COSCO SHIPPING Development Co., Ltd. - Proxy Solicitation & Information Statement 2018

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 and other registered institution in securities, 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 reply slip to the purchaser or the 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.

**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) PROPOSED ISSUANCE OF RENEWABLE CORPORATE BONDS

(2) PROPOSED APPOINTMENT OF DOMESTIC AUDITOR

(3) CONTINUING CONNECTED TRANSACTIONS REVISION OF ANNUAL CAPS FOR MASTER CONTAINERS SERVICES AGREEMENT

AND

(4) SUPPLEMENTAL 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 6 to 27 of this circular and the letter from the Independent Board Committee is set out on pages 28 to 29 of this circular. A letter from Messis Capital Limited, the Independent Financial Adviser, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 30 to 47 of this circular.

The Original Notice of EGM convening the EGM to be held at 1:30 p.m. on Wednesday, 19 September, 2018 at Holiday Inn Shanghai Jinxiu, No. 399 Jinzun Road, Pudong New Area, Shanghai, the PRC was despatched to the Shareholders on 3 August 2018, which is reproduced on pages EGM-1 to EGM-4 of this circular. The Supplemental Notice of EGM, which contains additional resolution to be proposed at the EGM, is set out on pages SEGM-1 to SEGM-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.”.

4 September 2018

		Page
DEFINITIONS	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM	THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
LETTER FROM	THE INDEPENDENT BOARD COMMITTEE . . . . . . . . .	28
LETTER FROM	THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . .	30
APPENDIX I	– GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . .	I-1
NOTICE OF EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		EGM-1
SUPPLEMENTAL NOTICE OF EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		SEGM-1

– i –

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions 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
“ Articles of Association ”
the articles of association of the Company, as amended and adopted from time to time
“ associate ” has the meaning ascribed to it under the Listing Rules
“ Board ” the board of directors of the Company
“ CCFI ” China Containerized Freight Index
“ China Shipping ”
China Shipping Group Company Limited[#] (中國海運集團有限公司) (formerly known as China Shipping (Group) Company Limited (中國海運(集團)總公司)), a PRC stateowned enterprise and the controlling shareholder of the Company and a wholly-owned subsidiary of COSCO SHIPPING
“ Company ” COSCO SHIPPING Development Co., Ltd.[*] (中海遠運發展股份有限公司), a joint stock limited company established in the PRC, the H shares and A shares of which are listed on Main Board of the Hong Kong Stock Exchange (Stock Code: 2866) and the Shanghai Stock Exchange (Stock Code: 601866), respectively
“ Computershare ”
Computershare Hong Kong Investor Services Limited, the Company’s H Share registrar
“ 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 SHIPPING ”
China COSCO Shipping Corporation Limited[#] (中國遠洋海運集團有限公司), a PRC state-owned enterprise and an indirect controlling shareholder of the Company
“ COSCO SHIPPING Group ”

COSCO SHIPPING, its subsidiaries and/or its associate (excluding the Group)

– 1 –

DEFINITIONS

“ 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
“ Director(s) ” the director(s) of the Company
“ EGM ”
the extraordinary general meeting of the Company to be convened at 1:30 p.m. on Wednesday, 19 September 2018 at Holiday Inn Shanghai Jinxiu, No. 399 Jinzun Road, Pudong New Area, Shanghai, the PRC (or any adjournment thereof) to consider and, if thought fit, approve the resolutions contained in the Original Notice of EGM and the Supplemental Notice of EGM
“ Existing Annual Caps ”
the existing annual caps in the amount of (i) RMB410,000,000 and RMB450,000,000 in respect of the products and services to be provided by the COSCO SHIPPING Group to the Group, and (ii) RMB3,800,000,000 and RMB4,200,000,000 in respect of the products and services to be provided by the Group to the COSCO SHIPPING Group, under the Master Containers Services Agreement for the two years ending 31 December 2018 and 31 December 2019, respectively
“ Group ” the Company and its subsidiaries
“ H Share(s) ”
the overseas listed foreign shares in the ordinary share capital of the Company with a par value of RMB1.00 each, which are listed on Main Board of the Hong Kong Stock Exchange
“ Hong Kong ” the Hong Kong Special Administrative Region of the PRC
“ Hong Kong Stock Exchange ” The Stock Exchange of Hong Kong Limited

– 2 –

DEFINITIONS

“ Independent Board Committee ”
“ Independent Financial Adviser ” or “ Messis Capital ”
“ Independent Shareholders ”
“ Interim Results Announcement ”
“ Latest Practicable Date ”
“ Listing Rules ”
“ Master Containers Services Agreement ”
“ OOIL Group ”

the independent board committee of the Company comprising Mr. Cai Hongping, Ms. Hai Chi Yuet, Mr. Graeme Jack, Mr. Lu Jianzhong, Mr. Gu Xu and Ms. Zhang Weihua, being all the independent non-executive Directors, which is formed to advise the Independent Shareholders on the Proposed Revised Annual Caps in accordance with the Hong Kong Listing Rules

Messis Capital 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 on the Proposed Revised Annual Caps
the Shareholders other than (i) COSCO SHIPPING and its associates and (ii) any other Shareholders who have a material interest in the Main Containers Services Agreement and the Proposed Revised Annual Caps
the announcement of the Company dated 30 August 2018 in relation to the unaudited interim results of the Group for the six months ended 30 June 2018
31 August 2018, 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 master containers services agreement dated 5 December 2016 entered into between the Company and COSCO SHIPPING
Orient Overseas International Limited, a company incorporated in Bermuda with limited liability and the shares of which are listed on the Main Board of the Hong Kong Stock Exchange (Stock Code: 316), and its subsidiaries, which has become part of the COSCO SHIPPING Group, further details of which are set out in the announcement of COSCO SHIPPING Holdings dated 27 July 2018

– 3 –

DEFINITIONS

“ Original Form of Proxy ”
“ Original Notice of EGM ”
“ Overseas Regulatory Announcement ”
“ percentage ratios ”
“ PRC ”
“ Proposed Appointment Announcement ”
“ Proposed Appointment of Domestic Auditor ”
“ Proposed Issuance Announcement ”
“ Proposed Issuance of Renewable Corporate Bonds ”
“ Proposed Revised Annual Caps ”

the form of proxy of the Company in respect of the resolutions set out in the Original Notice of EGM, which was despatched to the Shareholders on 3 August 2018

the notice of the extraordinary general meeting of the Company dated 3 August 2018, which was despatched to the Shareholders on 3 August 2018
the overseas regulatory announcement of the Company dated 3 August 2018 in relation to, among other things, the Proposed Issuance of Renewable Corporate Bonds

has the meaning ascribed to it under the Listing Rules

the People’s Republic of China which, for the purposes of this circular, excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan
the announcement of the Company dated 25 July 2018 in relation to, among other things, the Proposed Appointment of Domestic Auditor
the proposed appointment of ShineWing Certified Public Accountants as the domestic auditor of the Company for the year of 2018
the announcement of the Company dated 3 August 2018 in relation to, among other things, the Proposed Issuance of Renewable Corporate Bonds
the proposed public issuance of renewable corporate bonds of the Company in the aggregate principal amount of not more than RMB6 billion

the proposed revised annual caps in the amount of (i) RMB1,900,000,000 and RMB1,900,000,000 in respect of the products and services to be provided by the COSCO SHIPPING Group to the Group, and (ii) RMB8,000,000,000 and RMB10,000,000,000 in respect of the products and services to be provided by the Group to the COSCO SHIPPING Group, under the Master Containers Services Agreement for the two years ending 31 December 2018 and 2019, respectively

– 4 –

DEFINITIONS

“ Renewable Corporate Bonds ” the renewable corporate bonds to be issued under the Proposed Issuance of Renewable Corporate Bonds
“ Revised Form of Proxy ” the revised form of proxy of the Company in respect of the resolutions set out in the Original Notice of EGM and the Supplemental Notice of EGM
“ Revision of Annual Caps the announcement of the Company dated 15 August 2018 Announcement ” in relation to, among other things, the Proposed Revised Annual Caps
“ RMB ” Renminbi, the lawful currency of the PRC
“ SFO ” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“ Share(s) ” A Share(s) and H Share(s)
“ Shareholder(s) ” holder(s) of the Share(s)
“ Supervisor(s) ” the supervisor(s) of the Company
“ Supplemental Notice of EGM ” the supplemental notice of the extraordinary general meeting of the Company dated 4 September 2018, which is set out on pages SEGM-1 to SEGM-3 of this circular
“ TEU(s) ” twenty-foot equivalent unit(s), a standard unit of measurement of the volume of a container with a length of 20 feet, height of eight feet and six inches and width of eight feet
“ US$ ” United States dollar, the lawful currency of the United States of America
“ % ” 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.

– 5 –

LETTER FROM THE BOARD

**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 : Ms. Sun Yueying Mr. Wang Daxiong Mr. Liu Chong Mr. Xu Hui

Non-executive Directors : Mr. Feng Boming Mr. Huang Jian Mr. Liang Yanfeng Independent non-executive Directors : Mr. Cai Hongping Ms. Hai Chi Yuet Mr. Graeme Jack Mr. Lu Jianzhong Mr. Gu Xu Ms. Zhang Weihua

Legal address in the PRC : Room A-538 International Trade Center China (Shanghai) Pilot Free Trade Zone Shanghai PRC Principal place of business in the PRC : COSCO SHIPPING Plaza 5299 Binjiang Dadao Pudong New District Shanghai The PRC Principal place of business in Hong Kong : 50/F COSCO Tower 183 Queen’s Road Central Hong Kong

4 September 2018

To the Shareholders

Dear Sir or Madam,

(1) PROPOSED ISSUANCE OF RENEWABLE CORPORATE BONDS (2) PROPOSED APPOINTMENT OF DOMESTIC AUDITOR (3) CONTINUING CONNECTED TRANSACTIONS REVISION OF ANNUAL CAPS FOR MASTER CONTAINERS SERVICES AGREEMENT AND (4) SUPPLEMENTAL NOTICE OF EGM

I. INTRODUCTION

Reference is made to (i) the Proposed Appointment Announcement; (ii) the Overseas Regulatory Announcement and the Proposed Issuance Announcement; (iii) the Revision of Annual Caps Announcement; (iv) the Original Notice of EGM; and (v) the Supplemental Notice of EGM.

– 6 –

LETTER FROM THE BOARD

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

(i) information reasonably necessary to enable you to make an informed decision on whether to vote for or against the resolutions to be proposed at the EGM;
(ii) further details of the Proposed Issuance of Renewable Corporate Bonds, the Proposed Revised Annual Caps and information regarding the other resolutions to be proposed at the EGM;
(iii) the letter from the Independent Board Committee to the Independent Shareholders containing its recommendation in respect of the Proposed Revised Annual Caps; and
(iv) the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders containing its recommendation in respect of the Proposed Revised Annual Caps.

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

(i) the satisfaction of the conditions for public issuance of renewable corporate bonds by the Company to qualified investors;
(ii) the authorisation to the Board and any person authorised by the Board to handle all matters in connection with the Proposed Issuance of Renewable Corporate Bonds;
(iii) the Proposed Appointment of Domestic Auditor; and
(iv) the Proposed Revised Annual Caps.

At the EGM, special resolutions will be proposed to approve the Proposed Issuance of Renewable Corporate Bonds.

II. PROPOSED ISSUANCE OF RENEWABLE CORPORATE BONDS

As disclosed in the Overseas Regulatory Announcement and the Proposed Issuance Announcement, on 3 August 2018, the Board has approved the Proposed Issuance of Renewable Corporate Bonds, pursuant to which the Company proposes to issue the Renewable Corporate Bonds in the aggregate principal amount of not more than RMB6 billion in one or multiple tranches to qualified investors.

The Proposed Issuance of Renewable Corporate Bonds is subject to the approval of the Shareholders at the EGM and the approval of the relevant PRC regulatory authorities.

– 7 –

LETTER FROM THE BOARD

The details of the Proposed Issuance of Renewable Corporate Bonds are as follows:

1. Details of the Proposed Issuance of Renewable Corporate Bonds

Size of issuance:

The aggregate principal amount of the Renewable Corporate Bonds will be not more than RMB6 billion. The actual size of the Proposed Issuance of Renewable Corporate Bonds will be determined by the Board (or persons authorised by the Board) with the authorisation by the Shareholders at the EGM based on the market conditions and the capital needs of the Company.

Method of issuance:

The Proposed Issuance of Renewable Corporate Bonds will be conducted through public offerings in one or multiple tranches. The specific method of issuance of the Proposed Issuance of Renewable Corporate Bonds will be determined by the Board (or persons authorised by the Board) with the authorisation by the Shareholders at the EGM based on the market conditions and the capital needs of the Company.

Target investors and placing arrangements for the Shareholders:
The Renewable Corporate Bonds will be issued to qualified investors, the scope of which will be determined pursuant to the relevant PRC laws and regulations, and will not be offered to the Shareholders by way of placing.
Maturity of the Renewable Corporate Bonds:

The Renewable Corporate Bonds shall have a base term of not more than five years. At the end of the base term and each extended term, the Company shall have an option to extend the maturity of the Renewable Corporate Bonds for an additional term, or to repay the Renewable Corporate Bonds in full.

The specific term and respective size of the issuance of the Renewable Corporate Bonds will be determined by the Board (or persons authorised by the Board) with the authorisation by the Shareholders at the EGM based on the market conditions and the capital needs of the Company.

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LETTER FROM THE BOARD

Interest rate and its determination method:

The Renewable Corporate Bonds will carry a fixed interest rate per annum. In the event of deferred interest payment, interest shall accrue on the deferred interest payment at the prevailing interest rate.

The interest rate of the Renewable Corporate Bonds for the base term shall be determined by the Company and the lead underwriter through negotiation and based on the book-building results among qualified investors and within a preset range. The interest rate shall be fixed throughout the base term and shall be reset for each subsequent additional term, the method of which shall be determined by the Company and the lead underwriter through negotiation in accordance with the relevant PRC laws and regulations.

Face value and issue price:

The Renewable Corporate Bonds shall have a face value of RMB100 and shall be issued at the face value.

Use of proceeds:

The proceeds from the Proposed Issuance of Renewable Corporate Bonds, after deduction of the relevant expenses, are intended to be used for the repayment of the indebtedness and the replenishment of the working capital of the Company and for other purposes as permitted by applicable laws and regulations.

The specific use of proceeds will be determined by the Board (or persons authorised by the Board) with the authorisation by the Shareholders at the EGM based on the capital needs of the Company.

Method of underwriting:

The Proposed Issuance of Renewable Corporate Bonds shall be underwritten by the underwriting syndicate organised by the lead underwriter by way of standby commitment.

Terms for redemption or sale back:

The Board (or persons authorised by the Board) with the authorisation by the Shareholders at the EGM will determine (with reference to the market conditions and the relevant rules) whether the Renewable Corporate Bonds will have any terms for redemption or sale back and the details thereof.

– 9 –

LETTER FROM THE BOARD

Method of repayment of The repayment of principal and interest of the principal and interest: Renewable Corporate Bonds shall be made in accordance with the relevant rules and regulations of the securities registration institution. Where the Company does not exercise the right of deferring interest payment, interest accruing on the Renewable Corporate Bonds shall be payable annually.
Terms for deferring interest payment:
The Renewable Corporate Bonds shall confer a right to the Company to defer interest payment. Subject to the restrictions on deferring interest payment as described below, at each interest payment date of the Renewable Corporate Bonds, the Company may elect to defer the payment of interest for the current period and any deferred interest and the yield thereof to the next interest payment date, without subject to any restriction on the number of deferment of interest payment.
Mandatory interest payment and restrictions on deferring interest payment:
If, during the 12-month period immediately preceding an interest payment date of the Renewable Corporate Bonds, the Company has (i) distributed dividends to the Shareholders or (ii) reduced its registered capital, the Company shall not be entitled to exercise the right to defer interest payment.

In the event that the Company has exercised the right to defer interest payment, it shall not (i) distribute dividends to the Shareholders or (ii) reduce its registered capital, until all deferred interest and the yield thereof have been settled in full.

Listing arrangement:

Upon completion of the Proposed Issuance of the Renewable Corporate Bonds, the Company will, subject to the satisfaction of the conditions for listing, apply for the listing of the Renewable Corporate Bonds on the Shanghai Stock Exchange. Subject to the approval of the relevant regulatory authorities and the relevant laws and regulations, the Company may also apply for the listing of the Renewable Corporate Bonds on other stock exchanges.

Guarantee:

The Renewable Corporate Bonds are not guaranteed.

– 10 –

LETTER FROM THE BOARD

Safeguard measures for the repayment of the Renewable Corporate Bonds:

During the term of the Renewable Corporate Bonds, if the Company expects that it will be unable to repay the principal or any accrued interest of the Renewable Corporate Bonds in accordance with the terms of issuance, the Board (or persons authorised by the Board) with the authorisation by the Shareholders at the EGM will adopt various debt protection measures to safeguard the interests of the bondholders.

Validity period of the resolutions:
The resolutions in relation to the Proposed Issuance of Renewable Corporate Bonds shall become effective from the date of passing of such resolutions by the Shareholders at the EGM, and shall remain valid for 24 months from the date of the approval of the Proposed Issuance of Renewable Corporate Bonds by the China Securities Regulatory Commission.

2. Proposal in relation to the Proposed Issuance of Renewable Corporate Bonds

Each of the following 16 resolutions in the proposal in relation to the Proposed Issuance of Renewable Corporate Bonds will be submitted, by way of special resolutions, for the Shareholders’ consideration and approval at the EGM:

(i) size of issuance;
(ii) method of issuance;
(iii) target investors and placing arrangements for the Shareholders;
(iv) maturity of the Renewable Corporate Bonds;
(v) interest rate and its determination method;
(vi) face value and issue price;
(vii) use of proceeds;
(viii) method of underwriting;
(ix) terms for redemption or sale back;
(x) method of repayment of principal and interest;
(xi) terms for deferring interest payment;

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LETTER FROM THE BOARD

(xii) mandatory interest payment and restrictions on deferring interest payment;
(xiii) listing arrangement;
(xiv) guarantee;
(xv) safeguards for repayment of the Renewable Corporate Bonds; and
(xvi) validity period of the resolutions.

3. Proposal in relation to the satisfaction of the conditions for public issuance of renewable corporate bonds by the Company to qualified investors

As disclosed in the Overseas Regulatory Announcement, pursuant to the relevant requirements under the Company Law of the PRC, the Securities Law of the PRC and the “Administrative Measures for the Issuance and Trading of Corporate Bonds” (《公司債券發行與交易管理辦法》) and other relevant laws, regulations and regulatory documents, the Board resolved that the Company satisfies the conditions for public issuance of renewable corporate bonds.

The resolution in relation to the satisfaction of the conditions for public issuance of renewable corporate bonds by the Company to qualified investors will be submitted, by way of ordinary resolution, for the Shareholders’ consideration and approval at the EGM.

4. Proposal in relation to the authorisation to the Board in relation to the Proposed Issuance of Renewable Corporate Bonds

As disclosed in the Overseas Regulatory Announcement and the Proposed Issuance Announcement, in order to ensure effective implementation of the Proposed Issuance of Renewable Corporate Bonds, the Board resolved to seek the approval of the Shareholders at the EGM for authorisation to the Board (or persons authorised by the Board) to handle, at its absolute discretion, all matters in connection with the Proposed Issuance of Renewable Corporate Bonds in accordance with the relevant laws and regulations and the Articles of Association, taking into account the prevailing market conditions and based on the principle of maximising the interests of the Shareholders, including but not limited to the following:

(i) to formulate and adjust the specific plans and terms for the Proposed Issuance of Renewable Corporate Bonds in accordance with the applicable laws and regulations, the relevant rules and regulations of the securities regulatory authorities and the resolutions passed at the EGM, and based on the actual conditions of the Company and the market, including but not limited to the specific size of issuance, maturity, interest rate and its determination method, the right to defer interest payment and related arrangements, debt protection measures, timing of issuance and related arrangements, the availability of terms for redemption or sale back, order of repayment, rating arrangements, underwriting arrangements, specific subscription method, time and method for the repayment of principal and interest, use of proceeds, listing, liquidity and termination of issuance;

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LETTER FROM THE BOARD

(ii) to engage intermediaries and appoint a bond trustee manager, and to enter into the bond trustee management agreement and formulate rules for the meeting of bondholders in connection with the Proposed Issuance of Renewable Corporate Bonds;
(iii) to formulate, approve, sign, amend and disclose all application materials and legal documents relating to the Proposed Issuance of Renewable Corporate Bonds, to revise and supplement the application documents as required by the regulatory authorities, and upon completion of the Proposed Issuance of the Renewable Corporate Bonds, to handle matters relating to the listing, repayment of principal and interest and the renewal option of the Renewable Corporate Bonds, including but not limited to authorising, signing, executing, amending and completing all documents, contracts, agreements and covenants (including but not limited to underwriting agreement(s), bond trustee management agreement(s), listing agreement(s) and other legal documents) which are necessary for the issuance and listing of the Renewable Corporate Bonds, and making relevant disclosure in accordance with relevant laws, regulations and listing rules of the place where the Company’s securities are listed (including but not limited to preliminary and final offering memorandum, all announcements and circulars in relation to the issuance of domestic debt financing instruments of the Company);
(iv) to handle other specific matters in relation to the issuance and listing of the Renewable Corporate Bonds in accordance with the rules of the relevant stock exchange regarding the issuance and listing of bonds, including but not limited to preparing, revising and submitting application materials in relation to the issuance and listing of domestic debt financing instruments of the Company as required by the relevant regulatory authorities, and signing the relevant application materials and other legal documents;
(v) to make relevant adjustments to matters relating to the Proposed Issuance of Renewable Corporate Bonds in accordance with the opinion of the regulatory authorities, policy changes, or the changes in market conditions, or determining whether to continue with all or part of the work in respect of the Proposed Issuance of Renewable Corporate Bonds in accordance with the actual situation, except for matters that require re-approval by the Shareholders at general meeting pursuant to relevant laws, regulations and the Articles of Association;
(vi) to set up a designated bank account for the purpose of maintaining the proceeds from the Proposed Issuance of Renewable Corporate Bonds and to enter into a tripartite custodian agreement with the bond trustee manager and the relevant commercial bank with respect to the designated bank account; and
(vii) to handle other matters in connection with the Proposed Issuance of Renewable Corporate Bonds.

– 13 –

LETTER FROM THE BOARD

The aforementioned authorisation to the Board (or persons authorised by the Board) shall be valid during the period between the date of the passing of the relevant resolution at the EGM and the day on which all the authorised matters in relation to the Proposed Issuance of Renewable Corporate Bonds have been completed.

The resolution in relation to the authorisation to the Board and any person authorised by the Board to handle all matters in connection with the Proposed Issuance of Renewable Corporate Bonds will be submitted, by way of ordinary resolution, for the Shareholders’ consideration and approval at the EGM.

5. Reasons for and benefits of the Proposed Issuance of Renewable Corporate Bonds

The Proposed Issuance of Renewable Corporate Bonds would broaden the sources of financing of the Company. The proceeds to be raised from the Proposed Issuance of Renewable Corporate Bonds are intended to be used for the repayment of the existing indebtedness and the replenishment of the working capital of the Company.

The Board is of the view that the Proposed Issuance of Renewable Corporate Bonds is conducive to the comprehensive and sustainable development of the business of the Group, which would in turn enhance the competitiveness of the Company and its return to the Shareholders.

III. PROPOSED APPOINTMENT OF DOMESTIC AUDITOR

As disclosed in the Proposed Appointment Announcement, in view of the relevant requirements of the State-owned Assets Supervision and Administration Commission of the State Council of the PRC and the Ministry of Finance of the PRC, the Board resolved, with the recommendation from the audit committee of the Company, to appoint ShineWing Certified Public Accountants as the domestic auditor of the Company for the year ending 31 December 2018.

The resolution in relation to the Proposed Appointment of Domestic Auditor and the authorisation to the audit committee of the Board to determine the remuneration of ShineWing Certified Public Accountants will be submitted, by way of ordinary resolution, for the Shareholders’ consideration and approval at the EGM.

IV. REVISION OF ANNUAL CAPS FOR MASTER CONTAINERS SERVICES AGREEMENT

Reference is made to the Revision of Annual Caps Announcement. On 15 August 2018, the Board proposed to revise the Existing Annual Caps to the Proposed Revised Annual Caps in respect of the transactions contemplated under the Master Containers Services Agreement for the two years ending 31 December 2018 and 31 December 2019.

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LETTER FROM THE BOARD

1. Master Containers Services Agreement

The principal terms of the Master Containers Services Agreement are set out below.

Products and services to be provided by the Group

Pursuant to the Master Containers Services Agreement, the Group agreed to provide container and other ancillary services to the COSCO SHIPPING Group, which includes sale and purchase of containers and commissioned container manufacturing services.

Products and services to be provided to the Group

Pursuant to the Master Containers Services Agreement, the COSCO SHIPPING Group agreed to provide container and other ancillary services to the Group, which includes merchandising of material ancillary to containers, provision of containers depot, containers logistics, containers management, containers maintenance and other ancillary services.

2. Existing Annual Caps and Proposed Revised Annual Caps

In light of the business expansion of the Group, the increasing market demand for container and other ancillary services and the OOIL Group becoming part of the COSCO SHIPPING Group, the Board anticipates that the Existing Annual Caps would not be sufficient to meet the expected transaction amounts under the Master Containers Services Agreement for the two years ending 31 December 2018 and 31 December 2019.

The following table sets out the historical transaction amounts and the relevant annual caps for the transactions contemplated under the Master Containers Services Agreement for the two years ending 31 December 2018:

					For the
				For the six	year ending
	For the year		ended	months ended	31 December
	31 December 2017			30 June 2018	2018
	Historical			Historical
	transaction			transaction
	amounts	Annual caps		amounts	Annual caps
	(RMB’000)		(RMB’000)	(RMB’000)	(RMB’000)
Products and services to be
provided by the Group to the
COSCO SHIPPING Group	1,561,991		2,800,000	1,306,312	3,800,000
Products and services to be
provided by the COSCO
SHIPPING Group to the Group	322,749		360,000	305,919	410,000

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LETTER FROM THE BOARD

The Board therefore proposed to revise the Existing Annual Caps to the Proposed Revised Annual Caps as set out in the table below:

	For the year	ending
	31 December
	2018	2019
	(RMB’000)	(RMB’000)
Products and services to be provided by the
Group to the COSCO SHIPPING Group
Existing Annual Caps	3,800,000	4,200,000
Proposed Revised Annual Caps	8,000,000	10,000,000
Products and services to be provided by the
COSCO SHIPPING Group to the Group
Existing Annual Caps	410,000	450,000
Proposed Revised Annual Caps	1,900,000	1,900,000

Basis for the Proposed Revised Annual Caps

In arriving at the Proposed Revised Annual Caps for the provision of products and services by the Group to the COSCO SHIPPING Group under the Master Containers Services Agreement, the Directors have considered:

(i) the abovementioned historical transaction amounts for the provision of container and other ancillary services by the Group to the COSCO SHIPPING Group under the Master Containers Services Agreement for the six months ended 30 June 2018;
(ii) the recent orders on hand placed by the COSCO SHIPPING Group (including the OOIL Group) for the year ending 31 December 2018, which has reached approximately 67.5% of the total expected orders for the year ending 31 December 2018;
(iii) the historical and expected transaction amounts for the provision of container and other ancillary services by the Group to the OOIL Group (which has become part of the COSCO SHIPPING Group in July 2018) for the six months ended 30 June 2018 and the revenue generated from the provision of container and other ancillary services by the Group to the OOIL Group amounted to approximately RMB333,984,000;
(iv) the existing scale of operation of the COSCO SHIPPING Group, which, following the addition of the OOIL Group, has become one of the world’s leading container shipping companies with more than 400 vessels and capacity exceeding 2.9 million TEUs;

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LETTER FROM THE BOARD

(v) the expected increase in the demand of the COSCO SHIPPING Group for the containers manufactured by the Group and other ancillary services in light of the growing global demand for container shipping as reflected by the increase in the CCFI from the record low of approximately 632 in April 2016 to approximately 840 as at 24 August 2018;
(vi) the prevailing prices for the sale and purchase and commissioned manufacturing of containers and in particular, the prevailing market price of new containers was approximately US$2,300 per TEU, representing an increase of approximately 53.3% as compared to the average market price of approximately US$1,500 per TEU in 2016, when the Existing Annual Caps were determined; and
(vii) the estimated market fluctuation in terms of container price, demands and exchange rate for US$ to RMB.

In arriving at the Proposed Revised Annual Caps for the provision of products and services by the COSCO SHIPPING Group to the Group under the Master Containers Services Agreement, the Directors have considered:

(i) the abovementioned historical transaction amounts for the provision of products and services by the COSCO SHIPPING Group to the Group under the Master Containers Services Agreement for the six months ended 30 June 2018;
(ii) the expected increase in the demand of the Group for the merchandising of materials ancillary to containers, containers depot, containers logistics, containers management, containers maintenance, and other ancillary services as a result of the expected increase in the production volume and sales of containers by the Group due to the expansion of the container manufacturing business of the Group, as reflected by the increase in the sales of containers by the Group by approximately 81.8% from approximately 203,000 TEUs for the six months ended 30 June 2017 to approximately 369,000 TEUs for the six months ended 30 June 2018, further details of which are set out in the Interim Results Announcement;
(iii) the increase in demand of the Group for water-based paints, whose price is generally higher than that of oil-based paints, for the manufacturing of containers as a result of the industry-wide application of water-based paints as opposed to oil-based paints on containers since April 2017;

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LETTER FROM THE BOARD

(iv) the prevailing prices for materials ancillary to containers, containers depot, containers logistics, containers management and containers maintenance; and
(v) the estimated market fluctuation in terms of ancillary materials price, demands and exchange rates.

The Board confirms that, as at the Latest Practicable Date, the Existing Annual Caps for the year ending 31 December 2018 have not been exceeded.

No reliance on the COSCO SHIPPING Group

As disclosed in the annual report of the Company for the year ended 31 December 2017, the revenue generated from the COSCO SHIPPING Group amounted to approximately RMB8.6 billion, representing approximately 53.4% of the total revenue of the Group for the year ended 31 December 2017. The revenue from the COSCO SHIPPING Group for the year ended 31 December 2017 was mainly generated from services provided by the Group under the Master Containers Services Agreement and other services including operating lease services and chartering of vessels. Notwithstanding the foregoing and the proposed revision of the annual caps for the Master Containers Services Agreement, the Board is of the view that there is no issue of reliance of the Group on the COSCO SHIPPING Group in terms of generation of revenue and the apparent reliance is the result of a commercial decision taking into account of, among other things, the peculiar circumstances of the COSCO SHIPPING Group and the market and the terms of the transactions and is in the interests of the Company and the Shareholders as a whole for the following reasons:

Restructuring of the Group

Following completion of the restructuring of the Group in 2016, the Group has been transforming from a container liner operator into an integrated financial services platform with shipping financing as feature. Through integration and consolidation of the various business segments of the Group and the COSCO SHIPPING Group, the restructuring provides synergy among the business segments of the Group and the COSCO SHIPPING Group. As the Group and other members of the COSCO SHIPPING Group are engaged in different business segments of the shipping industry, the transformed business of the Group can better interact with the business of other members of the COSCO SHIPPING Group with enhanced efficiency.

The abovementioned interaction of the businesses of the Group and other members of the COSCO SHIPPING Group, which includes other prominent players in the shipping industry such as COSCO SHIPPING Holdings, COSCO SHIPPING Ports Limited (the shares which are listed on the Main Board of the Hong Kong Stock Exchange (Stock Code: 1199)) and COSCO SHIPPING Energy Transportation Co., Ltd. (the H shares of

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LETTER FROM THE BOARD

which are listed on the Hong Kong Stock Exchange (Stock Code: 1138) and the A shares of which are listed on the Shanghai Stock Exchange (Stock Code: 600026)), resulted in the increased amount of continuing connected transactions between the Group and the COSCO SHIPPING Group.

Peculiar circumstances of the COSCO SHIPPING Group and the market

Following the addition of the OOIL Group, the COSCO SHIPPING Group has become one of the world’s leading container shipping companies with more than 400 vessels and capacity exceeding 2.9 million TEUs. According to Container Intelligence Monthly issued by Clarkson Research Service Limited in August 2018, the capacity of containership fleets deployed by the COSCO SHIPPING Group as at the start of August 2018 was ranked third in the global container shipping industry.

On the other hand, the Group has been engaged in container manufacturing business and has become one of the leading container manufacturers in the PRC with growing sales and production volume. According to the 2017 Report on the Development of PRC Container Industry (《中國集裝箱行業發展報告(2017年度)》) issued by CCIA-China Container Industry Association (中國集裝箱行業協會) in December 2017, the PRC container manufacturers have accounted for approximately 95.0% of the market share in the global container manufacturing market in terms of production volume since 2006 and the top four container manufacturers in the PRC (including the Group) accounted for approximately 94.5% of the total production volume of PRC in 2016.

The global container shipping business has experienced a significant recovery in recent years, as reflected by the increase in the CCFI from the record low of approximately 632 in April 2016 to approximately 840 as at 24 August 2018. As a result of the increasing scale of the container shipping business of the COSCO SHIPPING Group as well as the recovery of the global container shipping industry, there has been a growing demand of the COSCO SHIPPING Group for the container and other ancillary services. In light of the scale and quality of the container manufacturing business of the Group, the COSCO SHIPPING Group has increased its orders for containers manufactured by the Group and other ancillary services, thereby leading to the expected increase in the transaction amounts for the provision of container and other ancillary services by the Group to the COSCO SHIPPING Group under the Master Containers Services Agreement for the two years ending 31 December 2019. The increase in the demand of COSCO SHIPPING Group for and the supply by the Group of the container and other ancillary services under the Master Containers Services Agreement are mutual and complementary.

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LETTER FROM THE BOARD

In addition, the abovementioned expected increase in the transaction amounts is also partly attributable to the fact that the OOIL Group has become part of the COSCO SHIPPING Group in July 2018. For the six months ended 30 June 2018, the revenue generated from the provision of container and other ancillary services by the Group to the OOIL Group amounted to approximately RMB333,984,000, representing approximately 7.1% of the total revenue generated from the container manufacturing business of the Group for the relevant period.

Terms of the transactions

Pursuant to the terms of the Master Containers Services Agreement as well as other continuing connected transaction agreements between the Group and the COSCO SHIPPING Group, the price of the relevant products and/or services provided thereunder shall be fair and reasonable and are no less favorable than the terms to or from independent third parties (as the case may be). The Group is not restricted under the terms of such agreements to sell and/or provide its products and/or services to independent third party customers.

In formulating the sales policy of the Group, in addition to the terms of sales, the Group also takes into account the creditworthiness and settlement risk of the customers. While the Group may selectively diversify its sales to independent third party customers so as to expand its customer base, such diversification of sales may also result in increased settlement risk of the sales of the Group as well as increased administrative expenses in assessing the creditworthiness of such independent third party customers. As COSCO SHIPPING is the indirect controlling shareholder of the Company, in light of the secured and steady relationship between the Group and the COSCO SHIPPING Group, the level of settlement risk associated with the transactions with the COSCO SHIPPING Group are generally lower than those with independent third party customers.

The Group is able to generate a stable revenue stream from the continuing connected transactions between the Group and the COSCO SHIPPING Group in respect of the provision of products and services by the Group to the COSCO SHIPPING Group and at the same time, leverage on the network of the COSCO SHIPPING Group to penetrate into the global market with a view to expanding its customer base.

As disclosed in the Interim Results Announcement, the revenue of the Group for the six months ended 30 June 2018 was approximately RMB8,221,346,000. The revenue generated from the COSCO SHIPPING Group accounted for approximately 51.1% of the total revenue of the Group for the aforementioned six month period, representing a decrease by 2.3 percentage points from approximately 53.4% for the year ended 31 December 2017.

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LETTER FROM THE BOARD

Expansion of the container manufacturing business of the Group

As disclosed in the Interim Results Announcement, the sales of containers by the Group amounted to approximately 369,000 TEUs for the six months ended 30 June 2018, representing an increase of approximately 81.8% as compared with 203,000 TEUs for the corresponding period in 2017, and the revenue generated from the container manufacturing business of the Group was approximately RMB4,676,837,000, representing an increase of approximately 98.1% as compared with approximately RMB2,360,729,000 for the corresponding period in 2017.

The abovementioned increases in the sales and revenue were attributable to the expansion of the container manufacturing business of the Group and the increase in the demand for containers by large container shipping companies (including the COSCO SHIPPING Group as well as independent third party customers), which results in the proposed revision of the annual caps for the Master Containers Services Agreement.

In light of the foregoing, the Board is of the view that (i) there is no issue of reliance of the Group on the COSCO SHIPPING Group in terms of generation of revenue; and (ii) the continuing connected transactions between the Group and the COSCO SHIPPING Group are in the interests of the Company and the Shareholders as a whole.

3. Reasons for and benefits of the revision of annual caps

The Directors have been carefully monitoring the historical transaction amounts of and the estimated demand for the continuing connected transactions of the Group.

Since 2017, the global demand for container shipping has gradually been growing, coupled with the impact of market supply and demand for containers, the price of new containers has increased. In light of the prevailing circumstances of the container manufacturing market and in order to seize the market opportunities, the Group has expanded its scale of container manufacturing. In addition, as the OOIL Group has become part of the COSCO SHIPPING Group, it is expected that there will be an increase in the demand of the COSCO SHIPPING Group for the containers manufactured by the Group, which would lead to an increase in the transaction amounts for the provision of container and other ancillary services by the Group under the Master Containers Services Agreement.

Due to the growing scale of the container manufacturing business of the Group, it is expected that there will be an increase in the demand of the Group for the merchandising of materials ancillary to containers and other ancillary services of the COSCO SHIPPING Group, which would lead to an increase in the transaction amounts for the provision of container and other ancillary services by the COSCO SHIPPING Group under the Master Containers Services Agreement.

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LETTER FROM THE BOARD

As a result, it is expected that the Existing Annual Caps would not be sufficient to meet the expected transaction amounts under the Master Containers Services Agreement for the two years ending 31 December 2018 and 31 December 2019.

The Directors (including the independent non-executive Directors, after considering the advice from the Independent Financial Adviser) considers that the transactions under the Master Containers Services Agreement have been conducted and will continue to be conducted in the ordinary and usual course of business of the Group and are on normal commercial terms, and that the terms of the Master Containers Services Agreement and the Proposed Revised Annual Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

4. Information on parties to the Master Containers Services Agreement

Information on the Group

The Company is a joint stock company established under the laws of 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 shipping and industry-related leasing businesses, manufacturing of containers and provision of investment and financial services.

Information on COSCO SHIPPING

COSCO SHIPPING is a company incorporated under the laws of the PRC, and is a state-owned enterprise wholly-owned and controlled by the State-owned Assets Supervision and Administration Commission of the State Council of the PRC.

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.

5. Internal control procedures for the Group

Pursuant to the terms of the continuing connected transaction framework agreements of the Group, the Group may, from time to time and as necessary, enter into separate implementation agreements for each of the specific transactions contemplated under the continuing connected transaction framework agreements of the Group.

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LETTER FROM THE BOARD

Each implementation agreement shall set out the specific terms and other relevant conditions for the particular transaction, including but not limited to rights and benefits of the parties, coordination of the parties, fees and expenses, payments, use of information, breach of agreement and exclusion of liabilities. Any execution and amendments of such implementation agreements shall not contravene the relevant continuing connected transaction framework agreements.

In addition to the annual review by the auditors and independent non-executive Directors pursuant to the requirements of Chapter 14A of the Listing Rules, the Company has implemented the following internal control procedures to ensure that the terms offered by the relevant connected parties are no less favourable than those available to or from independent third parties (as the case may be) and the continuing connected transactions of the Group are conducted in accordance with the pricing policy under the respective continuing connected transaction framework agreements:

(i) before entering into any implementation agreements pursuant to the continuing connected transaction framework agreements, the relevant executives of the relevant departments of the Company will review contemporaneous prices and other relevant terms offered by at least two independent third parties operating at the same or nearby area before the commencement of the relevant transaction, and ensure the terms offered by the relevant connected persons are fair and reasonable and comparable to those offered by independent third parties. In case where the offers made by independent third parties are more favourable to the Company, the Company would take up those offers of the independent third parties;
(ii) following entering into of the implementation agreements pursuant to the continuing connected transaction framework agreements, the Company will regularly examine the pricing of the transactions under the continuing connected transaction framework agreements to ensure that they are conducted in accordance with the pricing terms thereof, including reviewing the transaction records of the Company for the purchase or provision of similar goods or services to or from independent third parties, as the case may be;
(iii) the Company will regularly convene meetings to discuss issues in transactions under the continuing connected transaction framework agreements and recommendations for improvement;
(iv) the Company will regularly summarise the transaction amounts incurred under the respective continuing connected transaction framework agreements and submit reports to the management of the Company. The management and the relevant departments of the Company can be informed of the status of the continuing connected transactions in a timely manner such that the transactions can be conducted within the applicable annual caps; and

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LETTER FROM THE BOARD

(v) the supervision department of the Company will periodically review and inspect the process of the relevant continuing connected transactions.

By implementing the above procedures, the Directors consider that the Company has established sufficient internal control measures to ensure the pricing basis of each of the continuing connected transaction agreements of the Group will be on normal commercial terms (or better to the Group), fair and reasonable, in accordance with the pricing policy of the Company and in the interests of the Company and the Shareholders as a whole.

The relevant departments of the Company will also collect statistics of each of the continuing connected transaction agreements of the Group on a quarterly basis to ensure the annual caps approved by the Independent Shareholders or as announced are not exceeded.

6. Implications under the Listing Rules

Pursuant to Rule 14A.54 of the Listing Rules, the Company is required to re-comply with the applicable requirements under Chapter 14A of the Listing Rules due to the revision of the annual caps.

As one or more applicable percentage ratios in respect of the Proposed Revised Annual Caps exceed 5%, the revision of the annual caps in respect of the transactions contemplated under the Master Containers Services Agreement is subject to the reporting, announcement, annual review and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Ms. Sun Yueying, Mr. Wang Daxiong, Mr. Liu Chong and Mr. Xu Hui, all being executive Directors, hold directorship(s) or act as senior management in COSCO SHIPPING and its associates, and Mr. Feng Boming, Mr. Huang Jian and Mr. Liang Yanfeng, all being non-executive Directors were nominated by COSCO 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. Liang Yanfeng have therefore abstained from voting on the relevant Board resolution approving the Proposed Revised Annual Caps. Save as aforementioned, none of the other Directors has a material interest in the transactions contemplated under the Master Containers Services Agreement and therefore no other Director has abstained from voting on such Board resolution.

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LETTER FROM THE BOARD

7. 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 Proposed Revised Annual Caps.

Messis Capital Limited has been appointed by the Company as the Independent Financial Adviser with the approval of the Independent Board Committee to advise the Independent Board Committee and the Independent Shareholders in respect of the Proposed Revised Annual Caps.

V. THE EGM

The EGM will be held at 1:30 p.m. on Wednesday, 19 September 2018 at Holiday Inn Shanghai Jinxiu, No. 399 Jinzun Road, Pudong New Area, Shanghai, the PRC, for the Shareholders to consider and, if thought fit, approve the abovementioned resolutions. The voting in relation to such resolutions will be conducted by way of poll.

The Original Notice of EGM, which was despatched to the Shareholders on 3 August 2018, is reproduced on pages EGM-1 to EGM-4 of this circular. The Supplemental Notice of EGM, which contains the additional resolution to be proposed at the EGM, is set out on pages SEGM-1 to SEGM-3 of this circular.

As at the Latest Practicable Date, COSCO SHIPPING and its associates control or are entitled to exercise control over the voting rights in respect of 4,458,195,175 A Shares and 100,944,000 H Shares, representing approximately 39.02% of the total issued share capital of the Company. Accordingly, COSCO SHIPPING is an indirect controlling shareholder of the Company and therefore a connected person of the Company. COSCO SHIPPING and its associates and those who are interested in the Master Containers Services Agreement and the transactions contemplated thereunder will be required to abstain from voting on the resolution in relation to the Proposed Revised Annual Caps. 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 Master Containers Services Agreement and the transactions contemplated thereunder and therefore no other Shareholder is required to abstain from voting at the EGM for the relevant resolution.

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, no Shareholder has a material interest in the other resolutions to be proposed at the EGM and therefore no Shareholder is required to abstain from voting at the EGM for the other resolutions.

A Shareholder who has not yet lodged the Original Form of Proxy in accordance with the instructions printed thereon with Computershare is requested to complete and return the Revised Form of Proxy in accordance with the instructions printed thereon to Computershare

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LETTER FROM THE BOARD

not less than 24 hours before the time for holding the EGM or any adjournment thereof, if he or she wishes to appoint proxies to attend the EGM on his or her behalf. In this case, the Original Form of Proxy should not be lodged to Computershare.

A Shareholder who has already lodged the Original Form of Proxy in accordance with the instructions printed thereon with Computershare should note the following:

(i) If no Revised Form of Proxy is lodged with Computershare, the Original Form of Proxy will be treated as a valid form of proxy lodged by the Shareholder if correctly completed. The proxy appointed under the Original Form of Proxy will be entitled to vote in his or her discretion or abstain from voting on any resolutions properly put to the EGM, other than those referred to in the Original Notice of EGM and the Original Form of Proxy, including the additional resolutions set out in the Supplemental Notice of EGM.
(ii) If the Revised Form of Proxy is lodged with Computershare in accordance with the instructions printed thereon not less than 24 hours before the time for holding the EGM or any adjournment thereof, the Revised Form of Proxy will revoke and supersede the Original Form of Proxy previously lodged by the Shareholder. The Revised Form of Proxy will be treated as a valid form of proxy lodged by the Shareholder if correctly completed.
(iii) If the Revised Form of Proxy is lodged after 24 hours before the time for holding the EGM or any adjournment thereof, the Revised Form of Proxy will be deemed invalid. It will not revoke the Original Form of Proxy previously lodged by the Shareholder. The Original Form of Proxy will be treated as a valid form of proxy lodged by the Shareholder if correctly completed. The proxy appointed under the Original Form of Proxy will be entitled to vote in his or her discretion or abstain from voting on any resolutions properly put to the EGM, other than those referred to in the Original Notice of EGM and the Original Form of Proxy, including the additional resolutions set out in the Supplemental Notice of EGM.

Completion and return of the Original Form of Proxy and/or Revised Form of Proxy will not preclude a Shareholder from attending and voting in person at the EGM or at any adjourned meeting should you so wish, but in such event the instrument appointing a proxy shall be deemed to be revoked.

If you intend to attend the EGM in person or by proxy, you are required to complete and return the reply slip to Directorate Secretary Office of the Company not later than 31 August 2018.

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LETTER FROM THE BOARD

VI. RECOMMENDATION

The Independent Board Committee, after considering the advice from the Independent Financial Adviser, is of the view that the transactions contemplated under the Master Containers Services Agreement have been conducted and will continue to be conducted in the ordinary and usual course of business of the Group and are on normal commercial terms, and the terms of the Master Containers Services Agreement and the Proposed Revised Annual Caps are fair and reasonable and 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 the resolution in relation to the Proposed Revised Annual Caps to be proposed at the EGM.

The Board (including the independent non-executive Directors) considers that the other resolutions mentioned above are in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends all the Shareholders to vote in favour of these resolutions to be proposed at the EGM.

VII. FURTHER INFORMATION

Your attention is drawn to (i) the letter from the Independent Board Committee set out on pages 28 to 29 of this circular, containing its recommendation in respect of the Proposed Revised Annual Caps; (ii) the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders set out on pages 30 to 47 of this circular, containing its recommendation in respect of the Proposed Revised Annual Caps; and (iii) the additional information set out in the appendix to this circular.

The Independent Shareholders are advised to read the aforesaid letters and appendix before deciding as to how to vote on the resolutions approving the Proposed Revised Annual Caps.

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.”.

# For identification purpose only

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

**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)

4 September 2018

To the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS REVISION OF ANNUAL CAPS FOR MASTER CONTAINERS SERVICES AGREEMENT

We refer to the circular of the Company dated 4 September 2018 (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 Independent Board Committee to advise the Independent Shareholders in respect of the Proposed Revision of Annual Caps, details of which are set out in the “Letter from the Board” in the Circular. Messis Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

We wish to draw your attention to the “Letter from the Board” set out on pages 6 to 27 of the Circular and the “Letter from Independent Financial Adviser” set out on pages 30 to 47 of 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 Independent Financial Adviser” in the Circular, we concur with the view of the Independent Financial Adviser and consider that the transactions contemplated under the Master Containers Services Agreement have been conducted and will continue to be conducted in the ordinary and usual course of business of the Group and are on normal commercial terms. The terms of the Master Containers Services Agreement and the Proposed Revised Annual Caps are fair and reasonable and 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 the ordinary resolution to be proposed at the EGM to approve the Proposed Revised Annual Caps.

Yours faithfully, Independent Board Committee Mr. Cai Hongping Ms. Hai Chi Yuet Mr. Graeme Jack Mr. Lu Jianzhong Mr. Gu Xu Ms. Zhang Weihua 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

The following is the full text of the letter from Messis Capital Limited to the Independent Board Committee and the Independent Shareholders in respect of the Proposed Revised Annual Caps for the purpose of inclusion in this circular.

==> picture [222 x 43] intentionally omitted <==

4 September 2018

To: The Independent Board Committee and the Independent Shareholders of COSCO SHIPPING Development Co., Ltd.*

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS REVISION OF ANNUAL CAPS FOR MASTER CONTAINERS SERVICES AGREEMENT

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Proposed Revised Annual Caps, details of which are set out in the letter from the Board (the “ Letter from the Board ”) contained in the circular of the Company to the Shareholders dated 4 September 2018 (the “ Circular ”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires.

Reference is made to the announcement and the circular of the Company dated 5 December 2016 and 13 December 2016 respectively, in relation to, among other things, the continuing connected transactions under the Master Containers Services Agreement between the Company and COSCO SHIPPING. On 15 August 2018, the Board proposes to revise the Existing Annual Caps to the Proposed Revised Annual Caps in respect of the transactions contemplated under the Master Containers Services Agreement for the two years ending 31 December 2018 and 31 December 2019.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

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 COSCO SHIPPING and its associates, and Mr. Feng Boming, Mr. Huang Jian and Mr. Liang Yanfeng, all being non-executive Directors were nominated by COSCO 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. Liang Yanfeng have therefore abstained from voting on the relevant Board resolutions approving the Proposed Revised Annual Caps. Save as aforementioned, none of the other Directors has a material interest in the transactions contemplated under the Master Containers Services Agreement and therefore no other Director has abstained from voting on such Board resolutions.

The Independent Board Committee (comprising all independent non-executive Directors namely Mr. Cai Hongping, Ms. Hai Chi Yuet, Mr. Graeme Jack, Mr. Lu Jianzhong, Mr. Gu Xu and Ms. Zhang Weihua) has been formed in accordance with Chapter 14A of the Listing Rules to advise the Independent Shareholders on the Proposed Revised Annual Caps. We, Messis Capital Limited, have been appointed as the Independent Financial Adviser with the approval of the Independent Board Committee in accordance with the Listing Rules to advise the Independent Board Committee and the Independent Shareholders in these regards.

As at the Latest Practicable Date, we did not have any relationship with or interest in the Company and any other parties that could reasonably be regarded as relevant to our independence. Apart from normal professional fees payable to us in connection with this appointment as the Independent Financial Adviser, no arrangement exists whereby we will receive any fees or benefits from the Company or any other parties that could reasonably be regarded as relevant to our independence. During the past two years, we were appointed as an independent financial adviser for the Company on four occasions, details of which are set out in the Company’s circulars dated 1 December 2016, 19 May 2017, 31 May 2017 and 10 May 2018. During the past two years, we were also appointed as an independent financial adviser for COSCO SHIPPING Energy Transportation Co., Ltd. (stock code: 1138), a connected person of the Company, for one occasion, details of which are set out in its circular dated 4 December 2017. Notwithstanding the above, the previous engagements with the Company and its connected person would not affect our independence from the Company and we are independent from the Company pursuant to Rule 13.84 of the Listing Rules, in particular that we did not serve as a financial adviser to (i) the Company, (ii) COSCO SHIPPING Group, and (iii) any core connected person of the Company within 2 years prior to 20 August 2018, being date of making our independence declaration to the Hong Kong Stock Exchange pursuant to Rule 13.85(1) of the Listing Rules.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS OF OUR OPINION

In arriving at our recommendations, we have relied on the statements, information and representations contained in the Circular and the information and representations provided to us by the Company, the Directors and the management of the Company. We have assumed that all information, representations and opinions contained or referred to in the Circular and all information and representations which have been provided by the Company, the Directors and the management of the Company for which they are solely and wholly responsible, are true and accurate at the time they were made and will continue to be accurate as at the Latest Practicable Date. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the management of the Company.

The 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 the 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 therein or the document misleading.

We consider that we have been provided with sufficient information on which to form a reasonable basis for our opinion. We have no reason to suspect that any relevant information has been withheld, nor are we aware of any material facts or circumstances which would render the information provided and representations made to us untrue, inaccurate or misleading. We consider that we have performed all the necessary steps to enable us to reach an informed view and to justify our reliance on the information provided so as to provide a reasonable basis for our opinion. We have not, however, carried out any independent verification of the information provided by the Company, the Directors and the management of the Company, nor have we conducted an independent investigation into the business and affairs of the Group and any parties in relation to the Proposed Revised Annual Caps.

This letter is issued for the information of the Independent Board Committee and the Independent Shareholders solely in connection with their consideration of the Proposed Revised Annual Caps. Except for its inclusion in the Circular, this letter is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purposes, without our prior written consent.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinions and recommendations, we have taken into consideration the following principal factors and reasons:

1. Background Information on The Group

1.1 Background information on the Company

The Company is a joint stock company established under the laws of 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.

1.2 Financial performance on the Group

Set out below is a summary of the consolidated statements of profit or loss of the Group for each of the three years ended 31 December 2015, 2016, 2017 and the six months ended 30 June 2018, which are extracted from the Interim Results Announcement, the Company’s annual report for the year ended 31 December 2017 and the Company’s annual report for the year ended 31 December 2016.

Six months ended

	Six months ended	Six months ended
	30 June		Year ended 31 December
	2018	2017	2017	2016	2015
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
	(unaudited)	(unaudited)	(audited)	(audited)	(audited)
		(restated)
*Continuing operations*
Revenue	8,221,346	7,723,343	16,260,600	15,527,887	32,887,498
Costs of sales	(6,521,081)	(6,084,837)	(12,852,154)	(13,849,363)	(32,120,147)
Gross profit	1,700,265	1,638,506	3,408,446	1,678,524	767,351
Profit/(loss) from
continuing operations	231,657	997,630	1,534,332	315,749	(22,637)
*Discontinued operation*
Profit from discontinued
operation	146,967	90,222	–	77,326	(80,333)
Profit/(loss) attributable
to owners of the parent	326,606	1,055,029	1,463,803	347,503	(199,511)

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Continuing operations

Revenue decreased from approximately RMB32.9 billion for the year ended 31 December 2015 to approximately RMB15.5 billion for the year ended 31 December 2016, representing a decrease of approximately 52.9%. The decline in the revenue was attributable to the combination of the decrease in the revenue from the liner operations mainly due to the Company ceased to be engaged in the container liner operations following the restructuring and transformation, which was partially offset by the effect of (i) the increase in the revenue from the shipping-related leasing business mainly due to the Company starting to lease out all its self-owned vessels since March 2016 and (ii) the increase in shipping and industry related leasing business driven by a rapid expansion in financial leasing business after the Group’s subsidiary, COSCO Shipping Leasing Co., Ltd, commenced operations in the first half of 2015.

Revenue then increased from approximately RMB15.5 billion for the year ended 31 December 2016 to approximately RMB16.3 billion for the year ended 31 December 2017, representing an increase of approximately 5.2%. Such increase was attributable to (i) the combined effect of the further expansion of other industry-related finance leasing business and the term expiry of chartered vessels during the year and the decrease in number of sub-chartering vessels; and (ii) the increase in the container manufacturing business due to the recovery of the container manufacturing market alongside the global economic and shipping market recovery, and the rise in both volumes and prices in the container manufacturing market due to the industry-wide application of waterproof coats in April 2017 which pushed up the price for containers.

Revenue increased from approximately RMB7.7 billion for the six months ended 30 June 2017 to approximately RMB8.2 billion for the six months ended 30 June 2018, representing an increase of approximately 6.4%. The improvement was mainly due to increase in revenue from container manufacturing business of approximately 98.1% from approximately RMB2.4 billion to approximately RMB4.7 billion as a result of enhanced efforts in the purchase of containers by large container transportation companies during the period following the recovery of the industry.

The Group has recorded a profit from continuing operations for the year ended 31 December 2016 of approximately RMB315.7 million as compared to a loss of approximately RMB22.6 million for the year ended 31 December 2015. Such turnaround from loss to profit was mainly due to (i) the increase in gross profit of approximately 118.7%; (ii) the decrease in selling, administrative and general expenses of approximately 26% and (iii) other gains of approximately RMB117.2 million for the year ended 31 December 2016 as compared to other losses of approximately RMB67.5 million for the year ended 31 December 2015, mainly attributable to the gains from disposal of interests in associates and available-for-sale investments.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Group has recorded a profit from continuing operations for the year ended 31 December 2017 of approximately RMB1.5 billion as compared to a profit of approximately RMB315.7 million for the year ended 31 December 2016. Such significant increase in profit was mainly attributable to (i) the increase in gross profit of approximately 100.0%; (ii) the decrease in selling, administrative and general expenses of approximately 27% and (iii) other gains of approximately RMB10.3 million for the year ended 31 December 2017 as compared to other losses of approximately RMB117.2 million for the year ended 31 December 2016, mainly attributable to exchange losses.

The Group has recorded a decrease of approximately 76.8% in profit from continuing operations for the six months ended 30 June 2018 of approximately RMB231.7 million as compared to a profit of approximately RMB997.6 million for the six months ended 30 June 2017. Such decrease was mainly due to (i) the increase in selling, administrative and general expenses of approximately 66.0% and (ii) net other losses of approximately RMB450.1 million as compared to net other gain of approximately RMB20.0 million for the corresponding period last year, which was mainly attributable to fair value loss on financial assets at fair value through profit or loss as a result of decease in prices of shares of listed equity investment held by the Group.

Discontinued operation

In 2016, the Group had undergone a corporate restructuring exercise where certain subsidiaries of the Group was disposed of (the “ Restructuring ”). Among the disposed subsidiaries, Shanghai Puhai Shipping Liners Co., Ltd. and its subsidiaries, Universal Shipping (Asia) Co., Ltd., Golden Sea Shipping Pte. Ltd. and China Shipping (Singapore) Petroleum Pte. Ltd. constituted a major line of business of provision of container marine transportation services and related business, which was classified as a discontinued operation. These disposals were completed before 30 June 2016, the assets and liabilities were no longer included in the annual condensed consolidated statement of financial position of the Group as at 31 December 2016 and 31 December 2017.

1.3 Financial position on the Group

NON-CURRENT ASSETS Property, plant and equipment Investments in associates Finance lease receivables Other non-current assets	As at 30 June 2018 RMB’000 (unaudited) 55,740,134 21,263,860 22,997,970 3,694,535 103,696,499	As at 31 December 2017 2016 2015 RMB’000 RMB’000 RMB’000 (audited) (audited) (audited) 53,844,184 58,392,439 56,591,248 20,256,221 18,244,380 20,096,311 20,087,976 15,010,397 5,680,658 4,815,883 6,936,873 2,203,454 99,004,264 98,584,089 84,571,671	As at 31 December 2017 2016 2015 RMB’000 RMB’000 RMB’000 (audited) (audited) (audited) 53,844,184 58,392,439 56,591,248 20,256,221 18,244,380 20,096,311 20,087,976 15,010,397 5,680,658 4,815,883 6,936,873 2,203,454 99,004,264 98,584,089 84,571,671
			84,571,671

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

CURRENT ASSETS Inventories Prepayments, trade, notes and other receivables Finance lease receivables Loans and receivables Other current assets Cash and cash equivalents CURRENT LIABILITIES Trade and notes payable, other payables and accruals Interest-bearing bank and other borrowings Other current liabilities Net current liabilities Total assets less current liabilities NON-CURRENT LIABILITIES Interest-bearing bank and other borrowings Domestic corporate bonds Other non-current liabilities Net assets EQUITY Share capital Reserves Other Equity Instrument Retained profits/(Accumulated losses) Non-controlling interests Total equity	As at 30 June 2018 RMB’000 (unaudited) 1,459,731 4,040,813 8,967,555 – 26,427,240 5,670,318 40,895,339 6,176,358 42,924,061 17,893,997 66,994,416 (26,099,077) 77,597,422 54,371,472 3,104,899 3,126,050 60,602,421 16,995,421 11,683,125 (5,309,476) 1,000,000 8,971,709 16,345,358 649,643 16,995,001	As at 31 December 2017 2016 2015 RMB’000 RMB’000 RMB’000 (audited) (audited) (audited) 1,155,668 859,415 1,238,768 2,285,219 2,555,589 4,553,159 7,333,145 3,593,896 1,682,327 3,763,801 3,132,913 3,133,055 2,302,263 1,207,149 1,126,514 23,193,300 15,527,254 15,931,671 40,033,396 26,876,216 27,665,494 4,410,173 3,923,465 5,765,033 31,571,856 29,925,251 26,818,843 16,675,537 10,785,758 4,881,717 52,657,566 44,634,474 37,465,593 (12,624,170) (17,758,258) (9,800,099) 86,380,094 80,825,831 74,771,572 63,849,439 64,102,361 25,349,767 2,803,325 1,426,942 3,449,494 2,853,543 1,733,414 695,688 69,506,307 67,262,717 29,494,949 16,873,787 13,563,114 45,276,623 11,683,125 11,683,125 11,683,125 (5,360,662) (5,988,527) 25,662,872 1,000,000 – – 8,953,699 7,555,449 7,433,077 16,276,162 13,250,047 44,779,074 597,625 313,067 497,549 16,873,787 13,563,114 45,276,623

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As at 31 December 2015, 2016, 2017 and 30 June 2018, property, plant and equipment, cash and cash equivalents, finance lease receivables as well as investments in associates were the major assets of the Group, which accounted for approximately 87.6%, 85.4%, 84.4% and 73.1% of the total assets of the Group as at 31 December 2015, 2016, 2017 and 30 June 2018, respectively. The property, plant and equipment of approximately RMB53.8 billion as at 31 December 2017 mainly comprised of container vessels.

As at 31 December 2015, 2016, 2017 and 30 June 2018, interest-bearing bank and other borrowings, trade and notes payable, other payables and accruals and corporate bonds were the major liabilities of the Group, which accounted for approximately 91.7%, 88.8%, 84.0% and 83.5%of the total liabilities of the Group as at 31 December 2015, 2016, 2017 and 30 June 2018, respectively.

As a result of the foregoing, the total equity of the Group as at 31 December 2015, 2016, 2017 and 30 June 2018 amounted to RMB45,277 million, RMB13,563 million, RMB16,874 million and RMB16,995 million, respectively. The significant dropped in the total equity from approximately RMB45,277 million as at 31 December 2015 to approximately RMB13,563 million as at 31 December 2016 was due to the Restructuring. According to merger accounting, the shareholder’s equity has included the net assets of the subsidiaries acquired as at 31 December 2015. The related consideration of RMB30.83 billion recognised in 2016 offset the shareholder’s equity according to the related accounting standard.

1.4 Background information on COSCO SHIPPING

COSCO SHIPPING is a company incorporated under the laws of the PRC. It is a state-owned enterprise wholly-owned and controlled by State-owned Assets Supervision and Administration Commission of the State Council of the PRC. 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.

1.5 Reasons for and benefits of the Proposed Revised Annual Caps

As discussed in the section “1.2 Financial performance on the Group” above, revenue of the Group for the year ended 31 December 2017 increased due to, among others, the increase in revenue in containers manufacturing business. According to the annual report of the Company for the year ended 31 December 2017, the revenue from containers manufacturing segment increased by approximately 94% from RMB3,064.6 million for the year ended 31 December 2016 to approximately RMB5,940.0 million. The Group’s container sales amounted to 480,000 TEUs during the year, representing an increase of 34% as compared with 358,000 TEUs of last year. As advised by the management of the Company, such increase was mainly due to the growing global demand for container shipping which resulted the increase in demand and prices of

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

containers. Further, according to the Interim Results Announcement, there was an increase in sales of containers by the Group by approximately 81.8% from approximately 203,000 TEUs for the six months ended 30 June 2017 to approximately 369,000 TEUs for the six months ended 30 June 2018 due to expansion of the container manufacturing business of the Group.

In addition, as at the Latest Practicable Date, OOIL Group has become part of the COSCO SHIPPING Group. We have reviewed the composite offer and response document in respect of the conditional voluntary general cash offer to OOIL Group dated 6 July 2018 (the “ Composite Document ”) and noted that OOIL Group is principally engaged in the provision of container transport and logistic services. According to the Composite Document, after the completion of the general cash offer, the combined COSCO SHIPPING Group and OOIL Group will become one of the world’s leading container shipping companies with more than 400 vessels and capacity exceeding 2.9 million TEUs including order book with the increase in business scale. It is expected that both parties will benefit from access to a combined and complementary global sales network and customer base, shipping network optimization, as well as advanced IT systems, to further drive synergies and operational efficiency. Further, after the completion of the general cash offer, COSCO SHIPPING Group intend to keep the existing OOIL Group branding so that COSCO SHIPPING Group and OOIL Group can provide customers with more diversified product offerings and better service experience with their respective brands, as both parties explore ways to achieve synergies and better operational efficiency.

Having considered that (i) the Group has established long term business relationships with COSCO SHIPPING Group; (ii) the Master Container Services Agreement offers services which are in line with the principal business of the Group; (iii) driven by the growing global container shipping market, the demand for the containers of the Group is expanding; (iv) OOIL has become part of the COSCO SHIPPING Group and it is expected that there will be an increase in the demand from the COSCO SHIPPING Group for the containers manufactured by the Group, which would then lead to an increase in the transaction amounts for the provision of container and other ancillary services by the Group under the Master Containers Services Agreement; and (v) the demand of the Group for the merchandising of materials ancillary to containers and other ancillary services of the COSCO SHIPPING Group is expected to increase due to the growing scale of the container manufacturing business of the Group, which would lead to an increase in the transaction amounts for the provision of container and other ancillary services by the COSCO SHIPPING Group under the Master Containers Services Agreement, we concur with the view of the Directors that the Existing Annual Caps would not be sufficient to meet the expected transaction amounts under the Master Containers Services Agreement for the two years ending 31 December 2018 and 31 December 2019 and hence the Master Containers Services Agreement and the Proposed Revised Annual Caps is in the ordinary and usual course of the business of the Group and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

1.6 No reliance on COSCO SHIPPING Group

As disclosed in the annual report of the Company for the year ended 31 December 2017, the revenue from the COSCO SHIPPING Group amounted to approximately RMB8.6 billion, representing approximately 53.4% of the total revenue of the Group for the year ended 31 December 2017. Further, as disclosed in the Interim Results Announcement, the revenue of the Group for the six months ended 30 June 2018 was approximately RMB8.2 billion and revenue generated from the COSCO SHIPPING Group accounted for approximately 51.1% of the total revenue of the Group for the aforementioned six month period.

According to the 2017 Report on the Development of PRC Container Industry (《中國集裝箱行業發展報告(2017年度)》) issued by CCIA-China Container Industry Association (中國集裝箱行業協會) in December 2017, the PRC container manufacturers have accounted for approximately 95.0% of the market share in the global container manufacturing market in terms of production volume since 2006 and the top four container manufacturers in the PRC (including the Group) accounted for approximately 94.5% of the total production volume of PRC in 2016.

As discussed in section “1.5 Reasons for and benefits of the Proposed Revised Annual Caps” above, given the recent growth of the container shipping market as evidenced by the growing revenue and shipping/lifting volumes by COSCO SHIPPING Holdings and OOIL Group in 2017 and 2018 and OOIL Group has become part of the COSCO SHIPPING Group in July 2018, there has been a growing demand from large container shipping companies (including the COSCO SHIPPING Group as well as independent third parties) for the containers and other ancillary services. Taking into consideration of the above and (i) the established long term business relationship between COSCO SHIPPING Group and the Group; and (ii) the Group’s scale and quality on containers manufacturing, it is on commercial decision for the COSCO SHIPPING Group to increase its orders for containers manufactured by the Group and other ancillary services. As such, we concur with the Directors’ view that the transactions contemplated under the Master Containers Services Agreement are mutual and complementary.

For containers manufacturing segment, as disclosed in the annual report of the Company for the year ended 31 December 2017, revenue derived from containers manufacturing segment to external customers amounted to approximately RMB5.5 billion. We noted that the historical transactions under the Master Containers Services Agreement for products and services to be provided by the Group to the COSCO SHIPPING Group amounted to approximately RMB1.6 billion for the year ended 31 December 2017 or approximately 28.6% of the total revenue under containers manufacturing segment.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Having taking into account (i) the mutual and complementary relationship between the Group and the COSCO SHIPPING Group under the Master Containers Services Agreement; (ii) revenue from COSCO SHIPPING Group for the six months ended 30 June 2018 represents a slight decrease as compared to that for the year ended 31 December 2017 and (iii) COSCO SHIPPING Group contributed only 28.6% of the total revenue of container manufacturing segment of the Group for the year ended 31 December 2017, we concur with the Directors views that (i) there is no issue of reliance of the Group on the COSCO SHIPPING Group in terms of generation of revenue; and (ii) the continuing connected transactions between the Group and the COSCO SHIPPING Group in relation to the Master Containers Services Agreement are in the interests of the Company and the Shareholders as a whole.

2. The Master Containers Services Agreement

2.1 Details of the Master Containers Services Agreement

The principal terms of the Master Containers Services Agreement are set out below.

Products and services to be provided by the Group

Products and services to be provided to the Group

2.2 The Proposed Revised Annual Caps

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

			For the six months	For the year ending
	For the year ended 31 December 2017		ended 30 June 2018	31 December 2018
	Historical		Historical
	transaction amounts	Annual caps	transaction amounts	Annual caps
	(RMB’000)	(RMB’000)	(RMB’000)	(RMB’000)
Products and services to be
provided by the Group to the
COSCO SHIPPING Group:	1,561,991	2,800,000	1,306,312	3,800,000
Products and services to be
provided by the COSCO
SHIPPING Group to the Group:	322,749	360,000	305,919	410,000

The Board therefore proposed to revise the Existing Annual Caps to the Proposed Revised Annual Caps as set out in the table below:

	For the year	ending
	31 December
	2018	2019
	(RMB’000)	(RMB’000)
Products and services to be provided by the
Group to the COSCO SHIPPING Group
Existing Annual Caps:	3,800,000	4,200,000
Proposed Revised Annual Caps:	8,000,000	10,000,000
Products and services to be provided by the
COSCO SHIPPING Group to the Group
Existing Annual Caps:	410,000	450,000
Proposed Revised Annual Caps:	1,900,000	1,900,000

Products and services to be provided by the Group to the COSCO SHIPPING Group

The Proposed Revised Annual Caps for the container services to be provided by the Group to the COSCO SHIPPING Group under the Master Containers Services Agreement for each of the years ending 31 December 2018 and 2019 are RMB8,000 million, and RMB10,000 million, respectively.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As disclosed in the Letter from the Board, in arriving at the Proposed Revised Annual Caps for the provision of products and services by the Group to the COSCO SHIPPING Group under the Master Containers Services Agreement, the Directors have considered:

(i) the abovementioned historical transaction amounts for the provision of containers and other ancillary services by the Group to the COSCO SHIPPING Group under the Master Containers Services Agreement for the six months ended 30 June 2018;
(ii) the recent orders on hand placed by the COSCO SHIPPING Group (including the OOIL Group) for the year ending 31 December 2018, which has reached approximately 67.5% of the total expected orders for the year ending 31 December 2018;
(iii) the historical and expected transaction amounts for the provision of container and other ancillary services by the Group to the OOIL Group (which has become part of the COSCO SHIPPING Group in July 2018) for the six months ended 30 June 2018 and the revenue generated from the provision of container and other ancillary services by the Group to the OOIL Group amounted to approximately RMB 333,984,000;
(iv) the existing scale of operation of the COSCO SHIPPING Group, which, following the addition of the OOIL Group, has become one of the world’s leading container shipping companies with more than 400 vessels and capacity exceeding 2.9 million TEUs;
(v) the expected increase in the demand of the COSCO SHIPPING Group for the containers manufactured by the Group and other ancillary services in light of the growing global demand for container shipping as reflected by the increase in the CCFI from the record low of 632 in April 2016 to approximately 840 as at 24 August 2018;
(vi) the prevailing prices for the sale and purchase and commissioned manufacturing of containers, and in particular, the prevailing market price of new containers was approximately US$2,300 per TEU, representing an increase of approximately 53.3% as compared to average market price of approximately US$1,500 per TEU in 2016, when the Existing Annual Caps were determined; and
(vii) the estimated market fluctuation in terms of container price, demands and exchange rate for US$ to RMB.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In assessing the fairness and reasonableness of the Proposed Revised Annual Caps for the container services to be provided by the Group to the COSCO SHIPPING Group under the Master Containers Services Agreement, we have obtained and reviewed the calculation in arriving the Proposed Revised Annual Caps, which have taken into account, among other factors, the expected purchase volume from COSCO SHIPPING Group and selling prices of containers to be sold by the Group to the COSCO SHIPPING Group. After our review on the calculation of the Proposed Revised Annual Caps and discussion with the management of the Company, we are given to understand that the calculation has considered (i) the orders on hand for the year ending 31 December 2018; (ii) the expected purchase volume of containers from the COSCO SHIPPING Group for the two years ending 31 December 2018 and 2019; and (iii) the expected selling price per TEU for the two years ending 31 December 2018 and 2019.

In assessing the fairness and reasonableness of the estimated purchase volume the two years ending 31 December 2018 and 2019, we have taken into account the following factors:

As discussed in section “1.5 Reasons for and benefits of the Proposed Revised Annual Caps” above, the demand for the containers manufactured by the Group is expected to expand due to (i) the growing global container shipping market and (ii) OOIL Group has become part of the COSCO SHIPPING Group and it is expected that there will be an increase in the demand of the COSCO SHIPPING Group for the containers manufactured by the Group;
Recent orders on hand placed by COSCO SHIPPING Group (including OOIL Group) has reached approximately 67.5% of the total expected orders for the year ending 31 December 2018;
The combined COSCO SHIPPING Group and OOIL Group will become one of the world’s leading container shipping companies with more than 400 vessels and capacity exceeding 2.9 million TEUs;
We have reviewed the annual report of COSCO SHIPPING Holdings and noted that its container shipping business increased by approximately 30.3% in terms of revenue and approximately 23.7% in terms of container shipping volume. COSCO SHIPPING Holdings maintained strong growth in the first quarter of 2018. According to its interim results announcement dated 30 August 2018, the shipping volume reached 11,234,900 TEUs, representing an increase of 12.4% as compared to the same period of last year. The recent business growth of COSCO SHIPPING Holdings supports the expected increasing demand on the containers manufactured by the Group;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to the annual report of OOIL Group, for the year ended 31 December 2017, total lifting volumes increased by approximately 3.6% over the same period last year while total revenues recorded a 15.4% growth. In addition, per the interim results announcement of OOIL Group dated 3 August 2018, for the six months ended 30 June 2018, total lifting volumes of OOIL Group increased by approximately 6.0% over the same period last year while total revenues recorded a 9.6% growth. The recent business growth of OOIL Group supports the expected increasing demand on the containers manufactured by the Group.

Having taking into account (i) the recent orders on hand placed by COSCO SHIPPING Group (including OOIL Group); (ii) the expanded scale of fleet size of COSCO SHIPPING Group (including OOIL Group) and (iii) the recent growth of the container shipping market as evidenced by the growing revenue and shipping/lifting volumes by COSCO SHIPPING Holdings and OOIL Group in 2017 and 2018, we consider that the bases and assumptions adopted in determining the expected purchase volume by COSCO SHIPPING Group are fair and reasonable so far as the Independent Shareholders are concerned.

The expected selling prices of containers to be sold by the Group to the COSCO SHIPPING Group for the two years ending 31 December 2018 and 2019 are estimated with reference to the (i) historical average price of containers for the past five years; (ii) industry-wide application of water-proof coats on containers; and (iii) possible inflations rate. In considering the fairness and reasonableness of the expected selling prices being adopted in the calculations, we have reviewed the historical average prices of containers for the past five years provided by the management of the Group. The prices of container were generally in decreasing trend from 2013 to 2016 but was rebounded in 2017. We noted that the expected selling price per TEU is higher than the historical average prices of containers. As advised by the management of the Group, the increase in expected selling price is due to the fact that the waterproof coats on the container has been widely adopted among the industry since April 2017 and hence the price of containers increased with the additional functionalities. Having taken into the above, we concur with the Directors’ view that the bases and assumptions for the purpose of determining expected selling prices for the two years ending 31 December 2018 and 2019 is fair and reasonable so far as the Independent Shareholders are concerned.

After taking into account, in particular, our review of the calculation of the Proposed Revised Annual Caps including the key factors such as the expected sales volume and the expected selling price, we are of the view that the Proposed Revised Annual Caps in respect of products and services to be provided by the Group to the COSCO SHIPPING Group under the Master Containers Services Agreement are fair and reasonable so far as the Independent Shareholders are concerned.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Products and services to be provided by the COSCO SHIPPING Group to the Group

The Proposed Revised Annual Caps for the container services to be provided by COSCO SHIPPING Group to the Group under the Master Containers Services Agreement for each of the years ending 31 December 2018 and 2019 are RMB1,900 million and RMB1,900 million, respectively.

As disclosed in the Letter from the Board, in arriving at the Proposed Revised Annual Caps for the provision of products and services by the COSCO SHIPPING Group to the Group under the Master Containers Services Agreement, the Directors have considered:

(i) the abovementioned historical transaction amounts for the provision of products and services by the COSCO SHIPPING Group to the Group under the Master Containers Services Agreement for the six months ended 30 June 2018;
(ii) the expected increase in the demand of the Group for the merchandising of materials ancillary to containers, containers depot, containers logistics, containers management, containers maintenance, and other ancillary services as a result of the expected increase in the production volume and sales of containers by the Group due to the expansion of the container manufacturing business of the Group, as reflected by the increase in the sales of containers by the Group by approximately 81.8% from approximately 203,000 TEUs for the six months ended 30 June 2017 to approximately 369,000 TEUs for the six months ended 30 June 2018, further details of which are set out in the Interim Results Announcement;
(iii) the increase in demand of the Group for water-based paints, whose price is generally higher than that of oil based paints, for the manufacturing of containers as a result of the industry-wide application of water-based paints as opposed to oil-based paints on containers since April 2017;
(iv) the prevailing prices for materials ancillary to containers, containers depot, containers logistics, containers management and containers maintenance; and
(v) the estimated market fluctuation in terms of ancillary materials price, demands and exchange rates.

In assessing the fairness and reasonableness of the Proposed Revised Annual Caps for the container services to be provided by the COSCO SHIPPING Group to the Group under the Master Containers Services Agreement, we have obtained and reviewed the calculation and discussed with the management of the Company regarding the bases and assumptions in arriving the Proposed Revised Annual Caps. We noted that the Proposed Revised Annual Caps mainly includes estimated transactions amount on (i) merchandising of material ancillary to containers; and (ii) containers logistics regarding

– 45 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

the transportation of containers; which is based on (a) the expected containers manufacturing volume of containers by the Group for the two years ending 31 December 2018 and 2019; and (b) prevailing prices for materials ancillary to containers, containers depot, containers logistics, containers management and containers maintenance. We noted from the calculation that both the manufacturing volume and prices for materials ancillary to container is expected to increase for the year ending 31 December 2018 and 2019.

Regarding the fairness and reasonableness on the expected containers manufacturing volume, we are advised by the management of the Company that the Group had manufactured over 500,000 TEUs containers in 2017 and expects such volume will increase further in 2018 and 2019. As discussed above, having taking into account that (i) growth of the container shipping market as evidenced by the growing revenue and shipping/lifting volumes by COSCO SHIPPING Holdings and OOIL Group in 2017 and 2018; and (ii) the expanded scale of fleet size of COSCO SHIPPING Group (including OOIL Group) with capacity over 2.9 million TEUs; we consider that it is fair and reasonable to expect that the demand of the Group for the merchandising of materials ancillary to containers, containers depot, containers logistics, containers management, containers maintenance, and other ancillary services would increase significantly as a result of the expected increase in the production volume of containers by the Group in order to cater for the expected significant increase in purchase volume from COSCO SHIPPING Group.

In assessing the fairness and reasonableness of the prices of materials ancillary to containers and containers logistics, we are given to understand that the estimated prices of materials ancillary to containers in 2018 and 2019 are estimated by reference to historical prices in 2017 as well as the estimated market fluctuations in terms of ancillary materials price, demands and exchange rates. Paints are the key materials to be purchased by the Group from COSCO SHIPPING Group which would account for around 50% of the transaction amount of the Proposed Revised Annual Caps. We noted that the estimated prices of paints in determining the Proposed Revised Annual Caps are higher than that of the average prices in 2017 as paints with water-proof functions (which is of higher price) will be used in production of containers. Regarding the prices for container logistics, we have discussed with the management of the Company and noted that the services regarding the transportation of containers provided by COSCO SHIPPING Group are priced based on TEU. We are further advised that the estimated prices of containers logistics in determining the Proposed Revised Annual Caps are based on an implementation agreement entered between the relevant subsidiary of the Group and relevant subsidiary of the COSCO SHIPPING Group under the Master Container Services Agreement which specified the prices of containers logistics services.

Having taken into account of the above factors, we concur with the Directors’ view that the basis and assumptions in determining the estimated prices of materials ancillary to containers and containers logistics services are fair and reasonable.

– 46 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

After taking into account, in particular, our review of the calculation of the Proposed Revised Annual Caps including the key factors such as the expected containers manufacturing volume and the estimated prices of materials ancillary to containers, we are of the view that the Proposed Revised Annual Caps in respect of services to be provided to the Group by the COSCO SHIPPING Group under the Master Containers Services Agreement are fair and reasonable so far as the Independent Shareholders are concerned.

RECOMMENDATION

Having taken into account the above-mentioned principal factors and reasons, we are of the view that (i) the transactions contemplated under the Master Containers Services Agreement have been conducted and will continue to be conducted in the ordinary and usual course of business of the Group and are on normal commercial terms; and (ii) the terms of the Master Containers Services Agreement and the Proposed Revised Annual Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders, as well as the Independent Board Committee to recommend the Independent Shareholders, to vote in favour of the ordinary resolutions to be proposed at the EGM.

Yours faithfully, For and on behalf of Messis Capital Limited Vincent Cheung Managing Director

Mr. Vincent Cheung is a licensed person registered with the Securities and Futures Commission and regarded as a responsible officer of Messis Capital Limited to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO and has over 10 years of experience in corporate finance industry.

– 47 –

GENERAL INFORMATION

APPENDIX I

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the 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 of 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 the	percentage of the
				Number of	relevant class of	total issued share
		Class of		Shares	Shares of the	capital of the
Name	Position	Shares	Capacity	interested	Company	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)

– I-1 –

GENERAL INFORMATION

APPENDIX I

Notes:

“L” means long position in the shares.
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.

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. Huang Jian, a non-executive Director, was also a department general manager of COSCO SHIPPING;
(c) Mr. Feng Boming, a non-executive Director, was also a department general manager of COSCO SHIPPING;
(d) Mr. Hao Wenyi, a Supervisor, was also a department general manager of COSCO SHIPPING; and
(e) Mr. Ye Hongjun, a Supervisor, was also the chief legal adviser of COSCO SHIPPING.

– I-2 –

GENERAL INFORMATION

APPENDIX I

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

– I-3 –

GENERAL INFORMATION

APPENDIX I

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 2017, 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 or the Supervisors 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. MATERIAL INTERESTS

As at the Latest Practicable Date:

(a) none of the Directors or the Supervisors had any direct or indirect interest in any assets which had been, since 31 December 2017 (being the date to which the latest published audited accounts of the Company were made up) acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group; and
(b) none of the Directors or the Supervisors was materially interested in any contract or arrangement subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group.

– I-4 –

GENERAL INFORMATION

APPENDIX I

6. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors nor any of their respective close associates had any interests 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.

7. EXPERT’S QUALIFICATIONS AND CONSENT

The following are the qualifications of the expert who has given its opinions or advice which are contained in this circular:

Name Qualification Messis Capital Limited A corporation licensed to conduct Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO

As at the Latest Practicable Date, Messis Capital 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, Messis Capital 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, Messis Capital 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 2017 (being the date to which the latest published audited statements of the Group were made up).

8. 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 50/F, COSCO Tower, 183 Queen’s Road Central, Hong Kong from the date of this circular up to and including the date of the EGM:

(a) the Master Containers Services Agreement;
(b) the letter from the Board, the text of which is set out in the section headed “Letter from the Board” in this circular;

– I-5 –

GENERAL INFORMATION

APPENDIX I

(c) 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;
(d) 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;
(e) the written consent referred to in the paragraph headed “Expert’s Qualifications and Consent” in this Appendix; and
(f) this circular.

– I-6 –

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.

**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 Wednesday, 19 September 2018 (or at any adjournment thereof) at Holiday Inn Shanghai Jinxiu, No. 399 Jinzun Road, Pudong New Area, Shanghai, the People’s Republic of China to consider and, if thought fit, pass the following resolutions. Unless otherwise defined, capitalised terms used in this notice shall have the same meanings as those defined in the announcement of the Company dated 3 August 2018 (the “ Announcement ”).

SPECIAL RESOLUTION

To consider and approve the resolution in relation to the Proposed Issuance of Renewable Corporate Bonds, details of which are set out in the Announcement:

“ THAT :

each of the following items in respect of the Proposed Issuance of Renewable Corporate Bonds be and is hereby approved, confirmed and ratified, and be implemented conditional upon approvals and/or authorisations having been obtained from the relevant authorities:

(i) size of issuance;
(ii) method of issuance;
(iii) target investors and placing arrangements for the Shareholders;
(iv) maturity of the Renewable Corporate Bonds;
(v) interest rate and its determination method;

– EGM-1 –

NOTICE OF EGM

(vi) face value and issue price;
(vii) use of proceeds;
(viii) method of underwriting;
(ix) terms for redemption or sale back;
(x) method of repayment of principal and interest;
(xi) terms for deferring interest payment;
(xii) mandatory interest payment and restrictions on deferring interest payment;
(xiii) listing arrangement;
(xiv) guarantee;
(xv) safeguards for repayment of the Renewable Corporate Bonds; and
(xvi) validity period of the resolutions.”

ORDINARY RESOLUTIONS

To consider and approve the resolution in relation to satisfaction of the conditions for public issuance of renewable corporate bonds by the Company to qualified investors.
To consider and approve the resolution in relation to the authorisation to the Board and any person authorised by the Board to handle all matters in connection with the Proposed Issuance of Renewable Corporate Bonds.
To consider and approve the resolution in relation to the appointment of ShineWing Certified Public Accountants as the domestic auditor of the Company for the year of 2018, and to authorise the audit committee of the Board to determine its remuneration.

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

Company Secretary

Shanghai, the People’s Republic of China

3 August 2018

– EGM-2 –

NOTICE OF EGM

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 20 August 2018 to 19 September 2018 (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 17 August 2018 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 17 August 2018.

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

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 31 August 2018).

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.

– EGM-3 –

NOTICE OF EGM

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. Liang Yanfeng, being non-executive directors, and Mr. Cai Hongping, Ms. Hai Chi Yuet, Mr. Graeme Jack, Mr. Lu Jianzhong, Mr. Gu Xu and Ms. Zhang Weihua, 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-4 –

SUPPLEMENTAL NOTICE OF EGM

**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)

SUPPLEMENTAL NOTICE OF EXTRAORDINARY GENERAL MEETING

Reference is made to the notice of the extraordinary general meeting dated 3 August 2018 (the “ Original Notice of EGM ”) which sets out the details of the extraordinary general meeting (the “ EGM ”) of COSCO SHIPPING Development Co., Ltd. (the “ Company ”) to be held at 1:30 p.m. on Wednesday, 19 September 2018 (or at any adjournment thereof) at Holiday Inn Shanghai Jinxiu, No. 399 Jinzun Road, Pudong New Area, Shanghai, the People’s Republic of China, and the resolutions to be proposed at the EGM for the Shareholders’ approval. Unless otherwise defined, capitalised terms used in this supplemental notice shall have the same meanings as those defined in the circular of the Company dated 4 September 2018 (the “ Circular ”).

SUPPLEMENTAL NOTICE IS HEREBY GIVEN that the EGM will be held, as originally scheduled, to consider and, if thought fit, pass the following resolution as ordinary resolution of the Company, in addition to the resolutions set out in the Original Notice of EGM:

ORDINARY RESOLUTION

To consider and approve the resolution in relation to the Proposed Revised Annual Caps, the details of which are set out in the Circular:

“ THAT :

(i) the Proposed Revised Annual Caps for the transactions contemplated under the Master Containers Services Agreement for each of the two years ending 31 December 2018 and 2019 be and are hereby approved, confirmed and ratified in all respects; and

– SEGM-1 –

SUPPLEMENTAL NOTICE OF EGM

(ii) 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 Proposed Revised Annual Caps.”

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

Company Secretary

Shanghai, the People’s Republic of China

4 September 2018

Notes:

Save for the inclusion of the additional proposed resolution as set out in this supplemental notice of EGM, there are no other changes to the resolutions set out in the Original Notice of EGM. For details of the other resolutions to be considered at the EGM, closure of the register of H Shares members of the Company (the “ Register of Members ”), eligibility for attending the EGM, registration procedures for attending the EGM, appointment of proxy, method of voting and other relevant matters, please refer to the Original Notice of EGM.
Since the form of proxy dated 3 August 2018 (the “ Original Form of Proxy ”) sent together with the Original Notice of EGM does not contain the additional proposed resolution as set out in this supplemental notice of EGM, a revised form of proxy (the “ Revised Form of Proxy ”) has been prepared and is enclosed with this supplemental notice of EGM.
A Shareholder who has not yet lodged the Original Form of Proxy in accordance with the instructions printed thereon with Computershare, the Company’s H Share registrar, is requested to complete and return the enclosed Revised Form of Proxy in accordance with the instructions printed thereon to Computershare not less than 24 hours before the time for holding the EGM or any adjournment thereof, if he or she wishes to appoint proxies to attend the EGM on his or her behalf. In this case, the Original Form of Proxy should not be lodged to Computershare.

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

A Shareholder who has already lodged the Original Form of Proxy in accordance with the instructions printed thereon with Computershare should note the following:
(i) If no Revised Form of Proxy is lodged with Computershare, the Original Form of Proxy will be treated as a valid form of proxy lodged by the Shareholder if correctly completed. The proxy appointed under the Original Form of Proxy will be entitled to vote in his or her discretion or abstain from voting on any resolutions properly put to the EGM, other than those referred to in the Original Notice of EGM and the Original Form of Proxy, including the additional resolution set out in this supplemental notice of EGM.
(ii) If the Revised Form of Proxy is lodged with Computershare in accordance with the instructions printed thereon not less than 24 hours before the time for holding the EGM or any adjournment thereof, the Revised Form of Proxy will revoke and supersede the Original Form of Proxy previously lodged by the Shareholder. The Revised Form of Proxy will be treated as a valid form of proxy lodged by the Shareholder if correctly completed.

– SEGM-2 –

SUPPLEMENTAL NOTICE OF EGM

(iii) If the Revised Form of Proxy is lodged after 24 hours before the time for holding the EGM or any adjournment thereof, the Revised Form of Proxy will be deemed invalid. It will not revoke the Original Form of Proxy previously lodged by the Shareholder. The Original Form of Proxy will be treated as a valid form of proxy lodged by the Shareholder if correctly completed. The proxy appointed under the Original Form of Proxy will be entitled to vote in his or her discretion or abstain from voting on any resolutions properly put to the EGM, other than those referred to in the Original Notice of EGM and the Original Form of Proxy, including the additional resolution set out in this supplemental notice of EGM.
Completion and return of the Original Form of Proxy and/or Revised 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.
The reply slip despatched to the Shareholders on 3 August 2018 will be treated as a valid reply slip for the EGM.

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.”.

– SEGM-3 –

AI assistant

COSCO SHIPPING Development Co., Ltd. — Proxy Solicitation & Information Statement 2018

50782_rns_2018-09-04_7f994318-64aa-4b6a-81cc-705d138570c9.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.[*]

(Stock Code: 02866)

(1) PROPOSED ISSUANCE OF RENEWABLE CORPORATE BONDS

(2) PROPOSED APPOINTMENT OF DOMESTIC AUDITOR

(3) CONTINUING CONNECTED TRANSACTIONS REVISION OF ANNUAL CAPS FOR MASTER CONTAINERS SERVICES AGREEMENT

AND

(4) SUPPLEMENTAL NOTICE OF EGM

Independent Financial Adviser to the Independent Board Committee and Independent Shareholders

CONTENTS

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) PROPOSED ISSUANCE OF RENEWABLE CORPORATE BONDS (2) PROPOSED APPOINTMENT OF DOMESTIC AUDITOR (3) CONTINUING CONNECTED TRANSACTIONS REVISION OF ANNUAL CAPS FOR MASTER CONTAINERS SERVICES AGREEMENT AND (4) SUPPLEMENTAL NOTICE OF EGM

I. INTRODUCTION

II. PROPOSED ISSUANCE OF RENEWABLE CORPORATE BONDS

1. Details of the Proposed Issuance of Renewable Corporate Bonds

Size of issuance:

LETTER FROM THE BOARD

Interest rate and its determination method:

Use of proceeds:

Method of underwriting:

Terms for redemption or sale back:

LETTER FROM THE BOARD

Listing arrangement:

Guarantee:

4. Proposal in relation to the authorisation to the Board in relation to the Proposed Issuance of Renewable Corporate Bonds

5. Reasons for and benefits of the Proposed Issuance of Renewable Corporate Bonds

III. PROPOSED APPOINTMENT OF DOMESTIC AUDITOR

IV. REVISION OF ANNUAL CAPS FOR MASTER CONTAINERS SERVICES AGREEMENT

1. Master Containers Services Agreement

Products and services to be provided by the Group

Products and services to be provided to the Group

2. Existing Annual Caps and Proposed Revised Annual Caps

Basis for the Proposed Revised Annual Caps

No reliance on the COSCO SHIPPING Group

Restructuring of the Group

Peculiar circumstances of the COSCO SHIPPING Group and the market

LETTER FROM THE BOARD

Terms of the transactions

3. Reasons for and benefits of the revision of annual caps

4. Information on parties to the Master Containers Services Agreement

Information on the Group

Information on COSCO SHIPPING

5. Internal control procedures for the Group

LETTER FROM THE BOARD

6. Implications under the Listing Rules

7. Independent Board Committee and Independent Financial Adviser

V. THE EGM

VI. RECOMMENDATION

VII. FURTHER INFORMATION

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

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

(Stock Code: 02866)

CONTINUING CONNECTED TRANSACTIONS REVISION OF ANNUAL CAPS FOR MASTER CONTAINERS SERVICES AGREEMENT

CONTINUING CONNECTED TRANSACTIONS REVISION OF ANNUAL CAPS FOR MASTER CONTAINERS SERVICES AGREEMENT

INTRODUCTION

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background Information on The Group

1.1 Background information on the Company

1.2 Financial performance on the Group

Six months ended

Continuing operations

Discontinued operation

1.3 Financial position on the Group

1.4 Background information on COSCO SHIPPING

1.5 Reasons for and benefits of the Proposed Revised Annual Caps

1.6 No reliance on COSCO SHIPPING Group

2. The Master Containers Services Agreement

2.1 Details of the Master Containers Services Agreement

2.2 The Proposed Revised Annual Caps

Products and services to be provided by the Group to the COSCO SHIPPING Group

RECOMMENDATION

COSCO SHIPPING Development Co., Ltd. Proxy Solicitation & Information Statement 2018

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

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

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

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

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