Dida Inc. - M&A Activity 2024 | FinancialReports.eu

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

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**COSCO SHIPPING ENERGY TRANSPORTATION CO., LTD.* 中遠海運能源運輸股份有限公司**

(A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 1138)

(1) PROPOSED CONNECTED TRANSACTIONS — ACQUISITION OF EQUITY INTERESTS AND ASSETS (2) PROPOSED CONTINUING CONNECTED TRANSACTION — PROPOSED ENTRUSTED MANAGEMENT AGREEMENTS

THE PROPOSED ACQUISITION AND THE PROPOSED ENTRUSTED MANAGEMENT AGREEMENTS

The Board is pleased to announce that the Company proposed to proceed with the Proposed Acquisition and entered into the Proposed Entrusted Management Agreements, details of which are as follows:

(1) Dalian Liquefied Gas (a wholly-owned subsidiary of the Company) and COSCO SHIPPING Investment Dalian proposed to enter into the Investment Dalian Equity Transfer Agreement, pursuant to which COSCO SHIPPING Investment Dalian has agreed to dispose of, and Dalian Liquefied Gas has agreed to acquire: (i) 70% of the equity interests in Shenzhen Longpeng at the consideration of RMB277,334,700; (ii) 87% of the equity interests in Hainan Zhaogang at the consideration of RMB152,769,100; (iii) 15% of the equity interests in Xizhong Island Port at the consideration of RMB0;
(2) Dalian Liquefied Gas and COSCO SHIPPING Investment Dalian proposed to enter into the Investment Dalian Assets Transfer Agreement, pursuant to which COSCO SHIPPING Investment Dalian has agreed to dispose of, and Dalian Liquefied Gas has agreed to acquire, two vessels at the aggregate consideration of RMB210,512,800 (exclusive of value-added tax);

For identification purposes only

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(3) The Company and COSCO Shipping (Shanghai) proposed to enter into the COSCO Shipping (Shanghai) Equity Transfer Agreement, pursuant to which COSCO Shipping (Shanghai) has agreed to dispose of, and the Company has agreed to acquire: (i) 100% of the equity interests in COSCO SHIPPING Chemical Carrier at the consideration of RMB507,420,500; (ii) 100% of the equity interests in Shanghai COSCO SHIPPING (Hong Kong) at the consideration of RMB112,816,500; and
(4) The Company proposed to enter into the Proposed Entrusted Management Agreements with COSCO SHIPPING and COSCO Shipping (Shanghai), pursuant to which the Company has agreed to be entrusted with the management of (i) COSCO SHIPPING Investment Dalian held by COSCO SHIPPING; (ii) Yisheng Storage, Marine Transportation and Storage and Fujian Terminal held by COSCO Shipping (Shanghai), for a trusteeship period of 3 years. The custodian fee for COSCO SHIPPING Investment Dalian shall be RMB8,000,000 per year (exclusive of value-added tax), and the custodian fees for Yisheng Storage, Marine Transportation and Storage and Fujian Terminal shall be RMB2,600,000 per year in aggregate (exclusive of value-added tax).

IMPLICATIONS UNDER THE HONG KONG LISTING RULES

As at the date of this announcement, 619,426,195 A Shares are directly held by COSCO SHIPPING and 1,536,924,595 A Shares are held by China Shipping Group Company Limited* (中國海運集團有限公司) (a wholly-owned subsidiary of COSCO SHIPPING) and its subsidiaries. Therefore, COSCO SHIPPING and its associates control or are entitled to exercise control over the voting rights in respect of 2,156,350,790 A Shares, representing approximately 45.20% of the total issued share capital of the Company. Accordingly, COSCO SHIPPING is a controlling shareholder of the Company and therefore a connected person of the Company. COSCO SHIPPING Investment Dalian and Shanghai COSCO SHIPPING are both the associates of COSCO SHIPPING and therefore are connected persons of the Company. Accordingly, it is expected that the Proposed Acquisition and the Proposed Entrusted Management Agreements will constitute connected transactions and continuing connected transactions of the Company under Chapter 14A of the Hong Kong Listing Rules.

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Pursuant to Rule 14A.81 of the Hong Kong Listing Rules, the Proposed Acquisition and the Proposed Entrusted Management Agreements were entered into by the Group with parties who are connected with one another and therefore, the Proposed Acquisition and the Proposed Entrusted Management Agreements should be aggregated, respectively. After aggregation, as it is expected that one or more applicable percentage ratios calculated in accordance with the Hong Kong Listing Rules in respect of the Proposed Acquisition will exceed 0.1% but are all less than 5%, the Proposed Acquisition is subject to the reporting and announcement requirements but is exempt from the independent Shareholders’ approval requirement under Chapter 14A of the Hong Kong Listing Rules. After aggregation, as all the applicable percentage ratios in respect of the Proposed Entrusted Management Agreements and the transactions contemplated thereunder are less than 0.1% but are less than 5%, the Proposed Entrusted Management Agreements and the transactions contemplated thereunder are exempt from the reporting, announcement and independent Shareholders’ approval requirement under Chapter 14A of the Listing Rules.

As Mr. Ren Yongqiang, Mr. Zhu Maijin, Mr. Wang Wei and Ms. Wang Songwen serve as the Directors and senior management of COSCO SHIPPING and/or its associates, therefore, Mr. Ren Yongqiang, Mr. Zhu Maijin, Mr. Wang Wei and Ms. Wang Songwen have abstained from voting in respect of the approval of the Board resolutions relevant to the Proposed Acquisition and the Proposed Entrusted Management Agreements. Save as disclosed above, no other Directors have material interests in the Proposed Acquisition and the Proposed Entrusted Management Agreements and therefore no other Directors have abstained from voting in respect of the relevant Board resolutions.

As of the date of this announcement, the Company has not entered into any legally binding transaction documents regarding the Proposed Acquisition and the Proposed Entrusted Management Agreements. As the Proposed Acquisition and the Proposed Entrusted Management Agreements may or may not proceed, the Shareholders and potential investors of the Company are advised to exercise caution when dealing in the securities of the Company.

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I. INTRODUCTION

The Board is pleased to announce that the Company proposed to proceed with the Proposed Acquisition and entered into the Proposed Entrusted Management Agreements, details of which are as follows:

(1) Dalian Liquefied Gas (a wholly-owned subsidiary of the Company) and COSCO SHIPPING Investment Dalian proposed to enter into the Investment Dalian Equity Transfer Agreement, pursuant to which COSCO SHIPPING Investment Dalian has agreed to dispose of, and Dalian Liquefied Gas has agreed to acquire: (i) 70% of the equity interests in Shenzhen Longpeng at the consideration of RMB277,334,700; (ii) 87% of the equity interests in Hainan Zhaogang at the consideration of RMB152,769,100; (iii) 15% of the equity interests in Xizhong Island Port at the consideration of RMB0;
(2) Dalian Liquefied Gas and COSCO SHIPPING Investment Dalian proposed to enter into the Investment Dalian Assets Transfer Agreement, pursuant to which COSCO SHIPPING Investment Dalian has agreed to dispose of, and Dalian Liquefied Gas has agreed to acquire, two vessels at the aggregate consideration of RMB210,512,800 (exclusive of value-added tax);
(3) The Company and COSCO Shipping (Shanghai) proposed to enter into the COSCO Shipping (Shanghai) Equity Transfer Agreement, pursuant to which COSCO Shipping (Shanghai) has agreed to dispose of, and the Company has agreed to acquire: (i) 100% of the equity interests in COSCO SHIPPING Chemical Carrier at the consideration of RMB507,420,500; (ii) 100% of the equity interests in Shanghai COSCO SHIPPING (Hong Kong) at the consideration of RMB112,816,500; and
(4) The Company proposed to enter into the Proposed Entrusted Management Agreements with COSCO SHIPPING and COSCO Shipping (Shanghai), pursuant to which the Company has agreed to be entrusted with the management of (i) COSCO SHIPPING Investment Dalian held by COSCO SHIPPING; (ii) Yisheng Storage, Marine Transportation and Storage and Fujian Terminal held by COSCO Shipping (Shanghai), for a trusteeship period of 3 years. The custodian fee for COSCO SHIPPING Investment Dalian shall be RMB8,000,000 per year (exclusive of value-added tax), and the custodian fees for Yisheng Storage, Marine Transportation and Storage and Fujian Terminal shall be RMB2,600,000 per year in aggregate (exclusive of value-added tax).

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II. THE PROPOSED ACQUISITION

(1) The Investment Dalian Equity Transfer Agreement

The principal terms of the Investment Dalian Equity Transfer Agreement are set out below:

Parties

(1) COSCO SHIPPING Investment Dalian (as the transferor); and
(2) Dalian Liquefied Gas (as the transferee).

Subject matter

Pursuant to the Investment Dalian Equity Transfer Agreement, COSCO SHIPPING Investment Dalian has agreed to dispose of, and Dalian Liquefied Gas has agreed to acquire: (i) 70% of the equity interests in Shenzhen Longpeng; (ii) 87% of the equity interests in Hainan Zhaogang; (iii) 15% of the equity interests in Xizhong Island Port, subject to the terms and conditions thereof. Dalian Liquefied Gas shall be entitled to or bear the profit or loss of the equity interests to be transferred pursuant to the Investment Dalian Equity Transfer Agreement during the Transition Period.

Consideration and payment terms

Pursuant to the Investment Dalian Equity Transfer Agreement:

(1) the consideration for 70% of the equity interests in Shenzhen Longpeng is RMB277,334,700;
(2) the consideration for 87% of the equity interests in Hainan Zhaogang is RMB152,769,100; and
(3) the consideration for 15% of the equity interests in Xizhong Island Port is RMB0.

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The consideration under the Investment Dalian Equity Transfer Agreement shall be payable by Dalian Liquefied Gas to COSCO SHIPPING Investment Dalian in cash. The payment methods are as follows:

(1) 90% of the consideration (representing RMB249,601,212 for transfer of Shenzhen Longpeng’s equity; RMB137,492,216 for transfer of Hainan Zhaogang’s equity; RMB0 for transaction of Xizhong Island Port’s equity, which involves no payment) shall be payable by Dalian Liquefied Gas to COSCO SHIPPING Investment Dalian by way of bank transfer within 5 working days from the effective date of the Investment Dalian Equity Transfer Agreement; and
(2) 10% of the consideration (representing RMB27,733,468 for transfer of Shenzhen Longpeng’s equity; RMB15,276,913 for transfer of Hainan Zhaogang’s equity; RMB0 for transaction of Xizhong Island Port’s equity, which involves no payment) shall be deposited into the joint account of the seller and the buyer with a financial institution by Dalian Liquefied Gas within 5 working days from the effective date of the Investment Dalian Equity Transfer Agreement. Within one year from the effective date of the Investment Dalian Equity Transfer Agreement, the principal amount of the consideration and interest thereon shall be transferred from the joint account to the account of COSCO SHIPPING Investment Dalian upon confirmation by both parties. If the interest received by COSCO SHIPPING Investment Dalian is less than the amount of the interest calculated at the interest rate of loan for the same period, the shortfall will be funded by Dalian Liquefied Gas separately.

The consideration was determined after arm’s length negotiations between the parties with reference to the appraised value of the subject matter by China Tong Cheng, an independent asset appraisal agency. According to the valuation reports issued by China Tong Cheng, (i) the appraised value of the entire shareholders’ equity interest in Shenzhen Longpeng as at the Valuation Benchmark Date was RMB396,192,400; (ii) the appraised value of the entire shareholders’ equity interest in Hainan Zhaogang as at the Valuation Benchmark Date was RMB175,596,700; (iii) the appraised value of 15% equity interest in Xizhong Island Port as at the Valuation Benchmark Date was RMB0. The aforementioned appraised values in respect of the equity interests in Shenzhen Longpeng, Hainan Zhaogang and Xizhong Island Port were determined based on the asset-based approach in accordance with the PRC laws and regulations.

The consideration will be funded by Dalian Liquefied Gas, and approximately 60% of it will be financed by bank borrowings and approximately 40% will be funded by internal financial resources.

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Selection of valuation method

Shenzhen Longpeng and Hainan Zhaogang

China Tong Cheng has used the asset-based approach and the income approach to value the entire shareholders’ equity interests in Shenzhen Longpeng and Hainan Zhaogang as at the Valuation Benchmark Date. Since Shenzhen Longpeng and Hainan Zhaogang are non-listed companies, it was difficult to obtain reliable operational and financial data of comparable transactions and calculate the appropriate value ratio. As a result, the market approach is not applicable to this valuation.

Xizhong Island Port

China Tong Cheng has used the asset-based approach to value the 15% of the equity interests in Xizhong Island Port as at the Valuation Benchmark Date.

The 15% of the equity interests in Xizhong Island Port has not been valued using the income approach, because, from the perspective of the applicable conditions for the income approach, Xizhong Island Port is a newly established company with no actual operating activities and the future revenue cannot be reliably predicted and the related risks are difficult to be quantified, the income approach therefore is not appropriate to be adopted in this valuation. The 15% of the equity interests in Xizhong Island Port has not been valued using the market approach, because Xizhong Island Port is a non-listed company, its business structure, enterprise size, asset allocation and usage, business stage, growth and other factors are different to a certain extent from those of listed companies in the same industry. Moreover, there were few trading, purchase and merger cases of comparable enterprises in the same industry in the PRC around the Valuation Benchmark Date, so that it was difficult to obtain reliable operational and financial data of comparable transactions and calculate the appropriate value ratio. As a result, the market approach is not applicable to this valuation.

Introduction of valuation method

The asset-based approach

Asset-based approach in valuation of an enterprise refers to a valuation approach for appraisal of the value of on-balance sheet and identifiable off-balance sheet assets and liabilities of the enterprise based on the balance sheet of the appraised entity as at the Valuation Benchmark Date to determine the value of the appraised object. In the valuation of an enterprise by using the asset-based approach, the value of each asset was derived from a specific valuation approach that is appropriate for its specific circumstances.

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The specific valuation approaches for this valuation are set out below:

1. Monetary funds

According to the valuation schedule provided by the appraised entity as the basis of valuation, the valuers, based on the valuation procedures, determined the appraised value of the RMB-denominated monetary funds by using the book value after review and verification. The appraised value of monetary funds in foreign currencies was determined by multiplying the verified amount in foreign currencies by the median exchange rate of the respective foreign currencies against RMB as at the Valuation Benchmark Date.

2. Accounts receivable, prepayments, other receivables

According to the valuation schedule provided by the appraised entity as the basis of valuation, the accounting information was checked, and large amounts were selected for letter of confirmation to specifically analyze the amount of each receivable, the time and reason for default, and the status of recovery of the amount, in order to determine the appraised value of each receivable.

3. Inventories

Inventories mainly consisted of raw materials. After ascertaining the authenticity and completeness of the raw materials by checking the relevant account books, and sampling contracts and orders, the valuers determined the appraised value based on the book value after inventory verification.

4. Contract assets

The contract assets mainly consisted of ocean freight. The valuers verified the bookkeeping records, and sampled some of the original documents and contracts and other relevant information to verify the authenticity of the transaction matters, the business content and the amount, etc. The book value after the inventory verification was taken as the appraised value.

5. Other current assets

Other current assets mainly consisted of deductible input tax. After checking the general ledger, detailed accounts and statements to confirm that the book value was true and accurate as at the Valuation Benchmark Date, the appraised value was determined by the book value after inventory verification.

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6. Fixed assets of the equipment type

The valuation of fixed assets of the equipment type was based on the assumption that the assets would continue to be utilized in accordance with their current purpose. Electronic equipment was valued using the cost approach and vehicles using the market approach. For vessels, as the construction date of the appraised vessels was earlier and more different, it was difficult to obtain sufficient comparable cases at the open market, therefore, it was improper to adopt the market approach. Meanwhile, the appraised entity is a vessel company, appraised vessels serve as the primary source of contribution to the enterprise value, and the relevant vessel revenue forecasts have already been included in the valuation of the enterprise-wide income approach. Therefore, the income approach would not be repeated herein. Ultimately, the cost approach was adopted for this valuation.

(1) Vessels

The current valuation of the vessels was carried out using the cost approach based on the assumption that the assets would continue to be utilized in accordance with their current purpose.

Basic formula of the cost approach: Appraised value = Full price for replacement × Newness rate

① Determination of full price for replacement

By the analyzing and estimating of materials, the quantity of equipment, labor, etc. required for replacement, the full price for replacement was adjusted according to the current market price. The details are as follows:

Full price for replacement means the full cost of the re-acquisition, construction or formation of a vessel in a completely new condition identical or substantially similar to the vessel in its present condition, the calculation of which is expressed by the formula:

Full price for replacement = Cost of shipbuilding + Profit + Tax + Country-of-construction factor adjustment + Cost of capital

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A. Cost of shipbuilding

a. Costs of main and auxiliary materials: Main materials include steel (plates, profiles, tubes), wood, welding materials, paints, cables, non-ferrous metals, castings and forgings, decorative materials, insulating materials, building materials, etc. The quantity of materials is determined by reference to the empirical formulas in the “Concise Approach to Vessel Valuation” and the “Practical Manual for Modern Vessel Operation”, etc. The price of materials is determined on the basis of the prevailing market price. After the obtaining of the consumption and unit price of materials, the cost of each material can be calculated.
b. Equipment cost: The quantity and specifications of equipment are based on the list of hull, engine, and electrical equipment. For upgraded or new equipment, the actual models, specifications and quantities shall prevail. The unit price of the main engine is the current market price. The price of other equipment is calculated in accordance with a certain proportion of the main engine price for each piece of equipment with reference to the “Concise Approach to Vessel Valuation” and the “Practical Manual for Modern Vessel Operation”, etc.
c. Costs of accessories and spare parts: Referring to the “Concise Approach to Vessel Valuation”, the “Practical Manual for Modern Vessel Operation” and other information, it is charged according to a certain percentage of the material cost and equipment cost.
d. Labor cost for man-hours: The total number of man-hours is calculated with reference to the “Concise Approach to Vessel Valuation” and the “Practical Manual for Modern Vessel Operation”, etc., and in conjunction with the specific conditions of the appraised vessel. The unit price of manhours is the average unit price of domestic shipyards, and the labor cost of the whole ship is the total number of man-hours of the whole ship multiplied by the unit price of man-hours.

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e. Special costs: Mainly the design of paper costs, vessel inspection and classification costs, vessel berth costs, launching costs, sea trial and inspection costs, etc. The calculation is based on a certain percentage of the sum of material costs, equipment costs, costs of accessories and spare parts, and labor costs for man-hours.

The sum of the above material costs, equipment costs, costs of accessories and spare parts, labor costs for man-hours, and special costs is the cost of shipbuilding.

B. Profit is calculated as a percentage of the cost of shipbuilding.
C. Taxes are determined in accordance with the relevant tax rate standards stipulated by the State and in conjunction with statistical data on the proportion of sales tax of shipbuilding enterprises to the cost of shipbuilding.

The sum of the above cost of shipbuilding, profits and taxes is the price of shipbuilding.

D. The country-of-construction factor adjustment for imported vessels is selected on the basis of the “Concise Approach to Vessel Valuation”, the “Practical Manual for Modern Vessel Operation” and other information. No adjustments are made for domestically produced vessels.
E. The cost of capital refers to the time value of capital. It is calculated on the basis of the normal construction period and the loan interest rate determined by reference to the Loan Prime Rate (LPR) published by the National Interbank Funding Center. The investment in the project during construction is assumed to be a uniform input.
② Determination of newness rate

It is mainly determined by a combination of the newness rate under service life approach and the newness rate under observation approach, which is calculated by the formula:

Integrated newness rate = Newness rate under service life approach × 40% + Newness rate under observation approach × 60%

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A. Service life approach

Firstly, with reference to the designed service life of the vessel and equipment, and in conjunction with the economic life of the vessel and equipment, the total service life and the remaining service life of the vessel and equipment are determined, and then the vessel newness rate under service life approach is derived.

Newness rate = (Economic life – Used life)/Economic life × 100%

B. Observation approach, whereby the valuers score the vessel through an on-site survey or survey alternative procedure, in conjunction with the vessel’s maintenance, repair, modification, and operating records. The hull part of the vessel is scored mainly based on the hull inspection report, the presence of deformation due to collision, and hull corrosion. Engine and electrical equipment, and outfitting are scored mainly based on the wear and tear, the update, the operating hours and the physical condition of the equipment. The newness rate under observation approach is obtained by combining the scores for the hull, engine and electrical equipment, and outfitting.

If there is a big difference between the newness rate under observation approach and the newness rate under service life approach, choose one of the two that is relatively reasonable after analyzing the reasons, and judging by experience.

(2) Vehicles (applicable to Shenzhen Longpeng only)

The appraised vehicles were purchased and activated in 2017. Since there are no new vehicles of the same model for sale in the market, it is improper to adopt the cost approach for the valuation of such vehicles. As there is an active second-hand market for vehicles of the same model as discontinued vehicles, the valuation of discontinued vehicles is carried out using the market approach.

The market approach is a valuation approach that determines the value of a vehicle under appraisal by comparing the similarities and differences between the vehicle under appraisal and similar vehicles that have recently been sold, adjusted for the market price of similar vehicles.

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The specific formula for the market approach is as follows:

Appraised value = Transaction price correction × Licensed use time correction × Transaction time correction × Transaction condition correction × Quality and technical condition correction × Mileage correction × Annual inspection condition correction × Exterior condition correction × Interior condition correction

(3) Electronic equipment (applicable to Shenzhen Longpeng only)

The current valuation of the electronic equipment was carried out using the cost approach based on the assumption that the assets would continue to be utilized in accordance with their current purpose.

Basic formula of the cost approach: Appraised value = Full price for replacement × Newness rate

① Determination of full price for replacement

For electronic equipment for which the current market price is available, the full price for replacement is determined directly on the basis of the current market price selected in the analysis. If the current market price is unavailable, the market price of the alternative product with similar functions is selected and adjusted accordingly as its full price for replacement.

② Determination of newness rate

The newness rate of electronic equipment is mainly determined by the service life approach. The formula for its calculation is:

Newness rate under Economic life – Used life = ×100% service life approach Economic life

7. Construction in progress

Construction in progress mainly consisted of vessels under construction, with the commencement of construction closer to the Valuation Benchmark Date. The verified book value was used as the appraised value.

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8. Right-of-use assets

In accordance with the valuation procedures, the valuers checked with the general ledger and the detailed accounts, obtained the lease contracts and examined the main contents of the lease contracts regarding the size of the lease payments, the method of payment, the lease period and the disposal of relevant assets at the end of the lease. Meanwhile, the valuers verified the appropriateness of the measurement of the right-of-use assets and the lease liabilities, and understood the composition of the book value of the right-of-use assets. The valuers verified the accounting policy for amortization of right-of-use assets and ultimately recognized the appraised value at the verified book value.

9. Deferred income tax assets

Deferred income tax assets were accounted for as credit impairment losses on the appraised entity and the tax timing differences arising from the measurement of right-of-use assets and lease liabilities. The valuers checked and verified the calculation of these timing differences in accordance with the valuation procedures, and the appraised value was determined by recalculating the deferred income tax using the amount of the impairment loss as verified by the valuation.

10. Other non-current assets

Other non-current assets mainly consisted of prepayments for construction work. The valuers checked the relevant payments to see whether they were in line with the accounting book; randomly checked the relevant business contracts to verify the business authenticity, and took the book value after verification as the appraised value.

11. Liabilities

On the basis of verification, the amount of liabilities actually required to be assumed by the appraised entity as at the Valuation Benchmark Date was taken as the appraised value of the liabilities. Items of liabilities that are no longer to be borne by the appraised entity after the purpose of the valuation has been achieved are appraised at zero.

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The income approach

Specific approaches commonly used in the income approach to enterprise valuation include the discounted cash flow approach and the discounted dividend approach.

The model for discounted free cash flow of firm in the discounted cash flow approach was used for this valuation of Shenzhen Longpeng and Hainan Zhaogang. Specifically, using the Weighted Average Cost of Capital (WACC) as the discount rate, the projected Free Cash Flow of Firm (FCFF) for each future year was discounted and summed to obtain the value of operating assets, plus surplus assets and non-operating assets and minus the value of non-operating liabilities to obtain the value of the overall assets of the firm, and finally minus the value of interest-bearing debt to obtain the value of total shareholders’ equity. The basic formula is as follows:

Value of total shareholders’ equity = Value of operating assets + Value of non-operating assets – Value of non-operating liabilities + Value of surplus assets – Value of interestbearing debt

Main assumptions adopted in valuation

The main assumptions adopted in the valuation of Shenzhen Longpeng and Hainan Zhaogang are as follows:

Basic assumptions

(1) Transaction assumption. The transaction assumption is that all assets to be appraised are in the process of transaction, and the appraisers will make estimation in a simulated market according to the transaction conditions (among others) of assets to be appraised.
(2) Open market assumption. The open market assumption is that assets may be traded freely in a highly competitive market and the price of which is determined based on the judgment of both independent trading parties over the value of assets under certain supply and demand conditions. An open market refers to a market which is highly competitive with various buyers and sellers. In the open market, both parties of a transaction are equal, which means they are given the opportunity and time to acquire sufficient market information. Buyers and sellers are supposed to be acting voluntarily and rationally rather than being coerced or confined during the transaction.
(3) Going concern assumption. The going concern assumption refers to the assumption that the operating activities of an operating entity will continue and will not be suspended or terminated in the foreseeable future.

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(4) In-use and continue-to-use assumption. The in-use and continue-to-use assumption refers to the assumption that the assets to be appraised in use would continue to be used in accordance with its current purposes and manner after the change in property rights or the occurrence of asset business.

Specific assumptions

(1) There will be no significant changes in the relevant prevailing laws, regulations and policies as well as macro-economic situation of the country and place where the valuation target resides, significant changes in the political, economic or social environment in the regions in which the parties to the transaction are located, or material adverse effects arising from other unforeseeable factors and force majeure.
(2) It is assumed that the current and future operators and managers of the valuation target exercise due diligence, and the management of such entity are competent in discharging their duties to ensure that the valuation target is able to operate normally on a going concern basis, the development, production, and operation plans of which can be fulfilled as scheduled.
(3) It is assumed that the valuation target is in full compliance with all relevant national laws and regulations, without committing any significant violation that prejudices corporate development and realization of revenue.
(4) It is assumed that the accounting policies to be adopted by such enterprise in the future are basically consistent with those adopted during the preparation of this report in material aspects.
(5) It is assumed that the company’s core management and technical staff will remain stable in the future.
(6) It is assumed that, the company’s management approaches and standards, business scope and model will remain consistent with the scheduled orientation in the future.
(7) It is assumed that there will be no material changes in the requirements currently implemented or determined to be implemented regarding the relevant interest rates, exchange rates, taxation bases and tax rates, and government levies according to national regulations.
(8) It is assumed that the company will be able to have all of its existing industrial qualifications renewed in the future on a timely basis.
(9) It is assumed that the enterprise will have balanced cash inflows and cash outflows in the future.

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(10) It is assumed that no other force majeure and unforeseeable factors will have a material adverse effect on the enterprise.

The main assumptions adopted in the valuation of Xizhong Island Port are as follows:

Basic assumptions

(1) Transaction assumption. The transaction assumption is that all assets to be appraised are in the process of transaction, and the appraisers will make estimation in a simulated market according to the transaction conditions (among others) of assets to be appraised.
(2) Open market assumption. The open market assumption is that assets may be traded freely in a highly competitive market and the price of which is determined based on the judgment of both independent trading parties over the value of assets under certain supply and demand conditions. An open market refers to a market which is highly competitive with various buyers and sellers. In the open market, both parties of a transaction are equal, which means they are given the opportunity and time to acquire sufficient market information. Buyers and sellers are supposed to be acting voluntarily and rationally rather than being coerced or confined during the transaction.
(3) Going concern assumption. The going concern assumption refers to the assumption that the operating activities of an operating entity will continue and will not be suspended or terminated in the foreseeable future.

Specific assumptions

(1) There will be no significant changes in the relevant prevailing laws, regulations and policies as well as macro-economic situation of the country and place where the investee resides, significant changes in the political, economic or social environment in the regions in which the parties to the transaction are located, or material adverse effects arising from other unforeseeable factors and force majeure.
(2) It is assumed that the current and future operators and managers of the investee exercise due diligence, and the management of such entity are competent in discharging their duties to ensure that the investee is able to operate normally on a going concern basis, the development, production, and operation plans of which can be fulfilled as scheduled.
(3) It is assumed that the investee is in full compliance with all relevant national laws and regulations, without committing any significant violation that prejudices corporate development and realization of revenue.

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(4) It is assumed that the accounting policies to be adopted by the investee in the future are basically consistent with those adopted during the preparation of this report in material aspects.
(5) It is assumed that, the investee’s management approaches and standards, business scope and model will remain consistent with the scheduled orientation in the future.
(6) It is assumed that the investee will be able to have all of its existing industrial qualifications obtained and renewed on a timely basis.
(7) It is assumed that there will be no material changes in the requirements currently implemented or determined to be implemented regarding the relevant interest rates, exchange rates, taxation bases and tax rates, and government levies according to national regulations.
(8) It is assumed that no other force majeure and unforeseeable factors will have a material adverse effect on the enterprise.

Valuation results

1. Shenzhen Longpeng

(1) The valuation results of the appraised entity as at the Valuation Benchmark Date was arrived at based on the valuation of the entire shareholders’ equity interest in the enterprise conducted using the asset-based approach. As at the Valuation Benchmark Date, the book value of the shareholders’ equity interest in the appraised entity was RMB351.7569 million, with the appraised value of RMB396.1924 million, appreciation of RMB44.4355 million and appreciation rate of 12.63%, which was primarily attributable to the appreciation of fixed assets (mainly vessels) driven by rising prices of shipbuilding materials and optimistic market outlook.
(2) The valuation results as at the Valuation Benchmark Date was arrived at based on the valuation of the entire shareholders’ equity interest in the enterprise conducted using the income approach. As at the Valuation Benchmark Date, the book value of the shareholders’ equity interest in the appraised entity was RMB351.7569 million, with the appraised value of RMB394.3789 million and appreciation of RMB42.6220 million.

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2. Hainan Zhaogang

(1) The valuation results of the appraised entity as at the Valuation Benchmark Date was arrived at based on the valuation of the entire shareholders’ equity interest in the enterprise conducted using the asset-based approach. As at the Valuation Benchmark Date, the book value of the shareholders’ equity interest in the appraised entity was RMB120.4123 million, with the appraised value of RMB175.5967 million, appreciation of RMB55.1844 million and appreciation rate of 45.83%, which was primarily attributable to the appreciation of fixed assets – vessels driven by rising prices of shipbuilding materials, optimistic market outlook and economic life of vessels adopted in the valuation that was higher than their respective depreciation life.
(2) The valuation results as at the Valuation Benchmark Date was arrived at based on the valuation of the entire shareholders’ equity interest in the enterprise conducted using the income approach. As at the Valuation Benchmark Date, the book value of the shareholders’ equity interest in the appraised entity was RMB120.4123 million, with the appraised value of RMB161.1155 million and appreciation of RMB40.7032 million.

3. Analysis of the difference between the valuation results of Shenzhen Longpeng and Hainan Zhaogang and the final valuation conclusions

The valuation results based on the income approach are prone to the effects of the future profitability, quality of assets, operational abilities and operational risks of the enterprise, while the overall operation model may change in response to the market conditions, therefore there may be discrepancies between the projections and the actual operation in the future as far as the cash flow of the enterprise is concerned. However, the asset-based approach can reflect the fair market value of the assets from an asset replacement perspective. China Tong Cheng had conducted a comprehensive review and valuation on the assets and liabilities of the appraised entity in accordance with the actual situations of this valuation, and based on the detailed information on assets and liabilities provided by Shenzhen Longpeng and Hainan Zhaogang and any necessary information required for the asset-based approach and obtained externally by the valuers, relatively speaking, China Tong Cheng is of the view that the valuation results based on the asset-based approach can better reflect the value of the appraised object, thus the valuation results based on the asset-based approach are ultimately selected to determine the valuation conclusion.

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Based on the above analysis, the valuation results based on the asset-based approach have been selected as the valuation conclusion of the entire shareholders’ equity interests in Shenzhen Longpeng and Hainan Zhaogang. As a result of the valuation, the entire shareholders’ equity interests in Shenzhen Longpeng and Hainan Zhaogang was valued at RMB396.1924 million and RMB175.5967 million, respectively.

4. Xizhong Island Port

The appraised value of 15% equity interest in Xizhong Island Port was RMB0, representing depreciation of RMB11,250,000, or depreciation rate of 100.00%, as compared with the book value of COSCO SHIPPING Investment Dalian’s relevant long-term equity investment as at the Valuation Benchmark Date, being RMB11,250,000, which was primarily attributable to COSCO SHIPPING Investment Dalian’s not-yet-paid actual capital contribution to Xizhong Island Port.

Effectiveness

The Investment Dalian Equity Transfer Agreement shall be executed upon signature by the legal representatives or authorized representatives of the parties, sealed with their respective official seals, and shall take effect upon fulfilment of the following conditions in full:

(1) the transferee, the transferor and the subject company have all fulfilled the necessary internal and external approval and filing procedures in accordance with the relevant laws and regulations, regulatory rules and articles of association; and
(2) the transferor has notified other shareholders in writing of the Transaction and the other shareholders have issued written confirmations of their waiver of pre-emptive rights.

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Impairment testing arrangement

The impairment testing period is determined to be two consecutive accounting years from the delivery date (inclusive of the year of the delivery date). During the impairment testing period, the transferee will engage an accounting firm qualified in securities and futures business to conduct an impairment test on the value of the subject equity interests in accordance with the requirements of the accounting standards after the end of each accounting year and to issue a “Special Audit Report on Impairment Test”. Both parties to the transaction have agreed that, in the event of equity impairment or impairment arising from asset revaluation, the transferor will compensate the transferee in cash for the impaired portion in accordance with regulatory rules and specific requirements such as the “Guidelines for the Application of Regulatory Rules – Listing No. 1” and the “Administration of the Material Asset Restructuring of Listed Companies” issued by the China Securities Regulatory Commission.

(2) The Investment Dalian Assets Transfer Agreement

The principal terms of the Investment Dalian Assets Transfer Agreement are set out below:

Parties

(1) COSCO SHIPPING Investment Dalian (as the transferor); and
(2) Dalian Liquefied Gas (as the transferee).

Subject matter

Pursuant to the Investment Dalian Assets Transfer Agreement, COSCO SHIPPING Investment Dalian has agreed to dispose of, and Dalian Liquefied Gas has agreed to acquire, two liquefied petroleum gas carriers (the “Mudanyuan” vessel and the “Jinguiyuan” vessel), subject to the terms and conditions thereof.

The constructions of the “Mudanyuan” vessel and the “Jinguiyuan” vessel were completed and acquired the ownerships by China Merchants Jinling Dingheng Shipping (Yangzhou) Co., Ltd.* (招商局金陵鼎衡船舶(揚州) 有限公司) on 1 March 2023 and 14 June 2023 respectively, and are both owned by COSCO SHIPPING Investment Dalian. The “Mudanyuan” vessel and the “Jinguiyuan” vessel were actually put into operation in March 2023 and June 2023 respectively.

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Pursuant to the Vessel Mortgage Contract signed between COSCO SHIPPING Investment Dalian and the Export-Import Bank of China, the two liquefied petroleum gas carriers have been mortgaged to the Export-Import Bank of China. As at the date of this announcement, COSCO SHIPPING Investment Dalian has completed the decision-making procedure on the repayment of debts in relation to the abovementioned mortgages, and is fulfilling the payment procedure. It and the Export-Import Bank of China will go through the release procedures of the mortgages in respect of the “Mudanyuan” vessel and the “Jinguiyuan” vessel with the Maritime Safety Administration of Dalian City.

The “Mudanyuan” vessel has been time chartered by COSCO SHIPPING Investment Dalian to LINKER ENERGY (SINGAPORE) PTE. LTD. since April 2023. The “Jinguiyuan” vessel has been bareboat chartered by COSCO SHIPPING Investment Dalian to Shenzhen Longpeng since June 2023 for a term of 20 years; and Shenzhen Longpeng has time chartered the “Jinguiyuan” vessel to Zhejiang Haofeng Vessel Service Co., Ltd. (浙江浩豐船舶運輸有限公司) since July 2023. The two vessels will be delivered to Dalian Liquefied Gas accompanied by the aforesaid charters.

The title to the two vessels is clear. And, save as aforesaid, it is expected that the two vessels will be delivered free from any charter, encumbrance, mortgage and maritime lien or any other liabilities whatsoever, free of mortgage, pledge or any other transfer restrictions, not involved in litigation, arbitration, seizure, freezing or other judicial measures, and free of any matter impeding the transfer of title.

Consideration and payment terms

Pursuant to the Investment Dalian Assets Transfer Agreement, the consideration for the “Mudanyuan” vessel is RMB104,705,300, while the consideration for the “Jinguiyuan” vessel is RMB105,807,500, and the total consideration for the two vessels is RMB210,512,800 (exclusive of value-added tax), which shall be payable by Dalian Liquefied Gas to COSCO SHIPPING Investment Dalian in one lump sum by way of bank transfer within five working days after the date of the Investment Dalian Assets Transfer Agreement.

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The consideration was determined after arm’s length negotiations between COSCO SHIPPING Investment Dalian and Dalian Liquefied Gas with reference to the appraised value of the two vessels as at the Valuation Benchmark Date of RMB210,512,800 as assessed by China Tong Cheng. The aforementioned appraised value was determined based on the cost approach in accordance with the PRC laws and regulations. The net book values of the two vessels as at 30 June 2024 were RMB93,170,100 and RMB94,490,000 respectively. The original carrying amounts of the two vessels were RMB97,739,300 and RMB97,834,800 respectively.

The financial information of the two vessels for the year ended 31 December 2023 was as follows:

	For the
	year ended
	31 December
	2023Note
	(audited)
	(RMB)
Profit before taxation	5,954,935
Profit after taxation	5,954,935

Note: “Mudanyuan” vessel commenced operation from April 2023, and “Jinguiyuan” vessel commenced operation from July 2023

The consideration will be funded by Dalian Liquefied Gas’ internal financial resources.

Selection of valuation method

China Tong Cheng has adopted the cost approach and the income approach in the valuation of the “Mudanyuan” vessel and the cost approach in the valuation of the “Jinguiyuan” vessel. As the appraised vessels are small liquefied petroleum gas carriers, it is difficult to obtain sufficient comparable cases at the open market, therefore, it is improper to adopt the market approach; meanwhile, a bareboat charter agreement had been entered into in relation to the “Jinguiyuan” vessel for a term of 20 years, the value of the “Jinguiyuan” vessel can not be reasonably estimated through the income approach. Therefore, the cost approach and the income approach were adopted in the valuation of the “Mudanyuan” vessel and the cost approach was adopted in the valuation of the “Jinguiyuan” vessel.

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Introduction of valuation method

The cost approach

In accordance with the purpose of the valuation and the characteristics of the appraised assets, the valuation of the appraised vessels (being the “Mudanyuan” vessel and the “Jinguiyuan” vessel) was conducted using the cost approach on the assumption that the assets would continue to be utilized.

Basic formula of the cost approach: Appraised value = Full price for replacement × Newness rate

(1) Determination of the full price for replacement

Full price for replacement = Cost of shipbuilding + Profit + Tax and surcharge + Country-of-construction factor adjustment + Cost of capital

① Cost of shipbuilding
A. Costs of main and auxiliary materials: Main materials include steel (plates, profiles, tubes), wood, welding materials, paints, cables, non-ferrous metals, castings and forgings, decorative materials, insulating materials, building materials, etc. The quantity of materials is determined by reference to the empirical formulas in the “Concise Approach to Vessel Valuation” and the “Practical Manual for Modern Vessel Operation”, etc. The price of materials is determined on the basis of the prevailing market price. After the obtaining of the consumption and unit price of materials, the cost of each material can be calculated.
B. Equipment cost: The quantity and specifications of equipment are based on the list of hull, engine, and electrical equipment. For upgraded or new equipment, the actual models, specifications and quantities shall prevail. Unit prices are current market prices.
C. Costs of accessories and spare parts: Referring to the “Concise Approach to Vessel Valuation”, the “Practical Manual for Modern Vessel Operation” and other information, it is charged according to a certain percentage of the material cost and equipment cost.

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D. Labor cost for man-hours: The total number of man-hours is calculated with reference to the “Concise Approach to Vessel Valuation” and the “Practical Manual for Modern Vessel Operation”, etc., and in conjunction with the specific conditions of the appraised vessel. The unit price of man-hours is the average unit price of domestic shipyards, and the labor cost of the whole ship is the total number of man-hours of the whole ship multiplied by the unit price of man-hours.
E. Special costs: Mainly the design of paper costs, vessel inspection and classification costs, vessel berth costs, launching costs, sea trial and inspection costs, etc. The calculation is based on a certain percentage of the sum of material costs, equipment costs, costs of accessories and spare parts, and labor costs for man-hours.

The sum of the above material costs, equipment costs, costs of accessories and spare parts, labor costs for man-hours, and special costs is the cost of shipbuilding.

② Profit is calculated as a percentage of the cost of shipbuilding.
③ Taxes and surcharges are determined in accordance with the relevant tax rate standards stipulated by the State and in conjunction with statistical data on the proportion of sales tax of shipbuilding enterprises to the cost of shipbuilding.

The sum of the above cost of shipbuilding, profits and taxes and surcharges is the price of shipbuilding.

④ The country-of-construction factor adjustment for imported vessels is selected on the basis of the “Concise Approach to Vessel Valuation”, the “Practical Manual for Modern Vessel Operation” and other information. No adjustments are made for domestically produced vessels.
⑤ The cost of capital refers to the time value of capital. It is calculated on the basis of the normal construction period and the loan interest rate determined by reference to the Loan Prime Rate (LPR) published by the National Interbank Funding Center. The investment in the project during construction is assumed to be a uniform input.

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(2) Determination of newness rate

It is mainly determined by a combination of the newness rate under service life approach and the newness rate under observation approach, which is calculated by the formula:

Integrated newness rate = Newness rate under service life approach × 40% + Newness rate under observation approach × 60%

① Service life approach

Firstly, with reference to the designed service life of the vessel, and in conjunction with the economic life of the vessel, the total service life and the remaining service life of the vessel are determined, and then the vessel newness rate under service life approach is derived.

Newness rate = Remaining service life/Economic life × 100%

② Observation approach, whereby the valuers score the vessel through an on-site survey or survey alternative procedure, in conjunction with the maintenance, repair, modification, and operating records of the vessel and equipment. For vessels, the hull part of the vessel is scored mainly based on the hull inspection report, the presence of deformation due to collision, and hull corrosion. Engine equipment, electrical equipment, and outfitting equipment are scored mainly based on the wear and tear, the update, the operating hours and the physical condition of the equipment. The newness rate under observation approach is obtained by combining the scores for the hull, engine and electrical equipment, and outfitting.

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The income approach

The present value of future cash flows was calculated using the discounted cash flow approach in this valuation. The discounted cash flow approach is a valuation approach that capitalizes or discounts expected earnings to determine the value of the appraised object. The appraised vessels (being the “Mudanyuan” vessel) were appraised in accordance with the discounted cash flow approach, which took into account the operating costs and expenses of the vessels in the historical years, and adopted the mode of vessel time charter to forecast the future cash flows. The appraised vessels were ultimately discounted based on an appropriate discount rate. The specific formula for the discounted cash flow approach is as follows:

==> picture [95 x 33] intentionally omitted <==

Where: P – Appraised value of the vessel

R i – Expected future cash flows for the ith income period

i – Income year, i = 0.25, 1, 2......, economic life

r – Discount rate

(1) Determination of expected annual cash flow

Based on the characteristics of vessels, the expected cash flow adopted for this valuation is equal to all income attributable to the vessels for the current period minus the cash-based costs of the vessels.

Vessels’ income generally comprises operating income for the current year and cash proceeds from scrapping at the end of the period. The operating income for the current year is primarily determined by two factors: Time Charter Equivalent (TCE) rates and operating days. The TCE rates adopted for each vessel type are determined by the property owners based on their judgment of future fluctuations in the shipping market. The operating days are determined for the valuation based on the sailing plan and dry-docking and repair plan made by the property owner for each future year. The cash proceeds from scrapping at the end of the period are determined comprehensively by referring to the general scrapping prices of scrapped vessels and the vessel’s light weight.

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Vessel’s cash-based costs generally include two major components: voyage cost and operating cost. Voyage cost primarily consists of fuel cost, port charges and other voyage expenses. Operating cost generally includes taxes and surcharges, dry-docking fees, lubricants and materials cost, repair cost, insurance premium, depreciation expense, crew/owner expense, ship management fee and other fixed costs. In this valuation, only operating cost was considered when forecasting future costs of the vessels. This is because the estimated operating income forecast adopts a time charter model where the TCE rate inherently deducts voyage cost such as fuel cost, port charges, and other voyage expenses. Moreover, depreciation is a non-cash cost and is therefore excluded from the future forecast. The property owner forecasted operating cash-based costs by comprehensively analyzing historical amount actually incurred and considering future trends.

(2) Determination of discount rate

Discount rate is the rate used to discount the finite expected income in the future to the present value. It represents the yield under certain conditions and describes the level of yield derived from the asset. The net cash flow was selected as the source of income for this valuation. Therefore, the discount rate is determined by adding risk-free rate of return and risk rate of return. The risk-free rate of return represents the asset’s profitability under normal conditions, while the risk rate of return typically refers to industry and operational risks, etc.

(3) Determination of forecast life

Based on the characteristics of vessels, this valuation adopted a finite forecast life, beginning on 1 July 2024, and extending until the end of vessels’ economic life. The economic life of vessels was determined by referencing to the requirement in the Notice of the Ministry of Transport, the National Development and Reform Commission, and the Ministry of Finance on Revising and Issuing the Opinions on Implementing the Mandatory Scrapping Policy for Transport Vessels (Jiao Shui Fa [2016] No. 230) (《交通運輸部國家發展改革委財政部關於修訂發佈 < 關於實施運輸船舶強制報廢制度的意見 > 的通知》( 交水發 [2016]230 號 )) regarding the mandatory scrapping age limit, and considering the actual condition of vessels.

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Main assumptions adopted in valuation

The main assumptions adopted in the valuation of the two vessels are as follows:

Basic assumptions

(1) Transaction assumption. The transaction assumption is that all assets to be appraised are in the process of transaction, and the appraisers will make estimation in a simulated market according to the transaction conditions (among others) of assets to be appraised.
(2) Open market assumption. The open market assumption is that assets may be traded freely in a highly competitive market and the price of which is determined based on the judgment of both independent trading parties over the value of assets under certain supply and demand conditions. An open market refers to a market which is highly competitive with various buyers and sellers. In the open market, both parties of a transaction are equal, which means they are given the opportunity and time to acquire sufficient market information. Buyers and sellers are supposed to be acting voluntarily and rationally rather than being coerced or confined during the transaction.
(3) In-use and continue-to-use assumption. The in-use and continue-to-use assumption refers to the assumption that the assets to be appraised in use would continue to be used in accordance with its current purposes and manner after the change in property rights or the occurrence of asset business.

Specific assumptions

(1) It is assumed that there will be no significant changes in the relevant prevailing laws, regulations and policies as well as macro-economic situation of the country, or significant changes in the political, economic or social environment in the regions in which the parties to the transaction are located.
(2) Based on their current management approaches and standards, the scope and model of business of the vessels in operation will remain consistent with the current direction.
(3) It is assumed that there will be no material changes in the relevant interest rates, exchange rates, taxation bases and tax rates and government levies.

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(4) It is assumed that no other force majeure and unforeseeable factors will have a material adverse effect on the enterprise.
(5) In the valuation, it is assumed that the cash inflow and outflow from vessel operations after the Valuation Benchmark Date occur during the year.
(6) It is assumed that entities which operate the vessels will operate in a safe and lawful way, and have no production and environmental incidents that will cause material losses.
(7) The future forecast in the valuation is a reasonable estimate of the future based on current market conditions, which does not take into account material market changes and fluctuations in the future which are currently unpredictable such as political turmoil, financial crisis and virulent inflation.

Valuation results

The “Mudanyuan” vessel and the “Jinguiyuan” vessel

For the “Mudanyuan” vessel, the cost approach and the income approach were adopted in the valuation. As at the Valuation Benchmark Date, the book value of the “Mudanyuan” vessel was RMB93.1701 million, and the appraised value under the cost approach was RMB104.7053 million, representing appreciation of RMB11.5352 million; the appraised value under the income approach was RMB98.0297 million, representing appreciation of RMB4.8596 million.

For the “Jinguiyuan” vessel, the cost approach was adopted in the valuation. As at the Valuation Benchmark Date, the book value of the “Jinguiyuan” vessel was RMB94.4900 million, and the appraised value under the cost approach was RMB105.8075 million, representing appreciation of RMB11.3175 million.

For the “Mudanyuan” vessel, the valuation results based on the income approach are prone to the effects of the future profitability, quality of assets and operational risks of the appraised vessel, and its operation model may change in response to the market conditions, therefore there exists high uncertainty. However, the cost approach can reflect the fair market value of the assets from an asset replacement perspective, the property owner had provided detailed information on the appraised vessel required for the valuation and the valuers had obtained necessary information required for the assetbased approach externally. Therefore, relatively speaking, China Tong Cheng is of the view that the valuation results based on the cost approach can better reflect the value of the appraised object, thus the valuation results based on the cost approach are ultimately selected to determine the valuation conclusion and as the pricing basis.

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The cost approach was adopted in the valuation of these two vessels to arrive at the valuation results as at the Valuation Benchmark Date. As at the Valuation Benchmark Date, the book value of the appraised assets was RMB187.6601 million, and the appraised value was RMB210.5128 million, representing appreciation of RMB22.8527 million and appreciation rate of 12.18%.

Appreciation was mainly due to the higher prices of labour, materials and equipment at the Valuation Benchmark Date than those at the timing of building vessels, higher vessel prices as a result of the positive market trend, as well as the lower vessel depreciation lives than vessel useful lives.

Effectiveness

The Investment Dalian Assets Transfer Agreement shall be executed upon signature by the legal representatives or authorized representatives of both parties to the agreement, sealed with their respective official seals, and shall take effect upon the fulfillment of the necessary internal and external approval and filing procedures by both parties in accordance with relevant laws and regulations, regulatory rules and articles of association.

Impairment testing arrangement

The impairment testing period is determined to be two consecutive accounting years from the delivery date (inclusive of the year of the delivery date). During the impairment testing period, the transferee will engage an accounting firm qualified in securities and futures business to conduct an impairment test on the asset value of the two vessels in accordance with the requirements of the accounting standards after the end of each accounting year and to issue a “Special Audit Report on Impairment Test”. Both parties to the transaction have agreed that, in the event of equity impairment or impairment arising from asset revaluation, the transferor will compensate the transferee in cash for the impaired portion in accordance with regulatory rules and specific requirements such as the “Guidelines for the Application of Regulatory Rules – Listing No. 1” and the “Administration of the Material Asset Restructuring of Listed Companies” issued by the China Securities Regulatory Commission.

(3) The COSCO Shipping (Shanghai) Equity Transfer Agreement

The principal terms of the COSCO Shipping (Shanghai) Equity Transfer Agreement are set out below:

Parties

(1) COSCO Shipping (Shanghai) (as the transferor); and
(2) the Company (as the transferee).

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Subject matter

Pursuant to the COSCO Shipping (Shanghai) Equity Transfer Agreement, COSCO Shipping (Shanghai) has agreed to dispose of, and the Company has agreed to acquire: (i) 100% of the equity interests in COSCO SHIPPING Chemical Carrier; and (ii)100% of the equity interests in Shanghai COSCO SHIPPING (Hong Kong), subject to the terms and conditions thereof. The Company shall bear or be entitled to the profit or loss of the equity interests to be transferred pursuant to the COSCO Shipping (Shanghai) Equity Transfer Agreement during the Transition Period.

Consideration and payment terms

Pursuant to the COSCO Shipping (Shanghai) Equity Transfer Agreement:

(1) the consideration for 100% of the equity interests in COSCO SHIPPING Chemical Carrier is RMB507,420,500; and
(2) the consideration for 100% of the equity interests in Shanghai COSCO SHIPPING (Hong Kong) is RMB112,816,500.

The consideration under the COSCO Shipping (Shanghai) Equity Transfer Agreement shall be payable by the Company to COSCO Shipping (Shanghai) in cash. The payment methods are as follows:

(1) 90% of the consideration (representing RMB456,678,450 for transfer of COSCO SHIPPING Chemical Carrier’s equity; RMB101,534,850 for transfer of Shanghai COSCO SHIPPING (Hong Kong)’s equity) shall be payable by the Company to COSCO Shipping (Shanghai) by way of bank transfer within 5 working days from the effective date of the COSCO Shipping (Shanghai) Equity Transfer Agreement; and
(2) 10% of the consideration (representing RMB50,742,050 for transfer of COSCO SHIPPING Chemical Carrier’s equity; RMB11,281,650 for transfer of Shanghai COSCO SHIPPING (Hong Kong)’s equity) shall be deposited into the joint account of the seller and the buyer with a financial institution by the Company within 5 working days from the effective date of the COSCO Shipping (Shanghai) Equity Transfer Agreement. Within one year from the effective date of the COSCO Shipping (Shanghai) Equity Transfer Agreement, the principal amount of the consideration and interest thereon shall be transferred from the joint account to the account of COSCO Shipping (Shanghai) upon confirmation by both parties. If the interest received by COSCO Shipping (Shanghai) is less than the amount of the interest calculated at the interest rate of loan for the same period, the shortfall will be funded by the Company separately.

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The consideration was determined after arm’s length negotiations between COSCO Shipping (Shanghai) and the Company with reference to the appraised value of COSCO SHIPPING Chemical Carrier and Shanghai COSCO SHIPPING (Hong Kong) as at the Valuation Benchmark Date by China Enterprise Appraisals, an independent asset appraisal agency. According to the valuation reports issued by China Enterprise Appraisals, (i) the appraised value of the entire shareholders’ equity interest in COSCO SHIPPING Chemical Carrier was RMB507,420,500; (ii) the appraised value of the entire shareholders’ equity interest in Shanghai COSCO SHIPPING (Hong Kong) was RMB112,816,500. The aforementioned appraised values in respect of the equity interests in COSCO SHIPPING Chemical Carrier and Shanghai COSCO SHIPPING (Hong Kong) were determined based on the asset-based approach in accordance with the PRC laws and regulations.

The consideration will be funded by the Company, and approximately 60% of it will be financed by bank borrowings and approximately 40% will be funded by internal financial resources.

Selection of valuation method

China Enterprise Appraisals has used the asset-based approach and the income approach to value the entire shareholders’ equity interests in COSCO SHIPPING Chemical Carrier and Shanghai COSCO SHIPPING (Hong Kong) as at the Valuation Benchmark Date.

There are few equity transfer cases of domestic enterprises that are similar to COSCO SHIPPING Chemical Carrier and Shanghai COSCO SHIPPING (Hong Kong), and the open market data was very limited. In addition, the comparable listed companies are significantly different from the appraised entity in terms of business scope, business region, asset scale and financial status, so relevant indicators cannot be acquired or adjusted reasonably. Therefore, the market approach was not adopted for this valuation.

Introduction of valuation method

The asset-based approach

1. Current assets

(1) Monetary funds include bank deposits, which are verified by cross-checking bank statements and certifying bank deposit accounts. The appraised value of monetary funds is determined based on the verified book value. The appraised value of monetary funds in foreign currencies is determined by conversion into RMB using the median exchange rate of the respective foreign currencies against RMB published by the People’s Bank of China as at the Valuation Benchmark Date.

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(2) For notes receivable, the valuers verified the consistency between the breakdown account, general ledger, and balance in the statements and the valuation schedule, and verified the consistency between the nominal value, time of occurrence, transaction details and nominal interest rate of the notes and the accounting records in order to verify the authenticity and completeness of the notes. The results indicated that amounts in the ledgers, statements, and notes were consistent. The notes receivable were verified to be authentic, accurately valued, and with no unrecorded interest. The appraised value of the notes was determined at the verified book value.
(3) For accounts receivable and other receivables, valuers should, having verified the receivables, determine the appraised value of each receivable based on respective possibility of recovery. If there is every reason to believe that the amounts can be fully recovered, the appraised value is calculated according to all the receivables; for amounts which are very likely to be irrecoverable or it is difficult to determine the irrecoverable amount, evaluation is based on the historical data and information learned from the investigation, which includes a concrete analysis of the amount, debt time and reason, recovery of payments, and borrowers’ funds, credit and management status, and an aging analysis to estimate such irrecoverable amounts as the appraised value minus the loss from risk; if there is strong evidence that the amounts are irrecoverable, the value shall be determined as zero, and items related to “provision for bad debt” in the accounts shall be determined as zero.
(4) For prepayments, the valuers refer to the relevant Materials Procurement Contract or Supply Agreement in order to understand the services and goods received during the period from the Valuation Benchmark Date to the onsite verification. In the event that no bankruptcy, cancellation or inability to provide goods or services in a timely manner by the supplier as stipulated in the contract is found, the appraised value was determined at the verified book value.
(5) For outsourced raw materials, the appraised value of each asset was obtained by multiplying the volume upon counting and verification by the prevailing market purchase price, plus reasonable freight and miscellaneous charges, losses, acceptance, sorting and warehousing fees and other reasonable expenses. The appraised entity adopts actual cost method for accounting of its raw materials. Due to the rapid turnover of raw materials and minimal fluctuations in market prices, the verified book value was thus adopted as the appraised value.
(6) For the contract assets, valuers reviewed relevant contracts and supporting documentation, confirming the accuracy of the book values. As a result, the verified book value was adopted as the appraised value.

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(7) For other current assets, the valuers verified the consistency between the breakdown account, general ledger, and balance in the statements, and sampled some of the original documents and contracts and other relevant information to verify the authenticity of the transaction matters, the business content and the amount, etc. The verified book value was adopted as the appraised value.

2. Fixed assets of the equipment type

According to the detailed list of machinery and equipment provided by the entity, the amounts in the list are verified consistent with those in the accounts and statements, and the ownership is confirmed by reviewing and verifying the relevant contracts, legal ownership certificates and accounting evidences. On this basis, professional engineers and technicians are arranged to conduct necessary on-site investigation and verification on such major equipment.

Market approach and replacement cost approach were mainly used based on the purpose of this appraisal, the principle of continuous use, the characteristics of the appraised equipment, and data collected.

(1) Cost approach

Appraised value = Full price for replacement × Integrated newness rate

① Determination of full price for replacement

A. Transportation equipment

The current tax-inclusive purchase price of transportation vehicles was determined based on the recent vehicle market price information such as the sales information of the local vehicle market. On this basis, the full price for replacement was determined based on the provisions of the Vehicle Purchase Tax Law of the People’s Republic of China (《中華人民共和國車輛購置稅法》), including vehicle purchase tax, the license fee for new vehicle registration, and also the deduction of value-added tax on vehicle purchase as specified in the Circular (Cai Shui [2016] No.36). The formula is as follows:

Full price for replacement = Purchase price exclusive of tax + Vehicle purchase tax + Registration fee for new vehicle

B. Electronic equipment

The full price for replacement was determined based on local market information and recent online transaction prices.

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② Determination of integrated newness rate

According to the mandatory vehicle scrapping standard issued by the State, the newness rate of a vehicle based on the vehicle mileage or service life, whichever is lower, is determined, and then adjusted based on the on-site survey. The formulas are as follows:

Newness rate based on the service life = (Economic life – Used life)/ Economic life × 100%

Newness rate based on mileage = (Specified mileage – Mileage driven)/ Specified mileage × 100%

The integrated newness rate of small size equipment such as electronic equipment and office equipment can be determined mainly through its economic lifespan. The formula is as follows:

Integrated newness rate = (Economic life – used life)/Economic life × 100%

③ Determination of appraised value

Appraised value of equipment = Full price for equipment replacement × Integrated newness rate

(2) Market approach

Market approach, characterized by direct valuation perspectives and valuation channels, visualized valuation processes, valuation data directly from the market, and convincing valuation result, is the appraisal of the current fair market value of the appraised object by comparing with objects of reference in the market. Given the active trading of comparable vehicles in the used car market, making transaction data and market parameters readily accessible, the market approach has been adopted for this valuation.

Appraised value = (Sum of adjusted prices of comparable transactions)/ Number of comparable transactions

Adjusted price = Transaction price × Transaction date adjustment factor × Useful life adjustment factor × Transaction terms adjustment factor × Mileage adjustment factor × Vehicle condition adjustment factor

The valuation of the vehicle license plate is determined based on the price of license plate transactions in the used car market.

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3. Assets of the vessel type

The market approach was deemed most suitable for the valuation because numerous recent transactions involving chemical tankers of the same or similar type as the appraised vessel, and close in time to the Valuation Benchmark Date, were available in the market. While the appraised object, as a standalone entity, can generate profits, its profitability, production costs, and management expenses are difficult to determine with certainty, making it challenging to quantify its earnings capacity, and thus the income approach is not suitable. Although the acquisition cost and other expenses associated with the appraised object are relatively stable, the cost approach would only reflect historical cost replacement value and fail to capture the influence of the current overall shipping market on the vessel’s value, and thus the cost approach is also not suitable. In conclusion, the asset valuation professionals have decided to adopt the market approach for the valuation of the declared vessels.

The market approach operates on the following principle: determining asset value by utilizing recent transaction prices of same or similar assets in the market and applying direct or comparative analysis.

For vessel, the market approach involves obtaining quotes from the second-hand vessel market, selecting several recently transacted second-hand vessels of the same type as the appraised vessel with similar primary technical parameters and usage time as reference objects, a comparative analysis between the appraised vessel and each reference object based on the specific characteristics of the appraised vessel, determination of account usage time, transaction date, and transaction terms as adjustment factors, and finally, calculation of an arithmetic average for the prices of the appraised vessel derived from the multiple reference objects to determine the appraised value of the appraised vessel.

4. Right-of-use assets

Right-of-use assets, primarily under the new lease standard, reflect the impact of operating leases, finance leases, or otherwise on an entity’s interest in the leased asset over the lease term. In assessing the impact of operating leases, the verified book value was adopted as the appraised value, depending on the entity’s accounting method.

5. Construction in progress

The cost approach was adopted for the valuation based on the characteristics of the construction in progress, valuation type, and data availability.

For construction in progress where more than six months have elapsed between the commencement date and the Valuation Benchmark Date, the cost of capital incurred from the start of the construction up to the Valuation Benchmark Date was considered in the valuation.

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6. Other intangible assets

Other intangible assets within the scope of the valuation primarily consist of the company website, software systems, and patents of the appraised entity.

(1) For outsourced software with active market availability on the Valuation Benchmark Date and no upgraded versions, the appraised value was determined based on the market prices of software of the same type on the Valuation Benchmark Date. For outsourced software currently available on the market, but where upgraded versions have been released, the appraised value was determined by deducting the cost of software upgrades from the current market price. For software that is no longer actively traded but remains operational for its intended use, the appraised value was calculated using the original acquisition cost, and the depreciation rate determined by referencing market price trends for software of the same type. The formula is as follows:

Appraised value = Purchase price x (1 – depreciation rate)

(2) Technology-based intangible assets (patents)

The invention patents and utility model patents included in the scope of the valuation were applied for by the shipyard during vessel construction and include the name of the appraised entity. According to the entity, these intangible assets have essentially no value and will not generate excess returns. Furthermore, the associated registration costs were borne by the shipyard. Considering the actual usage status and economic benefits of these intangible assets as of the valuation date, the appraised value of the invention patents and utility model patents included in the valuation is considered to be zero.

7. Liabilities

The liabilities of the appraised entity comprise accounts payable, employee compensation payable, taxes payable, other payables, non-current liabilities due within one year, long-term loans, lease liabilities, and deferred revenue. The valuers first verified the consistency between the breakdown accounts and the general ledger, and examined individual items and conducted a sample check of supporting documentation, such as accounting vouchers. Based on the results of the voucher verification, the valuers confirmed the accuracy of the carrying amount of the liabilities, and the verified book value was adopted as the appraised value.

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The income approach

1. Selection of specific methods and models under the income approach

(1) Model under income approach

The method of discounted free cash flow of firm was used as the valuation model under income approach.

The valuers utilized the discounted cash flow approach within the income approach, to appraise the total enterprise value. This valuation will then serve as the basis for indirectly determining the total value of shareholder equity.

Enterprise value comprises the value of operating assets generated through the enterprise’s normal business operations, and the value of non-operating assets not directly related to the enterprise’s normal business operations.

Total enterprise value = Value of operating assets + Value of surplus assets + Value of non-operating assets and liabilities + Value of the long-term equity investment separately appraised

Total value of shareholder equity = Total enterprise value – Interest-bearing debts

Interest-bearing debts refers to any debt on the balance sheet as of the Valuation Benchmark Date that carries an explicit interest expense, including short-term borrowings, interest-bearing notes payable, long-term loan due within one year, long-term loans, and other payables with borrowing characteristics.

Operating assets are those assets and liabilities directly relating to the production and business operations of the appraised entity, and involved in the forecast of the enterprise free cash flow after the Valuation Benchmark Date. The formula for the value of operating assets is as follows:

==> picture [171 x 39] intentionally omitted <==

Where: P – Value of operating assets of the enterprise on the Valuation Benchmark Date
F i – Expected enterprise free cash flow for the ith year in the future
F n+ 1 – Expected free cash flow for the perpetual period
r – Discount rate
i – The calculation year in the income period
n – Forecast period

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Among which, the formula for enterprise free cash flow is as follows:

Enterprise free cash flow = Earnings before interest and taxes (EBIT) × (1 – Income tax rate) + Depreciation and amortization – Capital expenditures – Increase in working capital + Other

(2) Determination of forecast period

As the recent earnings of the enterprise exhibit a higher degree of predictability compared to more distant future earnings, the valuation used the discrete period method for forecasting cash flows. This method divides the enterprise’s future cash flows into: cash flows during the defined forecast period and cash flows after the defined forecast period. The forecast period extended until a period where the enterprise’s production and operations stabilize.

(3) Determination of income period

As the appraised entity was operating normally on the Valuation Benchmark Date, there was no limitation on the useful life of the core assets affecting its continuation, no limitation on the duration of its production and operation, and no limitation on the term of ownership of investors, or the aforesaid limitations could be released, and they could be utilized perpetually by way of continuation. Therefore, in the valuation, it is assumed that the appraised entity continues perpetually after the Valuation Benchmark Date, and the corresponding income period is indefinite.

(4) Determination of net cash flow

The enterprise free cash flow was used as the valuation model under income approach. The formula for free cash flow is as follows:

(Each year within forecast period) free cash flow = Earnings before interest and taxes (EBIT) × (1 – Income tax rate) + Depreciation and amortization – Capital expenditures – Addition to working capital + Other

= Operating income – Operating cost – Taxes and surcharges – Period expenses (administrative expenses, selling expenses) + Net non-operating income – Income tax + Depreciation and amortization – Capital expenditures – Addition to working capital + Other

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(5) Determination of final value

Given that the income period is perpetual, the formula for final value is as follows:

Final value = Annual expected free cash flow during the perpetuity period/ Discount rate

The annual expected free cash flow during the perpetuity period is determined by adjusting the cash flows for the final year of the forecast period. Specific adjustments primarily encompass depreciation and capital expenditures. The guiding principle for adjusting capital expenditures is to determine the necessary expenditure level that will sustain operations in perpetuity, assuming no further expansion beyond the scale projected for the end of the forecast period in the perpetuity year.

(6) Determination of discount rate

In line with the principle of consistency between income and discount rate, the net cash flow was selected as the source of income for this valuation. Therefore, the discount rate is determined using the WACC.

Formula:

==> picture [238 x 26] intentionally omitted <==

Where, E – Market value of the equity

D – Market value of the debts

K e – Equity capital cost

K d – Cost of debt capital
T – Income tax rate of the appraised entity

– 41 –

The cost of equity capital was determined using the internationally recognized Capital Asset Pricing Model (CAPM).

Ke = rf + MRP xβ+ r c

Where, r f – Risk-free interest rate

MRP – Market risk premium

β – Systematic risk coefficient of equity

rc – Enterprise-specific risk adjustment coefficient

(7) Determination of value of surplus assets

Surplus assets refer to the assets which are beyond those required for the production and operation of the appraised entity on the Valuation Benchmark Date and not involved in the forecast of the enterprise free cash flow after the Valuation Benchmark Date. Surplus assets of the appraised entity include monetary funds. Cost approach was used for the valuation.

(8) Value of the non-operating assets and liabilities

Non-operating assets and liabilities are those assets and liabilities irrelevant to the production and business operations of the appraised entity and not involved in the forecast of the enterprise free cash flow after the Valuation Benchmark Date, including non-controlling long-term equity investment. Non-operating assets and liabilities of the appraised entity include other receivables and other payables. Cost approach was used for the valuation.

(9) Long-term equity investments separately appraised

Long-term equity investments separately appraised refer to equity investments made by the enterprise as of the Valuation Benchmark Date that are not included in the scope of forecast under the income approach.

2. Value of interest-bearing debts

Interest-bearing debts refer to debts on which the valued entity is required to pay interest on the Valuation Benchmark Date. Interest-bearing debts of the appraised entity include short-term borrowings, interest-bearing other payables, long-term loans, and interest payable. The verified book value was adopted as the appraised value of interest-bearing debts.

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Main assumptions adopted in valuation

The main assumptions adopted in the valuation of COSCO SHIPPING Chemical Carrier and Shanghai COSCO SHIPPING (Hong Kong) are as follows:

General assumptions

(1) It is assumed that all appraised subjects are in the process of transaction, and the appraisal professionals will make estimation in a simulated market according to the transaction conditions (among others) of appraised assets;
(2) It is assumed that for the assets traded or intended to be traded in the market, the parties to the asset transaction are on an equal footing with each other, each has the opportunity and time to obtain sufficient market information, and that the transaction is voluntary and rational, and that they are able to make rational judgments about the function and use of the asset and its transaction price;
(3) It is assumed that the appraised assets will continue to be used in accordance with their current purpose and usage;
(4) It is assumed that there will be no significant changes in the relevant prevailing laws, regulations and policies as well as macro-economic situation of the country, or significant changes in the political, economic or social environment in the regions in which the parties to the transaction are located;
(5) In view of the actual status of the assets as at the Valuation Benchmark Date, it is assumed that the business will continue in operation;
(6) It is assumed that there will be no material changes in the interest rates, exchange rates, taxation bases and tax rates and government levies relating to the appraised entity and subsidiaries after the Valuation Benchmark Date except for those matters known;
(7) It is assumed that the management of the appraised entity after the Valuation Benchmark Date is responsible, stable and capable of performing their duties;
(8) Unless otherwise stated, it is assumed that the companies fully comply with all relevant laws and regulations;
(9) It is assumed that there will be no force majeure and unforeseeable factors having a material adverse impact on the appraised entity after the Valuation Benchmark Date.

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Special assumptions

(1) It is assumed that the accounting policies adopted by the appraised entity after the Valuation Benchmark Date and the accounting policies adopted in preparing the asset valuation report are consistent in material respects;
(2) It is assumed that based on its current management approaches and standards, the scope and model of business of the appraised entity will remain consistent with the current direction after the Valuation Benchmark Date;
(3) It is assumed that the cash inflow and cash outflow of the appraised entity after the Valuation Benchmark Date are average;
(4) It is assumed that the rented space of the appraised entity can be renewed or renewed at equal market conditions after expiry on the Valuation Benchmark Date.

Valuation results

1. COSCO SHIPPING Chemical Carrier

(1) The valuation results of the appraised entity as at the Valuation Benchmark Date was arrived at based on the valuation of the entire shareholders’ equity interest in the enterprise conducted using the asset-based approach. As at the Valuation Benchmark Date, the book value of the shareholders’ equity interest in the appraised entity was RMB421.1646 million, with the appraised value of RMB507.4205 million, appreciation of RMB86.2559 million and appreciation rate of 20.48%, mainly due to the positive market trend of fixed assets (mainly vessels), as well as the lower vessel depreciation lives than vessel useful lives adopted in the valuation).
(2) The valuation results as at the Valuation Benchmark Date was arrived at based on the valuation of the entire shareholders’ equity interest in the enterprise conducted using the income approach. As at the Valuation Benchmark Date, the book value of the shareholders’ equity interest in the appraised entity was RMB421.1646 million, with the appraised value of RMB495.7000 million and appreciation of RMB74.5354 million.

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2. Shanghai COSCO SHIPPING (Hong Kong)

(1) The valuation results of the appraised entity as at the Valuation Benchmark Date was arrived at based on the valuation of the entire shareholders’ equity interest in the enterprise conducted using the asset-based approach. As at the Valuation Benchmark Date, the book value of the shareholders’ equity interest in the appraised entity was RMB60.7905 million, with the appraised value of RMB112.8165 million, appreciation of RMB52.0260 million and appreciation rate of 85.58%, mainly due to the positive market trend of fixed assets (mainly vessels), and the lower vessel depreciation lives than vessel useful lives adopted in the valuation, as well as a relatively higher appreciation of net assets after liabilities of Shanghai COSCO SHIPPING (Hong Kong) resulting from a higher gearing ratio and a smaller net asset base.
(2) The valuation results as at the Valuation Benchmark Date was arrived at based on the valuation of the entire shareholders’ equity interest in the enterprise conducted using the income approach. As at the Valuation Benchmark Date, the book value of the shareholders’ equity interest in the appraised entity was RMB60.7905 million, with the appraised value of RMB105.7700 million and appreciation of RMB44.9795 million.

3. Analysis of the difference between the valuation results and the final valuation conclusions

The valuation results based on the income approach are prone to the effect of the future profitability, quality of assets, operational abilities and operational risks of the enterprise, while the overall operation model may change in response to the market conditions, therefore there may be discrepancies between the projections and the actual operation in the future as far as the cash flow of the enterprise is concerned. However, the asset-based approach can reflect the fair market value of the assets from an asset replacement perspective. China Enterprise Appraisals had conducted a comprehensive review and valuation on the assets and liabilities of the appraised entity in accordance with the actual situations of this valuation, and based on the detailed information on assets and liabilities provided by COSCO SHIPPING Chemical Carrier and Shanghai COSCO SHIPPING (Hong Kong) and any necessary information required for the asset-based approach and obtained externally by the valuers, relatively speaking, China Enterprise Appraisals is of the view that the valuation results based on the asset-based approach can better reflect the value of the appraised object, thus the valuation results based on the asset-based approach are ultimately selected to determine the valuation conclusion.

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Effectiveness

The COSCO Shipping (Shanghai) Equity Transfer Agreement shall be executed upon signature by the legal representatives or authorized representatives of the parties, sealed with their respective official seals, and shall take effect upon fulfilment of the following conditions in full:

(1) the transferee, the transferor and the subject company have all fulfilled the necessary internal and external approval and filing procedures in accordance with the relevant laws and regulations, regulatory rules and articles of association;
(2) Other necessary conditions.

For the acquisition of Shanghai COSCO SHIPPING (Hong Kong) under the COSCO Shipping (Shanghai) Equity Transfer Agreement, the Company shall issue a written undertaking to COSCO Shipping (Shanghai) that it agrees to pledge the equity interest of Shanghai COSCO SHIPPING (Hong Kong) to the Export-Import Bank of China and provide credit guarantee for the cross-border US dollar financing to be entered into by Shanghai COSCO SHIPPING (Hong Kong) and the Export-Import Bank of China upon the completion of the equity transaction.

Impairment testing arrangement

The impairment testing period is determined to be two consecutive accounting years from the delivery date (inclusive of the year of the delivery date). During the impairment testing period, the transferee will engage an accounting firm qualified in securities and futures business to conduct an impairment test on the value of the subject equity shares in accordance with the requirements of the accounting standards after the end of each accounting year and to issue a “Special Audit Report on Impairment Test”. Both parties to the transaction have agreed that, in the event of equity impairment or impairment arising from asset revaluation, the transferor will compensate the transferee in cash for the impaired portion in accordance with regulatory rules and specific requirements such as the “Guidelines for the Application of Regulatory Rules – Listing No. 1” and the “Administration of the Material Asset Restructuring of Listed Companies” issued by the China Securities Regulatory Commission.

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III. THE PROPOSED ENTRUSTED MANAGEMENT AGREEMENTS

(1) The COSCO SHIPPING Entrusted Management Agreement

The principal terms of the COSCO SHIPPING Entrusted Management Agreement are set out below:

Parties

(1) The Company (as entrusted party); and
(2) COSCO SHIPPING (as entrusting party).

Term of Agreement

The COSCO SHIPPING Entrusted Management Agreement is for a term of three years commencing from the date of the signing of the COSCO SHIPPING Entrusted Management Agreement.

Entrustment Content and Arrangement

During the term of the COSCO SHIPPING Entrusted Management Agreement, the entrusted party agrees to delegate to the entrusted party the exercise of all the shareholders’ rights enjoyed by the entrusted party in accordance with the applicable laws and regulations and the provisions of the articles of association of COSCO SHIPPING Investment Dalian (the “Entrusted Enterprise”), and that the Company will carry out the operation and management of Entrusted Enterprise in COSCO SHIPPING Investment Dalian held by Entrusted Enterprise (including, among others, management of financial supervision, party building, management of cadres and personnel, assessment of operational performance and maintenance of the qualification licenses (including but not limited to) processing, renewal upon expiry, etc.), including but not limited to:

(1) to issue shareholders’ decision in the name of corresponding shareholders on behalf of the entrusting party;
(2) to elect or replace members of the board of directors or the supervisory committee of the Entrusted Enterprise in the name of the shareholders and to decide on matters relating to the remuneration of the directors or supervisors of the Entrusted Enterprise on behalf of the entrusting party;

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(3) to consider and approve the reports of the board of directors or the supervisory committee of the Entrusted Enterprise;
(4) to consider and approve the profit distribution plan of the Entrusted Enterprise;
(5) to resolve on the external guarantees or borrowings of the Entrusted Enterprise;
(6) to supervise the operation and management of the Entrusted Enterprise, and to keep the main responsibility for operation and management and operational risks, including compliance risks, of the Entrusted Enterprise unchanged;
(7) Unless otherwise contracted in the COSCO SHIPPING Entrusted Management Agreement, other rights conferred on the shareholders in accordance with relevant laws and regulations and the articles of association of the Entrusted Enterprise.

During the term of the COSCO SHIPPING Entrusted Management Agreement, the liabilities and debts of the Entrusted Enterprise before and after the entrustment shall be borne entirely by the Entrusted Enterprise, and the Entrusted Enterprise shall continue to manage its subsidiaries in the capacity and name of the shareholder. During the period of entrustment, the Entrusted Enterprise shall remain an independent legal entity and shall enjoy the ownership of the property of the legal entity; any increased net assets of the Entrusted Enterprise as a result of realization of profits or any decreased net assets as a result of operating losses shall continue to be enjoyed and borne by the Entrusted Enterprise. During the period of entrustment, without the consent of the entrusting party, the entrusted party shall not assign the Entrusted Enterprise to a third party for operation and management by way of leasing or sub-trusteeship.

The COSCO SHIPPING Entrusted Management Agreement does not change the property rights of the Entrusted Enterprise, and the financial statements of the Entrusted Enterprise shall still be consolidated by the entrusting party during the entrustment period. The profit of the Entrusted Enterprise during the entrustment period is included in the scope of the consolidated financial statements of the entrusting party, and the entrusting party is entitled to dividends from the Entrusted Enterprise.

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Upon completion of the Proposed Acquisition, the Company will engage in the business of transportation of liquefied petroleum gas. In order to avoid horizontal competition with COSCO SHIPPING LPG Transportation (Shanghai) Co., Ltd., a company wholly owned by COSCO SHIPPING Investment Dalian, the Company will hold COSCO SHIPPING Investment Dalian under trusteeship pursuant to the COSCO SHIPPING Entrusted Management Agreement. And it is proposed that before expiration of the term of the agreement (i.e. not more than three years from the effective date of the COSCO SHIPPING Entrusted Management Agreement), the Company will acquire 100% of the equity interests in COSCO SHIPPING LPG Transportation (Shanghai) Co., Ltd., thereby realizing the injection of all the equity interests and assets of the chemicals and liquefied petroleum gas shipping business within the COSCO SHIPPING Group into the Company.

Information on the Entrusted Assets

COSCO SHIPPING Investment Dalian is a company incorporated under the laws of the PRC with limited liability and is a wholly-owned subsidiary of COSCO SHIPPING. It is principally engaged in investment holding.

Entrusted Management Fee

Pursuant to the COSCO SHIPPING Entrusted Management Agreement, COSCO SHIPPING shall pay to the Company the entrusted management fee, which amounted to RMB8,000,000 (exclusive of value-added tax) per annum. The entrusted management fee was determined after arm’s length negotiation between both parties with reference to the necessary cost borne by the entrusted party incurred in assuming entrusted management responsibilities.

(2) The COSCO Shipping (Shanghai) Entrusted Management Agreement

The principal terms of the COSCO Shipping (Shanghai) Entrusted Management Agreement are set out below|:

Parties

(1) The Company (as entrusted party); and
(2) COSCO Shipping (Shanghai) (as entrusting party).

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Term of Agreement

The COSCO Shipping (Shanghai) Entrusted Management Agreement is for a term of three years commencing from the date of the signing of the COSCO Shipping (Shanghai) Entrusted Management Agreement.

Entrustment Content and Arrangement

During the term of the COSCO Shipping (Shanghai) Entrusted Management Agreement, the entrusted party agrees to delegate to the entrusted party the exercise of all the shareholders’ rights enjoyed by the entrusted party in accordance with the applicable laws and regulations and the provisions of the articles of association of Yisheng Storage, Marine Transportation and Storage and Fujian Terminal (collectively, the “Entrusted Enterprises”), and that the Company will carry out the operation and management of Yisheng Storage, Marine Transportation and Storage and Fujian Terminal held by COSCO Shipping (Shanghai) (including, among others, management of financial supervision, party building, organization of personnel, assessment of operational performance and maintenance of the qualification licenses (including but not limited to) processing, renewal upon expiry, etc.), including but not limited to:

(1) to issue shareholders’ decision in the name of corresponding shareholders on behalf of the entrusting party;
(2) to elect or replace members of the board of directors or the supervisory committee of the Entrusted Enterprise in the name of the shareholders and to decide on matters relating to the remuneration of the directors or supervisors of the Entrusted Enterprise on behalf of the entrusting party;
(3) to consider and approve the reports of the board of directors or the supervisory committee of the Entrusted Enterprise;
(4) to consider and approve the profit distribution plan of the Entrusted Enterprise;
(5) to resolve on the external guarantees or borrowings of the Entrusted Enterprise;
(6) to supervise the operation and management of the Entrusted Enterprise, and to keep the main responsibility for operation and management and operational risks, including compliance risks, of the Entrusted Enterprise unchanged;

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(7) unless otherwise contracted in the COSCO Shipping (Shanghai) Entrusted Management Agreement, other rights conferred on the shareholders in accordance with relevant laws and regulations and the articles of association of the Entrusted Enterprise.

During the term of the COSCO Shipping (Shanghai) Entrusted Management Agreement, the liabilities and debts of the Entrusted Enterprise before and after the entrustment shall be borne entirely by the Entrusted Enterprise. During the period of entrustment, the Entrusted Enterprise shall remain an independent legal entity and shall enjoy the ownership of the property of the legal entity; any increased net assets of the Entrusted Enterprise as a result of realization of profits or any decreased net assets as a result of operating losses shall continue to be enjoyed and borne by the Entrusted Enterprise. During the period of entrustment, without the consent of the entrusting party, the entrusted party shall not assign the Entrusted Enterprise to a third party for operation and management by way of leasing or sub-trusteeship.

The COSCO Shipping (Shanghai) Entrusted Management Agreement does not change the property rights of the Entrusted Enterprise, and the financial statements of the Entrusted Enterprise shall still be consolidated by the entrusting party during the entrustment period and will not result in a change in the scope of the consolidated financial statements of the Company. The profit of the Entrusted Enterprise during the entrustment period is included in the scope of the consolidated financial statements of the entrusting party, and the entrusting party is entitled to dividends from the Entrusted Enterprise.

Information on the Entrusted Assets

Yisheng Storage is a company incorporated under the laws of the PRC with limited liability and is a wholly-owned subsidiary of COSCO Shipping (Shanghai). It is principally engaged in warehousing and storage business.

Marine Transportation and Storage is a company incorporated under the laws of the PRC with limited liability and is a wholly-owned subsidiary of COSCO Shipping (Shanghai). It is principally engaged in warehousing and storage business.

Fujian Terminal is a company incorporated under the laws of the PRC with limited liability and is a wholly-owned subsidiary of COSCO Shipping (Shanghai). It is principally engaged in port operations and transportation business.

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Entrusted Management Fee

Pursuant to the COSCO Shipping (Shanghai) Entrusted Management Agreement, COSCO Shipping (Shanghai) shall pay to the Company the entrusted management fee, which amounted to RMB2,600,000 (exclusive of value-added tax) per annum. The entrusted management fee was determined after arm’s length negotiation between both parties with reference to the necessary cost borne by the entrusted party incurred in assuming entrusted management responsibilities.

(3) Proposed Annual Caps

	For the	For the	For the	For the
	year ending	year ending	year ending	year ending
	31 December	31 December	31 December	31 December
	2024	2025	2026	2027
	(RMB)	(RMB)	(RMB)	(RMB)
Provision of entrusted
management service by
the Group to COSCO
SHIPPING and COSCO
Shipping (Shanghai)	1,335,890	10,600,000	10,600,000	10,260,000

According to the Proposed Entrusted Management Agreements, there is no historical transaction amount for providing entrusted management services.

The proposed annual caps are determined based on the annual entrusted management fee and entrusted term under the Proposed Entrusted Management Agreement. In determining the proposed annual caps of the continuing connected transactions for the above periods, the Board has taken into account the mark-up on the management cost (primarily labor cost) that is necessary to be incurred for the continuing connected transactions in relation to the provision of management services for entrusted assets, and has determined it through negotiation between the entrusting party and the Company. The proposed annual cap for the year ending 31 December 2024 is lower than that for the three years ending 31 December 2027 as the Proposed Entrusted Management Agreement is expected to be effective in November 2024.

(4) Internal Control Measures

The Company has established a designated team to regularly review the actual transaction amounts between the Group and COSCO SHIPPING Group and/or its associates, to ensure that the actual transaction amounts between the Group and its connected persons would not exceed the respective proposed annual caps.

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IV. INFORMATION ON THE PARTIES AND THE TARGETS OF THE PROPOSED ACQUISITION AND THE PROPOSED ENTRUSTED MANAGEMENT AGREEMENTS

Information on the Group

The Company is a joint stock limited company incorporated in the PRC with limited liability, the H Shares of which are listed on the Main Board of the Hong Kong Stock Exchange and the A Shares of which are listed on the Shanghai Stock Exchange. The Group is principally engaged in investment holding, oil shipment along the coast of the PRC and internationally, international liquefied natural gas shipment, international chemical transportation and vessel chartering.

Dalian Liquefied Gas is a company incorporated under the laws of the PRC with limited liability and is a wholly-owned subsidiary of the Company. It is principally engaged in liquefied gas carrier shipment along the domestic coast, international maritime dangerous goods transportation, domestic ship management business, international ship management business, and logistics warehousing and storage business.

Information on COSCO SHIPPING

COSCO SHIPPING is a state-owned enterprise and is a controlling shareholder of the Company, controlled by the State owned Assets Supervision and Administration Commission of the State Council. COSCO SHIPPING is principally engaged in international shipping, ancillary business in international maritime transportation, import and export of goods and technologies, international freight agency business, leasing of self-owned vessels, sales of vessels, containers and steel and maritime engineering.

Information on COSCO SHIPPING Investment Dalian

Information on COSCO Shipping (Shanghai)

COSCO Shipping (Shanghai) is a company incorporated under the laws of the PRC with limited liability. It is principally engaged in coastal, ocean, Yangtze River passenger and cargo transportation, vessel chartering, and vessel cargo agency. COSCO Shipping (Shanghai) is a wholly-owned subsidiary of China Shipping Group Company Limited* (中國海運集團有限公司), which in turn a wholly-owned subsidiary of COSCO SHIPPING.

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Information on Shenzhen Longpeng

Shenzhen Longpeng is a company incorporated under the laws of the PRC with limited liability. It is principally engaged in the liquefied petroleum gas shipment along the domestic coast and the middle to lower reaches of the Yangtze River.

As at the date of this announcement, Shenzhen Longpeng is held by COSCO SHIPPING Investment Dalian, Xingtong Shipping Co., Ltd.(興通海運股份有限公司), Ningbo Lingfeng Chemical Logistics Co., Ltd.(寧波淩豐化工物流股份有限公司) and Fujian Dadong Petrochemical Co., Ltd. as to 70%, 15%, 10% and 5%, respectively. Upon completion of equity transfer under the Investment Dalian Equity Transfer Agreement, the Company will hold 70% equity interest in Shenzhen Longpeng and therefore Shenzhen Longpeng will become a subsidiary of the Company.

The equity interests of Shenzhen Longpeng have clearly defined titles, without mortgages, pledges or any other restrictions on transfer, are not involved with litigation, arbitration or judicial measures including seizure and freezing orders, and do not have any impediment to transfer of titles. As at the date of this announcement, Shenzhen Longpeng has not been included in the list of judgement defaulters.

Based on the financial statements of Shenzhen Longpeng prepared in accordance with the China Accounting Standards for Business Enterprises, the financial information of Shenzhen Longpeng for the two years ended 31 December 2023 was as follows:

	For the year ended 31 December	For the year ended 31 December
	2022	2023
	(audited)	(audited)
	(RMB)	(RMB)
Profit before taxation	24,288,942	31,796,868
Profit after taxation	18,202,807	23,997,781

According to the financial statements of Shenzhen Longpeng for the six months ended 30 June 2024, the audited total assets of Shenzhen Longpeng as at 30 June 2024 was RMB478,035,700.

According to the valuation report of China Tong Cheng dated 13 October 2024, the appraised value of the shareholders’ equity of Shenzhen Longpeng as at the Valuation Benchmark Date, being 30 June 2024, was approximately RMB396,192,400, which was determined based on the asset-based approach in accordance with the relevant PRC laws and regulations.

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Information on Hainan Zhaogang

Hainan Zhaogang is a company incorporated under the laws of the PRC with limited liability, principally engaged in liquefied gas carrier shipment along the domestic coast.

As at the date of this announcement, Hainan Zhaogang is held by COSCO SHIPPING Investment Dalian and SHANGHAI LINKER GROUP Co., Ltd. as to 87% and 13%, respectively. Upon completion of equity transfer under the Investment Dalian Equity Transfer Agreement, the Company will hold 87% equity interest in Hainan Zhaogang and therefore Hainan Zhaogang will become a subsidiary of the Company.

The equity interests of Hainan Zhaogang have clearly defined titles, without mortgages, pledges or any other restrictions on transfer, are not involved with litigations, arbitrations or judicial measures including seizure and freezing orders, and do not have any impediment to transfer of titles. As at the date of this announcement, Hainan Zhaogang has not been included in the list of judgement defaulters.

Based on the financial statements of Hainan Zhaogang prepared in accordance with the China Accounting Standards for Business Enterprises, the financial information of Hainan Zhaogang for the two years ended 31 December 2023 was as follows:

	For the year ended 31 December	For the year ended 31 December
	2022	2023
	(audited)	(audited)
	(RMB)	(RMB)
Profit before taxation	14,845,767	17,123,781
Profit after taxation	11,134,325	12,833,072

According to the valuation report of China Tong Cheng dated 13 October 2024, the appraised value of the shareholders’ equity of Hainan Zhaogang as at the Valuation Benchmark Date, being 30 June 2024, was approximately RMB175,596,700, which was determined based on the asset-based approach in accordance with the relevant PRC laws and regulations.

According to the financial statements of Hainan Zhaogang for the six months ended 30 June 2024, the audited total assets of Hainan Zhaogang as at 30 June 2024 was RMB127,383,900.

Information on Xizhong Island Port

Xizhong Island Port is a company incorporated under the laws of the PRC with limited liability, principally engaged in loading and unloading services for liquid bulk cargo and port supporting services.

– 55 –

As at the date of this announcement, Xizhong Island Port is held by COSCO SHIPPING Investment Dalian, Dalian Xizhong Island Port Development Group Ltd. (大連西中島發展集團有限公司) and Dalian Menglian Petrochemical Co., Ltd. (大連蒙連石油化工有限公司) as to 15%, 75% and 10%, respectively. Upon completion of equity transfer under the Investment Dalian Equity Transfer Agreement, the Company will hold 15% equity interest in Xizhong Island Port.

The equity interests of Xizhong Island Port have clearly defined titles, without mortgages, pledges or any other restrictions on transfer, are not involved with litigations, arbitrations or judicial measures including seizure and freezing orders, and do not have any impediment to transfer of titles. As at the date of this announcement, Xizhong Island Port has not been included in the list of judgement defaulters.

Based on the financial statements of Xizhong Island Port prepared in accordance with the China Accounting Standards for Business Enterprises, the financial information of Xizhong Island Port for the year ended 31 December 2023 was as follows:

	For the year ended
	31 December 2023Note
	(audited)
	(RMB)
Profit before taxation	N.A.
Profit after taxation	N.A.

Note: Established in November 2023, Xizhong Island Port did not record any profit in the year ended 31 December 2023.

According to the valuation report of China Tong Cheng dated 13 October 2024, the appraised value of 15% equity interest of Xizhong Island Port as at the Valuation Benchmark Date, being 30 June 2024, was RMB0, which was determined based on the cost approach in accordance with the relevant PRC laws and regulations.

According to the financial statements of Xizhong Island Port for the six months ended 30 June 2024, the audited total assets of Xizhong Island Port as at 30 June 2024 was RMB1,942,400.

Information on COSCO SHIPPING Chemical Carrier

COSCO SHIPPING Chemical Carrier is a company incorporated under the laws of the PRC with limited liability, principally engaged in shipment of bulk chemicals domestically.

– 56 –

As at the date of this announcement, COSCO SHIPPING Chemical Carrier is hold by COSCO Shipping (Shanghai) as to 100%. Upon completion of equity transfer under the COSCO Shipping (Shanghai) Equity Transfer Agreement, the Company will hold 100% equity interest in COSCO SHIPPING Chemical Carrier and therefore COSCO SHIPPING Chemical Carrier will become a subsidiary of the Company.

The equity interests of COSCO SHIPPING Chemical Carrier have clearly defined titles, without mortgages, pledges or any other restrictions on transfer, are not involved with litigations, arbitrations or judicial measures including seizure and freezing orders, and do not have any impediment to transfer of titles. As at the date of this announcement, COSCO SHIPPING Chemical Carrier has not been included in the list of judgement defaulters.

Based on the financial statements of COSCO SHIPPING Chemical Carrier prepared in accordance with the China Accounting Standards for Business Enterprises, the financial information of COSCO SHIPPING Chemical Carrier for the two years ended 31 December 2023 was as follows:

	For the year ended 31 December	For the year ended 31 December
	2022	2023
	(audited)	(audited)
	(RMB)	(RMB)
Profit before taxation	2,485,743	928,873
Profit after taxation	2,349,334	864,910

According to the valuation report of China Enterprise Appraisals dated 14 October 2024, the appraised value of the total shareholders’ equity of COSCO SHIPPING Chemical Carrier as at the Valuation Benchmark Date, being 30 June 2024, was approximately RMB507,420,500, which was determined based on the asset-based approach in accordance with the relevant PRC laws and regulations.

According to the financial statements of COSCO SHIPPING Chemical Carrier for the six months ended 30 June 2024, the audited total assets of COSCO SHIPPING Chemical Carrier as at 30 June 2024 was RMB486,717,500.

Information on Shanghai COSCO SHIPPING (Hong Kong)

Shanghai COSCO SHIPPING (Hong Kong) is a company incorporated under the laws of the PRC with limited liability, principally engaged in shipment of bulk chemicals globally.

– 57 –

As at the date of this announcement, Shanghai COSCO SHIPPING (Hong Kong) is held by COSCO Shipping (Shanghai) as to 100%. Upon completion of equity transfer under the COSCO Shipping (Shanghai) Equity Transfer Agreement, the Company will hold 100% equity interest in Shanghai COSCO SHIPPING (Hong Kong) and therefore Shanghai COSCO SHIPPING (Hong Kong) will become a subsidiary of the Company.

The equity of Shanghai COSCO SHIPPING (Hong Kong) has been pledged for a loan granted by The Export-Import Bank of China. Save as disclosed above, the equity interests of Shanghai COSCO SHIPPING (Hong Kong) have clearly defined titles, without mortgages, pledges or any other restrictions on transfer, are not involved with litigations, arbitrations or judicial measures including seizure and freezing orders, and do not have any impediment to transfer of titles. As at the date of this announcement, Shanghai COSCO SHIPPING (Hong Kong) has not been included in the list of judgement defaulters.

Based on the financial statements of Shanghai COSCO SHIPPING (Hong Kong) prepared in accordance with the China Accounting Standards for Business Enterprises, the financial information of Shanghai COSCO SHIPPING (Hong Kong) for the two years ended 31 December 2023 was as follows:

	For the year ended 31 December	For the year ended 31 December
	2022	2023
	(audited)	(audited)
	(RMB)	(RMB)
Profit before taxation	36,539,883	5,869,688
Profit after taxation	36,539,883	5,869,688

According to the valuation report of China Enterprise Appraisals dated 14 October 2024, the appraised value of the total shareholders’ equity of Shanghai COSCO SHIPPING (Hong Kong) as at the Valuation Benchmark Date, being 30 June 2024, was approximately RMB112,816,500, which was determined based on the asset-based approach in accordance with the relevant PRC laws and regulations.

According to the financial statements of Shanghai COSCO SHIPPING (Hong Kong) for the six months ended 30 June 2024, the audited total assets of Shanghai COSCO SHIPPING (Hong Kong) as at 30 June 2024 was RMB431,251,500.

– 58 –

V. REASONS AND BENEFITS

The consolidation of supply chain for the energy chemical logistics segment of COSCO SHIPPING Group, in which the Company acts as a leading party, represents an important initiative to promote reform of state-owned enterprises, optimise resource allocation and improve the quality of the Company. Following completion of the Proposed Acquisition, the Company’s significant effort of focusing on integration of logistics resources for energy chemicals, synergetic development and better customer service will become a key engine for building the supply chain for energy chemical logistics, erecting an industry benchmark and upgrading services and management to a higher standard. From the long-term perspective, completion of the Proposed Acquisition is expected to bring higher net profit attributable to shareholders of the parent company and boost the overall business performance of the Company, which will be a strong propeller for the Company to enhance the ability of continuing as a going concern.

The major terms of the Proposed Entrusted Management Agreements provide that the Company is entrusted to manage and operate the supply chain assets for energy chemical logistics held by COSCO SHIPPING Group and COSCO Shipping (Shanghai). On the one hand, the Company will fully develop the advantage of professional management and operation to strengthen the quality of target asset management; on the other hand, the Company will adopt coordinated measures to align with target assets and reinforce the control ability in the relevant links of supply chain for energy chemical logistics, which in turn will consolidate the Company’s advantage of professional management and operation.

The terms of the Investment Dalian Equity Transfer Agreement, the Investment Dalian Assets Transfer Agreement, the COSCO Shipping (Shanghai) Equity Transfer Agreement and the Proposed Entrusted Management Agreements are determined by the parties after arm’s length negotiation. The Directors (including independent non-executive Directors) are of the view that while the Proposed Acquisition is not conducted in the ordinary and usual course of business of the Group, it is on normal commercial terms which are fair and reasonable and in the interests of the Company and the Shareholders as a whole; the terms and the proposed annual caps of the Proposed Entrusted Management Agreements are fair and reasonable, and the Proposed Entrusted Management Agreements are on normal commercial terms which are fair and reasonable in the ordinary and usual course of business of the Group, and in the interests of the Company and the Shareholders as a whole.

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VI. IMPLICATIONS UNDER THE HONG KONG LISTING RULES

As at the date of this announcement, 619,426,195 A Shares are directly held by COSCO SHIPPING and 1,536,924,595 A Shares are held by China Shipping Group Company Limited* (中國海運集團有限公司) (a wholly-owned subsidiary of COSCO SHIPPING) and its subsidiaries. Therefore, COSCO SHIPPING and its associates control or are entitled to exercise control over the voting rights in respect of 2,156,350,790 A Shares, representing approximately 45.20% of the total issued share capital of the Company. Accordingly, COSCO SHIPPING is a controlling shareholder of the Company and therefore a connected person of the Company. COSCO SHIPPING Investment Dalian and COSCO Shipping (Shanghai) are both the associates of COSCO SHIPPING and therefore are connected persons of the Company. Accordingly, it is expected that the Proposed Acquisition and the Proposed Entrusted Management Agreements will constitute connected transactions and continuing connected transactions of the Company under Chapter 14A of the Hong Kong Listing Rules.

– 60 –

VII. DEFINITIONS

Unless the context requires otherwise, capitalized terms used in this announcement shall have the meanings as follows:

“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
“associate(s)” has the meaning ascribed to it under the Hong Kong Listing Rules
“Board” the board of directors of the Company
“China Enterprise Appraisals” China Enterprise Appraisals Co., Ltd.* (北京中企華資產評估有限責任公司)
“China Tong Cheng” China Tong Cheng Assets Appraisal Co., Ltd.* (中通誠資產評估有限公司)
“Company” COSCO SHIPPING Energy Transportation Co., Ltd.* (中遠海運能源運輸股份有限公司 ), a joint stock limited company incorporated in the PRC with limited liability, the H shares and A shares of which are listed on the Main Board of the Hong Kong Stock Exchange (Stock Code: 1138) and the Shanghai Stock Exchange (Stock Code: 600026), respectively
“connected person(s)” has the meaning ascribed to it under the Hong Kong Listing Rules
“controlling shareholder” has the meaning ascribed to it under the Hong Kong Listing Rules
“COSCO SHIPPING”
China COSCO SHIPPING Corporation Limited* (中國遠洋海運集團有限公司), a PRC state-owned enterprise and an indirect controlling shareholder of the Company
“COSCO SHIPPING Group”
COSCO SHIPPING and its subsidiaries (exclusive of the Group)
“COSCO SHIPPING Investment Dalian”
COSCO SHIPPING Investment Dalian Co., Ltd.* (中遠海運大連投資有限公司), a company incorporated under the laws of the PRC with limited liability

– 61 –

“COSCO Shipping (Shanghai)”
COSCO Shipping (Shanghai) Co., Ltd.; * (中遠海運(上海) 有限公司), a company incorporated under the laws of the PRC with limited liability
“COSCO Shipping (Shanghai) Equity Transfer Agreement”

the equity transfer agreement proposed to be entered into between the Company and COSCO Shipping (Shanghai) in relation to the transfer of 100% equity interests in COSCO SHIPPING Chemical Carrier and 100% equity interests in Shanghai COSCO SHIPPING (Hong Kong)

“COSCO SHIPPING Entrusted Management Agreement”
the entrusted management agreement proposed to be entered into between the Company and COSCO Shipping in relation to the entrusted management of COSCO SHIPPING Investment Dalian
“COSCO Shipping (Shanghai) Entrusted Management Agreement”
the entrusted management agreement proposed to be entered into between the Company and COSCO Shipping and COSCO Shipping (Shanghai) in relation to the entrusted management of Yisheng Storage, Marine Transportation and Storage and Fujian Terminal
“COSCO SHIPPING Chemical Carrier”
China Shipping Chemical Carrier Co., Ltd.* (中海化工運輸有限公司), a company incorporated under the laws of the PRC with limited liability
“Dalian Liquefied Gas”
Dalian COSCO SHIPPING Energy Supply Chain Co., Ltd.* (大連中遠海運能源供應鏈有限公司), a company incorporated under the laws of the PRC with limited liability and a wholly-owned subsidiary of the Company
“Director(s)”

the directors of the Company

“Fujian Terminal”

Fujian COSCO SHIPPING Petrochemical Terminal Co., Ltd.* ( 福建中遠海運化工碼頭有限公司 ), a company incorporated under the laws of the PRC with limited liability

“Group”

the Company and its subsidiaries

“Hong Kong”

the Hong Kong Special Administrative Region of the PRC

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

– 62 –

“Hong Kong Stock Exchange”
“H Share(s)”
“Hainan Zhaogang”
“Investment Dalian Equity Transfer Agreement”
“Investment Dalian Assets Transfer Agreement”
“Marine Transportation and Storage”
“percentage ratio(s)”
“PRC”
“Proposed Acquisition”

The Stock Exchange of Hong Kong Limited

overseas listed foreign share(s) of par value of RMB1.00 each in the ordinary share capital of the Company, which are listed on the Main Board of the Hong Kong Stock Exchange
Hainan Zhaogang Shipping Co., Ltd.* (海南招港海運有限公司), a company incorporated under the laws of the PRC with limited liability
the equity transfer agreement proposed to be entered into between COSCO SHIPPING Investment Dalian and Dalian Liquefied Gas in relation to the transfer of 70% equity interests in Shenzhen Longpeng, 87% equity interests in Hainan Zhaogang and 15% equity interests in Xizhong Island Port
the asset transfer agreement proposed to be entered into between COSCO SHIPPING Investment Dalian and Dalian Liquefied Gas in relation to the transfer of two vessels of COSCO SHIPPING Investment Dalian
Shanghai COSCO Marine Transportation and Storage Co., Ltd.* ( 上海中遠海運倉儲有限公司 ), a company incorporated under the laws of the PRC with limited liability
has the meaning ascribed to it under the Hong Kong Listing Rules
the People’s Republic of China, and for the purpose of this announcement only, excluding Hong Kong, the Macau Special Administrative Region of the People’s Republic of China and Taiwan
the proposed acquisition of (i) 70% equity interests in Shenzhen Longpeng; (ii) 87% equity interests in Hainan Zhaogang; (iii) 15% equity interests in Xizhong Island Port; (iv) two liquefied gas vessels; (v) the entire equity interests in COSCO SHIPPING Chemical Carrier; and (vi) the entire equity interests in Shanghai COSCO SHIPPING (Hong Kong) in accordance with the Investment Dalian Equity Transfer Agreement, the Investment Dalian Assets Transfer Agreement and the COSCO Shipping (Shanghai) Equity Transfer Agreement

– 63 –

“Proposed Entrusted the COSCO SHIPPING Entrusted Management Agreement Management Agreements” and the COSCO Shipping (Shanghai) Entrusted Management Agreement
“RMB” Renminbi, the lawful currency of the PRC
“Shanghai COSCO Shanghai COSCO SHIPPING (Hong Kong) Co., Ltd.* (上 SHIPPING (Hong Kong)” 海中遠海運(香港)有限公司), a company incorporated under the laws of the PRC with limited liability
“Share(s)” A Share(s) and H Share(s)
“Shareholder(s)” holder(s) of the Share(s)
“Shenzhen Longpeng” Shenzhen COSCO Longpeng LPG Transportation Co., Ltd.* (深圳中遠龍鵬液化氣運輸有限公司), a company incorporated under the laws of the PRC with limited liability
“Transition Period” the period from the date after the Valuation Benchmark Date to the respective date of completion of the Proposed Acquisition
“Valuation Benchmark Date” 30 June 2024
“Xizhong Island Port”
Dalian Xizhong Island Port Zhonglian Port Limited* (大連西中島中連港口有限公司), a company incorporated under the laws of the PRC with limited liability
“Yisheng Storage”
Shanghai Yisheng Shipping Storage Co., Ltd.* (上海億升海運倉儲有限公司), a company incorporated under the laws of the PRC with limited liability
“%” per cent.

By order of the Board COSCO SHIPPING Energy Transportation Co., Ltd. Ren Yongqiang Chairman

Shanghai, the PRC

14 October 2024

As at the date of this announcement, the Board comprises Mr. Ren Yongqiang and Mr. Zhu Maijin as executive Directors, Mr. Wang Wei and Ms. Wang Songwen as non-executive Directors, Mr. Victor Huang, Mr. Li Runsheng, Mr. Zhao Jinsong and Mr. Wang Zuwen as independent non-executive Directors.

For identification purposes only

– 64 –

AI assistant

Dida Inc. — M&A Activity 2024

50671_rns_2024-10-14_743d2742-0efe-43f3-af44-a0257cee1d1d.pdf

COSCO SHIPPING ENERGY TRANSPORTATION CO., LTD.* 中遠海運能源運輸股份有限公司

(1) PROPOSED CONNECTED TRANSACTIONS — ACQUISITION OF EQUITY INTERESTS AND ASSETS (2) PROPOSED CONTINUING CONNECTED TRANSACTION — PROPOSED ENTRUSTED MANAGEMENT AGREEMENTS

THE PROPOSED ACQUISITION AND THE PROPOSED ENTRUSTED MANAGEMENT AGREEMENTS

IMPLICATIONS UNDER THE HONG KONG LISTING RULES

I. INTRODUCTION

II. THE PROPOSED ACQUISITION

(1) The Investment Dalian Equity Transfer Agreement

Parties

Subject matter

Consideration and payment terms

Selection of valuation method

Shenzhen Longpeng and Hainan Zhaogang

Xizhong Island Port

Introduction of valuation method

The asset-based approach

(1) Vessels

① Determination of full price for replacement

A. Cost of shipbuilding

A. Service life approach

(2) Vehicles (applicable to Shenzhen Longpeng only)

8. Right-of-use assets

9. Deferred income tax assets

10. Other non-current assets

11. Liabilities

The income approach

Main assumptions adopted in valuation

Basic assumptions

Basic assumptions

Specific assumptions

Valuation results

Effectiveness

Impairment testing arrangement

(2) The Investment Dalian Assets Transfer Agreement

Parties

Subject matter

Consideration and payment terms

Selection of valuation method

Introduction of valuation method

The cost approach

The income approach

(1) Determination of expected annual cash flow

(2) Determination of discount rate

(3) Determination of forecast life

Main assumptions adopted in valuation

Basic assumptions

Specific assumptions

Valuation results

Effectiveness

Impairment testing arrangement

(3) The COSCO Shipping (Shanghai) Equity Transfer Agreement

Parties

Subject matter

Consideration and payment terms

Selection of valuation method

Introduction of valuation method

The asset-based approach

(1) Cost approach

① Determination of full price for replacement

② Determination of integrated newness rate

(2) Market approach

3. Assets of the vessel type

4. Right-of-use assets

The income approach

(5) Determination of final value

Main assumptions adopted in valuation

General assumptions

Valuation results

Effectiveness

Impairment testing arrangement

III. THE PROPOSED ENTRUSTED MANAGEMENT AGREEMENTS

(1) The COSCO SHIPPING Entrusted Management Agreement

Parties

Term of Agreement

Entrustment Content and Arrangement

Information on the Entrusted Assets

Entrusted Management Fee

(2) The COSCO Shipping (Shanghai) Entrusted Management Agreement

Dida Inc. M&A Activity 2024

**COSCO SHIPPING ENERGY TRANSPORTATION CO., LTD.* 中遠海運能源運輸股份有限公司**