COSCO SHIPPING Development Co., Ltd. — Proxy Solicitation & Information Statement 2019

Dec 6, 2019

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) RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

(2) DISCLOSEABLE AND CONTINUING CONNECTED TRANSACTION

(3) MAJOR AND CONTINUING CONNECTED TRANSACTIONS

(4) NEW COMMODITIES SUPPLY FRAMEWORK AGREEMENT

(5) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION

(6) PROPOSED AMENDMENTS TO THE RULES OF PROCEDURE OF THE SHAREHOLDERS’

GENERAL MEETING

AND

(7) 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 14 to 56 of this circular. A letter from the Independent Board Committee to the Independent Shareholders is set out on pages 57 to 58 of this circular. A letter from Messis Capital, the Independent Financial Adviser, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 59 to 91 of this circular.

The Original Notice of EGM convening the EGM to be held at 1:30 p.m. on Monday, 23 December 2019 at Level 3, Ocean Hotel Shanghai, 1171 Dong Da Ming Road, Hong Kou District, Shanghai, the PRC was despatched to the Shareholders on 8 November 2019, which is reproduced on pages EGM-1 to EGM-8 of this circular. The Supplemental Notice of EGM, which contains additional resolutions 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.”.

6 December 2019

CONTENTS

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . .	57
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER. . . . . . . . . . . . .	59
APPENDIX I – FINANCIAL INFORMATION OF THE GROUP . . . . . .	I-1
APPENDIX II – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . .	II-1
APPENDIX III – PROPOSED AMENDMENTS TO THE ARTICLES OF
ASSOCIATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	III-1
APPENDIX IV – PROPOSED AMENDMENTS TO THE RULES OF
PROCEDURE OF THE SHAREHOLDERS’
GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . .	IV-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 :

• “2018 Annual Report”

• the annual report of the Company for the year ended 31 December 2018

• “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

• “Asset Management Plan”

• an asset management plan which certain executive Directors, senior management and employees have voluntarily invested in, further details of which are set out in the announcement of the Company dated 24 November 2016

• “associate”

• has the meaning ascribed to it under the Hong Kong Listing Rules

• “Board”

• the board of directors of the Company

• “CBIRC”

• China Banking and Insurance Regulatory Commission (中國銀行保險監督管理委員會)

• “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, a controlling shareholder of the Company and a wholly-owned subsidiary of COSCO SHIPPING

• “CIMC”

• China International Marine Containers (Group) Co., Ltd.[#] (中國國際海運集裝箱(集團)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 the Main Board of the Hong Kong Stock Exchange (Stock Code: 2039) and the Shenzhen Stock Exchange (Stock Code: 000039), respectively

• “CIMC Group”

• CIMC and its subsidiaries

– 1 –

DEFINITIONS

• “Company”

• “Company Law”

• “Computershare”

• “connected person”

• “Container Shipping Asset Leasing Strategy Report”

• “Continuing Connected Transactions”

• COSCO SHIPPING Development Co., Ltd.* (中遠海運 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 the Main Board of the Hong Kong Stock Exchange (Stock Code: 2866) and the Shanghai Stock Exchange (Stock Code: 601866), respectively

• the Company Law of the PRC

• Computershare Hong Kong Investor Services Limited, the H Share registrar of the Company

• has the meaning ascribed to it under the Hong Kong Listing Rules

• the container shipping asset leasing strategy report prepared by Drewry Shipping Consultants Ltd., an independent consultant specialized in shipping industry engaged jointly by the Company and COSCO SHIPPING Holdings, further details of which are set out in the circular of the Company dated 31 December 2015

• collectively,

• (i) the Non-exempt Continuing Connected Transactions;

• (ii) the container and other ancillary services to be provided by the COSCO SHIPPING Group to the CS Development Group under the Master Containers Services Agreement;

• (iii) the transactions contemplated under the Master Factoring Services Agreement;

• (iv) the transactions contemplated under the Master Financial Services Agreement; and

• (v) the transactions contemplated under the New Commodities Supply Framework Agreement

“controlling shareholder”

• has the meaning ascribed to it under the Hong Kong Listing Rules

– 2 –

DEFINITIONS

• “COSCO Finance”

• “COSCO SHIPPING”

• “COSCO SHIPPING Finance”

• “COSCO SHIPPING Group”

• “COSCO SHIPPING Holdings”

• “COSCO SHIPPING Holdings Group”

• “CS Development Group”

• “CS Finance”

COSCO Finance Co., Ltd.[#] (中遠財務有限責任公司), the company which ceased to exist and became a branch of COSCO SHIPPING Finance upon completion of the merger by absorption with CS Finance on 23 October 2018, and its assets, liabilities, businesses and employees are succeeded by COSCO SHIPPING Finance, further details of which are set out in the circular of the Company dated 12 December 2017

• 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 Finance Group Co., Ltd.[#] (中遠海運 集團財務有限責任公司), a company established in the PRC with limited liability and an indirect non-wholly owned subsidiary of COSCO SHIPPING

• COSCO SHIPPING, its subsidiaries and/or its associates (excluding the CS Development Group)

• COSCO SHIPPING Holdings Co., Ltd.[#] (中遠海運控股 股份有限公司), a joint stock limited company incorporated in the PRC with limited liability, the H shares of which are listed on the Main Board of the Hong Kong Stock Exchange (stock code: 1919) and the A shares of which are listed on the Shanghai Stock Exchange (stock code: 601919)

• COSCO SHIPPING Holdings and its subsidiaries

• the Company, its subsidiaries and/or its associates

China Shipping Finance Company Limited[#] (中海集團財 務有限責任公司), the surviving company upon completion of the merger by absorption with COSCO Finance on 23 October 2018, which was renamed as COSCO SHIPPING Finance and succeeded the assets, liabilities, businesses and employees of COSCO Finance, further details of which are set out in the circular of the Company dated 12 December 2017

– 3 –

DEFINITIONS

“CS Financial”

“CS Financial Subsidiaries”

COSCO SHIPPING Financial Holdings Co., Ltd.[#] (中遠 海運金融控股有限公司), a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of COSCO SHIPPING

collectively,

• (i) Universal Eastern International Container (Qidong) Co., Ltd.[#] (寰宇東方國際集裝箱(啓東)有限公司) (formerly known as Qidong Singamas Energy Equipment Co., Ltd.[#] (啓東勝獅能源裝備有限公 司)), a company established in the PRC with limited liability and a wholly-owned subsidiary of CS Financial;

• (ii) Universal Eastern International Container (Ningbo) Co., Ltd.[#] (寰宇東方國際集裝箱(寧波)有限公司) (formerly known as Ningbo Pacific Container Co., Ltd.[#] (寧波太平貨櫃有限公司)), a company established in the PRC with limited liability and a wholly-owned subsidiary of CS Financial;

• (iii) Shanghai Universal Logistics Technology Co., Ltd.[#] (上海寰宇物流科技有限公司) (formerly known as Singamas Container Holdings (Shanghai) Limited[#] (勝獅貨櫃管理(上海)有限公司)), a company established in the PRC with limited liability and a wholly-owned subsidiary of CS Financial;

• (iv) Universal Eastern International Container (Qingdao) Co., Ltd.[#] (寰宇東方國際集裝箱(青島)有 限公司) (formerly known as Qingdao Pacific Container Co., Ltd.[#] (青島太平貨櫃有限公司)), a company established in the PRC with limited liability and a wholly-owned subsidiary of CS Financial; and

• (v) Universal Eastern International Port (Qidong) Co., Ltd.[#] (寰宇東方國際港務(啓東)有限公司) (formerly known as Qidong Pacific Port Co., Ltd.[#] (啓東太平 港務有限公司)), a company established in the PRC with limited liability and a wholly-owned subsidiary of Universal Eastern International Container (Qingdao) Co., Ltd.[#] (寰宇東方國際集裝 箱(青島)有限公司)

– 4 –

DEFINITIONS

• “Director(s)”

• “Discloseable and Continuing Connected Transaction”

• “EGM”

• “Entrustment Agreement”

• “Existing Assets Lease Framework Agreement”

• “Existing Commodities Supply Framework Agreement”

• “Existing Florens Financial Services Agreement”

• “Existing Master CS Finance Financial Services Agreement”

• director(s) of the Company

the finance lease services to be provided by the CS Development Group to the COSCO SHIPPING Group under the Master Finance Lease Services Agreement

• the extraordinary general meeting of the Company to be convened at 1:30 p.m. on Monday, 23 December 2019 at Level 3, Ocean Hotel Shanghai, 1171 Dong Da Ming Road, Hong Kou District, 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

• the entrustment agreement dated 6 May 2019 entered into between CS Financial and Shanghai Universal in respect of the entrustment of the equity interests in the CS Financial Subsidiaries by CS Financial to Shanghai Universal

• the assets lease framework agreement dated 11 December 2015 entered into between the Company and COSCO SHIPPING Holdings in respect of the charter and lease of vessels and containers by the Company to COSCO SHIPPING Holdings

• the commodities supply framework agreement dated 11 November 2016 (as supplemented by the Existing Supplementary Commodities Supply Agreement) entered into between the Company and CIMC in relation to the supply of commodities such as containers by the CIMC Group to the Group for a term of three years commencing on 1 January 2017 and ending on 31 December 2019

the financial services agreement dated 30 March 2016 entered into between Florens and COSCO Finance in respect of the provision of financial services by COSCO Finance to the Florens Group

the master financial services agreement dated 5 December 2016 entered into between the Company and CS Finance in respect of the provision of financial services by CS Finance to the CS Development Group

– 5 –

DEFINITIONS

• “Existing Supplementary Commodities Supply Agreement”

• “Florens”

• “Florens Group”

• “General Pricing Determination Procedures”

• the supplementary commodities supply agreement dated 29 March 2018 entered into between the Company and CIMC in relation to, among other things, the revision of the annual caps of the transactions contemplated under the Existing Commodities Supply Framework Agreement for the two years ending 31 December 2019

• Florens International Limited (佛羅倫國際有限公司), a company incorporated under the laws of the British Virgin Islands with limited liability and a wholly-owned subsidiary of the Company

Florens and its subsidiaries

• the general procedures and mechanism for determination of the state-prescribed price and the market price as follows:

• (i) when determining the state-prescribed price (subject to adjustment by the relevant authorities or regulators from time to time and is generally publicly available):

• (a) the CS Development Group refers to the guidelines for the relevant prices from the relevant authorities or regulators in the PRC, such as price control authorities and industry regulators, if applicable;

• (b) if a fixed state-prescribed price is available, the Company will apply such fixed price; and

• (c) if a range of state-prescribed prices is available, the relevant parties will agree on the price within such range of state-prescribed prices;

• (ii) when determining the market price:

• (a) the relevant department of the Company will collect applicable data and market information (including quotes from independent third parties and reference materials from independent third party entities) and prepare draft proposal;

– 6 –

DEFINITIONS

• (b) the relevant department will seek advice (such as conditions of facilities and quality of products or services) from the relevant department and the relevant agents and submit revised proposal for the review of its supervising department;

• (c) the relevant department will then negotiate with transaction counterparties (including the relevant connected persons) based on such reviewed proposal;

• (d) the Group will then enter into implementation agreement based on the results of negotiation; and

• (e) the executed implementation agreement will be forwarded to the relevant department of the Company and the relevant agents for recording and implementation

“General Pricing Principles” the general principles for determination of relevant prices as follows:

• (i) the state-prescribed price, being the price set by the relevant laws, regulations and other governmental regulatory documents issued by the relevant authorities of the PRC government;

• (ii) where there is no state-prescribed price, then according to the relevant market price, the price which independent third parties may obtain for the same or comparable type of transaction in the ordinary and usual course of business, or based on the principle of fairness and reasonableness; or

• (iii) where there is no market price, then according to the contracted price, being the relevant cost for that particular transaction plus a profit margin ranging from 0% to 12.25%

“Group”

the Company and its subsidiaries

– 7 –

DEFINITIONS

• “H Share(s)”

• “HK$”

• “Hong Kong”

• “Hong Kong Listing Rules”

• “Hong Kong Stock Exchange”

• “Independent Board Committee”

• “Independent Financial Adviser” or “Messis Capital”

• “Independent Shareholders”

• “Latest Practicable Date”

• the overseas listed foreign shares in the ordinary share capital of the Company with a par value of RMB1.00 each, which are listed on the Main Board of the Hong Kong Stock Exchange

• Hong Kong dollars, the lawful currency of Hong Kong

• the Hong Kong Special Administrative Region of the PRC

• the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited

• The Stock Exchange of Hong Kong Limited

• the independent board committee of the Company comprising Mr. Cai Hongping, Ms. Hai Chi Yuet, Mr. Graeme Jack, Mr. Lu Jianzhong and Ms. Zhang Weihua, being all the independent non-executive Directors, which is formed to advise the Independent Shareholders on the Non-exempt Continuing Connected Transactions and the Major and Continuing Connected Transactions, and their respective Proposed Annual Caps

• 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 to advise the Independent Board Committee and the Independent Shareholders on the Non-exempt Continuing Connected Transactions and the Major and Continuing Connected Transactions, and their respective Proposed Annual Caps

• the Shareholders other than (i) COSCO SHIPPING and its associates; and (ii) any other Shareholders who have a material interest in the Relevant Continuing Connected Transactions and the transactions contemplated under the New Commodities Supply Framework Agreement

• 4 December 2019, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained herein

– 8 –

DEFINITIONS

• “Major and Continuing collectively, Connected Transactions”

• (i) the container and other ancillary services to be provided by the COSCO SHIPPING Group to the CS Development Group under the Master Containers Services Agreement; and

• (ii) the deposit services to be provided by COSCO SHIPPING Finance to the CS Development Group under the Master Financial Services Agreement

• “Master Containers Services the master containers services agreement dated 5 Agreement” December 2016 entered into between the Company and COSCO SHIPPING in respect of the mutual provision of container and other ancillary services by the CS Development Group and the COSCO SHIPPING Group

• “Master Factoring Services the master factoring services agreement dated 5 Agreement” December 2016 entered into between the Company and COSCO SHIPPING in respect of the provision of factoring services by the CS Development Group to the COSCO SHIPPING Group

• “Master Finance Lease Services the master finance lease services agreement dated 5 Agreement” December 2016 entered into between the Company and COSCO SHIPPING in respect of the provision of finance lease chartering services by the CS Development Group to the COSCO SHIPPING Group

• “Master Financial Services Agreement”

• the master financial services agreement dated 30 October 2019 entered into between the Company and COSCO SHIPPING Finance in respect of the provision of financial services by COSCO SHIPPING Finance to the CS Development Group

• “Master Operating Lease Services Agreement”

• the master operating lease services agreement dated 5 December 2016 entered into between the Company and COSCO SHIPPING in respect of the provision of operating lease services by the CS Development Group to the COSCO SHIPPING Group

– 9 –

DEFINITIONS

• “Master Vessel Charter Agreement”

• “Master Vessel Services Agreement”

• “New Commodities Supply Framework Agreement”

• “Non-exempt Continuing Connected Transaction Agreements”

• the master vessel charter agreement dated 5 December 2016 entered into between the Company and COSCO SHIPPING in respect of the provision of vessel chartering services by the CS Development Group to the COSCO SHIPPING Group

• the master vessel services agreement dated 5 December 2016 entered into between the Company and COSCO SHIPPING in respect of the provision of vessel and other ancillary services by the COSCO SHIPPING Group to the CS Development Group

• the commodities supply framework agreement dated 30 October 2019 entered into between the Company and CIMC in relation to the supply of commodities (including but not limited to containers) by the CIMC Group to the Group for a term of three years commencing on 1 January 2020 and ending on 31 December 2022

• collectively,

• (i) the Master Vessel Charter Agreement;

• (ii) the Master Operating Lease Services Agreement;

• (iii) the Master Finance Lease Services Agreement;

• (iv) the Master Vessel Services Agreement; and

• (v) the Master Containers Services Agreement

• “Non-exempt Continuing Connected Transactions”

• collectively,

• (i) the transactions contemplated under the Master Vessel Charter Agreement;

• (ii) the transactions contemplated under the Master Operating Lease Services Agreement;

• (iii) the transactions contemplated under the Master Finance Lease Services Agreement;

• (iv) the transactions contemplated under the Master Vessel Services Agreement; and

– 10 –

DEFINITIONS

• (v) the container and other ancillary services to be provided by the CS Development Group to the COSCO SHIPPING Group under the Master Containers Services Agreement

• “Original Form of Proxy” the form of proxy of the Company in respect of the resolutions set out in the Notice of EGM, which was despatched to the Shareholders on 8 November 2019

• “Original Notice of EGM” the notice of the extraordinary general meeting of the Company dated 8 November 2019, which was despatched to the Shareholders on 8 November 2019

• “Overseas Regulatory the overseas regulatory announcement of the Company Announcement” dated 30 October 2019 in relation to the New Commodities Supply Framework Agreement

• “PBOC” the People’s Bank of China (中國人民銀行)

• “percentage ratios” has the meaning ascribed to it under the Hong Kong Listing Rules

• “PRC” the People’s Republic of China which, for the purpose of this circular, excludes the Hong Kong Special Administrative Region of the People’s Republic of China, the Macau Special Administrative Region of the People’s Republic of China and the region of Taiwan

• “Proposed Amendments to the the proposed amendments to the Articles of Association, Articles of Association” the full text of which is set out in Appendix III to this circular

• “Proposed Amendments to the Rules of Procedure of the Shareholders’ General Meeting”

• the proposed amendments to the Rules of Procedure of the Shareholders’ General Meeting, the full text of which is set out in Appendix IV to this circular

• “Proposed Annual Caps”

• the proposed annual caps for the three years ending 31 December 2022

• “Relevant Continuing Connected Transactions”

collectively,

• (i) the Non-exempt Continuing Connected Transactions;

• (ii) the Major and Continuing Connected Transactions; and

– 11 –

DEFINITIONS

• (iii) the transactions contemplated under the Master Factoring Services Agreement

• “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

• “RMB” Renminbi, the lawful currency of the PRC

• “Rules of Procedure of the the rules of procedure of the shareholders’ general Shareholders’ General meeting of the Company Meeting”

• “SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

• “Shanghai Listing Rules” the Rules Governing the Listing of Stocks on the Shanghai Stock Exchange

• “Shanghai Universal” Shanghai Universal Logistics Equipment Co., Ltd.[#] (上海 寰宇物流裝備有限公司), a company established in the PRC with limited liability and an indirect wholly-owned subsidiary of the Company

• “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 EGM dated 6 December 2019, which is set out on pages SEGM-1 to SEGM-3 of this circular

• “US$” United States dollar(s), the lawful currency of the United States

• “Vessels” collectively, the four container vessels with a capacity of 10,000 TEU each

• “Vessel Owners” collectively, Ship No. 140 Co., Ltd., Ship No. 141 Co., Ltd., Ship No. 142 Co., Ltd. and Ship No. 143 Co., Ltd., each of which is a corporation formed under the laws of Japan with limited liability

– 12 –

DEFINITIONS

“Vessel Purchasers” collectively, FPG Shipholding Panama 48 S.A., FPG Shipholding Panama 49 S.A., FPG Shipholding Panama 50 S.A. and FPG Shipholding Panama 51 S.A., each of which is a corporation incorporated under the laws of the Republic of Panama “Vessel Sellers” collectively, CSCL Spring Shipping Co., Ltd., CSCL Summer Shipping Co., Ltd., CSCL Winter Shipping Co., Ltd. and CSCL Bohai Sea Shipping Co., Ltd., each of which is a company incorporated in Hong Kong with limited liability and an indirect wholly-owned subsidiary of the Company

“%” 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 purposes only.

– 13 –

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: 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 Ms. Zhang Weihua

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

Principal place of business in the PRC: 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

6 December 2019

To the Shareholders

Dear Sir/Madam,

(1) RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

(2) DISCLOSEABLE AND CONTINUING CONNECTED TRANSACTION (3) MAJOR AND CONTINUING CONNECTED TRANSACTIONS (4) NEW COMMODITIES SUPPLY FRAMEWORK AGREEMENT

• (5) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION

(6) PROPOSED AMENDMENTS TO

THE RULES OF PROCEDURE OF THE SHAREHOLDERS’ GENERAL MEETING AND (7) SUPPLEMENTAL NOTICE OF EGM

I. INTRODUCTION

Reference is made to (i) the announcements of the Company dated 5 December 2016, 15 August 2018, 5 July 2019 and 30 October 2019; (ii) the circulars of the Company dated 13 December 2016, 4 September 2018 and 5 August 2019; (iii) the Overseas Regulatory

– 14 –

LETTER FROM THE BOARD

Announcement; (iv) the announcement of the Company dated 6 December 2019; (v) the Original Notice of EGM; and (vi) the Supplemental Notice of EGM in relation to, among other things, (1) the Relevant Continuing Connected Transactions and their respective Proposed Annual Caps; (2) the transactions contemplated under the New Commodities Supply Framework Agreement and the Proposed Annual Caps thereof; (3) the Proposed Amendments to the Articles of Association; and (4) the Proposed Amendments to the Rules of Procedure of the Shareholders’ General Meeting.

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 Relevant Continuing Connected Transactions and the transactions contemplated under the New Commodities Supply Framework Agreement, and their respective Proposed Annual Caps;

• (iii) a letter from the Independent Board Committee to the Independent Shareholders containing its recommendation in respect of the Non-exempt Continuing Connected Transactions and the Major and Continuing Connected Transactions, and their respective Proposed Annual Caps;

• (iv) a letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders containing its recommendation in respect of the Non-exempt Continuing Connected Transactions and the Major and Continuing Connected Transactions, and their respective Proposed Annual Caps; and

• (v) further details of the Proposed Amendments to the Articles of Association and the Proposed Amendments to the Rules of Procedure of the Shareholders’ General Meeting.

At the EGM, ordinary resolutions will be proposed to approve (i) the Relevant Continuing Connected Transactions and their respective Proposed Annual Caps; and (ii) the transactions contemplated under the New Commodities Supply Framework Agreement and the Proposed Annual Caps thereof, and special resolutions will be proposed to approve (i) the Proposed Amendments to the Articles of Association; and (ii) the Proposed Amendments to the Rules of Procedure of the Shareholders’ General Meeting.

– 15 –

LETTER FROM THE BOARD

II. RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

• A. Transactions contemplated under the Non-exempt Continuing Connected Transaction Agreements

As the current term of the Non-exempt Continuing Connected Transaction Agreements will expire on 31 December 2019, the parties have agreed to renew the Non-exempt Continuing Connected Transaction Agreements for a further term of three years commencing on 1 January 2020 and ending on 31 December 2022.

Set out below is a summary of the Non-exempt Continuing Connected Transaction Agreements, the historical transaction amounts and existing annual caps, the Proposed Annual Caps and the basis for determining the Proposed Annual Caps:

1. Master Vessel Charter Agreement (services to be provided by the CS Development Group)

The principal terms of the Master Vessel Charter Agreement are set out below.

Parties: (i) The Company; and

(ii) COSCO SHIPPING.

Nature of transactions:

Pursuant to the Master Vessel Charter Agreement, the CS Development Group agreed to charter vessels to the COSCO SHIPPING Group (excluding finance leasing).

The lease term of the chartering of vessels under the Master Vessel Charter Agreement will be subject to the separate implementation agreements to be entered into pursuant to the terms of the Master Vessel Charter Agreement, which will vary on a case-by-case basis and may exceed three years. The annual caps for the chartering fees to be charged by the CS Development Group for the provision of vessel chartering services to the COSCO SHIPPING Group under the Master Vessel Charter Agreement are subject to the approval of the Independent Shareholders every three years. Please refer to the letter from the Independent Financial Adviser set out on pages 59 to 91 of this circular for the opinion of the Independent Financial Adviser explaining why a lease term exceeding three years is required and confirming whether it is normal business practice for the lease term of the chartering of vessels to be of such duration.

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LETTER FROM THE BOARD

The Existing Assets Lease Framework Agreement was entered into as part of the restructuring of the Group and the COSCO SHIPPING Holdings Group at the end of 2015 (the details of which are set out in the circular of the Company dated 31 December 2015), and covers the charters in respect of the then fleet of vessels of the Company to COSCO SHIPPING Holdings and/or its subsidiaries and associates which are currently still in effect. The Master Vessel Charter Agreement, on the other hand, covers all other charters in respect of the fleet of vessels of the Company to the COSCO SHIPPING Group as a whole (including COSCO SHIPPING Holdings and/or its subsidiaries and associates). As such, the chartering of vessels under the Existing Assets Lease Framework Agreement is covered by the Master Vessel Charter Agreement and the Proposed Annual Caps thereof.

Pricing policies:

For the chartering of vessels covered by the Existing Assets Lease Framework Agreement, the prices are determined in accordance with the pricing policies set out in the Existing Assets Lease Framework Agreement, which was determined with reference to the Container Shipping Asset Leasing Strategy Report. The Company will (i) regularly conduct market research to gauge the leasing rates in the vessel leasing market; and (ii) refer to the pricing and estimates on the various types of vessels of the CS Development Group in the Container Shipping Asset Leasing Strategy Report.

For the chartering of vessels not covered by the Existing Assets Lease Framework Agreement and the provision of vessel chartering services by the CS Development Group to the COSCO SHIPPING Group under the Master Vessel Charter Agreement, prices are determined according to the General Pricing Principles and the General Pricing Determination Procedures. In particular, the Company will determine the relevant prices by taking into account the chartering fees of comparable vessels charged by at least two independent third party lessors.

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LETTER FROM THE BOARD

Historical transaction amounts and existing annual caps

The table below sets out the historical transaction amounts and the existing annual caps for the provision of vessel chartering services by the CS Development Group to the COSCO SHIPPING Group under the Master Vessel Charter Agreement for the three years ending 31 December 2019:

**Year **	ended	**Year **	ended	Year ending
31 December 2017		31 December 2018		31 December 2019
				Actual amount up
Annual	Actual	Annual	Actual	Annual to 30 September
cap	amount	cap	amount	cap 2019
(RMB’000)		(RMB’000)		(RMB’000)
7,300,000	5,466,347	8,000,000	4,847,262	8,400,000 3,474,283

The Board confirms that, as at the Latest Practicable Date, the existing annual cap for the provision of vessel chartering services by the CS Development Group to the COSCO SHIPPING Group under the Master Vessel Charter Agreement for the year ending 31 December 2019 has not been exceeded.

Proposed Annual Caps and basis for determining the Proposed Annual Caps

The table below sets out the Proposed Annual Caps for the chartering fees to be charged by the CS Development Group for the provision of vessel chartering services to the COSCO SHIPPING Group under the Master Vessel Charter Agreement for the three years ending 31 December 2022:

Year ending	Year ending	Year ending
31 December 2020	31 December 2021	31 December 2022
Proposed Annual Cap	Proposed Annual Cap	Proposed Annual Cap
(RMB’000)	(RMB’000)	(RMB’000)
6,000,000	6,000,000	6,000,000

In arriving at the Proposed Annual Caps for the provision of vessel chartering services by the CS Development Group to the COSCO SHIPPING Group under the Master Vessel Charter Agreement, the Directors have considered:

• (i) the historical transaction amounts for the provision of vessel chartering services by the CS Development Group to the COSCO SHIPPING Group pursuant to the Master Vessel Charter Agreement for the two years ended 31 December 2017 and 2018 and the nine months ended 30 September 2019;

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LETTER FROM THE BOARD

• (ii) the type and number of vessels expected to be chartered, the respective chartering rate for each type of vessel and the respective period which the vessels are expected to be chartered;

• (iii) the estimated market fluctuation in terms of chartering price, demands and exchange rate for US$ to RMB;

• (iv) the estimated future needs for vessels chartering services of the COSCO SHIPPING Group in light of the expected growth in its transportation capacity;

• (v) the expected increase in service fees due to increase in costs; and

• (vi) the prevailing market rate of charter of vessel of a similar class.

2. Master Operating Lease Services Agreement (services to be provided by the CS Development Group)

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

Parties:

(i) The Company; and

• (ii) COSCO SHIPPING.

Nature of transactions:

Pursuant to the Master Operating Lease Services Agreement, the CS Development Group agreed to provide operating lease services to the COSCO SHIPPING Group. Such services include leasing of chassis, containers, electricity generators, and other ancillary facilities and production facilities.

The lease term of the leasing of containers under the Master Operating Lease Services Agreement will be subject to the separate implementation agreements to be entered into pursuant to the terms of the Master Operating Lease Services Agreement, which will vary on a case-by-case basis and may exceed three years. The annual caps for the provision of operating lease services by the CS Development Group to the COSCO SHIPPING Group under the Master Operating Lease Services Agreement are subject to the approval of the Independent Shareholders every three years. Please refer to the letter from the Independent Financial Adviser set out on pages 59 to 91 of this circular for the opinion of the Independent Financial Adviser explaining why a lease term exceeding three years is required and confirming whether it is normal business practice for the lease term of the leasing of containers to be of such duration.

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LETTER FROM THE BOARD

The Existing Assets Lease Framework Agreement was entered into as part of the restructuring of the Group and the COSCO SHIPPING Holdings Group at the end of 2015 (the details of which are set out in the circular of the Company dated 31 December 2015), and covers the leases in respect of the then containers of the Company to COSCO SHIPPING Holdings and/or its subsidiaries and associates which are currently still in effect. The Master Operating Lease Services Agreement, on the other hand, covers all other leases in respect of the containers of the Company to the COSCO SHIPPING Group as a whole (including COSCO SHIPPING Holdings and/or its subsidiaries and associates). As such, the leasing of containers under the Existing Assets Lease Framework Agreement is covered by the Master Operating Lease Services Agreement and the Proposed Annual Caps thereof.

Pricing policies:

For the leasing of containers covered by the Existing Assets Lease Framework Agreement, the prices are determined in accordance with the pricing policies set out in the Existing Assets Lease Framework Agreement, which was determined with reference to the Container Shipping Asset Leasing Strategy Report. Furthermore, the CS Development Group may be invited to participate in the tendering process of the COSCO SHIPPING Group.

For the leasing of containers not covered by the Existing Assets Lease Framework Agreement and the provision of operating lease services by the CS Development Group to the COSCO SHIPPING Group under the Master Operating Lease Services Agreement, the prices are determined according to the General Pricing Principles and the General Pricing Determination Procedures. In particular, the Company will determine the relevant prices by taking into account the leasing rates of comparable containers offered by at least two independent third party lessors.

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LETTER FROM THE BOARD

Historical transaction amounts and existing annual caps

The table below sets out the historical transaction amounts and the existing annual caps for the provision of operating lease services by the CS Development Group to the COSCO SHIPPING Group under the Master Operating Lease Services Agreement for the three years ending 31 December 2019:

**Year **	ended	**Year **	ended	Year ending
31 December 2017		31 December 2018		31 December 2019
				Actual amount up
Annual	Actual	Annual	Actual	Annual to 30 September
cap	amount	cap	amount	cap 2019
(RMB’000)		(RMB’000)		(RMB’000)
2,000,000	1,553,789	1,800,000	1,268,993	1,800,000 584,233

The Board confirms that, as at the Latest Practicable Date, the existing annual cap for the provision of operating lease services by the CS Development Group to the COSCO SHIPPING Group under the Master Operating Lease Services Agreement for the year ending 31 December 2019 has not been exceeded.

Proposed Annual Caps and basis for determining the Proposed Annual Caps

The table below sets out the Proposed Annual Caps for the lease payments, handling fees and expenses to be charged by the CS Development Group for the provision of operating lease services to the COSCO SHIPPING Group under the Master Operating Lease Services Agreement for the three years ending 31 December 2022:

Year ending	Year ending	Year ending
31 December 2020	31 December 2021	31 December 2022
Proposed Annual Cap	Proposed Annual Cap	Proposed Annual Cap
(RMB’000)	(RMB’000)	(RMB’000)
1,500,000	1,500,000	1,500,000

In arriving at the Proposed Annual Caps for the provision of operating lease services by the CS Development Group to the COSCO SHIPPING Group under the Master Operating Lease Services Agreement, the Directors have considered:

• (i) the historical transaction amounts for the provision of operating lease services by the CS Development Group to the COSCO SHIPPING Group under the Master Operating Lease Services Agreement for the two years ended 31 December 2017 and 2018 and the nine months ended 30 September 2019;

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LETTER FROM THE BOARD

• (ii) the type and number of chassis, containers, electricity generators, and other ancillary facilities and production facilities expected to be leased, the respective rental prices and the respective rental periods;

• (iii) the future renewal situation of existing operating lease service agreements;

• (iv) the estimated market fluctuation in terms of rental prices, demands and exchange rate for US$ to RMB;

• (v) the estimated future needs for operating lease services of the COSCO SHIPPING Group; and

• (vi) the prevailing market rate of rental of similar chassis, containers, electricity generators, and other ancillary facilities and production facilities.

3. Master Finance Lease Services Agreement (services to be provided by the CS Development Group)

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

Parties:

(i) The Company; and

• (ii) COSCO SHIPPING.

Nature of transactions:

Pursuant to the Master Finance Lease Services Agreement, the CS Development Group agreed to provide finance lease services to the COSCO SHIPPING Group. Such services include finance lease of vessels and facilities, and other ancillary services to be provided by the CS Development Group to the COSCO SHIPPING Group.

The lease term of the finance lease of vessels and facilities under the Master Finance Lease Services Agreement will be subject to the separate implementation agreements to be entered into pursuant to the terms of the Master Finance Lease Services Agreement, which will vary on a case-bycase basis and may exceed three years. The annual caps for the lease payments, lease interests, handling fees and expenses to be charged by the CS Development Group for the provision of finance lease services to the COSCO SHIPPING Group under the Master Finance Lease Services Agreement are subject to the approval of the Independent Shareholders every three years. Please refer to the letter from the Independent Financial Adviser set out on pages 59 to 91 of this circular for the opinion of the Independent Financial Adviser explaining why a lease term exceeding three years is required and confirming whether it is normal business practice for the lease term of the finance lease of vessels and facilities to be of such duration.

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LETTER FROM THE BOARD

Pricing policies:

Prices for the provision of finance lease services by the CS Development Group to the COSCO SHIPPING Group under the Master Finance Lease Services Agreement are determined according to the General Pricing Principles and the General Pricing Determination Procedures. In particular, the Company will determine the relevant prices by taking into account the lease payments, lease interests, handling fees and expenses for comparable finance lease services charged by at least two independent third party service providers.

Historical transaction amounts and existing annual caps

The table below sets out the historical transaction amounts and the existing annual caps for the provision of finance lease services by the CS Development Group to the COSCO SHIPPING Group under the Master Finance Lease Services Agreement for the three years ending 31 December 2019:

Year ended	Year ended	Year ending
31 December 2017	31 December 2018	31 December 2019
		Actual amount up
Annual Actual	Annual Actual	Annual to 30 September
cap amount	cap amount	cap 2019
(RMB’000)	(RMB’000)	(RMB’000)
1,260,000 11,146	1,870,000 20,428	2,160,000 44,840

The Board confirms that, as at the Latest Practicable Date, the existing annual cap for the provision of finance lease services by the CS Development Group to the COSCO SHIPPING Group under the Master Finance Lease Services Agreement for the year ending 31 December 2019 has not been exceeded.

Proposed Annual Caps and basis for determining the Proposed Annual Caps

The table below sets out the Proposed Annual Caps for the lease payments, lease interests, handling fees and expenses to be charged by the CS Development Group for the provision of finance lease services to the COSCO SHIPPING Group under the Master Finance Lease Services Agreement for the three years ending 31 December 2022:

Year ending	Year ending	Year ending
31 December 2020	31 December 2021	31 December 2022
Proposed Annual Cap	Proposed Annual Cap	Proposed Annual Cap
(RMB’000)	(RMB’000)	(RMB’000)
3,000,000	3,000,000	3,000,000

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LETTER FROM THE BOARD

In arriving at the Proposed Annual Caps for the provision of finance lease services by the CS Development Group to the COSCO SHIPPING Group under the Master Finance Lease Services Agreement, the Directors have considered:

• (i) the historical transaction amounts for the provision of finance lease services by the CS Development Group to the COSCO SHIPPING Group under the Master Finance Lease Services Agreement for the two years ended 31 December 2017 and 2018 and the nine months ended 30 September 2019;

• (ii) the plan of the CS Development Group in finance lease business development and the estimated scope of business therein;

• (iii) the estimated increase in demand for finance lease services by the COSCO SHIPPING Group;

• (iv) the increased capacity of providing finance lease services of the CS Development Group; and

• (v) general inflation which affects the lease payments of finance lease.

4. Master Vessel Services Agreement (services to be provided to the CS Development Group)

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

Parties: (i) The Company; and

(ii) COSCO SHIPPING.

Nature of transactions:

Pursuant to the Master Vessel Services Agreement, the COSCO SHIPPING Group agreed to provide vessel and other ancillary services to the CS Development Group, including material merchandising services (such as paint, vessel fuel, lubricants, spare parts and steel), supply of crew members, vessel repair and maintenance services, shipping agent services and other ancillary services.

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LETTER FROM THE BOARD

Pricing policies:

Prices for the provision of vessel and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Vessel Services Agreement are determined according to the General Pricing Principles and the General Pricing Determination Procedures. In particular, the Company will determine the relevant prices by taking into account the service fees for comparable vessel and other ancillary services charged by at least two independent third party service providers.

Historical transaction amounts and existing annual caps

The table below sets out the historical transaction amounts and the existing annual caps for the provision of vessel and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Vessel Services Agreement for the three years ending 31 December 2019:

**Year **	ended	Year ended	Year ending
31 December 2017		31 December 2018	31 December 2019
			Actual amount up
Annual	Actual	Annual Actual	Annual to 30 September
cap	amount	cap amount	cap 2019
(RMB’000)		(RMB’000)	(RMB’000)
1,080,000	1,060,544	1,300,000 810,445	1,310,000 732,165

The Board confirms that, as at the Latest Practicable Date, the existing annual cap for the provision of vessel and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Vessel Services Agreement for the year ending 31 December 2019 has not been exceeded.

Proposed Annual Caps and basis for determining the Proposed Annual Caps

The table below sets out the Proposed Annual Caps for the provision of vessel and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Vessel Services Agreement for the three years ending 31 December 2022:

Year ending	Year ending	Year ending
31 December 2020	31 December 2021	31 December 2022
Proposed Annual Cap	Proposed Annual Cap	Proposed Annual Cap
(RMB’000)	(RMB’000)	(RMB’000)
1,450,000	1,450,000	1,500,000

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LETTER FROM THE BOARD

In arriving at the Proposed Annual Caps for the provision of vessel and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Vessel Services Agreement, the Directors have considered:

• (i) the historical transaction amounts for the provision of vessel and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Vessel Services Agreement for the two years ended 31 December 2017 and 2018 and the nine months ended 30 September 2019;

• (ii) as more existing vessels approach their respective inspection and maintenance cycles, the demand by the CS Development Group in materials, crew members, vessel repair and maintenance services, shipping agent services and other ancillary services is expected to continue to increase;

• (iii) the estimated fluctuation in the exchange rate for US$ to RMB; and

• (iv) the prevailing market rate for the merchandising services, supply of crew members, vessel repair and maintenance services and shipping agent services.

5. Master Containers Services Agreement (products and services to be provided by the CS Development Group)

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

Parties:

• (i) The Company; and

• (ii) COSCO SHIPPING.

Nature of transactions:

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

Pricing policies:

Prices for the provision of container and other ancillary services by the CS Development Group to the COSCO SHIPPING Group under the Master Containers Services Agreement are determined according to the General Pricing Principles and the General Pricing Determination Procedures. In particular, the Company will determine the relevant prices by taking into account the prices for the sale of comparable containers charged by at least two independent third party container manufacturers.

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LETTER FROM THE BOARD

Historical transaction amounts and existing annual caps

The table below sets out the historical transaction amounts and the existing annual caps (as revised) for the provision of container and other ancillary services by the CS Development Group to the COSCO SHIPPING Group under the Master Containers Services Agreement for the three years ending 31 December 2019:

**Year **	ended	**Year **	ended	Year ending
31 December 2017		31 December 2018		31 December 2019
				Actual amount up
Annual	Actual	Annual	Actual	Annual to 30 September
cap	amount	cap	amount	cap 2019
(RMB’000)		(RMB’000)		(RMB’000)
2,800,000	1,561,991	8,000,000	3,799,172	10,000,000 1,002,953

The Board confirms that, as at the Latest Practicable Date, the existing annual cap (as revised) for the provision of container and other ancillary services by the CS Development Group to the COSCO SHIPPING Group under the Master Containers Services Agreement for the year ending 31 December 2019 has not been exceeded.

Proposed Annual Caps and basis for determining the Proposed Annual Caps

The table below sets out the Proposed Annual Caps for the provision of container and other ancillary services by the CS Development Group to the COSCO SHIPPING Group under the Master Containers Services Agreement for the three years ending 31 December 2022:

Year ending	Year ending	Year ending
31 December 2020	31 December 2021	31 December 2022
Proposed Annual Cap	Proposed Annual Cap	Proposed Annual Cap
(RMB’000)	(RMB’000)	(RMB’000)
6,600,000	7,500,000	8,200,000

In arriving at the Proposed Annual Caps for the provision of container and other ancillary services by the CS Development Group to the COSCO SHIPPING Group under the Master Containers Services Agreement, the Directors have considered:

• (i) the historical transaction amounts for the provision of containers and other ancillary services by the CS Development Group to the COSCO SHIPPING Group under the Master Containers Services Agreement for the two years ended 31 December 2017 and 2018 and the nine months ended 30 September 2019;

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LETTER FROM THE BOARD

• (ii) the existing scale of operation of the COSCO SHIPPING Group;

• (iii) the expected increase in the demand of the COSCO SHIPPING Group for the containers manufactured by the CS Development Group and other ancillary services in light of the expected growth in the transportation capacity of the COSCO SHIPPING Group;

• (iv) the prevailing market rate for the sale and purchase and commissioned manufacturing of containers and the estimated market price of new containers for the three years ending 31 December 2022; and

• (v) the estimated market fluctuation in terms of container price, demands and exchange rate for US$ to RMB.

6. Master Containers Services Agreement (products and services to be provided to the CS Development Group)

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

Parties: (i) The Company; and

• (ii) COSCO SHIPPING.

Nature of transactions:

Pricing policies:

Pursuant to the Master Containers Services Agreement, COSCO SHIPPING Group agreed to provide container and other ancillary services to the CS Development Group. Such services include sale and purchase of containers, merchandising of materials ancillary to containers, provision of containers depot, containers logistics, containers management, containers maintenance and other ancillary services. Prices for the provision of container and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Containers Services Agreement are determined according to the General Pricing Principles and the General Pricing Determination Procedures. In particular, the Company will determine the relevant prices by taking into account (i) the prices for the sale of comparable containers charged by at least two independent container manufacturers; and (ii) the service fees for the provision of comparable container and other ancillary services charged by at least two independent third party service providers.

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LETTER FROM THE BOARD

Historical transaction amounts and existing annual caps

The table below sets out the historical transaction amounts and the existing annual caps (as revised) for the provision of container and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Containers Services Agreement for the three years ending 31 December 2019:

Year ended	Year ended	Year ending
31 December 2017	31 December 2018	31 December 2019
		Actual amount up
Annual Actual	Annual Actual	Annual to 30 September
cap amount	cap amount	cap 2019
(RMB’000)	(RMB’000)	(RMB’000)
360,000 322,749	1,900,000 559,937	7,000,000 414,595

The Board confirms that, as at the Latest Practicable Date, the existing annual cap for the provision of container and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Containers Services Agreement for the year ending 31 December 2019 has not been exceeded.

Proposed Annual Caps and basis for determining the Proposed Annual Caps

The table below sets out the Proposed Annual Caps for the provision of container and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Containers Services Agreement for the three years ending 31 December 2022:

Year ending	Year ending	Year ending
31 December 2020	31 December 2021	31 December 2022
Proposed Annual Cap	Proposed Annual Cap	Proposed Annual Cap
(RMB’000)	(RMB’000)	(RMB’000)
13,500,000	13,500,000	14,000,000

In arriving at the Proposed Annual Caps for the provision of container and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Containers Services Agreement, the Directors have considered:

• (i) the historical transaction amounts for the provision of containers and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Containers Services Agreement for the two years ended 31 December 2017 and 2018 and the nine months ended 30 September 2019;

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LETTER FROM THE BOARD

• (ii) the expected transaction amounts for the sales of containers by the CS Financial Subsidiaries to the CS Development Group as a result of the future implementation by the CS Development Group of the strategy of integration of the sales channels of containers manufactured by the CS Financial Subsidiaries and the CS Development Group, details of which are set out in the circular of the Company dated 5 August 2019;

• (iii) the prevailing market rate of containers, materials ancillary to containers, containers depot, containers logistics, containers management and containers maintenance; and

• (iv) the estimated market fluctuation in terms of container price, ancillary materials price, demands and exchange rate for US$ to RMB.

B. Transactions contemplated under the Master Factoring Services Agreement (services to be provided by the CS Development Group)

As the current term of the Master Factoring Services Agreement will expire on 31 December 2019, the parties have agreed to renew the Master Factoring Services Agreement for a further term of three years commencing on 1 January 2020 and ending on 31 December 2022.

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

Parties: (i) The Company; and (ii) COSCO SHIPPING.

Nature of transactions: Pursuant to the Master Factoring Services Agreement, the CS Development Group agreed to provide factoring services to the COSCO SHIPPING Group. The COSCO SHIPPING Group may from time to time assign its account receivables to the CS Development Group in order to increase its cash flow. The CS Development Group shall handle the collection of the account receivables from the relevant entity which owes the particular sum of money to the relevant members of the COSCO SHIPPING Group. The assignments of account receivables under the Master Factoring Services Agreement are with recourse.

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LETTER FROM THE BOARD

Pricing policies:

Prices for the provision of factoring services by the CS Development Group to the COSCO SHIPPING Group under the Master Factoring Services Agreement, being the sum after applying a certain percentage of discount to the underlying amounts of the account receivables concerned, are determined according to the General Pricing Principles and the General Pricing Determination Procedures. In doing so, market research will be conducted to gauge the percentage discount offered by at least two competing independent third party factoring service providers for accepting the assignment of account receivables with similar underlying amounts so as to ensure that the prices charged by the CS Development Group are no less favourable than those available from its competitors. The Board is therefore of the view that it is fair and reasonable to determine the prices for the provision of factoring services by the CS Development Group to the COSCO SHIPPING Group under the Master Factoring Services Agreement according to the General Pricing Principles and the General Pricing Determination Procedures.

Historical transaction amounts and existing annual caps

The table below sets out the historical transaction amounts and the existing annual caps for the provision of factoring services by the CS Development Group to the COSCO SHIPPING Group under the Master Factoring Services Agreement for the three years ending 31 December 2019:

Year ended		Year ended		Year ending
31 December 2017		31 December 2018		31 December 2019
				Actual amount up
Annual	Actual	Annual	Actual	Annual to 30 September
cap amount		cap amount		cap 2019
(RMB’000)		(RMB’000)		(RMB’000)
165,000	73,652	330,000	88,564	600,000 318,000

The Board confirms that, as at the Latest Practicable Date, the existing annual cap for the provision of factoring services by the CS Development Group to the COSCO SHIPPING Group under the Master Factoring Services Agreement for the year ending 31 December 2019 has not been exceeded.

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LETTER FROM THE BOARD

Proposed Annual Caps and basis for determining the Proposed Annual Caps

The table below sets out the Proposed Annual Caps for the provision of factoring services by the CS Development Group to the COSCO SHIPPING Group under the Master Factoring Services Agreement for the three years ending 31 December 2022:

Year ending	Year ending	Year ending
31 December 2020	31 December 2021	31 December 2022
Proposed Annual Cap	Proposed Annual Cap	Proposed Annual Cap
(RMB’000)	(RMB’000)	(RMB’000)
500,000	500,000	500,000

In arriving at the Proposed Annual Caps for the provision of factoring services by the CS Development Group to the COSCO SHIPPING Group under the Master Factoring Services Agreement, the Directors have considered:

• (i) the historical amount of revenue and account receivables of the members of the COSCO SHIPPING Group;

• (ii) the development plan of the factoring services business of the CS Development Group;

• (iii) the expected amount of account receivables and the demand for factoring services of the COSCO SHIPPING Group; and

• (iv) the availability of capital funding for the factoring services of the CS Development Group.

C. Implementation Agreements

Pursuant to the terms of the Non-exempt Continuing Connected Transaction Agreements and the Master Factoring Services Agreement, the CS Development Group may, from time to time and as necessary, enter into separate implementation agreements for each of the specific transactions contemplated under the Non-exempt Continuing Connected Transaction Agreements and the Master Factoring Services Agreement. The entering into of such separate implementation agreements is necessary because the terms of each individual transaction between the counterparties to the relevant transaction may vary depending on, among other things, (i) the particular type of product or service required; (ii) the detailed specifications of the products or services to be provided or received; (iii) the results of each individual negotiation between the transaction counterparties; and (iv) the actual prevailing market price at the time the products or services are provided or received.

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LETTER FROM THE BOARD

Each implementation agreement shall set out the specific terms and 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 Non-exempt Continuing Connected Transaction Agreements and the Master Factoring Services Agreement. The terms of each implementation agreement shall also be within the limit of the Non-exempt Continuing Connected Transaction Agreements and the Master Factoring Services Agreement.

As the implementation agreements only provide for further elaborations on the transactions contemplated under the Non-exempt Continuing Connected Transaction Agreements and the Master Factoring Services Agreement, they do not constitute new categories of continuing connected transactions under Chapter 14A of the Hong Kong Listing Rules.

D. Reasons for and benefits of the renewal of the transactions contemplated under the Non-exempt Continuing Connected Transaction Agreements and the Master Factoring Services Agreement

Due to the long established and close business relationship between the members of the Group and the COSCO SHIPPING Group, a number of transactions have been and will continue to be entered into between the Group and the COSCO SHIPPING Group, which are individually significant and collectively essential to the core business of the Group, and will continue to be beneficial to the Group. In addition, the renewal of the continuing connected transactions under the Non-exempt Continuing Connected Transaction Agreements and the Master Factoring Services Agreement is in line with the business strategy of the Company and will facilitate the transformation of the business and future development of the Company as an integrated financial services platform with diversified leasing businesses.

In particular, under the Master Containers Services Agreement, the container and other ancillary services to be provided to the CS Development Group and those to be received by the CS Development Group are of different nature. The container and other ancillary services to be provided by the CS Development Group to the COSCO SHIPPING Group, which include containers commissioned manufacturing services, is supported by the container and other ancillary services to be provided by the COSCO SHIPPING Group to the CS Development Group, which include the merchandising of materials ancillary to containers, provision of containers depot, containers logistics, containers management and containers maintenance. The mutual provision of complementary services between the CS Development group and the COSCO SHIPPING Group under the Master Containers Services Agreement enables the Group to focus on its principal businesses through delegating various operational support functions such as the delivery and storage of manufactured containers to external service providers, being professional companies owned by the COSCO SHIPPING Group. Through such arrangement and in light of the abovementioned long established and close business relationship between the Group and the COSCO SHIPPING Group, the Group will be able to (i) continue to negotiate more favourable terms with the COSCO SHIPPING Group compared with those offered by other external service providers; and (ii) enhance its operational efficiency while reducing operating costs.

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In addition, COSCO SHIPPING is a key state-owned enterprise and part of a large shipping conglomerate that operates across different regions, sectors and countries, and the COSCO SHIPPING Group entails well-known marine transportation corporations with outstanding competency in the shipping industry and have developed good experience, familiarity and service systems in respect of the products and services under the Non-exempt Continuing Connected Transaction Agreements and the Master Factoring Services Agreement. The cooperation with the COSCO SHIPPING Group facilitates and supports the growth of the core business of the Group, and enables the Group to fully leverage on their advantages and to achieve better operating performance.

Finally, the terms and conditions provided by the COSCO SHIPPING Group in relation to the continuing connected transactions under the Non-exempt Continuing Connected Transaction Agreements and the Master Factoring Services Agreement are generally more favourable to the Group than those provided by independent third parties to the Group, or those provided by the COSCO SHIPPING Group to independent third parties. The cooperation between the Group and the COSCO SHIPPING Group enables a development of steady relationship between them.

E. Implications under the Hong Kong Listing Rules

As at the Latest Practicable Date, 4,458,195,175 A Shares, representing approximately 38.41% of the total issued share capital of the Company, is held by China Shipping, a wholly-owned subsidiary of COSCO SHIPPING, and 100,944,000 H Shares, representing approximately 0.87% of the total issued share capital of the Company, is held by Ocean Fortune Investment Limited, an indirect wholly-owned subsidiary of COSCO SHIPPING. Therefore, 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 39.28% 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.

Discloseable and Continuing Connected Transaction

As one or more applicable percentage ratios in respect of the Proposed Annual Caps for the Discloseable and Continuing Connected Transaction, being the finance lease services to be provided by the CS Development Group to the COSCO SHIPPING Group under the Master Finance Lease Services Agreement, calculated in accordance with the Hong Kong Listing Rules are expected to exceed 5% but are less than 25%, such transaction, together with the Proposed Annual Caps thereof, constitute (i) a continuing connected transaction which is subject to the reporting, announcement, annual review and Independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules; and (ii) a discloseable transaction of the Company which is subject to the reporting and announcement requirements under Chapter 14 of the Hong Kong Listing Rules.

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Non-exempt Continuing Connected Transactions (other than the Discloseable and Continuing Connected Transaction)

As one or more applicable percentage ratios in respect of the Proposed Annual Caps for each of the Non-exempt Continuing Connected Transactions (other than the Discloseable and Continuing Connected Transaction) calculated in accordance with the Hong Kong Listing Rules are expected to exceed 5%, the Non-exempt Continuing Connected Transactions (other than the Discloseable and Continuing Connected Transaction), together with their respective Proposed Annual Caps, are subject to the reporting, announcement, annual review and Independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules.

Master Vessel Charter Agreement, Master Operating Lease Services Agreement and Master Finance Lease Services Agreement

Although the transactions under the Master Vessel Charter Agreement, the Master Operating Lease Services Agreement and the Master Finance Lease Services Agreement will all be conducted between the CS Development Group and the COSCO SHIPPING Group, (i) these transactions will be conducted under three different master agreements as well as individual implementation agreements which are separately negotiated and concluded between the CS Development Group and the COSCO SHIPPING Group on an arm’s length basis; (ii) the vessels, containers and finance leases to be provided by the CS Development Group to the COSCO SHIPPING Group under the Master Vessel Charter Agreement, the Master Operating Lease Services Agreement and the Master Finance Lease Services Agreement, respectively, are of different nature and use, are not part of one asset and are functional on their own, and are subject to the needs of the COSCO SHIPPING Group from time to time; and (iii) these transactions are in line with the existing principal business of the Company and will not lead to substantial involvement by the Company in a new business activity. In light of the above, the Board is of the view that the transactions under the Master Vessel Charter Agreement, the Master Operating Lease Services Agreement and the Master Finance Lease Services Agreements shall not be aggregated pursuant to Rule 14A.81 of the Hong Kong Listing Rules.

As for the provision of vessel chartering services by the CS Development Group to the COSCO SHIPPING Group under the Master Vessel Charter Agreement, (i) it is of a revenue nature in the ordinary and usual course of business of the Company; and (ii) the chartering of vessels involved are operating leases which do not have a significant impact on the operations of the Company and the total monetary value or the number of leases involved do not represent a 200% or more increase in the scale of the existing operations of the Company conducted through lease arrangements of such kind, the Board is of the view that it does not constitute a notifiable transaction of the Company under Chapter 14 of the Hong Kong Listing Rules.

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Master Containers Services Agreement

The sale of containers manufactured by the CS Development Group to the COSCO SHIPPING Group under the Master Containers Services Agreement is of a revenue nature in the ordinary and usual course of business of the Company. As such, the Board is of the view that the provision of container and other ancillary services by the CS Development Group to the COSCO SHIPPING Group under the Master Containers Services Agreement does not constitute notifiable transactions of the Company under Chapter 14 of the Hong Kong Listing Rules.

The purchase of containers by the CS Development Group from the COSCO SHIPPING Group under the Master Containers Services Agreement is a result of the purchase of containers manufactured by the CS Financial Subsidiaries for the implementation by the CS Development Group of the strategy of integration of sales channels of such containers and containers manufactured by the CS Development Group. In addition, the Florens Group would also purchase containers manufactured by the CS Financial Subsidiaries for the purpose of leasing to other parties. The containers purchased from the CS Financial Subsidiaries will be recorded as inventory in the consolidated financial statements of the Group, except for the containers purchased by the Florens Group for leasing to other parties which will be recorded as fixed assets in the consolidated financial statements of the Group. As such, the Board is of the view that the provision of container and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Containers Services Agreement constitutes notifiable transactions of the Company under Chapter 14 of the Hong Kong Listing Rules.

As one or more applicable percentage ratios in respect of the Proposed Annual Caps for the provision of container and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Containers Services Agreement calculated in accordance with the Hong Kong Listing Rules are expected to exceed 25%, such transaction, together with the Proposed Annual Caps thereof, constitute (i) a continuing connected transaction which is subject to the reporting, announcement, annual review and Independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules; and (ii) a major transaction of the Company which is subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14 of the Hong Kong Listing Rules.

Master Factoring Services Agreement

As one or more applicable percentage ratios in respect of the Proposed Annual Caps for the transactions contemplated under the Master Factoring Services Agreement calculated in accordance with the Hong Kong Listing Rules are expected to exceed 0.1% but are less than 5%, the transactions contemplated under the Master Factoring Services Agreement, together with their Proposed Annual Caps, are subject to the reporting, announcement and annual review requirements, but are exempt from the Independent Shareholders’ approval requirement under Chapter 14A of the Hong Kong Listing Rules.

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III. MASTER FINANCIAL SERVICES AGREEMENT

A. Principal terms of the Master Financial Services Agreement

On 30 October 2019, the Company and COSCO SHIPPING Finance entered into the Master Financial Services Agreement, pursuant to which COSCO SHIPPING Finance has agreed to provide financial services to the CS Development Group. The principal terms of the Master Financial Services Agreement are set out below.

Parties: (i) The Company; and (ii) COSCO SHIPPING Finance. Nature of transactions: Pursuant to the Master Financial Services Agreement, COSCO SHIPPING Finance agreed to provide financial services to the CS Development Group. Such services include: (i) deposit services;

• (ii) loan services (including discount, guarantee and loan services);

• (iii) settlement services;

• (iv) foreign exchange services; and

• (v) other financial services as approved by CBIRC.

• Pricing policies: (i) Deposit services:

COSCO SHIPPING Finance shall provide deposit services to the CS Development Group at interest rates not lower than (a) the benchmark rates stipulated by the PBOC for the same types of deposits; and (b) the rates offered by the major and independent PRC commercial banks in the service location or adjacent areas in the normal course of business for such types of deposits.

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(ii) Loan services:

COSCO SHIPPING Finance shall provide loan services (including, among other things, loan, guarantee, bills acceptance and discounting and finance lease services) to the CS Development Group at interest rates not higher than (a) the benchmark rates stipulated by the PBOC for the same type of loan; and (b) the rates offered by the major and independent PRC commercial banks in the service location or adjacent areas in the normal course of business for such types of loans.

(iii) Settlement services:

COSCO SHIPPING Finance shall provide settlement services to the CS Development Group at fees not higher than, among other things, (a) the minimum fees stipulated by PBOC to be charged for the same type of services (if any); and (b) the fees charged by any independent third party for the same type of services.

• (iv) Foreign exchange services:

COSCO SHIPPING Finance shall provide foreign exchange services to the CS Development Group at fees not higher than, among other things, (a) the minimum fees stipulated by PBOC to be charged for the same type of services (if any); and (b) the fees charged by any independent third party for the same type of services.

• (v) Other financial services:

The fees charged by COSCO SHIPPING Finance for the provision of other financial services to the CS Development Group shall not be higher than, among other things, (a) the minimum fees stipulated by PBOC to be charged for similar type of services (if any); and (b) the fees charged by any independent third party for similar type of services.

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Term and termination:

The Master Financial Services Agreement shall become effective upon the execution and affixation of seals by the legal or authorised representatives of the parties, subject to the relevant approvals from the empowered bodies (including the Board) in respect of the annual caps, pursuant to the Master Financial Services Agreement, the respective articles of association of the parties, applicable laws, regulations and rules of stock exchanges.

The initial term of the Master Financial Services Agreement shall be three years from 1 January 2020 to 31 December 2022. Subject to the compliance with the Hong Kong Listing Rules and the Shanghai Listing Rules, and upon the written agreements of the parties, the Master Financial Services Agreement shall be automatically renewed for a further term of three years upon the expiry of the initial term, unless either party notifies the other party by way of a written notice of termination three months prior to such expiry date.

B. Aggregate historical transaction amounts and aggregate existing annual caps

The table below sets out the aggregate historical transaction amounts and the aggregate existing annual caps for the provision of deposit services by CS Finance to the CS Development Group and by COSCO Finance to the Florens Group under the Existing Master CS Finance Financial Services Agreement and the Existing Florens Financial Services Agreement, respectively, for the three years ending 31 December 2019:

**Year **	ended	Year ended	Year ending
31 December 2017		31 December 2018	31 December 2019
			Actual amount up
Annual	Actual	Annual Actual	Annual to 30 September
cap	amount	cap amount	cap 2019
(RMB’000)		(RMB’000)	(RMB’000)
10,500,000	8,948,295	11,500,000 11,131,949	12,500,000 11,767,213

The Board confirms that, as at the Latest Practicable Date, the aggregate existing annual caps for the provision of deposit services by CS Finance to the CS Development Group and by COSCO Finance to the Florens Group under the Existing Master CS Finance Financial Services Agreement and the Existing Florens Financial Services Agreement, respectively, for the year ending 31 December 2019 have not been exceeded.

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C. Proposed Annual Caps and basis for determining the Proposed Annual Caps

The table below sets out the Proposed Annual Caps for the provision of deposit services by COSCO SHIPPING Finance to the CS Development Group under the Master Financial Services Agreement for the three years ending 31 December 2022:

Year ending	Year ending	Year ending
31 December 2020	31 December 2021	31 December 2022
Proposed Annual Cap	Proposed Annual Cap	Proposed Annual Cap
(RMB’000)	(RMB’000)	(RMB’000)
13,300,000	13,300,000	14,620,000

In arriving at the Proposed Annual Caps for the maximum outstanding balance of deposits (including accrued interest and handling fee for the deposit services to be provided by COSCO SHIPPING Finance to the CS Development Group under the Master Financial Services Agreement), the Directors have considered:

• (i) the aggregate historical transaction amounts for the provision of deposit services by CS Finance to the CS Development Group and by COSCO Finance to the Florens Group under the Existing Master CS Finance Financial Services Agreement and the Existing Florens Financial Services Agreement, respectively, for the two years ended 31 December 2017 and 2018 and the nine months ended 30 September 2019;

• (ii) the general expansion of business of COSCO SHIPPING Finance; and

• (iii) the expected increase in financing demands of the CS Development Group, including capital injection in subsidiaries, repayment of the maturing corporate bonds and replenishment of working capital.

D. Implementation agreements

Pursuant to the terms of the Master Financial Services Agreement, the CS Development Group may, from time to time and as necessary, enter into separate implementation agreements in respect of specific financial services and other relevant matters contemplated under the Master Financial Services Agreement.

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 Master Financial Services Agreement.

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As the implementation agreements only provide for further elaborations on the transactions contemplated under the Master Financial Services Agreement, they do not constitute new categories of continuing connected transactions under Chapter 14A of the Hong Kong Listing Rules.

E. Reasons for and benefits of entering into the Master Financial Services Agreement

It is common for large corporate groups in the PRC to set up and maintain a finance company to provide treasury services to the group members as this improves centralized management and utilisation efficiency of group funds, and assists group members in reducing financing costs and investment risks. COSCO SHIPPING Finance is an indirect non-wholly owned subsidiary of COSCO SHIPPING and may provide financial services to the COSCO SHIPPING Group and the CS Development Group. COSCO SHIPPING Finance has obtained all approvals, permits and licenses necessary for its operations, and is operating under the routine supervision and regulation of regulatory authorities including PBOC and CBIRC.

The Board has checked the continuing validity of the license of COSCO SHIPPING Finance and looked at various key financial ratios of COSCO SHIPPING Finance including capital adequacy ratio and self-owned fixed assets to total capital ratio when assessing the capability of COSCO SHIPPING Finance for the provision of the financial services. Such key financial ratios reviewed by the Board are all better than the standard stipulated by CBIRC for finance companies. As such, the Board believes that COSCO SHIPPING Finance has the financial capability in providing the deposit services, loan services, settlement services, foreign exchange services and other financial services under the Master Financial Services Agreement, and the credit risk involved in the underlying transactions is low.

The terms and conditions of the deposit services, loan services, settlement services, foreign exchange services and other financial services to be provided by COSCO SHIPPING Finance under the Master Financial Services Agreement are generally more favourable to the CS Development Group than those provided by independent third parties, or those provided by COSCO SHIPPING Finance to independent third parties.

Furthermore, the Group is not restricted under the Master Financial Services Agreement to approach, and in fact may choose, any bank or financial institution to satisfy its financial service needs. Its criteria in making the choice could be based on costs and quality of services. Therefore, the Group may, but is not obliged to, continue to use the deposit services, loan services, settlement services, foreign exchange services and other financial services of COSCO SHIPPING Finance if the service quality provided is competitive. With such flexibility under the Master Financial Services Agreement, the Group is able to better manage its capital and cash flow position.

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In addition, it is also expected that COSCO SHIPPING Finance will mainly provide deposit services, loan services and foreign exchange services to the Group. As COSCO SHIPPING Finance is familiar with the business of the Group, it is able to provide funds required by the Group in a more efficient and timely way as compared to independent third party banks. In view of the business transformation of the Group and its strong demand for funds, the Group hopes to obtain financial assistance from COSCO SHIPPING Finance, which may help broaden the financing channels of the Group and lower its financing costs.

F. Implications under the Hong Kong Listing Rules

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 39.28% 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 Finance is an indirect non-wholly owned subsidiary of COSCO SHIPPING and therefore an associate of COSCO SHIPPING. Accordingly, COSCO SHIPPING Finance is a connected person of the Company.

Deposit services

As one or more applicable percentage ratios in respect of the Proposed Annual Caps for the deposit services to be provided by COSCO SHIPPING Finance to the CS Development Group under the Master Financial Services Agreement calculated in accordance with the Hong Kong Listing Rules are expected to exceed 25%, such transaction, together with the Proposed Annual Caps thereof, constitute (i) a continuing connected transaction which is subject to the reporting, announcement, annual review and Independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules; and (ii) a major transaction of the Company which is subject to the reporting, announcement, and Independent Shareholders’ approval requirements under Chapter 14 of the Hong Kong Listing Rules.

Loan services

The loan services to be provided by COSCO SHIPPING Finance to the CS Development Group will constitute financial assistance received by the Group from a connected person. As such transactions will be conducted on normal commercial terms (or better to the Group) and are not secured by the assets of the Group, such transactions are exempt from all reporting, announcement, annual review and Independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules.

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Settlement services, foreign exchange services and other financial services

As each of the applicable percentage ratios in respect of the Proposed Annual Caps for the settlement services, foreign exchange services and other financial services under the Master Financial Services Agreement calculated in accordance with the Hong Kong Listing Rules is expected to be less than 0.1%, such transactions are exempt from the reporting, announcement, annual review and Independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules.

IV. NEW COMMODITIES SUPPLY FRAMEWORK AGREEMENT

As disclosed in the Overseas Regulatory Announcement, the term of the Existing Commodities Supply Framework Agreement will expire on 31 December 2019. As such, the Board has resolved to enter into the New Commodities Supply Framework Agreement to renew the supply of commodities (including but not limited to containers) by the CIMC Group to the Group for a term of three years commencing on 1 January 2020 and ending on 31 December 2022.

The principal terms of the New Commodities Supply Framework Agreement are set out below.

Parties: (i) The Company; and (ii) CIMC.

Nature of transactions: Pursuant to the New Commodities Supply Framework Agreement, the CIMC Group agreed to supply commodities (including but not limited to containers) to the Group.

Pricing policies:

The pricing policies of the supply of commodities (including but not limited to containers) by the CIMC Group to the Group are as follows:

• (i) where a bidding process is adopted by the Group and members of the CIMC Group are invited to participate in the bidding process, the bidding price shall prevail;

• (ii) where there is no bidding process, the price shall be determined with reference to the market prices (including the comparable local, domestic or international market prices) based on the type and quality of commodities; or

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• (iii) where it is not practicable to offer a bidding process and where comparable market prices are not available, the price shall be determined after arm’s length negotiations between the CIMC Group and the Group with reference to the cost, technology, quality, volume and the historical prices of the relevant commodities.

The table below sets out the Proposed Annual Caps for the supply of commodities (including but not limited to containers) by the CIMC Group to the Group under the New Commodities Supply Framework Agreement for the three years ending 31 December 2022:

Year ending	Year ending	Year ending
31 December 2020	31 December 2021	31 December 2022
Proposed Annual Cap	Proposed Annual Cap	Proposed Annual Cap
(RMB’000)	(RMB’000)	(RMB’000)
2,300,000	2,700,000	3,000,000

For further details of the transactions contemplated under the New Commodities Supply Framework Agreement and the Proposed Annual Caps thereof, please refer to the Overseas Regulatory Announcement.

V. NO RELIANCE ON THE COSCO SHIPPING GROUP

As disclosed in the 2018 Annual Report, the revenue generated from the COSCO SHIPPING Group amounted to approximately RMB8.6 billion, representing approximately 53.23% of the total revenue of the Group for the year ended 31 December 2018. The revenue from the COSCO SHIPPING Group for the year ended 31 December 2018 was mainly generated from services provided by the Group under the Master Containers Services Agreement and other services including container leasing services and chartering of vessels. The expenses paid to the COSCO SHIPPING Group for the year ended 31 December 2018 amounted to approximately RMB1.8 billion, representing only approximately 10.44% of the total expenses of the Group (inclusive of cost of sales and other expenses) for the year ended 31 December 2018.

Notwithstanding the foregoing, the Board is of the view that there is no and will not be any issue of reliance of the Group on the COSCO SHIPPING Group and the apparent reliance in terms of generation of revenue is the result of a commercial decision taking into account of, among other things, the peculiar circumstances of the Group and the COSCO SHIPPING Group and the terms of the transactions, which is in the interests of the Company and the Shareholders as a whole. Further, following implementation of the abovementioned integration of the sales channels strategy for the containers manufactured by the Group and the CS Financial Subsidiaries, it is expected that there will be an increase in revenue generated from third parties independent of the Company and its connected persons.

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Interaction between the Group and the COSCO SHIPPING Group

Following completion of the restructuring of the Group in 2016, the Group is now principally engaged in shipping and industry-related leasing businesses, manufacturing of containers and provision of investment and financial services. 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 complementary interaction of the businesses of the Group and other members of the COSCO SHIPPING Group, which include other prominent players in the shipping industry such as COSCO SHIPPING Holdings, COSCO SHIPPING Ports Limited[#] (中遠海運港口有限公司) (the shares of which are listed on the Main Board of the Hong Kong Stock Exchange (Stock Code: 1199)) and COSCO SHIPPING Energy Transportation Co., Ltd.[#] (中遠海運能源運輸股份有限公司) (the H shares of which are listed on the Main Board of 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.

Terms of the transactions

Pursuant to the terms of the Non-exempt Continuing Connected Transaction Agreements and the Master Financial Services Agreement, 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 is 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.

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Expected increase in revenue generated from independent third parties

As disclosed in the announcement of the Company dated 6 May 2019, pursuant to the Entrustment Agreement, Shanghai Universal is entrusted to exercise, among other things, the daily management rights in respect of the CS Financial Subsidiaries, including but not limited to, daily production related matters such as procurement, sales and production, through which, the Group may achieve increased economies of scale and unified management of the container manufacturing businesses of the CS Financial Subsidiaries and the Group. In line with this objective, the Group seeks to implement the integration of sales channels for the containers manufactured by the Group and the CS Financial Subsidiaries by leveraging on the entrustment arrangement of the CS Financial Subsidiaries pursuant to the Entrustment Agreement. In doing so, it is anticipated that the Group will be able to expand its customer base as well as increase its share of the container manufacturing market with the additional production capacity of the CS Financial Subsidiaries.

In particular, it is expected that through utilizing the technological capability of the CS Financial Subsidiaries in the manufacturing of refrigerated containers, the Group will be able to diversify its portfolio of supply of containers, thereby enabling the Group to further penetrate into the container manufacturing market and serve new customers who are third parties independent of the Company and its connected persons.

Further, the geographical presence of the CS Financial Subsidiaries in the Northern and Eastern China regions, which supplements to the existing geographical presence of the container manufacturers of the Group, will allow the Group to fulfil container manufacturing orders that require delivery of the containers to locations in the Northern and Eastern China regions in a more efficient and cost-effective manner.

In implementing the aforementioned strategy, the Group will enter into agreements directly with the customers whose container manufacturing orders will be handled by the CS Financial Subsidiaries and who are expected to be primarily third parties independent of the Company and its connected persons. Accordingly, it is expected that there will be an increase in revenue generated from independent third parties of the Group, therefore eliminating any apparent reliance of the Group on the COSCO SHIPPING Group in terms of generation of revenue.

In light of the foregoing, the Board is of the view that (i) there is no and will not be any issue of reliance of the Group on the COSCO SHIPPING Group; 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.

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VI. REQUIREMENTS UNDER THE SHANGHAI LISTING RULES

Relevant Continuing Connected Transactions

Pursuant to the Shanghai Listing Rules, transaction amounts under all types of related party transactions entered into in the ordinary and usual course of business of the Company and entered into between the Company and the same related party within a 12-month period should be aggregated (save for those which have complied with the relevant approval and/or disclosure procedures), and if the total aggregated transaction amount exceeds 5% of the net asset value of the Group as at the end of the preceding financial year, such related party transactions should be presented to a general meeting for independent shareholders’ approval.

As the Relevant Continuing Connected Transactions, being (i) the Non-exempt Continuing Connected Transactions; (ii) the Major and Continuing Connected Transactions; and (iii) the transactions contemplated under the Master Factoring Services Agreement, also constitute related party transactions entered into in the ordinary and usual course of business of the Company under the Shanghai Listing Rules and were all entered into between the CS Development Group and the COSCO SHIPPING Group, all the Proposed Annual Caps for the Relevant Continuing Connected Transactions shall be aggregated pursuant to the requirements under the Shanghai Listing Rules. It is expected that such aggregated amount for the three years ending 31 December 2022 will exceed 5% of the net asset value of the Group as at 31 December 2018. Accordingly, despite that only the Non-exempt Continuing Connected Transactions and the Major and Continuing Connected Transactions, and their respective Proposed Annual Caps are required to be approved by the Independent Shareholders under the Hong Kong Listing Rules, ordinary resolutions will be proposed at the EGM for the Independent Shareholders to consider and, if thought fit, approve the Relevant Continuing Connected Transactions and their respective Proposed Annual Caps.

Transactions contemplated under the New Commodities Supply Framework Agreement

As at the Latest Practicable Date, the Company, through its indirect wholly-owned subsidiary, Long Honour Investments Limited, holds in aggregate 22.71% of the issued share capital of CIMC. In addition, Mr. Liu Chong, a non-executive director of the board of directors of CIMC, is an executive Director and the general manager of the Company, and Mr. Ming Dong, a non-executive director of the board of directors of CIMC, is the deputy general manager of the Company. While the CIMC Group is a related party of the Company under the Shanghai Listing Rules, it is not a connected person of the Company under the Hong Kong Listing Rules. As such, the transactions contemplated under the New Commodities Supply Framework Agreement constitute related party transactions of the Company pursuant to the Shanghai Listing Rules. Accordingly, an ordinary resolution will also be proposed at the EGM for the Independent Shareholders to consider and, if thought fit, approve the transactions contemplated under the New Commodities Supply Framework Agreement and the Proposed Annual Caps thereof.

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VII. INFORMATION ON THE GROUP, THE COSCO SHIPPING GROUP AND THE CIMC GROUP

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.

Information on CS Financial

CS Financial is a company incorporated in Hong Kong with limited liability and is an indirect wholly-owned subsidiary of COSCO SHIPPING. It is principally engaged in providing integrated financial services and investment in financial assets.

Information on COSCO SHIPPING Finance

COSCO SHIPPING Finance is a company established in the PRC with limited liability and is an indirect non-wholly owned subsidiary of COSCO SHIPPING. It is principally engaged in the provision of deposit services, credit services, financial and financing consultation, credit verification and related consultation and agency services, settlement, and liquidation.

Information on the CIMC Group

CIMC 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 CIMC Group is principally engaged in the manufacture of containers, road transportation vehicles, energy, chemical and liquid food equipment, offshore engineering, logistics service and airport equipment.

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LETTER FROM THE BOARD

VIII. CONFIRMATION OF THE BOARD

Mr. Wang Daxiong, Mr. Liu Chong and Mr. Xu Hui, all being executive Directors, and Mr. Feng Boming, Mr. Huang Jian and Mr. Liang Yanfeng, all being non-executive Directors, hold directorship(s) or act as senior management in COSCO SHIPPING and/or its associates, and were nominated by COSCO SHIPPING to the Board. Accordingly, 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 Continuing Connected Transactions (other than the transactions contemplated under the New Commodities Supply Framework Agreement) and their respective Proposed Annual Caps. Mr. Liu Chong, being an executive Director and the general manager of the Company, is a non-executive Director of CIMC. Accordingly, Mr. Liu Chong has also abstained from voting on the relevant Board resolution approving the transactions contemplated under the New Commodities Supply Framework Agreement and the Proposed Annual Caps thereof. Save as aforementioned, none of the other Directors has a material interest in the Continuing Connected Transactions and their respective Proposed Annual Caps, and therefore no other Director has abstained from voting on such Board resolutions.

The Directors (including the independent non-executive Directors) consider that (i) the Non-exempt Continuing Connected Transactions, the provision of container and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Containers Services Agreement and the transactions contemplated under the Master Factoring 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 Non-exempt Continuing Connected Transactions, the provision of container and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Containers Services Agreement and the transactions contemplated under the Master Factoring Services Agreement, and their respective Proposed Annual Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole; and (ii) the transactions contemplated under the Master Financial Services Agreement and the New Commodities Supply Framework Agreement will 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 transactions contemplated under the Master Financial Services Agreement and the New Commodities Supply Framework Agreement, and their respective Proposed Annual Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

IX. 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 Hong Kong 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) the Company has prepared and implemented the Methods for Management of Connected Transactions (關連交易管理辦法) which sets out, among other things, the relevant requirements for and identification of connected transactions, the responsibilities of relevant departments in the conduct and management of connected transactions, reporting procedures and ongoing monitoring, with a view to ensuring compliance of the Group with applicable laws and regulations (including the Hong Kong Listing Rules) in relation to connected transactions;

• (ii) 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 that 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;

• (iii) following the 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;

• (iv) the Company will regularly convene meetings to discuss any issues in the transactions under the continuing connected transaction framework agreements and recommendations for improvement;

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LETTER FROM THE BOARD

• (v) the Company will regularly summarise the transaction amounts incurred under the respective continuing connected transaction framework agreements and submit periodic reports which sets out, among other things, the historical transaction amounts, the estimated future transaction amounts and the applicable annual caps, to the management of the Company. If the aforementioned transaction amount incurred reach 80% of the respective applicable annual cap, immediate reporting will be made to the management of the Company. In doing so, 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;

• (vi) if it is anticipated that the existing annual caps may be exceeded in the event that the Company continues to conduct the continuing connected transactions, the relevant business departments shall report to the management of the Company at least two months in advance, the Company will then take all appropriate steps in advance to revise the relevant annual caps in accordance with the relevant requirements of the Hong Kong Listing Rules and if necessary, the Company will refrain from further conducting the relevant continuing connected transactions until the revised annual caps are approved; and

• (vii) 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 that 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 that the annual caps approved by the Independent Shareholders or as announced are not exceeded. X. PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION AND PROPOSED AMENDMENTS TO THE RULES OF PROCEDURE OF THE SHAREHOLDERS’ GENERAL MEETING

According to the Official Reply of the State Council of the PRC on Adjusting the Notice Period for General Meetings and Other Matters Applicable to Overseas Listed Companies (Guo Han [2019] No. 97)[#] (《國務院關於調整適用在境外上市公司召開股東大會通知期限等事項規 定的批覆》(國函(2019)97號)), the requirements on, among other things, the notice period and convening procedures for general meetings of joint stock companies incorporated in the PRC with limited liability which are listed overseas shall be governed by the relevant provisions

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LETTER FROM THE BOARD

under the Company Law, instead of the provisions under Articles 20 to 22 of the Special Regulations on the Overseas Offering and Listing of Shares by Joint Stock Limited Companies issued by the State Council of the PRC[#] (《國務院關於股份有限公司境外募集股份及上市的特 別規定》).

As disclosed in the announcement of the Company dated 6 December 2019, the Board proposed to make certain amendments to (i) the Articles of Association and (ii) the Rules of Procedure of the Shareholders’ General Meeting in order to, among other things, (i) bring the relevant provisions of the Articles of Association and the Rules of Procedure of the Shareholders’ General Meeting in line with the relevant requirements under the Company Law; (ii) simplify the convening procedures of shareholders’ general meetings; (iii) further improve the corporate governance of the Company; and (iv) further enhance the efficiency of decision making at shareholders’ general meetings.

The Directors consider that the Proposed Amendments to the Articles of Association and the Proposed Amendments to the Rules of Procedure of the Shareholders’ General Meeting are in the interests of the Company and the Shareholders as a whole.

The full text of the Proposed Amendments to the Articles of Association and the Proposed Amendments to the Rules of Procedure of the Shareholders’ General Meeting, which were prepared in the Chinese language, are set out in Appendix III and Appendix IV to this circular, respectively. In the event of any discrepancy between the English translation and the Chinese version of the Proposed Amendments to the Articles of Association and the Proposed Amendments to the Rules of Procedure of the Shareholders’ General Meeting, the Chinese version shall prevail.

The Proposed Amendments to the Articles of Association and the Proposed Amendments to the Rules of Procedure of the Shareholders’ General Meeting are subject to the approval by the Shareholders by way of special resolutions at the EGM and the approval of, and registration or filing with, the relevant PRC governmental authorities.

XI. THE EGM

The EGM will be held at 1:30 p.m. on Monday, 23 December 2019 at Level 3, Ocean Hotel Shanghai, 1171 Dong Da Ming Road, Hong Kou District, Shanghai, the PRC, for the Shareholders to consider and, if thought fit, approve the abovementioned resolutions. The resolutions in relation to (i) the Relevant Continuing Connected Transactions and their respective Proposed Annual Caps; and (ii) the transactions contemplated under the New Commodities Supply Framework Agreement and the Proposed Annual Caps thereof will be proposed by way of ordinary resolutions at the EGM to be approved by the Shareholders, while the resolutions in relation to the (i) Proposed Amendments to the Articles of Association; and (ii) the Proposed Amendments to the Rules of Procedure of the Shareholders’ General Meeting will be proposed by way of special resolutions at the EGM to be approved by the Shareholders. The voting in relation to such resolutions will be conducted by way of poll.

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LETTER FROM THE BOARD

The Original Notice of EGM, which was despatched to the Shareholders on 8 November 2019, is reproduced on pages EGM-1 to EGM-8 of this circular. The Supplemental Notice of EGM, which contains the additional resolutions 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, 4,458,195,175 A Shares, representing approximately 38.41% of the total issued share capital of the Company, is held by China Shipping, a wholly-owned subsidiary of COSCO SHIPPING, and 100,944,000 H Shares, representing approximately 0.87% of the total issued share capital of the Company, is held by Ocean Fortune Investment Limited, an indirect wholly-owned subsidiary of COSCO SHIPPING. Therefore, 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 39.28% 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 Relevant Continuing Connected Transactions and the transactions contemplated under the New Commodities Supply Framework Agreement will be required to abstain from voting on the resolutions in relation to the Relevant Continuing Connected Transactions and the transactions contemplated under the New Commodities Supply Framework Agreement, and their respective Proposed 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 Relevant Continuing Connected Transactions and the transactions contemplated under the New Commodities Supply Framework Agreement, and therefore no other Shareholder is required to abstain from voting at the EGM for the relevant resolutions.

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, no Shareholder has a material interest in the Proposed Amendments to the Articles of Association and the Proposed Amendments to the Rules of Procedure of the Shareholders’ General Meeting, and therefore no Shareholder is required to abstain from voting at the EGM for the relevant 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 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.

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LETTER FROM THE BOARD

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 (a) the Original Notice of EGM and (b) 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 (a) the Original Notice of EGM and (b) 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 the 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 the Securities and Public Relations Department of the Company not later than 3 December 2019.

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LETTER FROM THE BOARD

XII. RECOMMENDATION

The Independent Board Committee (comprising all the independent non-executive Directors) has been formed in accordance with Chapter 14A of the Hong Kong Listing Rules to advise the Independent Shareholders on the Non-exempt Continuing Connected Transactions and the Major and Continuing Connected Transactions, and their respective Proposed Annual Caps.

Messis Capital 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 Non-exempt Continuing Connected Transactions and the Major and Continuing Connected Transactions, and their respective Proposed Annual Caps.

The Independent Board Committee, after considering the advice from the Independent Financial Adviser, is of the view that (i) the Non-exempt Continuing Connected Transactions and the provision of container and other ancillary services by the COSCO SHIPPING Group to the CS Development Group 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 Non-exempt Continuing Connected Transactions and the provision of container and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Containers Services Agreement, and their respective Proposed Annual Caps, are fair and reasonable and in the interests of the Company and the Shareholders as a whole; and (ii) the provision of deposit services by COSCO SHIPPING Finance to the CS Development Group under the Master Financial Services Agreement will 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 provision of deposit services by COSCO SHIPPING Finance to the CS Development Group under the Master Financial Services Agreements and the Proposed Annual Caps thereof 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 resolutions in relation to the Non-exempt Continuing Connected Transactions and the Major and Continuing Connected Transactions, and their respective Proposed Annual Caps.

The Board also recommends the Independent Shareholders to vote in favour of the resolutions in relation to (i) the Relevant Continuing Connected Transactions (other than the Non-exempt Continuing Connected Transactions and the Major and Continuing Connected Transactions); (ii) the transactions contemplated under the New Commodities Supply Framework Agreement, and their respective Proposed Annual Caps, and the Board recommends the Shareholders to vote in favour of the resolutions in relation to (i) the Proposed Amendments to the Articles of Association; and (ii) the Proposed Amendments to the Rules of Procedure of the Shareholders’ General Meeting.

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LETTER FROM THE BOARD

XIII. FURTHER INFORMATION

Your attention is drawn to (i) the letter from the Independent Board Committee set out on pages 57 to 58 of this circular, containing its recommendation in respect of the Non-exempt Continuing Connected Transactions and the Major and Continuing Connected Transactions, and their respective Proposed Annual Caps; (ii) the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders set out on pages 59 to 91 of this circular, containing its recommendation in respect of the Non-exempt Continuing Connected Transactions and the Major and Continuing Connected Transactions, and their respective Proposed Annual Caps; and (iii) the additional information set out in the appendices to this circular.

The Independent Shareholders are advised to read the aforesaid letters and appendices before deciding as to how to vote on the resolutions in relation to the Non-exempt Continuing Connected Transactions and the Major and Continuing Connected Transactions and their respective Proposed 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 purposes 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)

6 December 2019

To the Independent Shareholders

Dear Sir or Madam,

(1) RENEWAL OF CONTINUING CONNECTED TRANSACTIONS (2) DISCLOSEABLE AND CONTINUING CONNECTED TRANSACTION (3) MAJOR AND CONTINUING CONNECTED TRANSACTIONS AND

(4) NEW COMMODITIES SUPPLY FRAMEWORK AGREEMENT

We refer to the circular of the Company dated 6 December 2019 (the “ Circular ”), of which this letter forms part. Unless otherwise defined, capitalised terms used herein shall have the same meanings as those defined in the Circular.

We have been appointed as members of the Independent Board Committee to advise the Independent Shareholders in respect of the Non-exempt Continuing Connected Transactions and the Major and Continuing Connected Transactions, and their respective Proposed 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 with our approval 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 14 to 56 of the Circular, the “Letter from the Independent Financial Adviser” set out on pages 59 to 91 of the Circular and the additional information set out in the appendices to this Circular.

Having taken into account, among other things, the principal factors and reasons considered by, and the advice of, the Independent Financial Adviser as set out in the “Letter from the Independent Financial Adviser” in the Circular, we concur with the view of the Independent Financial Adviser and consider that (i) the Non-exempt Continuing Connected Transactions and the provision of container and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Containers Services Agreement have been conducted and will continue to be conducted in the ordinary and usual

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

course of business of the Group and are on normal commercial terms, and that the terms of the Non-exempt Continuing Connected Transactions and the provision of container and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Containers Services Agreement, and their respective Proposed Annual Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole; and (ii) the provision of deposit services by COSCO SHIPPING Finance to the CS Development Group under the Master Financial Services Agreement will 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 provision of deposit services by COSCO SHIPPING Finance to the CS Development Group under the Master Financial Services Agreement and the Proposed Annual Caps thereof are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Accordingly, we recommend the Independent Shareholders to vote in favour of the resolutions in relation to the Non-exempt Continuing Connected Transactions and the Major and Continuing Connected Transactions, and their respective Proposed Annual Caps.

Yours faithfully,

Independent Board Committee Mr. Cai Hongping Ms. Hai Chi Yuet Mr. Graeme Jack Mr. Lu Jianzhong 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 the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Non-exempt Continuing Connected Transactions and the Major and Continuing Connected Transactions and their respective Proposed Annual Caps for the purpose of inclusion in this circular.

==> picture [242 x 47] intentionally omitted <==

6 December 2019

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

Dear Sir or Madam,

(1) RENEWAL OF CONTINUING CONNECTED TRANSACTIONS (2) DISCLOSEABLE AND CONTINUING CONNECTED TRANSACTION AND

(3) MAJOR AND CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the Non-exempt Continuing Connected Transactions and the Major and Continuing Connected Transactions, and their respective Proposed 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 6 December 2019 (the “ Circular ”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless the context otherwise requires.

Reference is made to (i) the announcements of the Company dated 5 December 2016, 15 August 2018, 5 July 2019 and 30 October 2019; and (ii) the circulars of the Company dated 13 December 2016, 4 September 2018 and 5 August 2019, in relation to, among other things, the Non-exempt Continuing Connected Transactions and the Major and Continuing Connected Transactions. As the current terms of the Non-exempt Continuing Connected Transaction Agreements will expire on 31 December 2019, the parties have agreed to renew the Non-exempt Continuing Connected Transaction Agreements for a further term of three years commencing on 1 January 2020 and ending on 31 December 2022. In addition, on 30 October 2019, the Company and COSCO SHIPPING Finance entered into the Master Financial Services Agreement, pursuant to which COSCO SHIPPING Finance has agreed to provide financial services to the CS Development Group. The initial term of the Master Financial Services Agreement shall be three years from 1 January 2020 to 31 December 2022.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

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 39.28% 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. In addition, COSCO SHIPPING Finance is an indirect non-wholly owned subsidiary of COSCO SHIPPING and therefore an associate of COSCO SHIPPING. Accordingly, COSCO SHIPPING Finance is a connected person of the Company.

Discloseable and Continuing Connected Transaction

As one or more applicable percentage ratios in respect of the Proposed Annual Caps for the Discloseable and Continuing Connected Transaction, being the finance lease services to be provided by the CS Development Group to the COSCO SHIPPING Group under the Master Finance Lease Services Agreement, calculated in accordance with the Hong Kong Listing Rules are expected to exceed 5% but are less than 25%, such transaction, together with the Proposed Annual Caps thereof, constitute (i) a continuing connected transaction which is subject to the reporting, announcement, annual review and Independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules; and (ii) a discloseable transaction of the Company which is subject to the reporting and announcement requirements under Chapter 14 of the Hong Kong Listing Rules.

Non-exempt Continuing Connected Transactions (other than the Discloseable and Continuing Connected Transaction)

As one or more applicable percentage ratios in respect of the Proposed Annual Caps for each of the Non-exempt Continuing Connected Transactions (other than the Discloseable and Continuing Connected Transaction) calculated in accordance with the Hong Kong Listing Rules are expected to exceed 5%, the Non-exempt Continuing Connected Transactions (other than the Discloseable and Continuing Connected Transaction), together with their respective Proposed Annual Caps, are subject to the reporting, announcement, annual review and Independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules.

Master Vessel Charter Agreement, the Master Operating Lease Services Agreement and the Master Finance Lease Services Agreement

The lease transactions under the Master Vessel Charter Agreement, the Master Operating Lease Services Agreement and the Master Finance Lease Services Agreement (i) will be conducted under three different master agreements as well as individual implementation agreements which are separately negotiated and concluded between the CS Development Group and the COSCO SHIPPING Group on an arm’s length basis; (ii) are of different nature and the leased assets does not form part of one asset; (iii) are in the ordinary and usual course of business of the Company and will not lead to substantial involvement by the Company in a new business activity. Based on the above, we concur with the Board’s view that the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

transactions contemplated under the Master Vessel Charter Agreement, the Master Operating Lease Services Agreement and the Master Finance Lease Services Agreement shall not be aggregated pursuant to Rule 14A.81 of the Hong Kong Listing Rules.

As for the provision of vessel chartering services by the CS Development Group to the COSCO SHIPPING Group under the Master Vessel Charter Agreement, (i) it is of a revenue nature in the ordinary and usual course of business of the Company; and (ii) the chartering of vessels involved are operating leases which do not have a significant impact on the operations of the Company and the total monetary value or the number of leases involved do not represent a 200% or more increase in the scale of the existing operations of the Company conducted through lease arrangements of such kind, the Board is of the view that it does not constitute a notifiable transaction of the Company under Chapter 14 of the Hong Kong Listing Rules.

Master Containers Services Agreement

The sale of containers manufactured by the CS Development Group to the COSCO SHIPPING Group under the Master Containers Services Agreement is of a revenue nature in the ordinary and usual course of business of the Company. As such, the Board is of the view, and we concur, that the provision of container and other ancillary services by the CS Development Group to the COSCO SHIPPING Group under the Master Containers Services Agreement does not constitute notifiable transactions of the Company under Chapter 14 of the Hong Kong Listing Rules.

The purchase of containers by the CS Development Group from the COSCO SHIPPING Group under the Master Containers Services Agreement is a result of the purchase of containers manufactured by the CS Financial Subsidiaries for the implementation by the CS Development Group of the strategy of integration of sales channels of such containers and containers manufactured by the CS Development Group. In addition, the Florens Group would also purchase containers manufactured by the CS Financial Subsidiaries for the purpose of leasing to other parties. The containers purchased from the CS Financial Subsidiaries will be recorded as inventory in the consolidated financial statements of the Group, except for the containers purchased by the Florens Group for leasing to other parties which will be recorded as fixed assets in the consolidated financial statements of the Group. As such, the Board is of the view, and we concur that the provision of container and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Containers Services Agreement constitutes notifiable transactions of the Company under Chapter 14 of the Hong Kong Listing Rules.

As one or more applicable percentage ratios in respect of the Proposed Annual Caps for the provision of container and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Containers Services Agreement calculated in accordance with the Hong Kong Listing Rules are expected to exceed 25%, such transaction, together with the Proposed Annual Caps thereof, constitute (i) a continuing connected transaction which is subject to the reporting, announcement, annual review and Independent

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Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules; and (ii) a major transaction of the Company which is subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14 of the Hong Kong Listing Rules.

Deposit services under the Master Financial Services Agreement

As one or more applicable percentage ratios in respect of the Proposed Annual Caps for the deposit services to be provided by COSCO SHIPPING Finance to the CS Development Group under the Master Financial Services Agreement calculated in accordance with the Hong Kong Listing Rules are expected to exceed 25%, such transaction, together with the Proposed Annual Caps thereof, constitute (i) a continuing connected transaction subject to the reporting, announcement, annual review and Independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules; and (ii) a major transaction of the Company which is subject to the reporting, announcement, and Independent Shareholders’ approval requirements under Chapter 14 of the Hong Kong Listing Rules.

Mr. Wang Daxiong, Mr. Liu Chong and Mr. Xu Hui, all being executive Directors, and Mr. Feng Boming, Mr. Huang Jian and Mr. Liang Yanfeng, all being non-executive Directors, hold directorship(s) or act as senior management in COSCO SHIPPING and/or its associates, and were nominated by COSCO SHIPPING to the Board. Accordingly, 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 Continuing Connected Transactions and their respective Proposed Annual Caps. Save as aforementioned, none of the other Directors has a material interest in the Continuing Connected Transactions and their respective Proposed Annual Caps, and therefore no other Director has abstained from voting on such Board resolutions.

The Independent Board Committee (comprising Mr. Cai Hongping, Ms. Hai Chi Yuet, Mr. Graeme Jack, Mr. Lu Jianzhong and Ms. Zhang Weihua, being all the independent nonexecutive Directors) has been formed in accordance with Chapter 14A of the Hong Kong Listing Rules to advise the Independent Shareholders on the Non-exempt Continuing Connected Transactions and the Major and Continuing Connected Transactions and their respective Proposed Annual Caps. We, Messis Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in these regards.

As at the Latest Practicable Date, we did not have any relationships with or interests 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 circulars of the Company dated (i) 10 May 2018 in relation to the extension of validity

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

period of resolutions regarding the revised proposed non-public issuance of A Shares by the Company; (ii) 4 September 2018 in relation to the proposed revision of annual caps in respect of the continuing connected transactions; (iii) 10 May 2019 in relation to the further extension of validity period of resolutions regarding the revised proposed non-public issuance of A Shares by the Company; (iv) 5 August 2019 in relation to the proposed revision of annual caps in respect of continuing connected transactions. During the past two years, we were appointed as an independent financial adviser of COSCO SHIPPING Energy Transportation Co., Ltd.* (中遠海運能源運輸股份有限公司) (Stock code: 1138), a connected person of the Company, on four occasions, details of which are set out in its circulars dated (i) 30 November 2018 in relation to the extension resolutions of the non-public issuance of A shares; (ii) 30 November 2018 in relation to major and continuing connected transactions; (iii) 5 July 2019 in relation to the amendment to the terms of the proposed non-public issuance of A shares; and (iv) 25 November 2019 in relation to the further extension resolutions in relation to the non-public issuance of A Shares. During the past two years, we were also appointed to act as the independent financial adviser of COSCO SHIPPING Holdings, another connected person of the Company, for one occasion as detailed in its circular dated 5 December 2019 in relation to certain continuing connected transactions. Notwithstanding the above, the previous engagements with the Company and its connected persons would not affect our independence from the Company and we are independent from the Company pursuant to Rule 13.84 of the Hong Kong 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 15 November 2019, being the date of making our independence declaration to the Hong Kong Stock Exchange pursuant to Rule 13.85(1) of the Hong Kong Listing Rules.

BASIS OF OUR OPINION

In arriving at our recommendations, we have reviewed, amongst others, (i) the Non-exempt Continuing Connected Transaction Agreements and the Master Financial Services Agreement; (ii) the annual report of the Company for the year ended 31 December 2017 (the “ 2017 Annual Report ”); (iii) the annual report of the Company for the year ended 31 December 2018 (the “ 2018 Annual Report ”); (iv) the interim report of the Company for the six months ended 30 June 2019 (the “ 2019 Interim Report ”); and (v) other information and documents as set out in this letter.

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.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Hong Kong 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 CS Development Group and any parties in relation to the Non-exempt Continuing Connected Transactions and the Major and Continuing Connected Transactions and their respective Proposed 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 Non-exempt Continuing Connected Transactions and the Major and Continuing Connected Transactions and their respective Proposed 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.

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

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.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

1.1 Financial performance of 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 2016, 2017 and 2018 and the six months ended 30 June 2018 and 2019, which are extracted from the 2019 Interim Report, the 2018 Annual Report, and the 2017 Annual Report.

Six months ended

	Six months ended	Six months ended
	30 June		Year ended 31 December
	2019	2018	2018	2017	2016
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
	_(unaudited) _	(unaudited)	(audited)	(audited)	(audited)
				(restated)
Continuing operations
Revenue (from external customers)	6,833,526	8,221,346	16,242,002	15,901,155	15,527,887
– Shipping and industry-related
leasing	5,243,507	5,011,856	10,374,657	10,380,425	10,040,568
– Container manufacturing	1,570,046	3,191,266	5,827,452	5,466,730	1,484,413
– Investment and financial services	19,973	18,224	39,893	41,564	328,577
– Container Shipping	–	–	–	–	3,649,468
– Others	–	–	–	12,436	24,861
Costs of sales	(5,438,497)	(6,521,081)	(12,342,761)	(12,745,552)	(13,849,363)
Gross profit	1,395,029	1,700,265	3,899,241	3,155,603	1,678,524
Profit for the period/year from
continuing operations	904,362	231,657	1,359,397	1,361,350	315,749

For the year ended 31 December 2017

Revenue of the Group increased from approximately RMB15.5 billion for the year ended 31 December 2016 to approximately RMB15.9 billion for the year ended 31 December 2017, representing an increase of approximately RMB0.4 billion or 2.4%. According to the 2017 Annual Report, the increase in revenue was mainly attributable to (i) the increase in revenue from the shipping and industry-related leasing business of approximately 3% to approximately RMB10.4 billion, which was mainly due to the further expansion of other industry-related finance leasing business and partially offset by the decrease in revenue from vessel leasing business of approximately 5% to approximately RMB5.7 billion as a result of the term expiry of chartered vessels during the year and the decrease in number of sub-chartering vessels; and (ii) the increase in the revenue from the container manufacturing business to approximately RMB5.9 billion, which was mainly 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.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Group recorded a profit from continuing operations for the year ended 31 December 2017 of approximately RMB1.4 billion as compared to a profit of approximately RMB315.7 million for the year ended 31 December 2016. The significant increase in profit was mainly attributable to (i) the increase in gross profit of approximately 88%; and (ii) the decrease in selling, administrative and general expenses of approximately 27%.

For the year ended 31 December 2018

Revenue of the Group increased from approximately RMB15.9 billion for the year ended 31 December 2017 to approximately RMB16.2 billion for the year ended 31 December 2018, representing an increase of approximately RMB0.3 billion or 2.1%. According to the 2018 Annual Report, the increase in revenue was mainly attributable to the combined effect of (i) the increase in the revenue from the container manufacturing business by approximately 6.6% to RMB5.8 billion, mainly due to the improvement in both price and volume of containers manufactured through introducing scientific production scheduling and container painting technology which improved productivity and competitiveness; and (ii) the slight decrease in revenue from the investment and service business and other businesses by approximately RMB1.9 million and RMB12.4 million, respectively, as a result of market conditions.

For the year ended 31 December 2018, the Group maintained a stable profit level from continuing operations at approximately RMB1.4 billion as compare with that for the year ended 31 December 2017.

For the six months ended 30 June 2019

Revenue of the Group decreased from approximately RMB8.2 billion for the six months ended 30 June 2018 to approximately RMB6.8 billion for the six months ended 30 June 2019, representing a decrease of approximately RMB1.4 billion or 16.9%. According to the 2019 Interim Report, the decrease in the revenue was mainly resulted from the drop in the container manufacturing business by approximately 50.8% to RMB1.6 billion, which was mainly due to the decrease in sales volume and prices in the container manufacturing sector as a result of the reduction in the purchase of containers by large container companies.

Despite the decrease in revenue, the Group recorded an increase in profit from continuing operations for the six months ended 30 June 2019 to approximately RMB0.9 billion, from approximately RMB0.2 billion for the six months ended 30 June 2018. The increase in profit from continuing operations was mainly attributable to the other gains of approximately RMB0.6 billion for the six months ended 30 June 2019 as compared to other losses of approximately RMB0.5 billion for the six months ended 30 June 2018, as a result of the increase in share prices of listed equity investments held by the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

1.2 Financial position of the Group

	As at
	30 June	**As **	at 31 December
	2019	2018	2017	2016
	RMB’000	RMB’000	RMB’000	RMB’000
	(unaudited)	(audited)	(audited)	(audited)
Non-Current assets	111,518,137	107,595,913	99,004,264	98,584,089
Current assets	31,230,843	30,241,509	40,033,396	26,876,216
Total assets	142,748,980	137,837,422	139,037,660	125,460,305
Current liabilities	48,625,877	54,905,600	52,657,566	44,634,474
Non-Current liabilities	70,562,004	64,891,687	69,506,307	67,262,717
Net current liabilities	(17,395,034)	(24,664,091)	(12,624,170)	(17,758,258)
Total assets less
current liabilities	94,123,103	82,931,822	86,380,094	80,825,831
Net assets	23,561,099	18,040,135	16,873,787	13,563,114
Equity attributable to owners
of the parent	23,561,099	18,040,135	16,276,162	13,250,047

As at 31 December 2016, 2017 and 2018 and as at 30 June 2019, 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 85.4%, 84.4%, 93.8% and 92.7% and of the total assets of the Group as at 31 December 2016, 2017 and 2018 and as at 30 June 2019, respectively. The property, plant and equipment of approximately RMB56.0 billion as at 30 June 2019 mainly comprised of containers and vessels.

As at 31 December 2016, 2017 and 2018 and as at 30 June 2019, interest-bearing bank and other borrowings and corporate bonds were the major liabilities of the Group, which accounted for approximately 87.2%, 81.7%, 92.5% and 92.0% of the total liabilities of the Group as at 31 December 2016, 2017 and 2018 and as at 30 June 2019, respectively.

As a result of the foregoing, the total equity of the Group as at 31 December 2016, 2017 and 2018 and as at 30 June 2019 amounted to RMB13.6 billion, RMB16.9 billion, RMB18.0 billion and RMB23.6 billion respectively. The net gearing ratio was 411% as at 30 June 2019 as compared to that of 533% as at 31 December 2018.

2. BACKGROUND 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.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

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.

3. BACKGROUND INFORMATION ON COSCO SHIPPING FINANCE

COSCO SHIPPING Finance is a company established in the PRC with limited liability and is an indirect non-wholly owned subsidiary of COSCO SHIPPING. It is principally engaged in the provision of deposit services, credit services, financial and financing consultation, credit verification and related consultation and agency services, settlement, and liquidation.

4. TRANSACTIONS CONTEMPLATED UNDER THE NON-EXEMPT CONTINUING CONNECTED TRANSACTION AGREEMENTS

As the current term of the Non-exempt Continuing Connected Transaction Agreements will expire on 31 December 2019, in light of the Company’s intention to continue to enter into transactions of the same nature from time to time after the expiry date, the parties have agreed to renew the Non-exempt Continuing Connected Transaction Agreements for a further term of three years commencing on 1 January 2020 and ending on 31 December 2022. The following table sets out the key information of the transactions contemplated under the Non-exempt Continuing Connected Transactions Agreements:

Agreements in relation to		Products and/or
the Non-exempt Continuing	Products and/or	services
Connected Transactions	service providers	recipients	Key services
(1) Master Vessel	CS Development	COSCO	Chartering of vessels
Charter Agreement	Group	SHIPPING	(excluding finance leasing)
		Group
(2) Master Operating Lease	CS Development	COSCO	Operating lease services
Services Agreement	Group	SHIPPING	including leasing of
		Group	chassis, containers,
			electricity generators, and
			other ancillary facilities
			and production facilities
(3) Master Finance Lease	CS Development	COSCO	Finance lease services
Services Agreement	Group	SHIPPING	including finance lease of
		Group	vessels and facilities and
			other ancillary services

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Agreements in relation to		Products and/or
the Non-exempt Continuing	Products and/or	services
Connected Transactions	service providers	recipients	Key services
(4) Master Vessels Services	COSCO	CS Development	Vessel and other ancillary
Agreement	SHIPPING	Group	services including material
	Group		merchandising services
			(such as paint, vessel fuel,
			lubricants, spare parts and
			steel), supply of crew
			members, vessel repair and
			maintenance services,
			shipping agent services
			and other ancillary
			services
(5) Master Containers	CS Development	COSCO	Container and other ancillary
Services Agreement	Group	SHIPPING	services including sale and
		Group	purchase of containers and
			containers commissioned
			manufacturing services
(6) Master Containers	COSCO	CS Development	Container and other ancillary
Services Agreement	SHIPPING	Group	services including sale and
	GROUP		purchase of containers,
			merchandising of material
			ancillary to containers,
			provision of containers
			depot, containers logistics,
			containers management,
			containers maintenance
			and other ancillary
			services

4.1 Reasons for and benefits of the renewal of the Non-exempt Continuing Connected Transactions Agreements

According to the Letter from the Board, due to the long established and close business relationship between the members of the CS Development Group and the COSCO SHIPPING Group, a number of transactions have been and will continue to be entered into between the CS Development Group and the COSCO SHIPPING Group, which are individually significant and collectively essential to the core business of the CS Development Group, and will continue to be beneficial to the CS Development Group. In addition, the transactions contemplated under the Non-exempt Continuing Connected Transaction Agreements are in line with the business strategy of the Company and will facilitate the transformation of the business and future development of the Company as an integrated financial services platform with diversified leasing businesses.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In addition, COSCO SHIPPING is a key state-owned enterprise and part of a large shipping conglomerate that operates across different regions, sectors and countries, and the COSCO SHIPPING Group entails well-known marine transportation corporations with outstanding competency in the shipping industry and have developed good experience, familiarity and service systems in respect of the products and services under the Non-exempt Continuing Connected Transaction Agreements. We are advised by the management of the Company that given the established relationship between the COSCO SHIPPING Group and the CS Development Group and as intra-group services providers, both parties generally have better understandings on the types of products and/or services to be provided. The cooperation with the COSCO SHIPPING Group facilitates and supports the growth of the core business of the CS Development Group, and enables the CS Development Group to fully leverage on their advantages and to achieve better operating performance.

In respect of the Master Containers Services Agreement, the container and other ancillary services to be provided to the CS Development Group and those to be received by the CS Development Group are of different nature. The container and other ancillary services to be provided by the CS Development Group to the COSCO SHIPPING Group, which include containers commissioned manufacturing services, is supported by the container and other ancillary services to be provided by the COSCO SHIPPING Group to the CS Development Group, which include the merchandising of materials ancillary to containers, provision of containers depot, containers logistics, containers management and containers maintenance. The mutual provision of complementary services between the CS Development Group and the COSCO SHIPPING Group under the Master Containers Services Agreement enables the Group to focus on its principal businesses thorough delegating various operational support functions such as the delivery and storage of manufactured containers to external service providers, being professional companies owned by the COSCO SHIPPING Group. Through such arrangement and in light of the abovementioned long established and close business relationship between the CS Development Group and the COSCO SHIPPING Group, the CS Development Group will be able to (i) continue to negotiate more favourable terms with the COSCO SHIPPING Group compared with those offered by other external service providers; and (ii) enhance its operational efficiency while reducing operating costs.

Furthermore, the transactions in respect of the provision of products and services by the CS Development Group under the Master Vessel Charter Agreement, the Master Operating Lease Services Agreement, the Master Finance Lease Services Agreement and the Master Containers Services Agreement are revenue in nature to the CS Development Group, whereas the transactions in respect of procurement of products and services by the CS Development Group under the Master Vessel Services Agreement and Master Containers Services Agreement support the principal business of the CS Development Group. These agreements provide the CS Development Group with the option, but not the obligation, to provide/procure the relevant products and services to/from the COSCO SHIPPING Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

After taking into account (i) the principal business of the CS Development Group and the COSCO SHIPPING Group; (ii) the established cooperative relationship between the CS Development Group and the COSCO SHIPPING Group, where the CS Development Group can leverage on the strengths of the COSCO SHIPPING Group to achieve better performance; (iii) the transactions are either revenue in nature or support the principal business of the CS Development Group; and (iv) the terms of the transactions are fair and reasonable as discussed below, we are of the view that the transactions contemplated under the Non-exempt Continuing Connected Transaction Agreements are in the ordinary and usual course of business of the CS Development Group and the renewal of the Non-exempt Continuing Connected Transaction Agreements is in the interests of the Company and the Shareholders as a whole.

4.2 Principal terms and internal control measures in respect of the transactions contemplated under the Non-exempt Continuing Connected Transaction Agreements

4.2.1 Terms

The Company and COSCO SHIPPING have agreed to renew the Non-exempt Continuing Connected Transaction Agreements for a further term of three years commencing on 1 January 2020 and ending on 31 December 2022.

4.2.2 Pricing policy and internal control measures in respect of the Non-exempt Continuing Connected Transaction Agreements

Each of the Non-exempt Continuing Connected Transaction Agreements (other than the transactions under the Master Vessel Charter Agreement and Master Operating Lease Services Agreement covered by the Existing Assets Lease Framework Agreement (i.e. leasing of vessels and containers covered by the Existing Asset Lease Framework Agreement)) provides that the price of the relevant products or services (as the case may be) provided thereunder shall be determined according to the General Pricing Principles. The Existing Assets Lease Framework Agreement was entered into as part of the restructuring of the Group and the COSCO SHIPPING Holdings Group at the end of 2015 (the details of which are set out in the circular of the Company dated 31 December 2015), and covers the charters and leases in respect of the then fleet of vessels and containers of the Company to COSCO SHIPPING Holdings and/or its subsidiaries and associates which are currently still in effect. The Master Vessel Charter Agreement and the Master Operating Lease Services Agreement, on the other hand, covers all other charters and leases in respect of the fleet of vessels and containers of the Company to the COSCO SHIPPING Group as a whole (including COSCO SHIPPING Holdings and/or its subsidiaries and associates). As such, the chartering of vessels and leasing of containers under the Existing Assets Lease Framework Agreement is covered by the Master Vessel Charter Agreement and the Master Operation Lease Services Agreement and their respective Proposed Annual Caps.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

General Pricing Principles:

The general principles for determination of relevant prices are as follows:

• (i) the state-prescribed price, being the price set by the relevant laws, regulations and other governmental regulatory documents issued by the relevant authorities of the PRC government;

• (ii) where there is no state-prescribed price, then according to the relevant market price, the price which independent third parties may obtain for the same or comparable type of transaction in the ordinary and usual course of business, or based on the principle of fairness and reasonableness; or

• (iii) where there is no market price, then according to the contracted price, being the relevant cost for the particular transaction plus a profit margin ranging from 0% to 12.25%.

In respect of transactions under the Master Vessel Charter Agreement and the Master Operating Lease Services Agreement covered by the Existing Asset Lease Framework Agreement (i.e. leasing of vessels and containers covered by the Existing Asset Lease Framework Agreement), the fees shall be determined in accordance with the pricing policies set out in the Existing Asset Lease Framework Agreement, which was determined with reference to Container Shipping Asset Leasing Strategy Report prepared by Drewry Shipping Consultants Ltd. (“ Drewry ”), an independent consultant specialised in shipping industry engaged jointly by the Company and COSCO SHIPPING Holdings.

In respect of the internal control measures for the pricing basis (when there is no state-prescribed price) for the transactions contemplated under the Non-exempt Continuing Connected Transactions Agreements, we are advised by the management of the CS Development Group and noted from the Letter from the Board that relevant departments of the CS Development Group are responsible for (i) the collection of applicable data and market information (including quotes from independent third party entities) and the preparation of draft proposal; (ii) the review and revision of draft proposal based on, among other things, conditions of facilities and quality of products or services, and through advice from relevant department and agents; (iii) the review of 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 in order to ensure the terms offered by the relevant connected persons are fair and reasonable and no less favourable than those offered by independent third parties; and (iv) periodic review and inspection of the process of the transactions contemplated under the Non-exempt Continuing Connected Transactions Agreements.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In considering the terms of transactions contemplated under the Non-exempt Continuing Connected Transaction Agreements, we have reviewed the internal control measures in place as detailed in the Letter from the Board and, where applicable, sample documents in connection with each of the aforementioned categories of the transactions contemplated under the Non-exempt Continuing Connected Transactions Agreements during the current terms of the relevant master agreements. Set out below is a summary of our work done:

• We are given to understand that the majority of the terms of the transactions in respect of the chartering of vessels under the Master Vessel Charter Agreement are determined in accordance with the pricing policy under the Existing Asset Lease Framework Agreement. We have obtained sample contracts entered into with the COSCO SHIPPING Group and compared the terms with the Container Shipping Asset Leasing Strategy Report. We noted that the prices of the sample contracts entered into with the COSCO SHIPPING Group were no less favourable to the CS Development Group than the relevant prices as stated in the Container Shipping Asset Leasing Strategy Report. We have also reviewed the website of Drewry and we noted that Drewry is a leading independent provider of research and consulting services to the maritime and shipping industry, and have been employing over 100 professionals across an international network of offices in London, Delhi, Singapore and Shanghai. Given the background and its expertise in the maritime shipping industry, we consider that the Container Shipping Asset Leasing Strategy Report is an appropriate reference in assessing the terms of the Master Vessel Charter Agreement;

• in respect of the leasing of containers under the Master Operating Lease Services Agreement which are covered by the Existing Asset Lease Framework Agreement for the provision of services by the CS Development Group, we have obtained sample contracts entered into with the COSCO SHIPPING Group and compared with the terms with the Container Shipping Asset Leasing Strategy Report. We noted that the prices of the sample contracts entered into with the COSCO SHIPPING Group were no less favourable to the CS Development Group than the relevant prices as stated in the Container Shipping Asset Leasing Strategy Report;

• in respect of the leasing of containers under the Master Operating Lease Services Agreement which are not covered by the Existing Assets Lease Framework Agreement, and are priced in accordance with the General Pricing Principles (i.e. the Company will determine the relevant prices by taking into account the leasing rates of comparable containers offered by at least two independent third party lessors), we have reviewed sample contracts entered into with the COSCO SHIPPING Group and the relevant documents with independent third parties, where we noted that the prices of the sample contracts entered into with the COSCO SHIPPING Group were no less favourable to the CS Development Group than the prices as stated in the documents with independent third parties;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

• The prices for the provision of finance lease services by the CS Development Group to the COSCO SHIPPING Group under the Master Finance Lease Services Agreement are determined according to the General Pricing Principles and the General Pricing Determination Procedures. In particular, the Company will determine the relevant prices by taking into account the lease payments, lease interests, handling fees and expenses charged by at least two independent third party service providers. We understand from the management of the Company, when determining the lease interest and payments for the finance lease services, CS Development Group will consider, among others, the prevailing market rates, lease terms, vessel model, year of operation of the vessels, the lessees’ creditability and their financial position. We have reviewed sample contracts entered into with the COSCO SHIPPING Group and we note that the terms were no less favourable to the CS Development Group than the prices as stated in the documents with independent third parties;

• for the procurement of products and services by the CS Development Group under the Master Vessel Services Agreement, the prices are determined according to the General Pricing Principles and the General Pricing Determination Procedures. In particular, the Company will determine the relevant prices by taking into account the service fees for comparable vessel and other ancillary services charged by at least two independent third party service providers. As advised by the management of the CS Development Group, the CS Development Group has not procured any vessel services from independent third parties during the current terms of the Master Vessel Services Agreement. We have reviewed sample contracts entered into with the COSCO SHIPPING Group, and the sample contracts entered into between other member of COSCO SHIPPING Group and COSCO SHIPPING Group, we noted that the prices of the sample contracts were comparable and hence no less favourable to the CS Development Group;

• for the provision of products and services by the CS Development Group under the Master Containers Services Agreement, the prices are determined according to the General Pricing Principles and the General Pricing Determination Procedures. In particular, the Company will determine the relevant prices by taking into account the prices for the sale of comparable containers charged by at least two independent third party container manufacturers. We have reviewed sample contracts entered into with the COSCO SHIPPING Group and the relevant documents with independent third parties. We noted that the prices of the sample contracts entered into with the COSCO SHIPPING Group were no less favourable to the CS Development Group than the prices as stated in the documents with independent third parties;

• for the procurement of products and services by the CS Development Group under the Master Container Services Agreement, the prices are determined according to the General Pricing Principles and the General Pricing Determination Procedures. In particular, the Company will determine the relevant prices by taking into account (i) the prices for the sale of comparable containers charged by at least two independent

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

third party container manufacturers; and (ii) the services fees for the provision of comparable container and other ancillary services charged by at least two independent third party service providers. We have reviewed sample contracts entered into with the COSCO SHIPPING Group and the relevant documents with independent third parties. We noted that the prices in the sample contracts entered into with the COSCO SHIPPING Group were no less favourable to the CS Development Group than the prices as stated in the documents with independent third parties;

• as disclosed in the 2018 Annual Report, (i) the independent non-executive Directors have reviewed the continuing connected transactions and confirmed these transactions have been entered into (1) in the ordinary and usual course of business of the Company; (2) on normal commercial terms or, it there are not sufficient comparable transactions to judge whether the above continuing connected transactions are on normal commercial terms, on terms no less favourable to the Company than terms available to independent third parties; and (3) in accordance with the relevant agreement of the above continuing connected transactions governing them on terms that are fair and reasonable and in the interests of the shareholders of the Company as a whole; and (ii) the independent auditor of the Company has confirmed to the Company regarding the continuing connected transactions disclosed above that nothing has come to the auditors’ attention that causes them to believe that (1) the continuing connected transactions have not been approved by the Board; (2) the transactions were not conducted, in all material aspects, in accordance with the pricing policies of the Company; (3) the transactions were not conducted, in all material aspects, in accordance with the relevant agreements governing such transactions; and (4) the continuing connected transactions have exceeded the relevant maximum aggregate annual cap amount in respect of each of the continuing connected transactions; and

• we also note that the lease terms of (i) the chartering of vessels under the Master Vessel Charter Agreement; (ii) leasing of containers under the Master Operating Lease Services Agreement; and (iii) finance lease of vessels and facilities under the Master Finance Lease Services Agreement will be subject to the separate implementation agreements to be entered into, which will vary on a case-by-case basis and may exceed three years. We have reviewed the lease terms of the sample contracts entered into between the Group and the independent third parties, which generally ranges (i) from 5 years to 10 years for vessels chartering and finance lease of vessels and (ii) from 5 years to 8 years for leasing of containers. On this basis, we consider a period longer than three years is required for the lease terms of the transactions under the Master Vessel Charter Agreement, Master Operating Lease Services Agreement and Master Finance Services Agreement, and it is a normal business practice for lease of vessels and containers to be of duration over three years.

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Based on the aforesaid, we are of the view that the terms of the transactions contemplated under the Non-exempt Continuing Connected Transactions Agreements are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

4.3 Proposed Annual Caps for the transactions contemplated under the Non-exempt Continuing Connected Transactions Agreements

The following table sets out the historical transaction amounts of the transactions contemplated under the Non-exempt Continuing Connected Transactions Agreements for the two years ended 31 December 2017 and 2018 and the nine months ended 30 September 2019 as well as the Proposed Annual Caps for each of the three years ending 31 December 2020, 2021 and 2022:

Transactions contemplated

Transactions contemplated	Transactions contemplated
under the Non-exempt		**Historical **	**transaction **		amounts	**Proposed Annual **		Caps
Continuing Connected					30	**for the three years **		ending
Transactions Agreement		31 December			September		31 December
		2017		2018	2019	2020	2021	2022
		(RMB’000)	(RMB’000)		(RMB’000)	(RMB’000)	(RMB’000)	(RMB’000)
(1)	Services provided by the CS
	Development Group under
	the Master Vessel Charter
	Agreement (Note)	5,466,347	4,847,262		3,474,283	6,000,000	6,000,000	6,000,000
(2)	Services provided by the CS
	Development Group under
	the Master Operating
	Lease Services Agreement
	(Note)	1,553,789	1,268,993		584,233	1,500,000	1,500,000	1,500,000
(3)	Services provided by the CS
	Development Group under
	the Master Finance Lease
	Services Agreement (Note)	11,146	20,428		44,840	3,000,000	3,000,000	3,000,000

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Transactions contemplated	Transactions contemplated
under the Non-exempt		**Historical **	**transaction **		amounts	**Proposed Annual **		Caps
Continuing Connected					30	**for the three years **		ending
Transactions Agreement		31 December			September		31 December
		2017		2018	2019	2020	2021	2022
		(RMB’000)	(RMB’000)		(RMB’000)	(RMB’000)	(RMB’000)	(RMB’000)
(4)	Services provided to the CS
	Development Group under
	the Master Vessel Services
	Agreement	1,060,544	810,445		732,165	1,450,000	1,450,000	1,500,000
(5)	Services provided by the CS
	Development Group under
	the Master Containers
	Services Agreement	1,561,991	3,799,172		1,002,953	6,600,000	7,500,000	8,200,000
(6)	Services provided to the CS
	Development Group under
	the Master Containers
	Services Agreement	322,749	559,937		414,595	13,500,000	13,500,000	13,500,000

• Note: As the Company is acting as the lessor under the Master Vessel Charter Agreement, the Master Operating Lease Services Agreement and the Master Finance Lease Services Agreement, it is not required to set annual caps for leases to be entered into by it thereunder on the total value of right-of-use assets in relation to such leases.

The Proposed Annual Caps under the Master Vessel Chartering Agreement are the chartering fees to be charged by the CS Development Group.

The Proposed Annual Caps under the Master Operating Lease Services Agreement are the lease payments, handling fees and expenses to be charged by the CS Development Group.

The Proposed Annual Caps under the Master Finance Lease Services Agreement are the lease payments, lease interests, handling fees and expenses to be charged by the CS Development Group.

4.3.1 Proposed Annual Caps for the Master Vessel Charter Agreement in respect of services to be provided by the CS Development Group

The Proposed Annual Caps of the chartering fees to be charged by the CS Development Group for the provision of vessel chartering services by the CS Development Group to the COSCO SHIPPING Group under the Master Vessel Charter Agreement for the three years ending 31 December 2020, 2021 and 2022 are RMB6 billion, RMB6 billion and RMB6 billion, respectively.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to the Letter from the Board, in arriving at the Proposed Annual Caps for the provision of vessel chartering services by the CS Development Group to the COSCO SHIPPING Group under the Master Vessel Charter Agreement, the Directors have considered (i) the historical transaction amounts for the provision of vessel chartering services by the CS Development Group to the COSCO SHIPPING Group pursuant to the Master Vessel Charter Agreement for the two years ended 31 December 2017 and 2018 and the nine months ended 30 September 2019; (ii) the type and number of vessels expected to be chartered, the respective chartering rate for each type of vessel and the respective period which the vessels are expected to be chartered; (iii) the estimated market fluctuation in terms of chartering price, demands and exchange rate for US$ to RMB; (iv) the estimated future needs for vessels chartering services of the COSCO SHIPPING Group in light of the expected growth in its transportation capacity; (v) the expected increase in service fees due to increase in costs; and (vi) the prevailing market rate of charter of vessel of a similar class.

In assessing the fairness and reasonableness of the Proposed Annual Caps for the vessel chartering services provided by the CS Development Group under the Master Vessel Charter Agreement, we have discussed with the management of the Company regarding the bases and assumptions in arriving the Proposed Annual Caps for provision of the vessel chartering services.

Based on our review and our discussion with the management of the Company, we note that (i) the highest historical transaction amount of the vessel chartering services amounted to approximately RMB5.4 billion during the current terms of the Master Vessel Charter Agreement. The Directors consider that the historical amount is an appropriate reference in determining the proposed annual cap of RMB6 billion for each of the three years ending 31 December 2022 with the assumption that the transaction volume would reach the similar historical level in future.

According to the Corporate Bond Interim Report issued by the COSCO SHIPPING Group published in August 2019, as at 30 June 2019, the total fleet of COSCO SHIPPING Group comprises of 1,308 vessels with a capacity of 105.13 million DWT. Its container fleet comprises of 497 vessels with capacity of 3.04 million TEU and its dry bulk fleet comprises of 437 vessels with 41.18 million DWT. Further, based on the Corporate Bond Tracking Report provided by the COSCO SHIPPING Group, we are given to understand that (i) the global container shipped increased by approximately 4.5% to approximately 201 million TEU in 2018, and (ii) the global dry bulk shipping volume increased by 2.25% to approximately 5.2 billion tonnes. Having considered the above, it is expected there will be a growth in demand for the vessel chartering services.

After taking into account the above factors, in particular, (i) the historical transaction amounts; (ii) the expected growth in demand for vessels chartering services of COSCO SHIPPING Group, we are of the view that the Proposed Annual Caps for the Master Vessel Charter Agreement in respect of vessel chartering services to be provided by the CS Development Group are fair and reasonable so far as the Independent Shareholders are concerned.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4.3.2 Proposed Annual Caps for the Master Operating Lease Services Agreement in respect of services to be provided by the CS Development Group

The Proposed Annual Caps of the lease payments, handling fees and expenses to be charged by the CS Development Group for the provision of operating lease services by the CS Development Group to the COSCO SHIPPING Group under the Master Operating Lease Services Agreement for the three years ending 31 December 2020, 2021 and 2022 are RMB1.5 billion, RMB1.5 billion and RMB1.5 billion, respectively.

According to the Letter from the Board, in arriving at the Proposed Annual Caps for the provision of operating lease services by the CS Development Group to the COSCO SHIPPING Group under the Master Operating Lease Services Agreement, the Directors have considered (i) the historical transaction amounts for the provision of operating lease services by the CS Development Group to the COSCO SHIPPING Group under the Master Operating Lease Services Agreement for the two years ended 31 December 2017 and 2018 and the nine months ended 30 September 2019; (ii) the type and number of chassis, containers, electricity generators, and other ancillary facilities and production facilities expected to be leased, the respective rental prices and the respective rental periods; (iii) the future renewal situation of existing operating lease service agreements; (iv) the estimated market fluctuation in terms of rental prices, demands and exchange rate; (v) the estimated future needs for operating lease services of the COSCO SHIPPING Group; and (vi) the prevailing market rate of rental of similar chassis, containers, electricity, generators, and other ancillary facilities and production facilities.

In assessing the fairness and reasonableness of the Proposed Annual Caps for the operating lease services provided by the CS Development Group under the Master Operating Lease Services Agreement, we have discussed with the management of the Company regarding the bases and assumptions in arriving at the Proposed Annual Caps for the provision of operating lease services.

Based on our review and our discussion with the management of the Company, we note that the highest historical transaction amount of the operating lease services amounted to approximately RMB1.6 billion during the current terms of the Master Operating Lease Services Agreement, which exceeded the Proposed Annual Caps. The Directors consider that the historical amount is an appropriate reference in determining the proposed annual cap of RMB1.5 billion for each of the three years ending 31 December 2022 with the assumption that the transaction volume would reach the similar historical level.

As advised by the management of the Group, containers leasing is the integral part of the operating lease services under the Master Operating Lease Services Agreement. According to the Corporate Bond Interim Report issued by the COSCO SHIPPING Group in August 2019, as at 30 June 2019, the total fleet of COSCO SHIPPING Group comprises of 1,308 vessels with a capacity of 105.13 million DWT. Its container fleet comprises of 497 vessels with a capacity of 3.04 million TEU. Based on the Corporate Bond Tracking Report provided by the COSCO SHIPPING Group, we are given to understand that the global container shipped increased by approximately 4.5% to approximately 201 million TEU in 2018. Having considered the above, it is expected there will be a growth in demand for the operating lease services.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

After taking into account the above factors, in particular, (i) the Proposed Annual Cap is determined based on the historical transaction amounts of operating lease services; and (ii) the expected growth in demand for container leasing services of COSCO SHIPPING Group, we are of the view that the Proposed Annual Caps for the Master Operating Lease Services Agreement in respect of services to be provided by the CS Development Group are fair and reasonable so far as the Independent Shareholders are concerned.

• 4.3.3 Proposed Annual Caps for the Master Finance Lease Services Agreement in respect of services to be provided by the CS Development Group

The Proposed Annual Caps of the lease payments, lease interests, handling fees and expenses to be charged by the CS Development Group for the provision of finance lease services by the CS Development Group to the COSCO SHIPPING Group under the Master Finance Lease Services Agreement for the three years ending 31 December 2020, 2021 and 2022 are RMB3.0 billion, RMB3.0 billion and RMB3.0 billion, respectively.

According to the Letter from the Board, in arriving at the Proposed Annual Caps for the provision of finance lease services by the CS Development Group to the COSCO SHIPPING Group under the Master Finance Lease Services Agreement, the Directors have considered (i) the historical transaction amounts for the provision of finance lease services by the CS Development Group to the COSCO SHIPPING Group under the Master Finance Lease Services Agreement for the two years ended 31 December 2017 and 2018 and the nine months ended 30 September 2019; (ii) the plan of the CS Development Group in finance lease business development and the estimated scope of business therein; (iii) the estimated increase in demand for finance lease services by the COSCO SHIPPING Group; (iv) the increased capacity of providing finance lease services of the CS Development Group; and (v) general inflation which affects the lease payments of finance lease.

In assessing the fairness and reasonableness of the Proposed Annual Caps for the finance lease services provided by the CS Development Group under the Master Finance Lease Services Agreement, we have discussed with the management of the Company regarding the bases and assumptions in arriving the Proposed Annual Caps for the provision of finance lease services.

We have also been provided and reviewed the plan of the provision of finance lease services to the COSCO SHIPPING Group in the next three years. We are advised by the management of the CS Development Group that (i) the CS Development Group intends to enter into more finance lease implementation agreements under the Master Finance Lease Agreement with COSCO SHIPPING Group considering its expected business expansion and fund demand according to the aforesaid plan; and (ii) the CS Development Group intends to lease out 5 dry bulk cargo vessels and 2 specialised vessels in 2020, 2 crude oil tankers, 4 oil tankers and 2 specialised vessels in 2021, and 5 container vessels and 2 LNG vessels in 2022.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Further, according to the 2019 Interim Report, the Group recorded cash and cash equivalents of approximately RMB12.8 billion. Based on the business plan of the CS Development Group and the capital resources held by the Group, we are of the view that the Group would have sufficient capacity to fulfil its plan on the provision of finance lease services.

According to the Corporate Bond Interim Report issued by the COSCO SHIPPING Group published on August 2019, as at 30 June 2019, the total fleet of COSCO SHIPPING Group comprises of 1,308 vessels with a capacity of 105.13 million DWT. Its container fleet comprises of 497 vessels with capacity of 3.04 million TEU, its dry bulk fleet comprises of 437 vessels with 41.18 million DWT, and its oil tanker fleet comprises of 197 vessels with a capacity of 25.14 million DWT. According to Corporate Bond Tracking Report provided by the COSCO SHIPPING Group, (i) the global container shipped increased by approximately 4.5% to approximately 201 million TEU in 2018; (ii) the global dry bulk shipping volume increased by 2.25% to approximately 5.2 billion tonnes; and (iii) the global oil shipping volume increased by approximately 10.1% to approximately 462 million DWT. Having considered the above, it is expected there will be a growth in demand for the finance lease services.

After taking into account the above factors, in particular, (i) the plan of the provision of finance lease services to the COSCO SHIPPING Group; (ii) the capital resources of the Group and (iii) the expected growth in demand for finance lease services, we are of the view that the Proposed Annual Caps for the Master Finance Lease Services Agreement in respect of finance lease services to be provided by the CS Development Group are fair and reasonable so far as the Independent Shareholders are concerned.

4.3.4 Proposed Annual Caps for the Master Vessel Services Agreement in respect of services to be provided to the CS Development Group

The Proposed Annual Caps for the provision of vessel and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Vessel Services Agreement for the three years ending 31 December 2020, 2021 and 2022 are RMB1.45 billion, RMB1.45 billion and RMB1.5 billion, respectively.

According to the Letter from the Board, in arriving at the Proposed Annual Caps for the provision of vessel and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Vessel Services Agreement, the Directors have considered (i) the historical transaction amounts for the provision of vessel and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Vessel Services Agreement for the two years ended 31 December 2017 and 2018 and the nine months ended 30 September 2019; (ii) as more existing vessels approach their respective inspection and maintenance cycles, the demand by the CS Development Group in materials, crew members, vessel repair and maintenance services, shipping agent services and other ancillary services is expected to continue to increase; (iii) the estimated fluctuation in the exchange rate for US$ to RMB; and (iv) the prevailing market rate for the merchandising services, supply of crew members, vessel repair and maintenance services and shipping agent services.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In assessing the fairness and reasonableness of the Proposed Annual Caps for the vessel and other ancillary services provided to the CS Development Group under the Master Vessel Services Agreement, we have discussed with the management of the Company regarding the bases and assumptions in arriving the Proposed Annual Caps for the procurement of vessel and other ancillary services.

Based on our review and our discussion with the management of the Company, we note that the highest historical transaction amount of the vessel and other ancillary services amounted to approximately RMB1.1 billion during the current terms of the Master Vessel Services Agreement, representing over 70% of the Proposed Annual Caps. The Directors consider that the historical transaction amount is an appropriate reference in determining the Proposed Annual Caps of RMB1.45 billion, RMB1.45 billion and RMB1.5 billion for the three years ending 31 December 2020, 2021 and 2022, respectively, with the assumption that the transaction volume would reach the similar historical level; and the estimated increasing demand in vessel and other ancillary services as more existing vessels approach their respective inspection and maintenance cycle.

In respect of the expected increasing demand of vessel and other ancillary services, we have also reviewed the CS Development Group’s vessels repairing plan in 2020. It is expected that the aggregate maintenance cycle will increase by 30.1% for the year ending 31 December 2020, as compared to the year ending 31 December 2019. As such, the demand from the CS Development Group in vessels repair and maintenance services as well as other ancillary services are expected to increase further. As advised by the management of the Company, it is expected that the aggregate maintenance cycle will maintain at similar transaction level for the two years ending 31 December 2021 and 2022.

After taking into account the above factors, in particular, (i) the historical transaction amounts of vessel and other ancillary services; and (ii) the plan of the inspection and maintenance cycles for the existing vessels, which implies a growing demand on vessel and other ancillary services from the CS Development Group, we are of the view that the Proposed Annual Caps for the Master Vessel Services Agreement in respect of the vessel and other ancillary services to be provided to the CS Development Group are fair and reasonable so far as the Independent Shareholders are concerned.

4.3.5 Proposed Annual Caps for the Master Containers Services Agreement in respect of products and services to be provided by the CS Development Group

The Proposed Annual Caps for the provision of the container and other ancillary services by the CS Development Group to the COSCO SHIPPING Group under the Master Containers Services Agreement for the three years ending 31 December 2020, 2021 and 2022 are RMB6.6 billion, RMB7.5 billion and RMB8.2 billion, respectively.

According to the Letter from the Board, in arriving at the Proposed Annual Caps for the provision of container and other ancillary services by the CS Development Group to the COSCO SHIPPING Group under the Master Containers Services Agreement, the Directors

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have considered (i) the historical transaction amounts for the provision of containers and other ancillary services by the CS Development Group to the COSCO SHIPPING Group under the Master Containers Services Agreement for the two years ended 31 December 2017 and 2018 and the nine months ended 30 September 2019; (ii) the existing scale of operation of the COSCO SHIPPING Group; (iii) the expected increase in the demand of the COSCO SHIPPING Group for the containers manufactured by the CS Development Group and other ancillary services in light of the expected growth in the transportation capacity of the COSCO SHIPPING Group; (iv) the prevailing market rate for the sale and purchase and commissioned manufacturing of containers and the estimated market price of new containers for the three years ending 31 December 2022; and (v) the estimated market fluctuation in terms of container price, demands and exchange rate for US$ to RMB.

In assessing the fairness and reasonableness of the Proposed Annual Caps for the container and other ancillary services to be provided by the CS Development Group under the Master Container Services Agreement, we have discussed with the management of the Company regarding the bases and assumptions in arriving the Proposed Annual Caps for the container and other ancillary services to be provided by the CS Development Group. We are given to understand that the Proposed Annual Caps are based on (i) the expected purchase volume from the COSCO SHIPPING Group and (ii) the expected selling prices of containers.

As advised by the management of the Group, it is expected that the purchase volume from the COSCO SHIPPING Group will reach over 350,000 TEUs for each of the three years ending 31 December 2022. As at 30 June 2019, the total fleet of COSCO SHIPPING Group comprises of 1,308 vessels with a capacity of 105.13 million DWT. Its container fleet comprises of 497 vessels with capacity of 3.04 million TEU. Based on the Corporate Bond Tracking Report provided by the COSCO SHIPPING Group, the global container shipped increased by approximately 4.5% to approximately 201 million TEU in 2018. Having considered the recent increasing shipping capacities of the COSCO SHIPPING Group, it is expected there will be a growth in demand for the containers and ancillary services.

In assessing the fairness and reasonableness of the selling prices of the containers, we have obtained and reviewed (i) the purchase contracts entered between the CS Development Group and other independent third parties for procuring containers and (ii) the sales contracts entered between the CS Financial Subsidiaries and other independent third parties for the sales of containers. We noted that the transacted price of a dry freight container ranged from approximately US$1,965 to US$2,250; and the transacted price of a refrigerated container ranged from approximately US$7,700 to US$9,000. Based on our review, the estimated selling prices of a dry freight container and a refrigerated container in deriving the Proposed Annual Caps is within this range and is hence comparable to those transacted with other independent third parties by the Group and the CS Financial Subsidiaries, respectively.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We also note that the Proposed Annual Caps increase at a rate of approximately 13.6% and 9.3% for the two years ending 31 December 2022, respectively. Having taken into consideration the growth in demand for the container and ancillary services as mentioned above, we consider that the growth rates applied in arriving at the Proposed Annual Caps for the two years ending 31 December 2022 are justifiable.

Based on the above, we are of the view that the Proposed Annual Caps for the Master Container Services Agreement in respect of the container and other ancillary services to be provided by the CS Development Group are fair and reasonable so far as the Independent Shareholders are concerned.

4.3.6 Proposed Annual Caps for the Master Containers Services Agreement in respect of products and services to be provided to the CS Development Group

The Proposed Annual Caps for container and other ancillary services to be provided to the CS Development Group by the COSCO SHIPPING Group under the Master Containers Services Agreement for the three years ending 31 December 2020, 2021 and 2022 are RMB13.5 billion, RMB13.5 billion and RMB14.0 billion, respectively.

According to the Letter from the Board, in arriving at the Proposed Annual Caps for the provision of container and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Containers Services Agreement, the Directors have considered (i) the historical transaction amounts for the provision of containers and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Containers Services Agreement for the two years ended 31 December 2017 and 2018 and the nine months ended 30 September 2019; (ii) the expected transaction amounts for the sales of containers by the CS Financial Subsidiaries to the CS Development Group as a result of the future implementation by the CS Development Group of the strategy of integration of the sales channels of containers manufactured by the CS Financial Subsidiaries and the CS Development Group, details of which are set out in the circular of the Company dated 5 August 2019; (iii) the prevailing market rate of containers, materials ancillary to containers, containers depot, containers logistics, containers management and containers maintenance; and (iv) the estimated market fluctuation in terms of container price, ancillary materials price, demands and exchange rate for US$ to RMB.

We note that there is a significant increase in the Proposed Annual Caps as compared to the existing annual caps. In assessing the fairness and reasonableness of the Proposed Annual Caps for the container and other ancillary services to be provided to the CS Development Group under the Master Container Services Agreement, we have discussed with the management of the Company regarding the bases and assumptions in arriving the Proposed Annual Caps and the increase is mainly due to the expected transaction amounts for the purchase of containers manufactured by the CS Financial Subsidiaries.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As disclosed in the announcement of the Company dated 6 May 2019, pursuant to the Entrustment Agreement, Shanghai Universal is entrusted to exercise, among other things, the daily management rights in respect of the CS Financial Subsidiaries, including but not limited to, daily production related matters such as procurement, sales and production, through which, the CS Development Group may achieve increased economies of scale and unified management of the container manufacturing businesses of the CS Financial Subsidiaries and the CS Development Group. In line with this objective, the CS Development Group seeks to implement the integration of sales channels for the containers manufactured by the CS Development Group and the CS Financial Subsidiaries by leveraging on the entrustment arrangement of the CS Financial Subsidiaries pursuant to the Entrustment Agreement. As a result of the adoption of the abovementioned strategy, it is anticipated that the transaction amounts in respect of the provision of products and services by the COSCO SHIPPING Group to the CS Development Group under the Master Containers Services Agreement will increase.

As discussed with the management of the Company, the expected transaction amounts for the purchase of containers manufactured by the CS Financial Subsidiaries is calculated based on (a) the expected containers sales volume of the CS Financial Subsidiaries for the year ending 31 December 2020 according to the historical sales volume; and (b) the estimated selling price of approximately US$2,200 per container and US$8,000 per container for dry freight containers and refrigerated containers, respectively, to be provided by the CS Financial Subsidiaries to the CS Development Group.

In considering the fairness and reasonableness on the expected sales volume of the containers, we have obtained and reviewed the historical sales volume of containers manufactured by the CS Financial Subsidiaries as provided by the management of the Company. We noted that the CS Financial Subsidiaries had sold over 430,000 TEUs and 550,000 TEUs containers in 2017 and 2018, respectively. Based on our review on the calculations of the Proposed Annual Caps, we noted that the expected container sales volume of the CS Financial Subsidiaries for the three years ending 31 December 2022 is made reference to the historical annual sales volume in 2018, which we consider is justifiable.

In assessing the fairness and reasonableness of the selling price of the containers provided by the CS Financial Subsidiaries to the CS Development Group, we have obtained and reviewed (i) the purchase contracts entered into between the CS Development Group and other independent third parties for procuring containers and (ii) the sales contracts entered between the CS Financial Subsidiaries and other independent third parties for the sales of containers. We noted that the transacted price of a dry freight container ranged from approximately US$1,965 to US$2,250; and the transacted price of a refrigerated container ranged from approximately US$7,700 to US$9,000. Based on our review on the calculations, the estimated selling price of a dry freight container and a refrigerated container in deriving the Proposed Annual Cap is US$2,200 and US$8,000, respectively, which is within this range and is hence comparable to those transacted with other independent third parties by the CS Financial Subsidiaries and the CS Development Group respectively.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the aforesaid, we are of the view that the Proposed Annual Caps for the Master Container Services Agreement in respect of the container and other ancillary services to be provided to the CS Development Group are fair and reasonable so far as the Independent Shareholders are concerned.

5. MAJOR AND CONTINUING CONNECTED TRANSACTION – THE DEPOSIT SERVICES UNDER THE MASTER FINANCIAL SERVICES AGREEMENT

On 30 October 2019, the Company and COSCO SHIPPING Finance entered into the Master Financial Services Agreement, pursuant to which COSCO SHIPPING Finance agreed to provide financial services to the CS Development Group. The initial term of the Master Financial Services Agreement shall be three years from 1 January 2020 to 31 December 2022. The following table sets out the key information of the deposit service under the Master Financial Services Agreement:

		Products and/or
Agreement	Service provider	services recipient	Key services
Master Financial	COSCO SHIPPING	CS Development	Deposit services
Services	Finance	Group
Agreement

5.1 Reasons for and benefits of conducting the deposit services under the Master Financial Services Agreement

According to the Letter from the Board, it is common for large corporate groups in the PRC to set up and maintain a finance company to provide treasury services to the group members as this improves centralised management and utilisation efficiency of group funds, and assists group members in reducing financing costs and investment risks. COSCO SHIPPING Finance is an indirect non-wholly owned subsidiary of COSCO SHIPPING and may provide financial services to the COSCO SHIPPING Group and the CS Development Group. The Board believes that as intra-group service providers, COSCO SHIPPING Finance generally has better and more efficient communication with the CS Development Group as compared with other independent banks and financial institutions, and the receipt of deposits services from COSCO SHIPPING Finance for the three years ending 31 December 2022 would ensure flexibility to manage the working capital of the CS Development Group should the terms offered by the COSCO SHIPPING Finance be better than that of the independent banks and financial institutions.

In order to understand the financial position of COSCO SHIPPING Finance, we have reviewed its financial information for the year ended 31 December 2018 and the six months ended 30 June 2019. We noted that COSCO SHIPPING Finance recorded net assets of approximately RMB5.0 billion and RMB5.0 billion as at 31 December 2018 and 30 June 2019, respectively. We have also obtained and reviewed the regulatory report for the year ended 31 December 2018 (the “ 2018 Regulatory Report ”) prepared by COSCO SHIPPING Finance which, among others, summarise the current financial position of COSCO SHIPPING Finance.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We noted from the 2018 Regulatory Report that various financial ratios of COSCO SHIPPING Finance met the requirements as set out in “The Interim Measures for the Assessment of Risk Supervision Indicators of Finance Company of Enterprise Group” (《企業集團財務公司風險監 管指標考核暫行辦法》) issued by CBIRC. In particular, (i) the capital adequacy ratio of COSCO SHIPPING Finance was approximately 12.69% as at 31 December 2018, which was better than the basic requirement of 10% for finance companies as required by CBIRC; (ii) non-performing asset ratio of COSCO SHIPPING Finance was 0.10% as at 31 December 2018, which was better than the basic requirement of 4% for finance companies as required by CBIRC; and (iii) bad loan ratio of COSCO SHIPPING Finance was nil as at 31 December 2018, which was better than the basic requirement of 5% for finance companies as required by CBIRC. As such, we concur with the Directors’ views that COSCO SHIPPING Finance has the financial capability in providing the deposit services under the Master Financial Services Agreement, and the credit risk involved in the underlying transactions is low.

Furthermore, the CS Development Group is not restricted under the Master Financial Services Agreement to approach, and in fact may choose, any bank or financial institution to satisfy its financial service needs. Therefore, the CS Development Group may, but is not obliged to, continue to use the deposit services of COSCO SHIPPING Finance if the service quality provided is competitive. With such flexibility under the Master Financial Services Agreement, the CS Development Group is able to better manage its capital and cash flow position.

Based on the above, in particular that (i) it is in the ordinary and usual course of business of the Company to maintain deposits with different financial institutions; (ii) the established relationship between the CS Development Group and COSCO SHIPPING Finance; (iii) the background and the healthy financial position of COSCO SHIPPING Finance; and (iv) the CS Development Group would enjoy the flexibility to choose the deposit services from any bank or financial institution to satisfy its financial service needs, we concur with the view of the Directors that the deposit services under the Master Financial Services Agreement are in the ordinary and usual course of business of the CS Development Group and that the entering into of the Master Financial Services Agreement is in the interests of the Company and the Shareholders as a whole.

5.2 Principal terms and internal control measures in respect of the deposit services under the Master Financial Services Agreement

5.2.1 Terms

The initial term of the Master Financial Services Agreement shall be three years from 1 January 2020 to 31 December 2022.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

5.2.2 Pricing policy and internal control measures in respect of the deposit services under the Master Financial Services Agreement

In respect of the pricing policy of the deposit services under the Master Financial Services Agreement, as stated in the Letter from the Board, COSCO SHIPPING Finance shall provide deposit services to the CS Development Group at interest rates not lower than (a) the benchmark rates stipulated by the PBOC for the same types of deposits; and (b) the rates offered by the major and independent PRC commercial banks in the service location or adjacent areas in the normal course of business for such types of deposits.

In respect of the internal control measures for the pricing basis of the deposit services provided by COSCO SHIPPING Finance to the CS Development Group under the Master Financial Services Agreement, we are advised by the management of the Company that relevant departments of the CS Development Group are responsible for the review of the benchmark rates stipulated by PBOC or the rates offered by the major and independent PRC commercial banks in order to ensure the rates offered by COSCO SHIPPING Finance are fair and reasonable and no less favourable than benchmark deposit rates or those offered from independent third parties. In respect of monitoring the capital adequacy status of COSCO SHIPPING Finance, as advised by the management of the Company, under the requirement by CBIRC, COSCO SHIPPING Finance is required to file risk management self-evaluation report and compliance management self-evaluation report annually to the CBIRC. In order to monitor the capital adequacy of COSCO SHIPPING Finance, the CS Development Group will request COSCO SHIPPING Finance to provide its monthly management accounts and the abovementioned reports for review.

In assessing the fairness and reasonableness on the interest rate chargeable under the Master Financial Services Agreement, we have reviewed sample documents in connection with (i) historical deposit services provided by COSCO SHIPPING Finance to the CS Development Group during past years; (ii) the relevant benchmark rates stipulated by the PBOC; and (iii) the relevant rates offered by the major and independent commercial banks. Based on our review, we noted that the interest rates offered by COSCO SHIPPING Finance to the CS Development Group were no less favourable than (i) the benchmark rates stimulated by PBOC; or (ii) the rates offered by major and independent PRC commercial banks. Furthermore, we have reviewed the 2017 Annual Report and the 2018 Annual Report and noted that both the auditors and the independent non-executive Directors confirmed that, among others, the deposit services were conducted on normal commercial terms and in accordance with the relevant pricing policies of the CS Development Group.

After taking into account (i) the rate of deposit services which shall be no less favourable than the benchmark rates stipulated by PBOC or the rates offered by independent PRC commercial banks; and (ii) the internal control measures as described above, we are of the view that the terms of the deposit services to be provided to the CS Development Group under the Master Financial Services Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

5.3 Proposed Annual Caps for the deposit services under the Master Financial Services Agreement

Proposed Annual Caps for the three years ending 31 December 2020 2021 2022 (RMB’000) (RMB’000) (RMB’000) maximum daily outstanding balance of deposits (including accrued interest and handling fee) to be placed by CS Development Group at COSCO SHIPPING Finance under the Master Financial Services Agreement 13,300,000 13,300,000 14,620,000

The maximum daily outstanding

The proposed Annual Caps for the maximum daily outstanding balance of deposits (including accrued interest and handling fee for the deposit services to be provided to the CS Development Group under the Master Financial Services Agreement) for each of the three years ending 31 December 2020, 2021 and 2022 are RMB13.3 billion, RMB13.3 billion and RMB14.62 billion, respectively.

According to the Letter from the Board, in arriving at the Proposed Annual Caps for the maximum outstanding balance of deposits (including accrued interest and handling fee for the deposit services to be provided by COSCO SHIPPING Finance to the CS Development Group under the Master Financial Services Agreement), the Directors have considered (i) the aggregate historical transaction amounts for the provision of deposit services by CS Finance to the CS Development Group and by COSCO Finance to the Florens Group under the Existing Master CS Finance Financial Services Agreement and the Existing Florens Financial Services Agreement, respectively; (ii) the general expansion of business of COSCO SHIPPING Finance; and (iii) the expected increase in financing demands of the CS Development Group, including capital injection in subsidiaries, repayment of the maturing corporate bonds and replenishment of working capital.

In order to assess the fairness and reasonableness of the Proposed Annual Caps for the deposit services under the Master Financial Services Agreement, we have discussed with the management of the Company regarding the bases and assumptions in arriving at the Proposed Annual Caps for the deposit services. Based on our review on the historical transaction amounts, we note that the historical transaction figures of the aggregate maximum daily outstanding balance of deposits (including accrued interest and handling fee) placed by the CS Development Group with COSCO SHIPPING Finance and by COSCO Finance to the Florens Group under the Existing Master CS Finance Financial Services Agreement and the Existing Florens Financial Services Agreement, respectively for the two years ended 31 December 2017 and 2018 and the six months ended 30 June 2019 amounted to approximately RMB8.9 billion, RMB11.1 billion and RMB11.8 billion, respectively. Based on our discussion with the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

management of the Company, we note that, in arriving the Proposed Annual Caps for the deposit services, the Company has benchmarked to the highest historical transaction amount of the provision of deposit services of approximately RMB11.8 billion. The Directors consider that the historical transaction amount is an appropriate reference in determining the Proposed Annual Caps of RMB13.3 billion, RMB13.3 billion and RMB14.62 billion for the three years ending 31 December 2022, respectively with the assumption that the transaction volume would reach the similar historical level in future.

Furthermore, we have reviewed the 2017 Annual Report and 2018 Annual Report and we noted that there was significant cash inflow and/or outflow from the operating activities, investing activities and financing activities of the CS Development Group. During the year ended 31 December 2017, the net cash inflow from operating activities and financing activities amounted to approximately RMB11.9 billion and RMB2.9 billion respectively while the net cash outflow from investing activities amounted to approximately RMB6.7 billion. For the year ended 31 December 2018, the net cash inflow from operating activities and financing activities amounted to approximately RMB6.4 billion and RMB3.2 billion respectively while the net cash outflow from investing activities amounted to approximately RMB17.8 billion. The high volume of cash inflow and outflow demonstrates the high demand on financial services from financial institutions (including COSCO SHIPPING Finance) to support its normal operations. Moreover, as at 30 June 2019, the cash and cash equivalents of the CS Development Group reached approximately RMB12.8 billion, which accounted for approximately 96.3%, 96.3% and 87.6% of the Proposed Annual Caps of RMB13.3 billion, RMB13.3 billion and RMB14.62 billion for the three years ending 31 December 2022, respectively.

In light of the above, we are of the view that the Proposed Annual Caps for the deposit services under the Master Financial Services Agreement for the three years ending 31 December 2022 are determined based on reasonable estimation and after due and careful consideration and they are fair and reasonable so far as the Independent Shareholders are concerned.

6. NO RELIANCE ON THE COSCO SHIPPING GROUP

As disclosed in the 2018 Annual Report, the revenue generated from the COSCO SHIPPING Group amounted to approximately RMB8.6 billion, representing approximately 53.2% of the total revenue of the CS Development Group for the year ended 31 December 2018. The revenue from the COSCO SHIPPING Group for the year ended 31 December 2018 was mainly generated from services provided by the CS Development Group under the Master Containers Services Agreement and other services including container leasing services and chartering of vessels. The expenses paid to the COSCO SHIPPING Group for the year ended 31 December 2018 amounted to approximately RMB1.8 billion, representing only approximately 10.4% of the total expenses of the CS Development Group (inclusive of cost of sales and other expenses) for the year ended 31 December 2018.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Notwithstanding the foregoing, having considered that (i) the generation of revenue is the result of a commercial decision taking into account of, among other things, the peculiar circumstances of the CS Development Group and the COSCO SHIPPING Group and the terms of transactions, which is in the interests of the Company and the Shareholders as a whole; and (ii) following implementation of the integration of the sales channels strategy for the containers manufactured by the CS Development Group and the CS Financial Subsidiaries, as stated in the circular of the Company dated 5 August 2019, it is expected that there will be an increase in revenue generated from third parties independent of the Company and its connected persons, we concur with the views of the Directors that (i) there is no and will not be any issue of reliance of the CS Development Group on the COSCO SHIPPING Group; and (ii) the continuing connected transactions between the CS Development Group and the COSCO SHIPPING Group are in the interests of the Company and the Shareholders as a whole.

RECOMMENDATION

Having taken into account the above-mentioned principal factors and reasons, we are of the view that (i) the Non-exempt Continuing Connected Transactions have been conducted and will continue to be conducted in the ordinary and usual course of business of the Group and are in the interests of the Company and the Shareholders as a whole, and that the terms of the Non-exempt Continuing Connected Transactions and their respective Proposed Annual Caps are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (ii) the Major and Continuing Connected Transactions will be conducted in the ordinary and usual course of business of the Group and are in the interests of the Company and the Shareholders as a whole, and that the terms of the Major and Continuing Connected Transactions and the Proposed Annual Caps thereof are on normal commercial terms and are fair and reasonable as far as the Independent Shareholders are concerned. 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 in relation to the Non-exempt Continuing Connected Transactions and the Major and Continuing Connected Transactions, and their respective Proposed Annual Caps to be proposed at the EGM.

* For identification purpose only

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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

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

The audited consolidated financial statements of the Group for the three years ended 31 December 2016, 2017 and 2018, and the unaudited condensed consolidated financial statements of the Group for the six months ended 30 June 2019, together with the relevant notes thereof are disclosed in the following documents:

• (i) the annual report of the Company for the year ended 31 December 2016 published on 28 April 2017 (pages 97 to 204) https://www1.hkexnews.hk/listedco/listconews/sehk/2017/0428/ltn20170428582.pdf

• (ii) the annual report of the Company for the year ended 31 December 2017 published on 27 April 2018 (pages 93 to 212) https://www1.hkexnews.hk/listedco/listconews/sehk/2018/0427/ltn20180427562.pdf

• (iii) the annual report of the Company for the year ended 31 December 2018 published on 26 April 2019 (pages 86 to 212) https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0426/ltn20190426653.pdf

• (iv) the interim report of the Company for the six months ended 30 June 2019 published on 26 September 2019 (pages 20 to 50) https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0926/2019092600349.pdf

2. STATEMENT OF INDEBTEDNESS

Debt securities and term loans

As at 31 October 2019, being the latest practicable date for the purpose of this statement of indebtedness, save as disclosed in respect of the borrowings and indebtedness of the Group below, the Group has no debt securities issued or outstanding, or authorised or otherwise created but unissued, and no term loans, distinguishing between guaranteed, unguaranteed, secured (whether the security is provided by the Company or by independent third parties) or unsecured.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Borrowings and indebtedness

As at 31 October 2019, being the latest practicable date for the purpose of this statement of indebtedness, the Group has outstanding borrowings and indebtedness of approximately RMB116,733.7 million, comprising secured bank and other loans of approximately RMB26,360.3 million, unsecured bank and other loans of approximately RMB68,417.9 million and RMB bonds of approximately RMB21,955.5 million.

Contingent liabilities

As at 31 October 2019, being the latest practicable date for the purpose of this statement of indebtedness, the Group has no material contingent liabilities or guarantees.

Mortgage and charges

As at 31 October 2019, being the latest practicable date for the purpose of this statement of indebtedness, the general banking facilities of the Group and the above outstanding secured borrowings were secured by the property, plant and equipment, finance lease receivables, certain equity investments and certain bank deposits of the Group.

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, the Group did not have any outstanding mortgages, charges, debentures, loan capital, debt securities, bank loans and overdrafts or other similar borrowings or indebtedness, liabilities under acceptances (other than normal trade bills) or acceptance credits or hire purchase commitments, guarantees or other material contingent liabilities as at 31 October 2019.

The Directors confirm that there was no material change in the indebtedness status of the Group since 31 October 2019 up to the Latest Practicable Date.

3. WORKING CAPITAL SUFFICIENCY OF THE GROUP

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

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors confirm that there was no material adverse change in the financial or trading position of the Group since 31 December 2018, being the date to which the latest published audited financial statements of the Group were made up.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. ACQUISITIONS AFTER THE DATE OF THE LATEST PUBLISHED AUDITED ACCOUNTS

Since 31 December 2018 (the date to which the latest published audited accounts of the Group have been made up), no member of the Group has acquired or agreed to acquire or is proposing to acquire a business or an interest in the share capital of a company whose profits or assets make or will make a material contribution to the figures in the auditor’s report or next published accounts of the Group.

6. FINANCIAL EFFECTS OF THE MAJOR AND CONTINUING CONNECTED TRANSACTIONS

Master Containers Services Agreement

The Proposed Annual Caps for the provision of container and other ancillary services by the COSCO SHIPPING Group to the CS Development Group for the three years ending 31 December 2022 are RMB13,500,000,000, RMB13,500,000,000 and RMB14,000,000,000, respectively. The COSCO SHIPPING Group shall provide container and other ancillary services to the CS Development Group at prices determined by taking into account (i) the prices for the sale of comparable containers charged by at least two independent container manufacturers; and (ii) the service fees for the provision of comparable container and other ancillary services charged by at least two independent third party service providers.

The purchase of containers by the CS Development Group from the COSCO SHIPPING Group, being part of the provision of container and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Containers Services Agreement, is a result of the purchase of containers manufactured by the CS Financial Subsidiaries for the implementation by the CS Development Group of the strategy of integration of sales channels of such containers and containers manufactured by the CS Development Group. In addition, the Florens Group would also purchase containers manufactured by the CS Financial Subsidiaries for the purpose of leasing to other parties. The containers purchased from the CS Financial Subsidiaries will be recorded as inventory in the consolidated financial statements of the Group, except for the containers purchased by the Florens Group for leasing to other parties which will be recorded as fixed assets in the consolidated financial statements of the Group. In light of the above, it is expected that the provision of container and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Containers Services Agreement will contribute to the inventory and fixed assets of the Group, while generating, among other things, sales, cost of sales, lease income, depreciation expenses and management expenses for the Group.

Master Financial Services Agreement

The Proposed Annual Caps for the maximum outstanding balance of deposits (including accrued interest and handling fee for the deposit services to be provided by COSCO SHIPPING Finance to the CS Development Group under the Master Financial Services Agreement) for the

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

three years ending 31 December 2022 are RMB13,300,000,000, RMB13,300,000,000 and RMB14,620,000,000, respectively. COSCO SHIPPING Finance shall provide deposit services to the CS Development Group at interest rates not lower than (i) the benchmark rates stipulated by the PBOC for the same types of deposits; and (ii) the rates offered by the major and independent PRC commercial banks in the service location or adjacent areas in the normal course of business for such types of deposits.

It is expected that the provision of deposit services by COSCO SHIPPING Finance to the CS Development Group under the Master Financial Services Agreement will generate interest income for the Group with the aforementioned interest rates. As the potential interest income to be earned from the deposit services for the three years ending 31 December 2022 are not expected to constitute a significant portion of the earnings and assets of the Group, the Company anticipates that such potential interest income will not have any material impact on the earnings, assets and liabilities of the Group.

7. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

Given the lack of global economic and trade growth drivers and growing uncertainty over trade relations between the world’s major economies, there was declining growth in container shipping demand. In addition, the growth in the world fleet capacity moderated while the new vessel delivery decreased year on year and vessel demolition increased. The simultaneous decline in the growth of market supply and demand enabled the shipping market to achieve overall supply and demand equilibrium. It is expected that the uncertainty over the international trade landscape will continue to affect demand for foreign trade shipping while the total value of trade of the PRC with regions and countries along the Belt and Road will keep growing at a faster pace, which can facilitate stable growth in shipping demand.

In terms of the shipping and industry-related leasing business, the Company will, on the basis of its existing business, gradually set up a high-level professional investment and financing team, so as to become a first-class domestic ship owner leasing enterprise. The Company will gradually increase the proportion of external business and work out a “one-stop” business model by leveraging the advantages of full industrial chain deployment of COSCO SHIPPING, in an attempt to establish a unique competitive edge in the industry. The Company will also seize market opportunities to develop its special and refrigerated container leasing business, enhance its contract patterns and improve capital structure, so as to increase returns. In addition, the Company will support customer-oriented development and provide financial leasing value-added services, so as to establish a leasing business platform that offers “one-stop” professional services with uniform standards.

In terms of the container manufacturing business, the Company will enhance comprehensive competitiveness through technology upgrading, management improvement and accelerating the promotion and upgrading of environmental technology. The Company will strengthen container manufacturing for bulk dry cargo, diversify the development of container products, increase the market share of special container market, and lay out refrigerated

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

container manufacturing business. The Company will also seek the right opportunity to consolidate newly acquired assets of the Group and enhance operations, so as to build a technology-leading and world-class container manufacturing enterprise with high capacity usage and profitability.

In terms of the investment and services business, the Company will give equal weight to strategic value and financial returns, accord priority to both strategic synergy and performance drivers, and make full use of domestic and overseas resources to pool external capital through industry funds and various other methods, so as to support development of the shipping industry and emerging industry and promote the integration of industry and finance. The Company will strive to gain decent financial returns while incubating the future financial investment business of the Company.

– I-5 –

GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Hong Kong Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this document misleading.

2. DISCLOSURE OF INTERESTS

Interests and short positions of Directors, Supervisors and chief executives

Save as disclosed below, as at the Latest Practicable Date, none of the Directors, Supervisors or chief executive(s) of the Company had any interests or short positions in the Shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which was required to be notified to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which any such Directors, Supervisors or chief executive(s) is taken or deemed to have under such provisions of the SFO) or which was required to be entered in the register required to be kept by the Company pursuant to Section 352 of the SFO or which was otherwise required to be notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers adopted by the Company.

Interests in the Shares

						Approximate
						percentage of
					Approximate	the total issued
				Number of	percentage of	share capital
		Class of		Shares	the relevant	of the
Name	Position	Shares	Capacity	interested	class of Shares	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)

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GENERAL INFORMATION

APPENDIX II

						Approximate
						percentage of
					Approximate	the total issued
				Number of	percentage of	share capital
		Class of		Shares	the relevant	of the
Name	Position	Shares	Capacity	interested	class of Shares	Company
				(Note 1)	(%)	(%)
Xu Hui	Director	H Shares	Other	945,968 (L)	0.03	0.01
				(Notes 2 and 5)
Feng Boming	Director	A Shares	Beneficial	29,100 (L)	0.00037	0.00025
			owner

Notes:

1. “L” means long position in the shares.

2. As disclosed in the announcement of the Company dated 24 November 2016, certain executive Directors, senior management and employees of the Company have voluntarily invested, with their own fund, in the Asset Management Plan, pursuant to which the executive Directors, 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. As at the Latest Practicable Date, the Asset Management Plan has been fully funded and has acquired 6,900,000 H Shares on the market at an average price of HK$1.749 per H Share.

3. 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.

4. 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.

5. 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.

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GENERAL INFORMATION

APPENDIX II

Interests in the shares of associated corporations of the Company

						Approximate
						percentage of	Approximate
						the number of	percentage of
						shares of the	the issued share
						relevant class of	capital of the
Name of					Number	the relevant	relevant
associated			Class of		of Shares	associated	associated
corporation	Name	Position	Shares	Capacity	interested	corporation	corporation
					(Note 1)	(%)	(%)
COSCO	Feng	Director	A shares	Interest of	530,000 (L)	0.00548	0.00432
SHIPPING	Boming			spouse	(Note 2)
Holdings

Notes:

1. “L” means long position in the shares.

2. As at the Latest Practicable Date, the spouse of Mr. Feng Boming held 530,000 A share options under the A shares option incentive scheme of COSCO SHIPPING Holdings.

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

As at the Latest Practicable Date:

• (a) Mr. Huang Jian, a non-executive Director, was also a department general manager of COSCO SHIPPING;

• (b) Mr. Hao Wenyi, a Supervisor, was also a department head of COSCO SHIPPING; and

• (c) Mr. Ye Hongjun, a Supervisor, was also the chief legal adviser of COSCO SHIPPING.

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

Interests of substantial Shareholders

As at the Latest Practicable Date, so far as was known to the Directors, Supervisors or chief executive(s) of the Company, the interests or short positions of the Shareholders who are entitled to exercise or control 5% or more of the voting power at any general meeting or other persons (other than a Director, Supervisor or chief executive(s) of the Company) in the Shares

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GENERAL INFORMATION

APPENDIX II

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
	Class of		Number of	of Shares of the	capital of the
Name of Shareholder	Shares	Capacity	Shares interested	Company	Company
			(Note 1)	(%)	(%)
China Shipping	A Shares	Beneficial owner	4,458,195,175 (L)	56.20	38.41
			(Note 2)
	H Shares	Interest of	100,944,000 (L)	2.75	0.87
		controlled	(Note 3)
		corporation
COSCO SHIPPING	A Shares	Interest of	4,458,195,175 (L)	56.20	38.41
		controlled	(Note 2)
		corporation
	H Shares	Interest of	100,944,000 (L)	2.75	0.87
		controlled	(Note 3)
		corporation
The Northern Trust	H Shares	Approved	249,945,900 (P)	6.80	2.15
Company (ALA)		lending agent

Notes:

1. “L” means long position in the shares and “P” means shares in the lending pool.

2. Such 4,458,195,175 A Shares represent the same block of Shares.

3. 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.

– II-4 –

GENERAL INFORMATION

APPENDIX II

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. 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).

4. LITIGATION

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

5. MATERIAL CONTRACTS

Set out below are the material contracts (not being contracts entered into in the ordinary course of business) entered into by any member of the Group within the two years immediately preceding the Latest Practicable Date:

• (a) the four memoranda of agreement dated 10 January 2019 entered into between the Vessel Sellers and the Vessel Purchasers, pursuant to which the Vessel Sellers have agreed to sell, and the Vessel Purchasers have agreed to purchase, the Vessels, for the aggregate consideration of US$267 million (please refer to the announcement of the Company dated 10 January 2019 for further details);

• (b) the four instalment sale agreements dated 10 January 2019 entered into between the Vessel Purchasers as sellers and the Vessel Owners as buyers in respect of the instalment sale of the Vessels (please refer to the announcement of the Company dated 10 January 2019 for further details);

– II-5 –

GENERAL INFORMATION

APPENDIX II

• (c) the four bareboat charters dated 10 January 2019 entered into between the Vessel Owners and COSCO SHIPPING Development (Hong Kong) Co., Ltd., pursuant to which the Vessel Owners have agreed to charter, and COSCO SHIPPING Development (Hong Kong) Co., Ltd. agreed to take on charter, the Vessels, with the maximum aggregate amount of the instalments of charter hire payable by COSCO SHIPPING Development (Hong Kong) Co., Ltd. to the Vessel Owners estimated to be approximately US$248 million (please refer to the announcement of the Company dated 10 January 2019 for further details); and

• (d) the merger agreement dated 29 December 2017 entered into between CS Finance and COSCO Finance in relation to the merger by absorption under which CS Finance will absorb and merge with COSCO Finance (please refer to the circular of the Company dated 12 December 2017 for further details).

Save as disclosed above, there is no material contract (not being entered into in the ordinary course of business) entered into by any member of the Group within the two years immediately preceding the issue of this circular.

6. 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 2018 (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.

7. 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 Hong Kong Listing Rules.

– II-6 –

GENERAL INFORMATION

APPENDIX II

8. 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

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, each of the abovementioned expert 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, the abovementioned expert 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, the abovementioned expert 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 2018 (being the date to which the latest published audited statements of the Group were made up).

9. 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 articles of association of the Company;

• (b) the letter from the Board, the text of which is set out in the section headed “Letter from the Board” in this circular;

• (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;

– II-7 –

GENERAL INFORMATION

APPENDIX II

• (e) the audited consolidated financial statements of the Group for each of the three financial years ended 31 December 2016, 2017 and 2018;

• (f) the annual reports of the Company for each of the three years ended 31 December 2016, 2017 and 2018;

• (g) the interim report of the Company for the six months ended 30 June 2019;

• (h) the written letter of consent referred to in the section headed “Expert’s Qualifications and Consent” in this Appendix;

• (i) the material contracts set out in the section headed “Material Contracts” in this Appendix;

• (j) the Entrustment Agreement;

• (k) the Existing Assets Lease Framework Agreement;

• (l) the Existing Commodities Supply Framework Agreement;

• (m) the Existing Florens Financial Services Agreement;

• (n) the Existing Master CS Finance Financial Services Agreement;

• (o) the Existing Supplementary Commodities Supply Agreement;

• (p) the Master Containers Services Agreement;

• (q) the Master Factoring Services Agreement;

• (r) the Master Finance Lease Services Agreement;

• (s) the Master Financial Services Agreement;

• (t) the Master Operating Lease Services Agreement;

• (u) the Master Vessel Charter Agreement;

• (v) the Master Vessel Services Agreement;

• (w) the New Commodities Supply Framework Agreement;

• (x) copies of the circulars of the Company dated 10 May 2019 and 5 August 2019; and

• (y) a copy of this circular.

– II-8 –

GENERAL INFORMATION

APPENDIX II

10. MISCELLANEOUS

• (a) The company secretary of the Company is Mr. Yu Zhen. Mr. Yu Zhen is a certified public accountant (CPA) of the PRC and a mid-level accountant.

• (b) The registered office of the Company is Room A-538, International Trade Center, China (Shanghai) Pilot Free Trade Zone, Shanghai, the PRC.

• (c) The principal place of business of the Company in the PRC is 5299 Binjiang Dadao, Pudong New Area, Shanghai, the PRC.

• (d) The principal place of business of the Company in Hong Kong is 50/F, COSCO Tower, 183 Queen’s Road Central, Hong Kong.

• (e) The Hong Kong H Share registrar and transfer office is Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

– II-9 –

PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION

APPENDIX III

The full text of the Proposed Amendments to the Articles of Association is set out below.

Existing articles To be amended as Chapter VI Share and register of Chapter VI Share and register of shareholders shareholders Article 6.13 No change may be made in the Article 6.13 No change may be made in the register of members as a result of a transfer register of members as a result of a transfer of shares within 30 days prior to the date of of shares within 30 days prior to the date of a general meeting or within 5 days before the a general meeting or within 5 days before the determination date for the Company’s determination date for the Company’s distribution of dividends. This Article 6.13 distribution of dividends. Where the relevant only applies to the registration of change of stock exchanges or the regulatory authorities H shareholders’ register. in the place where the shares of the Company are listed have other regulations, such regulations shall be followed.

Chapter VIII General meeting Chapter VIII General meeting 8.9 The Company shall give a Article 8.9 The Company shall give a notice of general meeting 45 days written notice of an annual general meeting the date of the general meeting 20 days before the date of the annual general to inform all shareholders whose meeting, while it shall give a written notice are shown in the share register of the of an extraordinary general meeting 15 days to be considered at the meeting as before the date of the extraordinary general the date and place of the meeting. meeting, to inform all shareholders whose Shareholders intending to attend the meeting names are shown in the share register of the lodge their written reply of attendance matters to be considered at the meeting as Company 20 days before the meeting well as the date, the time and place of the meeting.

Article 8.9 The Company shall give a written notice of general meeting 45 days before the date of the general meeting (inclusive) to inform all shareholders whose names are shown in the share register of the matters to be considered at the meeting as well as the date and place of the meeting. Shareholders intending to attend the meeting shall lodge their written reply of attendance to the Company 20 days before the meeting is held.

However, if the Company intending to convene a general meeting has only promoting shareholders, it may, with a general written consent from all such shareholders, be exempt from such requirement in the preceding paragraph concerning relevant notice and reply deadlines.

However, if the Company intending to convene a general meeting has only promoting shareholders, it may, with a general written consent from all such shareholders, be exempt from such requirement in the preceding paragraph concerning relevant notice and reply deadlines.

– III-1 –

PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION

APPENDIX III

Existing articles To be amended as Article 8.11 The Company will calculate the Deleted article. Articles 8.12 to 8.36 of the number of Shares with voting rights, original Articles of Association shall be represented by Shareholders intending to re-numbered in an ascending order attend the meeting based on the replies accordingly. received 20 days before the meeting is held, The Company convene a general meeting where the number of Shares with voting rights reaches half or more of the total number of Shares with voting rights; Otherwise, the Company shall further notify the Shareholders, by way of a public announcement, of the matters to be considered at the meeting, the date and venue of the meeting within five days. After such public announcement, the Company may proceed to hold the general meeting.

Article 8.15 Notices of general meetings shall be delivered to shareholders (with or without voting right at the general meeting) by hand or by pre-paid mails to the address as recorded in the register of shareholders. For A Share holders, such notices can also be made in the form of an announcement for A Shares. For H Share holders, notices of general meetings can be made in the form of an announcement on the website of the Stock Exchange and the Company’s website.

Article 8.14 Notices of general meetings shall be delivered to shareholders (with or without voting right at the general meeting) by hand or by pre-paid mails to the address as recorded in the register of shareholders. For A Share holders, such notices can also be made in the form of an announcement for A Shares. For H Share holders, notices of general meetings can be made in the form of an announcement on the website of the Stock Exchange and the Company’s website.

The announcement for A Share holders as mentioned in the preceding paragraph shall be published in one or more newspapers as designated by the securities supervisory authority of the State Council 45-50 days prior to the date of meeting. Once published, all A Share holders shall be deemed to have received the relevant notice.

The announcement for A Shares as mentioned in the preceding paragraph shall be published in one or more newspapers as designated by the securities supervisory authority of the State Council. Once published, all A Share holders shall be deemed to have received the relevant notice.

– III-2 –

PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION

APPENDIX III

Existing articles To be amended as Chapter IX Special procedure for voting Chapter IX Special procedure for voting by class shareholders by class shareholders Article 9.6 A written notice of a class Article 9.6 A written notice of a class meeting shall be given forty-five days before meeting shall be given pursuant to the the date of the class meeting to notify all of requirements of the notice period for the shareholders in the share register of the convening a general meeting as specified in class of the matters to be considered, the Article 8.9 of the Articles of Association to date and the place of the class meeting. A notify all of the shareholders in the share shareholder who intends to attend the class register of the class of the matters to be meeting shall deliver his written reply considered, the date, the time and the place concerning attendance at the class meeting of the class meeting. to the Company twenty days before the date of the class meeting.

If the number of shares carrying voting rights at the class meeting represented by the shareholders who intend to attend the meeting reaches more than one half of the voting shares at the class meeting, the Company may hold the class meeting; if not, the Company shall within five days notify the shareholders again by public notice of the matters to be considered, the date and the place for the class meeting. The Company may then hold the class meeting after such publication of notice.

– III-3 –

PROPOSED AMENDMENTS TO THE RULES OF PROCEDURE OF THE SHAREHOLDERS’ GENERAL MEETING

APPENDIX IV

The full text of the Proposed Amendments to the Rules of Procedure of the Shareholders’ General Meeting is set out below.

Existing articles To be amended as Chapter 4 Proposals and Notice of Chapter 4 Proposals and Notice of General Meetings General Meetings 15 Where the Company convenes a Article 15 Where the Company convenes an meeting, a written notice shall be annual general meeting, a written notice between a period of 45 to 50 days shall be given 20 days prior to the date of the to the date of the meeting to notify all annual general meeting, and where the the shareholders in the shareholders’ register Company convenes an extraordinary general of the issues to be considered at the meeting, meeting, a written notice shall be given 15 the date and venue of the meeting. Any days prior to the date of the extraordinary intending to attend the meeting general meeting, to notify all the serve to the Company a written reply shareholders in the shareholders’ register of his/her intention to attend at least the issues to be considered at the meeting, days before the meeting. and the date, the time and venue of the meeting.

Article 15 Where the Company convenes a general meeting, a written notice shall be given between a period of 45 to 50 days prior to the date of the meeting to notify all the shareholders in the shareholders’ register of the issues to be considered at the meeting, and the date and venue of the meeting. Any shareholder intending to attend the meeting shall serve to the Company a written reply showing his/her intention to attend at least 20 days before the meeting.

Article 17 The Company shall, based on the written replies received from shareholders 20 days prior to the date of the general meeting, calculate the number of voting shares held by shareholders intending to attend the meeting. Where the number of voting shares represented by shareholders intending to attend the meeting amounts to more than half of the Company’s voting shares, the Company may convene the general meeting; if not, the Company shall, within 5 days, notify shareholders again of the issues to be considered, date and venue of the meeting in the an announcement. The Company may then convene the general meeting after such announcement. The relevant announcement shall be published on the designated newspapers.

Deleted article. The original Rules of Procedure of the Shareholders’ General Meeting shall be re-numbered in an ascending order from Article 18 onwards accordingly. The amended Rules of Procedure of the Shareholders’ General Meeting shall also be revised accordingly for any changes to the cross-referencing of chapter and article numbers in the original Rules of Procedure of the Shareholders’ General Meeting.

– IV-1 –

PROPOSED AMENDMENTS TO THE RULES OF PROCEDURE OF THE SHAREHOLDERS’ GENERAL MEETING

APPENDIX IV

Existing articles

Article 20 The notice of a general meeting shall be delivered to shareholders (whether or not they are entitled to vote at the general meeting) by hand or by pre-paid mail to their addresses as recorded in the shareholders’ register. For holders of domestic shares, the notice of meeting may be issued in the form of public announcement.

Public announcement referred to in the preceding paragraph shall be published in one or more newspaper(s) designated by the securities regulatory authority under the State Council during the period between 45 days to 50 days prior to the date of the meeting. Once the announcement is made, holders of domestic shares shall be deemed to have received the notice of the relevant general meeting.

Chapter 7 Special Voting Procedures for Class Shareholders

Article 76 Where the Company convenes a class meeting, a written notice shall be given 45 days prior to the date of the meeting to notify all the shareholders of the said class in the shareholders’ register of the issues to be considered at the meeting, and the date and venue of the meeting. Any shareholder intends to attend the meeting shall serve to the Company a written reply showing his intention to attend at least 20 days before the meeting.

To be amended as

Article 19 The notice of a general meeting shall be delivered to shareholders (whether or not they are entitled to vote at the general meeting) by hand or by pre-paid mail to their addresses as recorded in the shareholders’ register. For holders of domestic shares, the notice of meeting may be issued in the form of public announcement.

Public announcement referred to in the preceding paragraph shall be published in one or more newspaper(s) designated by the securities regulatory authority under the State Council. Once the announcement is made, holders of domestic shares shall be deemed to have received the notice of the relevant general meeting.

Chapter 7 Special Voting Procedures for Class Shareholders

Article 75 Where the Company convenes a class meeting, a written notice shall be given pursuant to the requirements of the notice period for convening a general meeting as specified in Article 15 of these Rules to notify all the shareholders of the said class in the shareholders’ register of the issues to be considered at the meeting, and the date, the time and venue of the meeting.

The Company may convene a class meeting if the shares with voting rights at the meeting represented by the shareholders intending to attend the meeting are more than half of the total shares of the said class with voting rights at the meeting, otherwise, the Company shall, within 5 days and in the form of public announcement, notify the shareholders again of the issues to be considered, date and venue of the meeting.

The Company may convene a class meeting after public announcement. The relevant announcement shall be published on the designated newspapers and periodicals.

– IV-2 –

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 Monday, 23 December 2019 (or at any adjournment thereof) at Level 3, Ocean Hotel Shanghai, 1171 Dong Da Ming Road, Hong Kou District, Shanghai, the PRC 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 30 October 2019 (the “ Announcement ”).

ORDINARY RESOLUTIONS

1. To consider and approve the resolutions in relation to the Relevant Continuing Connected Transactions, the details of which are set out in the Announcement:

2. 1.1 “ THAT :

   • (a) the renewal of the term of the Master Vessel Charter Agreement for the three years ending 31 December 2022 and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified in all respects;

   • (b) the Proposed Annual Caps for the transactions contemplated under the Master Vessel Charter Agreement in the amount of RMB6,000,000,000, RMB6,000,000,000 and RMB6,000,000,000 for the three years ending 31 December 2022 be and are hereby approved, confirmed and ratified in all respects; and

– EGM-1 –

NOTICE OF EGM

• (c) 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 Master Vessel Charter Agreement and the transactions contemplated thereunder.”

1.2 “ THAT :

• (a) the renewal of the term of the Master Operating Lease Services Agreement for the three years ending 31 December 2022 and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified in all respects;

• (b) the Proposed Annual Caps for the transactions contemplated under the Master Operating Lease Services Agreement in the amount of RMB1,500,000,000, RMB1,500,000,000 and RMB1,500,000,000 for the three years ending 31 December 2022 be and are hereby approved, confirmed and ratified in all respects; and

• (c) 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 Master Operating Lease Services Agreement and the transactions contemplated thereunder.”

1.3 “ THAT :

• (a) the renewal of the term of the Master Finance Lease Services Agreement for the three years ending 31 December 2022 and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified in all respects;

• (b) the Proposed Annual Caps for the transactions contemplated under the Master Finance Lease Services Agreement in the amount of RMB3,000,000,000, RMB3,000,000,000 and RMB3,000,000,000 for the three years ending 31 December 2022 be and are hereby approved, confirmed and ratified in all respects; and

– EGM-2 –

NOTICE OF EGM

• (c) 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 Master Finance Lease Services Agreement and the transactions contemplated thereunder.”

1.4 “ THAT :

• (a) the renewal of the term of the Master Vessel Services Agreement for the three years ending 31 December 2022 and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified in all respects;

• (b) the Proposed Annual Caps for the transactions contemplated under the Master Vessel Services Agreement in the amount of RMB1,450,000,000, RMB1,450,000,000 and RMB1,500,000,000 for the three years ending 31 December 2022 be and are hereby approved, confirmed and ratified in all respects; and

• (c) 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 Master Vessel Services Agreement and the transactions contemplated thereunder.”

1.5 “ THAT :

• (a) the renewal of the term of the Master Containers Services Agreement for the three years ending 31 December 2022 and the provision of container and other ancillary services by the CS Development Group to the COSCO SHIPPING Group contemplated thereunder be and are hereby approved, confirmed and ratified in all respects;

• (b) the Proposed Annual Caps for the provision of container and other ancillary services by the CS Development Group to the COSCO SHIPPING Group under the Master Containers Services Agreement in the amount of RMB6,600,000,000, RMB7,500,000,000 and RMB8,200,000,000 for the three years ending 31 December 2022 be and are hereby approved, confirmed and ratified in all respects;

– EGM-3 –

NOTICE OF EGM

• (c) 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 Master Containers Services Agreement and the provision of container and other ancillary services by the CS Development Group to the COSCO SHIPPING Group contemplated thereunder.”

• 1.6 “ THAT :

• (a) the renewal of the term of the Master Containers Services Agreement for the three years ending 31 December 2022 and the provision of container and other ancillary services by the COSCO SHIPPING Group to the CS Development Group contemplated thereunder be and are hereby approved, confirmed and ratified in all respects;

• (b) the Proposed Annual Caps for the provision of container and other ancillary services by the COSCO SHIPPING Group to the CS Development Group under the Master Containers Services Agreement in the amount of RMB13,500,000,000, RMB13,500,000,000 and RMB14,000,000,000 for the three years ending 31 December 2022 be and are hereby approved, confirmed and ratified in all respects; and

• (c) 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 Master Containers Services Agreement and the provision of container and other ancillary services by the COSCO SHIPPING Group to the CS Development Group contemplated thereunder.”

1.7 “ THAT :

• (a) the form and substance of the Master Financial Services Agreement and the provision of deposit services by COSCO SHIPPING Finance to the CS Development Group contemplated thereunder be and are hereby approved, confirmed and ratified in all respects;

– EGM-4 –

NOTICE OF EGM

• (b) the Proposed Annual Caps for the maximum outstanding balance of deposits (including accrued interest and handling fee for the deposit services to be provided by COSCO SHIPPING Finance to the CS Development Group under the Master Financial Services Agreement) in the amount of RMB13,300,000,000, RMB13,300,000,000 and RMB14,620,000,000 for the three years ending 31 December 2022 be and are hereby approved, confirmed and ratified in all respects; and

• (c) 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 Master Financial Services Agreement and the provision of deposit services by COSCO SHIPPING Finance to the CS Development Group contemplated thereunder.”

• 1.8 “ THAT :

• (a) the renewal of the term of the Master Factoring Services Agreement for the three years ending 31 December 2022 and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified in all respects;

• (b) the Proposed Annual Caps for the transactions contemplated under the Master Factoring Services Agreement in the amount of RMB500,000,000, RMB500,000,000 and RMB500,000,000 for the three years ending 31 December 2022 be and are hereby approved, confirmed and ratified in all respects; and

• (c) 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 Master Factoring Services Agreement and the transactions contemplated thereunder.”

– EGM-5 –

NOTICE OF EGM

1. To consider and approve the resolution in relation to the transactions contemplated under the new commodities supply framework agreement (the “ New Commodities Supply Framework Agreement ”) dated 30 October 2019 entered into between the Company and China International Marine Containers (Group) Co., Ltd., the details of which are set out in the overseas regulatory announcement of the Company dated 30 October 2019:

“ THAT :

• (a) the form and substance of the New Commodities Supply Framework Agreement and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified in all respects;

• (b) the Proposed Annual Caps for the transactions contemplated under the New Commodities Supply Framework Agreement in the amount of RMB2,300,000,000, RMB2,700,000,000 and RMB3,000,000,000 for the three years ending 31 December 2022 be and are hereby approved, confirmed and ratified in all respects; and

• (c) 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 New Commodities Supply Framework Agreement and the transactions contemplated thereunder.”

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

Company Secretary

Shanghai, the PRC 8 November 2019

– EGM-6 –

NOTICE OF EGM

Notes:

1. For the purpose of holding the EGM, the register of H Shares members of the Company (the “ Register of Members ”) will be closed from 23 November 2019 to 23 December 2019 (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 22 November 2019 are entitled to attend and vote at the EGM.

2. 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 22 November 2019.

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

1. H Shareholders who intend to attend the EGM must complete the reply slips and return them to the Securities and Public Relations Department of the Company not later than 20 days before the date of the EGM (i.e. not later than 3 December 2019).

The details of the Securities and Public Relations Department of the Company is as follows: 5th Floor COSCO SHIPPING Plaza 5299 Binjiang Dadao Pudong New District Shanghai The PRC Tel: (8621) 6596 7333 Fax: (8621) 6596 6498

1. 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.

2. 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.

3. 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.

4. 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. Form(s) of proxy duly signed and submitted by HKSCC Nominees Limited are deemed to be valid, and it is not necessary for the proxy(ies) appointed by HKSCC Nominees Limited to produce the signed form of proxy when the proxy(ies) attend(s) the EGM. 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.

– EGM-7 –

NOTICE OF EGM

1. Pursuant to the Hong Kong 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 Hong Kong Stock Exchange at www.hkexnews.hk after the EGM.

2. 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.

3. The EGM is estimated to last for half a day. Shareholders who attend the EGM in person or by proxy shall bear their own transportation and accommodation expenses.

The Board as at the date of this notice comprises 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 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.”.

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SUPPLEMENTAL 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)

SUPPLEMENTAL NOTICE OF EXTRAORDINARY GENERAL MEETING

Reference is made to the notice of the extraordinary general meeting dated 8 November 2019 (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 Monday, 23 December 2019 (or at any adjournment thereof) at Level 3, Ocean Hotel Shanghai, 1171 Dong Da Ming Road, Hong Kou District, Shanghai, the PRC, 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 6 December 2019 (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 resolutions as special resolutions of the Company, in addition to the resolutions set out in the Original Notice of EGM:

SPECIAL RESOLUTIONS

1. To consider and approve the resolution in relation to the Proposed Amendments to the Articles of Association, details of which are set out in the Circular:

“ THAT :

• (a) the Proposed Amendments to the Articles of Association be and are hereby approved and confirmed; and

• (b) any one Director of the Company be and is hereby authorised to do all such acts and things (including filing the amended Articles of Association with the relevant authorities for approval, endorsement and/or registration as

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SUPPLEMENTAL NOTICE OF EGM

appropriate) 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 Amendments to the Articles of Association.”

1. To consider and approve the resolution in relation to the Proposed Amendments to the Rules of Procedure of the Shareholders’ General Meeting, details of which are set out in the Circular:

“ THAT :

• (a) the Proposed Amendments to the Rules of Procedure of the Shareholders’ General Meeting be and are hereby approved and confirmed; and

• (b) any one Director of the Company be and is hereby authorised to do all such acts and things (including filing the amended Rules of Procedure of the Shareholders’ General Meeting with the relevant authorities for approval, endorsement and/or registration as appropriate) 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 Amendments to the Rules of Procedure of the Shareholders’ General Meeting.”

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

Company Secretary

Shanghai, the PRC 6 December 2019

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SUPPLEMENTAL NOTICE OF EGM

Notes :

1. Save for the inclusion of the additional proposed resolutions 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.

2. Since the form of proxy dated 8 November 2019 (the “ Original Form of Proxy ”) sent together with the Original Notice of EGM does not contain the additional proposed resolutions 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.

3. 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

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

2. (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 this supplemental notice of EGM.

3. (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.

4. (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 this supplemental notice of EGM.

5. Completion and return of the Original Form of Proxy and/or the 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.

6. The reply slip despatched to the Shareholders on 8 November 2019 will be treated as a valid reply slip for the EGM.

The Board as at the date of this notice comprises 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 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.”.

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