareholders Agreement and the transactions contemplated thereunder.

We have been appointed by the Company to advise the Independent Board Committee and the Independent Shareholders as to whether the Merger, the Shareholders Agreement and the transactions contemplated thereunder, so far as the Independent Shareholders are concerned, are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole; and to give independent advice to the Independent Board Committee and Independent Shareholders as to whether the Independent Shareholders should vote in favour of all the resolutions to be proposed at the EGM to approve the Merger, the Shareholders Agreement and the transactions contemplated thereunder.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As at the Latest Practicable Date, we did not have any relationships with or interests in the Company or any other parties that could reasonably be regarded as relevant to the independence of us. In the last two years, we have acted as an independent financial adviser to the then independent board committee and independent shareholders of COSCO SHIPPING Energy, which is one of the parties to the Shareholders Agreement, in relation to the three occasions as detailed in (i) the circular of COSCO SHIPPING Energy dated 12 November 2015 in relation to certain continuing connected transactions, in which one of the continuing connected transactions was conducted between COSCO SHIPPING Energy and CS Finance and one of the continuing connected transactions was conducted between COSCO SHIPPING Energy and China Shipping; (ii) the circular of COSCO SHIPPING Energy dated 22 April 2016 in relation to a very substantial acquisition among COSCO SHIPPING Energy, COSCO Company and COSCO Bulk Carrier, a major and disposal transaction among COSCO SHIPPING Energy, COSCO Company and COSCO Bulk Carrier and a connected transaction relating to the exemption of a non-competition undertaking between COSCO SHIPPING Energy and China Shipping; and (iii) the circular of COSCO SHIPPING Energy dated 29 April 2016 in relation to certain continuing connected transactions, in which one of the continuing connected transactions were conducted between COSCO SHIPPING Energy and COSCO Finance and one of the continuing connected transactions was conducted between COSCO SHIPPING Energy and COSCO Company. Given (i) our independent role in the engagements with COSCO SHIPPING Energy; and (ii) our fees for the engagements represented an insignificant percentage of our revenue, we consider the engagements would not affect our independence to form our opinion in respect of the Merger, the Shareholders Agreement and the transactions contemplated thereunder.

BASIS OF OUR OPINION

In formulating our opinion and recommendation, we have considered, among other things, (i) the Circular; (ii) the annual report of the Company for the year ended 31 December 2016 (the “ 2016 Annual Report ”); (iii) the interim report of the Company for the six months ended 30 June 2017 (the “ 2017 Interim Report ”); (iv) the accountant’s report of CS Finance for the two years ended 31 December 2016 and the six months ended 30 June 2017; (v) the accountant’s report of COSCO Finance for the two years ended 31 December 2016 and the six months ended 30 June 2017; (vi) the valuation reports dated 9 November 2017 prepared by China Tong Cheng Assets Appraisal Co., Ltd. (the “ Valuer ”) with the valuation date being 30 June 2017 (the “ Valuation Reports ”); and (vii) the relevant market data and information available from public sources. We have also relied on all relevant information, opinions and facts supplied and represented by the Company, the Directors and the representatives of the Company. We have assumed that all such information, opinions, facts and representations contained or referred to in the Circular, for which the Company is fully responsible, were true and accurate in all respects as at the date hereof and may be relied upon. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Company, the Directors and the representatives of the Company. 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 document misleading.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We consider that we have sufficient information to reach an informed view and to provide a reasonable basis for our recommendation. We have not, however, carried out any independent verification of the information provided by the Directors and the representatives of the Company, nor have we conducted any independent investigation into the business, affairs, operations, financial position or future prospects of each of the Group, CS Finance and COSCO Finance, their respective subsidiaries, and/or their associated companies. We have not made any independent evaluation or appraisal of the assets and liabilities of CS Finance and COSCO Finance, and we have not been furnished with any such evaluation or appraisal, save as and except for the Valuation Reports. The Valuation Reports were prepared by the Valuer. Since we are not experts in the valuation of businesses or companies, we have relied solely upon the Valuation Reports for the appraised values of CS Finance and COSCO Finance as at 30 June 2017.

PRINCIPAL FACTORS AND REASONS

In formulating our opinion in respect of the Merger, the Shareholders Agreement and the transactions contemplated thereunder, we have taken into account the following principal factors and reasons:

1. Background of the Merger

On 13 November 2017, the Board has approved the Merger between CS Finance (a non-wholly owned subsidiary of the Company) and COSCO Finance, pursuant to which CS Finance will absorb and merge with COSCO Finance.

Upon Completion, (i) CS Finance will continue as the surviving company and be renamed as COSCO SHIPPING Finance; and (ii) COSCO Finance will cease to exist as a legal entity and become a branch of COSCO SHIPPING Finance, and the assets, liabilities, businesses and employees of which shall be succeeded by COSCO SHIPPING Finance.

In addition, on 13 November 2017, the Post-Merger Shareholders (including the Company) entered into the Shareholders Agreement to govern their respective rights and obligations in COSCO SHIPPING Finance.

2. Information on the Company, the Group, CS Finance, COSCO Finance, COSCO SHIPPING, COSCO SHIPPING Energy Group, COSCO SHIPPING Holdings Group, COSCO SHIPPING Specialized Group, Other COSCO SHIPPING Subsidiaries and Other COSCO Company Subsidiaries

2.1 Information on the Company and the Group

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

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2.2 Information on CS Finance

As disclosed in the Letter from the Board, CS Finance is a company established under the laws of the PRC with limited liability and a connected subsidiary of the Company. It is principally engaged in deposit services, credit services, financial and financing consultation, credit verification and related consultation and agency services, settlement, and liquidation.

As at the Latest Practicable Date, the shareholding structure of CS Finance were as follows:

Name of Shareholders The Company COSCO SHIPPING Energy China Shipping Total	Approximate percentage of equity interest (%) 65.00 25.00 10.00
	100.00

Based on the financial statements of CS Finance prepared in accordance with the PRC GAAP, certain financial information of CS Finance for the three years ended 31 December 2014 (“ FY2014 ”), 2015 (“ FY2015 ”) and 2016 (“ FY2016 ”) and the six months ended 30 June 2017 was extracted as follows:

Profit after taxation Net asset value	For the year ended 31 December 2014 2015 2016 (audited) (audited) (audited) (RMB’000) (RMB’000) (RMB’000) 212,942 208,081 107,105 As at 31 December 2014 2015 2016 (audited) (audited) (audited) (RMB’000) (RMB’000) (RMB’000) 1,082,124 1,149,072 894,476	For the six months ended 30 June 2017 (audited) (RMB’000) 93,760

		As at 30 June 2017 (audited) (RMB’000) 1,598,657

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

From the table above, we note that the profit of CS Finance slightly decreased from approximately RMB212.9 million for FY2014 to approximately RMB208.1 million for FY2015, which was mainly due to the decrease in the revenue resulting from the decrease in interest income of lending loan. The profit of CS Finance then further decreased to approximately RMB107.1 million for FY2016 mainly due to the decrease in gain from investment.

The audited net asset value of CS Finance increased from approximately RMB1,082.1 million as at 31 December 2014 to approximately RMB1,149.1 million as at 31 December 2015. The audited net asset value of CS Finance was then decreased to approximately RMB894.5 million as at 31 December 2016. The audited net asset value then increased to approximately RMB1,598.7 million as at 30 June 2017.

2.3 Information on COSCO Finance

As disclosed in the Letter from the Board, COSCO Finance is a company established under the laws of the PRC with limited liability. It is principally engaged in the provision of financial services, credit verification and related consultation and agency services.

As at the Latest Practicable Date, the shareholding structure of COSCO Finance was as follows:

	Approximate
	percentage of
Shareholders	equity interest
	(%)
COSCO Company	43.13
Other COSCO SHIPPING Subsidiaries
COSCO Bulk Carrier	10.00
China Agency	7.00
Qingdao Ocean	4.00
Subtotal	21.00
COSCO SHIPPING Holdings Group
COSCO SHIPPING Lines	12.25
COSCO International Freight	5.00
Subtotal	17.25
COSCO SHIPPING Specialized Group
COSCO SHIPPING Specialized	5.00
Guangzhou Ocean	5.50
Subtotal	10.50

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Shareholders Other COSCO Company Subsidiaries COSCO Shipbuilding COSCO Shipyard China Bunker COSCO Xiamen China Tally Subtotal COSCO SHIPPING Energy Group Dalian Tanker Subtotal Total	Approximate percentage of equity interest (%) 1.88 1.25 1.00 0.50 0.50 5.13 3.00 3.00
	100.00

Note: The approximate percentage of shareholding is rounded to the nearest two decimal places and the total percentage of the shareholding may not add up to 100% due to rounding.

Based on the financial statements of COSCO Finance prepared in accordance with the PRC GAAP, certain financial information of COSCO Finance for the three years ended 31 December 2014, 2015 and 2016 and the six months ended 30 June 2017 was extracted as follows:

Profit after taxation Net asset value	For the year ended 31 December 2014 2015 2016 (audited) (audited) (audited) (RMB’000) (RMB’000) (RMB’000) 868,577 446,776 233,229 As at 31 December 2014 2015 2016 (audited) (audited) (audited) (RMB’000) (RMB’000) (RMB’000) 2,900,867 2,622,302 2,586,814	For the six months ended 30 June 2017 (audited) (RMB’000) 210,681

		As at 30 June 2017 (audited) (RMB’000) 2,792,406

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

From the table above, we note that the profit of COSCO Finance was decreased from approximately RMB868.6 million for FY2014 to approximately RMB446.8 million for FY2015 and then further decreased to approximately RMB233.2 million for FY2016 mainly due to the decrease in gain from investment.

The audited net asset value of COSCO Finance was decreased from approximately RMB2,900.9 million as at 31 December 2014 to approximately RMB2,622.3 million as at 31 December 2015. The audited net asset value of CS Finance was then further slightly decreased to approximately RMB2,586.8 million as at 31 December 2016 but then increased to approximately RMB2,792.4 million as at 30 June 2017.

2.4 Information on COSCO SHIPPING

As disclosed in the Letter from the Board, COSCO SHIPPING is a company established under the laws of the PRC, and is a state-owned enterprise wholly-owned and controlled by SASAC. It is the controlling shareholder of COSCO Company and China Shipping.

2.5 Information on COSCO SHIPPING Energy Group

As disclosed in the Letter from the Board, COSCO SHIPPING Energy is a joint stock limited company incorporated in the PRC with limited liability, the H shares of which are listed on the Main Board of the Hong Kong Stock Exchange and the A shares of which are listed on the Shanghai Stock Exchange.

COSCO SHIPPING Energy Group is principally engaged in the business of shipment of oil and cargoes along the coast of the PRC, international shipment and vessel chartering.

2.6 Information on COSCO SHIPPING Holdings Group

As stated in the Letter from the Board, COSCO SHIPPING Holdings is a joint stock company incorporated in the PRC with limited liability, the H shares of which are listed on the Main Board of the Hong Kong Stock Exchange and the A shares of which are listed on the Shanghai Stock Exchange.

COSCO SHIPPING Holdings Group provides a wide range of container shipping and terminal services covering the whole shipping value chain for both international and domestic customers.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

COSCO SHIPPING Lines is a company established under the laws of the PRC with limited liability, and is a wholly-owned subsidiary of COSCO SHIPPING Holdings. It is principally engaged in container shipping.

COSCO International Freight is a company established under the laws of PRC with limited liability, and is a wholly-owned subsidiary of COSCO SHIPPING Holdings. It is principally engaged in freight forwarding and transportation.

2.7 Information on COSCO SHIPPING Specialized Group

As stated in the Letter from the Board, COSCO SHIPPING Specialized is a joint-stock company established under the laws of the PRC with limited liability and the A shares of which are listed on the Shanghai Stock Exchange. COSCO SHIPPING Specialized Group is principally engaged in the operations and management of vessels and carriers and cargo transportation.

Guangzhou Ocean is a company established under the laws of the PRC with limited liability, and is a wholly-owned subsidiary of COSCO SHIPPING Specialized. It is principally engaged in cargo transportation.

2.8 Information on Other COSCO SHIPPING Subsidiaries

As stated in the Letter from the Board, COSCO Bulk Carrier is a company established under the laws of the PRC with limited liability and is a wholly-owned subsidiary of COSCO SHIPPING. It is principally engaged in international bulk transportation service.

2.9 Information on Other COSCO Company Subsidiaries

As stated in the Letter from the Board, COSCO Xiamen is a company established under the laws of the PRC with limited liability and is a wholly-owned subsidiary of COSCO Company. It is principally engaged in international transportation of dry bulk cargos and general cargos.

China Tally is a company established under the laws of the PRC with limited liability and is a wholly-owned subsidiary of COSCO Company. It is principally engaged in ocean shipping tally.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. The Merger

3.1 Principal terms of the Merger

The principal terms of the Merger have been set out in the Letter from the Board and are summarized below.

Pursuant to the Merger, CS Finance will absorb and merge with COSCO Finance according to the method of business combination under common control. Upon the Completion, (i) CS Finance will continue as the surviving company with its company type, business term and business scope remaining unchanged, and will be renamed as COSCO SHIPPING Finance (subject to the confirmation of the relevant industry and commerce authority); and (ii) COSCO Finance will cease to exist as a legal entity and become a branch of COSCO SHIPPING Finance, and the assets, liabilities, businesses and employees of which shall be succeeded by COSCO SHIPPING Finance. Based on the Valuation Reports, the shareholding structure of COSCO SHIPPING Finance upon Completion will be as follows:

		Amount of	Assessed	Approximate
		contributed	value of	percentage of
		registered	equity	equity
Name of shareholders		capital	interest	interest
		(RMB’000)	(RMB’000)	(%)
(1)	COSCO SHIPPING	873,828.171	1,470,020.7	31.21
(2)	The Company	654,752.268	1,101,474.4	23.38
(3)	Other COSCO
	SHIPPING Subsidiaries
	COSCO Bulk Carrier	179,268.882	301,579.8	6.40
	China Agency	125,488.217	211,105.9	4.48
	Qingdao Ocean	71,707.553	120,631.9	2.56
	Subtotal	376,464.652	633,317.7	13.45
(4)	COSCO SHIPPING
	Energy Group
	COSCO SHIPPING Energy	251,827.795	423,644.0	8.99
	Dalian Tanker	53,780.665	90,474.0	1.92
	Subtotal	305,608.460	514,118.0	10.91

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Name of shareholders (5) COSCO SHIPPING Holdings Group COSCO SHIPPING Lines COSCO International Freight Subtotal (6) COSCO SHIPPING Specialized Group COSCO SHIPPING Specialized Guangzhou Ocean Subtotal (7) Other COSCO Company Subsidiaries COSCO Shipbuilding COSCO Shipyard China Bunker COSCO Xiamen China Tally Subtotal Total	Amount of contributed registered capital (RMB’000) 219,604.380 89,634.441 309,238.821 89,634.441 98,597.885 188,232.326 33,612.915 22,408.610 17,926.888 8,963.444 8,963.444 91,875.301 2,800,000.000	Assessed value of equity interest (RMB’000) 369,435.3 150,789.9 520,225.2 150,789.9 165,868.9 316,658.8 56,546.2 37,697.5 30,158.0 15,079.0 15,079.0 154,559.7 4,710,374.4	Approximate percentage of equity interest (%) 7.84 3.20 11.04 3.20 3.52 6.72 1.20 0.80 0.64 0.32 0.32 3.28
			100.00

Note: The amount of contributed registered capital, the assessed value of equity interest and the approximate percentage of equity interest are rounded to the nearest three, one and two decimal places, respectively, and may not add up to the sub-total and total due to rounding.

3.2 Principal terms of the Shareholders Agreement

The principal terms of the Shareholders Agreement have been set out in the Letter from the Board and are summarized below.

On 13 November 2017, the Post-Merger Shareholders (including the Company) entered into the Shareholders Agreement to govern their respective rights and obligations in COSCO SHIPPING Finance. The Shareholders Agreement sets out the terms of the Merger substantially similar to the terms set out in the paragraphs headed “Merger”, “Simultaneous Transfer” and “Shareholding structure upon Completion” in the section headed “The Merger” in the Letter from the Board.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3.3 Reasons for and benefits of the Merger and the Shareholders Agreement

As disclosed in the Letter from the Board, pursuant to the policy of “one financial company only per enterprise group” implemented by CBRC, and as principally agreed by CBRC, the Group proposes to restructure and consolidate CS Finance and COSCO Finance by way of the Merger. According to the Regulation of the CBRC on Implementation of Administrative Licensing Matters of Non-Financial Institution (中國銀監會非金融機構行政許可事項實施辦法) dated June 2015 issued by CBRC, one enterprise group can establish one finance company only. We have reviewed the aforementioned regulation from the website of CBRC and note that the Merger is in line with the policy of CBRC in relation to the establishment of finance companies.

As disclosed in the Letter from the Board, the Company will, as the second largest shareholder of COSCO SHIPPING Finance, continue to maintain considerable degree of influence over the operations of COSCO SHIPPING Finance by participating in the formulation of its policies and decision-making processes. Meanwhile, the Company will also be entitled to the economic benefits resulting from the enhanced quality of service rendered by COSCO SHIPPING Finance, and to maintain its steady investment returns from COSCO SHIPPING Finance. Based on the financial information shown in the paragraphs headed “Information on CS Finance” and “Information on COSCO Finance” above, the return on equity (by dividing profit after taxation by total equity) of CS Finance were approximately 19.7%, 18.1%, 12.0% and 5.9% for the three years ended 31 December 2014, 2015 and 2016 and the six months ended 30 June 2017 respectively, and the return on equity of COSCO Finance were approximately 30.0%, 17.0%, 9.0% and 7.5% for the three years ended 31 December 2014, 2015 and 2016 and the six months ended 30 June 2017 respectively. Although the historical return on equity of CS Finance and COSCO Finance fluctuated, we noted that (i) the 3-year average return on equity of COSCO Finance for the years ended 2014, 2015 and 2016 was approximately 18.7%, which is not less than that of CS Finance of approximately 16.6%; and (ii) the latest return on equity of COSCO Finance for the six months ended 30 June 2017 was approximately 7.5%, which is not less than that of CS Finance of approximately 5.9%. Since (i) the aforesaid 3-year average and the latest return on equity of COSCO Finance are not less than that of CS Finance, which indicated that the the Merger might maintain or improve the return on equity of COSCO SHIPPING Finance as compared to that of CS Finance; and (ii) the shareholding interest in COSCO SHIPPING Finance of the Company is determined proportionally to the appraised net asset value of CS Finance and COSCO Finance, we are of the view that the Company can maintain its steady investment returns from COSCO SHIPPING Finance, upon the Completion.

Therefore, after considering (i) the Merger is in line with the policy of CBRC in relation to the establishment of finance companies; and (ii) the Company can maintain its steady investment returns from COSCO SHIPPING Finance upon the Completion, we are of the view that, while the Merger, the Shareholders Agreement and the transactions contemplated thereunder are not conducted in the ordinary and usual course of the business of the Group, the Merger, the Shareholders Agreement and the transactions contemplated thereunder are on normal commercial terms which are fair and reasonable so far as the Independent Shareholders are concerned, and are in the interests of the Company and its Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3.4 The Shareholding Structure

As stated in the Letter from the Board, the shareholding of each of the Post-Merger Shareholders in COSCO SHIPPING Finance will be determined in accordance with their respective shareholding in CS Finance and/or COSCO Finance prior to the Merger with reference to the assessed value of the equity interest of CS Finance and COSCO Finance based on the assessed net asset value of CS Finance and COSCO Finance stated in the Valuation Reports and the valuation results to be confirmed by the filing procedures.

As stated in the Letter from the Board, the Valuation Reports are subject to the filing procedures in respect of state-owned assets in accordance with the relevant PRC laws and regulations, the Post-Merger Shareholders have agreed and confirmed that in the event of any adjustments to the valuation results during the filing procedures, the respective shareholding and contributed registered capital in COSCO SHIPPING Finance will be adjusted according to the valuation as confirmed upon completion of the filing procedures. As disclosed in the Update Announcement, the abovementioned filing procedures have been completed and no adjustment to the valuation results is required pursuant to such filing procedures. Accordingly, no adjustment will be made to the amount of contributed registered capital of each of the Post-Merger Shareholders and their respective shareholding in COSCO SHIPPING Finance.

3.5 The Valuation Reports

The Valuation Reports were prepared by the Valuer. As stated in the Letter from the Board, the amount of contributed registered capital of each of the Post-Merger Shareholders and their respective shareholding in COSCO SHIPPING Finance will be determined based on the results from the Valuation Reports. Pursuant to the Valuation Reports, the appraised values of CS Finance and COSCO Finance as at 30 June 2017 were approximately RMB1,694.6 million and RMB3,015.8 million, respectively.

Valuer’s expertise

We have discussed with the Valuer regarding the Valuer’s qualification and experience in relation to the preparation of the Valuation Reports. The Valuer is a qualified asset appraisal firm authorised by the Ministry of Finance of the PRC to perform valuation works in the PRC. According to the Ministry of Finance of the People’s Republic of China, the Valuer is one of the qualified valuer in “the list of qualified valuer in securities” 《具有證券業評估資格評估機構名錄》. The Valuer has been established in 1994 and it has years of experience in the business of valuation. We further understand that the Valuer is independent from the Company and the other parties involved in the Merger. In addition, we have also reviewed the terms of the engagement of the valuation and noted that the scope of work is appropriate to the opinion required to be given. We are not aware of any limitation on the scope of work which might have an adverse impact on the degree of assurance given by the Valuer. Based on the above, we are of the view that the scope of work of the Valuer is appropriate and the Valuer is qualified for valuing CS Finance and COSCO Finance.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Valuation Methodology

We have noted and discussed with the Valuer and understand that they have adopted the market approach in valuing CS Finance and COSCO Finance. The Valuer considered asset-based approach and market approach in valuing CS Finance and COSCO Finance. The Valuer did not consider income approach in this valuation since it is difficult to predict the profit of CS Finance and COSCO Finance and the financial projection and profit forecast for the finance companies may not be accurate, which may significantly affect the result of the valuation.

In regard of considering asset-based approach and market approach in valuing CS Finance and COSCO Finance, since the asset-based approach is applied on valuating an entity based on the values and liabilities of all types of assets, it may not have taken into account the value of the intangible asset which were not reflected in their accounts, such as the management system and experienced management team. Market approach is applied by using similar precedent case of comparable transactions to evaluate a company, which can reflect the market value of CS Finance and COSCO Finance as at the benchmark valuation date. The Valuer has therefore considered the adoption of the market approach in arriving at the valuation results of CS Finance and COSCO Finance.

According to the “IVS 105: Valuation Approaches and Methods” published by International Valuation Standards Council in 2016 (the “ Valuation Publication ”), which is an independent, non-profit organization and acts as the global standard setter for valuation practice and the valuation profession, the Income approach should be use as a valuation method under the circumstances when reliable projections of the amount and timing of future income are available for the subject asset. Based on the historical financial information of both CS Finance and COSCO Finance as discussed above, we understand the income of both finance companies are fluctuated and the projection of future income may not be reliable. Furthermore, according to the Valuation Publication, the asset-based approach should be used as a valuation method under the circumstances when the asset is not income generating which is not similar to the nature of finance companies. As a result, we are of the view that using income approach or asset-based approach is not appropriate in the valuation of CS Finance and COSCO Finance. According to the Valuation Publication, the market approach should be used as a valuation method under the circumstances when there are recent observable transactions in substantially similar assets. Since the recent similar transactions are available, we are of the view that using market approach is the most appropriate method in evaluating CS Finance and COSCO Finance.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Valuation Assumptions

As advised by the Valuer, certain assumptions have been made in valuing the CS Finance and COSCO Finance, such as the continuity of business operation, no material change in government policy and economy in the PRC and continuity of adoption of the accounting standard. During the course of our discussion with the Valuer, we have not identified any major factors which would lead us to cast doubt on the fairness and reasonableness of the assumptions in the Valuation Reports.

Selection of the comparable companies

The Valuer has searched a number of acquisitions of finance companies from Wind Info, a reputable financial database contains comprehensive financial information collected from various public information source such as the Securities Association of China, the Shanghai Stock Exchange and the Shenzhen Stock Exchange, which have been announced for the period from 1 November 2016 to 31 October 2017. The Valuer selected the comparable target companies (the “ Comparable Target Companies ”) based on (i) whether the businesses operated by the companies were identical or similar to CS Finance and COSCO Finance; (ii) whether the date of the comparable transactions was close to the valuation date of the Valuation Reports; (iii) whether the status of control and minority interests in the comparable transactions was similar to that in CS Finance and COSCO Finance; and (iv) the availability of the detailed information of the transaction. We have obtained and reviewed the list of transactions provided by the Valuer for the selection of the Comparable Target Companies and discussed the selection criteria with the Value. We are of the view that the selection basis in the comparable companies is justifiable.

Types of multiple used in market approach

In arriving at the appropriate valuation multiples of the comparable companies based the comparable transaction selected for this valuation, the Valuer has considered price-to-earnings and price-to-book multiples (the “ P/B Ratio ”). As advised by the Valuer, since price-to-earnings multiple is mainly applied in the valuation for the industries in which the revenue and profit are relatively stable with small fluctuation, in considering the fluctuation of the financial assets on finance companies in the PRC due to the volatility of the capital market in the PRC, the Valuer therefore considers price-to-earnings multiple may not appropriate for evaluation of finance company. Price-to-book ratio reflects the market value of a company and its deviation from its book value, which illustrates the appreciation or deprecation of its net asset value, and is relatively less vulnerable to market fluctuation. Since the operation of finance company heavily depends on its asset and it is a common industry practice to adopt price-to-book multiple in valuing finance companies, the Valuer has adopted the price-to-book multiple as the Valuer considered it as the most appropriate multiple in calculating the market values of CS

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Finance and COSCO Finance. After considering the principal activities of CS Finance and COSCO Finance, which mainly depends on its asset for operation, we are of the view that price-to-book multiple is the most appropriate multiple in the market approach valuation.

As advised by the Valuer, the P/B Ratio on each of the comparable transactions was adjusted with reference to various factors, including, among other things (i) the Shanghai Stock Exchange Composite Index on the valuation date as compared to the transaction date; (ii) business structures, operation models and business scales of the companies; (iii) the asset allocation and utilization and the stages of operation of the business; (iv) characteristics of the industry of the holding company and the overall capabilities of the holding company; and (v) certain financial indicators such as profitability, operation growth and solvency, each in the comparable transactions as compared to CS Finance or COSCO Finance. The multiples for the valuation of CS Finance and COSCO Finance was arrived based the adjusted P/B Ratio of the Comparable Target Companies. Having considered (i) it will often be necessary to make adjustment based on comparative analysis since there may have qualitative and quantitative differences between comparable assets and the subject assets according to the Valuation Publication; and (ii) the Valuer’s experience as mentioned above, we are of the view that the adjusted P/B Ratio of the Comparable Target Companies in arriving the multiples for the valuation of CS Finance and COSCO Finance is fair and reasonable.

Conclusion

Having considered that (i) no irregularities or major factors has been identified which cause us to doubt the fairness and reasonable of the principal bases and assumptions adopted for the Valuation Reports and the selection criteria in the comparable companies; (ii) using price-to-book multiple under the market approach is the most appropriate method to value CS Finance and COSCO Finance and the adjusted P/B Ratio of the Comparable Target Companies in arriving the multiples for the valuation of CS Finance and COSCO Finance is fair and reasonable; and (iii) the professional experience and expertise of the Valuer, we are of the view that the valuation of CS Finance and COSCO Finance is fair and reasonable so far as the Independent Shareholders are concerned.

3.6 Financial effects of the Merger, the Shareholders Agreement and the transactions contemplated thereunder

As advised by the Directors, upon Completion, the Company, which is originally interested in 65% of the equity interest in CS Finance, will be interested in approximately 23.38% in COSCO SHIPPING Finance. Therefore, (i) CS Finance will cease to be a non-wholly owned subsidiary of the Company and the assets and liabilities and financial results of CS Finance (which will be renamed as COSCO SHIPPING Finance) will no longer be consolidated into the consolidated financial statements of the Group; and (ii) the Group will record the equity interest in COSCO SHIPPING Finance as investment in associate using equity method.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Upon Completion, it is estimated that the Group will recognize a gain before taxation attributable to the Shareholders of approximately RMB10,841,400 from the Merger, which is calculated based on the sum of (i) the difference between (a) the fair value of the investment in COSCO SHIPPING Finance based on the Valuation Reports and the shareholding of the Company in COSCO SHIPPING Finance upon Completion of approximately RMB1,101,474,400 and (b) the carrying amount of the net asset value of CS Finance attributable to the shareholders of the Company of approximately RMB1,096,647,000, which was included in the consolidated financial statements of the Group as at 30 June 2017, and (ii) the accumulated gain on fair value of available-for-sale investments of CS Finance attributable to the Company of approximately RMB6,014,000, which was previously recorded in the statement of other comprehensive income and will be reclassified to the statement of profit or loss after Completion.

Although the Company will recognize a gain upon Completion as stated above, the effects on the audited account of the Company are remain uncertain since the effect are subject to changes in the financial status of the Company, CS Finance and COSCO Finance.

RECOMMENDATION

Based on the factors mentioned above, after considering (i) the Merger is in line with the policy of CBRC in relation to the establishment of finance companies; (ii) the Company can maintain its steady investment returns from COSCO SHIPPING Finance upon the Completion; and (iii) the fairness and reasonableness of the Valuation Reports and the expertise of the Valuer, we are of the view that, while the Merger, the Shareholders Agreement and the transactions contemplated thereunder are not conducted in the ordinary and usual course of the business of the Group, the Merger, the Shareholders Agreement and the transactions contemplated thereunder are on normal commercial terms which are fair and reasonable so far as the Independent Shareholders are concerned, and are in the interests of the Company and the Shareholders as a whole. Accordingly, we would recommend (i) the Independent Board Committee to advise the Independent Shareholders to vote in favor of all the resolutions to be proposed at the EGM to approve the Merger, the Shareholders Agreement and the transactions contemplated thereunder; and (ii) the Independent Shareholders, to vote in favor of all the resolutions to be proposed at the EGM to approve the Merger, the Shareholders Agreement and the transactions contemplated thereunder.

Yours faithfully, For and on behalf of

TC Capital International Limited Edward Wu Chairman

Note: Mr. Edward Wu has been a responsible officer of Type 6 (advising on corporate finance) regulated activities under the Securities and Futures Ordinance since 2005. He has participated in and completed various advisory transactions in respect of connected transactions of listed companies in Hong Kong.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

The Company is required to set out in this circular the information for the last three financial years with respect to the profits and losses, financial record and position, set out as a comparative table and the latest published audited balance sheet together with the notes on the annual accounts for the last financial year of the Group.

The audited consolidated financial statements of the Company for the years ended 31 December 2014, 2015 and 2016, and the unaudited condensed consolidated financial statements of the Company for the six months ended 30 June 2017, together with the relevant notes thereof are disclosed in the following documents:

(i) the annual report of the Company for the year ended 31 December 2014 (pages 83 to 203) (http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0429/ LTN20150429201.pdf);
(ii) the annual report of the Company for the year ended 31 December 2015 (pages 102 to 201) (http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0429/ LTN20160429559.pdf);
(iii) the annual report of the Company for the year ended 31 December 2016 (pages 97 to 202) (http://www.hkexnews.hk/listedco/listconews/SEHK/2017/0428/ LTN20170428582.pdf); and
(iv) the interim report of the Company for the period ended 30 June 2017 (pages 20 to 44) (http://www.hkexnews.hk/listedco/listconews/SEHK/2017/0921/ LTN20170921197.pdf).

2. STATEMENT OF INDEBTEDNESS

Debt securities and term loans

As at the close of business of 31 October 2017, save as disclosed in respect of the borrowings and indebtedness of the Group below, the Group has no debt securities issued or outstanding, or authorised or otherwise created but unissued, and no term loans, distinguishing between guaranteed, unguaranteed, secured (whether the security is provided by the Company or by independent third parties) or unsecured.

Borrowings and indebtedness

As at the close of business of 31 October 2017, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, the Group has outstanding borrowings and indebtedness of approximately RMB91,290.0 million, comprising secured bank and other loans of approximately RMB12,010.5 million, unsecured bank and other loans of approximately RMB77,132.5 million, RMB bonds of approximately RMB745.4 million and US$ bonds of approximately RMB1,401.6 million.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Contingent liabilities

As at the close of business of 31 October 2017, the Group has no material contingent liabilities or guarantees.

Mortgage and charges

As at the close of business of 31 October 2017, the Group’s general banking facilities and the above outstanding secured borrowings were secured by the Group’s property, plant and equipment, certain equity investments and certain bank deposits.

Save as aforesaid or as otherwise mentioned herein and apart from intra-group liabilities, the Group did not have any outstanding mortgages, charges, debentures, loan capital, debt securities, bank loans and overdrafts or other similar borrowings or indebtedness, liabilities under acceptance (other than normal trade bills) or acceptance credits or hire purchase commitments, guarantees or other material contingent liabilities as at the close of business on 31 October 2017.

The Directors confirm that there was no material change in the indebtedness status of the Group since 31 October 2017 up to the Latest Practicable Date.

3. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

After the restructuring of the Group and the COSCO SHIPPING Holdings Group, the Company has focused its business in providing integrated financial services with diversified leasing businesses such as vessel leasing, container leasing and non-shipping finance leasing, supply chain finance, shipping insurance, logistic infrastructure investment and other financial assets investment services.

As a result, the Company will continue to enhance its ability to counter the business cycle of the conventional shipping business through the expansion of its chartering business, container leasing business and shipping related financial services, which is expected to strengthen the stability of the financial condition of the Company and create growth for the benefit of the Company and its Shareholders.

Compared with container liner business, vessels chartering business is less susceptible to seasonality and price fluctuations of the global container shipping market. Charter contracts with a relatively longer chartering term, particularly for vessels with a high shipping capacity, can ensure stable cash flows and funds for purchasing vessels in the future. The Company will also provide customers with one-stop services including ship chartering, container chartering, crew management and vessel management.

In addition, the Company is able to provide integrated financial services with diversified leasing businesses such as vessel leasing, container leasing and non-shipping finance leasing, supply chain finance, shipping insurance, logistic infrastructure investment and other financial

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

assets investment services, which is expected to generate a great amount of synergy among the business segments through comprehensive services, cross-selling and increased loyalty of the customers. The business of the Company will facilitate intra-group business integration by optimising strategy management and control, achieving synergy among different business segments, and improving overall operating efficiency of the Company.

Furthermore, the Company will continue to strengthen talent team building, improve corporate governance standard and enhance production safety control. The Company recognises new changes and new development trends in the world economy and the shipping market, and will fully integrate with the national strategy of “one belt one road”, in particular the building of “the 21st Century Maritime Silk Road”. The Company will actively adapt to the new normal stage of economic development, refine management, pursue innovation and strive for sustainable development.

4. WORKING CAPITAL

After due and careful enquiry, taking into account the financial resources available to the Group, including internally generated funds and available banking facilities, the Directors are of the opinion that the Group has sufficient working capital for its present requirements for at least 12 months from the date of this circular.

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GENERAL INFORMATION

APPENDIX II

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 Company. 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 document misleading.

2. DISCLOSURE OF INTERESTS

Interests and short positions of Directors, Supervisors and chief executives

Save as disclosed below, 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 Hong Kong 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 Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers adopted by the Company.

					Approximate	Approximate
					percentage of	percentage of
				Number of	the relevant	the total issued
		Class of		Shares	class of Shares	share capital
Name	Position	Shares	Capacity	interested	of the Company	of the Company
				(Note 1)	(%)	(%)
Wang Daxiong	Director	H Shares	Other	834,677 (L)	0.02	0.01
				(Notes 2 and 3)
Liu Chong	Director	H Shares	Other	1,112,903 (L)	0.03	0.01
				(Notes 2 and 4)
Xu Hui	Director	H Shares	Other	945,968 (L)	0.03	0.01
				(Notes 2 and 5)
Fu Yi	Supervisor	H Shares	Other	556,452 (L)	0.01	0.00
				(Notes 2 and 6)

Notes:

“L” means long position in the shares.

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GENERAL INFORMATION

APPENDIX II

As disclosed in the announcement of the Company dated 24 November 2016, certain executive Directors, Supervisor, senior management and employees of the Company have voluntarily invested, with their own fund, in an asset management plan (the “ Asset Management Plan ”), pursuant to which the executive Directors, Supervisor, senior management and employees of the Company had subscribed to the units of the Asset Management Plan and entrusted the manager of the Asset Management Plan to manage the Asset Management Plan, which would invest in the H Shares. The manager of the Asset Management Plan shall be responsible for, among other things, the investment and re-investment of the assets under the Asset Management Plan and shall be entitled to exercise the voting rights and other relevant rights in respect of the H Shares held under the Asset Management Plan. The Company did not participate in the Asset Management Plan, and the Asset Management Plan does not constitute a share option scheme or any type of employee benefit scheme of the Company.
Mr. Wang Daxiong was one of the participants of the Asset Management Plan through which he held approximately 12.10% of the total number of units of the Asset Management Plan as at the Latest Practicable Date. Accordingly, the 834,677 H Shares represent the interests derived from the units subscribed by Mr. Wang Daxiong in the Asset Management Plan as at the Latest Practicable Date. As at the Latest Practicable Date, Mr. Wang Daxiong did not hold any Shares.
Mr. Liu Chong was one of the participants of the Asset Management Plan through which he held approximately 16.13% of the total number of units of the Asset Management Plan as at the Latest Practicable Date. Accordingly, the 1,112,903 H Shares represent the interests derived from the units subscribed by Mr. Liu Chong in the Asset Management Plan as at the Latest Practicable Date. As at the Latest Practicable Date, Mr. Liu Chong did not hold any Shares.
Mr. Xu Hui was one of the participants of the Asset Management Plan through which he held approximately 13.71% of the total number of units of the Asset Management Plan as at the Latest Practicable Date. Accordingly, the 945,968 H Shares represent the interests derived from the units subscribed by Mr. Xu Hui in the Asset Management Plan as at the Latest Practicable Date. As at the Latest Practicable Date, Mr. Xu Hui did not hold any Shares.
Mr. Fu Yi was one of the participants of the Asset Management Plan through which he held approximately 8.06% of the total number of units of the Asset Management Plan as at the Latest Practicable Date. Accordingly, the 556,452 H Shares represent the interests derived from the units subscribed by Mr. Fu Yi in the Asset Management Plan as at the Latest Practicable Date. As at the Latest Practicable Date, Mr. Fu Yi did not hold any Shares.

Positions held by Directors and Supervisors in substantial Shareholder(s)

As at the Latest Practicable Date:

(a) Ms. Sun Yueying, an executive Director, was also the chief accountant and member of the party leadership group of COSCO SHIPPING;
(b) Mr. Chen Dong, a non-executive Director, was also a department general manager of COSCO SHIPPING;
(c) Mr. Huang Jian, a non-executive Director, was also a department general manager of COSCO SHIPPING;
(d) Mr. Feng Boming, a non-executive Director, was also a department general manager of COSCO SHIPPING;

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GENERAL INFORMATION

APPENDIX II

(e) Mr. Hao Wenyi, a Supervisor, was also a department general manager of COSCO SHIPPING; and
(f) Mr. Ye Hongjun, a Supervisor, was also the chief legal adviser of COSCO SHIPPING.

Save as disclosed above, none of the Directors or Supervisors 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.

Interests of substantial Shareholders

As at the Latest Practicable Date, so far as was known to the Directors, Supervisors or chief executive(s) of the Company, the interests or short positions of the Shareholders who are entitled to exercise or control 5% or more of the voting power at any general meeting or other persons (other than a Director, Supervisor or chief executive(s) of the Company) in the Shares or underlying shares of the Company which were required to be notified to the Company pursuant to Divisions 2 and 3 of Part XV of the SFO, or which were required to be recorded in the register kept by the Company pursuant to Section 336 of the SFO or which have been notified to the Company and the Hong Kong Stock Exchange were as follow:

				Approximate
				percentage of	Approximate
				the total number	percentage of
			Number of	of the relevant	the issued
Name of	Class of		Shares	class of Shares	share capital
Shareholder	Shares	Capacity	interested	of the Company	of the Company
			(Note 1)	(%)	(%)
China Shipping	A Shares	Beneficial owner	4,458,195,175 (L)	56.20	38.16
			(Note 2)
	H Shares	Interest of controlled	100,944,000 (L)	2.69	0.86
		corporation	(Note 3)
COSCO SHIPPING	A Shares	Interest of controlled	4,458,195,175 (L)	56.20	38.16
		corporation	(Note 2)
	H Shares	Interest of controlled	100,944,000 (L)	2.69	0.86
		corporation	(Note 3)
The Northern Trust	H Shares	Approved lending	249,945,900 (P)	6.66	2.14
Company (ALA)		agent

– II-3 –

GENERAL INFORMATION

APPENDIX II

Notes:

“L” means long position in the shares and “P” means shares in the lending pool.
Such 4,458,195,175 A Shares represent the same block of Shares.
Such 100,944,000 H Shares represent the same block of Shares and is held by Ocean Fortune Investment Limited, an indirectly wholly-owned subsidiary of China Shipping.

Save as disclosed above, as at the Latest Practicable Date, no other person (other than Directors, Supervisors or chief executive(s) of the Company) had any interests or short positions in any Shares or underlying shares of the Company which would fall to be disclosed to the Company and the Hong Kong Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or any interests or short positions recorded in the register kept by the Company pursuant to Section 336 of the SFO or any interests or short positions which have been notified to the Company and the Hong Kong Stock Exchange.

3. NO MATERIAL ADVERSE CHANGE

The Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2016, being the date to which the latest audited consolidated financial statements of the Group were made up, up to and including the Latest Practicable Date.

4. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors, the Supervisors or Mr. Lu had entered into or proposed to enter into any service contract with any member of the Group which does not expire or is not determinable by the employer within one year without payment of compensation (other than statutory compensation).

5. 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.

6. MATERIAL INTERESTS

As at the Latest Practicable Date:

(a) none of the Directors, the Supervisors or Mr. Lu had any direct or indirect interest in any assets which had been, since 31 December 2016 (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

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GENERAL INFORMATION

APPENDIX II

(b) none of the Directors, the Supervisors or Mr. Lu 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.

7. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors, Mr. Lu nor any of their respective close associates had any interest in other business which competes or may compete, either directly or indirectly, with the business of the Group as if each of them were treated as a controlling shareholder under Rule 8.10 of the Listing Rules.

8. EXPERTS’ QUALIFICATIONS AND CONSENT

The following are the qualifications of the experts who have given their opinions or advice which are contained in this circular:

Name Qualification TC Capital International Limited A licensed corporation to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO China Tong Cheng Assets Appraisal Independent valuer Co., Ltd.[#] (中通誠資產評估有限公司)

As at the Latest Practicable Date, each of the above experts had given and had not withdrawn its written consent to the issue of this circular with the inclusion of its letter or opinion and/or the reference to its name and opinions in the form and context in which they respectively appear.

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

As at the Latest Practicable Date, each of the above experts did not have any direct or indirect interest in any assets which had been acquired or disposed of by or leased to any member of the Group, or was proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2016 (being the date to which the latest published audited statements of the Group were made up).

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GENERAL INFORMATION

APPENDIX II

9. MATERIAL CONTRACTS

The following contracts (being contracts not entered into in the ordinary course of business) had been entered into by members of the Group within the two years immediately preceding the Latest Practicable Date:

(a) the Shareholders Agreement;
(b) the partnership agreement dated 19 September 2017 entered into among the Company, COSCO SHIPPING Logistics Co., Ltd., Qingdao City Construction Investment (Group) Co., Ltd., Henan Province Modern Service Industry Investment Fund Co., Ltd., Shanghai Qianlin Industry Co., Ltd. and Henan Yuan Hai Zhong Yuan Logistics Industry Development Fund Management Co., Ltd., pursuant to which the Company agreed to contribute RMB150 million to the capital of the partnership, representing approximately 1.50% of the partnership interest in the partnership (please refer to the announcement of the Company dated 19 September 2017 for further details);
(c) the promoters agreement dated 30 August 2017 entered into among the Company, Shanghai Pan Asia Shipping Co., Ltd. (“ Pan Asia Shipping ”), Shanghai SinoPoland Enterprise Management Development Corporation Limited and Shanghai Vision Credit Financial Technology Company Limited, pursuant to which the Company agreed to contribute RMB90 million, representing 45% of the registered capital of Shanghai COSCO SHIPPING Micro-finance Company Limited (please refer to the announcement of the Company dated 30 August 2017 for further details);
(d) the container purchase contract dated 11 July 2017 entered into between Florens Container Investment (SPV) Limited and CLC II Company Limited, pursuant to which CLC II Company Limited agreed to sell and transfer legal and beneficial title and deliver to, and Florens Container Investment (SPV) Limited agreed to buy and take legal and beneficial title to and accept, 154,000 units of second-hand containers, totalling 227,000 CEU for approximately US$200.38 million (please refer to the announcement of the Company dated 11 July 2017 for further details);
(e) the capital contribution letter of intent dated 26 May 2017 entered into between China Shipping Investment Co., Ltd. and China Bohai Bank Co., Ltd., pursuant to which China Shipping Investment Co., Ltd. agreed to make a capital contribution of approximately RMB1,759 million (subject to adjustments) for the subscription of 584,307,425 ordinary shares of China Bohai Bank Co., Ltd. at the subscription price of RMB3.01 per share (subject to adjustments) (please refer to the announcement of the Company dated 26 May 2017 for further details);

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GENERAL INFORMATION

APPENDIX II

(f) eight assignment agreements dated 4 May 2017 entered into between the COSCO SHIPPING Development (Hong Kong) Co., Ltd. (“ COSCO SHIPPING HK ”) and COSCO (Cayman) Mercury Co. Ltd. (“ COSCO Mercury ”) (the “ 13,500 TEU Vessel Assignment Agreements ”), pursuant to which COSCO SHIPPING HK agreed to assign, and COSCO Mercury agreed to accept the assignment of, eight shipbuilding contracts dated 29 July 2015 (the “ 13,500 TEU Vessel Shipbuilding Contracts ”) entered into among COSCO SHIPPING HK, China Shipbuilding Trading Company Limited (“ CSTC ”) and Shanghai Jiangnan Changxing Shipbuilding Company Limited (“ Shanghai Jianngnan Changxing ”) for the construction of the eight 13,500 TEU class container carriers (please refer to the circular of the Company dated 31 May 2017 for further details);
(g) eight variation agreements dated 4 May 2017 entered into among COSCO SHIPPING HK, COSCO Mercury, CSTC and Shanghai Jiangnan Changxing, pursuant to which all the rights, obligations, debts and liabilities of COSCO SHIPPING HK under the relevant 13,500 TEU Vessel Shipbuilding Contract shall be transferred to COSCO Mercury, with effect from the payment of the purchase price under the relevant 13,500 TEU Vessel Assignment Agreement (please refer to the circular of the Company dated 31 May 2017 for further details);
(h) six memoranda of agreement dated 4 May 2017 entered into between Oriental Fleet International Co., Ltd. (“ Oriental Fleet ”) and COSCO Mercury, pursuant to which Oriental Fleet agreed to assign, and COSCO Mercury agreed to accept the assignment of, six shipbuilding contracts dated 30 October 2015 (the “ 21,000 TEU Shipbuilding Contracts ”) entered into between the Oriental Fleet, Shanghai Waigaoqiao Shipbuilding Company Limited and CSTC for the construction of six 21,000 TEU class container carriers (please refer to the circular of the Company dated 31 May 2017 for further details);
(i) six novation agreements dated 4 May 2017 entered into among Oriental Fleet, COSCO Mercury, CSTC and Shanghai Waigaoqiao Shipbuilding Company Limited, pursuant to which all the rights, benefits, obligations and liabilities of Oriental Fleet under the relevant 21,000 TEU Shipbuilding Contract shall be transferred to and novated in favour of COSCO Mercury as if COSCO Mercury had originally been a party thereto, with effect from the payment receipt date (please refer to the circular of the Company dated 31 May 2017 for further details);
(j) the subscription agreement dated 20 April 2017 entered into between the Company and COSCO SHIPPING, pursuant to which COSCO SHIPPING has conditionally agreed to subscribe for, and the Company has conditionally agreed to issue, 50% of the total number of A Shares to be issued under the proposed non-public issuance of not more than 2,336,625,000 A Shares (please refer to the circular of the Company dated 19 May 2017 for further details);

– II-7 –

GENERAL INFORMATION

APPENDIX II

(k) the capital increase agreement dated 20 January 2017 entered into among China Shipping, the Company and COSCO SHIPPING Energy, pursuant to which China Shipping, the Company and COSCO SHIPPING Energy have agreed to increase the registered capital of CS Finance by RMB600,000,000 in proportion to their respective shareholding (please refer to the announcement of the Company dated 20 January 2017 for further details);
(l) the supplemental agreement dated 13 January 2017 entered into among the Company, COSCO Company, COSCO SHIPPING Lines, COSCO Bulk Carrier, Qingdao Ocean, COSCO SHIPPING Specialized, Guangzhou Ocean, Dalian Tanker, COSCO Xiamen, COSCO International Freight, China Agency, China Tally, COSCO Shipbuilding, COSCO Shipyard and China Bunker, pursuant to which the parties agreed to terminate the COSCO Finance Capital Increase Agreement (as defined below) and the capital increase contemplated thereunder (please refer to the announcement of the Company dated 13 January 2017 for further details);
(m) the sale and purchase agreement dated 11 November 2016 entered into among the Company, COSCO Shipping (Guangzhou) Co., Ltd. (“ CS Guangzhou ”) and Guangzhou Zhenxing Shipping Co., Ltd., pursuant to which the Company conditionally agreed to purchase, and CS Guangzhou and Guangzhou Zhenxing Shipping Co., Ltd. conditionally agreed to sell, the entire equity interest in Zhuhai Shipping Corporation Limited for an aggregate consideration of RMB70,835,900 (please refer to the announcement of the Company dated 11 November 2016 for further details);
(n) the subscription agreement dated 11 October 2016 entered into between the Company and China Shipping, pursuant to which China Shipping has conditionally agreed to subscribed for, and the Company has conditionally agreed to issue, such number of A Shares for an amount of not less than RMB5 billion and not more than RMB7 billion (please refer to the circular of the Company dated 1 December 2016 for further details);
(o) the subscription agreement dated 5 September 2016 entered into between the Company and Jinan Diesel Engine Company Limited (“ Jinan ”), pursuant to which the Company has conditionally agreed to subscribe for, and Jinan has conditionally agreed to allot and issue, such number of ordinary shares of RMB1.00 each in the share capital of Jinan, which are listed and traded on the Shanghai Stock Exchange for a total consideration of RMB950,000,000 (please refer to the announcement of the Company dated 5 September 2016 for further details);
(p) the subscription agreement dated 18 May 2016 entered into between the Company and Kingray New Materials Science & Technology Co., Ltd. (“ Kingray ”), pursuant to which the Company has conditionally agreed to subscribe for, and Kingray has conditionally agreed to allot and issue, such number of ordinary shares of RMB1.00 each in the share capital of Kingray, which are listed and traded on the Shanghai Stock Exchange for a total consideration of RMB1,500,000,000 (please refer to the announcement of the Company dated 19 May 2016 for further details);

– II-8 –

GENERAL INFORMATION

APPENDIX II

(q) the equity acquisition agreement dated 11 December 2015 entered into between China Shipping Container Lines (Hong Kong) Co., Ltd (“ CSCL HK ”) and China Shipping (Hong Kong) Holdings Co., Limited (“ CS Hong Kong ”), pursuant to which CSCL HK agreed to purchase, and CS Hong Kong agreed to sell, the entire equity interests in Dong Fang International Investment Limited in the aggregate consideration of RMB2,969.2275 million (please refer to the circular of the Company dated 31 December 2015 for further details);
(r) the equity acquisition agreement dated 11 December 2015 entered into between CSCL HK and COSCO Pacific Limited (“ COSCO Pacific ”), pursuant to which CSCL HK agreed to purchase, and COSCO Pacific agreed to sell, the entire equity interests in Florens Container Holdings Limited in the aggregate consideration of RMB7,784.4833 million minus applicable pre-closing dividend (please refer to the circular of the Company dated 31 December 2015 for further details);
(s) the equity acquisition agreement dated 11 December 2015 entered into between CSCL HK and CS Hong Kong, pursuant to which CSCL HK agreed to purchase, and CS Hong Kong agreed to sell, the entire equity interests in each of Helen Insurance Brokers Limited and China Shipping Nauticgreen Holdings Company Limited in the aggregate consideration of RMB1,699.6956 million (please refer to the circular of the Company dated 31 December 2015 for further details);
(t) the equity acquisition agreement dated 11 December 2015 entered into between the Company and China Shipping, pursuant to which the Company agreed to purchase, and China Shipping agreed to sell, the entire equity interests in COSCO SHIPPING Leasing Co., Ltd. in the aggregate consideration of RMB1,995.6070 million (please refer to the circular of the Company dated 31 December 2015 for further details);
(u) the equity acquisition agreement dated 11 December 2015 entered into among the Company, China Shipping, Shanghai Shipping (Group) Company (“ CS Shanghai ”) and CS Guangzhou, pursuant to which the Company agreed to purchase, and China Shipping, CS Shanghai and CS Guangzhou agreed to sell, the entire equity interests in China Shipping Investment Co. Ltd. in the aggregate consideration of RMB3,458.4549 million (please refer to the circular of the Company dated 31 December 2015 for further details);
(v) the equity acquisition agreement dated 11 December 2015 entered into among the Company, China Shipping and CS Guangzhou, pursuant to which the Company agreed to purchase, and China Shipping and CS Guangzhou agreed to sell, 40% equity interests in CS Finance in the aggregate consideration of RMB510.9866 million (please refer to the circular of the Company dated 31 December 2015 for further details);

– II-9 –

GENERAL INFORMATION

APPENDIX II

(w) the capital increase agreement (the “ COSCO Finance Capital Increase Agreement ”) dated 11 December 2015 entered into among the Company, COSCO Company and several other parties, pursuant to which the Company agreed to make a capital increase in the amount of RMB614.2674 million, among which around RMB340 million will be contributed to the registered capital of COSCO Finance and the remaining shall be used as capital reserve for the future development of COSCO Finance (please refer to the circular of the Company dated 31 December 2015 for further details);
(x) the equity acquisition agreement dated 11 December 2015 entered into between CSCL HK and China COSCO (Hong Kong) Limited (“ COSCO HK ”), pursuant to which CSCL HK agreed to purchase, and COSCO HK agreed to sell, the entire equity interests in Long Honour Investments Limited in the aggregate consideration of RMB2,770.9726 million (please refer to the circular of the Company dated 31 December 2015 for further details);
(y) the equity acquisition agreement dated 11 December 2015 entered into between the Company and COSCO Company, pursuant to which the Company agreed to purchase, and COSCO Company agreed to sell, 13.67% equity interests in China Bohai Bank Co., Ltd. in the aggregate consideration of RMB5,448.0480 million (please refer to the circular of the Company dated 31 December 2015 for further details);
(z) the equity sales agreement dated 11 December 2015 entered into among the Company, CS Hong Kong and COSCO Pacific, pursuant to which the Company and CS Hong Kong agreed to sell, and COSCO Pacific agreed to acquire, the entire equity interests in China Shipping Ports Development Co., Ltd. in the aggregate consideration of RMB7,632.4553 million minus applicable adjustment amounts (please refer to the circular of the Company dated 31 December 2015 for further details);
(aa) the equity sales agreement dated 11 December 2015 entered into between CSCL HK and COSCO Container Lines (Hong Kong) Co., Limited (“ COSCO Container HK ”), pursuant to which CSCL HK agreed to sell, and COSCO Container HK agreed to acquire, the entire equity interests in China Shipping Container Lines Agency (Hong Kong) Co., Limited in the aggregate consideration of RMB35.6706 million (please refer to the circular of the Company dated 31 December 2015 for further details);
(bb) the equity sales agreement dated 11 December 2015 entered into between CSCL HK and Pan Asia Shipping, pursuant to which CSCL HK agreed to sell, and Pan Asia Shipping agreed to acquire, the entire equity interests in Universal Shipping (Asia) Company Limited in the aggregate consideration of RMB124.2913 million (please refer to the circular of the Company dated 31 December 2015 for further details);

– II-10 –

GENERAL INFORMATION

APPENDIX II

(cc) the equity sales agreement dated 11 December 2015 entered into between the Company and COSCO Container, pursuant to which the Company agreed to sell, and COSCO Container agreed to acquire, 51% equity interests in Golden Sea Shipping Pte. Ltd. (“ Golden Sea ”) in the aggregate consideration of RMB71.0360 million (please refer to the circular of the Company dated 31 December 2015 for further details);
(dd) an equity sales agreement dated 11 December 2015 entered into between CSCL HK and China Shipping Regional Holdings Pte. Ltd. (“ CS Regional ”), pursuant to which CSCL HK agreed to sell, and CS Regional agreed to acquire, 91% equity interests in China Shipping (Singapore) Petroleum Pte. Ltd. in the aggregate consideration of RMB30.6975 million (please refer to the circular of the Company dated 31 December 2015 for further details);
(ee) the equity sales agreement dated 11 December 2015 entered into between the Company and CS Regional, pursuant to which the Company agreed to sell, and CS Regional agreed to acquire, 9% equity interests in Golden Sea in the aggregate consideration of RMB12.5358 million (please refer to the circular of the Company dated 31 December 2015 for further details);
(ff) the equity sales agreement dated 11 December 2015 entered into between the Company and COSCO SHIPPING Holdings, pursuant to which the Company agreed to sell, and COSCO SHIPPING Holdings agreed to acquire, equity interests in several onshore agency and other related business companies in the aggregate consideration of RMB885.6734 million (please refer to the circular of the Company dated 31 December 2015 for further details); and
(gg) the equity sales agreement dated 11 December 2015 entered into among CSCL HK, Pan Asia Shipping and COSCO Container, pursuant to which CSCL HK agreed to sell, and COSCO Container agreed to acquire, the entire equity interests in China Shipping Container Lines Agency (Shenzhen) Co., Ltd. in the aggregate consideration of RMB15.1741 million, and CSCL HK agreed to sell, and Pan Asia Shipping agreed to acquire, the entire equity interests in Universal Logistics (Shenzhen) Co., Ltd. in the aggregate consideration of RMB9.0516 million (please refer to the circular of the Company dated 31 December 2015 for further details).

10. 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 33/F, Tower 2, Kowloon Commerce Centre, 51 Kwai Cheong Road, Kwai Chung, New Territories, Hong Kong from the date of this circular up to and including the date of the EGM:

(a) the Shareholders Agreement;
(b) the Transfer Agreement;

– II-11 –

GENERAL INFORMATION

APPENDIX II

(c) the letter from the Board, the text of which is set out in the section headed “Letter from the Board” in this circular;
(d) the letter from the Independent Board Committee to the Independent Shareholders, the text of which is set out in the section headed “Letter from the Independent Board Committee” in this circular;
(e) the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, the text of which is set out in the section headed “Letter from the Independent Financial Adviser” in this circular;
(f) the written consent referred to in the paragraph headed “Experts’ Qualifications and Consent” in this Appendix;
(g) the material contracts referred to in the paragraph headed “Material Contracts” in this Appendix;
(h) the articles of association of the Company;
(i) the annual reports of the Company for the years ended 31 December 2015 and 2016;
(j) the circular of the Company dated 31 May 2017;
(k) the circular of the Company dated 19 May 2017; and
(l) this circular.

11. MISCELLANEOUS

(a) The company secretary of the Company is Mr. Yu Zhen. Mr. Yu is a certified public accountant (CPA) of the PRC and has the intermediate title of accountant.
(b) The legal address of the Company in the PRC is Room A-528, International Trade Center, China (Shanghai) Pilot Free Trade Zone, Shanghai, the PRC.
(c) The principal place of business of the Company in the PRC is Maritime Research Building, 628 Minsheng Road, Pudong New Area, Shanghai, the PRC.
(d) The principal place of business of the Company in Hong Kong is 33/F, Tower 2, Kowloon Commerce Centre, 51 Kwai Cheong Road, Kwai Chung, New Territories, Hong Kong.
(e) The Hong Kong H Share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

– II-12 –

NOTICE OF EGM

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

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

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

(Stock Code: 02866)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “ EGM ”) of COSCO SHIPPING Development Co., Ltd. (the “ Company ”) will be held at 1:30 p.m. on Thursday, 28 December 2017 (or at any adjournment thereof) at Level 3, Ocean Hotel Shanghai, 1171 Dong Da Ming Road, Hong Kou District, Shanghai, the People’s Republic of China to consider and, if thought fit, pass the following resolutions.

Unless otherwise defined, capitalised terms used herein shall have the same meanings as those defined in the announcement of the Company dated 13 November 2017 (the “ Announcement ”).

ORDINARY RESOLUTIONS

To consider and approve the resolution in relation to the Merger by CS Finance, further details of which are set out in the Announcement:

“ THAT

(a) the Merger and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and
(b) any one Director be and is hereby authorised to do all such acts and things and execute and deliver all such documents, deeds or instruments (including affixing the common seal of the Company thereon) and take all such steps as the Director in his or her sole opinion and absolute discretion may consider necessary, appropriate or desirable to implement or give effect to the Merger and the transactions contemplated thereunder.”

– EGM-1 –

NOTICE OF EGM

To consider and approve the resolution in relation to the Shareholders Agreement entered into among the Post-Merger Shareholders, further details of which are set out in the Announcement:

“ THAT

(a) the Shareholders Agreement and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and
(b) any one Director be and is hereby authorised to do all such acts and things and execute and deliver all such documents, deeds or instruments (including affixing the common seal of the Company thereon) and take all such steps as the Director in his or her sole opinion and absolute discretion may consider necessary, appropriate or desirable to implement or give effect to the Shareholders Agreement and the transactions contemplated thereunder.”
To consider and approve the resolution in relation to the appointment of Mr. Lu Jianzhong as an independent non-executive Director.

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

Company Secretary

Shanghai, the People’s Republic of China

13 November 2017

Notes:

For the purpose of holding the EGM, the register of H Shares members of the Company (the “ Register of Members ”) will be closed from 28 November 2017 to 28 December 2017 (both days inclusive), during which period no transfer of H Shares of the Company will be registered. Holders of the Company’s H Shares (the “ H Shareholders ”) whose names appear on the Register of Members at the close of business on 27 November 2017 are entitled to attend and vote at the EGM.
In order to attend and vote at the EGM, the H Shareholders shall lodge all transfer documents together with the relevant share certificates to Computershare Hong Kong Investor Services Limited (“ Computershare ”), the Company’s H Share registrar, not later than 4:30 p.m. on 27 November 2017.

The address of Computershare is as follows: Shops 1712-1716, 17th Floor Hopewell Centre 183 Queen’s Road East Wanchai, Hong Kong

– EGM-2 –

NOTICE OF EGM

H Shareholders who intend to attend the EGM must complete the reply slips and return them to the Directorate Secretary Office of the Company not later than 20 days before the date of the EGM (i.e. not later than 7 December 2017).

The address of the Directorate Secretary Office of the Company is as follows: 23rd Floor, Maritime Research Building 628 Minsheng Road Pudong New Area Shanghai 200135 the People’s Republic of China Tel: (8621) 6596 7333 Fax: (8621) 6596 6813

Each H Shareholder who has the right to attend and vote at the EGM is entitled to appoint in writing one or more proxies, whether a Shareholder or not, to attend and vote on his/her behalf at the EGM.
The form of proxy must be signed by the Shareholder or his/her attorney duly authorised in writing or, in the case of a legal person, must either be executed under its common seal or under the hand of a legal representative or other attorney duly authorised to sign the same. If the form of proxy is signed by an attorney of the appointer, the power of attorney authorising that attorney to sign, or other document of authorisation, must be notarially certified.
To be valid, for H Shareholders, the form of proxy, and if the form of proxy is signed by a person under a power of attorney or other authority on behalf of the appointer, a notarially certified copy of that power of attorney or other authority, must be delivered to Computershare at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not less than 24 hours before the time for holding the EGM or any adjournment thereof in order for such documents to be valid.
If a proxy attends the EGM on behalf of a Shareholder, he/she should produce his/her identity card and the form of proxy signed by the Shareholder or his/her legal representative or his/her duly authorised attorney, and specify the date of its issuance. If a legal person Shareholder appoints its corporate representative to attend the EGM, such representative should produce his/her identity card and the notarised copy of the resolution passed by the board of directors or other authorities, or other notarised copy of the licence issued by such legal person Shareholder. Completion and return of the form of proxy will not preclude a Shareholder from attending in person and voting at the EGM or any adjournment thereof should he/she so wish.
Pursuant to the Listing Rules, any vote of Shareholders at a general meeting must be taken by way of poll except where the chairman of the meeting, 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 such, the resolutions set out in the notice of the EGM will be voted on by poll. Results of the poll voting will be published on the website of the Stock Exchange at www.hkexnews.hk after the EGM.
Where there are joint registered holders of any share of the Company, only the person whose name stands first on the Register of Members in respect of such share may vote at the EGM, either personally or by proxy, in respect of such share as if he/she were solely entitled thereto.
The EGM is estimated to last for half a day. Shareholders who attend the EGM in person or by proxy shall bear their own transportation and accommodation expenses.

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

The Company is a registered non-Hong Kong company as defined in the Companies Ordinance (Chapter 622 of the Laws of Hong Kong) and it is registered under its Chinese name and under the English name “COSCO SHIPPING Development Co., Ltd.”.

– EGM-3 –

AI assistant

COSCO SHIPPING Development Co., Ltd. — Proxy Solicitation & Information Statement 2017

50782_rns_2017-12-12_302d6f6f-9745-41ba-8204-befd798c63f8.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

(1) MAJOR AND CONNECTED TRANSACTION MERGER OF CS FINANCE AND COSCO FINANCE (2) PROPOSED APPOINTMENT OF INDEPENDENT NON-EXECUTIVE DIRECTOR AND (3) NOTICE OF EGM

Independent Financial Adviser to the Independent Board Committee and Independent Shareholders

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

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

(Stock Code: 02866)

(1) MAJOR AND CONNECTED TRANSACTION MERGER OF CS FINANCE AND COSCO FINANCE AND

(2) PROPOSED APPOINTMENT OF INDEPENDENT NON-EXECUTIVE DIRECTOR

I. INTRODUCTION

II. THE MERGER

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Conditions Precedent to the Merger

Completion

III. THE SHAREHOLDERS’ AGREEMENT

LETTER FROM THE BOARD

Effectiveness of the Shareholders Agreement

LETTER FROM THE BOARD

Rights and obligations of the Post-Merger Shareholders

Termination

IV. INFORMATION ON THE PARTIES TO THE MERGER

Information on CS Finance

Information on COSCO Finance

Valuation of CS Finance and COSCO Finance

Valuer and valuation date

Assessed values

Valuation methodologies

Selection of comparable transactions

Selection of multiples

Shareholding structure chart of CS Finance and COSCO Finance immediately prior to the Merger

V. INFORMATION ON THE PARTIES TO THE SHAREHOLDERS AGREEMENT

Information on the Company and the Group

Information on COSCO SHIPPING

Information on COSCO SHIPPING Energy Group

Information on COSCO SHIPPING Holdings Group

Information on COSCO SHIPPING Specialized Group

Information on Other COSCO SHIPPING Subsidiaries

Information on Other COSCO Company Subsidiaries

VI. FINANCIAL EFFECTS OF THE MERGER

Earnings

Assets

Liabilities

VII. REASONS FOR AND BENEFITS OF THE MERGER AND THE SHAREHOLDERS AGREEMENT

VIII. IMPLICATIONS UNDER THE LISTING RULES

IX. INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

X. PROPOSED APPOINTMENT OF INDEPENDENT NON-EXECUTIVE DIRECTOR

LETTER FROM THE BOARD

XI. EGM

XII. RECOMMENDATION

LETTER FROM THE BOARD

XIII. FURTHER INFORMATION

By order of the Board

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

(Stock Code: 02866)

MAJOR AND CONNECTED TRANSACTION MERGER OF CS FINANCE AND COSCO FINANCE

MAJOR AND CONNECTED TRANSACTION MERGER OF CS FINANCE AND COSCO FINANCE

INTRODUCTION

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS

1. Background of the Merger

2.1 Information on the Company and the Group

2.2 Information on CS Finance

2.3 Information on COSCO Finance

2.4 Information on COSCO SHIPPING

2.5 Information on COSCO SHIPPING Energy Group

2.6 Information on COSCO SHIPPING Holdings Group

2.7 Information on COSCO SHIPPING Specialized Group

2.8 Information on Other COSCO SHIPPING Subsidiaries

2.9 Information on Other COSCO Company Subsidiaries

3. The Merger

COSCO SHIPPING Development Co., Ltd. Proxy Solicitation & Information Statement 2017