Dida Inc. — Proxy Solicitation & Information Statement 2016

Apr 22, 2016

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult a stockbroker and other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

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

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

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

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CHINA SHIPPING DEVELOPMENT COMPANY LIMITED 中海發展股份有限公司

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

(Stock Code: 1138)

(1) VERY SUBSTANTIAL ACQUISITION: ACQUISITION OF 100% EQUITY INTERESTS IN DALIAN OCEAN; (2) MAJOR TRANSACTION: DISPOSAL OF 100% EQUITY INTERESTS IN CS BULK;

(3) CONNECTED TRANSACTION: EXEMPTION OF THE NON-COMPETITION UNDERTAKING; AND

(4) ELECTION OF EXECUTIVE DIRECTOR

Financial Adviser of CS Development

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

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A letter from the Board is set out on pages 6 to 20 of this circular. A letter from the Independent Board Committee is set out on pages 22 to 23 of this circular. A letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders is set out on pages 24 to 49 of this circular. The notice convening the AGM of China Shipping Development Company Limited to be held at 2:00 p.m. on Friday, 20 May 2016 at 3rd Floor, Ocean Hotel, No. 1171 Dong Da Ming Road, Hongkou District, Shanghai, the PRC was despatched the Shareholders on 1 April, 2016.

If you intend to appoint a proxy to attend the AGM, you are required to complete and return the accompanying proxy form in accordance with the instructions printed thereon. For holder of H Shares, the proxy form should be returned to Computershare Hong Kong Investor Services Limited by hand or by post not less than 24 hours before the time appointed for holding the AGM or any adjourned meeting thereof.

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

If you intend to attend the AGM in person or by proxy, you are required to complete and return the reply slip to the Office of the Secretary to the Board of Directors of the Company not later than Friday, 29 April 2016.

22 April 2016

CONTENTS

			Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			6
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . . . . . . . . .			22
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . . . . . . . . . .			24
APPENDIX I	—	FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . . . . . . . .	I-1
APPENDIX II	—	FINANCIAL INFORMATION OF DALIAN OCEAN GROUP . . . . . .	II-1
**APPENDIX III **	—	THE ACCOUNTANT’S REPORT OF DALIAN OCEAN. . . . . . . . . . .	III-1
APPENDIX IV	—	UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE
		ENLARGED GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
APPENDIX V	—	SUMMARY OF THE VALUATION REPORTS . . . . . . . . . . . . . . . . . .	V-1
APPENDIX VI	—	GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	VI-1
**APPENDIX VII **	—	BIOGRAPHY OF THE PROPOSED DIRECTOR . . . . . . . . . . . . . . . .VII-1

— i —

DEFINITIONS

In this circular, unless the context otherwise requires, the following terms and expression have the meaning set forth below.

“17 Bulk Carrier Companies”

the 17 bulk carrier companies of CS Development injected in to CS Bulk under the CS Restructuring, i.e. China Shipping Bulk Carrier (Hong Kong) Co., Limited, China Shipping Bulk Carrier (Hong Kong) Wylex Co., Limited, CS Puyuan Marine Co., Limited, Pingan Shipping S.A., Xiwang Shipping S.A., Jixiang Shipping S.A., Fanhua Shipping S.A., Ronghua Shipping S.A., Shaohua Shipping S.A., Nianhua Shipping S.A., Inhua Shipping S.A., Caihua Shipping S.A., Jiahuishan Shipping S.A., Jialongshan Shipping S.A., Jiamaoshan Shipping S.A., Jiashengshan Shipping S.A. and Li Chuan Shipping S.A., all of which were wholly-owned subsidiaries of CSDHK

“Actual Net Profits”

the audited net profits/loss attributable to equity holders after netting off non-occurring gains/losses as set out in the annual consolidated statements of Dalian Ocean for the Compensation Period

“AGM”

the annual general meeting to be held at 2:00 p.m. on Friday, 20 May 2016 at 3rd Floor, Ocean Hotel, No. 1171 Dong Da Ming Road, Hongkou District, Shanghai, the PRC by the Company to consider and, if thought fit, to approve, the resolutions relating to, among other things, the Proposed Transactions as contemplated under the Asset Transfer Agreement and the Compensation Agreement, the Exemption of the Non-competition Undertaking, and the election of an executive Director

“Appraised Value”

• the appraised value of the Target Assets as of the Reference Date which are set out in the Valuation Reports

“Asset Transfer Agreement”

• the asset acquisition and disposal agreement in relation to the Proposed Transactions dated 29 March 2016 entered into between the CS Development, COSCO Company and COSCO Bulk in respect of purchase and sale of assets under the Proposed Transactions

“associate(s)”

• has the meanings as ascribed thereto under the Listing Rules

• “Board”

• the board of Directors of CS Development

“China Shipping”

• China Shipping (Group) Company, a state-owned enterprise in the PRC, and the controlling shareholder of CS Development

— 1 —

DEFINITIONS

• “China Shipping Group”

• “Closing Audit Date”

• “Closing Date”

• “CS Bulk”

• “CS Bulk Group”

• “CS Bulk Consideration”

• “CS Bulk Disposal”

“CS Development” or

• “Company”

• “CS Development Group” or “Group”

• “CSDHK”

“CS Restructuring”

China Shipping and its subsidiaries

if the Closing Date is before or on 15th (inclusive) of a month, it refers to the end of the month preceding the Closing Date; if the Closing date is after the 15th (exclusive) of a month, it refers to the end of the month of the Closing Date

the date on which the Consideration has been fully paid according to the Asset Transfer Agreement

China Shipping Bulk Carrier Co., Limited, a company incorporated in PRC with limited liability, and a direct wholly-owned subsidiary of CS Development

CS Bulk and its subsidiaries

the total price payable by COSCO Company in respect of the CS Bulk Disposal

the disposal by CS Development of 100% equity interests in CS Bulk to COSCO Company (itself or through COSCO Bulk)

China Shipping Development Company Limited, a joint stock limited company incorporated in the PRC, the H shares of which are listed on the Stock Exchange (Stock Code: 1138) and the A shares of which are listed on the Shanghai Stock Exchange (Stock Code: 600026), and a direct non-wholly-owned subsidiary of China Shipping

CS Development and its subsidiaries

China Shipping Development (Hong Kong) Marine Co., Limited, a company incorporated in Hong Kong with limited liability, and a wholly-owned subsidiary of CS Development

in respect of CS Bulk Disposal, the restructuring whereby CS Development has undergone a series of restructuring of its bulk shipping assets and has injected certain subsidiaries and affiliated companies of CS Development into CS Bulk prior to the completion of CS Bulk Disposal. For details, please refer to the announcement dated 11 December 2015 of the Company

— 2 —

DEFINITIONS

“Compensation Agreement”

a revised profit forecast compensation agreement dated 29 March 2016 entered into between CS Development and COSCO Company regarding that the Actual Net Profit of Dalian Ocean shall not be lower than Estimated Net Profit for the Compensation Period

“Compensation Period”

“Compensation Period” the period which lasts from the year in which the Dalian Ocean Acquisition completes to the end of the third accounting year thereafter (the year in which the Dalian Ocean Acquisition completes is the first accounting year), i.e. the compensation periods will be the year 2016, the year 2017 and the year 2018 if Dalian Ocean Acquisition completes during the year 2016 “Consideration” the Dalian Ocean Consideration and the CS Bulk Consideration “controlling shareholder” has the meanings as ascribed thereto under the Listing Rules “COSCO Bulk ” China COSCO Bulk Shipping (Group) Co., Ltd, a company incorporated in the PRC with limited liability and a wholly-owned subsidiary of COSCO Company “COSCO Company” China Ocean Shipping (Group) Company, a state-owned enterprise in the PRC, and the controlling shareholder of Dalian Ocean

• “COSCO Group” COSCO Company and its subsidiaries

“Dalian Ocean” Dalian Ocean Shipping Company Limited, a company with limited liability transformed from DO Company, a direct wholly-owned subsidiary of COSCO Company

“Dalian Ocean Acquisition” the acquisition of 100% equity interests in Dalian Ocean from COSCO Company by CS Development

• “Dalian Ocean Group” Dalian Ocean and its subsidiaries

“Dalian Ocean Consideration” the total price payable by CS Development for the Dalian Ocean Acquisition

“Director(s)” the director(s) of CS Development

“DO Company” Dalian Ocean Shipping Company, a wholly state-owned enterprise incorporated in the PRC, and a direct wholly-owned subsidiary of COSCO Company. It was transformed into Dalian Ocean on 24 December 2015

— 3 —

DEFINITIONS

“Estimated Net Profits”

an estimate of the net profits/loss of Dalian Ocean for the Compensation Period made by COSCO Company which is based on and no lower than the net profit forecast set out in the Valuation Reports filed with the competent authority

“Enlarged Group”

CS Development and its subsidiaries upon completion of the Proposed Transactions

“Exemption” the partial exemption of the Non-competition Undertaking issued on 15 June 2011 by China Shipping, the details of which are set out in the Letter from the Board

“HK$” HK$, the lawful currency of Hong Kong

• “HKFRS”

Hong Kong Financial Reporting Standards

“Hong Kong”

the Hong Kong Special Administrative Region of the PRC

“Independent Board an independent board committee, which comprises Mr. Wang Committee” Wusheng, Mr. Ruan Yongping, Mr. Ip Sing Chi, Mr. Rui Meng and Mr. Teo Siong Seng, all of whom are Independent Non-executive Directors, to advise and provide recommendations to the Independent Shareholders on the Asset Transfer Agreement, the Compensation Agreement, the Proposed Transactions contemplated thereunder and, the Exemption of the Non-competition Undertaking

• “Independent Financial Adviser”

TC Capital Asia Limited, a licensed corporation under the SFO to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities and an independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Asset Transfer Agreement, the Compensation Agreement, the Proposed Transactions contemplated thereunder and, the Exemption of the Non-competition Undertaking

“Independent Non-executive Directors”

the independent non-executive Directors of CS Development

“Independent Shareholders”

the shareholders of CS Development who may vote on the resolutions in respect of the Asset Transfer Agreement, the Compensation Agreement, the Proposed Transactions and, the Exemption of the Non-competition Undertaking at the AGM under the Listing Rules (excluding China Shipping and its associates)

— 4 —

DEFINITIONS

“Latest Practicable Date” Tuesday, 19 April 2016, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained in this circular “Listing Rules” Rules Governing the Listing of Securities on the Stock Exchange “LNG” liquefied natural gas “LPG” liquefied petroleum gas “MOFCOM” the Ministry of Commerce of the PRC (中華人民共和國商務 部) “PRC” or “China” the People’s Republic of China, which shall, for the purpose of this circular, exclude Hong Kong, the Macau Special Administrative Region and Taiwan “PRC GAAP” PRC Generally Accepted Accounting Principles “Proposed Transactions” the transactions contemplated under the Asset Transfer Agreement, i.e. the Dalian Ocean Acquisition and the CS Bulk Disposal “Reference Date” 31 December 2015 “RMB” Renminbi, the lawful currency of the PRC “Share(s)” the share(s) of CS Development “Shareholder(s)” the shareholder(s) of CS Development “Stock Exchange” The Stock Exchange of Hong Kong Limited “Target Assets” 100% equity interests in Dalian Ocean and 100% equity interests in CS Bulk “Target Companies” Dalian Ocean and CS Bulk “US$” US$, the lawful currency of United States of America “Valuation Report(s)” The valuation reports on Dalian Ocean and CS Bulk that were issued on 8 March 2016 by the Valuer and have been filed with the competent authority “Valuer” China Tong Cheng Assets Appraisals Co., Ltd., an independent third party of the CS Development, COSCO Company, COSCO Bulk and the Target Companies

— 5 —

LETTER FROM THE BOARD

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CHINA SHIPPING DEVELOPMENT COMPANY LIMITED 中海發展股份有限公司

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

Executive Directors: Xu Lirong (Chairman) Huang Xiaowen Ding Nong Yu Zenggang Yang Jigui Han Jun Qiu Guoxuan

Independent Non-Executive Directors: Wang Wusheng Ruan Yongping Ip Sing Chi Rui Meng Teo Siong Seng

Registered Office: Room A-1015, No. 188 Ye Sheng Road China (Shanghai) Pilot Free Trade Zone People’s Republic of China Principal place of business in Hong Kong: 20/F, Alexandra House 18 Chater Road Central, Hong Kong 22 April 2016

To the Shareholders

Dear Sir/Madam,

(1) VERY SUBSTANTIAL ACQUISITION: ACQUISITION OF 100% EQUITY INTERESTS IN DALIAN OCEAN;

(2) MAJOR TRANSACTION: DISPOSAL OF 100% EQUITY INTERESTS IN CS BULK;

(3) CONNECTED TRANSACTION: EXEMPTION OF THE NON-COMPETITION UNDERTAKING; AND

(4) ELECTION OF EXECUTIVE DIRECTOR

I. INTRODUCTION

We refer to the announcements of the Company dated 11 December 2015 and 29 March 2016, pursuant to which, as part of the restructuring of China Shipping Group and COSCO Group, CS Development entered into a series of agreements:

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LETTER FROM THE BOARD

• (1) the Asset Transfer Agreement, pursuant to which (i) CS Development has agreed to acquire 100% equity interests in Dalian Ocean from COSCO Company; (ii) CS Development has agreed to dispose of 100% equity interests in CS Bulk to COSCO Company (itself or through COSCO Bulk). These two transactions are inter-conditional and shall come into effect simultaneously; and

• (2) the Compensation Agreement, pursuant to which COSCO Company has agreed: (i) to compensate CS Development for the shortfall in cash between the accumulative Actual Net Profits and the accumulative Estimated Net Profits of Dalian Ocean occurred during the Compensation Period; (ii) upon the end of the Compensation Period, COSCO Company shall provide additional compensation for the impairment amount of Dalian Ocean at the end of the Compensation Period if that is greater than the amount of cash compensation paid by COSCO Company for the Compensation Period.

We also refer to the announcement of the Company dated 8 March 2016 where the Board announced its approval to appoint Mr. Sun Jiakang as an executive Director, subject to the Shareholders’ approval at the AGM.

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

• (1) further information as is necessary to enable you to make an informed decision on whether to vote for or against the resolutions to be proposed at the AGM relating to, among other things, the Proposed Transactions contemplated under the Asset Transfer Agreement and the Compensation Agreement and the election of Mr. Sun Jiakang as an executive Director;

• (2) the letter of advice from the Independent Financial Adviser in relation to the Asset Transfer Agreement, the Compensation Agreement, the Proposed Transactions and, the Exemption of the Non-competition Undertaking; and

• (3) the letter of recommendation from the Independent Board Committee to the Independent Shareholders in relation to the Asset Transfer Agreement, the Compensation Agreement, the Proposed Transactions and, the Exemption of the Non-competition Undertaking.

II. ASSET TRANSFER AGREEMENT

As at 29 March 2016, the Company entered into the Asset Transfer Agreement with COSCO Company and COSCO Bulk.

• A. Principal Terms

Parties: CS Development; COSCO Company; and

COSCO Bulk

Subject Matter:

• (1) CS Development has agreed to acquire and COSCO Company has agreed to dispose of 100% equity interests in Dalian Ocean.

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LETTER FROM THE BOARD

• (2) CS Development has agreed to dispose of and COSCO Company has agreed to acquire (by itself or through COSCO Bulk) 100% equity interests in CS Bulk.

The Dalian Ocean Acquisition and the CS Bulk Disposal are inter-conditional and shall come into effect simultaneously. If either one of the Dalian Ocean Acquisition and the CS Bulk Disposal will not proceed to completion, the other will not proceed to completion.

Consideration:

The Dalian Ocean Consideration is RMB6,628,455,200, and the CS Bulk Consideration is RMB5,392,221,600.

According to the Valuation Reports, the Appraised Value of Dalian Ocean is RMB6,628.4552 million, and the Appraised Value of CS Bulk is RMB5,392.2216 million. The Consideration is determined based on such Appraised Value after considering other relevant factors, including:

• (1) current situation and future development prospects of the industries in which the Target Companies operate;

• (2) historical financial performance and future development potential of the Target Companies;

• (3) current situation and future development prospects of the industries in which CS Development operates;

• (4) historical financial performance and future development potential of CS Development; and

• (5) various valuation multiples including P/E ratio, P/B ratio and EV/EBITDA ratio of the comparable companies as well as the historical comparable transactions.

The summary of the Valuation Reports is set out in “Appendix V — Summary of the Valuation Reports”. The Valuation Reports have been filed with a competent authority and are under an internal review. The filing process is expected to be done before the AGM. The Consideration shall be adjusted based on the results of such filing. A further announcement will be published if the Consideration is adjusted.

— 8 —

LETTER FROM THE BOARD

The Dalian Ocean Consideration payable by CS Development under the Dalian Ocean Acquisition is intended to be partially offset by the CS Bulk Consideration payable by COSCO Company under the CS Bulk Disposal, and the balance is intended to be settled in cash within 30 business days of the date on which all the conditions precedent are satisfied or otherwise waived by the parties.

Conditions precedent:

The parties have agreed that completion of the Proposed Transactions is conditional upon fulfilment of the following:

• (1) the Valuation Reports having been filed with the competent authority;

• (2) COSCO Company and China Shipping having settled all the debts repayable by CS Bulk and its subsidiaries to the Group before the Closing Date (inclusive) according to the requirements under the Asset Transfer Agreement. As at the Latest Practicable Date, the total amount of debts owned to CS Development and its wholly-owned subsidiaries incurred by CS Bulk and its subsidiaries as a result of the CS Restructuring was approximately RMB5,999.13 million (including RMB4,233,364,590.14, US$5 and HK$2,104,607,290) which will be settled by COSCO Company and/or its designated wholly-owned subsidiaries. As at the Latest Practicable Date, the total amount of debts incurred by CS Bulk and its subsidiaries as a result of the non-operating funds financing from the Group to CS Bulk and its subsidiaries was approximately RMB11,668.63 million (including RMB6,261,344,338.44, US$386,714,730.29 and HK$3,444,300,104.55) which will be settled by China Shipping and/or their designated connected person(s). COSCO Company has undertaken to be jointly and severally liable for the settlement with China Shipping;

• (3) no material adverse change having occurred to the business, operations, assets, liabilities, etc. of the Target Companies since the Reference Date;

• (4) the Independent Shareholders of CS Development having passed resolutions to approve the Proposed Transactions;

• (5) the competent internal decision-making departments of COSCO Company and the Target Companies having approved the Proposed Transactions;

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LETTER FROM THE BOARD

• (6) all approvals by the relevant regulatory authorities in relation to the Proposed Transactions, including but not limited to, the approvals from the competent state-owned assets supervisory institutions and the MOFCOM, having been obtained and such regulatory approvals not having been revoked before the Closing Date; and

• (7) no material breach of the terms of the Asset Transfer Agreement having occurred, and the declarations, representations and warranties given by CS Development, COSCO Company and COSCO Bulk as set out therein remaining effective.

• Completion: The Proposed Transactions will be completed on the Closing Date. Upon completion of the Proposed Transactions, Dalian Ocean will become a wholly-owned subsidiary of CS Development and its financial results will be consolidated into the financial statements of CS Development Group; CS Bulk will cease to be a subsidiary of CS Development and its financial results will no longer be consolidated into the financial statements of CS Development Group.

• Other principal terms: (1) During the transition period from the Reference Date to the Closing Audit Date, CS Development is entitled to all the increase in the equity of Dalian Ocean due to profit-making or any other reason; all the decrease in the equity of Dalian Ocean due to loss-making or any other reason will be borne by COSCO Company, and COSCO Company shall compensate CS Development in equivalent cash.

• (2) During the transition period from the Reference Date to the Closing Audit Date, all the increase in the equity of CS Bulk due to profit-making or any other reason will be retained by CS Development, and COSCO Company or COSCO Bulk shall pay for such increase to CS Development in equivalent cash; all the decrease in equity of CS Bulk due to loss-making or any other reason will be borne by CS Development, and CS Development shall compensate COSCO Company or COSCO Bulk in equivalent cash.

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LETTER FROM THE BOARD

• B. Reasons for and Benefits of the Proposed Transactions

It is intended that CS Development will be, through the Proposed Transactions, built into a listed platform of professional oil and gas transportation to enhance its overall profitability, thereby enhancing the interests of all the Shareholders. The Proposed Transactions will push forward the achievement of such strategic goals on the following aspects:

• (1) to create a large energy transportation fleet with a globally leading position. Following the Proposed Transactions, CS Development will build a specialised crude oil and refined oil transportation fleet and is expected to become a global leader in the oil transportation market in terms of transportation capacities;

• (2) to enhance the international competitiveness of CS Development and gradually realise the global layout;

• (3) to further strengthen the leading position in the domestic oil transportation market, further enhance the competitiveness in all relevant market segments and effectively enhance the sustainable and stable profitability while improving the counter-cycle capabilities;

• (4) to achieve a strong alliance between the two major players of transportation of LNG imported by China, lock in long-term and stable revenues and effectively counter cyclical fluctuations in the oil transportation market;

• (5) to coordinate and centralise the procurement of all relevant resources and fully utilise the existing resources, significantly enhance the bargaining power for various cost items while improving the efficiency of resource utilisation, and effectively reduce procurement costs;

• (6) to fully optimise the utilisation of human resources, fully compensate the insufficiency in the tanker crew and satisfy the demand for future expansion of the fleet scale as well as the strategic need for a global route layout; besides, gradually enhance the competitiveness of staff in terms of internationalisation and specialties; and

• (7) to broaden and release the financial resources of CS Development and enhance its overall profitability through the disposal of bulk shipping business against the background of the significant imbalance between the supply and demand of global bulk shipping which has led to a gradual decline in the Baltic Dry Index (“ BDI ”) and China Containerized Freight Index (“ CCFI ”) indices in the past five years and a historical low level of the BDI index in 2016.

As such, the Directors (excluding the Independent Non-executive Directors who will give their opinions based on the recommendations of the Independent Financial Adviser) consider that the Proposed Transactions under the Asset Transfer Agreement are entered into after arm’s length negotiations and based on normal commercial terms, and therefore terms of such transactions are fair and reasonable and in the interests of the Company and its Shareholders as a whole.

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LETTER FROM THE BOARD

III. FINANCIAL EFFECTS OF THE PROPOSED TRANSACTIONS

A. Financial Effects of Dalian Ocean Acquisition and CS Bulk Disposal

Upon completion of Dalian Ocean Acquisition and CS Bulk Disposal, Dalian Ocean will become a subsidiary of CS Development and its financial information will be included into the consolidated financial statements of CS Development. The Enlarged Group’s unaudited pro forma consolidated statement of financial position (assuming the Proposed Transactions were completed on 31 December 2015), the Enlarged Group’s unaudited pro forma consolidated statement of profit or loss and other comprehensive income and the unaudited pro forma consolidated statement of cash flows (assuming the Proposed Transactions were completed on 1 January 2015), have been prepared in accordance with the standards set out on page IV-1 of this circular.

According to the audited consolidated financial statements of the Group for the year ended 31 December 2015, the Group had total assets, total liabilities and net assets of approximately RMB68,378.65 million, RMB41,855.45 million and RMB26,523.20 million, respectively as at 31 December 2015, and in a state of net current liabilities. According to the Enlarged Group’s unaudited pro forma consolidated balance sheet set out in Appendix IV to this circular (assuming that the Proposed Transactions were completed on 31 December 2015), the Enlarged Group’s total assets will decrease to approximately RMB67,203.44 million, its total liabilities will decrease to approximately RMB41,502.91 million, and its net asset value will decrease to approximately RMB25,700.53 million. However, the Enlarged Group will record net current assets of approximately RMB10,687.99 million.

The Group recorded an audited consolidated profit attributable to owners of the Group approximately of RMB416.99 million for the year ended 31 December 2015. Based on the unaudited pro forma consolidated statement of profit or loss and other comprehensive income of the Enlarged Group set out in Appendix IV to this circular (assuming the Proposed Transactions were completed on 1 January 2015) the unaudited pro forma consolidated profit attributable to owners of the Enlarged Group would be increased from approximately RMB416.99 million to a profit of approximately RMB2,912.65 million for the year ended 31 December 2015. For further details, please refer to Appendix IV to this circular.

B. Financial effects of Dalian Ocean Acquisition

As a result of the Dalian Ocean Acquisition, the consolidated profit attributable to owners of the Dalian Ocean Group approximately of RMB804.09 million for the year ended 31 December 2015 will be consolidated into the consolidated statement of profit or loss and other comprehensive income of the Enlarged Group for the year ended 31 December 2015.

C. Financial Effects of the CS Bulk Disposal

As at 31 December 2015, the equity attributable to owners of CS Bulk was approximately RMB4,327.44 million. As a result, CS Development is expected to accrue a gain of approximately RMB821.64 million under the CS Bulk Disposal. CS Development will recognise such gain under the CS Bulk Disposal in its consolidated income statement as at the Closing Date.

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LETTER FROM THE BOARD

The proceeds from the CS Bulk Disposal will be applied to offset part of the Dalian Ocean Consideration.

Besides, as a result of the CS Bulk Disposal, the Group will decrease the total assets, total liabilities and net assets by approximately RMB16,965.76 million, RMB11,597.41 million and RMB5,368.35 million respectively.

IV. COMPENSATION AGREEMENT

• A. Principal Terms

Date: 29 March 2016

Parties: CS Development; and COSCO Company

Subject Company: Dalian Ocean Compensation: COSCO

COSCO Company, in accordance with the relevant PRC laws and regulations concerning valuations based on the income approach and pursuant to the Compensation Agreement, undertakes that:

• (1) During the Compensation Period, the Actual Net Profits shall not be less than the Estimated Net Profits of Dalian Ocean which has been determined by COSCO Company. Based on the net profit forecast set out in the Valuation Reports, COSCO Company has determined that the accumulative Estimated Net Profits for the three years from 2016 to 2018 shall be RMB819 million. The Estimated Net Profits shall be adjusted based on the filing results of the Valuation Reports. A further announcement will be published if the Estimated Net Profits are adjusted.

• (2) If the accumulative Actual Net Profits of Dalian Ocean for the Compensation Period is lower than its accumulative Estimated Net Profits for the Compensation Period, COSCO Company shall compensate CS Development for the shortfall in cash. There is no cap for the compensation from COSCO Company. The amount of compensation payable by COSCO Company in cash will be determined based on the Compensation Agreement and the following formula: Compensation payable in cash = accumulative Estimated Net Profits of Dalian Ocean for the Compensation Period - accumulative Actual Net Profits of Dalian Ocean for the Compensation Period

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LETTER FROM THE BOARD

	(3)	If compensation has been paid by COSCO Company in
		equivalent cash for all the decrease in the equity of
		Dalian Ocean due to loss-making during the transition
		period pursuant to the Asset Transfer Agreement, such
		amount should be deducted from the compensation
		amount payable by COSCO Company due to the
		shortfall calculated according to the Compensation
		Agreement.
	(4)	Upon the end of the Compensation Period, CS
		Development will perform an impairment assessment of
		Dalian Ocean. If the impairment amount on Dalian
		Ocean at the end of the Compensation Period is greater
		than the amount of cash compensation paid by COSCO
		Company for the Compensation Period, COSCO
		Company shall provide additional compensation. The
		amount of such additional compensation in cash will be
		determined based on the Compensation Agreement and
		the following formula:
		Additional compensation amount = the impairment
		amount of Dalian Ocean at the end of the period - the
		amount of cash compensation paid by COSCO Company
Conditions precedent:	The	effectiveness of the Compensation Agreement is
	conditional upon the fulfilment of the following:
	(1)	the Independent Shareholders of CS Development
		passing resolutions to approve the Compensation
		Agreement;
	(2)	the competent internal decision-making departments of
		COSCO Company approving the Compensation
		Agreement; and
	(3)	condition precedents in the Asset Transfer Agreement
		having been fulfilled or waived.
Termination:	If Asset Transfer Agreement is cancelled or terminated, the
	Compensation Agreement shall be cancelled or terminated at
	the	same time.

V. THE LISTING RULES IMPLICATIONS

As the highest applicable percentage ratio (as defined in Rule 14.07 of the Listing Rules) of the Dalian Ocean Acquisition exceeds 100%, the Dalian Ocean Acquisition constitutes a very substantial acquisition of the Company and is subject to the requirements of reporting, announcement, circular and shareholder’s approval under Chapter 14 of the Listing Rules.

— 14 —

LETTER FROM THE BOARD

As the highest applicable percentage ratio of the CS Bulk Disposal is more than 25% but less than 75%, the CS Bulk Disposal constitutes a major transaction of the Company and is subject to the requirements of reporting, announcement, circular and shareholders’ approval under Chapter 14 of the Listing Rules.

The Proposed Transactions are conducted in the context of the restructuring which involves the COSCO Company and China Shipping as well as certain of their respective group member companies (including the Company) disposing and acquiring certain assets and equity interests among themselves (including the Proposed Transactions) (“the Group Restructuring ”). Although, the Proposed Transactions are not conditional upon other transactions under the Group Restructuring, the Company voluntarily considers the Proposed Transactions as connected transactions (as defined under Chapter 14A of the Listing Rules) of the Company, and China Shipping and its associates will voluntarily abstain from voting on the resolutions with respect to the Proposed Transactions.

The Company has formed an Independent Board Committee in relation to the Proposed Transactions, to advise the Independent Shareholders and has appointed TC Capital Asia Limited as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in accordance with the Listing Rules.

Given that Mr. Xu Lirong, Mr. Huang Xiaowen, Mr. Ding Nong, Mr. Yu Zenggang, Mr. Yang Jigui, Mr. Han Jun and Mr. Qiu Guoxuan, all being executive Directors of the Company, hold positions in entities connected with its parent company, they have abstained from voting on the relevant Board resolutions approving the Asset Transfer Agreement, the Compensation Agreement and the Proposed Transactions thereunder due to potential conflict of interests.

VI. WAIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES

The Valuation Reports were prepared based on the income approach and asset-based approach, and the valuation conclusion has been arrived at using the income approach. Therefore, the valuations under the Valuation Reports of the Target Companies are regarded as profit forecasts under Rule 14.61 of the Listing Rules. The Company has applied for and the Stock Exchange has granted a waiver from strict compliance with the requirements on profit forecast under Rules 14.62, Rule 14.66(2), 14A.68(7) and Rule 14A.70(13) of the Listing Rules regarding the Valuation Reports for the Proposed Transactions based on the grounds below:

• (1) The valuation is led by COSCO Company and not CS Development, while the CS Development only provided the Valuer with historical financial information.

• (2) The valuation is required by the applicable PRC laws and regulations rather than pursuant to the Listing Rules.

• (3) While the Consideration will be determined by reference to the Appraised Value, the Board of Company will consider other factors when assessing the Proposed Transactions.

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LETTER FROM THE BOARD

• (4) The CS Bulk will cease to be part of the Company after the Proposed Transactions so the profit forecast in respect of the CS Bulk will be irrelevant to the Company’s future financial position.

• (5) The financial impact of the CS Bulk Disposal and the Dalian Ocean Acquisition has been set out in “III. FINANCIAL EFFECTS OF THE PROPOSED TRANSACTIONS” in the “Letter From the Board” of this circular.

VII. EXEMPTION OF THE NON-COMPETITION UNDERTAKING OF CHINA SHIPPING

Pursuant to the requirements of the relevant PRC laws, in order to avoid competition between the Company and China Shipping, after negotiation between the Company and China Shipping, China Shipping issued the Non-competition Undertaking 《關於避免同業競爭承諾函》( ) (the “ Original Undertaking ”) on 15 June 2011 pursuant to which China Shipping undertook as follows:

• (1) China Shipping has positioned the Company as the only ultimately integrated business platform focusing on the oil transportation, bulk and LNG transportation under China Shipping.

• (2) For the bulk vessels and tankers wholly-owned by China Shipping and the non-listed enterprises under its control, China Shipping undertook that when appropriate and within five years thereof, such assets of bulk vessels and tankers would be injected into the Company through, among other things, asset acquisition or reorganization, or such assets would be disposed of, so as to eliminate the competition between China Shipping and the Company and facilitate the sustainable and stable development of the Company.

• (3) For the bulk vessels and tankers leased by China Shipping (H.K.) Holdings Co., Ltd. (中國海運（香港）控股有限公司), a subsidiary of China Shipping, under finance leases which would expire successively in 2011 and 2012, China Shipping undertook that upon completion of title acquisition of the vessels under the finance leases by China Shipping (H.K.) Holdings Co., Ltd., such assets of bulk vessels and tankers would be injected into the Company through, among other things, asset acquisition or reorganization, or would be disposed of, when appropriate and within five years thereof.

• (4) Prior to the completion of injecting the aforesaid bulk vessels and tankers into the Company or disposal of them by China Shipping, China Shipping would lease the aforesaid vessels to the Group for operation under the conditions prevailing in the market based on the business requirement of the Company, or entrust the Group to operate and manage the aforesaid vessels, thus eliminating competition.

As of the Latest Practicable Date, China Shipping has injected all its oil transportation assets into the Company, and has entrusted CS Bulk to operate and manage those bulk shipping business controlled by China Shipping and not operated by the Company. However, those bulk shipping assets have not yet been injected into the Company, nor have disposal thereof been completed.

— 16 —

LETTER FROM THE BOARD

As the Company intends to implement the CS Bulk Disposal and the Dalian Ocean Acquisition, upon completion of the Proposed Transactions, the Company will become a listed company engaged in professional oil and gas transportation and no longer engage in bulk shipping business. Therefore, requiring China Shipping to inject the bulk shipping assets into the Company will no longer meets the Company’s need of planning and positioning for the future business development.

Accordingly, based on the requirements of the relevant laws and regulations, and after comprehensive consideration about the performance of the aforesaid undertaking, the business development strategy and the actual situation of the Company, together with the analysis on the feasibility necessity of performing the undertaking, the Board considers that continuous performance of the Original Undertaking will be unfavorable to the business development of the Company and to the protection of interests of the Company and its Shareholders. Meanwhile, taking into account that there is uncertainty as to whether the Proposed Transactions can be completed or can be completed prior to the expiry date of the Original Undertaking (i.e., 15 June 2016), subject to approval of the Shareholders, the Company proposes to conditionally exempt part of the Original Undertaking, with details as follows:

Upon completion of the Proposed Transactions, the Company will agree to exempt the undertaking under item 1 and item 2 of the Original Undertaking that bulk shipping assets should be injected into the Company or disposed of; and the undertaking under item 4 regarding lease and entrusted operation of the bulk shipping assets prior to injection or disposal thereof (the “ Exemption ”). In the event that the Proposed Transactions fail to proceed to completion, the Original Undertaking shall continue to be performed whereas the term of the undertaking will extend to within one year from the date of announcement of termination of the Proposed Transactions.

As China Shipping is a substantial shareholder of the Company, it is a connected person of the Company according to the Listing Rules. Therefore, the Exemption constitutes a connected transaction of the Company, and is subject to the Independent Shareholders’ approval.

The Directors (excluding the Independent Non-executive Directors who will give their opinions based on the recommendations of the Independent Financial Adviser) consider that the Exemption is agreed after arm’s length negotiations and based on normal commercial terms taking into account the business plan of the Company, and therefore the terms of the Exemption are fair and reasonable and in the interests of the Company and its shareholders as a whole.

VIII.INFORMATION ON THE PARTIES

A. CS Development

The Company is principally engaged in the business of transportation of product oil, crude oil, coal and iron ore in the coastal areas of China and other areas in the world, and transportation of LNG imported by China.

— 17 —

LETTER FROM THE BOARD

• (1) Simplified corporate structure of the CS Development Group as of the Latest Practicable Date

==> picture [365 x 132] intentionally omitted <==

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

CS Development
100% 100%
Other
CS Bulk CSDHK
subsidiaries
100% 51% 50% 49% 49%
17 Bulk Hong KongHai Bao Shanghai Times Shenhua China Ore
Carrier Shipping Co., Zhonghai Marine Shipping
Companies Shipping Co.,Limited Limited Co., Limited Pte. Ltd.
----- End of picture text -----

• (2) Simplified corporate structure of the CS Development Group immediately following completion of the Proposed Transactions

==> picture [252 x 78] intentionally omitted <==

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

CS Development
100% 100%
Other
Dalian Ocean CSDHK
subsidiaries
----- End of picture text -----

B. China Shipping

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

C. COSCO Company

COSCO Company is principally engaged in the business of container shipping, dry bulk shipping, tanker transportation, logistics terminals, ship repairing and building, financial services and trade.

D. COSCO Bulk

COSCO Bulk is principally engaged in the business of dry bulk shipping.

E. Dalian Ocean

Dalian Ocean is principally engaged in tanker shipping business which provides oil and gas shipping services covering oil tanker shipping, LNG shipping and LPG shipping, etc. As at 31 December 2015, it owned 29 oil tanker with 6.60 million deadweight tons. The predecessor of Dalian Ocean is DO Company and is a wholly state-owned enterprise incorporated in the PRC. It completed transformation into a company with limited liability on 24 December 2015.

— 18 —

LETTER FROM THE BOARD

Based on the audited consolidated financial statements of Dalian Ocean for the year ended 31 December 2015 prepared in accordance with the HKFRS, the consolidated net assets of Dalian Ocean as at 31 December 2015 were RMB6,109.59 million. The audited consolidated net profits (both before and after tax) of Dalian Ocean for the two years ended 31 December 2014 and 31 December 2015 prepared in accordance with the HKFRS are set out as follows:

				For the financial year	For the financial year
				ended 31 December	ended 31 December
				2014	2015
				RMB million	RMB million
Consolidated	net	profits/(loss)	before tax	-317.95	816.46
Consolidated	net	profits/(loss)	after tax	-403.91	808.14

F. CS Bulk

CS Bulk is principally engaged in the bulk shipping business.

Based on the audited consolidated financial statements of CS Bulk for the year ended 31 December 2015 prepared in accordance with the PRC GAAP, the consolidated net assets of CS Bulk as at 31 December 2015 were RMB4,949.19 million. Having considered the financial impact of the CS Restructuring, the restated audited consolidated net profits (both before and after tax) of CS Bulk for the two years ended 31 December 2014 and 31 December 2015 prepared in accordance with the PRC GAAP are set out below:

				For the financial year	For the financial year
				ended 31 December	ended 31 December
				2014	2015
				RMB million	RMB million
Consolidated	net	profits/(loss)	before tax	205.18	-1,512.42
Consolidated	net	profits/(loss)	after tax	278.13	-1,473.61

IX. ELECTION OF EXECUTIVE DIRECTOR

We refer to the Company’s announcements dated 8 March 2016 where the Board announced its approval to appoint Mr. Sun Jiakang as an executive Director, subject to the Shareholders’ approval at the AGM. His election will take effect immediately after the Shareholders’ approval at the AGM. Biography of Mr. Sun Jiakang are set out in appendix VII to this circular.

X. AGM

The AGM will be convened at 2:00 p.m. on Friday, 20 May 2016 at 3rd Floor, Ocean Hotel, No. 1171 Dong Da Ming Road, Hongkou District, Shanghai, the PRC for the Shareholders to consider and, if thought fit, approve, among other things, (1) the Asset Transfer Agreement, the Compensation

— 19 —

LETTER FROM THE BOARD

Agreement and the Proposed Transactions as contemplated thereunder; (2) the Exemption of the Non-competition Undertaking; and (3) the election of Mr. Sun Jiakang as an executive Director. The notice convening the AGM was dispatched to Shareholders on 1 April 2016 pursuant to Rule 19A.39A of the Listing Rules.

As stated in the “V-THE LISTING RULES IMPLICATION”, China Shipping and its associates will voluntarily abstain from voting for the resolutions in respect of the Proposed Transactions at the AGM.

As at the Latest Practicable Date, China Shipping controlled or was entitled to exercise control of 1,554,631,593 A shares of the Company, representing a total of approximately 38.56% of the entire issued share capital of the Company.

To the extent that the Company is aware, having made all reasonable enquiries, as at the Latest Practicable Date:

• (a) there was no voting trust or other agreement or arrangement or understanding entered into by or binding upon China Shipping;

• (b) China Shipping was not subject to any obligation or entitlement whereby it has or might have temporarily or permanently passed control over the exercise of the voting right in respect of its Shares in the Company to a third party, whether generally or on a case-by-case basis; and

• (c) it is not expected that there would be any discrepancy between the beneficial shareholding interests of China Shipping in the Company and the number of Shares in the Company in respect of which it would control or would be entitled to exercise control over the voting right at the AGM.

XI. RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee and the letter from the Independent Financial Advisor set out in P.22 to 23 and P.24 to 49 respectively of this circular.

Having taken into account the advice of the Independent Financial Adviser, the Independent Board Committee considers that the terms and conditions of the Asset Transfer Agreement, the Compensation Agreement, the Proposed Transactions contemplated thereunder and, the Exemption of the Non-competition Undertaking, though not entered into in the ordinary and usual course of business of the Group, are in line with the long-term business strategies of the Group and on normal commercial terms, and the terms of the relevant agreements are fair and reasonable and to the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the AGM.

— 20 —

LETTER FROM THE BOARD

The Directors (excluding the Independent Non-executive Directors) also recommend the Shareholders to vote in favour of the resolutions to be proposed at the AGM to approve the Asset Transfer Agreement, the Compensation Agreement, the Proposed Transactions contemplated thereunder and, the Exemption of the Non-competition Undertaking.

The Directors (including the Independent Non-executive Directors) also consider that the resolution to approve the election of Mr. Sun Jiakang as an executive Director is in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the relevant resolutions as well as other resolutions to be proposed at the AGM.

XII. OTHER INFORMATION

Your attention is also drawn to the additional information set out in this circular.

By order of the Board China Shipping Development Company Limited Mr. Xu Lirong Chairman

22 April 2016

— 21 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [65 x 48] intentionally omitted <==

CHINA SHIPPING DEVELOPMENT COMPANY LIMITED 中海發展股份有限公司

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

(Stock Code: 1138)

22 April 2016

To the Independent Shareholders

Dear Sir/Madam,

(1) VERY SUBSTANTIAL ACQUISITION: ACQUISITION OF 100% EQUITY INTERESTS IN DALIAN OCEAN (2) MAJOR TRANSACTION: DISPOSAL OF 100% EQUITY INTERESTS IN CS BULK AND (3) CONNECTED TRANSACTION: EXEMPTION OF THE NON-COMPETITION UNDERTAKING

We hereby refer to the circular (the “Circular”) dated 22 April 2016 issued by China Shipping Development Company Limited (“the Company”), of which this letter forms part. Unless otherwise specified, capitalized terms defined in the Circular shall have the same meanings when used herein.

The Independent Board Committee has been formed to advise you in relation to the Asset Transfer Agreement, the Compensation Agreement, the Proposed Transactions contemplated thereunder and, the Exemption of the Non-competition Undertaking, details of which are set out in the section headed “Letter from the Board”. TC Capital Asia Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard. The full text of the letter of advice from the Independent Financial Adviser containing its recommendation and principal factors it has taken into consideration in arriving at its recommendations is set out in the section headed “Letter from the Independent Financial Adviser” of the Circular.

Having considered the terms and conditions of the Asset Transfer Agreement, the Compensation Agreement, the Proposed Transactions contemplated thereunder and, the Exemption of the Non-competition Undertaking, as well as the advice and recommendation of the Independent Financial Adviser set out in this letter of advice, we consider that the terms and conditions of the Asset Transfer Agreement, the Compensation Agreement, the Proposed Transactions contemplated thereunder and, the Exemption of the Non-competition Undertaking, although are not entered into in the ordinary and usual course of business of the Group, fall squarely in line with the long-term business strategy of the Group, and are on normal commercial terms and the terms of each of the respective agreements are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

— 22 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

On the basis above, we recommend that the Independent Shareholders vote in favour of the resolutions to be proposed at the AGM in respect of the Asset Transfer Agreements, the Compensation Agreement, the Proposed Transactions contemplated thereunder and, the Exemption of the Non-competition Undertaking.

Yours faithfully,

Wang Wusheng	Ruan Yongping	Ip Sing Chi	Rui Meng	Teo Siong Seng
Independent	Independent	Independent	Independent	Independent
non-executive	non-executive	non-executive	non-executive	non-executive
Director	Director	Director	Director	Director

— 23 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of the letter of advice from TC Capital Asia Limited, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of incorporation into this circular, setting out its advice to the Independent Board Committee and the Independent Shareholders in respect of the Asset Transfer Agreement, the Compensation Agreement, the Proposed Transactions and the Exemption.

==> picture [163 x 58] intentionally omitted <==

22 April 2016

The Independent Board Committee and the Independent Shareholders China Shipping Development Company Limited (the “Company”)

Dear Sirs,

VERY SUBSTANTIAL ACQUISITION: ACQUISITION OF 100% EQUITY INTERESTS IN DALIAN OCEAN; MAJOR TRANSACTION: DISPOSAL OF 100% EQUITY INTERESTS IN CS BULK; AND CONNECTED TRANSACTION: EXEMPTION OF THE NON-COMPETITION UNDERTAKING

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in relation to, the Asset Transfer Agreement, the Compensation Agreement, the Proposed Transactions and the Exemption, details of which are set out in the letter from the Board (the “ Letter from the Board ”) in the circular of the Company to the Shareholders dated 22 April 2016 (the “ Circular ”), of which this letter forms part. Capitalized terms used in this letter have the same meanings as those defined in the Circular unless the context otherwise requires.

In respect of the Dalian Ocean Acquisition, as the highest applicable percentage ratio (as defined in Rule 14.07 of the Listing Rules) exceeds 100%, the Dalian Ocean Acquisition constitutes a very substantial acquisition of the Company and is subject to the requirements of reporting, announcement, circular and shareholders’ approval under Chapter 14 of the Listing Rules.

In respect of the CS Bulk Disposal, as the highest applicable percentage ratio (as defined in Rule 14.07 of the Listing Rules) is more than 25% but less than 75%, the CS Bulk Disposal constitutes a major transaction of the Company and is subject to the requirements of reporting, announcement, circular and shareholders’ approval under Chapter 14 of the Listing Rules.

— 24 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In respect of the Exemption, as China Shipping is a substantial shareholder of the Company, it is a connected person of the Company according to the Listing Rules. Therefore, the Exemption constitutes a connected transaction of the Company, and is subject to the Independent Shareholders’ approval.

As the Proposed Transactions are conducted in the context of the restructuring which involves COSCO Company and China Shipping as well as certain of their respective group member companies (including the Company) disposing and acquiring certain assets and equity interests among themselves (including the Proposed Transactions) (the “ Group Restructuring ”) and the Proposed Transactions are not conditional upon other transactions under the Group Restructuring, the Company voluntarily considers the Proposed Transactions as connected transactions (as defined under Chapter 14A of the Listing Rules) of the Company, and China Shipping and its associates will voluntarily abstain from voting on the resolutions with respect to the Proposed Transactions.

We have been appointed by the Company to advise the Independent Board Committee and the Independent Shareholders as to whether the Asset Transfer Agreement, the Compensation Agreement, the Proposed Transactions and the Exemption, as far as the Independent Shareholders are concerned, are in the interests of the Company and the Shareholders as a whole; and to give independent advice to the Independent Board Committee and Independent Shareholders as to whether the Independent Shareholders should vote in favour of the Asset Transfer Agreement, the Compensation Agreement, and the Proposed Transactions and the Exemption.

As at the Latest Practicable Date, we did not have any relationships or interests with the Company or any other parties that could reasonably be regarded as relevant to the independence of us. In the last two years, we have acted as an independent financial adviser to the then independent board committee and independent shareholders of the Company in relation to three occasions as detailed in the circulars of the Company dated 23 May 2014, 12 September 2014 and 12 November 2015 respectively. Given (i) our independent role in these three engagements; and (ii) our fees for these three engagements represented an insignificant percentage of our revenue, we consider these three engagements would not affect our independence to form our opinion in respect of the Asset Transfer Agreement, the Compensation Agreement, and the Proposed Transactions and the Exemption.

BASIS OF OPINION

In putting forth our recommendation, we have relied on the information and facts supplied to us by the Directors and/or management of the Company. We have reviewed, among other things:

• (i) the Asset Transfer Agreement;

• (ii) the Compensation Agreement;

• (iii) the unaudited pro forma financial information of the Enlarged Group as contained in Appendix IV to the Circular;

• (iv) the accountant’s report of Dalian Ocean for the three years ended 31 December 2015 as contained in Appendix III to the Circular;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

• (v) the audited report of CS Bulk for the three years ended 31 December 2015 having considered the financial impact of the CS Restructuring;

• (vi) the valuation reports of Dalian Ocean and CS Bulk as at 31 December 2015 which were prepared by the Valuer, a summary of which is contained in Appendix V to the Circular; and

• (vii) annual report of the Company for the year ended 31 December 2014 (the “ 2014 Annual Report ”) and the year ended 31 December 2015 (the “ 2015 Annual Report ”).

We have assumed that all such information, opinions, facts and representations, which have been provided to us by the Directors or the representatives of the Company, for which they are fully responsible, are true, accurate and complete in all respects. The Company has also confirmed to us that no material facts have been omitted from the information supplied and we have no reason to suspect that any material information has been withheld by the Company or is misleading.

We consider that we have sufficient information to reach an informed view and to provide a reasonable basis for our recommendation. We have not, however, carried out any independent verification of the information provided by the Directors and the representatives of the Company, nor have we conducted any independent investigation into the business, affairs, operations, financial position or future prospects of each of the Group, Dalian Ocean, CS Bulk, China Shipping, China Shipping Group, COSCO and COSCO Group.

PRINCIPAL FACTORS AND REASONS

In formulating our opinion in respect of the Asset Transfer Agreement, the Compensation Agreement, the Proposed Transactions and the Exemption, we have taken into account the following principal factors and reasons:

1. Background of the Asset Transfer Agreement and the Compensation Agreement

On 11 December 2015, the Company and COSCO entered into an agreement (the “ Framework Agreement ”), pursuant to which (i) the Company has agreed to acquire 100% equity interests in Dalian Ocean from COSCO Company; (ii) the Company has agreed to dispose of 100% equity interests in CS Bulk to COSCO Company and/or its wholly-owned subsidiaries upon completion of the CS Restructuring. On 29 March 2016, the Company, COSCO Company and COSCO Bulk entered into the Asset Transfer Agreement which has superseded and replaced the Framework Agreement; and the Company and COSCO Company entered into the Compensation Agreement.

2. Information on the Company, COSCO Company, COSCO Bulk, Dalian Ocean and CS Bulk

2.1 Information on the Company

As stated in the Letter from the Board, the Company is principally engaged in the business of transportation of product oil, crude oil, coal and iron ore in the coastal areas of China and other areas in the world, transportation of LNG imported by China.

— 26 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is the financial highlight of the Group in accordance with HKFRS, as extracted from the 2015 Annual Report and the 2014 Annual Report:

		**For the year ended **	**For the year ended **	**For the year ended **	31 December	31 December
	2013			2014			2015
		(Audited)		(Audited)			(Audited)
		(RMB			(RMB		(RMB
	%	million)	%	million)		%	million)
Revenue	100%	11,344	100%	12,274		100%	12,213
- Oil shipment	48%	5,389	45%		5,500	50%	6,079
- Dry bulk shipment	52%	5,955	55%		6,774	50%	6,134
Contribution by segment	100%	(181)	100%		1,388	100%	2,345
- Oil shipment	211%	(382)	59%		825	92%	2,164
- Dry bulk shipment	(111%)	201	41%		563	8%	181
Profit attributable to
owners of the Company		(2,234)			309		417
Cash and cash equivalents		1,919			2,449		2,086
Total assets		58,842		65,750			68,379
Equity attributable to
owners of the Company		21,227		21,829			25,697

From the above table, we note that the Group recorded revenue of approximately RMB12,274 million for the year ended 31 December 2014 (“ FY2014 ”), representing an increase of approximately RMB930 million or 8.2% as compared to approximately RMB11,344 million for the year ended 31 December 2013 (“ FY2013 ”). Net profit attributable to owners of the Company increased by approximately RMB2,543 million from loss of approximately RMB2,234 million in FY2013 to profit of approximately RMB309 million in FY2014.

According to the 2014 Annual Report, revenue from the oil shipping business amounted to approximately RMB5,500 million in FY2014, representing an increase of approximately 2.1% as compared to FY2013. The share of revenue from oil shipping business declined from approximately 48% for FY2013 to approximately 45% for FY2014. We note that the Group achieved a shipping volume of approximately 190.5 billion tonne-nautical miles of oil, representing an increase of approximately 2.4% year-on-year. The contribution by oil shipping business amounted to approximately RMB825 million for FY2014, representing approximately 59% of the total contribution. According to the management of the Company, the higher share of contribution by the oil shipping business was mainly due to upturn tanker shipping markets together with a deteriorating bulk shipping markets at the same period.

— 27 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to the 2015 Annual Report, revenue from oil shipping business amounted to approximately RMB6,079 million for the year ended 31 December 2015 (“ FY2015 ”), representing an increase of approximately RMB579 million or 10.5% as compared to approximately RMB5,500 million for FY2014. On the contrary, revenue from dry bulk shipping business amounted to approximately RMB6,134 million for FY2015, representing a decrease of approximately RMB640 million or 9.4% as compared to approximately RMB6,774 million for FY2014. The contribution by oil shipping business amounted to RMB2,164 million for FY2015, representing an increase of approximately 162.3% from that for FY2014 and accounting for approximately 92% of total contribution for FY2015. As advised by the management of the Company, the increase in revenue and contribution from oil shipping business was mainly due to (i) the demand of oil shipment was generally stable during the year; (ii) the Group made progress in cooperating with internationally renowned oil companies and made breakthrough in long-term vessel chartering business; and (iii) the Group further promoted efficient cost management and benefited from the relative low fuel cost. The decrease in revenue and contribution from dry bulk shipping business was mainly due to weak demand in dry bulk shipping industry.

2.2 Information on COSCO Company

As disclosed in the Letter from the Board, COSCO Company is principally engaged in the business of container shipping, dry bulk shipping, tanker transportation, logistics terminals, ship repairing and building, financial services and trade.

2.3 Information on COSCO Bulk

As disclosed in the Letter from the Board, COSCO Bulk is principally engaged in the business of dry bulk shipping.

2.4 Information on Dalian Ocean

As disclosed in the Letter from the Board, Dalian Ocean is principally engaged in tanker shipping business which provides oil and gas shipping services covering oil tanker shipping, LNG shipping and LPG shipping, etc. As at 31 December 2015, it owned 29 oil tankers with 6.60 million deadweight tons. The predecessor of Dalian Ocean is DO Company and is a wholly state-owned enterprise incorporated in the PRC. It completed transformation into a company with limited liability on 24 December 2015.

— 28 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Audited report of Dalian Ocean for the three years ended 31 December 2015 was set out in Appendix III to the Circular. Set out below is the financial highlight of Dalian Ocean in accordance with HKFRS:

		For the financial year ended 31 December	For the financial year ended 31 December	For the financial year ended 31 December
		2013	2014	2015
		(RMB million) (RMB million) (RMB million)
		(Audited)	(Audited)	(Audited)
(Loss)/profit	before tax	(935)	(318)	816
(Loss)/profit	for the year	(945)	(404)	808
(Loss)/profit	attributable to owner of Dalian
Ocean		(909)	(373)	804

As shown in the table above, Dalian Ocean recorded loss before tax of approximately RMB935 million and RMB318 million for FY2013 and FY2014. For FY2015, Dalian Ocean recorded a profit before tax of approximately RMB816 million, which was mainly due to more revenue generated which is benefited from the upturn tanker shipping market during the year and lower operating cost due to lower oil price.

2.5 Information on CS Bulk

As disclosed in the Letter from the Board, CS Bulk is principally engaged in the bulk shipping business.

As stated in the Letter from the Board, set out below is the restated audit consolidated net profits (both before and after tax) of CS Bulk for the two years ended 31 December 2014 and 31 December 2015 prepared in accordance with PRC GAAP, having considered the financial impact of the CS Restructuring:

				For the financial year	For the financial year
				**ended 31 **	December
				2014	2015
				RMB million	RMB million
				(Audited)	(Audited)
Consolidated	net	profits/(loss)	before tax	205	(1,512)
Consolidated	net	profits/(loss)	after tax	278	(1,474)

As shown in the table above, CS Bulk (after considered the financial impact of the CS Restructuring) recorded profits before tax of approximately RMB205 million and profits after tax of approximately RMB278 million for FY2014. For FY2015, CS Bulk recorded loss before tax of approximately RMB1,512 million and loss after tax of approximately RMB1,474 million, which was mainly due to deterioration in the dry bulk shipping market.

— 29 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2.6 Information on China Shipping

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

3. Industry overview

As mentioned above, Dalian Ocean is principally engaged in tanker shipping business while CS bulk is principally engaged in the bulk shipping business. Below is the industry overview of tanker shipping industry and dry bulk shipping industry.

(i) Tanker shipping

The tanker shipping sector involves transportation of liquid or gas bulk commodities such as oil, liquefied natural gas and chemicals. The graph below depicts historical trend of the Middle East to Japan daily tanker rate (“ Tanker Rate ”), which is a leading indicator for the tanker shipping industry, from 1 April 2011 to the Latest Practicable Date. With reference to the website of the Baltic Exchange Ltd. Tanker Rate is a measurement of the freight rate paid for tankers.

Tanker Rate ($)

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120
100
80
60
40
20
0
2011 2012 2013 2014 2015
Source: Bloomberg
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The Tanker Rate remained volatile for the period from 2011 to 2014 and started to rise in 2015. The Tanker Rate remained volatile for the period from 1 January 2016 to the Latest Practicable Date and reached its five-year peak in January 2016. According to an article namely “Weak demand, vessel surplus to create horror 2016 for commodities shipping” dated 28 December 2015 issued by CNBC, China has been looking to boost strategic reserves of crude, taking advantage of multi-year lows in prices, which has helped the oil tanker market rally”. According to another article namely “China imports record crude as price cash accelerates buying” dated 13 January 2016 issued by Bloomberg News, China increased imports of crude oil by 8.8% to a record 334 million metric tons in 2015 and

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

China may start four additional strategic petroleum reserves in 2016 as part of a plan to stockpile enough oil to cover 100 days’ worth of net imports by 2020. Given the strong demand of crude oil import from China, the outlook of the tanker shipping market is expected to remain stable to positive in the next few years.

(ii) Dry bulk shipping

The dry bulk shipping sector involves transportation of major dry bulk commodities such as iron ore, coal, food supplies, bauxite and phosphate rock, with coal and iron ore almost making up two-thirds of the entire bulk shipping sector. According to an article namely “Weak demand, vessel surplus to create horror 2016 for commodities shipping” dated 28 December 2015 issued by CNBC, dry bulk shipping markets have been hit hard by a slide in demand for coal by China, which is also trying to ease its dependence on the polluting fuel and meet environmental pledges. According to the data collected by the National Bureau of Statistics of China, the total coal import dropped from approximately 327 million ton in 2013 to approximately 291 million ton in 2014. Driven by sustained weakness in economic activity of China and new measures on supporting environmental friendly energy, it is expected that domestic coal consumption continued to fall and coal imports recorded further decline in 2015.

The graph below depicts the historical trend of the Baltic Dry Index (“ BDI ”), which is a leading indicator for the dry bulk industry, from 1 April 2011 to the Latest Practicable Date. With reference to the website of the Baltic Exchange Ltd., BDI is a measurement of the cost of shipping major bulk commodities on a number of shipping routes and is calculated daily by based on the average of spot freight rates.

BDI Index

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

2,500
2,000
1,500
1,000
500
0
2011 2012 2013 2014 2015 2016
Source: Bloomberg
----- End of picture text -----

The index remained volatile for the past 5 years and reached over 2,000 in 2011 and 2013. For the year of 2015, the index reached its peak level in 2015 of 1,222 on 5 August 2015 and plunged by over 50% subsequently and fell below the level of 600 in 2015. For most of 2015, it has been on a

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

downward trend lead by the slowdown in imports from China. Although the index began to increase in the beginning of 2016, the index is still at historic low for the past 5 years and the weak demand in China is likely to continue to negatively impact the prospect of the dry bulk industry.

4. The Asset Transfer Agreement and the Compensation Agreement

On 11 December 2015, the Company and COSCO entered into the Framework agreement, pursuant to which (i) the Company has agreed to acquire 100% equity interests in Dalian Ocean from COSCO Company; (ii) the Company has agreed to dispose of 100% equity interests in CS Bulk to COSCO Company and/or its wholly-owned subsidiaries upon completion of the CS Restructuring. On 29 March 2016, the Company, COSCO Company and COSCO Bulk entered into the Asset Transfer Agreement which has superseded and replaced the Framework Agreement; and the Company and COSCO Company entered into the Compensation Agreement.

• 4.1 Principal terms and conditions of the Asset Transfer Agreement

Date: 29 March 2016 Parties: The Company COSCO Company and COSCO Bulk Subject matter: (i) The Company (as purchaser) has agreed to acquire and COSCO Company (as vendor) has agreed to dispose of 100% equity interests in Dalian Ocean. (ii) The Company (as vendor) has agreed to dispose of and COSCO Company has agreed to acquire (by itself or through COSCO Bulk) 100% equity interests in CS Bulk upon completion of the CS Restructuring.

The Dalian Ocean Acquisition and the CS Bulk Disposal are inter-conditional and shall come into effect simultaneously. If either one of the Dalian Ocean Acquisition and the CS Bulk Disposal will not proceed to completion, the other will not proceed to completion.

Consideration: The Dalian Ocean Consideration is RMB6,628,455,200, and the CS Bulk Consideration is RMB5,392,221,600.

According to the Valuation Reports, the Appraised Value of Dalian Ocean is RMB6,628.4552 million, and the Appraised Value of CS Bulk is RMB5,392.2216 million. The Consideration is determined based on such Appraised Values after considering other related factors, including:

• (i) current situation and future development prospects of the industries in which the Target Companies operate;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

• (ii) historical financial performance and future development potential of the Target Companies;

• (iii) current situation and future development prospects of the industries in which the Company operates;

• (iv) historical financial performance and future development potential of the Company; and

• (v) various valuation multiples including P/E ratio, P/B ratioi and EV/EBITDA ratio of the comparable companies as well as the historical comparable transactions.

The summary of the Valuation Reports is included in the Appendix V to Circular. The Valuation Reports have been filed with a competent authority and are under an internal review. The filing process is expected to be done before the AGM. The Consideration shall be adjusted based on the results of such filing. A further announcement will be published if the Consideration is adjusted.

The Dalian Ocean Consideration payable by the Company under the Dalian Ocean Acquisition is intended to be partially offset by the CS Bulk Consideration payable by COSCO Company under the CS Bulk Disposal, and the balance is intended to be settled in cash within 30 business days of the date on which all the conditions precedent are satisfied or otherwise waived by the parties.

Conditions precedent:

The parties have agreed that completion of the Proposed Transactions is conditional upon fulfilment of the following:

• (i) the Valuation Reports having been filed with the competent authority;

• (ii) COSCO Company and China Shipping having settled all the debts repayable by CS Bulk and its subsidiaries to the Group before the Closing Date (inclusive) according to the requirements of the Asset Transfer Agreement.

As at the Latest Practicable Date, the total debts owned to the Company and its wholly-owned subsidiary incurred by CS Bulk and its subsidiaries as a result of CS Restructuring was approximately RMB5,999.13 million (including RMB4,233,364,590.14, US$5 and HK$2,104,607,290), which will be settled by COSCO Company and/or its designated wholly-owned subsidiaries.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As at the Latest Practicable Date, the total amount of debts incurred by CS Bulk and its subsidiaries as a result of the non-operating funds financing from the Group to CS Bulk and its subsidiaries were approximately RMB11,668.63 million (including RMB6,261,344,338.44, US$386,714,730.29 and HK$3,444,300,104.55), which will be settled by China Shipping and/or their designated connected person(s). COSCO Company has undertaken to be jointly and severally liable for the settlement with China Shipping;

• (iii) no material adverse change having occurred to the business, operations, assets, liabilities, etc. of the Target Companies since the Reference Date;

• (iv) the Independent Shareholders of the Company passing resolutions to approve the Proposed Transactions;

• (v) the competent internal decision-making departments of COSCO Company and the Target Companies having approved the Proposed Transactions;

• (vi) all approvals by the relevant regulatory authorities in relation to the Proposed Transactions, including but not limited to, the approvals from the competent state-owned assets supervisory institutions and the MOFCOM, having been obtained and such regulatory approvals not having been revoked before the Closing Date; and

• (vii) no material breach of the terms of the Asset Transfer Agreement having occurred, and the declarations, representations and warranties given by the Company, COSCO Company and COSCO Bulk as set out in the Asset Transfer Agreement remaining effective.

Completion:

The Proposed Transactions will be completed on the Closing Date.

Upon completion of the Proposed Transactions, Dalian Ocean will become a wholly-owned subsidiary of the Company and its financial results will be consolidated into the financial statements of the Group; CS Bulk will cease to be a subsidiary of the Company and its financial results will no longer be consolidated into the financial statements of the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Other principal terms: (i) During the transition period from the Reference Date to the Closing Audit Date, the Company is entitled to all the increase in the equity of Dalian Ocean due to profit-making or any other reason; all the decrease in the equity of Dalian Ocean due to loss-making or any other reason will be borne by COSCO Company, and COSCO Company shall compensates the Company in equivalent cash.

• (ii) During the transition period from the Reference Date to the Closing Audit Date, all the increase in equity of CS Bulk due to profit-making or any other reason will be retained by the Company, and COSCO Company or COSCO Bulk shall pay for such increase to the Company in equivalent cash; all the decrease in equity of CS Bulk due to loss-making or any other reason will be borne by the Company, and the Company shall compensate COSCO Company or COSCO Bulk in equivalent cash.

4.2 Reasons for and benefits of the Proposed Transactions

As discussed in the Letter from the Board, it is intended that the Company will be, through the Proposed Transactions, built into a listed platform of professional oil and gas transportation to enhance its overall profitability, thereby enhancing the interests of all the Shareholders. The Proposed Transactions will push forward the achievement of such strategic goals on the following aspects:

• (i) to create a large energy transportation fleet with a globally leading position. Following the Proposed Transactions, the Company will build a specialised crude oil and refined oil transportation fleet and is expected to become a global leader in the oil transportation market in terms of transportation capacities;

• (ii) to enhance the international competitiveness of the Company and gradually realise the global layout;

• (iii) to further strengthen the leading position in the domestic oil transportation market, further enhance the competitiveness in all relevant market segments and effectively enhance the sustainable and stable profitability while improving the counter-cycle capabilities;

• (iv) to achieve a strong alliance between the two major players of transportation of liquefied natural gas (LNG) imported by China, lock in long-term and stable revenues and effectively counter cyclical fluctuations in the oil transportation market;

• (v) to coordinate and centralise the procurement of all relevant resources and fully utilise the existing resources, significantly enhance the bargaining power for various cost items while improving the efficiency of resource utilisation, and effectively reduce procurement costs;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

• (vi) to fully optimise the utilisation of human resources, fully compensate the insufficiency in the tanker crew and satisfy the demand for future expansion of the fleet scale as well as the strategic need for a global route layout; besides, gradually enhance the competitiveness of staff in terms of internationalisation and specialties; and

• (vii) to broaden and release the financial resources of the Company and enhance its overall profitability through the disposal of bulk shipping business against the background of the significant imbalance between the supply and demand of global bulk shipping which has led to a gradual decline in the BDI and China Containerized Freight Index in the past five years and a historical low level of the BDI index in 2016.

As discussed in the paragraph headed “Industry overview” above, the dry bulk shipping market continues to be negatively impacted by the weak demand in China. Also, as discussed in the paragraph headed “Information on the Company” above, the contribution from dry bulk shipping business dropped significantly for FY2015 as compared with that for FY2014. As discussed with the management of the Company, given the unsatisfactory result from the dry bulk shipping business, the CS Buk Disposal will be beneficial to the Company as the Company is able to realize return from the investment in CS Bulk and better reallocate resources in areas with better prospects such as tanker shipping business.

As discussed in the paragraph headed “Industry overview” above, beneficial from the strong demand of crude oil import from China, the outlook of the tanker shipping market is expected to remain stable to positive in the next few years. After the acquisition of Dalian Ocean, the Company is expected to form a specialized oil transportation fleet and further strengthen its competitiveness in tanker shipping market, therefore benefited from the strong demand of crude oil import from China.

Therefore, we are of the view that, despite the entering into the Asset Transfer Agreement is not in the ordinary and usual course of business of the Group, the Proposed Transactions are in the interests of the Company and its Shareholders as a whole.

4.3 Principal terms and conditions of the Compensation Agreement

Date: 29 March 2016 Parties: The Company COSCO Company Subject company: Dalian Ocean

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Compensation:

COSCO Company, in accordance with the relevant PRC laws and regulations concerning valuations based on the income approach and pursuant to the Compensation Agreement, undertakes that:

• (i) During the Compensation Period, the Actual Net Profits shall not be less than the Estimated Net Profits of Dalian Ocean which shall be determined by COSCO Company. Based on the net profit forecast which were set out in the Valuation Reports, COSCO Company has determined that the accumulative Estimated Net Profit for the three years from 2016 to 2018 shall be RMB819 million. The Estimated Net Profits shall be adjusted based on the filing results of the Valuation Reports. A further announcement will be published if the Estimated Net Profits are adjusted.

• (ii) If the accumulative Actual Net Profits of Dalian Ocean for the Compensation Period is lower than its accumulative Estimated Net Profits for the Compensation Period, COSCO Company shall compensate CS Development for the shortfall in cash. There is no cap for the compensation from COSCO Company. The amount of compensation payable by COSCO Company in cash will be determined based on the Compensation Agreement and the following formula:

Compensation payable in cash = accumulative Estimated Net Profits of Dalian Ocean for the Compensation Period - accumulative Actual Net Profits of Dalian Ocean for the Compensation Period.

When the accumulative Actual Net Profits of Dalian Ocean is a negative figure, per the above formula, its absolute value shall be added to be the accumulative Estimated Net Profits.

• (iii) If compensation has been paid by COSCO Company in equivalent cash for all the decrease in the equity of Dalian Ocean due to loss-making during the transition period pursuant to the Asset Transfer Agreement, such amount should be deducted from the compensation amount payable by COSCO Company due to the shortfall calculated according to the Compensation Agreement.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

• (iv) Upon the end of the Compensation Period, CS Development will perform an impairment assessment of Dalian Ocean. If the impairment amount on Dalian Ocean at the end of the Compensation Period is greater than the amount of cash compensation paid by COSCO Company for the Compensation Period, COSCO Company shall provide additional compensation. The amount of such additional compensation in cash will be determined based on the Compensation Agreement and the following formula:

Additional compensation amount = the impairment amount of Dalian Ocean at the end of the period - the amount of cash compensation paid by COSCO Company

Conditions precedent: The effectiveness of the Compensation Agreement is conditional upon the fulfilment of the following:

• (i) the Independent Shareholders of the Company passing resolution to approve the Compensation Agreement;

• (ii) the competent internal decision-making departments of COSCO Company approving the Compensation Agreement;

• (iii) condition precedents in the Asset Transfer Agreement has been fulfilled or waived;

Termination: If the Asset Transfer Agreement is cancelled or terminated, the Compensation Agreement shall be cancelled or terminated at the same time.

As the Dalian Ocean Consideration is based on the appraised value of Dalian Ocean, which is determined based on, among others, the Estimated Net Profits of Dalian Ocean, the Compensation Agreement, which will compensate the Company in the case that the Actual Net Profits of Dalian Ocean shall be less than the Estimated Net Profits, provides additional assurance to the Company. Based on the above, we are of the view that the Compensation Agreement is in the interest of the Company and its Shareholder as a whole.

4.4 The Consideration

As stated in the Letter from the Board, the Consideration was arrived on an arm’s length basis with reference to a number of factors, including but not limited to (i) the Appraised Value of Dalian Ocean and CS Bulk; (ii) current situation and future development prospects of the industries in which Dalian Ocean and CS Bulk operate; (iii) historical financial performance and future development potential of Dalian Ocean and CS Bulk; (iv) current situation and future development prospects of the industries in which the Company operates; (v) historical financial performance and future development potential of the Company; and (vi) various valuation multiple including P/E ratio, P/B ratio and EV/EBITDA ratio of the comparable companies as well as the historical comparable transactions.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(i) The Valuation Reports

We have discussed with the Valuer regarding the Valuer’s qualification and experience in relation to the performance of the valuation. The Valuer is a qualified asset appraisal firm authorised by the Ministry of Finance of the PRC to perform valuation works in the PRC. The Valuer has relevant experience in performing valuation in shipping industry. We further understand that the Valuer is independent from the Company and the other parties involved in the Proposed Transactions. In addition, we have also reviewed the terms of the engagement of the valuation and noted that the scope of work is appropriate to the opinion required to be given and we are not aware of any limitation on the scope of work which might have an adverse impact on the degree of assurance given by the Valuer. Based on the above, we are of the view that the scope of work of the Valuer is appropriate and the Valuer is qualified for valuing Dalian Ocean and CS Bulk.

(a) Valuation methodologies

We have noted and discussed with the Valuer and understand that they have adopted the income approach in valuing Dalian Ocean and CS Bulk. The Valuer considered both income approach and asset-based approach in valuing Dalian Ocean and CS Bulk.

Besides the tangible assets such as vessels and working capitals, Dalian Ocean also relies on important intangible assets, such as scale of shipping market, shipping techniques, demand and supply network, service capabilities, management skills, human resources and goodwill. The valuation based on the income approach has fully reflected the above mentioned tangible and intangible assets together with the synergy between Dalian Ocean and its subsidiaries. Therefore, the appraisal results of income approach are taken as the final conclusions in valuing Dalian Ocean.

Given the current dry bulk shipping industry condition, with most players experiencing losses and a significant drop in the market value of the dry bulk vessels, we concur with the Valuer that it would not be fair or reasonable to value the equity interest of a dry bulk shipping company at the downturn of the industry using replacement cost of its vessels. In comparison, the income approach is based on the assumption that a company will continue its operation and takes into account the dry bulk shipping industry condition in the mid to long term in a normalized operating environment. Therefore, the appraisal results of income approach are taken as the final conclusions in valuing CS Bulk.

(b) The income approach

The discounted cash flow valuation method is based on the premise that the value of a business is the net present value of its future cash flows. This approach requires assessment of expected income, costs, planned capital expenditure and working capital changes. We have reviewed the past business performance of Dalian Ocean and CS Bulk as well as the future potential of Dalian Ocean and CS Bulk/ the breakdown of the projection schedules.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The discount rate used by the Valuer is the weighted average cost of capital (“ WACC ”), to reflect all business risks including intrinsic and extrinsic uncertainties in relation to Dalian Ocean and CS Bulk. We have understand the calculation of WACC from the Valuer and consider that WACC adopted by the Valuer in the valuation of Dalian Ocean and CS Bulk is fair and reasonable.

During the course of their discussions with the Valuer, we have not identified any major factors which would lead them to cast doubt on the fairness and reasonableness of the methodologies, principal bases and assumptions adopted in arriving at the valuation of Dalian Ocean and CS Bulk.

(ii) Comparable analysis

(A) Dalian Ocean Acquisition

(a) Comparable Tanker Shipping Companies

In order to assess the fairness and reasonableness of the Dalian Ocean Consideration, we have attempted to identify comparable tanker shipping companies (the “ Comparable Tanker Shipping Companies ”) that (i) are currently listed on the Main Board of the Stock Exchange, the Shanghai Stock Exchange and the Shenzhen Stock Exchange; and (ii) are primarily engaged in tanker shipping business in Hong Kong and the PRC (i.e. for companies listed on the Main Board of the Stock Exchange, generating equal to or more than 50% of their revenue from tanker shipping business; for companies listed on Shanghai Stock Exchange or Shenzhen Stock Exchange, the description of principal business is tanker shipping business). The Comparable Tanker Shipping Companies have been selected exhaustively based on the above criteria, which have been identified, to the best of our endeavours, in our research through public information. Shareholders should note that the businesses, operations and prospects of Dalian Ocean are not the same as those of the Comparable Tanker Shipping Companies and as such, the Comparable Tanker Shipping Companies may only be used to provide a general reference only.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In our assessment, we have considered price-to-earnings ratio (“ P/E ”), price-to-book value ratio (“ P/B ”) and enterprise value-to-earnings before interests, taxes, depreciation and amortization, and operating lease costs ratio (the “ EV/EBITDA ”), which are commonly used to assess the financial valuation of a company engaged in shipping business. P/E, P/B and EV/EBITDA analysis of the Comparable Tanker Shipping Companies are shown below.

		Market			EV/
Company name	Ticker	capitalization	P/E	P/B	EBITDA
		(HK$ million)	(times)	(times)	(times)
		(Note 1)	(Note 2)	(Note 3)	(Note 4)
China Merchants Energy
Shipping Co Ltd	601872 SH	31,160	22.62	1.91	13.81
	1138HK/
The Company (Note 5)	600026 SH	30,398	35.32	0.99	13.27
		Average	28.97	1.45	13.54
		Maximum	35.32	1.91	13.81
		Minimum	22.62	0.99	13.27
CS Bulk (Note 6)			8.24	1.09	6.03

• Source: Bloomberg, Stock Exchange and Shanghai Stock Exchange, latest financial reports of the Comparable Tanker Shipping Companies

Notes:

1. The market capitalizations of the Comparable Tanker Shipping Companies are calculated by multiplying the share price and the number of issued shares of the respective companies (the market capitalization comprises both A share market capitalization and H share market capitalization if the company is dual-listed in Main Board of Stock Exchange and Shanghai Stock Exchange) as at the Latest Practicable Date. The market capitalization of the Company comprises both A share market capitalization and H share market capitalization of the Company as the Company is dual-listed in Main Board of Stock Exchange and Shanghai Stock Exchange.

2. The P/Es of the Comparable Tanker Shipping Companies are calculated by dividing their market capitalization by the net profit attributable to the equity holders of the respective companies according to their latest financial reports.

3. The P/Bs of the Comparable Tanker Shipping Companies are calculated by dividing their market capitalization by the net assets value (“NAV”) attributable to equity holders of the respective companies according to their latest financial reports.

4. The EV/EBITDA of the Comparable Tanker Shipping Companies are calculated by dividing their market capitalization by the earnings before interests, taxes, depreciation and amortization, and operating lease costs according to their latest financial reports.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

1. Since the revenue contribution of oil shipment segment of the Company is around 50% as discussed in the paragraph headed “Information on the Company” above, the Company is also selected as the Comparable Tanker Shipping Companies.

2. The implied P/E of Dalian Ocean is calculated by dividing the Dalian Ocean Consideration by the net profit attributable to the owner of the Target PRC Company for the year ended 31 December 2015. The implied P/B of Dalian Ocean is calculated by dividing the Dalian Ocean Consideration by the consolidated net equity excluding non-controlling interests of Dalian Ocean as at 31 December 2015. The implied EV/EBITDA is calculated by dividing the Dalian Ocean Consideration by the earnings before interests, taxes, depreciation and amortization, and operating lease costs of Dalian Ocean which is based on the audited financial statements of Dalian Ocean for the year ended 31 December 2015.

As illustrated above, the P/Es of the Comparable Tanker Shipping Companies range from approximately 22,62 times to approximately 35.32 times, with an average of approximately 28.97 times (the “ Average Comparable Tanker Shipping Companies P/E ”).

The P/Bs of the Comparable Tanker Shipping Companies range from approximately 0.99 times to approximately 1.91 times, with an average of approximately 1.45 times (the “ Average Comparable Tanker Shipping Companies P/B ”).

The EV/EBITDA of the Comparable Tanker Shipping Companies range from approximately 13.27 times to approximately 13.81 times, with an average of approximately 13.54 times (the “ Average Comparable Tanker Shipping Companies EV/EBITDA ”).

We note that the implied P/E, P/B and EV/EBITDA of Dalian Ocean is 8.24 times, 1.09 times and 6.03 times, respectively. The implied P/E, P/B and EV/EBITDA of Dalian Ocean is below the Average Comparable Tanker Shipping Companies P/E, the Average Comparable Tanker Shipping Companies P/B and the Average Comparable Tanker Shipping Companies EV/EBITDA, respectively. As such, we are of the view that the Dalian Ocean Consideration is fair and reasonable in this regard.

(b) Comparable Tanker Shipping Transactions

In order to assess the fairness and reasonableness of the Dalian Ocean Consideration of, to the best of our endeavours, we have reviewed transactions over the past two years which involved acquisition of 100% equity interests in tanker shipping business or assets (the “ Comparable Tanker Shipping Transactions ”). The Comparable Tanker Shipping Transactions are selected exhaustively based on the above criteria, which have been identified, to our best endeavour, in our research through public information. Shareholders should note that the businesses, operations and prospects of Dalian Ocean are not the same as those of the target companies in the Comparable Tanker Shipping Transactions and as such, the Comparable Tanker Shipping Transactions may only be used to provide a general reference only.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Similar to the Comparable Tanker Shipping Companies analysis, in our assessment, we have considered P/E, P/B and EV/EBITDA as our benchmark and the analysis of the Comparable Tanker Shipping Transactions are shown below.

Announcement						EV/
date	Target name	Acquirer	Transaction size	P/E	P/B	EBITDA
				(times)	(times)	(times)
				(Note 1)	(Note 2)	(Note 3)
20-May-14	ACM Shipping	Braemar Shipping	GBP44 million	23.33	6.07	17.64
	Group Ltd.	Services PLC
11-Dec-15	Frontline 2012 Ltd.	Frontline Ltd.	US$1,596 million	20.40	1.17	17.96
			Average	21.87	3.62	17.80
			Maximum	23.33	6.07	17.96
			Minimum	20.40	1.17	17.64
Dalian Ocean				8.24	1.09	6.03
(Note 4)
Source: Bloomberg

Note:

1. The P/Es of the Comparable Tanker Shipping Transactions are calculated by dividing the consideration by the then net profit of the respective shipping business or assets.

2. The P/Bs of the Comparable Tanker Shipping Transactions are calculated by dividing the consideration by the then NAV of the respective shipping business or assets.

3. The EV/EBITDA of the Comparable Tanker Shipping Transactions are calculated by dividing the consideration by the then earnings before interests, taxes, depreciation and amortization, and operating lease costs of the respective shipping business or assets.

4. The implied P/E of Dalian Ocean is calculated by dividing the Dalian Ocean Consideration by the net profit attributable to the owner of the Target PRC Company for the year ended 31 December 2015. The implied P/B of Dalian Ocean is calculated by dividing the Dalian Ocean Consideration Acquisition by the consolidated net equity excluding non-controlling interests of Dalian Ocean as at 31 December 2015. The implied EV/EBITDA is calculated by dividing the Dalian Ocean Consideration by the earnings before interests, taxes, depreciation and amortization, and operating lease costs of Dalian Ocean which is based on the audited financial statements of Dalian Ocean for the year ended 31 December 2015.

As illustrated above, the P/Es of the Comparable Tanker Shipping Transactions range from approximately 20.40 times to approximately 23.33 times, with an average of approximately 21.87 times (the “ Average Comparable Tanker Shipping Transactions P/E ”).

The P/Bs of the Comparable Tanker Shipping Transactions range from approximately 1.17 times to approximately 6.07 times, with an average of approximately 3.62 times (the “ Average Comparable Tanker Shipping Transactions P/B ”).

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The EV/EBITDA of the Comparable Tanker Shipping Transactions range from approximately 17.64 times to approximately 17.96 times, with an average of approximately 17.80 times (the “ Average Comparable Tanker Shipping Transactions EV/EBITDA ”).

We note that the implied P/E, P/B and EV/EBITDA of Dalian Ocean is 8.24 times, 1.09 times and 6.03 times, respectively. The implied P/E, P/B and EV/EBITDA is below the Average Comparable Tanker Shipping Transactions P/E, the Average Comparable Tanker Shipping Transactions P/B and the Average Comparable Tanker Shipping Transactions EV/EBITDA, respectively. As such, we are of the view that the Dalian Ocean Consideration is fair and reasonable in this regard.

(B) CS Bulk Disposal

(a) Comparable Dry Bulk Shipping Companies

In order to assess the fairness and reasonableness of the CS Bulk Consideration, we have attempted to identify comparable dry bulk shipping companies (the “ Comparable Dry Bulk Shipping Companies ”) that (i) are currently listed on the Main Board of the Stock Exchange, Shanghai Stock Exchange and Shenzhen Stock Exchange; and (ii) are primarily engaged in dry bulk shipping business in Hong Kong and the PRC (i.e. for companies listed on the Main Board of the Stock Exchange, generating equal to or more than 50% of their revenue from dry bulk shipping business; for companies listed on the Shanghai Stock Exchange or Shenzhen Stock Exchange, the description of principal business is dry bulk shipping business). The Comparable Dry Bulk Shipping Companies have been selected exhaustively based on the above criteria, which have been identified, to the best of our endeavours, in our research through public information. Shareholders should note that the businesses, operations and prospects of CS Bulk are not the same as those of the Comparable Dry Bulk Shipping Companies and as such, the Comparable Dry Bulk Shipping Companies may only be used to provide a general reference only.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In our assessment, we have considered P/E, P/B and EV/EBITDA, which are commonly used to assess the financial valuation of a company engaged in shipping business. However, given that CS Bulk recorded net losses and negative EBITDA historically, P/E and EV/EBITDA of CS Bulk is not applicable and hence, should not be used for the purpose of the Comparable Dry Bulk Shipping Companies analysis. P/B analysis of the Comparable Dry Bulk Shipping Companies are shown below.

		Market
Company name	Ticker	capitalization	P/B
		(HK$ million)	(times)
		(Note 1)	(Note 2)
Sinotrans Shipping Limited	368 HK	5,589	0.35
Pacific Basin Shipping Limited	2343 HK	2,219	0.29
The Company	1138 HK/	30,398	0.99
	600026 SH
China Shipping Haisheng Co., Ltd	600896 SH	8,809	4.96
Ningbo Marine Company Limited	600798 SH	7,236	2.30
Chang Jiang Shipping Group	000520 SZ	12,694	41.87
Phoenix Co., Ltd (“CJ Phoenix”)
	Average (excluding CJ Phoenix) (Note 3)		1.78
	Maximum (excluding CJ Phoenix)(Note 3)		4.96
	Minimum (exculding CJ Phoenix) (Note 3)		0.29
CS Bulk (Note 4)			1.25

Source: Stock Exchange, latest financial reports of the Comparable Dry Bulk Shipping Companies

Notes:

1. The market capitalizations of the Comparable Dry Bulk Shipping Companies are calculated by multiplying the share price and the number of issued shares of the respective companies as at the Latest Practicable Date. The market capitalization of the Company comprises both A share market capitalization and H share market capitalization of the Company as the Company is dual-listed in Main Board of Stock Exchange and Shanghai Stock Exchange.

2. P/Bs of the Comparable Dry Bulk Shipping Companies are calculated by dividing their market capitalization by the NAV attributable to equity holders of the respective companies according to their latest financial reports.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

1. Since CJ Phoenix has incurred loss from 2012 to 2014, trading in the shares of CJ Phoenix on the Shenzhen Stock Exchange was suspended from December 2013 to December 2015 for delisting process according to the relevant listing rules in the Shenzhen Stock Exchange. Trading in the shares of CJ Phoenix on the Shenzhen Stock Exchange was resumed in December 2015. Due to loss-making, the book value of CJ Phoenix is considerably low, therefore leading to the higher P/B ratio. Thus, we consider the P/B ratio of CJ Phoenix is an outlier and rule it out in calculating average, maximum and minimum P/B ratio.

2. The implied P/B of CS Bulk is calculated by dividing the CS Bulk Consideration by the consolidated net equity excluding non-controlling interest of CS Bulk as at 31 December 2015.

As illustrated above, the P/Bs of the Comparable Dry Bulk Shipping Companies (excluding CJ Phoenix) range from approximately 0.29 times to 4.96 times, with the average of approximately 1.78 times (the “ Average Comparable Dry Bulk Shipping Companies P/B (excluding CJ Phoenix) ”).

We note that the implied P/B of CS Bulk is 1.25 times, which is lower than the Average Comparable Dry Bulk Shipping Companies P/B (excluding CJ Phoenix) but within the range of Comparable Dry Bulk Shipping Companies P/B (excluding CJ Phoenix). As such, we are of the view that the CS Bulk Consideration is fair and reasonable in this regard.

(b) Comparable Dry Bulk Shipping Transactions

In order to assess the fairness and reasonableness of the CS Bulk Consideration, to the best of our endeavours, we have reviewed transactions over the past two years which involved acquisition of 100% equity interests in dry bulk shipping business or assets (the “ Comparable Dry Bulk Shipping Transactions ”). The Comparable Dry Bulk Shipping Transactions are selected exhaustively based on the above criteria, which have been identified, to our best endeavour, in our research through public information. Shareholders should note that the businesses, operations and prospects of CS Bulk are not the same as those of the target companies in the Comparable Dry Bulk Shipping Transactions and as such, the Comparable Dry Bulk Shipping Transactions may only be used to provide a general reference only.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Similar to the Comparable Dry Bulk Shipping Companies analysis, in our assessment, we have considered P/E, P/B and EV/EBITDA as our benchmark. However, given that CS Bulk recorded net losses and negative EBITDA historically, P/E and EV/EBITDA of CS Bulk is not applicable and hence P/B is used in the below analysis.

Announcement date	Target name	Acquirer name	Transaction size	P/B
				(times)
				(Note 1)
7-Oct-14	Golden Ocean Group Ltd.	Knightsbridge	7 billion	1.08
		Shipping Ltd.	Norwegian Krones
8-Apr-15	Baltic Trading Ltd.	Genco Shipping &	US$291 million	0.27
		Trading Ltd.
11-Dec-15	China COSCO Bulk	China Ocean Shipping	RMB6,768 million	1.28
	Shipping (Group) Co., Ltd.	(Group) Company
			Average	0.88
			Maximum	1.28
			Minimum	0.27
CS Bulk (Note 2)				1.25

Source: Bloomberg

Notes:

1. The P/Bs of the Comparable Dry Bulk Shipping Transactions are calculated by dividing the consideration by the then NAV of the respective shipping business or assets.

2. The implied P/B of CS Bulk is calculated by dividing the CS Bulk Consideration by the consolidated net equity excluding non-controlling interest of CS Bulk as at 31 December 2015.

As illustrated above, the P/Bs of the Comparable Dry Bulk Shipping Transactions range from approximately 0.27 times to 1.28 times, with the average of approximately 0.88 times (the “ Average Comparable Dry Bulk Shipping Transactions P/B ”).

We note that the implied P/B of CS Bulk is 1.25 times, which is higher than the Average Comparable Dry Bulk Shipping Transactions P/B. As such, we are of the view that the CS Bulk Consideration is fair and reasonable in this regard.

5. Financial effects of the Proposed Transactions

As advised by the Directors, upon completion of the Proposed Transactions, Dalian Ocean will become a wholly-owned subsidiary of the Company and their financial results, assets and liabilities will be fully consolidated into the financial statements of the Group. CS Bulk will cease to be a subsidiary of the Company and their financial results, assets and liabilities will not be consolidated into the financial statements of the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The unaudited pro forma financial information of the Enlarged Group is included in Appendix IV to the Circular.

(i) Effect on net profit

As stated in the Letter from the Board, as at 31 December 2015, the equity attributable to owners of CS Bulk was approximately RMB4,327 million. As a result, the Company is expected to accrue a gain of approximately RMB822 million under the CS Bulk Disposal. The Company will recognise such gain under the CS Bulk Disposal in its consolidated income statement as at the Closing Date. As stated in the Letter from the Board, the proceeds from the CS Bulk Disposal will be applied to offset part of the Dalian Ocean Consideration.

Also, based on the 2015 Annual Report, the net profit of the Group was approximately RMB490 million. As stated in the Appendix IV of the Circular, the Enlarged Group’s net profit would increase by approximately RMB2,433 million or 496.9% to approximately RMB2,923 million assuming the Proposed Transactions to be completed on 31 December 2015. As such, we consider that the Proposed Transactions will have a positive impact on the net profit of the Group.

(ii) Effect on net assets value

Based on the 2015 Annual Report, the net asset value of the Group was approximately RMB26,523 million. As stated in the Appendix IV of the Circular, the Enlarged Group’s total assets and total liabilities would decrease by approximately RMB1,175 and RMB353 respectively, and as a result, the net assets value would decrease by approximately RMB822 million or 3.1% to approximately RMB25,701 million assuming the Proposed Transactions to be completed on 31 December 2015. As such, we consider that the Proposed Transactions will not have a material impact on the net assets value of the Group.

(iii) Effect on gearing

The net financial debts of the Group were approximately RMB39,650 million and the gearing ratio of the Group (calculated by total equity divided by net financial debts) was approximately 149.5% as at 31 December 2015. After the completion of the Proposed Transactions, the net financial debts of the Enlarged Group would be approximately RMB39,025 million and gearing ratio of the Enlarged Group would be 151.8%, mainly due to decrease in total equity as Dalian Ocean has less net assets than CS Bulk. As such, we consider that the Proposed Transactions would have no material impact on gearing level of the Group.

(iv) Effect on cash/working capital

As disclosed in the 2015 Annual Report, the Group had current assets of RMB6,466 million including cash and cash equivalents of RMB2,086 million. As stated in the Appendix IV of the Circular, upon completion of the Proposed Transactions, the current assets would increase by approximately RMB14,957 million, including increase in cash and cash equivalents by approximately RMB2,155 million. As such, we consider that the Proposed Transactions would have a positive impact in cash/working capital of the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the above, we consider that the Proposed Transactions would have a positive financial impact on the Group.

4.6 Conclusion on the Asset Transfer Agreement, the Compensation Agreement and the Proposed Transactions

Having taken into account (i) despite the entering into the Asset Transfer Agreement is not in the ordinary and usual course of business of the Group, the Proposed Transactions are in the interests of the Company and its Shareholders as a whole as mentioned in the paragraph headed “Reasons for and benefits of the Proposed Transactions” above; (ii) the Compensation Agreement is in the interest of the Company and its Shareholder as a whole as mentioned in the paragraph headed “Principal terms and conditions of the Compensation Agreement” above; (iii) the Dalian Ocean Consideration and the CS Bulk Consideration is fair and reasonable as mentioned in the paragraph headed “The Consideration” above; and (iv) the Proposed Transactions would have a positive financial impact on the Group as mentioned in the paragraph headed “Financial effects of the Proposed Transactions” above, we are of the view that, though the entering into of the Asset Transfer Agreement, the Compensation Agreement and the Proposed Transactions are not in the ordinary and usual course of business of the Group, the terms of the Asset Transfer Agreement, the Compensation Agreement and the Proposed Transactions are on normal commercial terms, fair and reasonable insofar as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.

5. Exemption of the Non-Competition Undertaking of China Shipping

As stated in the Letter from the Board, pursuant to the requirements of the relevant PRC laws, in order to avoid competition between the Company and China Shipping, after negotiation between the Company and China Shipping, China Shipping issued the Non-competition Undertaking (the “ Original Undertaking ”) on 15 June 2011. Please refer to the Letter from the Board for the details of the Original Undertaking.

As at the Latest Practicable Date, China Shipping has injected all its oil transportation assets into the Company, and has entrusted CS Bulk to operate and manage those bulk shipping business controlled by China Shipping and not operated by the Company. However, those bulk shipping assets have not yet been injected into the Company, nor have disposal thereof been completed.

As the Company intends to implement the CS Bulk Disposal and the Dalian Ocean Acquisition, upon completion of the Proposed Transactions, the Company will become a listed company engaged in professional oil and gas transportation and no longer engage in bulk shipping business. Therefore, still requiring China Shipping to inject the bulk shipping assets into the Company will no longer meets the need of planning and positioning for the future business development.

Accordingly, based on the requirements of the relevant laws and regulations, and after comprehensive consideration about the performance of the foresaid undertaking, the business development strategy and the actual situation of the Company, together with the analysis on the feasibility necessity of performing the undertaking, the Board considers that continuous performance of the Original Undertaking will be unfavorable to the business development of the Company and to

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

the protection of interests of the Company and its Shareholders. Meanwhile, taking into account that there is uncertainty as to whether the Proposed Transactions can be completed or can be completed prior to the expiry date of the Original Undertaking (i.e. 15 June 2016), subject to approval of the Shareholders, the Company proposes to conditionally exempt part of the Original Undertaking with details as follows:

In case of completion of the Proposed Transactions, the Company will agree to exempt the undertaking under item 1 and item 2 of the Original Undertaking that bulk shipping assets should be injected into the Company or disposed of; and the undertaking under item 4 regarding lease and entrusted operation of the bulk shipping assets prior to injection or disposal thereof. In the event that the Proposed Transactions fails to proceed to completion, the Original Undertaking shall continue to be performed whereas the term of performance will extend to within one year from the date of announcement of termination of the Proposed Transactions.

Given (i) the Exemption is in line with the CS Bulk Disposal; and (ii) the Proposed Transactions, which include, among others, the CS Bulk Disposal, are on normal commercial terms, fair and reasonable insofar as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole as mentioned in the paragraph headed “The Asset Transfer Agreement and the Compensation Agreement” above, we concur with the Board’s view that, despite the entering into the Exemption is not in the ordinary and usual course of business of the Group, the Exemption is fair and reasonable insofar as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.

RECOMMENDATION

As mentioned above, though the entering into the Asset Transfer Agreement, the Compensation Agreement and the Proposed Transactions and the Exemption are not in the ordinary and usual course of business of the Group, we are of the view that terms of the Asset Transfer Agreement, the Compensation Agreement and the Proposed Transactions are on normal commercial terms, fair and reasonable insofar as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole and the Exemption is fair and reasonable insofar as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole. Accordingly, we would recommend (i) the Independent Board Committee to advise the Independent Shareholders’ and (ii) the Independent Shareholders, to vote in favour of the ordinary resolutions in this regard.

Yours faithfully, For and on behalf of TC Capital Asia Limited Edward Wu Chairman

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

— 50 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

I. THREE-YEAR FINANCIAL INFORMATION OF THE GROUP

The audited consolidated financial statements of the Company for the years ended 31 December 2013, 2014 and 2015 together with the relevant notes to the financial statements of the Company can be found on pages 74 to 190 of the annual report of the Company for the year ended 31 December 2013, pages 85 to 208 of the annual report of the Company for the year ended 31 December 2014 and pages 85 to 198 of the annual report of the Company for the year ended 31 December 2015. Please also see below the hyperlinks to the said annual reports:

http://www.hkexnews.hk/listedco/listconews/SEHK/2014/0417/LTN20140417045.pdf http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0430/LTN20150430037.pdf http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0418/LTN20160418181.pdf

The Company is a major shipping company having its business across the coastal region of the PRC and internationally. The Company was established on 3 May 1994, and the registered capital of the Company now is RMB4.033 billion. The registered address of the Company is China (Shanghai) Pilot Free Trade Zone and the headquarter office of the Company is Shanghai Port International Cruise Terminal in the North Bund Area of Shanghai. The Company was listed on the Stock Exchange of Hong Kong Limited and Shanghai Stock Exchange, and stock code is 01138 and 600026, respectively. The main business scope of the Company includes coastal and ocean shipping of crude oil and refined oil, coastal and ocean shipping of coal and iron ore, and the Company is now actively exploring shipping business of China’s importing LNG. Set out below is the management discussion and analysis of the Group’s operations for the three years ended 31 December 2015. The information set out below is principally extracted from the “Management Discussion and Analysis” section of the relevant annual reports of the Group to provide further information relating to the financial condition and results of operations of the Group during the periods stated. These extracted materials were prepared prior to the Proposed Transactions and speak as of the date they were originally published. The Group’s prospects and intentions will have changed since that date, and the reader should therefore not place undue reliance on this information, particularly the information consisting of or relating to forward-looking or future statements.

• 2015

1. REVIEW OF OPERATING RESULTS DURING THE REPORTING PERIOD

Facing the complicated market environment, the Group adhered to the “strategic guidance and innovation-driven” general keynotes of work and to continue to deepen the strategy of “major clients, great co-operation and comprehensive services”. The Company actively innovated its business ideas and modes, pushed forward a transformation in an orderly manner and obtained breakthroughs in all aspects including marketing, cost control, safety management, management upgrade and capital operation, maintaining an overall stable development trend.

In 2015, the volume of cargo shipped by the Company accumulated to approximately 184 million tonnes, up 1.1% year-on-year; transport turnover were approximately 470.9 billion tonne-nactical miles, increased by 9.5% year-on-year; revenue derived from operations (after business tax and

— I-1 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

surcharge) was approximately RMB12,213 million, decreased by 0.5% year-on-year; operating costs were approximately RMB9,867 million, decreased by 9.4% year-on-year. The profit for the year attributable to owners of the Company was RMB417 million, and the basic earnings per share was RMB10.49 cents.

(1) Revenue from Principal Operations

In 2015, overall details of the Group’s principal operations by products transported and geographical regions were as follows:

Principal Operations by Products Transported

Industry or Product Description Oil shipment Coal shipment Iron ore shipment Other dry bulk shipment Vessel chartering Total

Revenue Operating costs Gross profit margin Increase/ (decrease) in revenue as compared to 2014 Increase/ (decrease) in operating costs as compared to 2014 Increase/ (decrease) in gross profit margin as compared to 2014 (RMB’000) (RMB’000) (%) (%) (%) (%) 5,187,777 3,062,161 41.0 0.5 -29.8 25.4 1,562,249 1,520,620 2.7 -34.2 -36.3 3.3 2,260,133 2,074,486 8.2 -21.6 -6.9 -14.5 809,473 890,112 -10.0 74.0 74.9 -0.6 2,393,341 2,319,820 3.1 72.5 65.6 4.1 12,212,973 9,867,199 19.2 -0.5 -9.4 7.9

Principal Operations by Geographical Regions

		Increase/
		(decrease) in
		revenue as
		compared to
Regions	Revenue	2014
	(RMB’000)	(%)
Domestic shipment	4,821,465	4.7
International shipment	7,391,508	-3.6

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(2) Shipping business — Oil shipment

In 2015, the oil shipping market was better than in 2014 in general. Affected by beneficial factors such as the higher shipping prices, significant decrease in fuel prices and gradual realisation of results from various innovative measures of the Company, oil shipping business obtained a good result.

For domestic oil shipment, due to the opening up of the domestic crude oil market, the Company further established the operating strategy and goal of “leading the innovation of the operating mode of the domestic crude oil market, becoming the leading force to safeguard the market order and continuously consolidating and enhancing its leading position in the market” . Centered on this strategy objective, the Company strengthened strategic layout, strategically exited the refined oil market, innovated the integrated logistical service modes and seized the opportunities of capital injection into Beihai Shipping to establish a close partnership with China National Offshore Oil Corporation. The Company actively promoted the new “competition and cooperation” mode to undergo cooperation of various kinds with the domestic shipping companies, such as exchanging the anchors, the routes, the cargo and short-and-long term rental. They not only brought a win-win solution to the shipping companies, but also increased protection for the shipping customers, realising a win-win situation for both the shipment owner and the shipping company. In 2015, the Company’s domestic oil transport turnover was 15.54 billion tonne-nautical miles, increased by 5.1% year-on-year; revenue derived from operations was RMB2,158 million, increased by 8.6% year-on-year; gross profit rate was 40.5%, increased by 6.5% year-on-year. The Company’s market share in the domestic shipping market remained at around 54%. In particular, with the year-on-year decrease by 2.9% of the freight rates for coastal crude oil, the Company’s domestic crude shipping business continued to maintain a relatively high profitability level with a gross profit rate of 43.7%, realising gross profit of RMB860 million, increased by 31.0% year-on-year.

In the international oil shipment market, the Company actively carried out the strategies of “globalisation”, “following” and “diversification”, which greatly enhanced the Company’s ability to study the market, to bargain, to resist market fluctuation and its profitability. In aspects of client diversification, market diversification, route diversification and business diversification combining self-operation and term lease, or long-term lease and short-term lease, comprehensive breakthrough has been achieved to significantly lower dependency on single clients, single markets and single routes. Profitability is further strengthened. In 2015, the Company completed exported oil shipment turnover of 152.2 billion tonne-nautical miles, decreased by 13.4% year-on-year (mainly because part of the self-operating vessels changed to vessels for lease); transport income was RMB3,921 million, increased by 11.6% year-on-year; gross profit rate was 32.8% and gross profit was RMB1,284 million, increased by RMB1,140 million year-on-year, representing an increase of 786.6%.

In 2015, the Group achieved a shipping volume of approximately 167.7 billion tonne-nautical miles of oil, representing a decrease of approximately 12.0% year-on-year; revenue derived from oil transportation was approximately RMB6,079 million, representing an increase of 10.5% year-on-year. An analysis of the transportation volume and revenue in terms of product types is as follows:

— I-3 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Transportation volume by product types

																									Increase/
					In 2015												**In **		2014					(decrease)
			(billion tonne-									(billion tonne-
			nautical miles)									nautical miles)													(%)
Domestic						15.54												14.78							5.1
Crude oil						14.93												13.39							11.5
Refined oil							0.61													1.39					-56.1
International						152.19												175.72							-13.4
Crude oil						121.33												141.78							-14.4
Refined oil						30.86												33.94							-9.1
Total						167.73												190.50							-12.0
Revenue by shipment types
																									Increase/
					In 2015												**In **		2014					(decrease)
			_(RMB _		_million) _							_(RMB _					million)								(%)
Domestic						2,158												1,988							8.6
Crude oil						1,960												1,720							14.0
Refined oil							109													212					-48.6
Vessel charting									89													56			58.9
International						3,921												3,512							11.6
Crude oil						2,178												2,020							7.8
Refined oil							941											1,213							-22.4
Vessel chartering							802													279					187.5
Total						6,079												5,500							10.5

(3) Shipping business — Dry bulk shipment

For domestic bulk cargo shipment, in 2015, China Shipping Bulk Carrier Co., Limited (“ CS Bulk ”) strengthened marketing on domestic big customers by advanced arrangement of Contract of Aftreightment (“ COA Contract ”) contract negotiations early in the year, and strived to increase the fulfilment rate of the contracts. In 2015, CS Bulk signed COA contracts for domestic dry bulk cargoes with a shipping volume of 50.95 million tonnes. Through early disposal and seal of its coastal transport capacity, the Company decreased its loss by RMB168 million during the whole year.

— I-4 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

For international dry bulk shipment, the Company actively adjusted the market structure to transform it from the traditional coastal shipping market to ocean cargo market; strengthened the cooperation with Baosteel Group Corporation (“ Baosteel ”) and Wuhan Iron And Steel (Group) Corporation (“ Wugang ”), actively pushed forward the cooperation with Valley in Brazil. Foreign trading capacity took up 77%, with a foreign turnover of 82%. Foreign transport income took up 75% of the total income. Meanwhile, the Company adjusted the supply structure to transform it from traditional thermal coal shipment to non-coal shipment of high added-value including grain and chemical fertiliser. Non-coal shipping capacity took up 75%, while the non-coal shipping volume reached 58%. For strengthening of international cargo shipment, the Company strived to improve very large ore carriers (“ VLOC ”) operation and completed 56 routes, turnover of 14.17 million tonnes during the whole year and achieved operating income of RMB1,252 million. Meanwhile, the Company enhanced its ability to study the market for better cargo capacity layout. The Company increased capacity to the third country, and its capacity input in the third countries during the whole year increased by 7.9% year-on-year and the third countries’ turnover increased by 11.6% year-on-year. In addition, the Company developed cargo rental business, achieving cargo rental income of RMB186 million during the whole year.

In 2015, the Group achieved a shipping volume of approximately 303.2 billion tonne-nautical miles of dry bulk cargo, representing an increase of approximately 26.6% year-on-year; operating revenue derived from dry bulk cargo transportation was approximately RMB6,134 million, representing a decrease of 9.5% year-on-year. An analysis of the transportation volume and revenue in terms of product types is as follows:

Transportation volume by types

									Increase/
	In 2015					In 2014			(decrease)
	(billion tonne-					(billion tonne-
	nautical miles)				nautical miles)				(%)
Domestic		72.11					72.37		-0.4
Coal		53.10					56.73		-6.4
Iron ore		7.72					7.10		8.7
Other dry bulk (note)		11.29					8.54		32.2
International		231.09					167.21		38.2
Coal		20.08					12.17		65.0
Iron ore		176.75					147.54		19.8
Other dry bulk (note)		34.26					7.50		356.8
Total		303.20					239.58		26.6

— I-5 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Revenue by shipment types

														Increase/
		**In **			2015				**In **			2014		(decrease)
		(RMB million)					(RMB million)							(%)
Domestic				2,664							2,619			1.7
Coal				1,311							1,933			-32.2
Iron ore					150							277		-45.8
Other dry bulk (note)					264							258		2.3
Vessel chartering					939							151		521.9
International				3,470							4,155			-16.5
Coal					251							441		-43.1
Iron ore				2,110							2,606			-19.0
Other dry bulk (note)					545							207		163.3
Vessel chartering					564							901		-37.4
Total				6,134							6,774			-9.4

Note: Other dry bulk cargoes include metal ore, non-metallic ore, steel, cement, timber, grain, fertilizer and so on except for coal and iron ore.

(4) Progress made in Liquefied natural gas (“LNG”) shipment

In 2015, the Company steadily pushed forward the phase 1 vessel construction of the Mobil DES project and the APLNG project, and actively worked better on the negotiation and development of the relevant projects. The Company strengthened coordination with its business partners, accelerated the construction of a team of talents. As of December 2015, there were 13 vessels in total owned by the Mobile DES project, APLNG project and YAMAL project which the Company participated or directed.

In 2015, the Company’s LNG business entered the stage of garnering profits. The 3 LNG vessels of the Mobile DES project were put into operation and completed 13 voyages with shipment of 990,000 tonnes, turnover of 4,300 million tonne-nautical miles. The Company achieved net profits of approximately USD7.13 million, and investment profits of RMB13.33 million under the equity method.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. COSTS AND EXPENSES ANALYSIS

While achieving well in transportation operations, the Company has seriously and consistently implemented the various requirements of the Board on further enhancing management, cost reduction and efficiency improvement. Starting on operational management and overall budget management, cost management and control was further strengthened and all types of various costs and expenses were effectively under control. In 2015, transportation cost of RMB9.87 billion was incurred, representing a decrease of 9.4% year-on year, while ensuring notable improvement in the operating profit of the Company. The composition of the main operating costs is as follows:

Item Fuel costs Port costs Sea crew cost Lubricants expenses Depreciation Insurance expenses Repair expenses Charter cost Provision for onerous contracts Others Total	In 2015 (RMB’000) 2,735,705 1,144,577 1,304,625 214,099 1,880,065 212,597 321,003 1,595,540 127,828 331,160 9,867,199	In 2014 Increase/ (decrease) Composition ratio in 2015 (RMB’000) (%) (%) 4,555,800 -40.0 27.7 1,107,320 3.4 11.6 1,499,667 -13.0 13.2 223,797 -4.3 2.2 1,842,974 2.0 19.1 238,527 -10.9 2.2 351,382 -8.6 3.2 516,664 208.8 16.2 107,358 19.1 1.3 442,131 -25.1 3.3 10,885,620 -9.4 100.0	In 2014 Increase/ (decrease) Composition ratio in 2015 (RMB’000) (%) (%) 4,555,800 -40.0 27.7 1,107,320 3.4 11.6 1,499,667 -13.0 13.2 223,797 -4.3 2.2 1,842,974 2.0 19.1 238,527 -10.9 2.2 351,382 -8.6 3.2 516,664 208.8 16.2 107,358 19.1 1.3 442,131 -25.1 3.3 10,885,620 -9.4 100.0
			100.0

Fuel costs were the major expense for the Company. Affected by the significant slump of international oil price and the Company’s active efforts to control costs, the lower fuel costs was the highlight of the cost-controlling work. In 2015, while the transportation turnover volume of the Company increased by 9.5% year-on-year, the fuel consumption volume was 1,124,300 tonnes, representing a decrease of 4.0% year-on-year; and average fuel consumption decreased from 2.72kg/1,000 nautical miles in 2014 to 2.39 kg/1,000 nautical miles, decreasing by 12.1% year-on-year, the utilisation efficiency of fuel has been improved significantly. In 2015, the Company incurred fuel costs of RMB2,736 million, representing a decrease of 40.0% year-on-year and accounting for 27.7% of the costs of transportation costs.

Regarding sea crew costs, the Group implemented reform of its crew management system, which enabled the Group to reduce crew costs of approximately RMB195 million in 2015.

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APPENDIX I FINANCIAL INFORMATION OF THE GROUP

In addition, the Group further strengthened communication and coordination with insurance companies and P&I Clubs. As a result, actual expenditures on insurance fees of the Group decreased by RMB25.93 million respectively in 2015.

In 2015, the Group incurred charter cost of RMB1.596 billion, representing an increase of 208.8% year-on-year. Such increases were because in 2015, the Group disposed 36 vessels with an aggregate capacity of 1,329,000 deadweight tonnes and the Company chartered in some vessels to replace the disposed old vessels so as to ensure the normal operation of the Company.

3. OPERATING RESULTS OF THE JOINT VENTURES AND THE ASSOCIATES

In 2015, the Group has recognised its share of profits in its joint ventures of approximately RMB72 million, representing a decrease of 64.9% as compared to that of the same period in 2014. In 2015, the 5 joint ventures achieved a shipping volume of 115.2 billion tonne-nautical miles, representing a decrease of 12.4% as compared to the same period in 2014. The operating revenue achieved by the 5 joint ventures in 2015 was approximately RMB5.786 billion, representing a decrease of 31.9% as compared to that of the same period in 2014, and the net profit realised by the 5 joint ventures in 2015 was approximately RMB55 million, representing a decrease of 83.2% as compared to that of the same period in 2014.

As at 31 December 2015, the 5 joint ventures owned 88 dry bulk vessels with a total capacity of 4.84 million deadweight tonnes and 3 vessels under construction with a total capacity of 143,000 deadweight tonnes.

The operating results achieved by the 5 joint ventures in 2015 are as follows:

	Interest	2015	2015
	held by the	Shipping	Operating	2015 Net
Company name	Group	volume	revenue	profit/(loss)
		(billion tonne-
		nautical miles)	(RMB’000)	(RMB’000)
Shenhua Zhonghai Marine
Co., Limited	49%	50.85	2,002,173	32,548
Shanghai Times Shipping
Co., Limited	50%	53.24	3,071,262	1,361
Shanghai Friendship
Marine Co., Limited	50%	1.67	85,666	-13,846
Huahai Petrol
Transportation & Trading
Co., Limited	50%	2.49	178,130	20,668
Guangzhou Development
Shipping Co., Limited	50%	6.96	448,487	13,929

— I-8 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In 2015, the net profit achieved by China Shipping Finance Co., Limited (“ CS Finance ”), a non-shipping joint venture, with 25% interest held by the Company, was approximately RMB208 million.

In 2015, the Group has recognised its share of profits in its associates of approximately RMB216 million. In 2015, 2 associates achieved a shipping volume of 36.18 billion tonne-nautical miles. The operating revenue achieved by the 2 associates in 2015 was approximately RMB1.615 billion, and the net profit realised by the 2 associates in 2015 was approximately RMB503 million.

As at 31 December 2015, the 2 associates owned 11 vessels with a total capacity of 2.19 million deadweight tonnes.

The operating results achieved by the 2 associates in 2015 are as follows:

		2015	2015
	Interest held	Shipping	Operating	2015
Company name	by the Group	volume	revenue	Net profit
		(billion tonne-
		nautical miles)	(RMB’000)	(RMB’000)
Shanghai Beihai Shipping
Company Limited	40%	12.98	1,336,983	486,968
China Ore Shipping Pte
Ltd.	49%	23.20	278,327	15,948

4. FINANCIAL ANALYSIS

(1) Net cash generated from operating activities

The net cash generated from operating activities of the Group for the Reporting Period was approximately RMB5,084,984,000 compared to that for the year ended 31 December 2014 was approximately RMB3,157,049,000, representing an increase of approximately 61.1%.

(2) Capital commitments

Authorised and contracted for: Construction and purchases of vessels (note 1) Equity investments (note 2)	2015 RMB’000 5,764,137 777,517 6,541,654	2014 RMB’000 5,430,061 539,668
		5,969,729

— I-9 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The group had capital commitments as at 31 December 2015, of which RMB2,918,629,000 (2014: RMB1,112,199,000) from the Group will be due within one year.

Note:

• (1) According to the construction or purchase agreements entered into by the Group from April 2013 to June 2015 (2014: January 2007 to December 2014), these capital commitments will fall due in 2016 to 2018 (2014: 2015 to 2017).

• (2) Included capital commitments in respect of equity investments is commitment to invest in an associate, China Ore Shipping Pte Ltd., and a joint venture, Shenhua Zhonghai Marine Co., Limited, of the Group.

In addition to the above, the Group’s share of the capital commitments of its associates which are contracted for but not provided amounted to RMB121,975,000 (2014: RMB486,298,000). The Group’s share of the capital commitments of its joint ventures, which are contracted for but not provided amounted to RMB2,929,925,000 (2014: RMB3,225,137,000); which are authorised but not contracted for amounted to RMB382,200 (2014: RMBNil).

(3) Capital structure

The Group’s net debt-to-equity ratio as at 31 December 2015 and 2014 was as follows:

Total debts Less: Cash and cash equivalents Net debt Total equity Net debt-to-equity ratio	2015 RMB’000 39,238,534 (2,085,889) 37,152,645 26,523,203 140%	2014 RMB’000 41,211,060 (2,449,240) 38,761,820 22,647,729 171%

(4) Cash and cash equivalents

Cash at banks generates interest income at floating rates based on daily bank deposit rates. Short-term fixed deposits are deposited for various periods of between one day to three months depending on the immediate cash requirements of the Group, and interest income shall accrue at the respective short-term fixed deposit rates.

Included in cash and cash equivalents is an amount of RMB794,370,000 (2014: RMB696,892,000) of bank balance deposited with CS Finance, a joint venture of the Group.

As at 31 December 2015, none of bank deposits (2014: bank deposits of RMB611,900,000) has/had been pledged to secure short-term bank borrowings. The pledged bank deposits were released upon the settlement of relevant bank borrowings during the Reporting Period.

— I-10 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Certain cash and cash equivalents are denominated in the following foreign currencies:

	2015	2014
	RMB’000	RMB’000
USD	1,292,096	1,579,382
SGD	487	910
HKD	12,324	11,182
Others	710	746

The carrying amounts of pledged bank deposits were denominated in the following foreign currency:

USD (5) Trade and bills receivables Trade and bills receivables Due from associates Due from joint ventures Due from fellow subsidiaries	2015 RMB’000 — 2015 RMB’000 2,233,434 — 40,200 477 2,274,111	2014 RMB’000 611,900
		2014 RMB’000 1,735,214 736 9,627 686
		1,746,263

Trade receivables due from associates, joint ventures and fellow subsidiaries are unsecured, non-interest-bearing and under normal credit period as other trade receivables.

An ageing analysis of the trade and bills receivables at the end of the reporting period, based on the invoice date, is as follows:

1 - 3 months 4 - 6 months 7 - 9 months 10 - 12 months 1 - 2 years	2015 RMB’000 1,577,830 604,399 48,784 40,055 3,043 2,274,111	2014 RMB’000 1,503,619 131,929 58,604 47,443 4,668
		1,746,263

— I-11 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

No impairment losses (2014: RMBNil) was made for the trade and bills receivables that are neither past due nor impaired because these receivables are within credit period granted to the respective customers and the management considers the default rate is low for such receivables based on historical information and past experience.

In determining the recoverability of a trade and bills receivables, the Group considers any change in credit quality of the trade and bills receivables from the date credit was initially granted up to the end of the Reporting Period. In view of the good settlement history of those receivables of the Group which are past due but not impaired for the Reporting Period, the Directors of the Company consider that no allowance is required.

Included in trade and bills receivables are debtors with total carrying amount of approximately RMB377,530,000 (2014: RMB242,644,000) which are past due as at the end of the Reporting Period for which the Group had not provided for impairment losses (2014: RMBNil) as there has not been a significant change in credit quality and the amounts are still considered to be recoverable.

Ageing of trade and bills receivables which are past due but not impaired, is as follows:

1 - 6 months 7 - 12 months Over 1 year	2015 RMB’000 335,432 39,055 3,043 377,530	2014 RMB’000 190,533 47,443 4,668
		242,644

The Group normally allows a credit period of 30 to 120 days to its major customers. In view of the fact that the Group’s trade and bills receivables relate to a large number of diversified customers, there is no significant concentration of credit risk. Trade and bills receivables are non-interest-bearing.

Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Group. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are considered fully recoverable. The Group does not hold any collateral over these balances.

— I-12 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Certain trade and bills receivables are denominated in the following foreign currencies:

USD AUD (6) Prepayments, deposits and other receivables Prepayments Deposits and other receivables Due from associates Due from joint ventures Due from fellow subsidiaries Due from related companies - Due from joint ventures of ultimate holding company - Due from a joint venture of a fellow subsidiary	2015 RMB’000 1,105,388 — 2015 RMB’000 149,853 836,779 — 333,929 185,917 16,971 25 1,523,474	2014 RMB’000 968,211 2
		2014 RMB’000 139,850 316,039 3,427 74,565 185,662 16,971 76,153
		812,667

The amounts due from associates, joint ventures, fellow subsidiaries and related companies are unsecured, non-interest-bearing and repayable on demand.

Certain prepayments, deposits and other receivables are denominated in the following foreign currencies:

	2015	2014
	RMB’000	RMB’000
USD	304,046	483,041
HKD	81,117	23,011
AUD	34,019	22,820
JPY	4,735	1,914
Others	20,317	13,629

— I-13 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(7) Trade and bills payables

Trade and bills payables Due to ultimate holding company Due to joint ventures Due to fellow subsidiaries Due to related companies - Due to joint ventures of ultimate holding company - Due to joint ventures of fellow subsidiaries	2015 RMB’000 619,700 729 3,260 236,523 12,844 31,382 904,438	2014 RMB’000 472,700 147 860 377,627 9,576 129,759
		990,669

Trade payables due to ultimate holding company, joint ventures, fellow subsidiaries and related companies are unsecured, non-interest-bearing and under normal credit period as other trade payables.

Certain trade and bills payables are denominated in the following foreign currencies:

	2015	2014
	RMB’000	RMB’000
USD	515,293	619,246
HKD	12,384	36,944
JPY	5,664	2,283
EUR	4,919	6,161
Others	1,494	9,458

An ageing analysis of the trade and bills payables at the end of the reporting period, based on the invoice date, is as follows:

1 - 3 months 4 - 6 months 7 - 9 months 10 - 12 months 1 - 2 years Over 2 years	2015 RMB’000 612,959 118,197 47,088 80,573 37,122 8,499 904,438	2014 RMB’000 710,078 129,070 51,795 66,103 24,436 9,187
		990,669

— I-14 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Trade and bills payables are non-interest-bearing and are normally settled in one to three months.

(8) Other payables and accruals

Other payables Accruals Due to ultimate holding company Due to joint ventures Due to fellow subsidiaries Due to related companies - Due to joint ventures of fellow subsidiaries	2015 RMB’000 594,645 42,344 6,422 74,816 12,519 185 730,931	2014 RMB’000 (57,484) 41,906 17,647 4,962 97,665 —
		104,696

Other payables and accruals are non-interest-bearing and are normally settled in one to three months.

The amounts due to ultimate holding company, joint ventures, fellow subsidiaries and related companies are unsecured, non-interest-bearing and repayable on demand.

Certain other payables and accruals are denominated in the following foreign currencies:

	2015	2014
	RMB’000	RMB’000
USD	375,682	314,656
HKD	11,978	3,412
Others	5,651	1,937

— I-15 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(9) Provision for onerous contracts

At 1 January Provision during the year Utilised during the year Exchange realignment At 31 December Current portion of provision for onerous contracts Non-current portion of provision for onerous contracts	2015 RMB’000 281,815 127,828 (142,287) (594) 266,762 107,623 159,139 266,762	2014 RMB’000 349,694 107,358 (175,850) 613
		281,815
		142,287 139,528
		281,815

As at 31 December 2015, the Group has a provision of RMB266,762,000 (2014: RMB281,815,000) for onerous contracts relating to the non-cancellable chartered-in oil tanker and dry bulk vessel contracts.

As at 31 December 2015, the committed charterhire expenses of non-cancellable chartered-in oil tanker and dry bulk vessel contracts with lease term expiring over twenty-four months from the end of the Reporting Period and with period not being covered by chartered-out oil tanker and dry bulk vessel contracts of which management cannot reliably assess their onerous contracts amounted to approximately RMB2,556,989,000 (2014: RMB2,709,313,000).

(10) Derivative financial instruments

	2015	2014
	RMB’000	RMB’000
Liabilities
Current portion	508	—
Non-current portion	411,385	291,553

As at 31 December 2015, the Group held thirty-one (2014: thirty-one) interest rate swap agreements and the total notional principal amount of the outstanding interest rate swap agreements was USD609,800,282 (approximately RMB3,959,799,000) (2014: USD609,800,282 (approximately RMB3,731,368,000)). The interest rate swap agreements, with maturity in 2016, 2031 and 2032, are designated as cash flow hedges in respect of the bank borrowings of the Group with a floating interest rate.

— I-16 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

During the Reporting Period, the floating rates of the bank borrowings were 3 month London Inter-Bank Offered Rate (“ Libor ”) plus 0.42% or 2.20% (2014: 3 month Libor plus 0.42%, 0.45% or 2.20%).

Loss for the interest rate swap agreements during the Reporting Period is as follows:

	2015	2014
	RMB’000	RMB’000
Total fair value loss included in the hedging reserve	104,840	436,415
Hedge loan interest included in finance costs	1,807	3,386
Total loss on cash flow hedges of the interest rate swap
agreements	106,647	439,801

On 28 January 2014, the Group released one of the interest rate swap agreements with Citibank, N.A., Hong Kong and its notional principal amount was approximately USD41,334,000 prior to maturity in January 2016.

— I-17 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(11) Interest-bearing bank and other borrowings

• (a) The Group’s interest-bearing bank and other borrowings are analysed as follows:

Annual effective interest rate Maturity (%) Current liabilities (i) Bank borrowings Secured 5% to 10% discount to the People’s Bank of China (“PBC”) Benchmark interest rate, Libor + 0.38% to 2.15%, 3 month Libor, 3 month Libor + 0.42% to 2.15%, 6 month Libor + 0.40% to 1.70%, fixed rate of 3.50% to 4.80% 2016 Unsecured 9% to 10% discount to the PBC Benchmark interest rate, PBC Benchmark interest rate, Libor + 0.60% to 4%, 3 month Libor, 3 month Libor + 0.70% to 2.20%, fixed rate of 1.70% to 4.80% 2016 (ii) Other borrowings Secured 5% discount to the PBC Benchmark interest rate, fixed rate of 6% 2016 Unsecured 10% discount to the PBC Benchmark interest rate, Libor + 1.60% to 2.90%, 6 month Libor + 2.10%, fixed rate of 1.50% to 6% 2016 Interest-bearing bank and other borrowings — Current portion	2015 RMB’000 1,487,272 4,529,070 6,016,342 8,670 2,179,360 2,188,030 8,204,372	2014 RMB’000 1,926,196 4,030,944
		5,957,140
		253,160 2,032,790
		2,285,950
		8,243,090

— I-18 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Annual effective interest rate Maturity 2015 (%) RMB’000 Non-current liabilities (i) Bank borrowings Secured 5% to 10% discount to the PBC Benchmark interest rate, Libor + 0.38% to 2.15%, 3 month Libor + 0.42% to 2.20%, 6 month Libor + 0.40% to 1.70%, fixed rate of 4.27% to 4.80% 2018 to 2037 13,264,504 Unsecured 10% to 20% discount to the PBC Benchmark interest rate, PBC Benchmark interest rate, Libor + 1.45% to 1.85%, 3 month Libor + 1.20% to 2.40%, fixed rate of 2.91% to 6% 2017 to 2024 6,789,686 20,054,190 (ii) Other borrowings Secured 5% discount to the PBC Benchmark interest rate 2023 100,470 Unsecured 6 month Libor + 2% to 2.50%, fixed rate of 3.60% to 6.51% 2017 to 2018 5,298,721 5,399,191 Interest-bearing bank and other borrowings — Non-current portion 25,453,381	Annual effective interest rate Maturity 2015 (%) RMB’000 Non-current liabilities (i) Bank borrowings Secured 5% to 10% discount to the PBC Benchmark interest rate, Libor + 0.38% to 2.15%, 3 month Libor + 0.42% to 2.20%, 6 month Libor + 0.40% to 1.70%, fixed rate of 4.27% to 4.80% 2018 to 2037 13,264,504 Unsecured 10% to 20% discount to the PBC Benchmark interest rate, PBC Benchmark interest rate, Libor + 1.45% to 1.85%, 3 month Libor + 1.20% to 2.40%, fixed rate of 2.91% to 6% 2017 to 2024 6,789,686 20,054,190 (ii) Other borrowings Secured 5% discount to the PBC Benchmark interest rate 2023 100,470 Unsecured 6 month Libor + 2% to 2.50%, fixed rate of 3.60% to 6.51% 2017 to 2018 5,298,721 5,399,191 Interest-bearing bank and other borrowings — Non-current portion 25,453,381	2014 RMB’000 11,295,416 7,388,464
	20,054,190	18,683,880
	100,470 5,298,721	129,540 4,611,923
	5,399,191	4,741,463
	25,453,381	23,425,343

— I-19 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group’s bank and other borrowings are secured by pledges of the Group’s 53 vessels (2014: 48 vessels) and 6 vessels under construction (2014: 13 vessels under construction) with total net carrying amount of RMB20,639,356,000 (2014: RMB19,154,098,000) and RMB6,004,226,000 (2014: RMB4,995,123,000) respectively as at 31 December 2015.

As at 31 December 2015, no bank deposits (2014: bank deposits of RMB611,900,000) has/had been pledged to secure short-term bank borrowings. The pledged bank deposits were released upon the settlement of relevant bank borrowings during the Reporting Period.

Except for secured bank borrowings of RMB13,326,897,000 (2014: RMB12,470,966,000), unsecured bank borrowings of RMB7,437,128,000 (2014: RMB6,978,985,000) and unsecured other borrowings of RMB1,948,080,000 (2014: RMB611,923,000) which are denominated in USD, all interest-bearing bank and other borrowings are denominated in RMB.

• (b) As at 31 December 2015, the Group’s interest-bearing bank and other borrowings were repayable as follows:

Analysed into: (i) Bank borrowings: Within one year or on demand In the second year In the third to fifth year, inclusive Over five years (ii) Other borrowings: Within one year or on demand In the second year In the third to fifth year, inclusive Over five years	2015 RMB’000 6,016,342 4,577,413 8,131,904 7,344,873 26,070,532 2,188,030 1,658,540 3,680,215 60,436 7,587,221 33,657,753	2014 RMB’000 5,957,140 2,689,239 10,204,923 5,789,718
		24,641,020
		2,285,950 8,670 4,640,993 91,800
		7,027,413
		31,668,433

Included in other borrowings represent an amount of RMB292,800,000 (2014: RMB1,421,790,000) which was borrowed from CS Finance, a joint venture of the Group. As at 31 December 2015, the current and non-current portion of this borrowing amounted to RMB253,400,000 (2014: RMB1,370,990,000) and RMB39,400,000 (2014: RMB50,800,000) respectively.

— I-20 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Included in other borrowings represent an amount of RMB7,148,080,000 (2014: RMB5,411,923,000) was borrowed from the Company’s ultimate holding company. As at 31 December 2015, the current and non-current portion of this borrowing amounted to RMB1,849,360,000 (2014: RMB800,000,000) and RMB5,298,720,000 (2014: RMB4,611,923,000) respectively.

(c) Details of notes are as follows:

Notes with principal amount of RMB3,000,000,000 was issued by the Group to investors on 3 August 2009. The notes carried a fixed interest yield of 3.90% per annum and were issued at a price of 100 per cent of its principal amount, resulting in no discount on the issue. The notes become interest-bearing since 4 August 2009, payable annually in arrears on 4 August of each year. The notes had been fully redeemed on 3 August 2014.

(12) Other loans

Baosteel Resources International Company Limited (“Baosteel Resources International”) Kantons International Investment Limited (“Kantons International”) Shanghai Puyuan Shipping Co., Limited (“SH Puyuan”) Mitsui O.S.K. Lines, Limited (“MOL”) Petrochina International Co., Limited (“Petrochina International”) Less: Current portion of other loans Non-current portion of other loans	2015 RMB’000 420,016 519,946 — 241,856 17,721 1,199,539 — 1,199,539	2014 RMB’000 410,784 306,769 107,681 138,140 12,286 975,660 (44,714) 930,946

Loan from Baosteel Resources International represents an amount of USD64,680,000 (approximately RMB420,016,000) (2014: USD67,130,000 (approximately RMB410,784,000)) which was provided to Hong Kong Hai Bao Shipping Co., Limited to finance the construction of vessels and daily operations. The loan is unsecured, interest-bearing at fixed rate of 3% (2014: fixed rate of 3.50%) per annum and repayable in 2018.

According to the contract signed between East China LNG Shipping Investment Co., Limited (“ ELNG ”) and its non-controlling shareholder, Kantons International, USD7,069,829 (approximately RMB45,909,000) (2014: USD5,885,854 (approximately RMB36,015,000)) which was provided to ELNG to finance certain vessels construction projects being carried out by the associates held by ELNG. The loan is unsecured, interest-bearing at approximately 3.30% to 6.20% over 3 month Libor (2014: approximately 3.30% over 3 month Libor) per annum and repayable within twenty years after the vessels construction projects are completed.

— I-21 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

According to the contract signed between China Energy Shipping Investment Co., Limited (“ China Energy ”) and its non-controlling shareholder, Kantons International, USD73,000,707 (approximately RMB474,037,000) (2014: USD44,248,019 (approximately RMB270,754,000)) which was provided to China Energy to finance certain vessels construction projects being carried out by the subsidiaries of China Energy. The loan is unsecured, interest-bearing at approximately 2.20% over 3 month Libor (2014: approximately 2.20% over 3 month Libor) per annum and repayable within twenty years after the vessels construction projects are completed.

According to the contract signed between CS Puyuan Marine Co., Limted (“ CS Puyuan ”)and its non-controlling shareholder, SH Puyuan, as at 31 December 2014, USD17,597,200 (approximately RMB107,681,000) was provided to CS Puyuan to finance its daily operations. The loan was unsecured, non-interest-bearing and originally repayable in 2015 and 2016.

Pursuant to equity transfer agreement dated 6 November 2015, both SH Puyuan and the Group agreed this loan was waived.

According to the contracts signed between China Energy and the non-controlling shareholder of its subsidiaries, MOL, USD37,245,259 (approximately RMB241,856,000) (2014: USD22,575,542 (approximately RMB138,140,000)) which were provided to China Energy to finance certain vessels construction projects being carried out by the subsidiaries of China Energy. The loans are unsecured, interest-bearing at approximately 2.20% over 3 month Libor (2014: approximately 2.20% over 3 month Libor) per annum and repayable within fifteen years after the vessels construction projects are completed.

According to the contract signed between North China LNG Shipping Investment Co., Limited (“ NLNG ”) and its non-controlling shareholder, Petrochina International, USD2,729,070 (approximately RMB17,721,000) (2014: USD2,007,839 (approximately RMB12,286,000)) which was provided to NLNG to finance certain vessels construction projects being carried out by the associates held by NLNG. The loan is unsecured, interest-bearing at approximately 4.90% to 5.50% over 3 month Libor (2014: approximately 4.90% over 3 month Libor) per annum and repayable within twenty years after the vessels construction projects are completed.

— I-22 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(13) Obligations under finance leases

Amounts payable under finance leases - Within one year - In the second year - In the third to fifth year, inclusive - Over five years Less: Future finance charges Present value of lease obligations Less: Amount due within one year shown under current liabilities Amount due after one year	Minimum lease payments 2015 2014 RMB’000 RMB’000 65,389 68,977 65,358 68,977 196,073 206,931 142,988 219,910 469,808 564,795 (67,054) (116,335) 402,754 448,460	Present value of minimum lease payments 2015 2014 RMB’000 RMB’000 48,751 43,979 50,917 46,630 167,253 158,273 135,833 199,578 402,754 448,460 (48,751) (43,979) 354,003 404,481

The Group’s obligations under finance leases are secured by charges over the leased assets.

Interest rates underlying all under finance leases are at 10% discount to the PBC Benchmark interest rate (2014: 10% discount to the PBC Benchmark interest rate) per annum.

— I-23 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(14) Bonds payable

Convertible bonds Corporate bonds Less: Current portion of bonds payable Non-current portion of bonds payable	2015 RMB’000 — 3,978,488 3,978,488 — 3,978,488	2014 RMB’000 3,145,147 4,973,360 8,118,507 (4,143,383) 3,975,124

(a) Convertible bonds

The Company’s A-share convertible bonds amounting to RMB3,950,000,000 were issued on 1 August 2011, with a term of six years, by issuing 39,500,000 number of bonds at a nominal value of RMB100 each. The convertible bonds are convertible into A-shares of the Company at anytime between six months after the date of issue of the convertible bonds and the maturity date of the convertible bonds, being 2 February 2012 to 1 August 2017, at initial conversion price of RMB8.7 per share.

On 17 May 2012, the Company declared a 2011 final dividend of RMB0.1 per share (before tax). According to the terms of issuance of the convertible bonds and relevant regulations by China Securities Regulatory Commission, the Company changed the conversion price from RMB8.70 per share to RMB8.60 per share effective from 1 June 2012.

If the convertible bonds have not been converted, they will be redeemed at 105% of par value within five trading days after the maturity of the convertible bonds. The convertible bonds bear interest at 0.5% for the first year, 0.7% for the second year, 0.9% for the third year, 1.3% for the fourth year, 1.6% for the fifth year and 2% for the sixth year. The interests are payable annually in arrears on 1 August of each year starting from 2012.

Within the last two years of the convertible bonds, if the closing price of A-share is traded at lower of 70% of the initial conversion price for thirty consecutive trading days, the convertible bonds holders are entitled a one-off right to request the Company to redeem the convertible bonds wholly or partially at par, with interest accrued on that day.

The Company is entitled to redeem the convertible bonds wholly at par plus accrued interest if: (i) the closing price of the Company’s shares is at or higher than 130% of the initial conversion price for any fifteen trading days in thirty consecutive trading days from issuance of the Bonds; or (ii) the aggregate par value of the outstanding convertible bonds is less than RMB30,000,000 at any time from issuance of the convertible bonds.

The convertible bonds were split into liability (including the value of closely-related early redemption option and callable option) and equity components of RMB3,039,329,000 and

— I-24 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

RMB873,043,000 respectively upon initial recognition by recognising the liability component at its fair value and attributing the residual amount to the equity component. The liability component is subsequently carried at amortised cost and equity component is recognised in the convertible bonds equity reserve. The effective interest of the liability component is 5.6% per annum.

On 12 August 2014, the Company passed a special resolution to approve the downward adjustment to the conversion price from RMB8.60 per share to RMB6.24 per share in accordance with the terms of issuance of the convertible bonds, when adjustment became effective on 14 August 2014.

As the closing price of the A Shares had been equal to or higher than 130% of the conversion price of the convertible bonds (being RMB6.24 per share) for at least fifteen trading days out of the thirty consecutive trading days between 26 November 2014 and 8 January 2015, the Board had on 8 January 2015 resolved to redeem all outstanding convertible bonds in accordance with the specified redemption procedures. On 13 February 2015, the Company completed its redemption of all outstanding convertible bonds. The convertible bonds were delisted from the Shanghai Stock Exchange on 13 February 2015.

The movement of the liability component of the convertible bonds for the Reporting Period is set out below:

Carrying amount at 1 January 2014 Interest charge Interest paid Conversion during the year Carrying amount at 31 December 2014 and 1 January 2015 Interest charge Conversion during the year Redemption Gain on early redemption of convertible bonds Carrying amount at 31 December 2015	RMB’000 3,424,692 192,486 (35,586) (436,445) 3,145,147 14,677 (3,120,694) (34,744) (4,386) —

The fair value and effective interest rate of the liability component of the convertible bonds as at 31 December 2015 was RMBNil (2014: RMB3,145,147,000) and Nil% (2014: 5.6%) per annum respectively.

Interest expense of RMB14,677,000 (2014: RMB192,486,000) was recognised in profit or loss in respect of the convertible bonds for the Reporting Period.

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(b) Corporate bonds

The movement of the corporate bonds for the Reporting Period is set out below:

Carrying amount at 1 January 2014 Interest charge Carrying amount at 31 December 2014 and 1 January 2015 Interest charge Redemption Carrying amount at 31 December 2015 Current portion of corporate bonds Non-current portion of corporate bonds	RMB’000 4,967,236 6,124
	4,973,360 5,128 (1,000,000)
	3,978,488
	— 3,978,488
	3,978,488

As at 31 December 2015, the balances of corporate bonds are as follows:

Issue date Term of the bond 3 August 2012 3 years 3 August 2012 10 years 29 October 2012 7 years 29 October 2012 10 years	Total principal value Book value of bond at initial recognition RMB’000 RMB’000 1,000,000 991,400 1,500,000 1,487,100 1,500,000 1,488,600 1,000,000 992,400 5,000,000 4,959,500	At 31 December 2014 RMB’000 998,236 1,489,656 1,491,727 993,741 4,973,360	Interest charge Redemption RMB’000 RMB’000 1,764 (1,000,000) 1,148 — 1,550 — 666 — 5,128 (1,000,000)	At 31 December 2015 RMB’000 — 1,490,804 1,493,277 994,407
				3,978,488

The Company issued two batches of corporate bonds on 3 August 2012. The first batch is a three-year corporate bonds with a principal value of RMB1 billion, carrying an annual fixed interest rate of 4.20% and was repaid on 3 August 2015. The issuing price was 100 per cent of principal value, resulting in no discount on the issue. Interest on the bonds is paid annually.

The second batch is a ten-year corporate bonds with a principal value of RMB1.5 billion, carrying an annual fixed interest rate of 5% and matures on 3 August 2022. The issuing price was 100 per cent of principal value, resulting in no discount on the issue. Interest on the bonds is paid annually.

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FINANCIAL INFORMATION OF THE GROUP

The Company issued further two batches of corporate bonds on 29 October 2012. The first batch is a seven-year corporate bonds with a principal value of RMB1.5 billion, carrying an annual fixed interest rate of 5.05% and matures on 29 October 2019. The issuing price was 100 per cent of principal value, resulting in no discount on the issue. Interest on the bonds is paid annually.

The second batch is a ten-year corporate bonds with a principal value of RMB1 billion, carrying an annual fixed interest rate of 5.18% and matures on 29 October 2022. The issuing price was 100 per cent of principal value, resulting in no discount on the issue. Interest on the bonds is paid annually.

(15) Contingent liabilities

• (i) In August 2011, one of the Group’s cargo vessels “Bihuashan” collided with “Li Peng 1”, which caused “Li Peng 1” to sink afterwards. The Group has set up a Limitation of Liability for Maritime Claims Fund amounting to RMB22,250,000. Since the Group had been insured, all compensations will be borne by the insurance company. As at 31 December 2015, the Group was still in the process of settling all the issues concerned.

• (ii) In January 2012, fuel leakage occurred in one of the Group’s tanker “Daiqing 75” during its voyage in Bohai Sea of the PRC. As at 31 December 2014, claims on damage caused by the fuel leakage amounted to an aggregate of RMB19,370,000 plus court costs. Of which, RMB11,250,000 had been fully settled by insurance companies. Since the Company had been insured with PICC Property and Casualty Company Limited and West of England Insurance Services (Luxembourg) S.A., all compensations will be borne by the insurance companies. On 24 July 2015, the court announced the final claims on damage to be RMB4,000,000 and the Group agreed to settle the issues concerned with the amount. The final leakage incident in relation to the “Daiqing 75” tanker was resolved after the Group settled such amount.

• (iii) ELNG, a non-wholly-owned subsidiary of the Company, holds 30% equity interests in each of Aquarius LNG Shipping Limited (“ Aquarius LNG ”) and Gemini LNG Shipping Limited (“ Gemini LNG ”), and NLNG, a non-wholly-owned subsidiary of the Company, holds 30% equity interests in each of Capricorn LNG Shipping Limited (“ Capricorn LNG ”) and Aries LNG Shipping Limited (“ Aries LNG ”). Each of these four companies aforesaid entered into ship building contracts for the construction of one LNG vessel. After the completion of the LNG vessels, the four companies would, in accordance with time charters agreements to be signed, lease the LNG vessels to the following charterers:

Company name

Charterer

Aquarius LNG Papua New Guinea Liquefied Natural Gas Global Company LDC Gemini LNG Papua New Guinea Liquefied Natural Gas Global Company LDC Aries LNG Mobil Australia Resources Company Pty Ltd. Capricorn LNG Mobil Australia Resources Company Pty Ltd.

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On 15 July 2011, the Company entered into four guaranteed leases (“ the Lease Guarantees ”). According to the Lease Guarantees, the Company irrevocably and unconditionally provided the charterers, successors and transferees of the four companies listed above with guarantee (1) for the four companies to fulfil their respective obligations under the lease term, and (2) to secure 30% of amounts payable to charterers under lease term.

According to the term of the Lease Guarantees and taking into account the possible increase in the value of the lease commitments and the percentage of shareholdings hold by the Company in the four companies listed above, the amount of leases guaranteed by the Company is limited to USD8,200,000 (approximately RMB53,248,000).

The guarantee period is limited to that of the lease period, which is twenty years.

• (iv) On 9 March 2013, one of the Group’s cargo vessels “CSB Talent” had a broken bollard caused by strong wind at the dock and collided with several parked vessels nearby, which resulted in damage of the floating dock and other facilities. In March 2014, claims on damage caused by the collision amounted to an aggregate of RMB173,865,000. Since the Company had been insured with PICC Property and Casualty Company Limited (Guangzhou Branch) and The London Steam Ship Owners Mutual Insurance Association Limited, all compensation will be borne by the insurance companies. As at 31 December 2015, the Group was still in the process of settling all the issues concerned.

• (v) On 23 December 2013, five oil tankers of the Group, “Danchi”, “Baichi”, “Daiqing 71”, “Daiqing 72” and “Ruijintan”, extracted oil from “Bohaiyouyihao”. This act was sued by a group of plaintiffs for ocean pollution. As at 23 April 2014, claims on damage caused by ocean pollution amounted to an aggregate of RMB47,452,000. Since the Company had been insured with PICC Property and Casualty Company Limited (Shanghai Branch), the London P&I Club and SKULD, all compensation will be borne by the insurance companies. As at 31 December 2014, the Group was still in the process of settling all the issues concerned. On 3 November 2015, the court approved the plaintiffs to withdraw the claims after an arbitration on 28 August 2015.

• (vi) At the 2014 seventh Board meeting held on 30 June 2014, the Company approved the ship building contracts, time charters agreements and supplementary construction contract signed by three joint ventures of the Company for the Yamal LNG project. To secure the obligation of the ship building contracts, time charters agreements and supplementary construction contracts, the Company provides corporate guarantees to the shipbuilders, Daewoo Shipbuilding & Marine Engineering Co., Ltd. and DY Maritime Limited. The total aggregate liability of the Company under the corporate guarantees is limited to USD490,000,000 (approximately RMB3,181,864,000). In addition, the Company provides owner’s guarantees to the charterer, YAMAL Trade Pte. Ltd. The total aggregate liability of the Company under the owner’s guarantees is limited to USD6,400,000 (approximately RMB41,559,000).

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APPENDIX I

• (vii) At the 2015 sixth Board meeting held on 28 April 2015, the Company approved CS Bulk guarantees not more than 50% of the total debt of Guangzhou Development Shipping Co., Limited, a joint venture of the Group, including loan and accrued interest limited to approximately RMB26,250,000, where the guarantee was unconditional and non-cancellable.

(16) Foreign exchange risk management

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to United States Dollar (“ USD ”) and Hong Kong Dollar (“ HKD ”) against RMB. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities.

As at 31 December 2015, if USD and HKD had weakened or strengthened by 1% against RMB with all other variables held constant, post-tax profit for the year would have been RMB52,885,000 (2014: RMB175,485,000) higher/lower, mainly as a result of foreign exchange gains or losses on translation of USD and HKD denominated trade and bills receivables, prepayments, deposits and other receivables, pledged bank deposits, cash and cash equivalents, trade and bills payables, other payables and accruals, interest-bearing bank and other borrowings and other loans.

(17) Cash flow and fair value interest rate risk management

The Group’s income and operating cash flows are substantially independent of changes in market interest rates as the Group has no significant interest-bearing assets. The Group’s exposures to changes in interest rates are mainly attributable to its interest-bearing bank and other borrowings, other loans and obligations under finance leases. Borrowings at fixed rates expose the Group to fair value interest rate risk.

Borrowings at floating rates expose the Group to cash flow interest rate risk. To minimise its interest expenses, the Group entered into interest rate swaps from time to time to mitigate the interest rate risk.

As at 31 December 2015, if interest rates on borrowings had been 100 basis points higher/lower with all other variables held constant, the Group’s post-tax profit for the year would have been RMB211,388,000 (2014: post-tax profit of RMB165,076,000) lower/higher mainly as a result of higher/lower interest expenses on floating rate borrowings.

5. OTHERS

(1) Fleet expansion projects

In 2015, the Group has achieved further improvement in its fleet expansion.

In 2015, the cash outflow from investment activities of the Group was approximately RMB2.037 billion which has been paid for construction of new vessels, transformation of old vessels and capital increases into joint ventures of the Company, including capital expenditure of approximately RMB1.843 billion paid for the purchase of new vessels by the Group.

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FINANCIAL INFORMATION OF THE GROUP

In terms of fleet expansion, 8 new dry bulk vessels with a total capacity of approximately 516,000 deadweight tonnes have been delivered for use in 2015.

As at 31 December 2015, the composition of the Group’s fleet is as follows:

	Number of	Deadweight	Average
	vessels	tonnes	age
		(‘000)	(years)
Oil Tankers	66	7,449	7.0
Dry bulk vessels	100	9,398	5.1
Total	166	16,847	5.9

(2) Material asset disposals

In 2015, the Group disposed of 36 vessels with an aggregate capacity of 1,329,000 deadweight tonnes, including 1 oil tanker of 13,000 deadweight tonnes and 35 dry bulk vessels of 1,316,000 deadweight tonnes respectively.

6. OUTLOOK AND HIGHLIGHTS FOR 2016

(1) Competitive landscape and development trend in the industry

In 2016, the international economic environment remains complex, world economic growth is expected to rebound slightly, slow growth is expected in the next few years or will become the norm. Against the back drop of new normal global economy, lack of market demand for transportation, overcapacity situation in the short term is difficult to be substantially improved.

Oil transport market, the 2016 international oil prices will remain low in which the international crude oil transport demand is expected to grow about 3%. With almost two years of slow growth (in the international tanker capacity), it will usher in a small peak delivery, tanker capacity growth is expected to be around 6%, including an increase in VLCC 6.9%, increase in product tankers 5.4%, were higher than demand growth. Thus, the oil transport market in 2016 will be weaker than that in 2015.

In respect to dry bulk market, in 2016 the global dry bulk shipping demand growth will be about 0.6% whilst the global capacity is expected to grow 2.8%, well below the growth in demand; our destocking efforts will further increase, iron ore, coal demand will shrink further. To this end, in 2016 domestic and international dry bulk shipping market will remain at low level.

(2) Development strategies of the Company

Faced with a tough market environment, under the leadership of the Board, the Company will capture the favorable opportunity of oil and gas sector reform to adhere to the “strategic guidance, innovation-driven,” and “three stronger than” closely enhance the promotion corporate strategic management and control capability, ability to resist risks, sustainable development and core competitiveness.

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APPENDIX I

(3) Operational plans

In 2016, the Group expects to add 5 new oil tankers and dry bulk vessels with a total tonnage of 150,000 deadweight tonnes of shipping capacity, and 3 new LNG vessels with a total shipping capacity of 525,000 cubic meters. It is anticipated that 171 oil tankers and dry bulk vessels in effective use throughout the whole year will be 17 million deadweight tonnes, and 3 LNG vessels in effective use throughout the whole year will be 525,000 cubic meters.

Based on the market conditions of the domestic and international shipping industry in 2016, and taking into account of the delivery of new vessels, the Group’s major operating plans in 2016 are as follows: completion of shipment turnover volume of 453.3 billion tonne-nautical miles, representing a decrease of 3.8% year-on-year; operating revenue of RMB13.0 billion is expected to be realised, representing an increase of 2.0% year-on-year; operating costs of RMB10.7 billion, representing an increase of 3% year-on-year.

(4) Work initiatives of the Company

To cope with the current market situation, the Group will implement the following initiatives in 2016:

• A. Increase the quality, efficiency and go all out to maintain growth. In 2016, the company will release the full bonus of reform, lay the quality and efficiency battle, go all out to maintain growth, and make efforts to complete the management indicators issued by the Board of Directors.

• In terms of oil shipment business, the Company will make full use of the advantages of economies of scale after the Dalian Ocean fleet restructuring, team work advantage, efficient synergies and further enhance the market competitiveness. In the internal transport market, the Company will seize the opportunity to open the domestic oil market, the initiative to undertake the role of coordinator of the market, and strive to maintain market order; further innovate with the port, execute the the business model of co-ownership, and actively promote the transit of oil to import logistics solutions provider transformation; put the “competing” concept, with domestic counterparts to strengthen exchange routes, supply swap, swap their positions, improve shipping efficiency. In foreign trade transport market, the Company will stick to the firm implementation of the “going out” strategy; vigorously implement the “Strategically follow”, followed by the domestic petrochemical enterprises Globalisation management, according to their needs to adjust the fleet structure, opening up new routes, chart joint management, develop cooperation projects, speed up the strategic layout of globalisation; the full implementation of “diversification” strategy to promote market diversification, customer diversification, diversification of routes and management of pluralism.

In terms of bulk shipment business, the Company will realise “three changes”: First, from maintaining the scale to destocking, according to the actual production to firmly cut excess capacity and redundancy, based on the orders in hand do postponement, sublease, modifications, and other disposal plans to effectively resolve excess capacity, the capacity

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

to maintain a reasonable scale. The second is transforming from the “ship-centric” to “supply-centric”, and actively carry out global marketing, to expand the proportion of freight for improvement. Third, from bulk cargo marine transportation to diversified operation mode, nurture on shore business links, increase extension services, increase the intensity of commodity trade, develop new economic growth point.

In terms of LNG shipment business, the Company will, based on the cooperation with China National Petroleum Corporation, China Petrochemical Corporation and China National Offshore Oil Corporation, the 3 state-owned oil companies, strive to establish a leading LNG transport fleet, and through international joint bid to expand the international market and improve the international influence. The Company will continue to promote people-oriented culture, improve staff quality, and cultivate human resources needed for the development of enterprises, build a leading project development and LNG ship management team.

• B. Adhere to a high starting point, high standard, high-quality, high efficiency to complete the reform and reorganisation. The Company will, in accordance with the Group’s restructuring reform plan, strive to complete the restructuring of the Company in the first half of this year. After the completion of the restructuring, the Company will become a specialised tanker company with the world’s top one tanker fleet.

• C. Implement the responsibility to ensure safety and prevent operational risks. In 2016, the Company will adhere to the “safety of personnel, safety equipment, safety standards, environmental security, security management” as the core of the strategic objectives, and implement safe production responsibility system so as to enhance company core competencies on safety. In addition, the Company will pay close attention to macro-economic changes, and take the path of sound operation. To this end, the Company will strictly control the scale of investment in shipbuilding, strictly control the debt ratio, maintain a good grasp of charter operations, prevention and control of operational risks.

• D. Strengthen funds management and expand financing channels to secure development funds and strive for reduction of capital costs. According to the new vessel delivery plans, the capital expenditure of the Company in 2016 will be approximately RMB2.5 billion. In this connection, the Company will further strengthen cooperation with banks, fully utilise both domestic and international markets and reasonably use financial instruments to secure the required capital funds, and will continuously enhance operating benefits and efficiency of capital operations, reduce financing costs and maintain a relatively sound financial structure, so as to prevent financial risk and capital risk practicably.

• E. Adhere to the costs-come-first and continue to improve operating efficiency and costs reduction and control level. In the background of strict environment with continuously depressed market, the Company will actively control costs and enhance comprehensive competitiveness. In 2016 the Company will take advantage of the comprehensive strength with significantly increasing capacity of Chinese Ocean Shipping Group after the reorganisation, and seek greater concessions while negotiating with global suppliers for

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FINANCIAL INFORMATION OF THE GROUP

purchasing of shipping materials. In addition, the Company will fully utilise the current favorable opportunity of low oil prices, and scientifically and reasonably complete well fuel locking and purchasing work; the Company will strive for breakthrough in management and control of various costs items such as crew expenses, vessel repair charges, port charges, to create an advantage of low costing.

• F. Strengthen talent development and team building so as to mobilise the enthusiasm of the staff. The Company will research and develop a plan for building a team of talent corresponding to and according to our planning for fleet development and the development need of various business segments. The Company will strengthen the building of an international talent team, cultivating a number of high-quality pioneering and innovative personnel with international vision and the ability to work independently so as to secure the manpower for fleet development.

7. OTHER SIGNIFICANT EVENTS

• (1) Results, dividends and closure of the H Share register

The H share register of members of the Company will be closed from Thursday, 21 April 2016, to Friday, 20 May 2016, both days inclusive, during which period no transfer of H shares will be effected and registered. Shareholders whose names appear on the H share register of members of the Company on Friday, 20 May 2016 will be eligible to attend and vote at the annual general meeting of the Company. In order to be entitled to attend and vote at the annual general meeting of the Company, all duly completed transfer forms accompanied by the relevant share certificates must be lodged with the share registrar of the Company’s H shares, Hong Kong Registrars Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not later than 4:30 p.m. on Wednesday, 20 April 2016.

To ascertain shareholders’ entitlement to the proposed final dividend, the H share register of members of the Company will be closed from Friday, 3 June 2016 to Monday, 13 June 2016, both days inclusive, during which period no transfer of H shares will be effected and registered. Shareholders whose names appear on the Company’s H share register of members on Monday, 13 June 2016 will be qualified for the proposed final dividend. In order to qualify for the proposed final dividend, shareholders must lodge all duly completed transfer forms accompanied by the relevant share certificates with the share registrar of the Company’s H shares, Hong Kong Registrars Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not later than 4:30 p.m. on Thursday, 2 June 2016. The proposed final dividend (the payment of which is subject to the shareholders’ approval at the forthcoming annual general meeting) is to be payable on or before Friday, 29 July 2016 to shareholders whose names appear on the H share register of members of the Company on Monday, 13 June 2016.

(2) Medical insurance scheme

As required by the regulations of the PRC local government effective from 1 July 2001, the Company participates in a defined contribution medical insurance scheme organised by PRC social security authorities. Under the scheme, the Company is required to make monthly contributions at the

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

rate of 12% of the total basic salaries of the employees. In addition, pursuant to the aforementioned regulations, the contributions are accounted for as staff welfare payables accrued by the Company. The Company has no obligation for the payment of medical benefits beyond such contributions to the registered insurance companies.

Since 1 July 2010, the Company has developed a defined medical insurance scheme according to the spirit of the State to advocate the establishment of a multi-level enterprise medical security system and of the “Notice on Enterprise Income Tax Policies Relating to Defined Contribution Retirement Insurance and Defined Medical Insurance” (Cai Shui [2009] No. 27). Under the scheme, the Company shall make a provision of 5% of the total salary of employees, which shall be deposited into a special account for defined medical insurance fund.

(3) Pension and Enterprise annuity schemes

• (i) PRC (other than Hong Kong)

Pension scheme

The Group is required to contribute to a pension scheme (the “ Scheme ”) for its eligible employees. Under the Scheme, the Group’s retirement benefit obligations to its existing retired and future retiring employees except for the medical expenses to retired employees, are limited to its annual contributions equivalent to the range of 18% to 22% (2014: 18% to 22%) of the basic salaries of the Group’s employees. Contributions made by the Group to the Scheme for the Reporting Period amounted to RMB28,741,000 (2014: RMB62,425,000).

Enterprise annuity scheme

In 2008, after the resolution held between the representatives of the Group’s Labour Union and the Board, a scheme on the enterprise annuity has been set up. The annuity scheme confirms that the employer’s contributions will be 5% of the total staff costs of previous year. The employees’ contributions will be 1.25% of their income from previous year and the employer’s contributions for the management staff should not be five times more than the staff average.

The enterprise annuity scheme is effective as on 1 January 2008. According to the scheme, actual amount incurred as labour cost in 2015 amounted to RMB7,408,000 (2014: RMB12,197,000).

The Group has no further obligations beyond the annual contributions. In the opinion of the Directors, the Group did not have any significant liabilities beyond the above contributions in respect of the retirement benefits of its employees.

(ii) Hong Kong

The Group operates a Mandatory Provident Fund Scheme (“ MPF Scheme ”) under the Hong Kong Mandatory Provident Fund Schemes Ordinance for employees employed in Hong Kong. The MPF Scheme is a defined contribution retirement scheme administered by independent trustees. Under

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FINANCIAL INFORMATION OF THE GROUP

the MPF Scheme, the employer and its employees are each required to make contributions to the MPF Scheme at 5% (2014: 5%) of the employees’ relevant income, subject to a cap of monthly relevant income of HKD25,000 from 1 June 2012 to 31 May 2014 and HKD30,000 effective as on 1 June 2014. Contributions to the MPF Scheme vest immediately. Contributions made by the Group to the MPF Scheme for the Reporting Period amounted to RMB931,000 (2014: RMB4,766,000).

(4) Directors’ and supervisors’ interests and short positions in shares and underlying shares of the Company

As at 31 December 2015, none of the Directors, supervisors, chief executives or, to the best knowledge of the Directors, their associates had registered an interest or short position in the shares and underlying shares of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the “ SFO ”)) that was required to be recorded pursuant to Section 352 of the SFO, or otherwise required to be notified to the Company and The Stock Exchange of Hong Kong Limited pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “ Model Code ”) as set out in Appendix 10 to the Listing Rules.

(5) Purchase, sale or redemption of the Company’s listed securities

During the Reporting Period, neither the Company nor any of its subsidiaries had purchased, sold or redeemed any of the Company’s listed securities, except that the Company redeemed the convertible bonds and a batch of corporate bonds. For details on the redemption, please refer to note 14 under the heading of “5. FINANCIAL ANALYSIS”.

(6) Compliance with the Corporate Governance Code

The Board is committed to the principles of corporate governance for a value-driven management that is focused on enhancing shareholders’ value. In order to enhance independence, accountability and responsibility, the posts of chairman of the Board and the chief executive officer are assumed by different individuals so as to maintain independence and balanced views.

In the opinion of the Directors, save as disclosed below, the Company has complied with the code provisions of the Corporate Governance Code as set out in Appendix 14 of the Listing Rules throughout the year ended 31 December 2015, except for the deviation in respect of the attendance of the chairman of the Board and independent non-executive Directors at the general meetings of the Company as set out in Code Provision E.1.2 and A.6.7.

Under code provision E.1.2, the chairman of the Board should attend the annual general meeting and invite the chairmen of the Audit Committee, Remuneration and Appraisal Committee, Nomination Committee and any other committees (as appropriate) to attend. However, in the annual general meeting held on 18 June 2015 (“ 2015 AGM ”), Chairman Mr. Xu Lirong was unable to attend the 2015 AGM as he had other business commitments. Mr. Han Jun, executive Director and general manager of the Company, chaired the 2015 AGM on behalf of the chairman. Further, Mr. Ruan Yongping and Mr. Wang Wusheng, both being independent non-executive Directors and chairman of each of the Audit Committee and Nomination Committee at the time of the 2015 AGM were invited to attend the 2015 AGM to answer any question from the shareholders concerning the Company’s corporate

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

governance. As provided for in code provision A.6.7, independent non-executive Directors and other non-executive Directors should attend general meetings and develop a balanced understanding of the views of shareholders. Mr. Zhang Jun, Mr. Ip Sing Chi and Mr. Wang Guoliang, the independent non-executive Directors, were unable to attend the 2015 AGM due to prior business commitments. In addition to the 2015 AGM, the independent non-executive Directors, Mr. Ruan Yongping and Mr. Ip Sing Chi, were unable to attend the extraordinary general meetings of the Company held on 28 December 2015 due to prior business commitments.

The Company will keep its corporate governance practices under continuous review to ensure their consistent application and will continue to improve our practices having regard to the latest developments including any new amendments to the Code.

The Company has established four professional committees under the Board, including the Audit Committee, Remuneration and Appraisal Committee, Strategy Committee and the Nomination Committee with defined terms of reference.

(7) Audit Committee

The Company has established an audit committee to review the financial reporting procedures and internal control and to provide guidance thereto. The audit committee of the Company comprises four independent non-executive Directors.

The audit committee of the Company has reviewed the annual results of the Company for the Reporting Period.

(8) Remuneration and Appraisal Committee

The remuneration and appraisal committee of the Company comprised of four independent non-executive Directors of the Company. The remuneration and appraisal committee of the Company has adopted terms of reference which are in line with the Corporate Governance Code contained in Appendix 14 of the Listing Rules.

(9) Compliance with the Model Code as set out in Appendix 10 to the Listing Rules

The Company has adopted a code of conduct regarding Directors’ securities transactions in accordance with the required standard set out in the Model Code.

Following specific enquiries made with the Directors, supervisors and chief executive of the Company, the Company confirms that each of them has complied with the Model Code during the Reporting Period.

(10) Employees

The adjustments of employee remuneration is calculated in accordance with the Company’s turnover and profitability and is determined by assessing the correlation between the total salary paid and the economic efficiency of the Company. Under this mechanism, management of employees’

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FINANCIAL INFORMATION OF THE GROUP

remuneration will be more efficient while employees will be motivated to work hard to bring encouraging results for the Company. Save for the remuneration policy disclosed above, the Company does not maintain any share option scheme for its employees and the employees do not receive any bonus. The Company regularly provides its administrative personnel with training on various subjects, including operation management, foreign languages, computer skills, industry know-how and policies and laws. Such training may be in different forms, such as seminars, site visits and study tours.

As at 31 December 2015, the Company had 6,269 employees (as at 31 December 2014: 8,805 employees). During the Reporting Period, the total staff cost was approximately RMB1,732 million (2014: approximately RMB1,844 million).

(11) Events after Reporting Period

The following are the significant events after Reporting Period:

• (i) On 29 March 2016, the Board announced that the Company entered into an asset transfer agreement with China Ocean Shipping (Group) Company and China COSCO Bulk Shipping (Group) Co., Ltd which has superseded and replaced the framework agreement announced on 11 December 2015; and entered into a compensation agreement with China Ocean Shipping (Group) Company which has superseded and replaced the compensation agreement announced on 11 December 2015, pursuant to which the parties have agreed that the consideration of acquisition of Dalian Ocean Shipping Company Limited is RMB6,628,455,200, and the consideration of disposal of CS Bulk is RMB5,392,221,600.

• (ii) Pursuant to the resolution passed at the meeting of the Board on 29 March 2016, the Board passed the “Resolution on Changes in Accounting Estimates” to change the estimation of the residual value of the vessels. The net residual value of vessels is changed from USD420/LDT to USD280/LDT, which were adopted with effect from 1 January 2016.

(12) Update of the Articles of Association

In light of the completion of the early redemption of the RMB3.95 billion A share convertible bonds by the Company on 13 February 2015, as well as the conversion of the convertible bonds prior to such date, the total number of shares of the Company changed to 4,032,032,861 (registered capital being RMB4,032,032,861). Further details of such capital changes are set out in the Company’s announcements dated 8 January 2015, 9 January 2015, 10 February 2015 and 22 June 2015. The Company has updated its articles of association to reflect the above capital changes.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• 2014

1. REVIEW OF OPERATING RESULTS DURING THE REPORTING PERIOD

In 2014, facing the complicated market environment, the Group continued to deepen the strategy of “major clients, great co-operation and comprehensive services” under the right leadership of the Board, and actively innovated business ideas and models, obtaining new breakthroughs and achievements in various areas such as management improvement, marketing, reducing cost and increasing efficiency as well as safety management, significantly improving the operating conditions of the Company and maintaining our overall stable development trend.

In 2014, the volume of cargoes shipped by the Group was 182 million tonnes, dropped by 1.9% year-on-year; transport turnover were 430.1 billion tonne-nautical miles, increased by 10.9% year-on-year; revenue derived from operations (after business tax and surcharge) was RMB12.274 billion, increased by 8.2% year-on-year; operating cost was RMB10.886 billion, dropped by 5.5% year-on-year. The profit attributable to owners of the Company was RMB309 million and the basic earnings per share for 2014 was RMB9.09 cents.

(1) Revenue from Principal Operations

In 2014, overall details of the Group’s principal operations by products transported and geographical regions were as follows:

Principal Operations by Products Transported

Industry or Product Description Oil shipments Coal shipments Iron ore shipments Other dry bulk shipments Vessel chartering Total

Revenue Operating costs Gross profit margin Increase/ (decrease) in revenue as compared with 2013 Increase/ (decrease) in operating costs as compared with 2013 Increase/ (decrease) in gross profit margin as compared with 2013 (RMB’ 000) (RMB’ 000) (%) (%) (%) (%) 5,164,370 4,359,081 15.6 -0.7 -21.7 22.6 2,374,115 2,388,618 -0.6 -12.0 -11.8 -0.2 2,883,053 2,228,176 22.7 17.4 4.8 9.3 465,255 508,873 -9.4 -0.5 2.7 -3.4 1,387,056 1,400,872 -1.0 167.0 123.3 19.8 12,273,849 10,885,620 11.3 8.2 -5.5 12.9

— I-38 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Principal Operations by Geographical Regions

		Increase/ (decrease)
		in revenue as
Regions	Revenue	compared to 2013
	(RMB’ 000)	(%)
Domestic shipment	4,607,060	-6.0
International shipment	7,666,789	19.0

(1) Shipping business — Oil shipments

In 2014, in adherence to the “major clients and great co-operation” strategy, China Shipping Tanker Co., Limited (“China Shipping Tanker”), a wholly-owned subsidiary of the Company actively innovated operation ideas and business models, with continuous improvement in transportation efficiency and remarkable achievement in cost efficiency.

For domestic oil shipment, the Company actively innovated the model of cooperation with shippers, significantly improving the shipping efficiency and effectiveness of the domestic oil shipment fleet. In 2014, with the great support of China Shipping, our controlling shareholder, the Company actively carried out integration of tanker assets, and through China Shipping Tanker completed the acquisition of 20% and 20% equity interest in Shanghai Beihai Shipping Company Limited (“Beihai Shipping”) from Sinochem International Corporation and Shanghai Shipping (Group) Company respectively. Seizing the opportunities of capital injection into Beihai Shipping, the Company actively promoted all-round cooperation with China National Offshore Oil Corporation and Beihai Shipping. In 2014, domestic offshore oil of the Company recorded a year-on-year growth rate of 9.7% and gross profit of RMB500 million despite a year-on-year decrease in revenue of 6%. In 2014, the Company recorded gross profit for domestic crude oil shipment of RMB660 million and continued to maintain its leading position (about 52% market share) in domestic crude oil shipping market. Meanwhile, in the face of rapid downturn of domestic refined oil market in recent years, particularly the structural shrinkage of market for big vessels over ten thousand tonnes, the Company adopted a strategic exit strategy while exploiting the complementary strengths in the domestic and foreign markets to timely adjust allocation of domestic and foreign oil shipment capacities, hence the gross profit from domestic refined oil shipment increased by approximately RMB60 million despite the decrease in revenue of RMB83 million.

For international oil shipment, the Company significantly optimized the cargo-owner structure, market structure and route structure through active promotion of diversification strategy; and continued to optimise speed with the best economic benefit by strengthened analysis of budget and final accounts of voyage. In 2014, the Company increased investment in the West African routes and third-country shipment, with the proportion of revenue from West African routes increased to 30% this year from 7.5% last year, while the proportion of third-country shipment increase to 22% this year from 7.5% last year, thereby reducing reliance of VLCC fleet on the Middle East - Far East routes. As a result, the consolidated income and risk resistant ability of VLCC fleet have improved significantly with operating efficiency significantly better than the market level. In 2014, the Company’s VLCC fleet recorded gross profit of RMB102 million, significantly reducing loss of RMB759 million as compared to 2013.

— I-39 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

In 2014, the Group achieved a shipping volume of approximately 190.5 billion tonne-nautical miles of oil, representing an increase of approximately 2.4% year-on-year; revenue derived from oil transportation was approximately RMB550 million, representing an increase of 2.1% year-on-year. An analysis of the transportation volume and revenue in terms of product types is as follows:

Transportation volume by types

																			Increase/
			In 2014										In 2013						Decrease
		_(billion _			tonne-					_(billion _				tonne-
		_nautical _			miles)					nautical miles)									(%)
Domestic					14.78									15.00					-1.5
Crude oil					13.39									13.25					1.1
Refined oil					1.39									1.75					-20.6
International					175.72									171.03					2.7
Crude oil					141.78									134.66					5.3
Refined oil					33.94									36.37					-6.7
Total				190.50										186.03					2.4
Revenue by shipments types
																			Increase/
			In 2014										In 2013						Decrease
		_(RMB _	million)							_(RMB _			million)						(%)
Domestic					1,988									2,058					-3.4
Crude oil					1,720									1,758					-2.2
Refined oil						212									295				-28.1
Vessel charting							56										5		1,020.0
International					3,512									3,331					5.4
Crude oil					2,020									1,663					21.5
Refined oil					1,213									1,488					-18.5
Vessel chartering						279									180				55.0
Total					5,500									5,389					2.1

— I-40 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(2) Shipping business — Dry bulk shipments

For domestic bulk cargo shipment, in 2014, China Shipping Bulk Carrier Co., Limited (“CS Bulk”) strengthened marketing on domestic big customers by advanced arrangement of COA contract negotiations early in the year, and strived to increase the fulfilment rate of the contracts. In 2014, CS Bulk signed COA contracts for domestic dry bulk cargoes with a shipping volume of 56.5 million tonnes. Meanwhile, it actively innovated the pricing model of contracts through various pricing models such as fixed freight rates and index linked pricing according to the wishes of customers to ensure that the COA contracts are fulfilled basically as scheduled. In market downturn, taking a more market-oriented and flexible pricing mechanism is in the best interests of the Company as a whole.

International dry bulk shipment became another major business highlight of the Company in 2014. The Company continued to strengthen development of international dry bulk market and further optimised the structure of offshore cargo supply, achieving significant improvement in offshore operation. The turnover of international dry bulk shipment handled in the year was 167.2 billion tonnes-nautical miles, and the operating revenue was RMB4.155 billion, representing an increase of 23.7% and 33.4% respectively over the same period in 2013; the Company realized gross profit of RMB586 million and gross margin of 14.1%, increased by 4.8 percentage points year-on-year. For very large ore carriers (“VLOC”) fleet operation, the Company relied on long-term COA shipment contracts to finalize source of cargoes in advance, ensuring the smooth operation of all 14 VLOCs. In 2014, importation of 26.17 million tonnes of iron ores was completed with a revenue of RMB2.61 billion, a year-on-year increase of 8.7% and 22.9%, respectively. A gross profit of RMB680 million was realized, representing an increase of RMB280 million and a gross margin of 26.3%, which played an important role in ensuring the Company’s benefits. In terms of small and medium fleet, fully aware of the slowing growth in coastal coal transportation, CS Bulk further strengthened market segment research and judgment, actively adjusted the supply structure, focused on development of food markets, ore markets and steel material markets, increased solicitation for imported coal and fertilizers, and vigorously develop the markets in Pacific, Atlantic, America, West Asia and India. In 2014, total volume of international and domestic non-coal cargo shipment was 46.02 million tonnes, representing 40.5% of the total volume of dry bulk cargo shipment, an increase of 7.2% year-on-year. Furthermore, the Company strengthened the efforts on international chartering of vessels and leased out three Capesize vessels by seizing a high market rate. Through a series of effective measures, the Company’s international dry bulk cargo fleet has achieved significant improvement in operating efficiency, with the daily profit margins of the Capesize and Panamax vessels of the Company much higher than those of international markets in the corresponding periods.

— I-41 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

In 2014, the Group achieved a shipping volume of approximately 239.58 billion tonne-nautical miles of dry bulk cargo, representing an increase of approximately 18.7% year-on-year; operating revenue derived from dry bulk cargo transportation was approximately RMB6.774 billion, representing an increase of 13.8% year-on-year. An analysis of the transportation volume and revenue in terms of product types is as follows:

															Increase/
		**In **			2014					**In **		2013			Decrease
		_(billion _		tonne-				_(billion _			tonne-
		_nautical _		miles)				nautical miles)							(%)
Domestic				72.37							66.62				8.6
Coal				56.73							54.03				5.0
Iron ore					7.10							6.70			6.0
Others					8.54							5.89			45.0
International				167.21							135.16				23.7
Coal				12.17							17.80				-31.6
Iron ore			147.54								113.07				30.5
Others					7.50							4.29			74.8
Total			239.58								201.78				18.7
															Increase/
		**In **			2014					**In **		2013			Decrease
		(RMB million)						(RMB million)							(%)
Domestic				2,619							2,841				-7.8
Coal				1,933							2,093				-7.6
Iron ore						277							336		-17.6
Others						258							320		-19.4
Vessel chartering						151							92		64.1
International				4,155							3,114				33.4
Coal						441							605		-27.1
Iron ore				2,606							2,120				22.9
Others						207							147		40.8
Vessel chartering						901							242		272.3
Total				6,774							5,955				13.8

Note: Other dry bulk cargoes include metal ore, non-metallic ore, steel, cement, timber, grain, fertilizer and so on except for coal and iron ore.

— I-42 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(3) Progress made in LNG shipments

In recent years, domestic LNG markets experienced rapid development, accounting for an increasing proportion in the structure of energy consumption, while the rapid development of China’s LNG importation has provided huge strategic opportunities for the Company to expand its LNG transportation. The Company is actively studying on the implementation of national economic policies for energy conservation and clean energy development, and is strengthening coordination with major oil companies to go all out for promotion of LNG project development.

In 2014, the Company continued to proceed with its LNG business. On the one hand, it grasped existing project development while steadily pushing forward the phase I vessel construction of the Mobil DES project and the APLNG project, and actively implemented the tender bidding of the APLNG project phase II vessel construction. On the other hand, the Company actively explored new projects, and participated in the bidding of YAMAL LNG project jointly with Japanese company Mitsui O.S.K. Lines, Limited (“MOL”), and has successfully signed a basket of contracts for three LNG vessels in phase I of such project in July 2014.

2. COSTS AND EXPENSES ANALYSIS

While achieving well in transportation operations, the Company has seriously and consistently implemented the various requirements of the Board on further enhancing management, cost reduction and efficiency improvement. Starting on operational management and overall budget management, cost management and control was further strengthened and all types of various costs and expenses were effectively under control. In 2014, transportation cost of RMB10.89 billion was incurred, representing a decrease of 5.5% year-on year, while ensuring notable improvement in the operating profit of the Company. The composition of the main operating costs is as follows:

			Increase/	Composition
Item	In 2014	In 2013	Decrease	ratio in 2013
	(RMB’ 000)	(RMB’ 000)	(%)
Fuel cost	4,555,800	4,818,839	-5.5%	41.9%
Port cost	1,107,320	1,302,820	-15.0%	10.2%
Sea crew cost	1,499,667	1,657,039	-9.5%	13.8%
Lubricants expenses	223,797	223,615	0.1%	2.1%
Depreciation	1,842,974	1,641,748	12.3%	16.9%
Insurance expenses	238,527	251,978	-5.3%	2.2%
Repair expenses	351,382	289,137	21.5%	3.2%
Charter cost	516,664	612,076	-15.6%	4.7%
Provision for onerous contracts	107,358	349,694	-69.3%	1.0%
Others	442,131	377,893	17.0%	4.0%
Total	10,885,620	11,524,839	-5.5%	100.0%

— I-43 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Fuel cost was the most important cost control item for shipping enterprises. In 2014, the Company take advantage of fluctuating and descending in international oil prices and further enhanced our research and judgment over fuel market, which actively implemented operation at shipping speed with the best economic effect and put more effort into energy saving management to explore reduction and control point. In the meantime, we improved technology energy saving control over key parts such as oil in bulk heating/cabin cleaning/inert air filling through adopting various efficiency measures, as such, the Company achieved further achievement in fuel cost control. In 2014, while the transportation turnover volume of the Company increased by 10.9% year-on-year, the fuel consumption volume was 1,171,200 tonnes, representing a decrease of 1.1% year-on-year; and average fuel consumption decreased from 3.05kg/1,000 nautical miles in 2013 to 2.72 kg/1,000 nautical miles, decreasing by 10.8% year-on-year, the utilization efficiency of fuel has been improved significantly. In 2014, the Company incurred fuel costs of RMB4.556 billion, representing a decrease of 5.5% year-on-year and accounting for 41.9% of the costs of transportation costs.

Regarding sea crew costs, in 2014, the Group implemented reform of its crew management system by entering into sea crew management agreements with China Shipping for the provision of sea crew and related services to the Group, which enabled the Group to reduce crew costs of approximately RMB157 million in 2014.

In addition, the Group further strengthened communication and coordination with ports, insurance companies and P&I Clubs. As a result, actual expenditures on port charges and insurance fees of the Group decreased by RMB196 million and RMB13.45 million respectively in 2014.

In 2014, the Group incurred depreciation of RMB1.843 billion, representing an increase of 12.3% year-on-year. Such increases were due to: (1) 13 new vessels with a total capacity of 1.452 million dead weight were delivered during the Reporting Period; (2) effective from 1 January 2014, the Group adjusted the residual values of vessels from USD470 (approximately RMB2,960) per light displacement ton to USD420 (approximately RMB2,560) per light displacement ton. As a result of these changes in accounting estimates, the depreciation increased by approximately RMB57 million in 2014.

3. OPERATING RESULTS OF THE JOINT VENTURES AND THE ASSOCIATES

In 2014, the Group has recognised its profits in its joint ventures of approximately RMB206 million, representing an increase of 85.6% as compared with that of the same period in 2013. In 2014, the 5 joint ventures achieved a shipping volume of 131.5 billion tonne-nautical miles, representing a decrease of 23.5% as compared with the same period in 2013. The operating revenue achieved by the 5 joint ventures in 2014 was approximately RMB8.493 billion, representing a decrease of 9.0% as compared to that of the same period in 2013, and the net profit realised by the 5 joint ventures in 2014 was approximately RMB326 million, representing an increase of 100.0% as compared to that of the same period in 2013.

As at 31 December 2014, the 5 joint ventures owned 82 bulk vessels with a total capacity of 4.58 million deadweight tonnes and 10 vessels under construction with the capacity of 475,000 deadweight tonnes.

— I-44 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The operating results achieved by the 5 joint ventures in 2014 are as follows:

		2014	2014
	Interest held	Shipping	Operating	2014 Net
Company name	by the Group	volume	revenue	profit/loss
		(billion tonne
		nautical miles)	(RMB’ 000)	(RMB’ 000)
Shenhua Zhonghai Marine Co.,
Limited	49%	72.16	3,380,687	267,198
Shanghai Times Shipping Co.,
Limited	50%	47.46	4,270,631	22,698
Shanghai Friendship Marine
Co., Limited	50%	1.84	113,616	1,056
Huahai Petrol Transportation &
Trading Co., Limited	50%	2.42	188,382	14,485
Guangzhou Development
Shipping Co., Limited	50%	7.62	539,367	20,467

In 2014, the net profit achieved by China Shipping Finance Co., Limited (“CS Finance”), a non-shipping joint venture, with 25% interest held by the Company, was approximately RMB213 million.

In 2014, the Group has recognised its profits in its associates of approximately RMB91 million. In 2014, 1 associate achieved a shipping volume of 22.45 billion tonne-nautical miles. The operating revenue achieved by the associate in 2014 was approximately RMB1.218 billion, and the net profit realised by the associate in 2014 was approximately RMB425 million.

As at 31 December 2014, the associate owned 7 bulk vessels with a total capacity of 0.59 million deadweight tonnes.

The operating results achieved by the associate in 2014 are as follows:

			2014	2014
	Interest held		Shipping	Operating	2014 Net
Company name	by the Group		volume	revenue	profit/loss
			(billion tonne
			nautical miles)	(RMB’ 000)	(RMB’ 000)
Beihai Shipping		40%	22.45	1,217,924	425,434

— I-45 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. FINANCIAL ANALYSIS

(1) Net cash inflow

The net cash inflow from operating activities of the Group increased from approximately RMB1,429,279,000 for the year ended 31 December 2013 to approximately RMB3,157,049,000 for the year ended 31 December 2014, representing an increase of approximately 120.9%.

(2) Capital commitments

Authorised and contracted for: Construction and purchases of vessels (Note 1) Equity Investments (Note 2)	Group 2014 2013 RMB’ 000 RMB’ 000 5,430,061 9,586,595 539,668 592,868 5,969,729 10,179,463	Company 2014 2013 RMB’ 000 RMB’ 000 — — 539,668 592,868 539,668 592,868	Company 2014 2013 RMB’ 000 RMB’ 000 — — 539,668 592,868 539,668 592,868
			592,868

The Group and the Company had capital commitments as at 31 December 2014, of which RMB1,112,199,000 (2013: RMB5,980,812,000) from the Group and RMB539,668,000 (2013: RMB592,868,000) from the Company will be due within one year.

Note:

• (1) According to the construction or purchase agreements entered into by the Group from January 2007 to December 2014, these capital commitments will fall due in 2015 to 2017.

• (2) Included capital commitments in respect of equity investments is commitment to invest in joint venture, Shenhua Zhonghai Marine Co., Limited of RMB539,668,000 (2013: RMB592,868,000).

In addition to the above, the Group’s share of the capital commitments of its associates which are contracted for but not provided amounted to RMB486,298,000 (2013: RMB895,929,000). The Group’s share of the capital commitments of its joint ventures, which are contracted for but not provided amounted to RMB3,225,137,000 (2013: RMB1,296,397,000); which are authorised but not contracted for amounted to RMB Nil (2013: RMB4,900,000).

— I-46 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(3) Capital structure

The Group’s and Company’s net debt-to-equity ratio at 31 December 2014 and 2013 was as follows:

Total borrowings Less: Cash and cash equivalents Net debt Total equity Debt to equity ratio	Group 2014 2013 RMB’ 000 RMB’ 000 41,211,060 33,603,578 (2,449,240) (1,919,204) 38,761,820 31,684,374 22,647,729 22,211,877 171% 143%	Company 2014 2013 RMB’ 000 RMB’ 000 15,830,407 17,878,629 (517,755) (487,558) 15,312,652 17,391,071 21,165,727 20,975,375 72% 83%	Company 2014 2013 RMB’ 000 RMB’ 000 15,830,407 17,878,629 (517,755) (487,558) 15,312,652 17,391,071 21,165,727 20,975,375 72% 83%
			17,391,071 20,975,375 83%

(4) Cash and cash equivalents

Cash at banks generates interest income at floating rates based on daily bank deposit rates. Short-term fixed deposits are deposited for various periods of between one day to three months depending on the immediate cash requirements of the Group, and interest income shall accrue at the respective short-term fixed deposit rates. The carrying amounts of the cash and cash equivalents approximate to their fair values.

Included in cash and cash equivalents is an amount of RMB696,892,000 (2013: RMB792,008,000) of bank balance deposited with CS Finance, a joint venture of the Group.

Pledged bank deposits represent the deposits pledged to bank to secure banking facilities granted to the Group, deposits amounting to RMB611,900,000 (2013: RMBNil) have been pledged to secure short term bank loans and are therefore classified as current assets. The pledged bank deposits will be released upon the settlement of relevant bank borrowing.

Cash and cash equivalents are denominated in the following foreign currencies:

	Group		Company	Company
	2014	2013	2014	2013
	RMB’ 000	RMB’ 000	RMB’ 000	RMB’ 000
USD	1,579,382	1,043,235	16,489	79,898
SGD	910	1,866	—	—
HKD	11,182	1,722	70	73
Others	746	841	745	841

— I-47 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Pledged bank deposits are denominated in the following foreign currency:

	Group		Company	Company
	2014	2013	2014		2013
	RMB’ 000	RMB’ 000	RMB’ 000	RMB’ 000
USD	611,900	—	611,900		—

(5) Trade and bills receivables

Trade and bills receivables Trade receivables from associates, joint ventures and fellow subsidiaries Trade and bills receivables	Group 2014 2013 RMB’ 000 RMB’ 000 1,735,214 1,647,728 11,049 102,557 1,746,263 1,750,285	Company 2014 2013 RMB’ 000 RMB’ 000 2,553 1,312 — — 2,553 1,312	Company 2014 2013 RMB’ 000 RMB’ 000 2,553 1,312 — — 2,553 1,312
			1,312

The carrying amounts of trade and bills receivables approximate to their fair values.

The trade receivables due from associates, joint ventures and fellow subsidiaries are unsecured, non-interest bearing and under normal credit period as other trade receivables.

— I-48 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

An ageing analysis of the trade and bills receivables at the end of the Reporting Period, based on the invoice date, is as follows:

1 - 3 months 4 - 6 months 7 - 9 months 10 - 12 months 1 - 2 years	Group 2014 2013 Balance Percentage Balance Percentage RMB’ 000 % RMB’ 000 % 1,503,619 86 1,559,506 89 131,929 8 108,813 6 58,604 3 47,208 3 47,443 3 33,251 2 4,668 — 1,507 — 1,746,263 100 1,750,285 100	Group 2014 2013 Balance Percentage Balance Percentage RMB’ 000 % RMB’ 000 % 1,503,619 86 1,559,506 89 131,929 8 108,813 6 58,604 3 47,208 3 47,443 3 33,251 2 4,668 — 1,507 — 1,746,263 100 1,750,285 100
		100

1 - 3 months 1 - 2 years	Company 2014 2013 Balance Percentage Balance Percentage RMB’ 000 % RMB’ 000 % 2,495 98 1,255 96 58 2 57 4 2,553 100 1,312 100	Company 2014 2013 Balance Percentage Balance Percentage RMB’ 000 % RMB’ 000 % 2,495 98 1,255 96 58 2 57 4 2,553 100 1,312 100
		100

No impairment loss is provided for the trade and bills receivables that are neither past due nor impaired because these receivables are within credit period granted to the respective customers and the management considers the default rate is low for such receivables based on historical information and past experience.

In determining the recoverability of a trade and bills receivables, the Group considers any change in credit quality of the trade and bills receivables from the date credit was initially granted up to the end of the Reporting Period. In view of the good settlement history of those receivables of the Group which are past due but not impaired for the year, the directors of the Company consider that no allowance is required.

Included in trade and bills receivables are debts with carrying amount of approximately RMB242,644,000 (2013: RMB190,779,000) which are past due as at the end of the Reporting Period for which the Group had not provided for impairment loss as there has not been a significant change in credit quality and the amounts are still considered recoverable (2013: RMB Nil).

— I-49 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Ageing of trade and bills receivables which are past due but not impaired:

1 - 6 months 7 - 12 months Over 1 year	Group 2014 2013 RMB’ 000 RMB’ 000 190,533 156,021 47,443 34,758 4,668 — 242,644 190,779	Company 2014 2013 RMB’ 000 RMB’ 000 — — 57 58 — 58 57	Company 2014 2013 RMB’ 000 RMB’ 000 — — 57 58 — 58 57
			57

The Group normally allows a credit period of 30 to 120 days to its major customers. In view of the fact that the Group’s trade and bills receivables relate to a large number of diversified customers, there is no significant concentration of credit risk. Trade and bills receivables are non-interest-bearing.

Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Group. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are considered fully recoverable. The Group does not hold any collateral over these balances.

The carrying amounts of the trade and bills receivables are denominated in the following foreign currencies:

	Group		Company	Company
	2014	2013	2014		2013
	RMB’ 000	RMB’ 000	RMB’ 000	RMB’ 000
USD	968,211	822,395	1,893		—
AUD	2	—	—		—

— I-50 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(6) Prepayments, deposits and other receivables

Prepayments Deposits and other receivables Due from fellow subsidiaries Due from joint ventures Due from associates Due from related parties - Due from joint ventures of ultimate holding company - Due from joint venture of a fellow subsidiary Due from subsidiaries	Group 2014 2013 RMB’ 000 RMB’ 000 139,850 67,484 316,039 164,515 185,662 125,294 74,565 65,000 3,427 — 16,971 24,275 76,153 39,606 — — 812,667 486,174	Company 2014 2013 RMB’ 000 RMB’ 000 6,350 4,611 38,081 49,984 — — 50,000 50,217 — — — — — — 10,289,076 5,135,667 10,383,507 5,240,479	Company 2014 2013 RMB’ 000 RMB’ 000 6,350 4,611 38,081 49,984 — — 50,000 50,217 — — — — — — 10,289,076 5,135,667 10,383,507 5,240,479
			5,240,479

The amounts due from fellow subsidiaries, related parties and subsidiaries are unsecured, non-interest bearing and repayable on demand.

Included in amounts due from subsidiaries amount to RMB3,500,000,000 are unsecured and interest bearing at fixed rate of 3.60% to 4.50% or at variable rate 5% to 20% discount to the People’s Bank of China (“PBC”) Benchmark interest rate.

The carrying amounts of the prepayments, deposits and other receivables of the Group and Company are denominated in the following foreign currencies

	Group		Company	Company
	2014	2013	2014		2013
	RMB’ 000	RMB’ 000	RMB’ 000	RMB’ 000
USD	483,041	318,021	16,975	1,889,812
AUD	22,820	64,040	—		65
JPY	1,914	2,390	—		—
Others	36,638	38,049	86		—

— I-51 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(7) Trade and bills payables

Trade and bills payables Due to ultimate holding company Due to joint ventures Due to fellow subsidiaries Due to related parties - Due to joint ventures of fellow subsidiaries - Due to joint ventures of ultimate holding company Due to subsidiaries	Group 2014 2013 RMB’ 000 RMB’ 000 472,700 548,149 147 — 860 1,125 377,627 920,966 129,759 47,173 9,576 25,320 — — 990,669 1,542,733	Company 2014 2013 RMB’ 000 RMB’ 000 2,824 1,614 — — — — 247 9,853 — — — — 8,720 8,688 11,791 20,155	Company 2014 2013 RMB’ 000 RMB’ 000 2,824 1,614 — — — — 247 9,853 — — — — 8,720 8,688 11,791 20,155
			20,155

The carrying amounts of trade and bills payables approximate to their fair values.

The trade payables due to ultimate holding company, joint ventures, fellow subsidiaries, related parties and subsidiaries are unsecured, non-interest bearing and repayable on demand

The carrying amounts of trade and bills payables are denominated in the following foreign currencies.

	Group		Company	Company
	2014	2013	2014		2013
	RMB’ 000	RMB’ 000	RMB’ 000	RMB’ 000
USD	619,246	577,249	8,675		93
HKD	36,944	1,969	—		—
JPY	2,283	1,885	—		—
EUR	6,161	48	—		—
Others	9,458	9,514	—		—

— I-52 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

An ageing analysis of the trade and bills payables at the end of the Reporting Period, based on the invoice date, is as follows:

1 - 3 months 4 - 6 months 7 - 9 months 10 - 12 months 1 - 2 years Over 2 years 1 - 3 months 4 - 6 months 7 - 9 months 10 - 12 months 1 - 2 years Over 2 years	Group 2014 2013 Balance Percentage Balance Percentage RMB’ 000 % RMB’ 000 % 710,078 72 1,388,738 90 129,070 13 71,612 5 51,795 5 49,090 3 66,103 7 17,928 1 24,436 2 5,889 — 9,187 1 9,476 1 990,669 100 1,542,733 100 Company 2014 2013 Balance Percentage Balance Percentage RMB’ 000 % RMB’ 000 % 2,377 20 9,653 48 — — 344 2 220 2 705 3 — — 6,541 33 6,707 57 2,818 14 2,487 21 94 — 11,791 100 20,155 100	Group 2014 2013 Balance Percentage Balance Percentage RMB’ 000 % RMB’ 000 % 710,078 72 1,388,738 90 129,070 13 71,612 5 51,795 5 49,090 3 66,103 7 17,928 1 24,436 2 5,889 — 9,187 1 9,476 1 990,669 100 1,542,733 100 Company 2014 2013 Balance Percentage Balance Percentage RMB’ 000 % RMB’ 000 % 2,377 20 9,653 48 — — 344 2 220 2 705 3 — — 6,541 33 6,707 57 2,818 14 2,487 21 94 — 11,791 100 20,155 100
		100

— I-53 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The trade and bills payables are non-interest-bearing and are normally settled in 1 - 3 months.

	Group		Company	Company
	2014	2013	2014	2013
	RMB’ 000	RMB’ 000	RMB’ 000	RMB’ 000
Accruals	41,906	53,067	3,676	5,631
Other payables	(57,484)	139,616	73,250	(131,164)
Due to ultimate holding
company	17,647	88,207	17,135	88,207
Due to fellow subsidiaries	97,665	633,767	41	2,398
Due to joint ventures	4,962	2,444	489	733
Due to subsidiaries	—	—	81,683	237,832
	104,696	917,101	176,274	203,637

The carrying amounts of other payables and accruals approximate to their fair values. Accruals and other payables are non-interest-bearing and are normally settled in 1 - 3 months.

The amounts due to ultimate holding company, fellow subsidiaries, joint ventures and subsidiaries are unsecured, non-interest bearing and repayable on demand.

The carrying amounts of other payables and accruals are denominated in the following foreign currencies:

	Group		Company	Company
	2014	2013	2014	2013
	RMB’ 000	RMB’ 000	RMB’ 000	RMB’ 000
USD	314,656	337,323	2,400	41,726
HKD	3,412	25,333	—	4,327
Others	1,937	56,364	—	3,553

— I-54 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(9) Provision for onerous contracts

As at 1 January Utilised during the year Provision for the year Exchange realignment As at 31 December Current portion of provision for onerous contracts Non-current portion of provision for onerous contracts	Group 2014 2013 RMB’ 000 RMB’ 000 349,694 — (175,850) — 107,358 349,694 613 — 281,815 349,694 142,287 175,287 139,528 174,407 281,815 349,694	Company 2014 2013 RMB’ 000 RMB’ 000 33,436 — (17,158) — 45,547 33,436 50 — 61,875 33,436 32,317 17,158 29,558 16,278 61,875 33,436	Company 2014 2013 RMB’ 000 RMB’ 000 33,436 — (17,158) — 45,547 33,436 50 — 61,875 33,436 32,317 17,158 29,558 16,278 61,875 33,436
			33,436
			17,158 16,278
			33,436

As at 31 December 2014, the Group has a provision of RMB281,815,000 (2013: RMB349,694,000) for onerous contracts relating to the non-cancellable chartered-in oil tankers and dry bulk vessel contracts.

As at 31 December 2014, the committed charterhire expenses of non-cancellable chartered-in oil tankers and dry bulk vessel contracts with lease term expiring over 24 months from the end of the Reporting Period and with period not being covered by chartered-out oil tankers and dry bulk vessels contracts of which management cannot reliably assess their onerous contracts amounted to approximately RMB2,709,313,000 (2013: RMB3,031,793,000).

— I-55 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(10) Derivative financial instruments

Carried at fair value Cash flow hedges: - Interest rate swap agreements Assets Non-current portion Liabilities Current portion Non-current portion	Group 2014 2013 RMB’ 000 RMB’ 000 — 151,027 — (1,940) (291,553) (4,689) (291,553) (6,629)

As at 31 December 2014, the Group held thirty-one (2013: thirty-two) interest rate swap agreements, the total notional principal amount of the outstanding interest rate swaps agreements was USD609,800,282 (approximately RMB3,731,368,000) (2013: USD651,133,615 (approximately RMB3,969,869,893)). The interest rate swap agreements, with maturity in 2016, 2031 and 2032 are designated as cash flow hedges in respect of the bank borrowings with a floating interest rate.

During the year ended 31 December 2014, the floating rates of the bank loan were Libor plus 0.42%, 0.45% or 2.2% (2013: Libor plus 0.42%, 0.45% or 2.2%).

The gains/(losses) for the interest rate swap agreements during the year are as follows:

	2014	2013
	RMB’ 000	RMB’ 000
Net (loss)/gain included in the hedging reserve	(436,415)	157,491
Hedge loan interest included in finance costs	(3,386)	(6,216)
Total (loss)/gain on cash flow hedges interest rate swap
agreements	(439,801)	151,275

On 28 January 2014, the Group released one of interest rate swap agreements with Citibank, N.A., Hong Kong, the notional principal amount of the interest rate swap agreement was USD41,333,333 prior to maturity in January 2016.

— I-56 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (11) Notes, interest-bearing bank and other borrowings

• (a) The Group’s notes, interest-bearing bank and other borrowings are analysed as follows:

Annual effective interest Maturity (%) Current liabilities (i) Bank loans Secured 5% to 10% discount to the PBC Benchmark interest rate, 3 months Libor, 3 months Libor + 1.30%, Libor + 0.38% to 2.15%, 3.50% to 4.73% 2015 Unsecured Libor + 0.60% to 4.00%, 9% to 10% discount to the PBC Benchmark interest rate, PBC Benchmark interest rate, 3 months Libor, 3 months Libor + 1.30% to 2.20%, 4.50% 2015 (ii) Notes Unsecured 3.90% 2014 (iii) Other borrowings Secured 6.00%, 5% discount to the PBC Benchmark interest rate 2015 Unsecured 10% discount to the PBC Benchmark interest rate, 2.50% to 6.00%, Libor +1.60% to 2.90% 2015 Notes, interest-bearing bank and other borrowings - current portion	Group 2014 2013 RMB’ 000 RMB’ 000 1,926,196 1,627,229 4,030,944 1,575,940 5,957,140 3,203,169 — 2,998,949 253,160 6,630 2,032,790 2,356,307 2,285,950 2,362,937 8,243,090 8,565,055	Company 2014 2013 RMB’ 000 RMB’ 000 611,900 — 200,000 487,752 811,900 487,752 — 2,998,949 — — 1,100,000 1,000,000 1,100,000 1,000,000 1,911,900 4,486,701	Company 2014 2013 RMB’ 000 RMB’ 000 611,900 — 200,000 487,752 811,900 487,752 — 2,998,949 — — 1,100,000 1,000,000 1,100,000 1,000,000 1,911,900 4,486,701
			487,752
			2,998,949
			— 1,000,000
			1,000,000
			4,486,701

— I-57 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Annual effective interest Maturity (%) Non-current liabilities (i) Bank loans Secured 5% to 10% discount to the PBC Benchmark interest rate, 3 months Libor +2.20%, Libor +0.38% to 2.15%, 4.27% to 4.73% 2016- 2037 Unsecured 10% to 20% discount to the PBC Benchmark interest rate, PBC Benchmark interest rate, Libor + 1.45% to 1.85%, 3 months Libor + 2.40%, 1.68% to 6.00% 2019- 2026 (ii) Other borrowings Secured 5% discount to the PBC Benchmark interest rate 2023 Unsecured 10% discount to the PBC Benchmark interest rate, 3.60% to 6.51%, 6 months Libor + 2.50% 2017- 2018 Notes, interest- bearing bank and other borrowings - non-current portion	Group 2014 2013 RMB’ 000 RMB’ 000 11,295,416 8,109,880 7,388,464 2,092,182 18,683,880 10,202,062 129,540 137,700 4,611,923 5,072,790 4,741,463 5,210,490 23,425,343 15,412,552	Company 2014 2013 RMB’ 000 RMB’ 000 — — 1,800,000 — 1,800,000 — — — 4,000,000 5,000,000 4,000,000 5,000,000 5,800,000 5,000,000	Company 2014 2013 RMB’ 000 RMB’ 000 — — 1,800,000 — 1,800,000 — — — 4,000,000 5,000,000 4,000,000 5,000,000 5,800,000 5,000,000
	18,683,880		—
	129,540 4,611,923		— 5,000,000
	4,741,463		5,000,000
	23,425,343		5,000,000

The Group’s bank and other borrowings are secured by pledges or mortgages of the Group’s 48 vessels (2013: 34 vessels) and 13 vessels under construction (2013: 4 vessels under construction) with total net carrying value of RMB24,149,221,000 (2013: RMB16,299,120,000) as at 31 December 2014. Collateralised borrowings are secured by trade receivables of RMBNil (2013: RMB504,705,000).

Bank deposits of RMB611,900,000 (2013: RMBNil) have been pledged to secure short-term bank loan. The pledged bank deposits will be released upon the settlement of relevant bank borrowing.

The carrying value of the Group’s and the Company’s notes, interest-bearing bank and other borrowings approximate to their fair values.

Except for secured bank loans of RMB12,470,966,000 (2013: RMB9,598,438,000), unsecured bank loans of RMB6,978,985,000 (2013: RMB2,947,739,000) and unsecured other borrowings of RMB611,923,000 (2013: RMB426,767,000) which are denominated in USD, all borrowings are denominated in RMB.

— I-58 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

• (b) As at 31 December 2014, the Group’s notes, interest-bearing bank and other borrowings were repayable as follows:

			Group	Company	Company
		2014	2013	2014	2013
		RMB’ 000	RMB’ 000	RMB’ 000	RMB’ 000
Analysed into:
(i)	Bank loans:
	Within one year or on demand	5,957,140	3,203,169	811,900	487,752
	In the second year	2,689,239	1,675,888	—	—
	In the third to fifth year, inclusive	10,204,923	3,886,845	1,800,000	—
	Over five years	5,789,718	4,639,329	—	—
		24,641,020	13,405,231	2,611,900	487,752
(ii)	Notes:
	Within one year or on demand	—	2,998,949	—	2,998,949
(iii)	Other borrowings:
	Within one year or on demand	2,285,950	2,362,937	1,100,000	1,000,000
	In the second year	8,670	2,079,420	—	2,000,000
	In the third to fifth year, inclusive	4,640,993	3,026,010	4,000,000	3,000,000
	Over five years	91,800	105,060	—	—
		7,027,413	7,573,427	5,100,000	6,000,000
		31,668,433	23,977,607	7,711,900	9,486,701

Included in other borrowings represent an amount of RMB1,421,790,000 (2013: RMB1,658,930,000) were borrowed from CS Finance, a joint venture of the Group. As at 31 December 2014, the current and non-current portion of this borrowing amounted to RMB1,370,990,000 (2013: RMB1,532,140,000) and RMB50,800,000 (2013: RMB126,790,000) respectively.

Included in other borrowings represent an amount of RMB5,411,923,000 (2013: RMB5,400,000,000) were borrowed from the Company’s ultimate holding company. As at 31 December 2014, the current and non-current portion of this borrowing amounted to RMB800,000,000 (2013: RMB400,000,000) and RMB4,611,923,000 (2013: RMB5,000,000,000) respectively.

Included in current portion of other borrowings represent an amount of RMBNil (2013: RMB426,767,000) were borrowed from China Shipping (Hong Kong) Holdings Co., Limited, a fellow subsidiary of the Company.

— I-59 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

• (c) Details of the notes as at 31 December 2014 are as follows:

Principal amount Notes issuance cost Proceeds received Accumulated amortisation Redemption of notes	Group and Company 2014 2013 RMB’ 000 RMB’ 000 3,000,000 3,000,000 (8,245) (8,245) 2,991,755 2,991,755 8,245 7,194 (3,000,000) — — 2,998,949

Notes with principal amount of RMB3,000,000,000 was issued by the Group to investors on 3 August 2009. The notes carried a fixed interest yield of 3.90% per annum and were issued at a price of 100 per cent of its principal amount, resulting in no discount on the issue. The notes become interest bearing since 4 August 2009, payable annually in arrears on 4 August of each year. The notes have been fully redeemed on 3 August 2014

(12) Other Loans

Baosteel Resources International Company Limited (“Baosteel Resources International”) Kantons International Investment Limited (“Kantons International”) Shanghai Puyuan Shipping Co., Limited MOL Petrochina International Co., Limited Less: current portion of other loans Non-current portion of other loans	Group 2014 2013 RMB’ 000 RMB’ 000 410,784 424,206 306,769 142,453 107,681 104,297 138,140 63,132 12,286 10,020 975,660 744,108 (44,714) (29,874) 930,946 714,234

— I-60 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Included in loan from Baosteel Resources International represents an amount of USD67,130,000 (approximately RMB410,784,000) (2013: USD69,580,000 (approximately RMB424,206,000)) was provided to Hong Kong Hai Bao Shipping Co., Limited to finance the construction of vessels and daily operation. The loan is unsecured, bears interest at 3.5% (2013: 3.5%) per annum and repayable in 2018.

According to the contract signed between East China Shipping Investment Co., Limited (“ELNG”) and its non-controlling shareholder, Kantons International, USD5,885,854 (approximately RMB36,015,000) (2013: USD3,069,517 (approximately RMB18,714,000)) was provided to ELNG to finance the vessels construction projects being carried out by the associates held by ELNG. The loan is unsecured, bearing interest at approximately 3.3% over 3 months Libor and have to repay within 20 years after such vessels construction projects completed.

According to the contract signed between China Energy Shipping Investment Co., Limited (“China Energy”) and its non-controlling shareholder, Kantons International, USD44,248,019 (approximately RMB270,754,000) (2013: USD20,295,349 (approximately RMB123,739,000)) were provided to China Energy to finance the vessels construction projects being carried out by the subsidiaries of China Energy. The loans are unsecured, bearing interest at approximately 2.2% over 3 months Libor and have to repay within 20 years after such vessels construction projects completed.

According to the contract signed between CS Puyuan Marine Co., Limited (“CS Puyuan”) and its non-controlling shareholder, Shanghai Puyuan Shipping Co., Limited, USD17,597,200 (approximately RMB107,681,000) (2013: USD17,107,200 (approximately RMB104,297,000)) was provided to CS Puyuan to finance the daily operation. The loans are unsecured, non-interest bearing and repayable in 2015 and 2016.

According to the contracts signed between China Energy and its non-controlling shareholder of subsidiaries, MOL, USD22,575,542 (approximately RMB138,140,000) (2013: USD10,354,792 (approximately RMB63,132,000)) were provided to China Energy to finance the vessels construction projects being carried out by the subsidiaries of China Energy. The loans are unsecured, bearing interest at approximately 2.2% over 3 months Libor and have to repay within 15 years after such vessels construction projects completed.

According to the contract signed between North China LNG Shipping Investment Co., Limited (“NLNG”) and its non-controlling shareholder, Petrochina International Co., Limited, USD2,007,839 (approximately RMB12,286,000) (2013: USD1,643,393 (approximately RMB10,020,000)) was provided to NLNG to finance the vessels construction projects being carried out by the associates held by NLNG. The loan is unsecured, bearing interest at approximately 4.9% over 3 months Libor and have to repay within 20 years after such vessels construction projects completed.

— I-61 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(13) Obligations Under Finance Leases

It is the Group’s policy to lease certain of its vessels under finance leases, with lease terms of 10 years. Interest rates underlying all under finance leases are fixed at 5.90% per annum.

Amounts payable under finance leases - Within one year - In more than one year but not more than two years - In more than two years but not more than five years - More than five years Less: future finance charges Present value of lease obligations Less: Amount due within one year shown under current liabilities Amount due after one year	Group Minimum lease payments Present value of minimum lease payments 2014 2013 2014 2013 RMB’ 000 RMB’ 000 RMB’ 000 RMB’ 000 68,977 68,977 43,979 41,479 68,977 68,977 46,630 43,979 206,931 206,931 158,273 149,543 219,910 288,886 199,578 254,934 564,795 633,771 448,460 489,935 (116,335) (143,836) 448,460 489,935 (43,979) (41,479) 404,481 448,456

The Group’s obligations under finance leases are secured by charges over the leased assets.

— I-62 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(14) Bonds payable

Convertible bonds Corporate bonds Less: current portion of bonds payable Non-current portion of bonds payable	Group and Company 2014 2013 RMB’ 000 RMB’ 000 3,145,147 3,424,692 4,973,360 4,967,236 8,118,507 8,391,928 (4,143,383) — 3,975,124 8,391,928	Group and Company 2014 2013 RMB’ 000 RMB’ 000 3,145,147 3,424,692 4,973,360 4,967,236 8,118,507 8,391,928 (4,143,383) — 3,975,124 8,391,928
		8,391,928 —
		8,391,928

(a) Convertible bonds

The Company’s A-share convertible bonds amounting to RMB3,950,000,000 were issued on 1 August 2011, with a term of 6 years, by issuing 39,500,000 number of bonds at a nominal value of RMB100 each. The convertible bonds are convertible into A-shares of the Company at anytime between six months after the date of issue of the convertible bonds and the maturity date of the convertible bonds, being 2 February 2012 to 1 August 2017, at initial conversion price of RMB8.70 per share.

On 17 May 2012, the Company declared a 2011 final dividend of RMB0.10 per share (before tax). According to the terms of issuance of the convertible bonds and relevant regulations by China Securities Regulatory Commission, the Company changed the conversion price from RMB8.70 per share to RMB8.60 per share effective from 1 June 2012.

If the convertible bonds have not been converted, they will be redeemed at 105% of par value within five trading days after the maturity of the convertible bonds. The convertible bonds bear interest at 0.5% for the first year, 0.7% for the second year, 0.9% for the third year, 1.3% for the fourth year, 1.6% for the fifth year and 2% for the sixth year. The interests are payable annually in arrears on 1 August of each year starting from 2012.

Within the last two years of the convertible bonds, if the closing price of A-share is traded at lower of 70% of the initial conversion price for thirty consecutive trading days, the convertible bonds holders are entitled a one-off right to request the Company to redeem the convertible bonds wholly or partially at par, with interest accrued on that day.

The Company is entitled to redeem the convertible bonds wholly at par plus accrued interest if: (i) the closing price of the Company’s shares is at or higher than 130% of the initial conversion price for any fifteen trading days in thirty consecutive trading days from issuance of the bonds; or (ii) the aggregate par value of the outstanding convertible bonds is less than RMB30,000,000 at any time from issuance of the convertible bonds.

— I-63 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The convertible bond was split into liability (including the value of closely-related early redemption option and callable option) and equity components of RMB3,039,329,000 and RMB873,043,000 respectively upon initial recognition by recognising the liability component at its fair value and attributing the residual amount to the equity component. The liability component is subsequently carried at amortised cost and equity component is recognised in the convertible bonds equity reserve. The effective interest of the liability component is 5.6% per annum.

On 12 August 2014, the Company passed a special resolution to approve the downward adjustment to the conversion price from RMB8.60 per share to RMB6.24 per share in accordance with the terms of issuance of the convertible bonds, which adjustment became effective on 14 August 2014.

As the closing price of the A Shares had been equal to or higher than 130% of the conversion price of the convertible bonds (being RMB6.24 per share) for at least 15 trading days out of the 30 consecutive trading days between 26 November 2014 and 8 January 2015, the Board had on 8 January 2015 resolved to redeem all outstanding convertible bonds in accordance with the specified redemption procedures. On 13 February 2015, the Company completed its redemption of all outstanding convertible bonds. The convertible bonds were delisted from the Shanghai Stock Exchange on 13 February 2015.

The movement of the liability component of the convertible bonds for the year is set out below:

Carrying amount as at 1 January 2013 Interest charge Interest paid Conversion during the year Carrying amount as at 31 December 2013 Interest charge Interest paid Conversion during the year Carrying amount as at 31 December 2014 (Current portion)	RMB’ 000 3,267,823 184,541 (27,650) (22) 3,424,692 192,486 (35,586) (436,445) 3,145,147

The fair value and effective interest rate of the liability component of the convertible bonds as at 31 December 2014 is RMB3,145,147,000 (2013: RMB3,424,692,000) and 5.6% (2013: 5.6%) per annum respectively.

Interest expense of RMB192,486,000 (2013: RMB184,541,000) has been recognised in profit or loss in respect of the convertible bonds for the year ended 31 December 2014.

— I-64 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (b) Corporate bonds

• (i) The movement of the corporate bonds for the year is set out below:

Carrying amount at initial recognition Interest charge Balance as at 31 December 2013 Interest charge Balance as at 31 December 2014 Current portion of corporate bonds Non-current portion of corporate bonds	RMB’ 000 4,961,395 5,841
	4,967,236 6,124
	4,973,360
	998,236 3,975,124
	4,973,360

As at 31 December 2014, the balances of bonds payable are as follows:

Issue date Term of the bond 3 August 2012 3 years 3 August 2012 10 years 29 October 2012 7 years 29 October 2012 10 years	Total principal value RMB’ 000 1,000,000 1,500,000 1,500,000 1,000,000 5,000,000	Book value of bond RMB’ 000 991,400 1,487,100 1,488,600 992,400 4,959,500	At 31 December 2013 RMB’ 000 995,319 1,488,561 1,490,249 993,107 4,967,236	Interest charge At 31 December 2014 RMB’ 000 RMB’ 000 2,917 998,236 1,095 1,489,656 1,478 1,491,727 634 993,741 6,124 4,973,360	Interest charge At 31 December 2014 RMB’ 000 RMB’ 000 2,917 998,236 1,095 1,489,656 1,478 1,491,727 634 993,741 6,124 4,973,360
					4,973,360

The Company issued 2 batches of corporate bonds on 3 August 2012. The first batch is three-year corporate bonds with a principal value of RMB1 billion, carrying an annual interest rate of 4.20% and matures on 3 August 2015. The issuing price was 100 per cent of principal value, resulting in no discount on the issue. Interest on the bonds is paid annually.

The second batch is ten-year corporate bonds with a principal value of RMB1.5 billion, carrying an annual interest rate of 5.00% and matures on 3 August 2022. The issuing price was 100 per cent of principal value, resulting in no discount on the issue. Interest on the bonds is paid annually.

— I-65 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Company issued 2 batches of corporate bonds on 29 October 2012. The first batch is seven-year corporate bonds with a principal value of RMB1.5 billion, carrying an annual interest rate of 5.05% and matures on 29 October 2019. The issuing price was 100 per cent of principal value, resulting in no discount on the issue. Interest on the bonds is paid annually.

The second batch is ten-year corporate bonds with a principal value of RMB1 billion, carrying an annual interest rate of 5.18% and matures on 29 October 2022. The issuing price was 100 per cent of principal value, resulting in no discount on the issue. Interest on the bonds is paid annually.

(15) Contingent Liabilities

• (i) In August 2011, one of the Group’s cargo vessels “Bihuashan” collided with “Li Peng 1”, which caused “Li Peng 1” to sink afterwards. The Group has set up a Limitation of Liability for Maritime Claims Fund amounting to RMB22,250,000. Since the Group had been insured, all compensations will be borne by the insurance company. As at 31 December 2014, the Group was still in the process of settling all the issues concerned.

• (ii) In January 2012, fuel leakage occurred in one of the Group’s tanker “Daiqing 75” during its voyage in Bohai Sea of the PRC. As at 31 December 2014, claims on damage caused by the fuel leakage amounted to an aggregate of RMB19,370,000 plus court costs. Of which, RMB11,250,000 had been fully settled by insurance companies. Since the Company had been insured with PICC Property and Casualty Company Limited and West of England Insurance Services (Luxembourg) S.A., all compensations will be borne by the insurance companies. As at 31 December 2014, the Group was still in the process of settling all the issues concerned.

• (iii) ELNG, a non wholly-owned subsidiary of the Company, holds 30% equity interests in each of Aquarius LNG Shipping Limited (“Aquarius LNG”) and Gemini LNG Shipping Limited (“Gemini LNG”), and NLNG, a non wholly-owned subsidiary of the Company, holds 30% equity interests in each of Capricorn LNG Shipping Limited (“Capricorn LNG”) and Aries LNG Shipping Limited (“Aries LNG”). Each of these four companies above entered into ship building contracts for the construction of one LNG vessel. After the completion of the LNG vessels, the four companies would, in accordance with time charters to be signed, lease the LNG vessels to the following charterers:

Company name

Charterer

Aquarius LNG Papua New Guinea Liquefied Natural Gas Global Company LDC Gemini LNG Papua New Guinea Liquefied Natural Gas Global Company LDC Aries LNG Mobil Australia Resources Company Pty Ltd. Capricorn LNG Mobil Australia Resources Company Pty Ltd.

— I-66 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

On 15 July 2011, the Company entered into four guaranteed leases (“the lease guarantees”). According to the Lease Guarantees, the Company irrevocably and unconditionally provided the charterers, successors and transferees of the four companies listed above with guarantee (1) for the four companies to fulfil their respective obligations under the lease term, and (2) to secure 30% of amounts payable to charterers under lease term.

According to the term of the lease guarantees and taking into account the possible increase in the value of the lease commitments and the percentage of shareholdings by the Company in the above four companies, the amount of lease guaranteed by the Company is limited to USD8.2 million (approximately RMB50.18 million).

The guarantee period is limited to that of the lease period, which is 20 years.

• (iv) On 9 March 2013, one of the Group’s cargo vessels “CSB Talent” had a broken bollard caused by strong wind at the dock and collided with several parked vessels nearby, which resulted in damage of the floating dock and other facilities. In March 2014, the claims on damage caused by the collision amounted to an aggregate of RMB173,865,000. Since the Company had been insured with PICC Property and Casualty Company Limited (Guangzhou Branch) and The London Steam Ship Owners Mutual Insurance Association Limited, all compensation will be borne by the insurance companies. As at 31 December 2014, the Group was still in the process of settling all the issues concerned.

• (v) On 23 December 2013, five of the Group’s oil tankers “Danchi”, “Baichi”, “Daiqing 71”, “Daiqing 72” and “Ruijintan” extracted oil from “Bohaiyouyihao”. This act was sued by a group of plaintiffs for ocean pollution. As at 23 April 2014, claims on damage caused by ocean pollution amounted to an aggregate of RMB47,452,000. Since the Company had been insured with PICC Property and Casualty Company Limited (Shanghai Branch), the London P&I Club and SKULD, all compensation will be borne by the insurance companies. As at 31 December 2014, the Group was still in the process of settling all the issues concerned.

• (vi) At the 2014 seventh Board meeting held on 30 June 2014, the Company approved the ship building contracts, time charter agreements and supplemental construction contract signed by three joint ventures of the Company for the Yamal LNG project. To secure the obligation of the ship building contracts, time charter agreements and supplemental construction contracts, the Company provides corporate guarantees to the shipbuilders, Daewoo Shipbuilding & Marine Engineering Co., Ltd. and DY Maritime Limited. The total aggregate liability of the Company under the corporate guarantees is limited to USD490,000,000 (approximately RMB2,998,310,000). In addition, the Company provides owner’s guarantees to the charterer, YAMAL Trade Pte. Ltd. The total aggregate liability of the Company under the owner’s guarantees is limited to USD6,400,000 (approximately RMB39,162,000).

— I-67 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(16) Foreign exchange risk management

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to United States Dollar (“USD”) and Hong Kong Dollar (“HKD”) against RMB. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities.

At 31 December 2014, if USD and HKD had weakened or strengthened by 1% against RMB with all other variables held constant, post-tax profit for the year 2014 would have been RMB175,485,000 (2013: post-tax loss RMB154,289,000) higher/lower (2013: lower/higher), mainly as a result of foreign exchange gains or losses on translation of USD and HKD denominated trade receivables and payables and cash and cash equivalents.

The Group does not have significant exposure to foreign exchange risk.

(17) Cash flow and fair value interest rate risk management

The Group’s income and operating cash flows are substantially independent of changes in market interest rates as the Group has no significant interest-bearing assets. The Group’s exposures to changes in interest rates are mainly attributable to its borrowings. Borrowings at floating rates expose the Group to cash flow interest rate risk.

Borrowings at floating rates expose the Group to fair value interest rate risk. To minimize its interest expenses, the Group entered into interest rate swaps from time to time to mitigate the interest rate risk.

At 31 December 2014, if interest rates on borrowings had been 100 basis points higher/lower with all other variables held constant, the Group’s post-tax profit for the year would have been RMB165,076,000 (2013: Group’s post-tax loss RMB100,108,000) lower/higher (2013: higher/lower), the Company’s post-tax loss for the year would have been RMB15,000,000 (2013: RMB3,658,000) higher/lower, mainly as a result of higher/lower interest expenses on floating rate borrowings.

5. OTHERS

(1) Fleet expansion projects

In 2014, the Group has achieved further improvement in its fleet expansion.

In 2014, the cash outflow from investment activities of the Group was approximately RMB9.164 billion which has been paid for construction of new vessels, transformation of old vessels and capital increases into joint ventures of the Company, including capital expenditure of approximately RMB6.638 billion paid for the purchase of new vessels by the Group.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In terms of fleet expansion, 2 new oil tankers with a total capacity of approximately 430,000 deadweight tonnes and 11 new bulk vessels with a total capacity of approximately 1,022,000 deadweight tonnes have been delivered for use in 2014.

As at 31 December 2014, the composition of the Group’s fleet is as follows:

	Number of	Deadweight	Average
	vessels	tonnes	age
		(’000)	(years)
Oil Tankers	67	7,462	6.2
Dry bulk vessels	127	10,200	9.3
Total	194	17,662	8.3

(2) Material asset disposals

In 2014, the Group disposed of 26 vessels of an aggregate of 867,000 deadweight tonnes, including 9 oil tankers of 308,000 deadweight tonnes and 17 bulk vessels of 559,000 deadweight tonnes respectively.

6. EMPLOYEES

As at the end of 2014, the Company had approximately 8,805 employees. Adjustment of employee remuneration are calculated in accordance with the Company’s turnover and profitability and is determined by assessing the correlation between the total salary paid and the economic efficiency of the enterprise. Under this mechanism, management of employees remuneration will be more efficient while employees will be motivated to work hard to bring encouraging results of the Company. Save for the remuneration disclosed above, the Company does not maintain any share option scheme for its employees and the employees do not enjoy any bonus. The Company regularly provides for its administrative personnel training on various subjects, including operation management, foreign languages, computer skills, industry knowhow and policies and laws. These training maybe in different forms, such as seminars, site visits and study tours.

In 2014, the total staff costs was RMB1,843,502,000 (2013: RMB1,901,438,000).

7. OUTLOOK AND HIGHLIGHTS FOR 2015

(1) Competitive landscape and development trend in the industry

The international economic condition in 2015 is expected to remain complicated and variable, and while the growth of global economy is likely to be rebounded narrowly, it’s difficult to achieve obvious turnaround from the overall weak recovery trend, and it is anticipated that low growth rate may become a normal trend in the next few years. Global trading growth will likely be restrained by the fragile economy growth rate.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Against the backdrop of global economy entering into the new normal and insufficient market demand of transportation, the over-capacity issue is unlikely to achieve substantial improvement in the short term, it is expected that the overall international shipping market will remain at a low level. Nonetheless, it is expected that the international oil prices closely-related to operation of shipping enterprises will also remain at a low level in 2015 due to oversupply, thus likely relieving the cost pressure of shipping enterprises. At the same time, the transportation demand of oil shipping market will be driven by low international oil prices, which will be beneficial to large oil tankers such as VLCC and Suez.

(2) Development strategies of the Company

Above conditions and factors include both pros and cons to shipping industry. Faced with a rapid developed market environment, the Company will capture the favorable opportunity of continued low international oil prices, actively research and judge over the market and timely adjust operating strategy, and the Company will further deepen reform and innovation as well as excellent operation for enhancement of our risk-resistant ability, sustainable development capability and core competitiveness.

(3) Operational plans

In 2015, the Group expects to add 8 new dry bulk vessels with a total tonnage of 516,000 deadweight tonnes of shipping capacity. It is anticipated that the total shipping capacity in effective use throughout the whole year will be 18.72 million deadweight tonnes, representing an increase of 1.3% year-on-year.

Based on the market conditions of the domestic and international shipping industry in 2015, and taking into account of the delivery of new vessels, the Group’s major operating plans in 2015 are as follows: completion of shipment turnover volume of 439 billion tonne-nautical miles, representing an increase of 2.1% year-on-year; revenue of RMB12.5 billion is expected to be realized, representing an increase of 1.8% year-on-year; operating costs of RMB9.8 billion, representing a decrease of 10% year-on-year.

(4) Work initiatives of the Company

To cope with the current market situation, the Group will implement the following initiatives in 2015:

• A. Strengthen safety development to ensure safety development of the enterprise. We will firmly instill the working philosophy of “redline” awareness and “bottom line mind-set”, and will continue to improve safety production system establishment, strictly implement safety production responsibility system, and enhance accountability. We will implement the vessel comprehensive management system at full force with general control and two-ways as main body and supported by care and support our crews, and establish a safety management prevention and pre-control, in order to reduce the risk and control the risk, and establish safety management as our core competiveness to drive safety development of the enterprise.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

• B. Innovative operating philosophy and model to realize a new breakthrough in operating level. Facing tough market conditions, the Group will continue to adhere to the strategy of “major clients, great co-operation and comprehensive services”, increase service awareness continuously and strive to satisfy customer needs and create values for customers actively.

In 2015, for oil shipment operations, cooperation with the top three domestic petroleum companies will be strengthened continuously, further create a new cooperation system, so as to consolidate and enhance market share in costal crude oil; meanwhile, utilizing the joint advantages of domestic and offshore trading markets to establish a scientific market research and judgment mechanism; utilizing the opportunity of international market improvement to strengthen the adjustment in shipping routes structure; grabbing the VLCC fixed loading at high level to scientifically plan the term leasing ratio, so as to strive for increasing profitability and stabilizing market fluctuation.

For bulk cargo shipment operations, the Company will actively response to the major trend of adjustment in PRC economic structure and energy structure, and increase the structure of cargo sources. The Company will focus on improving the pricing mechanism and contract performance mechanism for COA contracts, improve customer management, consolidate benefits from associated companies, strengthen communication with senior staff of partners, and maintain good cooperation results with associated companies. Meanwhile, the Group will make good use of the unified platform for bulk cargo operations to allocate shipping capacities reasonably between long-term chartering and spot market contracts, further improve the market share of offshore shipment operations.

For LNG shipment operations, the first vessel of ExxonMobil DSE project cooperated with MOL was delivered for use in January 2015, it symbolized the China Shipping LNG project transportation entering into a substantive operating stage. In 2015, the Company will steadily progress various tasks of existing projects, and ensure the shipping construction and ancillary works will be successfully progressed of Mobil DES project, APLNG project and phase I of YAMAL project; on the other hand, the Company will further enhance the integrated capabilities on LNG project development, vessel construction management, business management, bank financing, crew, vessel management and talent cultivation, in order to safeguard the LNG market for the two major groups, China Petrochemical Corporation and China National Petroleum Corporation, and actively develop cooperation with other LNG importers.

• C. Accelerate fleet structure adjustment and increase competitiveness of fleet. The Company will firmly capture the strategic opportunity of “The 21st Century Maritime Silk Road” established by PRC, focus on establishment of medium-long term development planning of fleet, complete well disposal of old and obsolete vessels and construction and delivery of big vessels, and, through continuous fleet optimization, actively pursue fleet upgrade and technology upgrade to develop the fleet towards the direction of large-size, modernize and low-carbon operations, thereby enhancing the overall competitiveness of the fleet.

• D. Adhere to the costs-come-first and continue to improve operating efficiency and costs reduction and control level. In the background of strict environment with continuously

— I-71 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

depressed market, the completion among the enterprises will be tended to cost competition. In this connection, we need to actively implement low cost strategy, strengthen the philosophy of cost control in all our employees, and persistently to enhance cost competiveness. In 2015, the Company will further sort out the key links and system of cost control, continue to improve comprehensive energy saving mechanism, strengthen evaluation, analysis and decision-making mechanism of fuel cost control, fully utilize the current favorable opportunity of low oil prices, as well as scientifically and reasonably complete well fuel locking and purchasing; while the Company will continue to enhance its communication and coordination with suppliers, strive for breakthrough in management and control of various costs items such as crew expenses, vessel repair charges, port charges, to create an advantage of low costing.

• E. Strengthen funds management and expand financing channels to secure development funds and strive for reduce capital costs. According to the new vessel delivery plans, the capital expenditure of the Company in 2015 and 2016 will be approximately RMB4.37 billion and RMB1.84 billion, respectively. In this connection, the Company will further strengthen cooperation with banks, fully utilize both domestic and international markets and reasonably use financial instruments to secure the required capital funds, and will continuously enhance operating benefits and efficiency of capital operations, reduce financing costs and maintain a relatively sound financial structure, so as to prevent financial risk and capital risk practicably.

• F. Strengthen talent development and team building. The Company will research and develop a plan for building a team of cadre corresponding to and according to our planning for fleet development and the development need of various business segments and intensify our efforts to introduce and develop talents. Moreover, the Company will also continuously improve the business level and capability of staff and secure the manpower for fleet development through active exploration and establishment of an enduring effective mechanism for education and training.

— I-72 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• 2013

1. REVIEW OF OPERATING RESULTS DURING THE REPORTING PERIOD

In 2013, faced with a challenging market environment, the Group firmly adhered to innovative thinking and mode of operation. By actively implementing transformation and development and further deepening its strategy of “major clients, great co-operation and comprehensive services”, new breakthroughs and results were obtained in the areas of safety management, marketing, cost reduction, efficiency enhancement and management improvement, maintaining an overall trend of stable development.

During the Reporting Period, the volume of freight shipping turnover completed by the Group was 411.29 billion tonne-nautical miles, representing an increase of 5.6% year-on-year. Revenue from operations (after business tax and surcharge) was RMB11.344 billion, representing an increase of 2.6% year-on-year. Operating costs amounted to RMB11.525 billion, representing an increase of 2.4% year-on-year. The loss attributable to owners of the Company was RMB 2,234 million, and basic loss per share were RMB0.6562.

(1) Revenue from Principal Operations

In 2013, overall details of the Group’s principal operations by products transported and geographical regions were as follows:

Principal Operations by Products Transported

Industry or Product Description Oil shipments Coal shipments Iron ore shipments Other dry bulk shipments Total

Revenue Operating costs Gross profit margin Increase/ (decrease) in revenue as compared with 2012 Increase/ (decrease) in operating costs as compared with 2012 Increase/ (decrease) in gross profit margin as compared with 2012 (RMB’ 000) (RMB’000) (%) (%) (%) (%) 5,388,805 5,770,434 -7.1% -3.6% -0.7% -3.2% 2,698,142 2,708,046 -0.4% -0.1% -5.0% 5.1% 2,455,750 2,125,930 13.4% 14.0% 16.7% -2.1% 801,455 920,429 -14.8% 32.2% 19.7% 12.0% 11,344,152 11,524,839 -1.6% 2.6% 2.4% 0.2%

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Principal Operations by Geographical Regions

		Increase/ (decrease)
		in revenue as
Regions	Revenue	compared to 2012
	(RMB’ 000)	(%)
Domestic shipment	4,899,067	-0.3%
International shipment	6,445,085	5.0%

(a) Shipping business — Oil shipments

In 2013, facing the persistently sluggish market and a growing competitive trend, the Company adopted the all-staff marketing concept and established a quick response team to marketing to fully implement the strategy of “major clients, great co-operation and comprehensive services” and achieved good results. In 2013, the market share of the Company in the domestic crude oil shipping market was approximately 54% and continued to maintain its leading position in the coastal oil shipment market.

In the international oil shipment market, the Company continued to leverage on the complementary advantages between domestic and international trade and achieved a notable result. By capturing the opportunity of the short-term increase of the international white oil freight rates and the demand for shipping capacity arising from the resumption of production at the Penglai 19-3 oilfield, the Company adjusted the allocation of domestic and international shipping capacities on a timely basis and realized a substantial reduction in losses of approximately RMB160 million in the international white oil and the small dirty tanker markets. The annual operating earnings derived from the VLCC fleet of the Company outperformed market level in 2013.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

In 2013, the Group achieved a shipping volume of approximately 194.1 billion tonne-nautical miles of oil, representing a decrease of approximately 2.1% year-on-year; revenue derived from oil transportation was approximately RMB5,389 million, representing a decrease of 3.6% year-on-year. An analysis of the transportation volume and revenue in terms of product types is as follows:

Transportation volume by types

								Increase/
		In 2013				In 2012		Decrease
	(billion tonne-			(billion tonne-				(%)
	nautical miles)			nautical miles)
Domestic		16.38				17.84		-8.2%
Crude oil		13.24				12.60		5.1%
Refined oil		3.14				5.24		-40.1%
International		177.73				180.44		-1.5%
Crude oil		134.67				148.82		-9.5%
Refined oil		43.06				31.62		36.2%
Total		194.11				198.28		-2.1%

Revenue by shipments types

								Increase/
		In 2013				In 2012		Decrease
	(RMB million)			(RMB million)				(%)
Domestic		2,058				2,195		-6.2%
Crude oil		1,758				1,796		-2.1%
Refined oil		300				399		-24.8%
International		3,331				3,398		-2.0%
Crude oil		1,663				2,023		-17.8%
Refined oil		1,668				1,375		21.3%
Total		5,389				5,593		-3.6%

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(b) Shipping business — Dry bulk shipments

In 2013, the Group continued to strengthen its marketing activities to develop new customers actively and increased efforts to push ahead joint projects. New progress has been made. In 2013, the Company signed domestic bulk freight COA contracts of 53,430,000 tonnes by adopting annual fixed rates, quarterly pricing and monthly pricing rates. The amount of executed annual freight rate represented approximately 16% of the contracted shipment volume. In a sluggish market, a more market-oriented and more flexible pricing mechanism is in the better interest of the Company as a whole.

Offshore dry bulk cargo shipment became another bright spot in the Group’s operation. In 2013, the offshore dry bulk cargo shipment turnover volume accounted for over 60% in the total dry bulk cargo shipment turnover, and realized an outstanding performance by achieving shipment profit of approximately RMB320 million. The fleet of very large ore carriers (VLOC), comprising 8 VLOC vessels of 230,000 tonnes for each and 6 VLOC vessels of 300,000 tonnes for each, completed a shipping volume of 20,530,000 tonnes, representing an increase of 22.7% year-on-year, and realized an operating revenue of RMB1,720 million and shipment profits of RMB540 million from completed voyages, creating an important stabilizing effect on the Group’s economic returns.

In 2013, the Group achieved a shipping volume of approximately 217.2 billion tonne-nautical miles of dry bulk cargo, representing an increase of approximately 13.6% year-on-year; operating revenue derived from dry bulk cargo transportation was approximately RMB5.955 billion, representing an increase of 9.0% year-on-year. An analysis of the transportation volume and revenue in terms of product types is as follows:

Transportation volume by types

								Increase/
	In 2013				In 2012			Decrease
	(billion tonne-			(billion tonne-
	nautical miles)			nautical miles)				(%)
Domestic		66.62				63.46		5.0%
Coal		54.03				51.68		4.5%
Iron ore		6.70				6.35		5.5%
Others		5.89				5.43		8.5%
International		150.56				127.67		17.9%
Coal		17.80				19.08		-6.7%
Iron ore		113.07				86.48		30.7%
Others		19.69				22.11		-11.0%
Total		217.18				191.13		13.6%

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Revenue by shipments types

In 2013 In 2012 (RMB million) (RMB million) Domestic 2,841 2,719 Coal 2,093 2,138 Iron ore 336 265 Others 412 316 International 3,114 2,742 Coal 605 561 Iron ore 2,120 1,890 Others 389 291 Total 5,955 5,461	Increase/ Decrease (%) 4.5% -2.1% 26.8% 30.4% 13.6% 7.8% 12.2% 33.7%
	9.0%

Note: Other dry bulk cargoes include metal ore, non-metallic ore, steel, cement, timber, grain, fertilizer and so on except for coal and iron ore.

(c) Progress made in LNG shipments

In 2013, the Group continued to promote the LNG shipments. While making steady progress in the establishment of the Mobil DES project, its joint project with Mitsui OSK Lines (MOL), it had also entered into a basket agreement in relation to 6 LNG vessels for phase 1 of the Sinopec APLNG Shipment Project successfully in April 2013.

— I-77 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. COSTS AND EXPENSES ANALYSIS

While achieving well in transportation operations, the Company has seriously and consistently implemented the various requirements of the Board on further enhancing management, cost reduction and efficiency improvement. Starting on operational management and overall budget management, cost management and control was further strengthened and all types of various costs and expenses were effectively under control. In 2013, transportation cost of RMB11,524 million was incurred, representing an increase of 2.4% year-on year, while ensuring notable increase in the operating profit. The composition of the main operating costs is as follows:

				Composition
			Increase/	ratio in
Item	In 2013	In 2012	Decrease	2013
	(RMB’ 000)	(RMB’ 000)	(%)
Fuel cost	4,818,839	5,303,973	-9.1%	41.8%
Port cost	1,302,820	1,106,553	17.7%	11.3%
Labor cost	1,657,039	1,545,480	7.2%	14.4%
Lubricants expenses	223,615	244,858	-8.7%	2.0%
Depreciation	1,641,748	1,448,173	13.4%	14.2%
Insurance expenses	251,978	260,733	-3.4%	2.2%
Repair expenses	289,137	386,791	-25.2%	2.5%
Charter cost	612,076	623,567	-1.8%	5.3%
Provision for onerous contracts	349,694	—	—	3.0%
Others	377,893	332,123	13.78%	3.3%
Total	11,524,839	11,252,251	2.4%	100.0%

Fuel cost was the most important item among all under cost control. International oil prices presented a fluctuating trend in 2013, the WTI prices averaged daily at USD98 per barrel. The Company achieved significant cost reduction by adopting measures including locking oil purchases, operating at shipping speed with the best economic effect, participating in the establishment of an offshore centralized fuel purchasing platform through shareholding acquisition and implementing a cross-department comprehensive energy saving new mechanism. In 2013, while the turnover volume increased by 5.6% year-on-year, the fuel consumption volume was 1,184,500 tonnes, representing a minor increase of 0.6% year-on-year; and fuel costs was approximately RMB4,819 million, accounting for 41.8% of the transportation costs; average fuel consumption was 2.88 kg/1,000 nautical miles, decreased by 4.6% year-on-year; and the average prices of fuel consumed by the Group is RMB4,068 per tonne, decreasing by 9.8% year-on-year. In 2013, the Company has achieved a gain of nearly RMB313 million under its dedicated efforts through locking oil purchases and operating at economic shipping speed.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. OPERATING RESULTS OF THE JOINT VENTURES

In 2013, the Group has recognised its profits in its joint ventures of approximately RMB111 million, representing a decrease of 62.2% as compared with that of the same period in 2012. In 2013, the 5 joint ventures achieved a shipping volume of 171.89 billion tonne-nautical miles, representing an increase of 34.6% as compared with the same period in 2012. The operating revenue achieved by the 5 joint ventures in 2013 was approximately RMB9,329 million, representing an increase of 32.6% as compared to that of the same period in 2012, and the net profit realized by the 5 joint ventures in 2013 was approximately RMB163 million, representing a decrease of 70.1% as compared to that of the same period in 2012.

As at 31 December 2013, the 5 joint ventures owned 80 bulk vessels with a total capacity of 4,160,000 deadweight tonnes and 22 vessels under construction with the capacity of 1,185,000 deadweight tonnes.

The operating results achieved by the 5 joint ventures in 2013 are as follows:

		2013	2013	2013
	Interest held	Shipping	Operating	Net profit
Company name	by the Group	volume	revenue	/(loss)
		(billion tonne	(RMB’ 000)	(RMB’ 000)
		nautical miles)
Shenhua Zhonghai Marine Co.,
Limited	49%	1,148.8	5,086,740	273,380
Shanghai Times Shipping Co.,
Limited	50%	454.0	3,638,341	(118,453)
Shanghai Friendship Marine
Co., Limited	50%	20.0	130,396	(15,470)
Huahai Petrol Transportation &
Trading Co., Limited	50%	21.1	156,753	8,642
Guangzhou Development
Shipping Co., Limited	50%	75.0	317,146	14,545

In 2013, the net profit achieved by China Shipping Finance Co., Limited (“CS Finance”), a non-shipping joint ventures, with 25% interest held by the Company, was approximately RMB165 million.

— I-79 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. FINANCIAL ANALYSIS

(1) Provision for onerous contracts

As at 1 January Provision for the year As at 31 December Less: current portion of provision for onerous contracts Non-current portion of provision for onerous contracts	Group 2013 RMB’ 000 — 349,694 349,694 (175,287) 174,407	Company 2013 RMB’ 000 — 33,436
		33,436 (17,158)
		16,278

As at 31 December 2013, the Group has a provision of RMB349,694,000 for onerous contracts relating to the non-cancellable chartered-in oil tankers and dry bulk vessel contracts.

As at 31 December 2013, the committed charterhire expenses of non-cancellable chartered-in oil tankers and dry bulk vessel contracts with lease term expiring over 24 months from the end of the reporting period and with period not being covered by chartered-out oil tankers and dry bulk vessels contracts of which management cannot reliably assess their onerous contracts, amounted to approximately RMB3,031,793,000.

(2) Net cash inflow

The net cash inflow from operating activities of the Group decreased from approximately RMB891,308,000 for the year ended 31 December 2012 to approximately RMB1,429,279,000 for the year ended 31 December 2013, representing an increase of approximately 60.4%.

(3) Capital commitments

Authorised and contracted for: Construction and purchases of vessels (Note 1) Equity Investments (Note 2)	Group 2013 2012 RMB’ 000 RMB’ 000 9,586,595 6,742,053 592,868 1,029,703 10,179,463 7,771,756	Company 2013 2012 RMB’ 000 RMB’ 000 — 2,245,880 592,868 1,029,703 592,868 3,275,583	Company 2013 2012 RMB’ 000 RMB’ 000 — 2,245,880 592,868 1,029,703 592,868 3,275,583
			3,275,583

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group and the Company had capital commitments as at 31 December 2013, of which RMB5,980,812,000 (2012: RMB6,742,053,000) from the Group and RMB592,868,000 (2012: RMB2,245,880,000) from the Company will be due within one year.

Notes:

• (1) According to the construction or purchase agreements entered into by the Group from January 2007 to December 2013, these capital commitments will fall due in 2014 to 2017.

• (2) Included capital commitments in respect of equity investments is commitment to invest in joint ventures, Shenhua Zhonghai Marine Co., Limited of RMB592,868,000 (2012: RMB1,029,668,000) and a subsidiary, China Energy Shipping Investment Co., Limited (“China Energy”) of RMBNil (2012 : RMB35,000) respectively.

In addition to the above, the Group’s share of the capital commitments of its associates which are contracted for but not provided amounted to RMB895,929,000 (2012: RMB1,561,350,000). The Group’s share of the capital commitments of its joint ventures, which are contracted for but not provided amounted to RMB1,296,397,000 (2012: RMB2,353,458,000); which are authorised but not contracted for amounted to RMB4,900,000 (2012: RMB1,286,211,000).

(4) Capital structure

The Group’s and Company’s net debt-to-equity ratio at 31 December 2013 and 2012 was as follows:

Total borrowings Less: Cash and cash equivalents Net debt Total equity Debt to equity ratio	Group 2013 2012 RMB’ 000 RMB’ 000 33,603,578 31,158,949 (1,919,204) (3,285,745) 31,684,374 27,873,204 22,211,877 24,385,563 143% 114%	Company 2013 2012 RMB’ 000 RMB’ 000 17,878,629 18,154,979 (487,558) (1,278,982) 17,391,071 16,875,997 20,975,375 21,728,801 83% 78%

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(5) Cash and cash equivalents

Cash at banks generates interest income at floating rates based on daily bank deposit rates. Short-term fixed deposits are deposited for various periods of between one day to three months depending on the immediate cash requirements of the Group, and interest income shall accrue at the respective short term fixed deposit rates. The carrying amounts of the cash and cash equivalents approximate their fair values.

Included in cash and cash equivalents is an amount of RMB792,008,000 (2012: RMB1,437,942,000) of bank balance deposited with CS Finance, a joint venture of the Group.

Cash and cash equivalents are denominated in the following currencies:

RMB USD SGD HKD Others	Group 2013 2012 RMB’ 000 RMB’ 000 871,540 2,377,782 1,043,235 899,247 1,866 4,731 1,722 3,154 841 831 1,919,204 3,285,745	Company 2013 2012 RMB’ 000 RMB’ 000 406,746 1,174,135 79,898 103,979 — — 73 37 841 831 487,558 1,278,982	Company 2013 2012 RMB’ 000 RMB’ 000 406,746 1,174,135 79,898 103,979 — — 73 37 841 831 487,558 1,278,982
			1,278,982

— I-82 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (6) Notes, interest-bearing bank and other borrowings

• (a) The Group’s notes, interest-bearing bank and other borrowings are analysed as follows:

Annual effective interest Maturity (%) Current liabilities (i) Bank loans Secured Libor + 0.4% to 1.7%, 6.46% 2014 Unsecured Libor + 0.6% to 4%, 3 months Libor, 3 months Libor +1.3%, 6.55% 2014 (ii) Notes Unsecured 3.9% 2014 (iii) Other borrowings Secured 6.46% 2014 Unsecured 10% discount to the People’s Bank of China (“PBC”) Benchmark interest rate, 4.86% to 6.51%, Libor +1.6% 2014 Notes, interest-bearing bank and other borrowings - current portion	Group 2013 2012 RMB’ 000 RMB’ 000 1,627,229 1,069,328 1,575,940 1,678,164 3,203,169 2,747,492 2,998,949 — 6,630 18,657 2,356,307 1,428,740 2,362,937 1,447,397 8,565,055 4,194,889	Company 2013 2012 RMB’ 000 RMB’ 000 — — 487,752 628,550 487,752 628,550 2,998,949 — — — 1,000,000 1,300,000 1,000,000 1,300,000 4,486,701 1,928,550	Company 2013 2012 RMB’ 000 RMB’ 000 — — 487,752 628,550 487,752 628,550 2,998,949 — — — 1,000,000 1,300,000 1,000,000 1,300,000 4,486,701 1,928,550
			628,550
			—
			— 1,300,000
			1,300,000
			1,928,550

— I-83 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Annual effective interest Maturity (%) Non-current liabilities (i) Bank loans Secured 3 months Libor +2.2%, Libor +0.4% to 1.7%, 6.46% 2016-2037 Unsecured Libor +1.55% to 1.85%, 6.55% 2019-2024 (ii) Notes Unsecured 3.9% 2014 (iii) Other borrowings Secured 6.46% 2023 Unsecured 10% discount to the PBC Benchmarkinterest rate, 4.12% to 6.51% 2015-2018 Notes, interest-bearing bank and other borrowings - non-current portion	Group 2013 2012 RMB’ 000 RMB’ 000 8,109,880 8,327,379 2,092,182 1,257,236 10,202,062 9,584,615 — 2,997,211 137,700 188,663 5,072,790 5,436,590 5,210,490 5,625,253 15,412,552 18,207,079	Company 2013 2012 RMB’ 000 RMB’ 000 — — — — — — — 2,997,211 — — 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 7,997,211	Company 2013 2012 RMB’ 000 RMB’ 000 — — — — — — — 2,997,211 — — 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 7,997,211
	10,202,062		—
	—		2,997,211
	137,700 5,072,790		— 5,000,000
	5,210,490		5,000,000
	15,412,552		7,997,211

The Group s bank loans are secured by pledges or mortgages of the Group s 34 vessels (2012: 31 vessels) and another 4 vessels under construction (2012: 6 vessels under construction) with total net carrying value of RMB16,299,120,000 (2012: RMB16,073,385,000) as at 31 December 2013. Collateralised borrowings are secured by trade receivables of RMB504,705,000 (2012: RMBNil).

The carrying value of the Group’s and the Company’s notes, interest-bearing bank and other borrowings approximate their fair values.

Except for secured bank loans of RMB9,598,438,000 (2012: RMB8,924,947,000), unsecured bank loans of RMB2,947,739,000 (2012: RMB1,964,098,000) and unsecured other borrowings of RMB426,767,000 (2012: RMB628,550,000) which are denominated in USD, all borrowings are denominated in RMB.

— I-84 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

• (b) At 31 December 2013, the Group’s notes, interest-bearing bank and other borrowings were repayable as follows:

Analysed into: (i) Bank loans: Within one year or on demand In the second year In the third to fifth year, inclusive Over five years (ii) Notes: Within one year or on demand In the second year (iii) Other borrowings: Within one year or on demand In the second year In the third to fifth year, inclusive Over five years	Group 2013 2012 RMB’000 RMB’000 3,203,169 2,747,492 1,675,888 1,254,148 3,886,845 3,595,355 4,639,329 4,735,112 13,405,231 12,332,107 2,998,949 — — 2,997,211 2,998,949 2,997,211 2,362,937 1,447,397 2,079,420 86,554 3,026,010 2,407,994 105,060 3,130,705 7,573,427 7,072,650 23,977,607 22,401,968	Company 2013 2012 RMB’000 RMB’000 487,752 628,550 — — — — — — 487,752 628,550 2,998,949 — — 2,997,211 2,998,949 2,997,211 1,000,000 1,300,000 2,000,000 — 3,000,000 2,000,000 — 3,000,000 6,000,000 6,300,000 9,486,701 9,925,761	Company 2013 2012 RMB’000 RMB’000 487,752 628,550 — — — — — — 487,752 628,550 2,998,949 — — 2,997,211 2,998,949 2,997,211 1,000,000 1,300,000 2,000,000 — 3,000,000 2,000,000 — 3,000,000 6,000,000 6,300,000 9,486,701 9,925,761
			628,550
			— 2,997,211
			2,997,211
			1,300,000 — 2,000,000 3,000,000
			6,300,000
			9,925,761

— I-85 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Included in other borrowings represent an amount of RMB1,658,930,000 (2012: RMB562,930,000) were borrowed from CS Finance, a joint venture of the Group. As at 31 December 2013, the current and non-current portion of this borrowing amounted to RMB1,532,140,000 (2012: RMB59,200,000) and RMB126,790,000 (2012: RMB503,730,000 ) respectively.

Included in other bor rowings represent an amount of RMB5,400,000,000 (2012: RMB6,300,000,000) were borrowed from the Company’s ultimate holding company. As at 31 December 2013, the current and non-current portion of this borrowing amounted to RMB400,000,000 (2012: RMB1,300,000,000) and RMB5,000,000,000 (2012: RMB5,000,000,000) respectively.

Included in other borrowings represent an amount of RMB426,767,000 (2012: RMBNil) were borrowed from China Shipping (Hong Kong) Holdings Co., Limited (“CSHK”), a fellow subsidiary of the Company. As at 31 December 2013, the current portion of this borrowing amounted to RMB426,767,000 (2012: RMBNil).

(c) Details of the notes at 31 December 2013 are as follows:

Principal amount Notes issuance cost Proceeds received Accumulated amortisation	Group and Company 2013 2012 RMB’ 000 RMB’ 000 3,000,000 3,000,000 (8,245) (8,245) 2,991,755 2,991,755 7,194 5,456 2,998,949 2,997,211

Notes with principal amount of RMB3,000,000,000 was issued by the Group to investors on 3 August 2009. The notes carried a fixed interest yield of 3.90% per annum and were issued at a price of 100 per cent of its principal amount, resulting in no discount on the issue. The notes become interest bearing since 4 August 2009, payable annually in arrears on 4 August of each year. The notes will mature on 3 August 2014.

— I-86 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(7) Other loans

Baosteel Resources International Company Limited (“Baosteel Resources International”) Kantons International Investment Limited (“Kantons International”) Shanghai Puyuan Shipping Co., Limited (“Shanghai Puyuan”) Mitsui O.S.K. Lines, Limited (“MOL”) Petrochina International Co., Limited Less: current portion of other loans Non-current portion of other loans	Group 2013 2012 RMB’ 000 RMB’ 000 424,206 437,318 142,453 12,574 104,297 76,993 63,132 — 10,020 878 744,108 527,763 (29,874) — 714,234 527,763	Group 2013 2012 RMB’ 000 RMB’ 000 424,206 437,318 142,453 12,574 104,297 76,993 63,132 — 10,020 878 744,108 527,763 (29,874) — 714,234 527,763
		527,763 —
		527,763

Included in loan from Baosteel Resources International represents an amount of USD69,580,000 (2012: USD69,580,000) was provided to Hong Kong Hai Bao Shipping Co., Limited to finance the construction of vessels and daily operation. The loan is unsecured, bears interest at 3.5% (2012: 3%) per annum and repayable in 2014 and 2018.

According to the contract signed between East China LNG Shipping Investment Co., Limited (“ELNG”) and its non-controlling shareholder, Kantons International, USD3,069,517 was provided to ELNG to finance the vessels construction projects being carried out by the associates held by ELNG. The loan is unsecured, bearing interest at approximately 3.3% over 3 months Libor and have to repay within 20 years after such vessels construction projects completed.

According to the contract signed between China Energy and its non-controlling shareholder, Kantons International, USD20,295,349 were provided to China Energy to finance the vessels construction projects being carried out by the subsidiaries of China Energy. The loans are unsecured, bearing interest at approximately 2.2% over 3 months Libor and have to repay within 20 years after such vessels construction projects completed.

According to the contract signed between CS Puyuan Marine Co., Limited (“CS Puyuan”) and its non-controlling shareholder, Shanghai Puyuan, USD17,107,200 was provided to CS Puyuan to finance the daily operation. The loans are unsecured, non-interest bearing and repayable in 2015 and 2016.

— I-87 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

According to the contracts signed between China Energy and its non-controlling shareholder of subsidiaries, MOL, USD10,354,792 were provided to China Energy to finance the vessels construction projects being carried out by the subsidiaries of China Energy. The loans are unsecured, bearing interest at approximately 2.2% over 3 months Libor and have to repay within 15 years after such vessels construction projects completed.

According to the contract signed between North China LNG Shipping Investment Co., Limited (“NLNG”) and its non-controlling shareholder, Petrochina International Co., Limited, USD1,643,393 was provided to NLNG to finance the vessels construction projects being carried out by the associates held by NLNG. The loan is unsecured, bearing interest at approximately 4.9% over 3 months Libor and have to repay within 20 years after such vessels construction projects completed.

(8) Bonds payable

Convertible bonds Corporate bonds	Group and Company 2013 2012 RMB’ 000 RMB’ 000 3,424,692 3,267,823 4,967,236 4,961,395 8,391,928 8,229,218	Group and Company 2013 2012 RMB’ 000 RMB’ 000 3,424,692 3,267,823 4,967,236 4,961,395 8,391,928 8,229,218
		8,229,218

(a) Convertible bonds

The Company’s A-share convertible bonds amounting to RMB3,950,000,000 were issued on 1 August 2011, with a term of 6 years, by issuing 39,500,000 number of bonds at a nominal value of RMB100 each. The convertible bonds are convertible into A-shares of the Company at anytime between six months after the date of issue of the convertible bonds and the maturity date of the convertible bonds, being 2 February 2012 to 1 August 2017, at initial conversion price of RMB8.7 per share.

On 17 May 2012, the Company declared a 2011 final dividend of RMB0.1 per share (before tax). According to the terms of issuance of the convertible bonds and relevant regulations by China Securities Regulatory Commission, the Company changed the conversion price from RMB8.7 per share to RMB8.6 per share effective from 1 June 2012.

If the convertible bonds have not been converted, they will be redeemed at 105% of par value within five trading days after the maturity of the convertible bonds. The convertible bonds bear interest at 0.5% for the first year, 0.7% for the second year, 0.9% for the third year, 1.3% for the fourth year, 1.6% for the fifth year and 2% for the sixth year. The interests are payable annually in arrears on 1 August of each year starting from 2012.

— I-88 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Within the last two years of the convertible bonds, if the closing price of A-share is traded at lower of 70% of the initial conversion price for thirty consecutive trading days, the convertible bonds holders are entitled a one-off right to request the Company to redeem the convertible bonds wholly or partially at par, with interest accrued on that day.

The Company is entitled to redeem the convertible bonds wholly at par plus accrued interest if: (i) the closing price of the Company’s shares is at or higher than 130% of the initial conversion price for any fifteen trading days in thirty consecutive trading days from issuance of the Bonds; or (ii) the aggregate par value of the outstanding convertible bonds is less than RMB30,000,000 at any time from issuance of the convertible bonds.

The convertible bond was split into liability (including the value of closely-related early redemption option and callable option) and equity components of RMB3,039,329,000 and RMB873,043,000 respectively upon initial recognition by recognising the liability component at its fair value and attributing the residual amount to the equity component. The liability component is subsequently carried at amortised cost and equity component is recognised in the convertible bonds equity reserve. The effective interest of the liability component is 5.6% per annum.

The movement of the liability component of the convertible bonds for the year is set out below:

Carrying amount at 1 January 2012 Interest charge Interest paid Conversion during the year Carrying amount at 31 December 2012 Interest charge Interest paid Conversion during the year Carrying amount at 31 December 2013	RMB’ 000 3,110,598 176,978 (19,750) (3) 3,267,823 184,541 (27,650) (22) 3,424,692

The fair value and effective interest rate of the liability component of the convertible bonds at 31 December 2013 is RMB3,424,692,000 (2012: RMB3,267,823,000) and 5.6% (2012: 5.6%) per annum respectively.

Interest expense of RMB184,541,000 (2012: RMB176,978,000) has been recognised in profit or loss in respect of the convertible bonds for the year ended 31 December 2013.

— I-89 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Corporate bonds

• i. The movement of the corporate bonds for the year is set out below:

Carrying amount at initial recognition Interest charge Balance as at 31 December 2012 Interest charge Balance as at 31 December 2013	2013 RMB’ 000 4,959,500 1,895
	4,961,395 5,841
	4,967,236

As at 31 December 2013, the balances of bonds payable are as follows:

Issue date Term of the bond 3 August 2012 3 years 3 August 2012 10 years 29 October 2012 7 years 29 October 2012 10 years	Total principal value RMB’ 000 1,000,000 1,500,000 1,500,000 1,000,000 5,000,000	Book value of bond RMB’ 000 991,400 1,487,100 1,488,600 992,400 4,959,500	At 31 December 2012 RMB’ 000 992,527 1,487,519 1,488,844 992,505 4,961,395	Interest charge RMB’ 000 2,792 1,042 1,405 602 5,841	At 31 December 2013 RMB’ 000 995,319 1,488,561 1,490,249 993,107
					4,967,236

The Company issued 2 batches of corporate bonds on 3 August 2012. The first batch is three-year corporate bonds with a principal value of RMB1 billion, carrying an annual interest rate of 4.20% and matures on 3 August 2015. The issuing price was 100 per cent of principal value, resulting in no discount on the issue. Interest on the bonds is paid annually.

The second batch is ten-year corporate bonds with a principal value of RMB1.5 billion, carrying an annual interest rate of 5.00% and matures on 3 August 2022. The issuing price was 100 per cent of principal value, resulting in no discount on the issue. Interest on the bonds is paid annually.

— I-90 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Company issued 2 batches of corporate bonds on 29 October 2012. The first batch is seven-year corporate bonds with a principal value of RMB1.5 billion, carrying an annual interest rate of 5.05% and matures on 29 October 2019. The issuing price was 100 per cent of principal value, resulting in no discount on the issue. Interest on the bonds is paid annually.

The second batch is ten-year corporate bonds with a principal value of RMB1 billion, carrying an annual interest rate of 5.18% and matures on 29 October 2022. The issuing price was 100 per cent of principal value, resulting in no discount on the issue. Interest on the bonds is paid annually.

(9) Obligations under finance leases

It is the Group’s policy to lease certain of its vessels under finance leases, with lease terms of 10 years. Interest rates underlying all such finance leases are fixed at 5.90% per annum.

Amounts payable under finance leases - Within one year - In more than one year but not more than two years - In more than two years but not more than five years - More than five years Less: future finance charges Present value of lease obligations Less: Amount due within one year shown under current liabilities Amount due after one year	Group Minimum lease payments Present value of minimum lease payments 2013 2012 2013 2012 RMB ’000 RMB’000 RMB ’000 RMB ’000 68,977 — 41,479 — 68,977 — 43,979 — 206,931 — 149,543 — 288,886 — 254,934 — 633,771 — 489,935 — (143,836) — 489,935 — (41,479) — 448,456 —	Group Minimum lease payments Present value of minimum lease payments 2013 2012 2013 2012 RMB ’000 RMB’000 RMB ’000 RMB ’000 68,977 — 41,479 — 68,977 — 43,979 — 206,931 — 149,543 — 288,886 — 254,934 — 633,771 — 489,935 — (143,836) — 489,935 — (41,479) — 448,456 —
		— —
		—

— I-91 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group’s obligations under finance leases are secured by charges over the leased assets.

(10) Contingent Liabilities

• (a) In August 2011, one of the Group’s dry bulk cargo vessels “Bihuashan” collided with “Li Peng 1”, which caused “Li Peng 1” sunk afterwards. The Group is in a progress of setting up a Limitation of Liability for Maritime Claims amounting to a total sum of RMB23,120,000. Since the Group had been insured, all compensations will be borne by the insurance company. As at 31 December 2013, the Group was still in the process of settling all the issues concerned.

• (b) In January 2012, fuel leakage occurred in one of the Group’s oil tanker “Daiqing 75” during its voyage in Bohai Sea of the PRC. As at 31 December 2013, claims on damage caused by the fuel leakage amounted to an aggregate of RMB11,000,000. Since the Company had been insured with PICC Property and Casualty Company Limited and West of England Insurance Services (Luxembourg) S.A., all compensations will be borne by the insurance companies. As at 31 December 2013, the Group was still in the process of settling all the issues concerned.

• (c) ELNG, a non wholly-owned subsidiary of the Company, holds 30% equity interests in each of Aquarius LNG Shipping Limited (“Aquarius LNG”) and Gemini LNG Shipping Limited (“Gemini LNG”), and NLNG, a non wholly-owned subsidiary of the Company, holds 30% equity interests in each of Capricorn LNG Shipping Limited (“Capricorn LNG”) and Aries LNG Shipping Limited (“Aries LNG”). Each of these four companies above entered into Ship Building Contracts for the construction of one LNG vessel each. After the completion of the LNG vessels, four companies would, in accordance with time charters to be signed, lease the LNG vessels to the following Charterers:

Company name

Charterer

Aquarius LNG Papua New Guinea Liquefied Natural Gas Global Company LDC Gemini LNG Papua New Guinea Liquefied Natural Gas Global Company LDC Aries LNG Mobil Australia Resources Company Pty Ltd. Capricorn LNG Mobil Australia Resources Company Pty Ltd.

On 15 July 2011, the Company entered into four guaranteed leases (“the lease guarantees”). According to the lease guarantees, the Company irrevocably and unconditionally provided the charterers, successors and transferees of the four companies listed above with guarantee (1) for the four companies to fulfil their respective obligations under the lease term, and (2) to secure 30% of amounts payable by the four companies to charterers under lease term.

According to the term of lease guarantees and taking into account of the possible increase in the value of the lease commitments and the percentage of shareholdings by the Company in the above four companies, the amount of lease guaranteed by the Company is limited to USD8.2 million (approximately RMB50 million).

— I-92 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The guarantee period is limited to that of the lease period, which is 20 years.

• (d) On 9 March 2013, one of the Group’s cargo vessels “CSB Talent” had a broken bollard caused by strong wind at the dock and collided with several parked vessels nearby, which resulted in damage of the floating dock and other facilities. As at 10 July 2013, the claims on damage caused by the collision amounted to an aggregate of RMB95,000,000. Since the Company had been insured with PICC Property and Casualty Company Limited (Guangzhou Branch) and The London Steam Ship Owners Mutual Insurance Association Limited, all compensation will be borne by the insurance companies. As at 31 December 2013, the Group was still in the process of setting all the issues concerned.

(11) Foreign exchange risk management

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to United States Dollar (“USD”) and Hong Kong Dollar (“HKD”) against RMB. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities.

At 31 December 2013, if USD and HKD had weakened or strengthened by 1% against RMB with all other variables held constant, post-tax loss for the year 2013 would have been RMB154,289,000 (2012: post-tax profit RMB140,559,000) lower/higher (2012: higher/lower), mainly as a result of foreign exchange gains or losses on translation of USD and HKD denominated trade receivables and payables and cash and cash equivalents.

The Group does not have significant exposure to foreign exchange risk.

(12) Cash flow and fair value interest rate risk management

The Group’s income and operating cash flows are substantially independent of changes in market interest rates as the Group has no significant interest-bearing assets. The Group’s exposures to changes in interest rates are mainly attributable to its borrowings. Borrowings at floating rates expose the Group to cash flow interest rate risk.

Borrowings at floating rates expose the Group to fair value interest rate risk. To minimize its interest expenses, the Group entered into interest rate swaps from time to time to mitigate the interest rate risk.

At 31 December 2013, if interest rates on borrowings had been 100 basis points higher/lower with all other variables held constant, the Group’s post-tax loss for the year would have been RMB100,108,000 (2012: post-tax profit RMB163,840,000) higher/lower (2012: lower/higher), the Company’s post-tax loss for the year would have been RMB3,658,000 (2012: post-tax profit RMB40,250,000) higher/lower (2012: lower/higher), mainly as a result of higher/lower interest expenses on floating rate borrowings.

— I-93 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. OTHERS

• (1) Fleet expansion projects

In 2013, the Group has achieved further improvement in its fleet expansion.

In 2013, the cash outflow from investment activities of the Group was approximately RMB4.1 billion which has been paid for construction of new vessels, transformation of old vessels and capital increases into joint ventures of the Company, including capital expenditure of approximately RMB3.740 billion paid for the purchase of new vessels by the Group.

In terms of fleet expansion, 6 new oil tankers with a total capacity of approximately 640,000 deadweight tonnes and 18 new bulk vessels with a total capacity of approximately 1,730,000 deadweight tonnes have been delivered for use in 2013.

As at 31 December 2013, the composition of the Group’s fleet is as follows:

Number of vessels Deadweight tonnes (‘000) Oil Tankers 74 7,337 Dry bulk vessels 133 9,739 Total 207 17,076	Average age (years) 7.1 11.4
	9.8

(2) Material asset disposals

In 2013, the Group disposed of 12 vessels of an aggregate of 619,000 deadweight tonnes, including 9 oil tankers of 523,000 deadweight tonnes and 3 bulk vessels of 96,000 deadweight tonnes respectively.

6. EMPLOYEES

As at the end of 2013, the Company had approximately 7,536 employees. Adjustment of employee remuneration are calculated in accordance with the Company’s turnover and profitability and is determined by assessing the correlation between the total salary paid and the economic efficiency of the enterprise. Under this mechanism, management of employees remuneration will be more efficient while employees will be motivated to work hard to bring encouraging results of the Company. Save for the remuneration disclosed above, the Company does not maintain any share option scheme for its employees and the employees do not enjoy any bonus. The Company regularly

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

provides for its administrative personnel training on various subjects, including operation management, foreign languages, computer skills, industry knowhow and policies and laws. These training maybe in different forms, such as seminars, site visits and study tours.

In 2013, the total staff costs was RMB1,901,438,000 (2012: RMB1,816,541,000).

7. OUTLOOK AND HIGHLIGHTS FOR 2014

(1) Competitive landscape and development trend in the industry

In 2014, the global economy has been recovering slowly. The international trade is likely to rebound from the sluggish situation, and it is anticipated that low growth rate may become a normal trend in the next few years. The overall economy of China is stable, and it is anticipated that the full year GDP growth rate will be around 7.5%, implying the economy continues to operate within a reasonable range.

For the shipping market, the oversupply condition of shipping capacities has not been resolved fundamentally. The international shipping market as a whole is expected to remain in a sluggish condition, a sustainable recovery may need some more time. The supply and demand conditions in the international dry bulk cargo market tend to improve in a favorable direction, and the BDI may surpass the average level of 2013. The overall freight rate level in the international oil shipment market may be slightly higher than the level in 2013.

(2) Development strategies of the Company

Facing changes in the market, the Company will adhere to the guiding principles of “planning for changes and new developments, developing under a transformed model and in an innovative manner” in 2014. On the basis of increased cooperation with large customers, the Group will adapt to the development trend of large vessels and low carbon operations to make scientific and reasonable adjustment to the fleet structure so as to improve core competitiveness. The Company currently has 40 old vessels of over 20 years of age with capacity of approximately 1,306,000 deadweight tonnes. The Company will further optimize its fleet structure step-by-step by timely disposing old vessels with high fuel consumption, small tonnage and low market competitiveness.

(3) Operational plans

In 2014, the Group expects to add 20 new vessels with a total tonnage of 1,920,000 deadweight tonnes of shipping capacity, including 2 oil tankers of 430,000 deadweight tonnes, 18 bulk vessels of 1,490,000 deadweight tonnes. It is anticipated that the total shipping capacity in effective use throughout the whole year will be 18.06 million deadweight tonnes, representing an increase of 5.7% year-on-year.

— I-95 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Based on the market conditions of the domestic and overseas shipping industry in 2014, and taking into account of the delivery of new vessels, the Group’s major operating plans in 2014 are as follows: completion of shipment turnover volume of 519.2 billion tonne-nautical miles, representing an increase of 26.2% year-on-year; revenue of RMB14.336 billion is expected to realize, representing an increase of 26.4% year-on-year; operating costs of RMB12.695 billion, representing an increase of 10.2% year-on year.

(4) Work initiatives of the Company

To cope with the current market situation, the Group will implement the following initiatives in 2014:

• (a) Enhance marketing efforts, deepen the cooperation with major customers and strengthen customer management and customer services. Facing tough market conditions, the Company will continue to adhere to the strategy of “majorclients, great co-operation and comprehensive services”, increase service awareness continuously and strive to satisfy customer needs and provide value added services actively, in order to enhance the executive capability on management of major clients and increase development efforts to expand the market customer base.

In 2014, for oil shipment operations, cooperation with the top three domestic petroleum companies will be strengthened continuously, with the focus on protecting the market shares on coastal crude oil and domestic offshore oil and fully utilizing the joint advantages of domestic and offshore trading markets to increase revenue. For bulk cargo shipment operations, the Company will focus on improving the pricing mechanism and contract performance mechanism for COA contracts, improve customer management, consolidate benefits from associated companies, maintain good cooperation results with associated companies, while make good use of the unified platform for bulk cargo operations to allocate shipping capacities reasonably between long-term chartering and spot market contracts, increase the market share of offshore shipment operations and improve the structure of cargo sources. For LNG shipment operations, the Company will leverage on the opportunities arising from the APLNG and Mobil projects to enhance comprehensively the integrated capabilities on LNG project development, vessel construction management, business management, bank financing, crew and vessel management, in order to safeguard the LNG market for the two major groups, Sinopec and PetroChina, and actively develop cooperation with other LNG importers.

• (b) Accelerate fleet structure adjustment and proceed with fleet structure optimization at a steady pace. The Company will capture the favorable opportunity provided by the planning of the State government to boost the shipping industry to dispose of old and obsolete vessels with high fuel consumption, small tonnage and weak market competitiveness in a timely manner. At the same time, research and judgment on the markets will be strengthened, closely monitor new technological innovations on vessel building, expand the

— I-96 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

fleet size as appropriate, continue to pursue energy saving and cost reduction through technologies, further develop the fleet towards the direction of large-size, technology-oriented and low-carbon operations, optimize the structure of shipping capacities continuously and enhance the overall competitiveness of the fleet.

• (c) Further implementation of overall budget management and drive cost reduction and efficiency improvement at full force. In 2014, the Group will use overall budget management as an important means to enhance the management level of the enterprise. The comprehensive energy saving mechanism will be further strengthened and improved. While fuel saving measures such as locking oil purchases and implementing economic shipping speed will be implemented continuously, such concepts and models will gradually cover the management and control of various cost items such as crew expenses, vessel repair charges, port charges, to create an advantage of low costing.

• (d) Expand financing channels to secure development funds. According to the new vessel delivery plans, the capital expenditure of the Company from 2014 to 2015 is approximately RMB6.887 billion and RMB2.537 billion respectively. Meanwhile, the associated and joint venture companies of the Group have strong demands for capital increases. In this connection, the Company will further strengthen cooperation with banks to secure the required capital funds by scientific and reasonable use of financial instruments, reduce finance costs, enhance operating benefits and efficiency of capital operations continuously, maintain a relatively sound financial structure, and prevent financial risk and capital risk practicably.

• (e) Further advance the strategy of “developing an enterprise on the basis of talents” to ensure the availability oftalents for the sustainable development of the Company. The Company will strive to develop itself as a learning-based and innovative enterprise, accelerate the paradigm shift, knowledge update and structural optimization of the shipping crew and onshore teams, so as to provide a strong support for transformation and development of the Company.

• (f) Continue to strengthen safety development and ensure safety development of the enterprise. The Group will further strengthen the appraisals on safe production responsibilities, with focus on collision avoidance, pirate prevention and pollution prevention, and further improve the safety management system to establish the safety standards.

II. WORKING CAPITAL

Taking into account the financial resources available to the Group and Dalian Ocean Group, including internally generated funds and the available banking facilities, and the terms of the Proposed Transactions, the Directors of the Company are of the opinion that the Group and Dalian Ocean Group has sufficient working capital for its requirement for at least 12 months from the date of this circular.

— I-97 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

III. INDEBTEDNESS OF THE ENLARGED GROUP

1. Borrowings and Indebtedness

At the close of business on 29 February 2016, being the latest practicable date for the purpose of this indebtedness statement prior to printing of this circular, the total outstanding interest-bearing bank and other borrowings, other loans and corporate bonds of the Enlarged Group are as follows:

	Total	Secured	Unsecured
	RMB’000	RMB’000	RMB’000
Interest-bearing bank and other
borrowings	32,759,522	10,990,514*	21,769,008
Other loans	814,597	—	814,597
Corporate bonds	3,978,488	—	3,978,488

* Secured by pledges of the Enlarged Group’s vessels and vessels under construction.

2. Contingent Liabilities

At the close of business on 29 February 2016, the Enlarged Group has the following significant contingent liabilities and guarantees:

• (i) East China LNG Shipping Investment Co. Ltd., a non wholly-owned subsidiary of the Company, holds 30% equity interests in each of Aquarius LNG Shipping Limited (“Aquarius LNG”) and Gemini LNG Shipping Limited (“Gemini LNG”), and North China LNG Shipping Investment Co. Ltd., a non wholly-owned subsidiary of the Company, holds 30% equity interests in each of Capricorn LNG Shipping Limited (“Capricorn LNG”) and Aries LNG Shipping Limited (“Aries LNG”). Each of these four companies entered into ship building contracts for the construction of one LNG vessel. After the completion of the LNG vessels, the four companies would, in accordance with time charters agreements to be signed, lease the LNG vessels to the following charterers:

Company Name

Charterer

Aquarius LNG Papua New Guinea Liquefied Natural Gas Global Company LDC

Gemini LNG Papua New Guinea Liquefied Natural Gas Global Company LDC

Aries LNG Mobil Australia Resources Company Pty Ltd.

Capricon LNG Mobil Australia Resources Company Pty Ltd.

— I-98 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

On 15 July 2011, the Company entered into four guaranteed leases (the “Lease Guarantees”). According to the Lease Guarantees, the Company irrevocably and unconditionally provided the charterers, successors and transferees of the four companies listed above with guarantee (1) for the four companies to fulfil their respective obligations under the lease term, and (2) to secure 30% of amounts payable to charterers under lease term.

According to the term of the Lease Guarantees and taking into account the possible increase in the value of the lease commitments and the percentage of shareholdings by the Company in the above four companies, the amount of lease guaranteed by the Company is limited to USD8.2 million (approximately RMB54 million).

The guarantee period is limited to that of the lease period, which is 20 years.

• (ii) At the seventh Board meeting of 2014 held on 30 June 2014, the Company approved the ship building contracts, time charter agreements and supplemental construction contracts signed by three joint ventures of the Company for the Yamal LNG project. To secure the obligation of the ship building contracts, time charter agreements and supplemental construction contracts, the Company provides corporate guarantees to the shipbuilders, Daewoo Shipbuilding & Marine Engineering Co., Ltd. and DY Maritime Limited. The total aggregate liability of the Company under the corporate guarantees is limited to USD490,000,000 (approximately RMB3,207,148,000). In addition, the Company provides owner’s guarantees to the charterer, YAMAL Trade Pte. Ltd. The total aggregate liability of the Company under the owner’s guarantees is limited to USD6,400,000 (approximately RMB41,889,000).

• (iii) On 20 February 2011, one oil tanker of Dalian Ocean, “Yang Mei Hu”, during the time of berthing and loading in Mohammedia port, clashed the dock bollard. On 23 February 2011, the dock authority applied for the detention of “Yang Mei Hu” in the local court of Morocco and required Dalian Ocean to provide estimated losses in the amount of Dirham55 million (approximately RMB37 million) for security. In March 2011, after the protection and indemnity club of “Yang Mei Hu” provided appropriate security according to the “Yang Mei Hu” membership certificate underwriting agreement, “Yang Mei Hu” left the port. In April 2014, the dock authority filed suit in the local court of Morocco and required Dalian Ocean to compensate the loss in the amount of Dirham17,380,000 and Euro2,062,000 (in total approximately RMB26,300,000).

Since Dalian Ocean had been insured, all compensations will be borne by the insurance companies, except for a maximum of USD15,000 (approximately RMB98,000), according to the membership certificate underwriting agreement. As at 29 February, 2016, Dalian Ocean was still in the process of setting all issues concerned.

— I-99 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities and normal trade payables in the ordinary course of business, as at the close of business on 29 February 2016, the Enlarged Group did not have any debt securities issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances (other than normal trade bills) or acceptance credits, mortgages, charges, finance lease or hire purchase commitments, guarantees or other material contingent liabilities.

The Directors confirmed that no material changes in the indebtedness and contingent liabilities of the Enlarged Group since 29 February 2016 up to and including the Latest Practicable Date.

IV. MATERIAL ADVERSE CHANGE

The Directors confirm that there has been no material adverse change in the financial or trading position of the Group since 31 December 2015, being the date to which the latest published audited accounts of the Company have been made up.

V. FINANCIAL AND TRADING PROSPECTS

The Enlarged Group will, through the Proposed Transactions, further expand its oil shipment and LNG shipment businesses to create a globally leading energy transportation fleet in terms of transportation capacities, strengthen its ability to counter the business cycle of the conventional shipping business and its financial stability and enhance its overall profitability. In order to achieve these goals, the Enlarged Group will utilize its enhanced fleet capacity following the Dalian Ocean Acquisition, continue to control and reduce operating costs, seek greater discounts from global suppliers for procurement of shipping materials and take advantage of the low oil prices by locking on long-term fuel purchase contracts. The Company expects to start to realize the benefits aforesaid after the completion of the Dalian Ocean Acquisition.

With a significantly increased fleet size, the Enlarged Group will be able to meet differentiated demand requirements from customers in every shipping region of the world. The Enlarged Group will be able to flexibly apply a variety of operating plans such as contract of affreightment and time chartering, which increases its loading ratio and reduces its unit shipping cost. The Enlarged Group will also coordinate and centralize the procurement of all relevant resources, which helps to optimize its purchasing decision-making process, improve its vendor management system and enhance its negotiation capability.

Furthermore, the Enlarged Group will improve its financial management, expand its financing channels and reduce its capital costs. According to its new vessel delivery plans, the capital expenditure of the CS Development in 2016 will be approximately RMB2.5 billion. In this regard, the Enlarged Group will strengthen its relationship with commercial banks, secure necessary funds from both domestic and international financial markets and through the use of various financial instruments. Meanwhile, the Enlarged Group will enhance its capital efficiency, reduce its financing costs and maintain a sound financial structure. Additionally, the Enlarged Group will monitor and anticipate macro-economic changes by strictly controlling the capital expenditure in shipbuilding and its debt ratio, improving its charter operations, and enhance its operational risk management.

— I-100 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

For its oil shipment business, the Enlarged Group will enhance its position in the oil shippment market by building a specialised crude oil and refined oil transportation fleet and continue to cooperate with the top three domestic petroleum companies. The Enlarged Group will strive to enhance its sustainable profitability and financial stability by establishing a scientific market research mechanism, timely adjusting its shipping route structure and improving its term leasing ratio. From cost saving aspect, the Enlarged Group will effectively realize the cost synergy generated from consolidating and optimizing internal resources for oil shipment after the Dalian Ocean Acquisition.

For its LNG shipment business, the Enlarged Group will enhance its LNG project development, vessel construction management, business management, bank financing and vessel management. The Enlarged Group will also establish strong alliances with the two major LNG importers in China, lock in long-term and stable revenues and effectively counter cyclical fluctuations in the oil shippment market. According to its new vessel delivery plans, CS Development expects to add three new LNG vessels with a total shipping capacity of 525,000 cubic meters in 2016.

Additionally, by effectively integrating its domestic and international resources and coordinating and centralizing the procurement of resources, the Enlarged Group will improve its overall operating efficiency, enhance its international competitiveness and gradually realize its global layout strategy. Such integration of resources will also significantly enhance the Enlarged Group’s bargaining power for various cost items, improve the efficiency of its resource utilisation, and effectively reduce its procurement costs.

Furthermore, the Enlarged Group will continue to strengthen talent team building and enhance the competitiveness of its staff by optimising human resources, remedying the insufficiency in its tanker crew and satisfying the demand for future expansion of the fleet scale as well as the strategic need for a global route layout.

— I-101 —

APPENDIX II FINANCIAL INFORMATION OF DALIAN OCEAN GROUP

BUSINESS OVERVIEW

Dalian Ocean is principally engaged in the liquid bulk transportation business, which includes the coastal and ocean shipping of crude oil, refined oil, LNG and LPG.

As of 31 December 2015, Dalian Ocean owned and operated over 40 vessels on the water, including oil tankers of VLCC, Suezmax, Aframax and Panamax classes and LPG carriers, with an aggregate carrying capacity of more than nine million deadweight tons. Dalian Ocean has actively developed international customers, strengthened its strategic cooperation with international cargo owners and expanded its business to more than 300 ports of 70 countries and regions around the world.

FINANCIAL OVERVIEW

The summary of audited historical consolidated statements of profit or loss for 2013, 2014 and 2015 set forth below is derived from the consolidated financial statement of Dalian Ocean, including the notes thereto, which is set forth in “Appendix III — The Accountant’s Report of Dalian Ocean.” The financial statement of Dalian Ocean has been prepared in accordance with HKFRSs.

— II-1 —

APPENDIX II FINANCIAL INFORMATION OF DALIAN OCEAN GROUP

Consolidated statements of profit or loss

Revenue Costs of services Gross (loss)/profit Investment and other income Other gains and losses Selling expenses Administrative expenses Other expenses (Loss)/profit from operations Finance costs Share of profits of joint ventures (Loss)/profit before tax Income tax expense (Loss)/profit for the year Attributable to: Owners of Dalian Ocean Non-controlling interests

Year ended 31 December 2013 2014 2015 (in millions of RMB) 3,607.7 4,126.5 4,820.4 (4,181.1) (4,173.4) (3,718.4) (573.4) (46.9) 1,101.9 47.4 234.7 254.0 (19.4) (114.0) (167.3) (5.4) (5.0) — (228.3) (211.7) (235.7) (22.9) (33.2) (33.2) (802.0) (176.2) 919.7 (251.8) (263.8) (254.5) 118.9 122.0 151.3 (934.9) (317.9) 816.5 (9.7) (86.0) (8.3) (944.6) (403.9) 808.1 (909.5) (373.2) 804.1 (35.1) (30.7) 4.0 (944.6) (403.9) 808.1

— II-2 —

APPENDIX II FINANCIAL INFORMATION OF DALIAN OCEAN GROUP

FINANCIAL POSITION

Total assets of Dalian Ocean were RMB14,599.1 million, RMB15,192.1 million and RMB17,238.8 million as at 31 December 2013, 2014 and 2015, respectively. Total assets primarily comprised property, plant and equipment, which primarily comprised vessels owned and operated by Dalian Ocean.

As at 31 December 2013, 2014 and 2015, total liabilities of Dalian Ocean were RMB11,088.2 million, RMB11,539.4 million and RMB11,129.2 million, respectively, which primarily comprised borrowings. Borrowings primarily comprised bank loans.

The net assets of Dalian Ocean totaled RMB3,511.0 million, RMB3,652.6 million and RMB6,109.6 million as at 31 December 2013, 2014 and 2015, respectively.

LIQUIDITY AND FINANCIAL RESOURCES AND CAPITAL STRUCTURE

As at 31 December 2013, 2014 and 2015, Dalian Ocean recorded current liabilities of RMB3,229.8 million, RMB2,909.2 million and RMB3,948.1 million, respectively, and had gearing ratios (calculating by dividing total debt by total assets) of 76.0%, 76.0% and 65.0%, respectively.

BUSINESS PERFORMANCE

Dalian Ocean is principally engaged in the liquid bulk transportation business. Dalian Ocean does not expect any upcoming changes in its industries or in the market conditions or new products and services to be introduced that would have an impact on its performance, turnover or margins.

The Year Ended 31 December 2015 Compared to the Year Ended 31 December 2014

Revenue

Total revenue for the year ended 31 December 2015 was RMB4,820.4 million, representing an increase of RMB693.9 million from RMB4,126.5 million for the year ended 31 December 2014. Such increase was primarily due to an increase in chartered income.

Cost of Services

Cost of services for the year ended 31 December 2015 was RMB3,718.4 million, representing a decrease of RMB455.0 million from RMB4,173.4 million for the year ended 31 December 2014. Such decrease was primarily attributable to a decrease in fuel expenses as a result of (i) decrease in oil prices and (ii) decreased consumption of fuels due to conversion of some vessels from self-operation to time charter.

— II-3 —

APPENDIX II FINANCIAL INFORMATION OF DALIAN OCEAN GROUP

Gross (Loss)/Profit

As a result of the foregoing, gross profit for the year ended 31 December 2015 was RMB1,101.9 million, compared with a gross loss of RMB46.9 million for the year ended 31 December 2014.

Investment and Other Income

Investment and other income for the year ended 31 December 2015 was RMB254.0 million, representing an increase of RMB19.3 million from RMB234.7 million for the year ended 31 December 2014. Such increase was primarily due to an increase in dividend income.

Other Gains and Losses

Other gains and losses for the year ended 31 December 2015 was a loss of RMB167.3 million, representing an increase of RMB53.3 million from a loss of RMB114.0 million for the year ended 31 December 2014. Such increase was primarily due to an increase in net foreign exchange losses.

Selling Expenses

Selling expenses for the year ended 31 December 2015 was nil, representing a decrease of RMB5.0 million from RMB5.0 million for the year ended 31 December 2014. The selling expenses of Dalian Ocean for the year ended 31 December 2014 was primarily incurred by its former subsidiary, Dalian International Ocean Building Hotel Co., Ltd. (“Dalian Hotel”). Dalian Ocean’s selling expenses was nil for the year ended 31 December 2015, as Dalian Hotel’s results of operation was no longer consolidated into Dalian Ocean’s consolidated financial statements.

Administrative Expenses

Administrative expenses for the year ended 31 December 2015 was RMB235.7 million, representing an increase of RMB24.0 million from RMB211.7 million for the year ended 31 December 2014. Such increase was primarily attributable to an increase in (i) total salary and social insurance expenses as a result of stronger financial performance and (ii) professional fees in connection with Dalian Ocean’s reorganization.

Other Expenses

Other expenses remained stable at RMB33.2 million for the years ended 31 December 2015 and 2014.

Finance Costs

Finance costs for the year ended 31 December 2015 was RMB254.5 million, representing a decrease of RMB9.3 million from RMB263.8 million for the year ended 31 December 2014. Such decrease primarily reflected a decrease in the average balance of borrowings.

— II-4 —

APPENDIX II FINANCIAL INFORMATION OF DALIAN OCEAN GROUP

Share of Profits of Joint Ventures

Share of profits of joint ventures for the year ended 31 December 2015 was RMB151.3 million, representing an increase of RMB29.3 million from RMB122.0 million for the year ended 31 December 2014. The share of profits of joint ventures of Dalian Ocean was primarily derived from its equity interest in China LNG Shipping (Holdings) Limited (“China LNG Shipping”). The increase in share of profits of joint venture was mainly due to an increase in the profit of China LNG Shipping.

Income Tax Expenses

Income tax expenses for the year ended 31 December 2015 was RMB8.3 million, representing a decrease of RMB77.7 million from RMB86.0 million for the year ended 31 December 2014. Such decrease primarily reflected a decrease in the amount of deferred tax.

(Loss)/Profit for the Year

As a result of the foregoing, Dalian Ocean recorded a profit for the year of RMB808.1 million for the year ended 31 December 2015, compared with a loss for the year of RMB403.9 million for the year ended 31 December 2014.

The Year Ended 31 December 2014 Compared to the Year Ended 31 December 2013

Revenue

Total revenue for the year ended 31 December 2014 was RMB4,126.5 million, representing an increase of RMB518.8 million from RMB3,607.7 million for the year ended 31 December 2013. Such increase was primarily due to an increase in chartered income.

Cost of Services

Cost of services for the year ended 31 December 2014 was RMB4,126.4 million, representing a decrease of RMB54.7 million from RMB4,181.1 million for the year ended 31 December 2013. Such decrease was primarily attributable to a decrease in fuel expenses as a result of decrease in oil prices.

Gross Loss

As a result of the foregoing, gross loss for the year ended 31 December 2014 was RMB46.9 million, representing a decrease of RMB526.5 million from RMB573.4 million for the year ended 31 December 2013.

Investment and Other Income

Investment and other income for the year ended 31 December 2014 was RMB234.7 million, representing an increase of RMB187.3 million from RMB47.4 million for the year ended 31 December 2013. Such increase was primarily due to an increase in the amount of government subsidies recognized as other income in the year.

— II-5 —

APPENDIX II FINANCIAL INFORMATION OF DALIAN OCEAN GROUP

Other Gains and Losses

Other gains and losses for the year ended 31 December 2014 was a loss of RMB114.0 million, representing an increase of RMB94.6 million from a loss of RMB19.4 million for the year ended 31 December 2013. Such increase was primarily due to net foreign exchange losses of RMB6.7 million for the year ended 31 December 2014, compared with net foreign exchange gains of RMB50.9 million for the year ended 31 December 2013.

Selling Expenses

Selling expenses for the year ended 31 December 2014 was RMB5.0 million, representing a decrease of RMB0.4 million from RMB5.4 million for the year ended 31 December 2013. Such decrease was primarily attributable to a decrease in the advertising expenses and staff costs of Dalian Hotel.

Administrative Expenses

Administrative expenses for the year ended 31 December 2014 was RMB211.7 million, representing a decrease of RMB16.6 million from RMB228.3 million for the year ended 31 December 2013. Such decrease was primarily attributable to a decrease in (i) the property tax of Dalian Hotel and (ii) depreciation and amortization expenses.

Other Expenses

Other expenses for the year ended 31 December 2014 was RMB33.2 million, representing an increase of RMB10.3 million from RMB22.9 million for the year ended 31 December 2013. Such increase was primarily attributable to an increase in provision for freight receivables.

Finance Costs

Finance costs for the year ended 31 December 2014 was RMB263.8 million, representing an increase of RMB12.0 million from RMB251.8 million for the year ended 31 December 2013. Such increase primarily reflected an increase in the average balance of borrowings.

Share of Profits of Joint Ventures

Share of profits of joint ventures for the year ended 31 December 2014 was RMB122.0 million, representing an increase of RMB3.1 million from RMB118.9 million for the year ended 31 December 2013. Such increase was mainly due to an increase in the profit of China LNG Shipping.

Income Tax Expenses

Income tax expenses for the year ended 31 December 2014 was RMB86.0 million, representing an increase of RMB76.3 million from RMB9.7 million for the year ended 31 December 2013. Such increase primarily reflected an increase in the amount of deferred tax.

— II-6 —

APPENDIX II FINANCIAL INFORMATION OF DALIAN OCEAN GROUP

Loss for the Year

As a result of the foregoing, loss for the year ended 31 December 2014 was RMB403.9 million, representing an increase of RMB540.7 million from RMB944.6 million for the year ended 31 December 2013.

FOREIGN EXCHANGE RISK

Dalian Ocean has minimal exposure to foreign currency risk as most of its business transactions, assets and liabilities are principally denominated in RMB. Dalian Ocean currently does not have a foreign currency hedging policy in respect of foreign currency transactions, assets and liabilities. Dalian Ocean will monitor its foreign currency exposure closely and will consider hedging significant foreign currency exposure should the need arise.

CHARGE ON ASSETS

As at 31 December 2013, 2014 and 2015, the carrying amount of property, plant and equipment pledged as security for Dalian Ocean’s bank loans amounted to approximately RMB5,296.7 million, RMB4,756.9 million and RMB4,566.9 million, respectively. As at 31 December 2013, 2014 and 2015, the carrying amount of investment properties pledged as security for Dalian Ocean’s bank loans amounted to approximately RMB78.3 million, RMB74.5 million and nil, respectively.

CONTINGENT LIABILITIES

As at 31 December 2013, 2014 and 2015, Dalian Ocean did not have any significant contingent liabilities.

SIGNIFICANT INVESTMENTS, MATERIAL ACQUISITIONS AND DISPOSALS

For the years ended 31 December 2013, 2014 and 2015, Dalian Ocean did not have any significant investments, material acquisitions or disposals.

EMPLOYEES AND REMUNERATION POLICY

As at 31 December 2013, 2014 and 2015, Dalian Ocean had 4,261, 5,296 and 5,284 employees, respectively. For the year ended 31 December 2013, 2014 and 2015, Dalian Ocean incurred total staff costs of RMB590.6 million, RMB610.6 million and RMB610.6 million, respectively.

Dalian Ocean’s salary and remuneration policy is determined by reference to, among other things, employee performance, working experience and prevailing market rates. No share option scheme has been adopted for employees of Dalian Ocean. In order to ensure that Dalian Ocean’s employees remain competitive in the relevant industries, Dalian Ocean has adopted training programs for its employees.

FUTURE PLANS FOR SIGNIFICANT INVESTMENTS OR CAPITAL ASSETS

Dalian Ocean has no future plans for material investments or capital assets in the coming year.

— II-7 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, RSM Hong Kong, Certified Public Accountants, Hong Kong.

==> picture [148 x 65] intentionally omitted <==

29th Floor Lee Garden Two 28 Yun Ping Road Causeway Bay Hong Kong 22 April 2016

The Board of Directors China Shipping Development Company Limited Room A - 1015, No. 188 Ye Sheng Road, China (Shanghai) Pilot Free Trade Zone, PRC

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) of Dalian Ocean Shipping Co., Ltd (the “Target PRC Company”) and its subsidiaries (hereinafter collectively referred to as the “Target PRC Group”) for each of the three years ended 31 December 2015 (the “Relevant Periods”) for inclusion in the circular dated 22 April 2016 issued by China Shipping Development Company Limited (the “Company”) in connection with the proposed acquisition of 100% equity interest in the Target PRC Company (the “Circular”).

The Target PRC Company was incorporated in the People’s Republic of China (the “PRC”) as a state-owned enterprise on 1 January 1978 under the name Dalian Ocean Shipping Company (the “Former Company”) which was a direct wholly-owned subsidiary of China Ocean Shipping (Group) Company. The Target PRC Company is principally engaged in tanker shipping business which provides oil and gas shipping services covering oil tanker shipping, LNG shipping and LPG shipping etc. Pursuant to the Approval of Enterprise Transformation of Dalian Ocean Shipping Company on Corporate Restructuring and Related State-owned Property Transfer without Compensation《關於大 連遠洋運輸公司企業改制及相關國有產權無償劃轉有關事項的批覆》, the Former Company transformed to a Company with limited liability under the name of the Target PRC Company on 24 December 2015. As at the date of this report, the Target PRC Company has the following subsidiaries:

			Percentage of
			ownership interest
	Place of		directly held by
	incorporation and	Registered and	the Target PRC
Name of subsidiaries	operation	paid up capital	Company	Principal activity
大連遠洋對外勞務合作有限公司	The PRC	RMB6,000,000	100%	Provision of shipping
(Dalian Ocean Foreign Labour				agency and
Service Cooperation Co., Ltd*)				management services

— III-1 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

			Percentage of
			ownership interest
	Place of		directly held by
	incorporation and	Registered and	the Target PRC
Name of subsidiaries	operation	paid up capital	Company	Principal activity
大連遠洋通大電子有限公司	The PRC	RMB600,000	60%	Provision of shipping
(Dalian Ocean Tongda Electronics				repairs and
Co., Ltd*)				maintenance services
深圳中遠龍鵬液化氣運輸有限公司	The PRC	RMB20,000,000	70%	Provision of tanker
(Shenzhen COSCO LPG Shipping				shipping services
Co., Ltd*)
大連華昌船務有限公司	The PRC	RMB1,165,302,619	100%	Provision of tanker
(Dalian Huachang Shipping Co.,				shipping services
Ltd*)
大連希雲自動化有限公司	The PRC	RMB1,310,574	57.50%	Provision of shipping
(Dalian Xiyun Automation Co.,				repairs and
Ltd*)				maintenance services
寰宇船務企業有限公司	HK	USD107,110,256	100%	Provision of tanker
(Pan Cosmos Shipping &				shipping services
Enterprises Co. Limited)

All the companies of the Target PRC Group have adopted 31 December as their financial year end date.

The statutory financial statements of the following companies have been prepared in accordance with the relevant accounting principles and financial regulations applicable to companies established in the PRC and were audited in accordance with Independent Auditing Standards for Chinese Certified Public Accountants by the following certified public accountants registered in the PRC.

Name of companies Financial year Name of auditor The Target PRC Company Each of the three years ended 瑞華會計師事務所 (Ruihua 31 December 2015 Certified Public Accountants) 大連遠洋對外勞務合作有限公司 Each of the three years ended 瑞華會計師事務所 (Ruihua (Dalian Ocean Foreign Labour 31 December 2015 Certified Public Accountants) Service Cooperation Co., Ltd*)

大連遠洋通大電子有限公司 Each of the three years ended 瑞華會計師事務所 (Ruihua (Dalian Ocean Tongda 31 December 2015 Certified Public Accountants) Electronics Co., Ltd) 深圳中遠龍鵬液化氣運輸 Each of the three years ended 瑞華會計師事務所 (Ruihua 有限公司 31 December 2015 Certified Public Accountants) (Shenzhen COSCO LPG Shipping Co., Ltd)

— III-2 —

APPENDIX III

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

Name of companies	Financial year	Name of auditor
大連華昌船務有限公司	Each of the three years ended	瑞華會計師事務所(Ruihua
(Dalian Huachang Shipping Co.,	31 December 2015	Certified Public Accountants)
Ltd*)
大連希雲自動化有限公司	Each of the three years ended	瑞華會計師事務所(Ruihua
(Dalian Xiyun Automation Co.,	31 December 2015	Certified Public Accountants)
Ltd*)

• The English translation names are for identification purpose only. The official name of the entities are in Chinese.

The statutory financial statements of Pan Cosmos Shipping & Enterprises Co. Limited for each of the three years ended 31 December 2015 have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) and were audited by RSM Hong Kong (formerly known as RSM Nelson Wheeler), certified public accountants registered in Hong Kong, in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

For the purpose of this report, the director of the Target PRC Company has prepared the consolidated financial statements of the Target PRC Group for the Relevant Periods in accordance with HKFRSs issued by the HKICPA (the “HKFRS Financial Statements”).

We have performed our independent audit on the HKFRS Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA and have examined the HKFRS Financial Statements in accordance with Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

The Financial Information has been prepared from the HKFRS Financial Statements in accordance with HKFRSs. No adjustments were considered necessary for the purpose of preparing our report for inclusion in the Circular.

The director of the Target PRC Company is responsible for the preparation of the HKFRS Financial Statements. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the HKFRS Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, for the purpose of this report, the Financial Information gives a true and fair view of the state of affairs of the Target PRC Company and of the Target PRC Group as at 31 December 2013, 2014 and 2015 of the Target PRC Group’s results and cash flows for the Relevant Periods.

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THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

FINANCIAL INFORMATION

A. CONSOLIDATED STATEMENTS OF PROFIT OR LOSS

Note Revenue 8 Cost of services Gross (loss)/profit Investment and other income 9 Other gains and losses 10 Selling expenses Administrative expenses Other expenses (Loss)/profit from operations Finance costs 12 Share of profits of joint ventures (Loss)/profit before tax Income tax expense 13 (Loss)/profit for the year 14 Attributable to: Owner of the Target PRC Company Non-controlling interests

Year ended 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 3,607,713 4,126,547 4,820,387 (4,181,124) (4,173,438) (3,718,447) (573,411) (46,891) 1,101,940 47,397 234,654 253,973 (19,428) (114,031) (167,268) (5,387) (4,988) — (228,269) (211,709) (235,691) (22,871) (33,245) (33,222) (801,969) (176,210) 919,732 (251,799) (263,780) (254,529) 118,872 122,042 151,254 (934,896) (317,948) 816,457 (9,682) (85,966) (8,319) (944,578) (403,914) 808,138 (909,490) (373,173) 804,089 (35,088) (30,741) 4,049 (944,578) (403,914) 808,138

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THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

• B. CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Note (Loss)/profit for the year Other comprehensive income: Items that may be reclassified to profit or loss: Exchange differences on translating foreign operations Total comprehensive income for the year Attributable to: Owner of the Target PRC Company Non-controlling interests	Year ended 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 (944,578) (403,914) 808,138 (7,395) (130) 69,357 (951,973) (404,044) 877,495 (916,885) (373,303) 873,446 (35,088) (30,741) 4,049 (951,973) (404,044) 877,495	Year ended 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 (944,578) (403,914) 808,138 (7,395) (130) 69,357 (951,973) (404,044) 877,495 (916,885) (373,303) 873,446 (35,088) (30,741) 4,049 (951,973) (404,044) 877,495
		877,495
		873,446 4,049
		877,495

— III-5 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

C. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Note Non-current assets Property, plant and equipment 17 Prepaid land lease payments 18 Investment properties 19 Investment in joint ventures 21 Available-for-sale financial assets 22 Other non-current assets 23 Deferred tax assets 31 Current assets Trade and other receivables 24 Inventories 25 Other current assets Pledged bank deposits 26 Cash and cash equivalents 26 Current liabilities Trade and other payables 27 Current portion of provision and other liabilities 28 Borrowings 29 Current tax liabilities Derivative financial liabilities 30 Net current assets/(liabilities) Total assets less current liabilities

As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 10,110,214 10,248,025 11,229,430 42,501 41,334 81,977 109,013 103,871 7,265 878,536 1,200,230 1,785,102 55,700 55,700 127,808 97,742 247,143 162,516 61,235 54,056 5,332 11,354,941 11,950,359 13,399,430 648,989 768,216 771,256 318,429 256,717 132,658 6,700 61,134 112,402 207,344 157,788 45,731 2,062,709 1,997,851 2,777,358 3,244,171 3,241,706 3,839,405 1,349,781 1,222,166 949,179 97,381 153,001 134,284 1,747,967 1,515,354 2,859,455 2,470 68 1,743 32,243 18,578 3,750 3,229,842 2,909,167 3,948,411 14,329 332,539 (109,006) 11,369,270 12,282,898 13,290,424

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THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

Note Non-current liabilities Provision and other liabilities 28 Deferred income Borrowings 29 Deferred tax liabilities 31 Retirement benefit obligations 34 NET ASSETS Capital and reserves Share capital 32 Reserves 33 Non-controlling interests NET EQUITY	As 2013 RMB’000 23,362 247 7,832,969 1,737 — 7,858,315 3,510,955 6,643,515 (2,941,229) 3,702,286 (191,331) 3,510,955	at 31 December 2014 2015 RMB’000 RMB’000 19,126 15,327 167 87 8,530,663 6,958,542 80,321 74,550 — 132,330 8,630,277 7,180,836 3,652,621 6,109,588 7,189,225 6,378,153 (3,314,532) (305,442) 3,874,693 6,072,711 (222,072) 36,877 3,652,621 6,109,588

— III-7 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

D. STATEMENTS OF FINANCIAL POSITION

Note Non-current assets Property, plant and equipment 17 Prepaid land lease payments 18 Investment properties 19 Investment in subsidiaries 20 Investments in joint ventures 21 Available-for-sale financial assets 22 Other non-current assets 23 Deferred tax assets 31 Current assets Trade and other receivables 24 Inventories 25 Other current assets Pledged bank deposits 26 Cash and cash equivalents 26 Current liabilities Trade and other payables 27 Current portion of provision and other liabilities 28 Borrowings 29 Derivative financial liabilities 30 Net current assets/(liabilities) Total assets less current liabilities

As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 5,013,086 4,106,917 5,001,715 42,133 40,975 81,629 30,669 29,395 7,265 531,166 1,646,230 1,920,833 878,536 1,200,230 1,785,102 55,700 55,700 127,808 53,764 11,563 32,027 24,349 18,707 5,269 6,629,403 7,109,717 8,961,648 1,391,908 1,565,112 842,773 143,205 116,853 85,775 2,661 59,816 110,383 206,225 156,669 45,731 1,765,763 1,120,277 1,855,478 3,509,762 3,018,727 2,940,140 880,577 802,073 1,527,734 87,681 118,546 126,155 826,929 780,239 2,233,997 32,243 18,578 3,750 1,827,430 1,719,436 3,891,636 1,682,332 1,299,291 (951,496) 8,311,735 8,409,008 8,010,152

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THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

Note Non-current liabilities Provision and other liabilities 28 Deferred income Borrowings 29 Retirement benefit obligations 34 NET ASSETS Capital and reserves Share capital 32 Reserves 33 NET EQUITY	As 2013 RMB’000 23,362 247 2,963,764 — 2,987,373 5,324,362 6,643,515 (1,319,153) 5,324,362	at 31 December 2014 2015 RMB’000 RMB’000 19,126 15,327 167 87 3,061,192 1,693,042 — 132,330 3,080,485 1,840,786 5,328,523 6,169,366 7,189,225 6,378,153 (1,860,702) (208,787) 5,328,523 6,169,366

— III-9 —

APPENDIX III

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

E. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

			**Attributable **	**Attributable **	**to owner of **	**the Target PRC **	Company
					Foreign
				Statutory	currency			Non-
	Share	Capital		surplus	translation	Accumulated		controlling	Total
	capital	reserve		reserve	reserve	losses	Total	interests	Equity
	RMB’000	RMB’000		RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
At 1 January 2013	6,643,515	4,296		624,216	(86,680)	(2,566,176)	4,619,171	(156,243)	4,462,928
Total comprehensive income for
the year	—	—		—	(7,395)	(909,490)	(916,885)	(35,088)	(951,973)
At 31 December 2013 and
1 January 2014	6,643,515	4,296		624,216	(94,075)	(3,475,666)	3,702,286	(191,331)	3,510,955
Total comprehensive income for
the year	—	—		—	(130)	(373,173)	(373,303)	(30,741)	(404,044)
Increase of capital (note 32)	545,710	—		—	—	—	545,710	—	545,710
At 31 December 2014 and
1 January 2015	7,189,225	4,296		624,216	(94,205)	(3,848,839)	3,874,693	(222,072)	3,652,621
Total comprehensive income for
the year	—	—		—	69,357	804,089	873,446	4,049	877,495
Increase of capital (note 32)	224,390	—		—	—	—	224,390	—	224,390
Retirement benefit obligations
(note 34)	—	—		—	—	(127,697)	(127,697)	—	(127,697)
Transfer	—	(4,296)		(518,403)	—	522,699	—	—	—
Dividend in specie (note 37)	—	—		—	—	199,845	199,845	254,900	454,745
Revaluation of assets (note 38)	—	1,028,034		—	—	—	1,028,034	—	1,028,034
Capital reduction (note 32)	(1,035,462)	(1,101,664)		(105,813)	—	2,242,939	—	—	—
At 31 December 2015	6,378,153	(73,630)		—	(24,848)	(206,964)	6,072,711	36,877	6,109,588

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THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

F. CONSOLIDATED STATEMENTS OF CASH FLOWS

CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) before tax Adjustments for: Finance costs Share of profits of joint ventures Dividend income Interest income Depreciation Amortisation of prepaid land lease payments Gain on disposals of property, plant and equipment Loss on disposals of property, plant and equipment Loss on onerous contracts Impairment loss on trade and other receivables Fair value gains on financial liabilities, unrealised Fair value losses on financial liabilities, realised Net foreign exchange (gains)/losses Operating (loss)/profit before working capital changes Increase in trade and other receivables Decrease in inventories Increase/(decrease) in trade and other payables Cash generated from operations Income tax paid Net cash generated from operating activities

Year ended 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 (934,896) (317,948) 816,457 251,799 263,780 254,529 (118,872) (122,042) (151,254) (8,149) (8,290) (22,465) (26,419) (31,126) (21,174) 599,572 574,801 557,136 1,167 1,167 1,470 (2,608) (508) (21,207) 72,289 89,544 69,121 — 47,058 97,803 2,721 225 1,175 (17,144) (13,664) (14,828) 15,058 30,893 15,757 (50,888) 7,541 117,250 (216,370) 521,431 1,699,770 (9,205) (173,885) (61,079) 15,473 61,712 97,685 317,307 (125,122) (42,259) 107,205 284,136 1,694,117 (2,668) (852) (580) 104,537 283,284 1,693,537

— III-11 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (Increase)/decrease in other non-current assets Proceeds from disposal of property, plant and equipment and investment properties Additions of investment in joint ventures Dividends received from joint ventures Interest income received (Increase)/decrease in pledged bank deposits Other dividends received Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Cash outflows from dividend in specie (note 37) Inception of new borrowings Net settlement of derivative financial liabilities Proceeds from increase of share capital Repayments of borrowings Interest paid Net cash generated from financing activities NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Effect of foreign exchange rate changes CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR

Year ended 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 (398,929) (782,804) (1,756,032) (97,685) (149,401) 38,912 72,568 2,853 214,620 (20,448) (293,027) (37,157) 124,805 94,832 124,967 26,419 31,126 21,174 (21,704) 49,556 112,057 8,149 8,290 22,465 (306,825) (1,038,575) (1,258,994) — — (67,381) 3,560,394 2,009,338 3,106,164 (15,058) (30,893) (15,757) — 545,710 224,390 (2,806,542) (1,643,431) (2,793,451) (251,799) (264,406) (260,643) 486,995 616,318 193,322 284,707 (138,973) 627,865 54,424 74,115 151,642 1,723,578 2,062,709 1,997,851 2,062,709 1,997,851 2,777,358

— III-12 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

G. NOTES TO FINANCIAL INFORMATION

1. GENERAL INFORMATION

Dalian Ocean Shipping Co., Ltd (the “Target PRC Company”) was incorporated in the People’s Republic of China (the “PRC”) on 1 January 1978 under the name Dalian Ocean Shipping Company (the “Former Company”). Pursuant to the Approval of Enterprise Transformation of Dalian Ocean Shipping Company on Corporate Restructuring and Related State-owned Property Transfer without Compensation 《關於大連遠洋運輸公司企業改制及相關國有產權無償劃轉有關事項的批覆》, the Former Company transformed to a Company with limited liability under the name of the Target PRC Company on 24 December 2015. The address of its registered office and principal place of business is Building B, Dalian International Ocean Building, No.6, Youhao Square, Zhongshan District, Dalian.

The Target PRC Company is principally engaged in tanker shipping business which provides oil and gas shipping services covering oil tanker shipping, LNG shipping and LPG shipping etc. The principal activities of its subsidiaries are set out in note 20 to the Financial Information.

As at 31 December 2013, 2014, 2015, in the opinion of the director of the Target PRC Company, China Ocean Shipping (Group) Company, a stated owned enterprise incorporated in the PRC, was the immediate parent and ultimate parent of the Target PRC Company.

2. BASIS OF PREPARATION

These financial information have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). HKFRSs comprise Hong Kong Financial Reporting Standards (“HKFRS”); Hong Kong Accounting Standards (“HKAS”); and Interpretations. These financial information also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange and with the disclosure requirements of the Hong Kong Companies Ordinance (Cap. 622).

3. EARLY ADOPTION/ADOPTION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS AND REQUIREMENTS

The Target PRC Group has early adopted amendments to HKAS 27 Equity Method in Separate Financial Statements which was effective for accounting periods on or after 1 January 2016. Amendments to HKAS 27 provide an accounting policy choice to allow the Target PRC Company to apply equity method to account for investment in joint ventures in the separate financial statements.

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THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

New and revised HKFRSs in issue but not yet effective that are relevant to the Target PRC Group’s operation

Other than early adoption of amendments to HKAS 27, the Target PRC Group has not early applied new and revised HKFRSs that have been issued but are not yet effective for the financial year beginning 1 January 2015. The director anticipates that the new and revised HKFRSs will be adopted in the Target PRC Group’s Financial Information when they become effective. The Target PRC Group is in the process of assessing, where applicable, the potential effect of all new and revised HKFRSs that will be effective in future periods but is not yet in a position to state whether these new and revised HKFRSs would have a material impact on its results of operations and financial position.

HKFRS 9 Financial Instruments[1] HKFRS 15 Revenue from Contracts with Customers[1] Amendments to HKAS 1 Disclosure Initiative[2] Amendments to HKFRSs Annual Improvements to HKFRSs 2012-2014 Cycle[2]

• 1 Effective for annual periods beginning on or after 1 January 2018, with earlier application permitted.

• 2 Effective for annual periods beginning on or after 1 January 2016, with earlier application permitted.

4. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared under the historical cost convention, unless mentioned otherwise in the accounting policies below (e.g. Certain financial instruments that are measured at fair value).

The preparation of Financial Information in conformity with HKFRSs requires the use of certain key assumptions and estimates. It also requires the director to exercise his judgement in the process of applying the accounting policies. The areas where assumptions and estimates are significant to the Financial Information are disclosed in note 5 to the Financial Information.

The significant accounting policies applied in the preparation of the Financial Information are set out below.

(a) Consolidation

The Financial Information includes the financial statements of the Target PRC Company and its subsidiaries made up to 31 December. Subsidiaries are entities over which the Target PRC Group has control. The Target PRC Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The Target PRC Group has power over an entity when the Target PRC Group has existing rights that give it the current ability to direct the relevant activities, i.e. activities that significantly affect the entity’s returns.

When assessing control, the Target PRC Group considers its potential voting rights as well as potential voting rights held by other parties. A potential voting right is considered only if the holder has the practical ability to exercise that right.

— III-14 —

APPENDIX III THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

Subsidiaries are consolidated from the date on which control is transferred to the Target PRC Group. It is de-consolidated from the date the control ceases.

The gain or loss on the disposal of a subsidiary that results in a loss of control represents the difference between (i) the fair value of the consideration of the sale plus the fair value of any investment retained in that subsidiary and (ii) the Target PRC Company’s share of the net assets of that subsidiary plus any remaining goodwill relating to that subsidiary and any related accumulated foreign currency translation reserve relating to that subsidiary.

Intragroup transactions, balances and unrealised profits are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of a subsidiary have been changed where necessary to ensure consistency with the policies adopted by the Target PRC Group.

Non-controlling interests represent the equity in subsidiaries not attributable, directly or indirectly, to the Target PRC Company. Non-controlling interests are presented in the consolidated statement of financial position and consolidated statement of changes in equity within equity. Non-controlling interests are presented in the consolidated statement of profit or loss and consolidated statement of profit or loss and other comprehensive income as an allocation of profit or loss and total comprehensive income for the year between the non-controlling shareholders and owners of the Target PRC Company.

Profit or loss and each component of other comprehensive income are attributed to the owners of the Target PRC Company and to the non-controlling shareholders even if this results in the non-controlling interests having a deficit balance.

Changes in the Target PRC Company’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions (i.e. transactions with owners in their capacity as owners). The carrying amounts of the controlling and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the Target PRC Company.

In the Target PRC Company’s statement of financial position the investment in a subsidiary is stated at cost less allowance for impairment losses. The results of a subsidiary are accounted for by the Target PRC Company on the basis of dividends received and receivable.

(b) Joint arrangements

A joint arrangement is an arrangement of which two or more parties have joint control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

— III-15 —

APPENDIX III

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

Relevant activities are activities that significantly affect the returns of the arrangement. When assessing joint control, the Target PRC Group considers its potential voting rights as well as potential voting rights held by other parties. A potential voting right is considered only if the holder has the practical ability to exercise that right.

A joint arrangement is either a joint operation or a joint venture. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. The Target PRC Group has assessed the type of each of its joint arrangements and determined them to all be joint ventures.

Investment in a joint venture is accounted for in the consolidated financial statements by the equity method and is initially recognised at cost. Identifiable assets and liabilities of the joint venture in an acquisition are measured at their fair values at the acquisition date. The excess of the cost of the investment over the Target PRC Group’s share of the net fair value of the joint venture’s identifiable assets and liabilities is recorded as goodwill. The goodwill is included in the carrying amount of the investment and is tested for impairment together with the investment at the end of each reporting period when there is objective evidence that the investment is impaired. Any excess of the Target PRC Group’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition is recognised in consolidated profit or loss.

The Target PRC Group’s share of a joint venture’s post-acquisition profits or losses and other comprehensive income is recognised in consolidated statement of profit or loss and other comprehensive income. When the Target PRC Group’s share of losses in a joint venture equals or exceeds its interest in the joint venture (which includes any long-term interests that, in substance, form part of the Target PRC Group’s net investment in the joint venture), the Target PRC Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint venture. If the joint venture subsequently reports profits, the Target PRC Group resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised.

The gain or loss on the disposal of a joint venture that results in a loss of joint control represents the difference between (i) the fair value of the consideration of the sale plus the fair value of any investment retained in that joint venture and (ii) the Target PRC Group’s entire carrying amount of that joint venture (including goodwill) and any related accumulated foreign currency translation reserve. If an investment in a joint venture becomes an investment in an associate, the Target PRC Group continues to apply the equity method and does not remeasure the retained interest.

Unrealised profits on transactions between the Target PRC Group and its joint ventures are eliminated to the extent of the Target PRC Group’s interests in the joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Target PRC Group.

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THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

• (c) Foreign currency translation

(i) Functional and presentation currency

Items included in the Financial Information of each of the Target PRC Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The Financial Information are presented in Renminbi (“RMB”), which is the presentation currency and the functional currency of the Target PRC Company.

(ii) Transactions and balances in each entity’s Financial Information

Transactions in foreign currencies are translated into the functional currency on initial recognition using the exchange rates prevailing on the transaction dates. Monetary assets and liabilities in foreign currencies are translated at the exchange rates at the end of each reporting period. Gains and losses resulting from this translation policy are recognised in profit or loss.

Non-monetary items that are measured at fair value in foreign currencies are translated using the exchange rates at the dates when the fair values are determined.

When a gain or loss on a non-monetary item is recognised in other comprehensive income, any exchange component of that gain or loss is recognised in other comprehensive income. When a gain or loss on a non-monetary item is recognised in profit or loss, any exchange component of that gain or loss is recognised in profit or loss.

(iii) Translation on consolidation

The results and financial position of all the Target PRC Group entities that have a functional currency different from the Target PRC Company’s presentation currency are translated into the Target PRC Company’s presentation currency as follows:

• Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position;

• Income and expenses are translated at average exchange rates for the period (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the exchange rates on the transaction dates); and

• All resulting exchange differences are recognised in other comprehensive income and accumulated in the foreign currency translation reserve.

— III-17 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

On consolidation, exchange differences arising from the translation of monetary items that form part of the net investment in foreign entities and of borrowings are recognised in other comprehensive income and accumulated in the foreign currency translation reserve. When a foreign operation is sold, such exchange differences are reclassified to consolidated profit or loss as part of the gain or loss on disposal.

(d) Property, plant and equipment

Property, plant and equipment, including buildings held for use in the production or supply of goods or services, or for administrative purposes (other than properties under construction as described below), are stated in the financial information at cost less subsequent accumulated depreciation and subsequent accumulated impairment losses.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Target PRC Group and the cost of the item can be measured reliably. All other repairs and maintenance are recognised in profit or loss during the period in which they are incurred.

Depreciation of property, plant and equipment is calculated at rates sufficient to write off their cost less their residual values over the estimated useful lives on a straight-line basis. The principal useful lives are as follows:

Vessels	20 years
Buildings	30 years
Motor vehicles	5 years
Office equipment	3 to 10 years
Plant and machinery	3 to 10 years
Software	5 to 10 years

The residual values, useful lives and depreciation methods are reviewed and adjusted, if appropriate, at the end of each reporting period.

Construction in progress represents vessels under construction and plant and equipment pending installation, and is stated at cost less impairment losses. Depreciation begins when the relevant assets are available for use.

The gain or loss on disposal of plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in profit or loss.

(e) Investment properties

Investment properties are land and/or buildings held to earn rentals and/or for capital appreciation. An investment property is measured initially at its cost including all direct costs attributable to the property.

— III-18 —

APPENDIX III THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

After initial recognition, the investment property is stated at cost less accumulated depreciation and impairment losses. The depreciation is calculated using the straight line method to allocate the cost to the residual value over its estimated useful life of 30 years.

If an investment property becomes owner-occupied or a property held for sale, it is reclassified as property, plant and equipment or inventories as appropriate, and its carrying amount at the date of reclassification becomes its cost for accounting purposes.

If an item of property, plant and equipment becomes an investment property because its use has changed, its carrying amount at the date of transfer is recognised as its cost of investment property.

The gain or loss on disposal of an investment property is the difference between the net sales proceeds and the carrying amount of the property, and is recognised in profit or loss.

(f) Leasehold land and land use rights

Leasehold land and land use rights classified as prepaid operating lease payments are stated at cost less accumulated amortisation and any impairment losses. Amortisation is calculated using the straight-line method to allocate the prepaid operating lease payments for land over the remaining lease term.

(g) Leases

The Target PRC Group as lessee

Operating lease

Leases that do not substantially transfer to the Target PRC Group all the risks and rewards of ownership of assets are accounted for as operating leases. Lease payments (net of any incentives received from the lessor) are recognised as an expense on a straight-line basis over the lease term.

The Target PRC Group as lessor

Operating leases

Leases that do not substantially transfer to the lessees all the risks and rewards of ownership of assets are accounted for as operating leases. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease.

— III-19 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

(h) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average basis. Net realisable value of bunkers is the expected amount to be realised from use as estimated by the director/management. Net realisable value of other inventories such as general merchandises, spare parts and consumable stores and marine supplies is determined on the basis of anticipated sales proceeds less estimated selling expenses.

(i) Recognition and derecognition of financial instruments

Financial assets and financial liabilities are recognised in the consolidated statement of financial position when the Target PRC Group becomes a party to the contractual provisions of the instruments.

Financial assets are derecognised when the contractual rights to receive cash flows from the assets expire; the Target PRC Group transfers substantially all the risks and rewards of ownership of the assets; or the Target PRC Group neither transfers nor retains substantially all the risks and rewards of ownership of the assets but has not retained control on the assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and the cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid is recognised in profit or loss.

(j) Financial assets

Financial assets are recognised and derecognised on a trade date basis where the purchase or sale of an financial asset is under a contract whose terms require delivery of the financial assets within the timeframe established by the market concerned, and are initially measured at fair value, plus directly attributable transaction costs except in the case of financial assets at fair value through profit or loss.

The Target PRC Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, and available-for-sale.

(i) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are either financial assets classified as held for trading or designated as at fair value through profit or loss upon initial recognition. These financial assets are subsequently measured at fair value. Gains or losses arising from changes in fair value of these financial assets are recognised in profit or loss.

— III-20 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These assets are carried at amortised cost using the effective interest method (except for short-term receivables where interest is immaterial) minus any reduction for impairment or uncollectibility. Typically trade and other receivables, bank balances and cash are classified in this category.

(iii) Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss. Available-for-sale financial assets are subsequently measured at fair value. Gains or losses arising from changes in fair value of these investments are recognised in other comprehensive income and accumulated in the investment revaluation reserve, until the investments are disposed of or there is objective evidence that the investments are impaired, at which time the cumulative gains or losses previously recognised in other comprehensive income are reclassified from equity to profit or loss. Interest calculated using the effective interest method and dividends on available-for-sale equity investments are recognised in profit or loss.

Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments, are measured at cost less impairment losses.

(k) Trade and other receivables

Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection of trade and other receivables is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment.

(l) Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents represent cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term highly liquid investments which are readily convertible into known amounts of cash and subject to an insignificant risk of change in value. Bank overdrafts which are repayable on demand and form an integral part of the Target PRC Group’s cash management are also included as a component of cash and cash equivalents.

— III-21 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

(m) Financial liabilities and equity instruments

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument under HKFRSs. An equity instrument is any contract that evidences a residual interest in the assets of the Target PRC Group after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below.

(i) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred, and subsequently measured at amortised cost using the effective interest method.

Borrowings are classified as current liabilities unless the Target PRC Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.

(ii) Trade and other payables

Trade and other payables are stated initially at their fair value and subsequently measured at amortised cost using the effective interest method unless the effect of discounting would be immaterial, in which case they are stated at cost.

(iii) Equity instruments

Equity instruments issued by the Target PRC Company are recorded at the proceeds received, net of direct issue costs.

• (iv) Derivative financial instruments

All derivatives are initially recognised and subsequently measured at fair value.

(n) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and is recognised when it is probable that the economic benefits will flow to the Target PRC Group and the amount of revenue can be measured reliably.

Chartered income from the operation of international and domestic containerised transportation business are recognised on a percentage-of-completion basis, which is determined on the time proportion method of each individual vessel voyage.

Restaurant and tourism income are recognised as services are rendered.

Interest income is accrued on a time-proportion basis, by reference to the principal outstanding and at the effective interest rate applicable.

— III-22 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

Dividend income is recognised when the shareholders’ rights to receive payment are established.

Rental income is recognised on a straight-line basis over the lease term.

(o) Employee benefits

• (i) Employee leave entitlements

Employee entitlements to annual leave and long service leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave and long service leave as a result of services rendered by employees up to the end of the reporting period.

Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.

(ii) Post-retirement and early retirement benefit costs

The Target PRC Group has both defined contribution retirement schemes and defined benefit retirement plans.

The Target PRC Group contributes to defined contribution retirement schemes which are available to all employees. Contribution to the scheme by the Target PRC Group and employees are calculated as a percentage of employees’ basic salaries. The retirement benefit scheme cost charged to profit or loss represents contributions payable by the Target PRC Group to the funds.

For the defined benefit retirement plans, the liability recognised in the statement of financial position in respect of defined benefit retirement plans is the present value of the defined benefit obligation at the statement of financial position. The defined benefit obligation is calculated annually by independent actuaries/management using the projected unit credit actuarial cost method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using discount rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related retirement benefit liability. The current service cost of the defined benefit plan, recognised in the statement of profit or loss in employee benefit expense, except where included in the cost of an asset, reflects the increase in the defined benefit obligation resulting from employee service in the current year, benefit changes, curtailments and settlements. Past-service costs are recognised immediately in the statement of profit or loss. The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation. The cost is included in employee benefit expense in the statement of profit or loss. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income directly in the period in which they arise. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. Employee early retirement benefits have been paid to those employees who accept voluntary retirement before the normal retirement date as approved by management. The related benefit payments are made from the date of early retirement through the normal retirement date.

— III-23 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

(iii) Termination benefits

Termination benefits are recognised at the earlier of the dates when the Target PRC Group can no longer withdraw the offer of those benefits and when the Target PRC Group recognises restructuring costs and involves the payment of termination benefits.

(p) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

To the extent that funds are borrowed generally and used for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalisation is determined by applying a capitalisation rate to the expenditures on that asset. The capitalisation rate is the weighted average of the borrowing costs applicable to the borrowings of the Target PRC Group that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset.

All borrowing costs are recognised in profit or loss in the period in which they are incurred.

(q) Government grants

A government grant is recognised when there is reasonable assurance that the Target PRC Group will comply with the conditions attaching to it and that the grant will be received.

Government grant relating to income are deferred and recognised in profit or loss over the period to match them with the costs they are intended to compensate.

Government grants relating to property, plant and equipment are included in non-current liabilities as deferred government subsidies and are credited to profit or loss on a straight-line basis over the expected lives of the related assets.

(r) Taxation

Income tax represents the sum of the current tax and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit recognised in profit or loss because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Target PRC Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

— III-24 —

APPENDIX III

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the Financial Information and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences, unused tax losses or unused tax credits can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investment in a subsidiary, except where the Target PRC Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax is recognised in profit or loss, except when it relates to items recognised in other comprehensive income or directly in equity, in which case the deferred tax is also recognised in other comprehensive income or directly in equity.

The measurement of deferred tax assets and liabilities reflects the tax consequences that would follow from the manner in which the Target PRC Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Target PRC Group intends to settle its current tax assets and liabilities on a net basis.

(s) Related parties

A related party is a person or entity that is related to the Target PRC Group.

• (A) A person or a close member of that person’s family is related to the Target PRC Group if that person:

• (i) has control or joint control over the Target PRC Group;

• (ii) has significant influence over the Target PRC Group; or

• (iii) is a member of the key management personnel of the Target PRC Company or of a parent of the Target PRC Company.

— III-25 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

• (B) An entity is related to the Target PRC Group if any of the following conditions applies:

• (i) The entity and the Target PRC Company are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

• (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).

• (iii) Both entities are joint ventures of the same third party.

• (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.

• (v) The entity is a post-employment benefit plan for the benefit of employees of either the Target PRC Group or an entity related to the Target PRC Group.

• (vi) The entity is controlled or jointly controlled by a person identified in (A).

• (vii) A person identified in (A)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

(t) Impairment of non-financial assets

The carrying amounts of non-financial assets are reviewed at each reporting date for indications of impairment and where an asset is impaired, it is written down as an expense through the consolidated statement of profit or loss to its estimated recoverable amount. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. If this is the case, recoverable amount is determined for the cash-generating unit to which the asset belongs. Recoverable amount is the higher of value in use and the fair value less costs of disposal of the individual asset or the cash-generating unit.

Value in use is the present value of the estimated future cash flows of the asset/cash-generating unit. Present values are computed using pre-tax discount rates that reflect the time value of money and the risks specific to the asset/cash-generating unit whose impairment is being measured.

(u) Impairment of financial assets

At the end of each reporting period, the Target PRC Group assesses whether its financial assets (other than those at fair value through profit or loss) are impaired, based on objective evidence that, as a result of one or more events that occurred after the initial recognition, the estimated future cash flows of the (group of) financial asset(s) have been affected.

— III-26 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

In addition, for trade receivables that are assessed not to be impaired individually, the Target PRC Group assesses them collectively for impairment, based on the Target PRC Group’s past experience of collecting payments, an increase in the delayed payments in the portfolio, observable changes in economic conditions that correlate with default on receivables, etc.

Only for trade receivables, the carrying amount is reduced through the use of an allowance account and subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

For all other financial assets, the carrying amount is directly reduced by the impairment loss.

For financial assets measured at amortised cost, if the amount of the impairment loss decreases in a subsequent period and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed (either directly or by adjusting the allowance account for trade receivables) through profit or loss. However, the reversal must not result in a carrying amount that exceeds what the amortised cost of the financial asset would have been had the impairment not been recognised at the date the impairment is reversed.

(v) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Target PRC Group has a present legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow is remote.

(w) Events after the reporting period

Events after the reporting period that provide additional information about the Target PRC Group’s position at the end of the reporting period are adjusting events and are reflected in the Financial Information. Events after the reporting period that are not adjusting events are disclosed in the notes to the Financial Information when material.

— III-27 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

5. CRITICAL JUDGEMENTS AND KEY ESTIMATES

Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

(a) Property, plant and equipment and depreciation

The Target PRC Group determines the estimated useful lives, residual values and related depreciation charges for the Target PRC Group’s property, plant and equipment. This estimate is based on the historical experience of the actual useful lives and residual values of property, plant and equipment of similar nature and functions. The Target PRC Group will revise the depreciation charge where useful lives and residual values are different to those previously estimated, or it will write-off or write-down technically obsolete or non-strategic assets that have been abandoned.

The carrying amount of property, plant and equipment as at 31 December 2013, 2014 and 2015 was approximately RMB10,110,214,000, RMB10,248,025,000 and RMB11,229,430,000 respectively.

(b) Income taxes

The Target PRC Group is subject to income taxes in several jurisdictions. Significant estimates are required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. During the years ended 31 December 2013, 2014 and 2015, income tax of approximately RMB9,682,000, RMB85,966,000 and RMB8,319,000 were charged to profit or loss based on the estimated profit.

(c) Impairment loss for bad and doubtful debts

The Target PRC Group makes impairment loss for bad and doubtful debts based on assessments of the recoverability of the trade and other receivables, including the current creditworthiness and the past collection history of each debtor. Impairments arise where events or changes in circumstances indicate that the balances may not be collectible. The identification of bad and doubtful debts, in particular of a loss event, requires the use of judgement and estimates. Where the actual result is different from the original estimate, such difference will impact the carrying value of the trade and other receivables and doubtful debt expenses in the year in which such estimate has been changed. If the financial conditions of the debtors were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

— III-28 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

As at 31 December 2013, 2014 and 2015, accumulated impairment loss for bad and doubtful debts amounted to approximately RMB61,645,000, RMB61,870,000 and RMB4,420,000 respectively.

(d) Provision for onerous contracts

The Target PRC Group estimates the provision for onerous contracts being the present value of the unavoidable costs less the economic benefits expected to be received under those non-cancellable chartered-in vessel contracts. The expected economic benefits are estimated based on contracted freight rates of associated chartered-out vessel contracts, and estimated future freight rates by reference to market statistics and information while unavoidable costs are estimated based on charterhire payments that the Target PRC Group is obliged to make under the non-cancellable chartered-in vessel contracts. As at 31 December 2014 and 2015, the Target PRC Group conducted an assessment of the non-cancellable chartered-in vessel contracts and had a provision of approximately RMB46,974,000 and RMB73,685,000 respectively.

(e) Actuarial assumptions on defined benefit retirement plans

Accounting for defined benefit plans may be complex because actuarial assumptions are required to measure the obligation and the expense, with the possibility that actual results differ from the assumed results. These differences are known as actuarial gains and losses. Defined benefits obligations are measured using projected unit credit actuarial cost method. As a result, the use of the projected unit credit actuarial cost method involves a number of actuarial assumptions. These assumptions include demographic assumptions such as mortality, retirement age and financial assumptions such as discount rates, salary and benefit levels. Such assumptions are subject to judgements and may develop materially differently than expected and therefore may result in significant impacts on defined benefits obligations.

The carrying amount of retirement benefits obligations as at 31 December 2015 was approximately RMB132,330,000.

6. FINANCIAL RISK MANAGEMENT

The Target PRC Group’s and Company’s activities expose it to a variety of financial risks: foreign currency risk, credit risk, liquidity risk and interest rate risk. The Target PRC Group’s and Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Target PRC Group’s and Company’s financial performance.

(a) Foreign currency risk

The Target PRC Group and Company have minimal exposure to foreign currency risk as most of its business transactions, assets and liabilities are principally denominated in the functional currencies of the Target PRC Group entities, RMB.

— III-29 —

APPENDIX III

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

The Target PRC Group and Company exposed to foreign currency risk in relation to borrowings denominated in USD. The sensitivity analysis below has been determined assuming that the change in exchange rate had occurred at the end of the reporting periods and all other variables were held constant. Such change has been applied to the borrowings that would have affected the profit or loss. Strengthen of RMB against USD and weakened of RMB against USD was applied at the end of the reporting periods. The applied change in exchange rate represented management’s assessment of the reasonably possible change in exchange rate based on the current market conditions.

The Target PRC Group

					**Increase / **	(decrease) in
					post-tax profit or loss
					RMB +3%	RMB -3%
					against USD	against USD
					RMB’000	RMB’000
As	at	31	December	2013	235,703	(235,703)
As	at	31	December	2014	249,831	(249,831)
As	at	31	December	2015	238,350	(238,350)

The Target PRC Company

					**Increase / **	(decrease) in
					post-tax profit or loss
					RMB +3%	RMB -3%
					against USD	against USD
					RMB’000	RMB’000
As	at	31	December	2013	171,531	(171,531)
As	at	31	December	2014	160,963	(160,963)
As	at	31	December	2015	104,602	(104,602)

The Target PRC Group and Company currently do not have a foreign currency hedging policy in respect of foreign currency transactions, assets and liabilities. The Target PRC Group and Company monitor its foreign currency exposure closely and will consider hedging significant foreign currency exposure should the need arise.

— III-30 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

(b) Credit risk

The credit risk on cash and bank balances is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

(c) Liquidity risk

The Target PRC Group’s and Company’s policy are to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and longer term.

The maturity analysis of the Target PRC Group’s and Company’s financial liabilities are as follows:

The Target PRC Group

On demand or less than 1 year RMB’000 At 31 December 2013 Trade and other payables 1,325,789 Provision and other liabilities 97,381 Borrowings 1,806,772 At 31 December 2014 Trade and other payables 1,190,291 Provision and other liabilities 106,027 Borrowings 1,783,468 At 31 December 2015 Trade and other payables 687,397 Provision and other liabilities 60,599 Borrowings 3,159,816	Between 1 and 2 years RMB’000 — 23,362 977,213 — 19,126 3,635,677 — 15,327 1,755,912	Between 2 and 5 years RMB’000 — — 4,624,548 — — 3,149,835 — — 3,329,191	Over 5 years Total undiscounted cash outflow RMB’000 RMB’000 — 1,325,789 — 120,743 3,228,456 10,636,989 — 1,190,291 — 125,153 2,440,758 11,009,738 — 687,397 — 75,926 2,793,989 11,038,908	Over 5 years Total undiscounted cash outflow RMB’000 RMB’000 — 1,325,789 — 120,743 3,228,456 10,636,989 — 1,190,291 — 125,153 2,440,758 11,009,738 — 687,397 — 75,926 2,793,989 11,038,908
				1,190,291 125,153 11,009,738
				687,397 75,926 11,038,908

— III-31 —

APPENDIX III

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

The Target PRC Company

On demand or less than 1 year RMB’000 At 31 December 2013 Trade and other payables 863,329 Provision and other liabilities 87,681 Borrowings 910,403 At 31 December 2014 Trade and other payables 783,682 Provision and other liabilities 94,435 Borrowings 873,596 At 31 December 2015 Trade and other payables 1,420,322 Provision and other liabilities 52,470 Borrowings 2,378,281	Between 1 and 2 years RMB’000 — 23,362 273,778 — 19,126 2,698,689 — 15,327 334,050	Between 2 and 5 years Over 5 years Total undiscounted cash outflow RMB’000 RMB’000 RMB’000 — — 863,329 — — 111,043 2,811,480 — 3,995,661 — — 783,682 — — 113,561 420,477 40,203 4,032,965 — — 1,420,322 — — 67,797 931,856 934,162 4,578,349	Between 2 and 5 years Over 5 years Total undiscounted cash outflow RMB’000 RMB’000 RMB’000 — — 863,329 — — 111,043 2,811,480 — 3,995,661 — — 783,682 — — 113,561 420,477 40,203 4,032,965 — — 1,420,322 — — 67,797 931,856 934,162 4,578,349
			783,682 113,561 4,032,965
			1,420,322 67,797 4,578,349

The following table details the Target PRC Group’s and Company’s liquidity analysis for its derivative financial instruments. The table has been drawn up based on the undiscounted contractual net cash inflows and outflows on derivative instruments that settle on a net basis.

The Target PRC Group and the Target PRC Company

		Between	Between
	Less than	1 and 2	2 and 5	Over
	1 year	years	years	5 years	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
At 31 December 2013
Derivative — net settlement
Interest rate swap	30,893	15,757	3,750	—	50,400
At 31 December 2014
Derivative — net settlement
Interest rate swap	15,757	3,750	—	—	19,507
At 31 December 2015
Derivative — net settlement
Interest rate swap	3,750	—	—	—	3,750

— III-32 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

(d) Interest rate risk

The Target PRC Group and Company exposed to fair value interest rate risks in relation to the following fixed-rate financial instruments:

The Target PRC Group

Fixed-rate financial assets: Cash and cash equivalents Fixed-rate financial liabilities: Borrowings The Target PRC Company Fixed-rate financial assets: Cash and cash equivalents Fixed-rate financial liabilities: Borrowings	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 1,105,346 635,322 1,234,386 620,000 570,000 773,490 As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 1,038,322 605,322 1,018,988 620,000 570,000 400,000	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 1,105,346 635,322 1,234,386 620,000 570,000 773,490 As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 1,038,322 605,322 1,018,988 620,000 570,000 400,000
		400,000

The Target PRC Group and Company exposed to cash flow interest rate risk in relation to the following variable-rate financial instruments which bear interests at variable rates varied with the then prevailing market condition:

The Target PRC Group

Variable-rate financial assets: Cash and cash equivalents Variable-rate financial liabilities: Borrowings	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 1,164,358 1,520,017 1,588,662 8,960,936 9,476,017 9,044,507	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 1,164,358 1,520,017 1,588,662 8,960,936 9,476,017 9,044,507
		9,044,507

— III-33 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

The Target PRC Company

Variable-rate financial assets: Cash and cash equivalents Variable-rate financial liabilities: Borrowings	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 933,633 671,605 882,187 3,170,693 3,271,431 3,527,039	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 933,633 671,605 882,187 3,170,693 3,271,431 3,527,039
		3,527,039

The sensitivity analysis below has been determined assuming that the change in interest rates had occurred at the end of the reporting periods and all other variables were held constant. Such change has been applied to financial instruments that would have affected the profit or loss. A change of +100 basis points (“bps”) and -100 bps was applied at the end of the reporting periods. The applied change of bps represented management’s assessment of the reasonably possible change in interest rates based on the current market conditions.

The Target PRC Group

	Increase / (decrease) in	Increase / (decrease) in
	post-tax profit or loss
	+100 bps	-100 bps
	RMB’000	RMB’000
As at 31 December 2013	(77,966)	77,966
As at 31 December 2014	(79,560)	79,560
As at 31 December 2015	(74,558)	74,558
The Target PRC Company
	Increase / (decrease) in
	post-tax profit or loss
	+100 bps	-100 bps
	RMB’000	RMB’000
As at 31 December 2013	(22,371)	22,371
As at 31 December 2014	(25,998)	25,998
As at 31 December 2015	(26,449)	26,449

— III-34 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

• (e) Categories of financial instruments at 31 December 2013, 2014 and 2015

The Target PRC Group

Financial assets: Loans and receivables (including cash and cash equivalents) Available-for-sale financial assets Financial liabilities: Derivative financial liabilities Financial liabilities measured at amortised cost The Target PRC Company Financial assets: Loans and receivables (including cash and cash equivalents) Available-for-sale financial assets Financial liabilities: Derivative financial liabilities Financial liabilities measured at amortised cost	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 2,828,389 2,805,613 3,448,786 55,700 55,700 127,808 32,243 18,578 3,750 11,027,469 11,361,461 10,581,320 As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 2,806,022 2,180,917 1,994,101 55,700 55,700 127,808 32,243 18,578 3,750 4,765,066 4,738,855 2,438,919	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 2,828,389 2,805,613 3,448,786 55,700 55,700 127,808 32,243 18,578 3,750 11,027,469 11,361,461 10,581,320 As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 2,806,022 2,180,917 1,994,101 55,700 55,700 127,808 32,243 18,578 3,750 4,765,066 4,738,855 2,438,919
		3,750 2,438,919

(f) Fair value

The carrying amounts of the Target PRC Group’s financial assets and financial liabilities as reflected in the consolidated statement of financial position approximate their respective fair values.

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THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

7. FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following disclosures of fair value measurements use a fair value hierarchy that categorises into three levels the inputs to valuation techniques used to measure fair value:

Level 1 inputs: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Target PRC Group can access at the measurement date.

Level 2 inputs: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 inputs: unobservable inputs for the asset or liability.

The Target PRC Group’s policy is to recognise transfers into and transfers out of any of the three levels as of the date of the event or change in circumstances that caused the transfer.

(a) Disclosures of level in fair value hierarchy:

	At 31 December 2013
	Fair value
	measurement using:
Description	Level 2
	RMB’000
Recurring fair value measurements:
Financial liabilities
Derivatives
Interest rate swap contract	32,243
Total recurring fair value measurements	32,243

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THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

	At 31 December 2014
	Fair value
	measurement using:
Description	Level 2
	RMB’000
Recurring fair value measurements:
Financial liabilities
Derivatives
Interest rate swap contract	18,578
Total recurring fair value measurements	18,578
	At 31 December 2015
	Fair value
	measurement using:
Description	Level 2
	RMB’000
Recurring fair value measurements:
Financial liabilities
Derivatives
Interest rate swap contract	3,750
Total recurring fair value measurements	3,750

• (b) Disclosure of valuation process used by the Target PRC Group and valuation techniques and inputs used in fair value measurements:

The Target PRC Group’s financial controller is responsible for the fair value measurements of assets and liabilities required for financial reporting purposes, including level 3 fair value measurements. The financial controller reports directly to the director of the Target PRC Group for these fair value measurements. Discussions of valuation processes and results are held between the financial controller and the director at least twice a year.

			As at 31 December	As at 31 December	As at 31 December
		2013		2014	2015
		RMB’000	RMB’000		RMB’000
**Level 2 fair value **	measurements
Description	Basis of fair value measurement
Derivatives interest
rate swaps	Using broker quotes	32,243		18,578	3,750

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THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

8. REVENUE

An analysis of the Target PRC Group’s revenue for the year ended 31 December 2013, 2014 and 2015 is as follows:

Chartered income Restaurant and tourism income Service fee income	Year ended 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 3,456,366 4,007,635 4,797,749 135,485 100,335 — 15,862 18,577 22,638 3,607,713 4,126,547 4,820,387	Year ended 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 3,456,366 4,007,635 4,797,749 135,485 100,335 — 15,862 18,577 22,638 3,607,713 4,126,547 4,820,387
		4,820,387

Restaurant and tourism income included insignificant gross rental income from investment properties.

9. INVESTMENT AND OTHER INCOME

	**Year **	ended 31 December	ended 31 December
	2013	2014	2015
	RMB’000	RMB’000	RMB’000
Interest income	26,419	31,126	21,174
Dividend income	8,149	8,290	22,465
Government subsidies	10,335	192,696	197,696
Others	2,494	2,542	12,638
	47,397	234,654	253,973

The Target PRC Group recognises the government subsidies when it fulfils all the conditions specified in the subsidy notice or relevant law and regulations. For the year ended 31 December 2013, the Target PRC Group received once-off subsidies of RMB10,000,000 in respect of encouragement of energy conservation and reduction of pollution emission. The Target PRC Group received subsidies of approximately RMB190,350,000 and RMB197,580,000 for the years ended 31 December 2014 and 31 December 2015 respectively from the Ministry of Finance (“MOF”) in respect of the expenses incurred related to demolition of vessels.

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THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

10. OTHER GAINS AND LOSSES

	**Year **	ended 31 December	ended 31 December
	2013	2014	2015
	RMB’000	RMB’000	RMB’000
Net foreign exchange gains/(losses)	50,888	(7,541)	(117,250)
Impairment losses on trade and other receivables	(2,721)	(225)	(1,175)
Fair value gains on financial liabilities, unrealised	17,144	13,664	14,828
Fair value losses on financial liabilities, realised	(15,058)	(30,893)	(15,757)
Gain on disposals of property, plant and equipment	2,608	508	21,207
Loss on disposals of property, plant and equipment	(72,289)	(89,544)	(69,121)
	(19,428)	(114,031)	(167,268)

11. SEGMENT INFORMATION

Operating segments are identified on the basis of internal reports about components of the Target PRC Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance.

The Target PRC Group mainly carried on a single business, which is the tanker shipping business, and all the assets are principally located in the PRC. Accordingly, there is only one single material reportable segment of the Target PRC Group which is regularly reviewed by the chief operating decision maker.

The Target PRC Group’s other operating segments include provision of shipping agency and management services, properties development and investment in hotel properties. None of these segments meets any of the quantitative thresholds for determining reportable segments. The information of these other operating segments is included in the ‘others’ column.

Segment profits or losses do not include unallocated administrative expenses, share of profits of joint ventures, investment and other income, other gains and losses, finance costs and income tax expense. Segment assets do not include interests in joint ventures, current and deferred tax assets. Segment liabilities do not include derivative instruments, borrowings, current and deferred tax liabilities. Segment non-current assets do not include financial instruments and deferred tax assets.

The Target PRC Group accounts for intersegment sales as if the sales were to third parties, i.e. at current market price.

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THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

Information about reportable segment revenue, profit or loss, assets and liabilities:

	Tanker
	shipping	All other
	business	segments	Total
	RMB’000	RMB’000	RMB’000
Year ended 31 December 2013
Revenue from external customers	3,456,366	151,347	3,607,713
Intersegment revenue	137,485	—	137,485
Segment loss	(780,484)	(49,454)	(829,938)
Other information
Depreciation and amortisation	559,523	41,216	600,739
As at 31 December 2013
Segment assets	13,313,952	986,394	14,300,346
Segment liabilities	1,426,769	747,134	2,173,903
Year ended 31 December 2014
Revenue from external customers	4,007,635	118,912	4,126,547
Intersegment revenue	159,164	—	159,164
Segment loss	(263,293)	(33,540)	(296,833)
Other information
Depreciation and amortisation	536,047	39,921	575,968
As at 31 December 2014
Segment assets	13,692,054	941,939	14,633,993
Segment liabilities	1,348,271	842,745	2,191,016
Year ended 31 December 2015
Revenue from external customers	4,797,749	22,638	4,820,387
Intersegment revenue	214,992	—	214,992
Segment profit	832,476	551	833,027
Other information
Depreciation and amortisation	558,606	—	558,606
As at 31 December 2015
Segment assets	15,193,520	9,873	15,203,393
Segment liabilities	1,073,879	1,416	1,075,295

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THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

Reconciliations of segment revenue and profit or loss:

Revenue Total revenue of reportable segments Elimination of intersegment revenue Consolidated revenue Profit or loss Total profit or loss of reportable segments Share of profits of joint ventures Unallocated amounts: Finance costs Investment and other income Other gains and losses Consolidated (loss)/profit before tax Reconciliations of segment assets and liabilities: Assets Total assets of reportable segments Elimination of intersegment assets Unallocated Investment in joint ventures Available-for-sale financial assets Other assets Deferred tax assets Consolidated total assets	2013 RMB’000 3,745,198 (137,485) 3,607,713 2013 RMB’000 (829,938) 118,872 (251,799) 47,397 (19,428) (934,896) 2013 RMB’000 14,300,346 (720,142) 878,536 55,700 23,437 61,235 14,599,112	2014 RMB’000 4,285,711 (159,164) 4,126,547 2014 RMB’000 (296,833) 122,042 (263,780) 234,654 (114,031) (317,948) 2014 RMB’000 14,633,993 (816,102) 1,200,230 55,700 64,188 54,056 15,192,065	2015 RMB’000 5,035,379 (214,992) 4,820,387 2015 RMB’000 833,027 151,254 (254,529) 253,973 (167,268) 816,457 2015 RMB’000 15,203,393 — 1,785,102 127,808 117,200 5,332 17,238,835

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THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

Liabilities Total liabilities of reportable segments Elimination of intersegment liabilities Unallocated Retirement benefit obligations Derivative financial liabilities Borrowings Other liabilities Current tax liabilities Deferred tax liabilities Consolidated total liabilities	2013 RMB’000 2,173,903 (720,142) — 32,243 9,580,936 17,010 2,470 1,737 11,088,157	2014 RMB’000 2,191,016 (816,102) — 18,578 10,046,017 19,546 68 80,321 11,539,444	2015 RMB’000 1,075,295 — 132,330 3,750 9,817,997 23,582 1,743 74,550
			11,129,247

Geographical information:

The Target PRC Group’s revenue from continuing operations from external customers by location of operations and information about its non-current assets by location of assets are detailed below:

2013 RMB’000 Hong Kong 1,642,128 PRC 620,524 Singapore 410,406 United States 228,057 Others 706,598 Consolidated total 3,607,713 Revenue from major customers: Tanker shipping business segment Customer a	Revenue 2014 RMB’000 1,486,349 768,405 722,532 345,082 804,179 4,126,547	2015 RMB’000 1,132,810 1,118,197 716,811 688,097 1,164,472	2015 RMB’000 1,132,810 1,118,197 716,811 688,097 1,164,472	2015 RMB’000 1,132,810 1,118,197 716,811 688,097 1,164,472	assets 2015 RMB’000 5,202,879 8,063,411 — — —
		4,820,387	11,238,006	11,840,603	13,266,290
					2015 RMB’000 1,108,236

Except for customer a, no customers have contributed over 10% of the total revenue of the Target PRC Group for the years ended 31 December 2013, 2014 and 2015.

— III-42 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

12. FINANCE COSTS

Total interest on bank and other borrowings Amount capitalised	Year ended 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 251,799 264,406 260,643 — (626) (6,114) 251,799 263,780 254,529	Year ended 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 251,799 264,406 260,643 — (626) (6,114) 251,799 263,780 254,529
		254,529

The weighted average capitalisation rate on funds borrowed generally is at rates of 0.2% per annum and 2.3% per annum for the years ended 31 December 2014 and 31 December 2015 respectively.

13. INCOME TAX EXPENSE

	**Year **	ended 31 December	ended 31 December
	2013	2014	2015
	RMB’000	RMB’000	RMB’000
PRC Enterprise Income Tax:
Current tax	1,517	214	2,248
(Over)/under-provision in prior years	—	(11)	4
	1,517	203	2,252
Deferred tax (note 31)	8,165	85,763	6,067
	9,682	85,966	8,319

Under the Law of PRC on Enterprise Income Tax (the “EIT Law”) and Implementation Regulation of the EIT Law, the Target PRC Company and its PRC subsidiaries are subject to tax rate at 25% during the years ended 31 December 2013, 2014 and 2015.

— III-43 —

APPENDIX III

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

The reconciliation between the income tax expense and the product of profit before tax multiplied by the PRC Enterprise Income Tax rate is as follows:

(Loss)/Profit before tax Tax at the PRC Enterprise Income Tax rate of 25% Tax effect of income that is not taxable Tax effect of expenses that are not deductible Tax effect of temporary differences not recognised Tax effect of tax losses not recognised Tax effect of utilisation of tax losses not previously recognised (Over)/under-provision in prior years Income tax expense	Year ended 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 (934,896) (317,948) 816,457 (233,724) (79,487) 204,114 (400,709) (453,809) (512,882) 430,530 432,387 353,202 44,502 50,896 17,890 169,083 135,990 — — — (54,009) — (11) 4 9,682 85,966 8,319	Year ended 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 (934,896) (317,948) 816,457 (233,724) (79,487) 204,114 (400,709) (453,809) (512,882) 430,530 432,387 353,202 44,502 50,896 17,890 169,083 135,990 — — — (54,009) — (11) 4 9,682 85,966 8,319
		204,114 (512,882) 353,202 17,890 — (54,009) 4
		8,319

14. (LOSS)/PROFIT FOR THE YEAR

The Target PRC Group’s (loss)/profit for the year is stated after charging the following:

	**Year **	ended 31 December	ended 31 December
	2013	2014	2015
	RMB’000	RMB’000	RMB’000
Auditors’ remuneration	992	1,057	913
Amortisation of prepaid land lease payment	1,167	1,167	1,470
Cost of services	4,181,124	4,173,438	3,718,477
Depreciation	599,572	574,801	557,136
Minimum lease payments paid under operating
leases during the year in respect of vessels and
office premises	874,989	938,306	1,026,517
Staff costs:
Director’s emoluments	776	832	1,501
Other staff costs
- Salaries and other benefits	334,572	331,203	363,388
- Retirement benefits contributions and staff
welfares	184,298	177,919	155,368
	519,646	509,954	520,257
Impairment losses on trade and other receivables	2,721	225	1,175

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THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

Cost of services includes staff costs, depreciation and operating lease charges of approximately RMB1,771,574,000, RMB1,806,754,000 and RMB1,840,644,000, which are included in the amounts disclosed separately for the years ended 31 December 2013, 2014 and 2015 respectively.

15. EMPLOYEE BENEFITS EXPENSES

	**Year **	ended 31 December	ended 31 December
	2013	2014	2015
	RMB’000	RMB’000	RMB’000
Employee benefits expense:
Salaries, bonuses and allowances	335,248	331,928	364,780
Retirement benefit contributions and staff welfares	184,398	178,026	155,477
	519,646	509,954	520,257

Five highest paid individuals

The five highest paid individuals in the Target PRC Group during the year included 1 (2014: 1) (2013: 1) director whose emoluments is reflected in the analysis presented in note 16. The emoluments of the remaining 4 (2014: 4) (2013: 4) individuals are set out below:

	**Year **	ended 31 December	ended 31 December
	2013	2014	2015
	RMB’000	RMB’000	RMB’000
Basic salaries and allowances	2,339	2,253	1,024
Discretionary bonus	384	274	3,708
Retirement benefit contributions and staff welfares	399	427	435
	3,122	2,954	5,167

The emoluments fell within the following band:

Nil to HK$1,000,000 HK$1,000,001-HK$1,500,000 HK$1,500,001-HK$2,000,000	Number of individuals 2013 2014 2015 2 4 — 2 — 3 — — 1 4 4 4	Number of individuals 2013 2014 2015 2 4 — 2 — 3 — — 1 4 4 4
		4

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THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

16. BENEFITS AND INTERESTS OF DIRECTOR

Director’s emoluments

Mr. Zhu Jianhui is the sole director of the Target PRC Company. His remuneration is set out below:

Emoluments paid or receivable in respect of a person’s services as a director, whether of the Target PRC Company or its subsidiary undertaking

				Employer’s
				contribution to
				a retirement
			Discretionary	benefit scheme
	Fees	Salaries	bonus	and welfares	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Mr. Zhu Jianhui
Year 2013	—	297	379	100	776
Year 2014	—	301	424	107	832
Year 2015	—	301	1,091	109	1,501

• (a) During the Relevant Periods, no emoluments were paid by the Target PRC Group to the director of the Target PRC Company or the five highest paid individuals as an inducement to join or upon joining the Target PRC Group or as compensation for loss of office. In addition, no director waived any emoluments during the Relevant Periods.

• (b) No significant transactions, arrangements and contracts in relation to the Target PRC Group’s business to which the Target PRC Company was a party and in which a director of the Target PRC Company and the director’s connected party had a material interest, whether directly or indirectly, subsisted at the end of the Relevant Periods or at any time during the Relevant Periods.

— III-46 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

17. PROPERTY, PLANT AND EQUIPMENT

(a) The Target PRC Group

Vessels and motor vehicles RMB’000 Cost At 1 January 2013 13,145,015 Additions 724 Disposals (829,305) Transfer to investment properties — Exchange differences (168,301) At 31 December 2013 and 1 January 2014 12,148,133 Additions 684 Disposals (328,898) Transfers 517,239 Exchange differences 19,721 At 31 December 2014 and 1 January 2015 12,356,879 Additions 1,595 Disposals (562,920) Transfer from investment properties — Transfer to investment properties — Transfers 2,033,595 Dividend in specie (note 37) (10,481) Revaluation of assets (note 38) (1,542,800) Exchange differences 356,860 At 31 December 2015 12,632,728	Buildings RMB’000 1,990,533 299 (1,429) (37,205) — 1,952,198 405 (35) — — 1,952,568 685 (81) 37,331 (7,454) — (1,560,551) (35,106) — 387,392	Office equipment RMB’000 33,092 926 (1,039) — (35) 32,944 1,543 (8,647) — 5 25,845 345 (1,835) — — (520) (6,248) (7,842) 22 9,767	Plant and machinery RMB’000 21,899 847 (55) — — 22,691 1,804 (1,083) — — 23,412 1,521 (2,803) — — 2,837 (93) (3,518) — 21,356	Software Construction in progress RMB’000 RMB’000 30,388 — 878 395,255 (10) — — — — (1,276) 31,256 393,979 428 778,566 — — — (517,239) — (101) 31,684 655,205 330 1,757,670 (2,620) — — — — — — (2,035,912) (4,031) — (9,486) 159,547 — 24,620 15,877 561,130	Total RMB’000 15,220,927 398,929 (831,838) (37,205) (169,612)
					14,581,201 783,430 (338,663) — 19,625
					15,045,593 1,762,146 (570,259) 37,331 (7,454) — (1,581,404) (1,439,205) 381,502
					13,628,250

— III-47 —

APPENDIX III

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

	Vessels and
	motor		Office	Plant and		Construction
	vehicles	Buildings	equipment	machinery	Software	in progress	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Accumulated depreciation
and impairment
At 1 January 2013	3,721,493	830,764	29,241	11,390	19,347	—	4,612,235
Charge for the year	538,201	48,843	2,065	1,563	3,686	—	594,358
Disposals	(693,460)	(507)	(1,039)	(55)	(10)	—	(695,071)
Transfer to investment
properties	—	(5,263)	—	—	—	—	(5,263)
Exchange differences	(35,240)	—	(32)	—	—	—	(35,272)
At 31 December 2013 and
1 January 2014	3,530,994	873,837	30,235	12,898	23,023	—	4,470,987
Charge for the year	515,186	48,361	1,822	1,674	2,616	—	569,659
Disposals	(237,010)	(34)	(8,647)	(1,083)	—	—	(246,774)
Exchange differences	3,693	—	3	—	—	—	3,696
At 31 December 2014 and
1 January 2015	3,812,863	922,164	23,413	13,489	25,639	—	4,797,568
Charge for the year	527,238	14,293	1,149	5,748	7,434	—	555,862
Disposals	(300,783)	(81)	(1,777)	(2,464)	(2,620)	—	(307,725)
Transfer from investment
properties	—	9,084	—	—	—	—	9,084
Transfer to investment
properties	—	(189)	—	—	—	—	(189)
Transfers	(1,856)	—	(520)	2,376	—	—	—
Dividend in specie (note 37)	(10,381)	(828,462)	(5,897)	(93)	(2,099)	—	(846,932)
Revaluation of assets
(note 38)	(1,780,305)	(87,264)	(8,807)	(7,575)	(24,821)	—	(1,908,772)
Exchange differences	99,902	—	22	—	—	—	99,924
At 31 December 2015	2,346,678	29,545	7,583	11,481	3,533	—	2,398,820
Carrying amount
At 31 December 2013	8,617,139	1,078,361	2,709	9,793	8,233	393,979	10,110,214
At 31 December 2014	8,544,016	1,030,404	2,432	9,923	6,045	655,205	10,248,025
At 31 December 2015	10,286,050	357,847	2,184	9,875	12,344	561,130	11,229,430

At 31 December 2013, 2014 and 2015, the carrying amount of property, plant and equipment pledged as security for the Target PRC Group’s bank loans amounted to approximately RMB5,296,741,000, RMB4,756,933,000 and RMB4,566,853,000 respectively.

— III-48 —

APPENDIX III

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

(b) The Target PRC Company

	Vessels and
	motor		Office	Plant and		Construction
	vehicles	Buildings	equipment	machinery	Software	in progress	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Cost
At 1 January 2013	6,508,690	431,673	22,852	21,719	26,921	—	7,011,855
Additions	371,507	299	892	846	656	316,244	690,444
Disposals	(370,933)	(23)	(902)	—	(10)	—	(371,868)
Transfer to investment properties	—	(37,205)	—	—	—	—	(37,205)
At 31 December 2013 and
1 January 2014	6,509,264	394,744	22,842	22,565	27,567	316,244	7,293,226
Additions	6,052	405	1,432	1,782	85	603,591	613,347
Disposals	(1,704,877)	(35)	(5,926)	(1,051)	—	—	(1,711,889)
Transfers	446,682	—	—	—	—	(446,682)	—
At 31 December 2014 and
1 January 2015	5,257,121	395,114	18,348	23,296	27,652	473,153	6,194,684
Additions	1,594	685	308	1,520	317	903,194	907,618
Disposals	(562,920)	(81)	(723)	(2,803)	(2,620)	—	(569,147)
Transfer from investment properties	—	37,331	—	—	—	—	37,331
Transfer to investment properties	—	(7,454)	—	—	—	—	(7,454)
Transfers	1,498,461	—	(520)	2,837	—	(1,500,778)	—
Dividend in specie (note 37)	—	(4,032)	—	—	—	—	(4,032)
Revaluation of assets (note 38)	(1,542,800)	(35,106)	(7,842)	(3,518)	(9,486)	159,547	(1,439,205)
At 31 December 2015	4,651,456	386,457	9,571	21,332	15,863	35,116	5,119,795
Accumulated depreciation and
impairment
At 1 January 2013	1,865,608	74,524	20,275	11,235	17,976	—	1,989,618
Charge for the year	516,164	13,575	1,525	1,542	3,330	—	536,136
Disposals	(239,419)	(20)	(902)	—	(10)	—	(240,351)
Transfer to investment properties	—	(5,263)	—	—	—	—	(5,263)
At 31 December 2013 and
1 January 2014	2,142,353	82,816	20,898	12,777	21,296	—	2,280,140
Charge for the year	261,932	13,104	1,314	1,669	2,243	—	280,262
Disposals	(465,624)	(34)	(5,926)	(1,051)	—	—	(472,635)
At 31 December 2014 and
1 January 2015	1,938,661	95,886	16,286	13,395	23,539	—	2,087,767
Charge for the year	211,164	14,267	1,119	5,748	7,432	-—	239,730
Disposals	(300,783)	(81)	(665)	(2,464)	(2,620)	—	(306,613)
Transfer from investment properties	—	9,084	—	—	—	—	9,084
Transfer to investment properties	—	(189)	—	—	—	—	(189)
Transfers	(1,856)	—	(520)	2,376	—	—	—
Dividend in specie (note 37)	—	(2,927)	—	—	—	—	(2,927)
Revaluation of assets (note 38)	(1,780,305)	(87,264)	(8,807)	(7,575)	(24,821)	—	(1,908,772)
At 31 December 2015	66,881	28,776	7,413	11,480	3,530	—	118,080
Carrying amount
At 31 December 2013	4,366,911	311,928	1,944	9,788	6,271	316,244	5,013,086
At 31 December 2014	3,318,460	299,228	2,062	9,901	4,113	473,153	4,106,917
At 31 December 2015	4,584,575	357,681	2,158	9,852	12,333	35,116	5,001,715

— III-49 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

18. PREPAID LAND LEASE PAYMENTS

(a) The Target PRC Group

The Target Group’s interests in prepaid land lease payments represent prepaid operating lease payments and their net book value are analysed as follows:

	2013	2014	2015
	RMB’000	RMB’000	RMB’000
At 1 January	43,668	42,501	41,334
Amortisation of prepaid land lease payments	(1,167)	(1,167)	(1,470)
Revaluation of assets (note 38)	—	—	42,113
At 31 December	42,501	41,334	81,977
(b) The Target PRC Company
	2013	2014	2015
	RMB’000	RMB’000	RMB’000
At 1 January	43,290	42,133	40,975
Amortisation of prepaid land lease payments	(1,157)	(1,158)	(1,459)
Revaluation of assets (note 38)	—	—	42,113
At 31 December	42,133	40,975	81,629

— III-50 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

19. INVESTMENT PROPERTIES

(a) The Target PRC Group

2013 2014 RMB’000 RMB’000 Cost At 1 January 174,939 200,219 Disposals (11,925) — Transfer from property, plant and equipment 37,205 — Transfer to property, plant and equipment — — Dividend in specie (note 37) — — Revaluation of assets (note 38) — — At 31 December 200,219 200,219 Accumulated depreciation and impairment loss At 1 January 87,172 91,206 Charge for the year 5,214 5,142 Disposals (6,443) — Transfer from property, plant and equipment 5,263 — Transfer to property, plant and equipment — — Dividend in specie (note 37) — — At 31 December 91,206 96,348 Carrying amount 109,013 103,871

2015 RMB’000 200,219 — 7,454 (37,331) (163,014) 126 7,454 96,348 1,274 — 189 (9,084) (88,538) 189 7,265

At 31 December 2013, 2014 and 2015, the carrying amount of investment properties pledged as security for the Target PRC Group’s bank loans amounted to approximately RMB78,344,000, RMB74,476,000 and RMB Nil respectively.

— III-51 —

APPENDIX III

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

(b) The Target PRC Company

	2013	2014	2015
	RMB’000	RMB’000	RMB’000
Cost
At 1 January	—	37,205	37,205
Transfer from property, plant and equipment	37,205	—	7,454
Transfer to property, plant and equipment	—	—	(37,331)
Revaluation of assets (note 38)	—	—	126
At 31 December	37,205	37,205	7,454
Accumulated depreciation and impairment loss
At 1 January	—	6,536	7,810
Charge for the year	1,273	1,274	1,274
Transfer from property, plant and equipment	5,263	-	189
Transfer to property, plant and equipment	—	—	(9,084)
At 31 December	6,536	7,810	189
Carrying amount	30,669	29,395	7,265

— III-52 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

20. INVESTMENTS IN SUBSIDIARIES

Particulars of the subsidiaries as at 31 December 2013, 2014 and 2015 are as follows:

	Place and		Percentage of ownership	Percentage of ownership	Percentage of ownership
	date of		**interest directly **		held by
	incorporation	Registered and	**the **	Target PRC
Name of subsidiaries	and operation	paid up capital		Company		Principal activity
			2013	2014	2015
大連遠洋對外勞務合作有限公司	The PRC	RMB6,000,000	100%	100%	100%	Provision of shipping
(Dalian Ocean Foreign Labour						agency and
Service Cooperation Co., Ltd*)						management services
大連遠洋通大電子有限公司	The PRC	RMB600,000	60%	60%	60%	Provision of shipping
(Dalian Ocean Tongda						repairs and
Electronics Co., Ltd*)						maintenance services
深圳中遠龍鵬液化氣運輸有限公司	The PRC	RMB20,000,000	70%	70%	70%	Provision of tanker
(Shenzhen COSCO LPG						shipping services
Shipping Co., Ltd*)
大連華昌船務有限公司	The PRC	RMB1,165,302,619	100%	100%	100%	Provision of tanker
(Dalian Huachang Shipping Co.,						shipping services
Ltd*)
大連豐源房地產開發有限公司	The PRC	RMB8,000,000	70%	70%	—	Properties
(Dalian Fengyuan Real Estate						development
Development Co., Ltd*)
大連遠洋大廈酒店有限公司	The PRC	RMB413,340,000	70%	70%	—	Investment in hotel
(Dalian Ocean Tower Hotel Co.,						properties
Ltd*)
大連希雲自動化有限公司	The PRC	RMB1,310,574	57.50%	57.50%	57.50%	Provision of shipping
(Dalian Xiyun Automation Co.,						repairs and
Ltd*)						maintenance services
寰宇船務企業有限公司	HK	USD107,110,256	100%	100%	100%	Provision of tanker
(Pan Cosmos Shipping &						shipping services
Enterprises Co. Limited)

• The English translation names are for identification purpose only. The official name of the entities are in Chinese.

As at 31 December 2013, 2014 and 2015, the pledged bank deposits and bank and cash balances of the Target PRC Group’ subsidiaries in the PRC denominated in RMB amount to approximately RMB153,385,000, RMB111,171,000 and RMB261,790,000. Conversion of RMB into foreign currencies is subject to the PRC’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations.

— III-53 —

APPENDIX III

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

The following table shows information on the subsidiaries that have non-controlling interests (“NCI”) material to the Target PRC Group.	The summarised financial information represents amounts before inter-company eliminations.	Dalian Fengyuan Real	Dalian Ocean Tower Shenzhen COSCO LPG Estate Development	Name Hotel Co., Ltd Shipping Co., Ltd Co., Ltd	2013 2014 2015 2013 2014 2015 2013 2014 2015	Principal place of business/	country of incorporation PRC PRC PRC	% of ownership interests/voting	rights held by NCI 30%/30% 30%/30% -/- 30%/30% 30%/30% 30%/30% 30%/30% 30%/30% -/-	RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000	At 31 December:	Non-current assets 1,038,723 994,791 — 44,661 97,983 84,475 129 129 —	Current assets 76,215 72,789 — 115,982 57,016 79,344 10,239 7,567 —	Non-current liabilities (1,050,160) (880,000) — (46,000) (38,000) (30,000) — — —	Current liabilities (819,838) (1,043,385) — (11,547) (12,443) (15,878) (990) (1,558) —	Net (liabilities)/assets (755,060) (855,805) — 103,096 104,556 117,941 9,378 6,138 —	Accumulated NCI (226,518) (256,742) — 30,929 31,367 35,382 2,813 1,841 —	Year ended 31 December:	Revenue 135,485 100,335 — 59,985 69,518 70,694 (8) (6) —	(Loss)/profit (117,186) (100,745) — 3,754 1,460 13,386 (3,563) (3,240) —	Total comprehensive income (117,186) (100,745) — 3,754 1,460 13,386 (3,563) (3,240) —	(Loss)/profit allocated to NCI (35,156) (30,223) — 1,126 438 4,016 (1,069) (972) —	Dividends paid to NCI — — — — — — — — —	Net cash generated from/ (used	in) operating activities 72,154 67,088 — 17,289 7,666 27,044 (3,215) (2,172) —	Net (decrease)/increase in cash	and cash equivalents (4,481) (4,426) — 12,787 (63,390) 49,354 (3,215) (2,172) —

— III-54 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

21. INVESTMENTS IN JOINT VENTURES

The Target PRC Group and the Target PRC Company

	2013	2014	2015
	RMB’000	RMB’000	RMB’000
Unlisted investments
Share of net assets	878,536	1,200,230	1,785,102

Details of the Target PRC Group’s joint ventures at 31 December 2013, 2014 and 2015 are as follows:

				Percentage of ownership	Percentage of ownership	Percentage of ownership
		Place of		interest directly held by
	incorporation		Registered and	**the **	Target PRC
Name	and operation		paid up capital		Company		Principal activities
				2013	2014	2015
華洋海運有限責任公司		The PRC	RMB238,772,000	50%	50%	50%	Provision of tanker
(Huayang Ocean Shipping Co.,							shipping services
Ltd*)
中國液化天然氣運輸(控股)有限公司		HK	USD294,701,160	50%	50%	50%	Provision of tanker
(China LNG Shipping							shipping services
(Holdings) Limited)
海洋石油(洋浦)船務有限公司		The PRC	RMB20,000,000	43%	43%	43%	Provision of tanker
(Ocean Oil (Yanpu) Co., Ltd*)							shipping services

• The English translation names are for identification purpose only. The official name of the entities are in Chinese.

— III-55 —

APPENDIX III

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

The following table shows information on the joint venture that is material to the Target PRC Group. The joint venture is accounted for in the consolidated financial statements using the equity method. The summarised financial information presented is based on the HKFRS financial statements of the joint venture.

Name	**China LNG **	Shipping (Holdings) Limited	Shipping (Holdings) Limited
	2013	2014	2015
	RMB’000	RMB’000	RMB’000
Principal place of business/ country of
incorporation		HK
Principal activities	Provision of	tanker shipping	services
% of ownership interests / voting rights held by the
Target PRC Group	50%	50%	50%
	RMB’000	RMB’000	RMB’000
At 31 December:
Non-current assets	6,010,164	6,422,945	6,886,232
Current assets	1,041,396	1,029,883	760,168
Non-current liabilities	(4,701,871)	(4,499,606)	(4,529,619)
Current liabilities	(199,059)	(177,387)	(220,325)
Non-controlling interests	(860,366)	(876,051)	(792,508)
Net assets attributable to owners	1,290,264	1,899,784	2,103,948
Group’s share of carrying amount of interests	645,132	949,892	1,051,974
Revaluation of assets	—	—	477,105
	645,132	949,892	1,529,079
Year ended 31 December:
Revenue	975,387	928,399	962,524
Depreciation and amortisation	212,400	210,847	213,700
Interest income	1,769	478	623
Interest expenses	126,605	118,706	117,856
Income tax expense	181	295	203
Profit for the year	311,938	313,514	329,815
Other comprehensive income	(44,367)	2,914	116,625
Total comprehensive income	267,571	316,428	446,440
Dividends received from the joint venture	110,488	80,775	89,351

— III-56 —

APPENDIX III

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

The following table shows, in aggregate, the Target PRC Group’s share of the amounts of all individually immaterial joint ventures that are accounted for using the equity method.

	2013	2014	2015
	RMB’000	RMB’000	RMB’000
At 31 December:
Carrying amounts of interests	233,404	250,338	256,023
Year ended 31 December:
Profit for the year	51,357	59,129	110,550
Other comprehensive income	—	—	—
Total comprehensive income	51,357	59,129	110,550

The Target PRC Group’s share of joint ventures’ profit for the years ended 31 December 2013, 2014 and 2015 include share of joint ventures’ taxation of RMB7,751,000, RMB8,819,000 and RMB16,484,000 respectively.

As at 31 December 2013, 2014 and 2015, the pledged bank deposits and bank and cash balances of the Target PRC Group’ joint ventures in the PRC denominated in RMB amount to approximately RMB350,973,000, RMB418,010,000 and RMB322,426,000. Conversion of RMB into foreign currencies is subject to the PRC’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations.

22. AVAILABLE-FOR-SALE FINANCIAL ASSETS

The Target PRC Group and the Target PRC Company

						**As **	at 31 December
					2013		2014	2015
					RMB’000		RMB’000	RMB’000
Unlisted	equity	securities,	at	cost	55,700		55,700	127,808

All available-for-sale financial assets do not have a quoted market price in an active market and whose fair value cannot be reliably measured and are measured at cost less impairment losses.

— III-57 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

23. OTHER NON-CURRENT ASSETS

(a) The Target PRC Group

			As at 31 December
		2013	2014	2015
		RMB’000	RMB’000	RMB’000
Prepayment for land use rights		43,840	45,587	—
Prepayment for construction of vessels		53,764	201,427	162,516
Others		138	129	—
		97,742	247,143	162,516
(b)	The Target PRC Company
			As at 31 December
		2013	2014	2015
		RMB’000	RMB’000	RMB’000
Prepayment for construction of vessels		53,764	11,563	32,027
24.	TRADE AND OTHER RECEIVABLES
(a)	The Target PRC Group
			As at 31 December
		2013	2014	2015
		RMB’000	RMB’000	RMB’000
Bills	receivables (note i)	—	9,663	13,148
Trade receivables (note i)		423,516	516,593	506,889
Prepayments and other receivables (note ii)		208,736	238,906	246,420
Interest receivables		15,511	1,828	3,573
Dividends receivables		1,226	1,226	1,226
		648,989	768,216	771,256

— III-58 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

Notes

• (i) Trading balances with related parties are unsecured, and interest free as third party customers. No special credit period granted to the customers of the Target PRC Group. Trade receivables primarily consisted of shipping business receivables. As at 31 December 2013, 2014 and 2015 ageing analysis of trade and bills receivables based on the invoice date, and net of allowance, is as follows:

1-6 months 7-12 months Over 1 year	As at 31 December 2013 2014 RMB’000 RMB’000 421,581 524,888 1,429 844 506 524 423,516 526,256	2015 RMB’000 504,300 14,325 1,412
		520,037

As at 31 December 2013, 2014 and 2015, an allowance was made for estimated irrecoverable trade receivables of approximately RMB2,996,000 RMB3,221,000 and RMB4,363,000.

Reconciliation of allowance for trade receivables

At 1 January Allowance for the year Amounts written off At 31 December	As at 31 December 2013 2014 RMB’000 RMB’000 573 2,996 2,721 225 (298) — 2,996 3,221	2015 RMB’000 3,221 1,175 (33)
		4,363

Since there was no specific credit period was granted to the customers as at 31 December 2013, 2014 and 2015, no trade receivables were past due but not impaired.

• (ii) Prepayments and other receivables

Prepayments and deposits Other receivable less allowance (note iii)	As at 31 December 2013 2014 RMB’000 RMB’000 90,653 118,241 118,083 120,665 208,736 238,906	2015 RMB’000 145,559 100,861
		246,420

— III-59 —

APPENDIX III

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

• (iii) Other receivables mainly represented port expenses paid on behalf of customers. As at 31 December 2013, 2014 and 2015, the Target PRC Group’s net other receivables of approximately RMB118,083,000, RMB120,665,000 and RMB100,861,000 were considered fully collectible by management. As at 31 December 2013, 2014 and 2015, the Target PRC Group’s other receivables of approximately RMB58,649,000, RMB58,649,000 and RMB57,000 were impaired and full provision was made by management.

At 1 January Amounts written off At 31 December	As at 31 December 2013 2014 RMB’000 RMB’000 58,649 58,649 — — 58,649 58,649	2015 RMB’000 58,649 (58,592)
		57

(b) The Target PRC Company

Bills receivables (note i) Trade receivables (note i) Prepayments and other receivables (note ii) Interest receivables Dividend receivables	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 — — 550 499,486 602,154 692,643 868,308 959,975 145,124 15,215 1,757 3,230 8,899 1,226 1,226 1,391,908 1,565,112 842,773	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 — — 550 499,486 602,154 692,643 868,308 959,975 145,124 15,215 1,757 3,230 8,899 1,226 1,226 1,391,908 1,565,112 842,773
		842,773

Notes

• (i) As at 31 December 2013, 2014 and 2015, the balances included due from subsidiaries of approximately RMB294,381,000, RMB376,515,000 and RMB475,816,000. Trading balances with related parties are unsecured, and interest free as third party customers. No special credit period granted to the customers of the Target PRC Company. Trade receivables primarily consisted of shipping business receivables. As at 31 December 2013, 2014 and 2015 ageing analysis of trade and bills receivables based on the invoice date, and net of allowance, is as follows:

1 - 6 months 7 - 12 months Over 1 year	As at 31 December 2013 2014 RMB’000 RMB’000 256,253 295,429 53,447 54,188 189,786 252,537 499,486 602,154	2015 RMB’000 267,282 63,119 362,792
		693,193

— III-60 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

As at 31 December 2013, 2014 and 2015, an allowance was made for estimated irrecoverable trade receivables of approximately RMB192,000, RMB3,155,000 and RMB4,055,000.

Reconciliation of allowance for trade receivables

At 1 January Allowance for the year Amounts written off At 31 December	As at 31 December 2013 2014 RMB’000 RMB’000 223 192 — 2,963 (31) — 192 3,155	2015 RMB’000 3,155 900 —
		4,055

Since there was no specific credit period was granted to the customers as at 31 December 2013, 2014 and 2015, no trade receivables were past due but not impaired.

• (ii) Prepayments and other receivables

Prepayments and deposits Other receivable less allowance (note iii)	As at 31 December 2013 2014 RMB’000 RMB’000 59,766 61,017 808,542 898,958 868,308 959,975	2015 RMB’000 60,761 84,363
		145,124

• (iii) As at 31 December 2013, 2014 and 2015, the balances included due from subsidiaries of approximately RMB724,868,000, RMB816,474,000 and RMB328,000. The amount due from subsidiaries are unsecured, and interest free and have no fixed terms of repayment.

Other receivables mainly represented port expenses paid on behalf of customers. As at 31 December 2013, 2014 and 2015, the Target PRC Company’s net other receivables of approximately RMB808,542,000, RMB898,958,000 and RMB84,363,000 were considered fully collectible by management. As at 31 December 2013, 2014 and 2015, the Target PRC Company’s other receivables of approximately RMB30,747,000, RMB30,747,000 and RMB57,000 were impaired and full provision was made by management.

At 1 January Amounts written off At 31 December	As at 31 December 2013 2014 RMB’000 RMB’000 30,747 30,747 — — 30,747 30,747	2015 RMB’000 30,747 (30,690)
		57

— III-61 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

25. INVENTORIES

The Target PRC Group

		As at 31 December
	2013	2014	2015
	RMB’000	RMB’000	RMB’000
Bunkers	301,496	238,330	118,936
Spare parts and consumable stores	4,765	4,875	—
Merchandises	12,116	13,461	13,662
Marine supplies and others	52	51	60
	318,429	256,717	132,658

The Target PRC Company

		As at 31 December
	2013	2014	2015
	RMB’000	RMB’000	RMB’000
Bunkers	133,396	105,581	73,048
Merchandises	9,757	11,221	12,667
Marine supplies and others	52	51	60
	143,205	116,853	85,775

26. PLEDGED BANK DEPOSITS AND BANK AND CASH BALANCES

The Target PRC Group

As at 31 December 2013, 2014 and 2015, the pledged bank deposits and bank and cash balances of the Target PRC Group denominated in RMB amount to approximately RMB1,284,211,000, RMB980,416,000 and RMB1,355,040,000. Conversion of RMB into foreign currencies is subject to the PRC’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations.

The Target PRC Group’s restricted deposits of approximately RMB207,344,000, RMB157,788,000 and RMB45,731,000 as at 31 December 2013, 2014 and 2015 respectively, were pledged to banks to secure banking facilities granted to the Target PRC Group as set out in note 29 to the Financial Information.

— III-62 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

The Target PRC Company

As at 31 December 2013, 2014 and 2015, the pledged bank deposits and bank and cash balances of the Target PRC Company denominated in RMB amount to approximately RMB1,130,826,000, RMB869,245,000 and RMB1,093,250,000. Conversion of RMB into foreign currencies is subject to the PRC’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations.

The Target PRC Company’s restricted deposits of approximately RMB206,225,000, RMB156,669,000 and RMB45,731,000 as at 31 December 2013, 2014 and 2015 respectively, were pledged to banks to secure banking facilities granted to the Target PRC Company as set out in note 29 to the Financial Information.

27. TRADE AND OTHER PAYABLES

The Target PRC Group

Trade payables (note i) Accruals and other payables Receipts in advance Accrued interest Dividend payables	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 683,293 875,566 573,535 625,733 295,346 90,367 23,992 31,875 261,782 16,469 19,086 23,253 294 293 242 1,349,781 1,222,166 949,179	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 683,293 875,566 573,535 625,733 295,346 90,367 23,992 31,875 261,782 16,469 19,086 23,253 294 293 242 1,349,781 1,222,166 949,179
		949,179

Note

(i) As at 31 December 2013, 2014 and 2015, the ageing analysis of trade payables based on the date of receipt of goods, is as follows:

1 - 6 months 7 - 12 months 1 - 2 years 2 - 3 years Over 3 years	As at 31 December 2013 2014 RMB’000 RMB’000 317,603 497,338 164,566 11,908 888 167,210 447 288 199,789 198,822 683,293 875,566	2015 RMB’000 364,945 5,229 2,437 1,942 198,982
		573,535

— III-63 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

The Target PRC Company

		As at 31 December
	2013	2014	2015
	RMB’000	RMB’000	RMB’000
Trade payables (note i)	528,779	676,504	391,639
Accruals and other payables (note ii)	326,956	99,893	1,022,740
Receipts in advance	17,248	18,211	107,412
Accrued interest	7,594	7,465	5,943
	880,577	802,073	1,527,734

Notes

• (i) As at 31 December 2013, 2014 and 2015, the ageing analysis of trade payables based on the date of receipt of goods, is as follows:

1 - 6 months 7 - 12 months 1 - 2 years 2 - 3 years Over 3 years	As at 31 December 2013 2014 RMB’000 RMB’000 167,955 306,247 159,932 3,968 655 167,179 448 288 199,789 198,822 528,779 676,504	2015 RMB’000 186,386 1,895 2,434 1,942 198,982
		391,639

• (ii) As at 31 December 2013, 2014 and 2015, the balances included due to subsidiaries of approximately RMB279,809,000, RMB47,129,000 and RMB951,440,000.

The amount due to subsidiaries are unsecured, interest free and have no fixed terms of repayment.

— III-64 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

28. PROVISIONS AND OTHER LIABILITIES

(a) The Target PRC Group

		As at 31 December
	2013	2014	2015
	RMB’000	RMB’000	RMB’000
Accrued wages, staff benefits and welfares	120,743	125,153	75,926
Provision for onerous contracts (note i)	—	46,974	73,685
	120,743	172,127	149,611
Analysed as
Current liabilities	97,381	153,001	134,284
Non-current liabilities	23,362	19,126	15,327
	120,743	172,127	149,611
Note (i)
		As at 31 December
	2013	2014	2015
	RMB’000	RMB’000	RMB’000
At 1 January	—	—	46,974
Additions	—	47,058	97,803
Amount used	—	—	(72,822)
Exchange difference	—	(84)	1,730
At 31 December	—	46,974	73,685

As at 31 December 2014 and 2015, the Target PRC Group had a provision of approximately RMB46,974,000 and RMB73,685,000 for onerous contracts relating to the non-cancellable chartered-in vessel contracts based on management’s estimation basis as mentioned in note 5(d).

— III-65 —

APPENDIX III

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

(b) The Target PRC Company

		As at 31 December
	2013	2014	2015
	RMB’000	RMB’000	RMB’000
Accrued wages, staff benefits and welfares	111,043	113,561	67,797
Provision for onerous contracts (note i)	—	24,111	73,685
	111,043	137,672	141,482
Analysed as
Current liabilities	87,681	118,546	126,155
Non-current liabilities	23,362	19,126	15,327
	111,043	137,672	141,482
Note (i)
		As at 31 December
	2013	2014	2015
	RMB’000	RMB’000	RMB’000
At 1 January	—	—	24,111
Additions	—	24,111	97,803
Amount used	—	—	(49,541)
Exchange difference	—	—	1,312
At 31 December	—	24,111	73,685

As at 31 December 2014 and 2015, the Target PRC Company had a provision of approximately RMB24,111,000 and RMB73,685,000 for onerous contracts relating to the non-cancellable chartered-in vessel contracts based on management’s estimation basis as mentioned in note 5(d).

— III-66 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

29. BORROWINGS

(a) The Target PRC Group

Other loans - unsecured Bank loans - secured or guaranteed Trust receipts loan	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 620,000 570,000 400,000 7,845,813 7,341,098 7,340,045 1,115,123 2,134,919 2,077,952 9,580,936 10,046,017 9,817,997	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 620,000 570,000 400,000 7,845,813 7,341,098 7,340,045 1,115,123 2,134,919 2,077,952 9,580,936 10,046,017 9,817,997
		9,817,997

The borrowings are repayable as follows:

On demand or within one year In the second year In the third to fifth years, inclusive Over five years Less: Amount due for settlement within 12 months (shown under current liabilities)	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 1,747,967 1,515,354 2,859,455 794,260 3,635,655 1,536,342 3,996,271 2,562,577 2,920,443 3,042,438 2,332,431 2,501,757 9,580,936 10,046,017 9,817,997 (1,747,967) (1,515,354) (2,859,455) 7,832,969 8,530,663 6,958,542	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 1,747,967 1,515,354 2,859,455 794,260 3,635,655 1,536,342 3,996,271 2,562,577 2,920,443 3,042,438 2,332,431 2,501,757 9,580,936 10,046,017 9,817,997 (1,747,967) (1,515,354) (2,859,455) 7,832,969 8,530,663 6,958,542
		9,817,997 (2,859,455)
		6,958,542

— III-67 —

APPENDIX III

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

(b) The Target PRC Company

Other loans - unsecured Bank loans - secured or guaranteed Trust receipts loan	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 620,000 570,000 400,000 2,591,487 2,690,126 3,527,039 579,206 581,305 — 3,790,693 3,814,431 3,927,039	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 620,000 570,000 400,000 2,591,487 2,690,126 3,527,039 579,206 581,305 — 3,790,693 3,814,431 3,927,039
		3,927,039

The borrowings are repayable as follows:

On demand or within one year In the second year In the third to fifth years, inclusive Over 5 years Less: Amount due for settlement within 12 months (shown under current liabilities)	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 826,929 780,239 2,233,997 206,929 2,629,804 248,536 2,756,835 402,264 734,374 — 29,124 710,132 3,790,693 3,841,431 3,927,039 (826,929) (780,239) (2,233,997) 2,963,764 3,061,192 1,693,042	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 826,929 780,239 2,233,997 206,929 2,629,804 248,536 2,756,835 402,264 734,374 — 29,124 710,132 3,790,693 3,841,431 3,927,039 (826,929) (780,239) (2,233,997) 2,963,764 3,061,192 1,693,042
		3,927,039 (2,233,997)
		1,693,042

At 31 December 2013, 2014 and 2015, unsecured loans advanced from an investee Company, COSCO Finance Co., Ltd, were RMB620,000,000, RMB570,000,000 and RMB400,000,000 respectively. The unsecured loans were repayable within one year.

The interest rates for unsecured loans at 31 December 2013 were ranged from 4.2% to 4.5% per annum. The interest rates for unsecured loans at 31 December 2014 were 4.2% per annum. The interest rates for unsecured loans at 31 December 2015 were ranged 3.05% to 3.92% per annum.

The interest rates for the bank loans and trust receipts loan at 31 December 2013 were ranged from 0.9% to 7.05% per annum. The interest rates for bank loans and trust receipts loan at 31 December 2014 were ranged from 0.91% to 6.55% per annum. The interest rates for bank loans and trust receipts loan at 31 December 2015 were ranged from 1.26% to 6.55% per annum.

— III-68 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

As at 31 December 2013, 2014 and 2015, the Target PRC Group’s banking facilities of approximately RMB7,585,879,000, RMB7,341,098,000 and RMB7,340,045,000 were secured by the pledge of certain of the Target PRC Group’s property, plant and equipment, investment properties, bank deposits and guaranteed by the ultimate parent.

30. DERIVATIVE FINANCIAL LIABILITIES

The Target PRC Group and the Target PRC Company

At 31 December 2013, 2014 and 2015, the Target PRC Group and the Target PRC Company had entered into interest rate swap contract to mitigate interest-rate risk. The underlining currency of the interest rate swap contract was denominate in USD. The total notional amount of the outstanding interest rate swap contract to which the Target PRC Group and the Target PRC Company was committed is as follows:

					**As **	at 31 December
				2013		2014	2015
				USD’000		USD’000	USD’000
Interest	rate	swap	contracts	100,000		100,000	100,000

The maturity date of the contract is 5 March 2016. The rate of swap is 3 month USD LIBOR + 0.65% for 3.45%.

At 31 December 2013, 2014 and 2015, the fair value of financial liabilities were estimated to be approximately RMB32,243,000, RMB18,578,000 and RMB3,750,000.

— III-69 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

31. DEFERRED TAX

The following are the deferred tax assets and liabilities recognised by the Target PRC Group.

The Target PRC Group

Deferred tax assets

Accelerated tax depreciation Allowance for other receivables Derivative financial liabilities Long-term employee benefits RMB’000 RMB’000 RMB’000 RMB’000 At 1 January 2013 38,495 7,744 12,347 11,217 (Charge)/Credit to profit or loss for the year (note 13) (1,531) (6) (4,286) (2,919) At 31 December 2013 and 1 January 2014 36,964 7,738 8,061 8,298 (Charge)/Credit to profit or loss for the year (note 13) (1,536) 75 (3,416) (2,313) At 31 December 2014 and 1 January 2015 35,428 7,813 4,645 5,985 (Charge)/Credit to profit or loss for the year (note 13) (80) (7,434) (3,707) (609) Retirement benefit obligations — — — (1,545) Dividend in specie (note 37) (35,341) — — — At 31 December 2015 7 379 938 3,831 Deferred tax liabilities At 1 January 2013 Charge to profit or loss for the year (note 13) At 31 December 2013 and 1 January 2014 Credit to profit or loss for the year (note 13) At 31 December 2014 and 1 January 2015 Charge to profit or loss for the year (note 13) At 31 December 2015

Others Total RMB’000 RMB’000 163 69,966 11 (8,731) 174 61,235 11 (7,179) 185 54,056 (8) (11,838) — (1,545) — (35,341) 177 5,332 Accelerated tax depreciation RMB’000 (2,303) 566 (1,737) (78,584) (80,321) 5,771 (74,550)

— III-70 —

APPENDIX III

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

At 31 December 2013, 2014 and 2015 the Target PRC Group has unused tax losses of approximately RMB3,475,666,000, RMB3,848,838,000 and RMB2,305,056,000 respectively available for offset against future profits. No deferred tax asset has been recognised due to the unpredictability of future profit streams. The unused tax losses will expire within five years.

The following are the deferred tax assets and liabilities recognised by the Target PRC Company.

The Target PRC Company

Deferred tax assets

Accelerated tax depreciation Allowance for other receivables Derivative financial liabilities Long-term employee benefits RMB’000 RMB’000 RMB’000 RMB’000 At 1 January 2013 81 7,743 12,347 11,217 (Charge)/Credit to profit or loss for the year — (8) (4,286) (2,919) At 31 December 2013 and 1 January 2014 81 7,735 8,061 8,298 (Charge)/Credit to profit or loss for the year — 76 (3,416) (2,313) At 31 December 2014 and 1 January 2015 81 7,811 4,645 5,985 Charge to profit or loss for the year (81) (7,488) (3,707) (609) Retirement benefit obligations — — — (1,545) At 31 December 2015 — 323 938 3,831	Others RMB’000 163 11 174 11 185 (8) — 177	Total RMB’000 31,551 (7,202)
		24,349 (5,642)
		18,707 (11,893) (1,545)
		5,269

— III-71 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

32. SHARE CAPITAL

	Fully paid
	registered capital
	RMB’000
At 1 January 2013, 31 December 2013 and 1 January 2014	6,643,515
Capital contribution during the year (note a)	545,710
At 31 December 2014 and 1 January 2015	7,189,225
Capital contribution during the year (note b)	224,390
Capital reduction (note c)	(1,035,462)
At 31 December 2015	6,378,153

Notes:

• (a) The shareholder contributed additional capital of RMB545,710,000 to provide additional working capital during the year. RMB317,000,000, RMB83,000,000 and RMB145,710,000 were credited to fully paid registered capital on 22 July 2014, 28 October 2014 and 6 November 2014 respectively.

• (b) The shareholder contributed additional capital of RMB224,390,000 to provide additional working capital during the year. RMB200,000,000 and RMB24,390,000 were credited to fully paid registered capital on 18 May 2015 and 13 November 2015 respectively.

• (c) In accordance with the Approval of Enterprise Transformation of Dalian Ocean Shipping Company on Corporate Restructuring and Related State-owned Property Transfer Without Compensation《關於大連遠洋運輸公司企業改制及相 關國有產權無償劃轉有關事項的批復》registered capital was decreased by approximately RMB1,035,462,000 to set off with other reserves after the Target PRC Group restructuring taken place on 30 September 2015.

The Target PRC Group’s objectives when managing capital are to safeguard the Target PRC Group’s ability to continue as a going concern and to maximise the return to the shareholders through the optimisation of the debt and equity balance.

The Target PRC Group currently does not have any specific policies and processes for managing capital.

The Target PRC Group is not subject to any externally imposed capital requirements.

— III-72 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

33. RESERVES

(a) The Target PRC Group

The amounts of the Target PRC Group’s reserves and movements therein are presented in the consolidated statements of profit or loss and other comprehensive income and consolidated statements of changes in equity.

(b) The Target PRC Company

Capital reserve Statutory surplus reserve Foreign currency translation reserve Accumulated losses RMB’000 RMB’000 RMB’000 RMB’000 (Note (c)(i)) (Note (c)(ii)) (Note (c)(iii)) At 1 January 2013 4,296 624,407 (92,498) (1,310,213) Total comprehensive income for the year — — (22,183) (522,962) At 31 December 2013 and 1 January 2014 4,296 624,407 (114,681) (1,833,175) Total comprehensive income for the year — — 1,457 (543,006) At 31 December 2014 and 1 January 2015 4,296 624,407 (113,224) (2,376,181) Total comprehensive income for the year — — 58,313 180,502 Retirement benefit obligations (note 34) — — — (127,697) Transfer (4,296) (518,403) — 522,699 Dividend in specie — — — (522,699) Revaluation of assets (note 38) 1,028,034 — — — Capital reduction (1,101,664) (106,004) — 2,243,130 At 31 December 2015 (73,630) — (54,911) (80,246)

Total RMB’000 (774,008) (545,145) (1,319,153) (541,549) (1,860,702) 238,815 (127,697) — (522,699) 1,028,034 1,035,462 (208,787)

— III-73 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

(c) Nature and purpose of reserves

(i) Capital reserve

Capital reserve of the Target PRC Company represents the excess of the contributions from a shareholder over the registered capital of the Target PRC Company and revaluation of assets recognised during restructuring of the Target PRC Company.

(ii) Statutory surplus reserve

In accordance with relevant laws and regulations in the PRC, the Target PRC Company is required to transfer 10% of their profit after tax reported in their statutory financial statements prepared under relevant accounting principles and financial regulations applicable to enterprises established in the PRC to the statutory surplus reserve. Appropriation to statutory surplus reserve shall be approved by the shareholder and may cease if the balance of statutory surplus reserve has reached 50% of the respective company’s registered capital.

The Target PRC Company may, upon the approval by a resolution, convert their surplus reserve into capital or distribute the surplus reserve proportion to their then existing shareholdings.

(iii) Foreign currency translation reserve

The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations. The reserve is dealt with in accordance with the accounting policies set out in note 4(c) to the consolidated financial statements.

34. RETIREMENT BENEFIT OBLIGATIONS

Retirement benefit obligations represented post-employment benefits for current civil retirees and current retirees and post-employment salary continuance benefits for internal retirees. In accordance with the Notice of the Ministry of Finance on the Financial Management of the Payments for the Resettlement of Employees in the Restructuring of Enterprises (“No. 117 [2009] of the Ministry of Finance”) 《關於企業重組有關職工安置費用財務管理問題通告》(“財企[2009]117號”), during restructuring in year 2015, the Target PRC Group required to estimate the retirement benefit obligations which would be recognised upon completion of the restructuring (i.e. December 2015) by using actuarial valuation method. Before restructuring and pursuant to the Notice of the Ministry of Finance on the Financial Management of Expenses Other Than Overall Planning Expenses for Retirees in the Restructuring of Central Enterprises (“No. 84 [2010] of the Ministry of Finance”) 《關於中央企業重組中退休人員統籌外費用財務管理問題的通知》(“財企[2010]84號”) the Target PRC Group was not allowed to adopt actuarial valuation method to estimate the retirement benefit obligations. Independent actuarial valuation has been carried by Willis Towers Watson, an independent firm with chartered actuarial certification. The estimated retirement benefit obligations as at 31 December 2015 was approximately RMB132,330,000. The level of benefits provided depends on members’ length of service and their salary in the final years leading up to retirement. Pensions in payment are generally updated in line with the retail price index.

— III-74 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

The amount of retirement benefit obligations recognised in the consolidated statement of financial position is as follows:

		As at 31 December
	2013	2014	2015
	RMB’000	RMB’000	RMB’000
Present value of defined benefit obligation	—	—	132,330
Fair value of plan assets	—	—	—
	—	—	132,330

The principal actuarial assumptions adopted by the Target PRC Group as at 31 December 2015 are as follows:

	2015
Discount rate	4.9%
Average annual cost of living adjustment (COLA) for current internal
retirees	1.5%
Average annual increase rate of medical reimbursement for current civil
retirees	5%

Assumptions regarding future mortality are set based on China Life Annuitant Mortality Table 2000-2003. The Target PRC Group is exposed to a number of risks, the most significant of which is detailed below:

Risk Description Change in discount rate The discount rate has been determined with reference to high quality corporate bonds. A decrease in interest rate will increase retirement benefit obligations.

The Target PRC Group’s sensitivity analysis for the significant actuarial assumption as of the reporting period based on reasonably possible changes of the relevant actuarial assumption is as follows:

			Impact on
		Increase/	defined benefit
		decrease in rate	obligation 2015
			RMB’000
Discount	rate	0.5%	(5,600)/6,080

— III-75 —

APPENDIX III

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, a changes in source of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same method (projected unit credit actuarial cost method) has been applied as when calculating the pension liability recognised within the statement of financial position.

The expected contributions to the pension plan for the year ending 31 December 2016 is approximately RMB13,130,000.

The weighted average duration of the Target PRC Group’s defined benefit obligation is approximately 18.2 years. The maturity analysis of the Target PRC Group’s undiscounted benefit payment is as follows:

				Less than	Over
				1 year	5 years	Total
				RMB’000	RMB’000	RMB’000
At	31	December	2015	13,130	210,880	224,010

35. RELATED PARTY TRANSACTIONS

• (a) Related parties

(i) Holding companies

					Percentage
					of voting
					power on
					the Target
		Place of	Principal	Registered	PRC
Name	Relationship	registration	activities	capital	Company
				(RMB’000)
China Ocean	Ultimate parent	PRC	Investment	4,103,367	100%
Shipping			holdings,
(Group)			vessels owning
Company			and chartering

— III-76 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

(ii) Other related parties

Name

Relationship with the Target PRC Company

COSCO (Cayman) Mercury Co. Fellow subsidiary controlled by ultimate controlling party Ltd COSCO Bulk Carrier Holdings Fellow subsidiary controlled by ultimate controlling party (Cayman) Ltd COSREN航運代理公司 Fellow subsidiary controlled by ultimate controlling party (COSREN Shipping Agents Company) 大連昌盛國際貨運公司 Fellow subsidiary controlled by ultimate parent (Dalian Changsheng International Freight Company) 大連外代服務公司 Fellow subsidiary controlled by ultimate controlling party (Dalian Penavico Services Company) 大連中遠船務工程有限公司 Fellow subsidiary controlled by ultimate controlling party (Dalian Ocean Shipping Engineering Co., Ltd) 丹麥鵬達公司 Fellow subsidiary controlled by ultimate controlling party (Danish Pengda Company) 防城港中燃船舶燃料供應有限公司 Fellow subsidiary controlled by ultimate controlling party (Fangchenggang Chimbusco Marine Bunker Supply Co., Ltd) 廣州遠洋船舶物資供應有限公司 Fellow subsidiary controlled by ultimate controlling party (Guangzhou Ocean Shipping Supplies Co., Ltd) 廣州遠洋通信導航有限公司 Fellow subsidiary controlled by ultimate controlling party (Guangzhou Ocean Communication Navigation Co., Ltd) 海標公司 Fellow subsidiary controlled by ultimate controlling party (Haibiao Company) 漢遠技術服務有限公司 Fellow subsidiary controlled by ultimate controlling party (Hanyuan Technical Service Center GmbH)

— III-77 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

Name	Relationship with the Target PRC Company
皇求美國船務有限公司	Fellow subsidiary controlled by ultimate controlling party
(Emperor United States
Shipping Co., Ltd*)
明海管理有限公司	Fellow subsidiary controlled by ultimate controlling party
(Bright Sea Management
Limited*)
南京國際船舶設備配件有限公司	Fellow subsidiary controlled by ultimate controlling party
(Nanjing International Shipping
Equipment Parts Co., Ltd*)
南通中遠船務自動化有限公司	Fellow subsidiary controlled by ultimate controlling party
(Nantong Ocean Shipping
Automation Co., Ltd*)
青島遠洋船舶供應有限公司	Fellow subsidiary controlled by ultimate controlling party
(Qingdao Ocean Shipping
Supply Co., Ltd*)
青島遠洋船務工程有限公司	Fellow subsidiary controlled by ultimate controlling party
(Qingdao Ocean Shipping
Engineering Co., Ltd*)
青島遠洋華林國際船舶管理有限公司	Fellow subsidiary controlled by ultimate controlling party
(COSCO Wallem Ship
Management Co., Ltd*)
青島遠洋通信導航有限公司	Fellow subsidiary controlled by ultimate controlling party
(Qingdao Ocean
Communication Navigation
Co., Ltd*)
青島遠洋運輸有限公司	Fellow subsidiary controlled by ultimate controlling party
(Qingdao Ocean Shipping Co.,
Ltd*)
上海泛亞航運有限公司	Fellow subsidiary controlled by ultimate controlling party
(Shanghai Pan Asia Shipping
Co., Ltd*)
上海遠洋運輸有限公司	Fellow subsidiary controlled by ultimate controlling party
(Shanghai Ocean Shipping Co.,
Ltd*)
上海越洋無線電有限公司	Fellow subsidiary controlled by ultimate controlling party
(Shanghai Ocean Radio Co.,
Ltd*)

— III-78 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

Name	Relationship with the Target PRC Company
上海中遠航運有限公司	Fellow subsidiary controlled by ultimate controlling party
(Shanghai COSCO Shipping
Co., Ltd*)
深圳遠洋運輸股份有限公司	Fellow subsidiary controlled by ultimate controlling party
(Shenzhen Ocean Shipping Co.,
Ltd*)
唐山外代國際貨運有限公司	Fellow subsidiary controlled by ultimate controlling party
(Tangshan International Freight
Co., Ltd*)
天津海上電子有限公司	Fellow subsidiary controlled by ultimate controlling party
(Tianjin Marine Electronics
Co., Ltd*)
天津遠洋船舶供應有限公司	Fellow subsidiary controlled by ultimate controlling party
(Tianjin Ocean Shipping
Supply Co., Ltd*)
五星散貨船務代理有限公司	Fellow subsidiary controlled by ultimate controlling party
(Five Star Bulk Shipping
Agency Pty. Ltd*)
廈門遠洋運輸公司	Fellow subsidiary controlled by ultimate parent
(Xiamen Ocean Shipping
Company*)
廈門中遠船務工程有限公司	Fellow subsidiary controlled by ultimate controlling party
(Xiamen COSCO Shipping
Engineering Co., Ltd*)
新遠（新加坡）有限公司	Fellow subsidiary controlled by ultimate controlling party
(Xing Yuan (Singapore) Pte.
Ltd*)
新中鈴株式會社	Fellow subsidiary controlled by ultimate controlling party
(Shin Chung Ling
Corporation*)
遠通海運設備服務有限公司	Fellow subsidiary controlled by ultimate controlling party
(Yuantong Marine Service Co.,
Ltd*)
中國船舶燃料大連有限公司	Fellow subsidiary controlled by ultimate controlling party
(China Marine Bunker (Dalian)
Co. Ltd*)

— III-79 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

Name	Relationship with the Target PRC Company
中國大連外輪代理有限公司	Fellow subsidiary controlled by ultimate controlling party
(China Ocean Shipping Agency
(Dalian) Co., Ltd*)
中國廣州外輪代理有限公司	Fellow subsidiary controlled by ultimate controlling party
(China Ocean Shipping Agency
(Guangzhou) Co., Ltd*)
中國嘉興外輪代理有限公司	Fellow subsidiary controlled by ultimate controlling party
(China Ocean Shipping Agency
(Jiaxing) Co., Ltd*)
中國寧波外輪代理有限公司	Fellow subsidiary controlled by ultimate controlling party
(China Ocean Shipping Agency
(Ningbo) Co., Ltd*)
中國青島外輪代理有限公司	Fellow subsidiary controlled by ultimate controlling party
(China Ocean Shipping Agency
(Qingdao) Co., Ltd*)
中國日照外輪代理有限公司	Fellow subsidiary controlled by ultimate controlling party
(China Ocean Shipping Agency
(Rizhao) Co., Ltd*)
中國上海外輪代理有限公司	Fellow subsidiary controlled by ultimate controlling party
(China Ocean Shipping Agency
(Shanghai) Co., Ltd*)
中國唐山外輪代理有限公司	Fellow subsidiary controlled by ultimate controlling party
(China Ocean Shipping Agency
(Tangshan) Co., Ltd*)
中國湛江外輪代理有限公司	Fellow subsidiary controlled by ultimate controlling party
(China Ocean Shipping Agency
(Zhanjiang) Co., Ltd*)
中燃國際石油（新加坡）有限公司	Fellow subsidiary controlled by ultimate controlling party
(Chimbusco International
Petroleum (Singapore) Pte.
Ltd*)
中遠（開曼）福慶控股有限公司	Fellow subsidiary controlled by ultimate parent
(COSCO (Cayman) Fortune
Holding Co., Ltd*)
中遠(香港)保險顧問有限公司	Fellow subsidiary controlled by ultimate controlling party
(COSCO (Hong Kong)
Insurance Brokers Ltd*)

— III-80 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

Name	Relationship with the Target PRC Company
中遠（香港）集團有限公司	Fellow subsidiary controlled by ultimate parent
(COSCO (Hong Kong) Group
Ltd*)
中遠東方輪船株式會社	Fellow subsidiary controlled by ultimate controlling party
(COSCO Eastern Shipping Co.,
Ltd*)
中遠對外勞務合作公司	Fellow subsidiary controlled by ultimate parent
(COSCO Manning Cooperation
Inc.*)
中遠法國公司	Fellow subsidiary controlled by ultimate controlling party
(COSCO France Company*)
中遠國際貿易有限公司	Fellow subsidiary controlled by ultimate controlling party
(COSCO International Trading
Co., Ltd*)
中遠海事工程（新加坡）有限公司	Fellow subsidiary controlled by ultimate controlling party
(COSCO Marine Engineering
(Singapore) Co., Ltd*)
中遠航運（香港）投資發展	Fellow subsidiary controlled by ultimate controlling party
有限公司
(COSCO Shipping (Hong
Kong) Investment &
Development Co., Ltd*)
中遠航運股份有限公司	Fellow subsidiary controlled by ultimate parent
(COSCO Shipping Co., Ltd*)
中遠集裝箱運輸有限公司	Fellow subsidiary controlled by ultimate controlling party
(COSCO Container Lines Co.,
Ltd*)
中遠控股新加坡有限公司	Fellow subsidiary controlled by ultimate parent
(COSCO Holdings (Singapore)
Pte. Ltd*)
中遠歐洲公司	Fellow subsidiary controlled by ultimate parent
(COSCO Europe Co., Ltd*)
上海遠洋實業總公司	Fellow subsidiary controlled by ultimate parent
(Shanghai Ocean Industrial
Company*)
中遠散貨運輸有限公司	Fellow subsidiary controlled by ultimate controlling party
(COSCO Bulk Carrier Co.,
Ltd*)

— III-81 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

Relationship with the Target PRC Company

Name Relationship with the Target PRC Company 中遠石油有限公司 Fellow subsidiary controlled by ultimate controlling party (COSCO Petroleum Pte. Ltd) 中遠土耳其船貿公司 Fellow subsidiary controlled by ultimate controlling party (COSCO Petroleum Pte. Ltd) 中遠希臘公司 Fellow subsidiary controlled by ultimate controlling party (COSCO Greece Company) 中遠英國公司 Fellow subsidiary controlled by ultimate controlling party (COSCO (UK) Company) 中遠智利公司 Fellow subsidiary controlled by ultimate controlling party (COSCO Chile Company*)

• The English translation names are for identification purpose only. The official name of the entities are in Chinese.

(iii) Significant balances with related parties

The balances with Government-Related Entities also included substantially all the accounts receivables of government-related companies, most of the bank deposits which placed in government-related financial institutions as well as accounts payable and accrued liability arising from purchase of bunkers and other-expenses incurred. These balances are unsecured, interest-free and due within 12 months.

(b) Related party transactions

The Target PRC Group

		Transactions volume	Transactions volume	Transactions volume
			for the year
Transactions	Relationship	2013	2014	2015
		RMB’000	RMB’000	RMB’000
Commission paid	Fellow subsidiary controlled	3,342	3,943	5,217
	by ultimate controlling party
Purchase of consumables	Fellow subsidiary controlled	2,756	1,733	2,246
	by ultimate controlling party
Purchase of spare parts	Fellow subsidiary controlled	32,986	30,960	36,946
	by ultimate controlling party
Purchase of bunkers	Fellow subsidiary controlled	1,406,885	1,345,165	874,267
	by ultimate controlling party
Insurance expenses	Fellow subsidiary controlled	35,864	27,747	23,040
	by ultimate controlling party

— III-82 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

		Transactions volume	Transactions volume	Transactions volume
			for the year
Transactions	Relationship	2013	2014	2015
		RMB’000	RMB’000	RMB’000
Repairs and	Fellow subsidiary controlled	12,348	33,321	15,122
maintenance expenses	by ultimate controlling party
Shipping agency fee	Fellow subsidiary controlled	33,364	28,786	17,756
expenses	by ultimate parent
Repairs and	Fellow subsidiary controlled	384	426	316
maintenance income	by ultimate parent
	Fellow subsidiary controlled	336	415	101
	by ultimate controlling party
Shipping management	Fellow subsidiary controlled	—	—	536
service income	by ultimate controlling party
Sales of supplies	Fellow subsidiary controlled	2,938	5,986	3,593
	by ultimate parent
	Fellow subsidiary controlled	6,449	7,625	10,095
	by ultimate controlling party
Rental income of vessels	Fellow subsidiary controlled	21,447	29,569	25,903
	by ultimate parent
Rental income of	Fellow subsidiary controlled	60	60	60
investment properties	by ultimate parent
	Fellow subsidiary controlled	—	—	5,024
	by ultimate controlling party
Interest expense	Investee company	22,581	23,091	22,716
Interest income	Investee company	3,785	3,305	12,964

— III-83 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

The Target PRC Group

		**Balance **	**Balance **	**as at 31 **	**as at 31 **	December
Name of account	Relationship	2013			2014	2015
		RMB’000	RMB’000			RMB’000
Borrowings	Investee company	620,000		570,000		400,000
Trade receivables	Fellow subsidiary controlled	16,080			21,175	7,703
	by ultimate parent
	Fellow subsidiary controlled	1,442			3,038	4,293
	by ultimate controlling party
Trade payables	Fellow subsidiary controlled	192,875		192,875		218,785
	by ultimate parent
	Fellow subsidiary controlled	113,428		129,221		68,070
	by ultimate controlling party
Prepayments	Fellow subsidiary controlled	—			2,558	12
	by ultimate parent
	Fellow subsidiary controlled	7,108			8,343	6,631
	by ultimate controlling party
Deposits received	Fellow subsidiary controlled	—			—	1,314
	by ultimate controlling party
Other receivables	Fellow subsidiary controlled	100		15,040		15,955
	by ultimate parent
	Fellow subsidiary controlled	1,242			—	—
	by ultimate controlling party
Other payables	Fellow subsidiary controlled	519,733		215,131		—
	by ultimate parent
	Fellow subsidiary controlled	11		14,475		60
	by ultimate controlling party

— III-84 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

The Target PRC Company

		Transactions volume for the year	Transactions volume for the year	Transactions volume for the year
Transactions	Relationship	2013	2014	2015
		RMB’000	RMB’000	RMB’000
Commission paid	Fellow subsidiary controlled	3,342	3,943	5,217
	by ultimate controlling party
Purchase of consumables	Fellow subsidiary controlled	2,756	1,733	2,246
	by ultimate controlling party
Purchase of spare parts	Fellow subsidiary controlled	23,689	18,408	18,742
	by ultimate controlling party
Purchase of bunkers	Fellow subsidiary controlled	637,434	656,193	403,106
	by ultimate controlling party
Insurance expenses	Fellow subsidiary controlled	15,134	10,509	9,239
	by ultimate controlling party
Repairs and	Subsidiaries	2,592	4,549	4,404
maintenance expenses
Shipping management	Fellow subsidiary controlled	—	—	536
service income	by ultimate controlling party
	Subsidiaries	119,361	113,036	134,608
Sales of supplies	Fellow subsidiary controlled	2,938	5,986	3,593
	by ultimate parent
	Fellow subsidiary controlled	6,449	7,625	10,095
	by ultimate controlling party
	Subsidiaries	3,541	3,907	7,498
Rental income of vessels	Fellow subsidiary controlled	21,447	29,569	25,903
	by ultimate parent
	Subsidiaries	30,848	31,397	5,047
Rental income of	Fellow subsidiary controlled	60	60	60
investment properties	by ultimate parent
	Fellow subsidiary controlled	—	—	5,024
	by ultimate controlling party
	Subsidiaries	1,389	1,418	5,910
Interest expense	Investee company	22,573	23,090	22,716
Interest income	Investee company	1,469	2,305	10,997

— III-85 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

The Target PRC Company

		**Balance **	**Balance **	**as at 31 **	**as at 31 **	December
Name of account	Relationship	2013			2014	2015
		RMB’000	RMB’000			RMB’000
Borrowings	Investee company	620,000		570,000		400,000
Trade receivables	Fellow subsidiary controlled	882			1,315	1,151
	by ultimate parent
	Fellow subsidiary controlled	1,268			2,937	4,175
	by ultimate controlling party
	Subsidiaries	294,381		376,515		475,816
Trade payables	Fellow subsidiary controlled	192,875		192,875		218,785
	by ultimate parent
	Fellow subsidiary controlled	46,782			36,614	25,631
	by ultimate controlling party
Prepayments	Fellow subsidiary controlled	—			—	12
	by ultimate parent
	Fellow subsidiary controlled	7,108			8,338	6,361
	by ultimate controlling party
Deposits received	Fellow subsidiary controlled	—			—	1,314
	by ultimate controlling party
Other receivables	Fellow subsidiary controlled	100			100	100
	by ultimate parent
	Fellow subsidiary controlled	1,242			—	—
	by ultimate controlling party
	Subsidiaries	724,868		816,474		328
Other payables	Fellow subsidiary controlled	—		14,475		60
	by ultimate controlling party
	Subsidiaries	279,809			47,129	951,440

— III-86 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

36. COMMITMENTS

(a) Capital commitments

Capital commitments of the Target PRC Group contracted for at the end of the reporting period but not yet incurred are as follows:

Property, plant and equipment	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 4,973,010 4,785,160 6,384,297

(b) Lease commitment

The Target PRC Group as lessee

At the end of reporting period the total future minimum lease payments under non-cancellable operating leases are payable as follows:

Within one year In the second to fifth years inclusive After five years	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 927,201 909,033 804,942 2,424,919 1,742,528 1,275,451 1,510,537 1,298,160 1,146,443 4,862,657 3,949,721 3,226,836	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 927,201 909,033 804,942 2,424,919 1,742,528 1,275,451 1,510,537 1,298,160 1,146,443 4,862,657 3,949,721 3,226,836
		3,226,836

Operating lease payments represent rental payable by the Target PRC Group for its vessels. Leases are negotiated for an average term of five to fifteen years and rentals are fixed over the lease terms and do not include contingent rentals.

The Target PRC Group as lessor

At the end of reporting period the total future minimum lease payments under non-cancellable operating leases are receivable as follows:

Within one year In the second to fifth years inclusive	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 32,720 671,776 523,226 1,389,894 729,000 191,662 1,422,614 1,400,776 714,888	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 32,720 671,776 523,226 1,389,894 729,000 191,662 1,422,614 1,400,776 714,888
		714,888

— III-87 —

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

APPENDIX III

37. DIVIDEND IN SPECIE

There was a group restructuring of the Target PRC Group during the year ended 31 December 2015. At the beginning of the year ended 31 December 2015, the Target PRC Group has distributed 70% equity interest in Dalian Ocean Tower Hotel Co., Ltd (“Tower Hotel”), Dalian Fengyuan Real Estate Development Co., Ltd (“Fengyuan”), relevant property, plant and equipment and other receivables from Tower Hotel to a fellow subsidiary of the Target PRC Group. After the group restructuring, total equity increased by approximately RMB454,745,000. Breakdown of the distributed net liabilities was follows:

Tower Hotel and Fengyuan Other assets RMB’000 RMB’000 Assets Property, plant and equipment 733,367 1,105 Investment properties 74,476 — Other non-current assets 45,716 — Deferred tax assets 35,341 — Trade and other receivables 5,597 499,838 Inventories 7,378 — Cash and cash equivalents 67,381 — 969,256 500,943 Liabilities Trade and other payables (844,419) — Borrowings (1,080,160) — Current tax liabilities (365) — (1,924,944) — (955,688) 500,943 Non-controlling interest 254,900 — (700,788) 500,943 Cash and cash equivalents outflow on distribution (67,381) —

Total RMB’000 734,472 74,476 45,716 35,341 505,435 7,378 67,381 1,470,199 (844,419) (1,080,160) (365) (1,924,944) (454,745) 254,900 (199,845) (67,381)

38. REVALUATION OF ASSETS ON GROUP RESTRUCTURING

In the HKFRS financial statements, the Target PRC Group was a first-time adopter of HKFRS and took advantage of the event-driven fair value measurements as deemed cost exemption in its first HKFRS financial statements for the year ended 31 December 2015.

— III-88 —

APPENDIX III

THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

The relevant assets were measured at fair value at the date of group restructuring (i.e. 30 September 2015) and the revaluated adjustments recognised in the capital reserve were as follows:

Property, plant and equipment Prepaid land lease payments Investment properties Investment in joint ventures Available-for-sale financial assets Inventories	RMB’000 469,567 42,113 126 463,116 72,108 (18,996) 1,028,034

The fair value of the assets as at 30 September 2015 was approximately RMB4,369,180,000 and the carrying amounts were approximately RMB3,341,146,000. The fair value is estimated by an independent professional valuer, China Tong Cheng Assets Appraisal Co., Ltd. The valuations are derived using asset based approach. An asset-based approach is a type of business valuation that focuses on a company’s net asset value or the fair-market value of its total assets minus its total liabilities.

Under The PRC GAAP, the Target PRC Group revalued its assets upon restructuring in September 2015 (note 37).

39. NOTE TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS

Major non-cash transaction

During 2015, the Target PRC Group distributed dividend in specie of approximately RMB454,745,000 (note 37). Except for the cash and cash equivalents outflow on distribution of approximately RMB67,381,000, this is a major non-cash transactions.

40. CONTINGENT LIABILITIES

As at 31 December 2013, 2014 and 2015, the Target PRC Group did not have any significant contingent liabilities.

— III-89 —

APPENDIX III THE ACCOUNTANT’S REPORT OF DALIAN OCEAN

41. SUBSEQUENT EVENTS

The Target PRC Group did not have any significant subsequent event took place subsequent to 31 December 2015.

42. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Target PRC Group in respect of any period subsequent to 31 December 2015.

Yours faithfully, RSM Hong Kong Certified Public Accountants Hong Kong

— III-90 —

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

I. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The accompanying unaudited pro forma consolidated statement of financial position, the unaudited pro forma consolidated statement of profit or loss and other comprehensive income and the unaudited pro forma consolidated statement of cash flows of the Enlarged Group (collectively, the “Unaudited Pro Forma Financial Information”) have been prepared by the directors of the Company in accordance with paragraph 29 of Chapter 4 of the Listing Rules for the purpose of illustrating the effects of the proposed acquisition of whole equity interests in Dalian Ocean Group and disposal of whole equity interests in CS Bulk Group (collectively referred to as the “Proposed Transactions”), which are based on the Asset Transfer Agreement and the Compensation Agreement, on the consolidated financial position and the consolidated results and cash flows of the Enlarged Group.

The unaudited pro forma consolidated statement of financial position of the Enlarged Group has been prepared based on the audited consolidated statement of financial position of the Group as at 31 December 2015, which has been extracted from the Group’s published annual results announcement for the year ended 31 December 2015 dated 29 March 2016, and the audited consolidated statement of financial position of the Dalian Ocean Group as at 31 December 2015, which has been extracted from the accountants’ report of the Dalian Ocean Group set out in Appendix III to this Circular, after taking into account the pro forma adjustments relating to the Proposed Transactions that are (i) clearly shown and explained; (ii) directly attributable to the Proposed Transactions and not relating to future events or decisions; and (iii) factually supportable, as explained in the accompanying notes, as if the Proposed Transactions had been completed on 31 December 2015.

The unaudited pro forma consolidated statement of profit or loss and other comprehensive income and the unaudited pro forma consolidated statement of cash flows of the Enlarged Group have been prepared based on the audited consolidated statement of profit or loss and other comprehensive income and the audited consolidated statement of cash flows of the Group for the year ended 31 December 2015, which have been extracted from the Group’s published annual results announcement dated 29 March 2016, and the audited consolidated statement of profit or loss and other comprehensive income and the audited consolidated statement of cash flows of the Dalian Ocean Group for the year ended 31 December 2015, which have been extracted from the accountants’ report of the Dalian Ocean Group set out in Appendix III to this Circular, after taking into account the pro forma adjustments relating to the Proposed Transactions as explained in the accompanying notes that are (i) clearly shown and explained; (ii) directly attributable to the Proposed Transactions and not relating to future events or decisions; and (iii) factually supportable, as explained in the accompanying notes, as if the Proposed Transactions had been completed on 1 January 2015.

The accompanying Unaudited Pro Forma Financial Information of the Enlarged Group is prepared by the Directors of the Company based on a number of assumptions, estimates, uncertainties and currently available information to provide information of the Enlarged Group upon completion of the Proposed Transactions. As the Unaudited Pro Forma Financial Information is prepared for illustrative purposes only, and because of its hypothetical nature, it may not give a true picture of the financial position and results of the Enlarged Group following the completion of the Proposed Transactions and does not purport to describe the actual results of operations, financial position and

— IV-1 —

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

cash flows of the Enlarged Group that would have been attained had the Proposed Transactions been completed on the dates indicated herein. Further, the accompanying Unaudited Pro Forma Financial Information of the Enlarged Group does not purport to predict the future financial position, results of operations or cash flows of the Enlarged Group after the completion of the Proposed Transactions.

The Unaudited Pro Forma Financial Information of the Enlarged Group has been prepared in accordance with paragraph 29 of Chapter 4 and paragraph 69(4)(a)(ii) of Chapter 14 of the Listing Rules. The Unaudited Pro Forma Financial Information of the Enlarged Group should be read in conjunction with the financial information of the Group as set out in Appendix I to the Circular, the accountants’ report of the Dalian Ocean Group as set out in Appendix III to the Circular and other financial information included elsewhere in the Circular.

II. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION OF THE ENLARGED GROUP

The Group as at 31 December 2015 Less: CS Bulk Group as at 31 December 2015 Add: Dalian Ocean Group as at 31 December 2015 RMB’000 RMB’000 RMB’000 (Note 1) (Note 3) NON-CURRENT ASSETS Investment properties 1,088,659 — 7,265 Property, plant and equipment 51,744,608 25,296,862 11,229,430 Prepaid land lease payments — — 81,977 Investments in associates 2,040,968 570,547 — Investments in joint ventures 4,402,192 4,030,542 1,785,102 Loan receivables 2,119,286 — — Available-for-sale investments 35,379 9,966 127,808 Other non-current assets — — 162,516 Deferred tax assets 481,660 486,319 5,332 61,912,752 30,394,236 13,399,430	Unaudited Pro Forma Adjustments Unaudited Pro Forma Enlarged Group as at 31 December 2015 RMB’000 RMB’000 (Note 1) (Note 2) (Note 3) (Note 4) — 1,715 2,052 — 1,099,691 — 51,037 — — 37,728,213 — — — — 81,977 — 279,535 — — 1,749,956 — 75,903 — — 2,232,655 437,160 — — — 2,556,446 — 5,666 — — 158,887 — — — — 162,516 — 9,058 — — 9,731 437,160 422,914 2,052 — 45,780,072	Unaudited Pro Forma Adjustments Unaudited Pro Forma Enlarged Group as at 31 December 2015 RMB’000 RMB’000 (Note 1) (Note 2) (Note 3) (Note 4) — 1,715 2,052 — 1,099,691 — 51,037 — — 37,728,213 — — — — 81,977 — 279,535 — — 1,749,956 — 75,903 — — 2,232,655 437,160 — — — 2,556,446 — 5,666 — — 158,887 — — — — 162,516 — 9,058 — — 9,731 437,160 422,914 2,052 — 45,780,072
		45,780,072

— IV-2 —

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

			Add:							Unaudited
		Less: CS Bulk	Dalian Ocean							Pro Forma
	The Group as	Group as at	Group as at							Enlarged Group
**at **	31 December	31 December	31 December						**as **	at 31 December
	2015	2015	2015	Unaudited Pro Forma Adjustments						2015
	RMB’000	RMB’000	RMB’000		RMB’000					RMB’000
		(Note 1)	(Note 3)	(Note 1)	(Note 2)	(Note 3)	_(Note _	4)
CURRENT ASSETS
Inventories	582,427	346,166	132,658	—	—	—		—		368,919
Trade and bills receivables	2,274,111	1,522,082	520,037#	23	—	—		—		1,272,089
Prepayments, deposits and
other receivables	1,523,474	1,228,019	363,621#	16,709,700	4,202,683	(6,074,250)	(1,682)			15,495,527
Pledged bank deposits	—	—	45,731	—	—	—		—		45,731
Cash and cash equivalents	2,085,889	622,143	2,777,358	—	—	—		—		4,241,104
	6,465,901	3,718,410	3,839,405	16,709,723	4,202,683	(6,074,250)	(1,682)			21,423,370
CURRENT LIABILITIES
Trade and bills payables	904,438	613,856	573,535#	23	—	—		—		864,140
Other payables and
accruals	730,931	14,040,049	436,243#	13,694,764	—	—	(1,682)			820,207
Current portion of
provision for onerous
contracts	107,623	43,039	73,685#	—	—	—		—		138,269
Current portion of
derivative financial
instruments	508	—	3,750	—	—	—		—		4,258
Current portion of
interest-bearing bank
and other borrowings	8,204,372	2,350,034	2,859,455	64,936	—	—		—		8,778,729
Current portion of
obligations under
finance leases	48,751	48,751	—	—	—	—		—		—
Tax payable	132,569	4,535	1,743	—	—	—		—		129,777
	10,129,192	17,100,264	3,948,411	13,759,723	—	—	(1,682)			10,735,380
NET CURRENT
(LIABILITIES)/ASSETS	(3,663,291)	(13,381,854)	(109,006)	2,950,000	4,202,683	(6,074,250)		—		10,687,990
TOTAL ASSETS LESS
CURRENT
LIABILITIES	58,249,461	17,012,382	13,290,424	3,387,160	4,625,597	(6,072,198)		—		56,468,062

— IV-3 —

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

			Add:							Unaudited
		Less: CS Bulk	Dalian Ocean							Pro Forma
	The Group as	Group as at	Group as at							Enlarged Group
	at 31 December	31 December	31 December							as at 31 December
	2015	2015	2015	**Unaudited Pro Forma **			Adjustments			2015
	RMB’000	RMB’000	RMB’000		RMB’000					RMB’000
		(Note 1)	(Note 3)	(Note 1)	(Note 2)	(Note 3)		_(Note _	4)
EQUITY
Equity attributable to
owners of the Company
Issued capital	4,032,033	4,300,000	6,378,153	—	4,300,000	(6,378,153)			—	4,032,033
Reserves	21,665,173	27,435	(305,442)	—	208,797	305,442			—	21,846,535
	25,697,206	4,327,435	6,072,711	—	4,508,797	(6,072,711)			—	25,878,568
Non-controlling interests	825,997	1,040,912	36,877	—	—		—		—	(178,038)
TOTAL EQUITY	26,523,203	5,368,347	6,109,588	—	4,508,797	(6,072,711)			—	25,700,530
NON-CURRENT
LIABILITIES
Provision for onerous
contracts	159,139	51,452	—	—	20,392		—		—	128,079
Other liabilities	—	—	147,657#	—	—		—		—	147,657
Derivative financial
instruments	411,385	—	—	—	—		—		—	411,385
Interest-bearing bank and
other borrowings	25,453,381	10,288,857	6,958,542	2,950,000	—		—		—	25,073,066
Other loans	1,199,539	857,176	—	437,160	—		—		—	779,523
Obligations under finance
leases	354,003	354,003	—	—	—		—		—	—
Bonds payable	3,978,488	—	—	—	—		—		—	3,978,488
Deferred income	—	—	87	—	—		—		—	87
Deferred tax liabilities	170,323	92,547	74,550	—	96,408		513		—	249,247
	31,726,258	11,644,035	7,180,836	3,387,160	116,800		513		—	30,767,532
TOTAL EQUITY AND
NON-CURRENT
LIABILITIES	58,249,461	17,012,382	13,290,424	3,387,160	4,625,597	(6,072,198)			—	56,468,062

# All the related figures, based on the accountant’s report of Dalian Ocean included in Appendix III of this circular, have been reclassified to conform with the presentation of the Company.

— IV-4 —

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

III. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME OF THE ENLARGED GROUP

The Group for the year ended 31 December 2015 Less: CS Bulk Group for the year ended 31 December 2015 Add: Dalian Ocean Group for the year ended 31 December 2015 RMB’000 RMB’000 RMB’000 (Note 1) (Note 3) Turnover 12,212,973 6,133,121 4,820,387 Operating costs (9,867,199) (6,007,465) (3,718,447) Gross profit 2,345,774 125,656 1,101,940 Other income and net (losses)/gains (303,484) (785,702) 86,705# Marketing expenses (96,464) (81,409) — Administrative expenses (432,367) (189,938) (235,691) Other expenses (52,418) (8,922) (33,222) Share of profits of associates 215,932 — — Share of profits of joint ventures 72,294 42 151,254 Finance costs (1,157,261) (552,534) (254,529) Profit/(loss) before tax 592,006 (1,492,807) 816,457 Income tax (expense)/credit (102,251) 38,813 (8,319) Profit/(loss) for the year 489,755 (1,453,994) 808,138 Other comprehensive income Items that may be reclassified subsequently to profit or loss, net of nil tax: Exchange realignment 341,933 133,311 69,357 Net loss on cash flow hedges (104,840) — — Share of other comprehensive income of associates 3,457 — — Share of other comprehensive expense of joint ventures (1,758) — — Other comprehensive income for the year 238,792 133,311 69,357	Unaudited (Note 1) 43,719 (43,719) — 103,715 — — — — — (103,715) — — — 9,819 — — — 9,819	Pro Forma Adjustments Unaudited Pro Forma Enlarged Group for the year ended 31 December 2015 RMB’000 RMB’000 (Note 2) (Note 4) — (16,942) 10,927,016 (20,392) 16,942 (7,625,350) (20,392) — 3,301,666 191,935 — 864,573 — — (15,055) — — (478,120) — — (76,718) — — 215,932 — — 223,506 — — (962,971) 171,543 — 3,072,813 — — (149,383) 171,543 — 2,923,430 — — 287,798 — — (104,840) — — 3,457 — — (1,758) — — 184,657	Pro Forma Adjustments Unaudited Pro Forma Enlarged Group for the year ended 31 December 2015 RMB’000 RMB’000 (Note 2) (Note 4) — (16,942) 10,927,016 (20,392) 16,942 (7,625,350) (20,392) — 3,301,666 191,935 — 864,573 — — (15,055) — — (478,120) — — (76,718) — — 215,932 — — 223,506 — — (962,971) 171,543 — 3,072,813 — — (149,383) 171,543 — 2,923,430 — — 287,798 — — (104,840) — — 3,457 — — (1,758) — — 184,657
			3,301,666 864,573 (15,055) (478,120) (76,718) 215,932 223,506 (962,971)
			3,072,813 (149,383)
			2,923,430
			287,798 (104,840) 3,457 (1,758)
			184,657

— IV-5 —

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The Group for the year ended 31 December 2015 Less: CS Bulk Group for the year ended 31 December 2015 Add: Dalian Ocean Group for the year ended 31 December 2015 RMB’000 RMB’000 RMB’000 (Note 1) (Note 3) Total comprehensive income/(expense) for the year 728,547 (1,320,683) 877,495 Profit/(loss) for the year attributable to: Owners of the Company 416,992 (1,520,029) 804,089 Non-controlling interests 72,763 66,035 4,049 489,755 (1,453,994) 808,138 Total comprehensive income/(expense) for the year attributable to: Owners of the Company 720,887 (1,405,966) 873,446 Non-controlling interests 7,660 85,283 4,049 728,547 (1,320,683) 877,495	Unaudited (Note 1) 9,819 — — — 9,819 — 9,819	Pro Forma Adjustments Unaudited Pro Forma Enlarged Group for the year ended 31 December 2015 RMB’000 RMB’000 (Note 2) (Note 4) 171,543 — 3,108,087 171,543 — 2,912,653 — — 10,777 171,543 — 2,923,430 171,543 — 3,181,661 — — (73,574) 171,543 — 3,108,087	Pro Forma Adjustments Unaudited Pro Forma Enlarged Group for the year ended 31 December 2015 RMB’000 RMB’000 (Note 2) (Note 4) 171,543 — 3,108,087 171,543 — 2,912,653 — — 10,777 171,543 — 2,923,430 171,543 — 3,181,661 — — (73,574) 171,543 — 3,108,087
			2,912,653 10,777
			2,923,430
			3,181,661 (73,574)
			3,108,087

# All the related figures, based on the accountant’s report of Dalian Ocean included in Appendix III of this circular, have been reclassified to conform with the presentation of the Company.

— IV-6 —

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

IV. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS OF THE ENLARGED GROUP

					Unaudited
			Add: Dalian		Pro Forma
		Less: CS Bulk	Ocean Group		Enlarged Group
	The Group for	Group for the	for the year		for the year
	the year ended	year ended	ended	Unaudited Pro	ended
	31 December	31 December	31 December	Forma	31 December
	2015	2015	2015	Adjustments	2015
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
		(Note 1)	(Note 3)	(Note 1)
OPERATING ACTIVITIES
Profit/(loss) before tax	592,006	(1,492,807)	816,457	—	2,901,270
Adjustments for:
Finance costs	1,157,261	552,534	254,529	—	859,256
Interest income	(77,912)	(6,070)	(21,174)	—	(93,016)
Net foreign exchange losses	—	—	117,250	—	117,250
Gain on revaluation of investment
properties	(56,420)	—	—	—	(56,420)
Fair value gains on financial
liabilities, unrealised	—	—	(14,828)	—	(14,828)
Fair value losses on financial
liabilities, realised	—	—	15,757	—	15,757
Loss on disposal of property,
plant and equipment, net	1,373,345	1,374,922	47,914	—	46,337
Dividend income	(978)	(754)	(22,465)		(22,689)
Gain on early redemption of
convertible bonds	(4,386)	—	—	—	(4,386)
Gain on bargain purchase	(1,947)	(1,947)	—	—	—
Impairment losses on investments
in joint ventures	193,971	193,971	—	—	—
Impairment losses on trade and
other receivables	—	—	1,175	—	1,175
Amortisation of prepaid land
lease payments	—	—	1,470	—	1,470
Depreciation	1,902,617	1,037,756	557,136	—	1,421,997
Provision for onerous contracts	127,828	94,491	97,803	—	131,140
Share of profits of associates	(215,932)	—	—	—	(215,932)
Share of profits of joint ventures	(72,294)	(42)	(151,254)	—	(223,506)
Operating profit before working
capital changes	4,917,159	1,752,054	1,699,770	—	4,864,875
Increase in trade and other
receivables	(1,008,676)	(203,029)	(61,079)	15,604	(851,122)
Decrease in inventories	231,673	116,929	97,685	—	212,429
Increase/(decrease) in trade and
other payables	1,039,828	(284,799)	(42,259)	—	1,282,368
Cash generated from operations	5,179,984	1,381,155	1,694,117	15,604	5,508,550
Income tax paid	(95,000)	(13,830)	(580)	—	(81,750)
Net cash generated from
operating activities	5,084,984	1,367,325	1,693,537	15,604	5,426,800

— IV-7 —

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

					Unaudited
			Add: Dalian		Pro Forma
		Less: CS Bulk	Ocean Group		Enlarged Group
	The Group for	Group for the	for the year		for the year
	the year ended	year ended	ended	Unaudited Pro	ended
	31 December	31 December	31 December	Forma	31 December
	2015	2015	2015	Adjustments	2015
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
		(Note 1)	(Note 3)	(Note 1)
INVESTING ACTIVITIES
Interest received	77,912	6,070	21,174	103,715	196,731
Payments for construction in
progress	(1,843,235)	(481,618)	—	—	(1,361,617)
Purchases of property, plant and
equipment	(68,398)	(31,009)	(1,756,032)	—	(1,793,421)
Decrease in other non-current
assets	—	—	38,912	—	38,912
Proceeds from disposal of
property, plant and equipment	444,482	441,562	214,620	—	217,540
Loan to associates	(1,219,347)	—	—	—	(1,219,347)
Loan to joint ventures	(9,144)	—	—	—	(9,144)
Loan to immediate holding
company	—	(61,137)	—	(61,137)	—
Dividends received from
associates	160,000	—	—	—	160,000
Dividends received from joint
ventures	562,725	—	124,967	—	687,692
Dividends received from
available-for-sale investments	978	754	—	—	224
Other dividends received	—	—	22,465	—	22,465
Acquisition of a subsidiary, net of
cash acquired	2,783	2,783	—	—	—
Acquisition of additional interests
in a subsidiary	37,302	—	—	—	37,302
Investments in associates	(266,411)	—	—	—	(266,411)
Investments in joint ventures	(529,200)	—	(37,157)	—	(566,357)
Decrease in pledged bank
deposits	611,900	—	112,057	—	723,957
Net cash used in investing
activities	(2,037,653)	(122,595)	(1,258,994)	42,578	(3,131,474)

— IV-8 —

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

					Unaudited
			Add: Dalian		Pro Forma
		Less: CS Bulk	Ocean Group		Enlarged Group
	The Group for	Group for the	for the year		for the year
	the year ended	year ended	ended	Unaudited Pro	ended
	31 December	31 December	31 December	Forma	31 December
	2015	2015	2015	Adjustments	2015
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
		(Note 1)	(Note 3)	(Note 1)
FINANCING ACTIVITIES
Interest paid	(1,228,510)	(483,061)	(260,643)	(103,715)	(1,109,807)
Dividends paid	(120,961)	—	—	—	(120,961)
Dividends paid to non-controlling
interests of subsidiaries	(6,967)	(6,860)	—	—	(107)
Increase in other loans	291,011	—	—	—	291,011
Repayment of other loans	(14,726)	—	—	—	(14,726)
Increase in bank and other
borrowings	11,962,444	3,167,983	3,106,164	61,137	11,961,762
Repayment of notes, bank and
other borrowings	(13,305,350)	(3,739,873)	(2,793,451)	(15,604)	(12,374,532)
Capital element of finance lease
rental paid	(57,164)	(57,164)	—	—	—
Net settlement of derivative
financial instruments	—	—	(15,757)	—	(15,757)
Cash outflows from dividend in
specie	—	—	(67,381)	—	(67,381)
Proceeds from issue of shares	—	—	224,390	—	224,390
Redemption of convertible bonds	(34,744)	—	—	—	(34,744)
Redemption of corporate bonds	(1,000,000)	—	—	—	(1,000,000)
Net cash (used in)/generated from
financing activities	(3,514,967)	(1,118,975)	193,322	(58,182)	(2,260,852)
NET (DECREASE)/INCREASE
IN CASH AND CASH
EQUIVALENTS	(467,636)	125,755	627,865	—	34,474
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF THE YEAR	2,449,240	482,924	1,997,851	—	3,964,167
Effect of foreign exchange rate
changes, net	104,285	13,464	151,642	—	242,463
CASH AND CASH
EQUIVALENTS AT END OF
THE YEAR	2,085,889	622,143	2,777,358	—	4,241,104

— IV-9 —

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

V. NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

1. This adjustment is to reinstate the inter-group balances, transactions and cash flow movements thereon of the CS Bulk Group which are eliminated from the consolidation of the Company in preparing the Group’s financial statements for the year ended 31 December 2015. This adjustment is made for the purpose of illustrating as if these transactions had taken place at 31 December 2015 and 1 January 2015 respectively.

2. This adjustment is to reflect the derecognition of assets and liabilities of the CS Bulk Group in relation to the Proposed Transactions assuming these transactions were taken place on 31 December 2015 and 1 January 2015. The consideration is assumed to be the carrying value of the CS Bulk Group as of the disposal date; and therefore, there is no gain or loss on this transaction presented in this unaudited pro forma financial information.

The consideration and amounts of derecognition of assets and liabilities of the CS Bulk Group as per this unaudited pro forma financial information are for illustrative purpose only, it is not a conclusive result and the financial impact may be subject to change under certain circumstances.

1. This adjustment is to reflect the effect of the acquisition on the consolidated financial statements of the Group as if the acquisition had taken place on 31 December 2015. This unaudited pro forma financial information is prepared based on application of the Accounting Guideline 5 “Merger Accounting for Common Control Combinations” issued by the Hong Kong Institution of Certified Public Accountants, in which the concept underlying the use of merger accounting to account for a common control combination is that no acquisition has occurred and there has been a continuation of the risks and benefits to the controlling party or parties that existed prior to the combination. Use of merger accounting recognises this by accounting for the combining entities or businesses as though the separate entities or businesses were continuing as before. In applying merger accounting, items of financial statements of the combining entities or businesses for the reporting period in which the common control combination occurs, and for any comparative periods disclosed, are included in the consolidated financial statements of the combined entity as if the combination had occurred from the date when the combining entities or business first came under the control of the controlling party or parties.

The acquisition is considered as business combination under common control as the Company and the Dalian Ocean Group are under the common control of the State-owned Assets Supervision and Administration Commission of the People’s Republic of China.

The management of the Company estimates that the shortfall compensation set out in the Compensation Agreement is remote. The consideration is assumed to be the carrying value of the Dalian Ocean Group as of the acquisition date; and is included in the merger reserve as per presented on the unaudited pro forma financial information.

For illustrative purpose of this unaudited pro forma financial information, only the financial impacts for the year ended 31 December 2015 is presented here.

— IV-10 —

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

On completion, the management of the Company will reassess the accounting policies and accounting treatment in relation to this acquisition. The effects shown on this unaudited pro forma financial information is not a conclusive result and the financial impact may be subject to change under certain circumstances.

1. This adjustment is to reflect the elimination of inter-group balances, transactions and the cash flow movements thereon upon completion of the acquisition.

2. This unaudited pro forma financial information is prepared by assuming that the functional currency of the Group is remain unchanged upon completion of all these transactions.

— IV-11 —

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION

TO THE DIRECTORS OF CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of China Shipping Development Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) by the directors of the Company (the “Directors”) for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma consolidated statement of financial position as at 31 December 2015, the unaudited pro forma consolidated statement of profit or loss and other comprehensive income and the unaudited pro forma consolidated statement of cash flows for the year ended 31 December 2015, and related notes (the “Unaudited Pro Forma Financial Information”) as set out on Appendix IV pages 2 to 11 of the Company’s circular dated 22 April 2016. The applicable criteria on the basis of which the Directors have compiled the Unaudited Pro Forma Financial Information are on Appendix IV page 1 to 2 of the Company’s circular dated 22 April 2016.

The Unaudited Pro Forma Financial Information has been compiled by the Directors to illustrate the impact of proposed acquisition of whole equity interests in Dalian Ocean Shipping Company Limited and disposal of whole equity interests in China Shipping Bulk Carrier Co., Limited (the “Proposed Transactions”) on the Group’s financial position as at 31 December 2015, and the Group’s financial performance and cash flows for the year ended 31 December 2015 as if the Proposed Transactions had taken place at 31 December 2015 and 1 January 2015 respectively. As part of this process, information about the Group’s financial position, financial performance and cash flows have been extracted by the Directors from the Group’s financial statements for the year ended 31 December 2015, on which an annual results announcement has been published.

Directors’ Responsibility for the Unaudited Pro Forma Financial Information

The Directors are responsible for compiling the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” (“AG 7”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

Reporting Accountant’s Responsibilities

We have complied with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the HKICPA, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.

The firm applies Hong Kong Standard on Quality Control 1 and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

— IV-12 —

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing Rules, about whether the Unaudited Pro Forma Financial Information has been complied, in all material respects by the Directors in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 “Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus”, issued by the HKICPA. This standard requires that the reporting accountant complies with ethical requirements and plans and performs procedures to obtain reasonable assurance about whether the Directors have compiled the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the Unaudited Pro Forma Financial Information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the Unaudited Pro Forma Financial Information.

The purpose of unaudited pro forma financial information included in a circular is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the entity as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the Proposed Transactions at 31 December 2015 or 1 January 2015 would have been as presented.

A reasonable assurance engagement to report on whether the Unaudited Pro Forma Financial Information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the Directors in the compilation of the Unaudited Pro Forma Financial Information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether:

• The related pro forma adjustments give appropriate effect to those criteria; and

• The Unaudited Pro Forma Financial Information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountant’s judgment, having regard to the reporting accountant’s understanding of the nature of the Group, the event or transaction in respect of which the Unaudited Pro Forma Financial Information has been compiled, and other relevant engagement circumstances.

— IV-13 —

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The engagement also involves evaluating the overall presentation of the Unaudited Pro Forma Financial Information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion:

• (a) the Unaudited Pro Forma Financial Information has been properly compiled, in all material respects, by the Directors on the basis stated;

• (b) such basis is consistent with the accounting policies of the Group; and

• (c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Baker Tilly Hong Kong Limited

Certified Public Accountants

Hong Kong,

Tong Wai Hang

Practising certificate number P06231

— IV-14 —

SUMMARY OF THE VALUATION REPORTS

APPENDIX V

1. Dalian Ocean Shipping Co., Ltd.

SUMMARY

I. Economic Behavior Corresponding to the Valuation

The Economic Behavior Corresponding to the Valuation is about China Ocean Shipping (Group) Company proposed to transfer all the shareholder’s equity held by it in Dalian Ocean Shipping Co., Ltd..

II. Purpose of Valuation

The purpose of the valuation is to provide a value reference for the economic behavior in relation to the proposed transfer by China Ocean Shipping (Group) Company of all its shareholder’s equity in Dalian Ocean Shipping Co., Ltd..

III. Subject and Scope of Valuation

The subject of valuation is all the shareholder’s equity in Dalian Ocean Shipping Co., Ltd..

The scope of valuation covers all assets and liabilities in and off the balance sheet reported by Dalian Ocean Shipping Co., Ltd. as at the valuation base date.

IV. Type of Value

Based on the purpose of valuation and the specific situation of the subject of valuation, market value has been adopted as the type of valuation.

V. Valuation Base Date

31 December 2015

VI. Valuation Approach

The income approach and the asset-based approach have been adopted for the valuation, and the valuation conclusion has been arrived at using the income approach.

VII. Valuation Conclusion and its Validity Period

As at 31 December 2015, being the valuation base date, the carrying value of all shareholders’ equity of Dalian Ocean Shipping Co., Ltd. was RMB6,242.9958 million, while the appraised value was RMB6,628.4552 million, which was RMB385.4594 million or 6.17% higher than its carrying value.

The valuation conclusion is based on the above-mentioned work. Namely, the appraised value of all the shareholder’s equity of Dalian Ocean Shipping Co., Ltd. is RMB6,628.4552 million.

— V-1 —

SUMMARY OF THE VALUATION REPORTS

APPENDIX V

The valuation conclusion is valid only for the economic behavior and purpose of valuation set out in the report.

This valuation report is valid from 31 December 2015 to 30 December 2016.

VIII. Special Matters Affecting the Valuation Conclusion

1. We have investigated the subject of valuation and related assets. Yet, as the ships falling within the scope of valuation were in the process of operating or sailing, the appraising personnel were unable to conduct an on-the-spot inspection of all of them due to such limiting factors as shipping route, berthing place and sailing time. With the assistance of the relevant owners, the appraising personnel implemented appropriate alternative procedures in respect of those ships for which an on-site inspection was not done. They checked the title certificates, construction contracts and related financial records of such ships to confirm the legality and truthfulness of ownership. They also interviewed the assets management personnel of the company, checked the relevant ship inspection reports issued by the marine inspection authority of the State, and checked the technical condition data, repair and maintenance records, daily upkeep records and operation records of such ships to confirm their overall condition.

2. As for the financial asset available for sale, namely 15% of the equity interests of Korea Da-In Ferry Co. Ltd., as we could not have access to the relevant accounting information of the invested entity as at the valuation base date, therefore we set out the book value of such asset in our report.

3. Due to the lack of basis for analyzing the impacts of the liquidity on the value of the subject of valuation, as a result of failure to obtain sufficient statistical data on transactions in the relevant market, no liquidity discount has been taken into account in the valuation.

The users of the report please pay attention to the possible effect on the valuation conclusion and related economic behavior caused by the above special matters.

The above contents have been extracted from the text of the valuation report. Please read the text of the valuation report for details of this valuation project and having a reasonable understanding of the valuation conclusion.

ASSUMPTIONS OF VALUATION

This valuation report and the valuation conclusions are based on the following assumptions:

• (I) Basic Assumptions

• Transactional assumptions. Under the transactional assumptions, it is assumed that all assets to be valued are already in the process of transaction, and the Valuer carries out valuation based on a simulated market, including the transactional conditions of the assets to be valued.

— V-2 —

APPENDIX V

SUMMARY OF THE VALUATION REPORTS

1. Open market assumptions. Under the open market assumptions, it is assumed that the assets to be valued can be transacted in the open market to realize its market value. The market value of such assets is subject to the market mechanisms, and depends on the market quotation rather than an individual transaction. The open market herein refers to a competitive market with adequately developed and well-established market conditions as well as willing buyers and sellers who are equal to have sufficient opportunities and ample time to obtain market information, whereby the transaction is conducted on a willing and reasonable basis on either buyer or seller without any duress or restrictions.

2. In-use and continue-to-use assumptions. Under the in-use and continue-to-use assumptions, it is assumed that the valued assets being used would continue to be used for its current purposes and in the same way after the change of property right and the occurrence of asset business.

(II) 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 enterprise to be valued 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 valued enterprise runs on a going concern basis according to the actual conditions of the assets on the valuation base date.

3. It is assumed that the current and future operators and managers of the enterprise to be valued exercise due diligence, and the management of such enterprise are competent in discharging their duties to ensure that the enterprise to be valued is able to operate on a going concern basis, the development, production, and operation plans of which can be fulfilled as scheduled.

4. It is assumed that the enterprise to be valued is in full compliance with all relevant laws and regulations in the country, without committing any significant violation that prejudices corporate development and revenue.

5. It is assumed that the accounting policies to be adopted by such enterprise in the future are basically identical to those adopted during the preparation of this reporting material aspects.

6. It is assumed that, based on its current management approaches and standards, the enterprise’s scope and model of business will remain consistent with the current orientation.

7. It is assumed that there will be no material changes in the requirements currently implemented or determined to be implement regarding the relevant interest rates, exchange rates, taxation bases and tax rates, and government levies.

— V-3 —

SUMMARY OF THE VALUATION REPORTS

APPENDIX V

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

According to the requirements of the asset valuation, these assumptions are deemed to be valid on the valuation base date. We will not accept any responsibility for any different valuation conclusions resulting from any changes in these assumptions when the economic environment changes significantly in future.

2. China Shipping Bulk Carrier Co., Ltd.

SUMMARY

I. Economic Behavior Corresponding to the Valuation

China Shipping Development Co., Ltd. proposed to transfer its 100% equity interests in China Shipping Bulk Carrier Co., Ltd. to China Ocean Shipping (Group) Company.

Such economic behavior has been approved by China Ocean Shipping (Group) Company and China Shipping (Group) Company under the Resolutions of the 52th Meeting of the First Board of Directors of China Ocean Shipping (Group) Company (10 December 2015), the Resolutions of the 47th Meeting of the First Board of Directors of China Shipping (Group) Company (10 December 2015), the Approval Reply Regarding the Proposed Material Assets Restructuring of China Shipping Development Co., Ltd. (ZhongHaiFa [2015]No.642) and the List of Resolutions of the Office Meeting of General Manager (ZhongHai Ban Gong Hui [2015]No. 38-2 (Zong No.136)).

II. Purpose of Valuation

The purpose of the valuation is to provide a value reference for the economic behavior in relation to the proposed transfer by China Shipping Development Co., Ltd. of its 100% equity interests in China Shipping Bulk Carrier Co., Ltd. to China Ocean Shipping (Group) Company.

III. Subject and Scope of Valuation

1. Subject of Valuation

The subject of valuation is the 100% equity interests held by China Shipping Development Co., Ltd. in China Shipping Bulk Carrier Co., Ltd..

2. Scope of Valuation

The scope of valuation covers all assets and liabilities in and off the balance sheet reported by China Shipping Bulk Carrier Co., Ltd. as at the valuation base date.

IV. Type of Value

Market value.

— V-4 —

SUMMARY OF THE VALUATION REPORTS

APPENDIX V

V. Valuation Base Date

31 December 2015

VI. Valuation Approach

The income approach and the asset-based approach have been adopted for the valuation, and the valuation conclusion has been arrived at using the income approach.

VII. Valuation Conclusion and its Validity Period

As at 31 December 2015, being the valuation base date, the appraised value of all the shareholders’ equity of China Shipping Bulk Carrier Co., Ltd. was RMB5,392.2216 million, which was RMB94.5607 million or 1.78% higher than its carrying value RMB5,297.6609 million (as calculated on the basis of individual accounting statements).

The valuation conclusion is that the appraised value of the 100% equity interests held by China Shipping Development Co., Ltd. in China Shipping Bulk Carrier Co., Ltd. is RMB5,392.2216 million.

The valuation results stated in the valuation report is valid for one year from 31 December 2015 (i.e. the valuation base date) to 30 December 2016.

VIII. Special Matters Affecting the Valuation Conclusion

(1) China Shipping Bulk Carrier Co., Ltd.

1. Mortgage matters of China Shipping Bulk Carrier Co., Ltd. as at the valuation base date are as follows:

Unit: RMB Yuan

				Expiration		Balance of
			Starting Date	Date of	Amount of	Loan as at
	Name of		of Mortgage	Mortgage	Financing	the Valuation
Mortgagor	Mortgaged Ship	Mortgagee	Contract	Contract	Contract	Base Date
CS Bulk	Bao Ri Ling, BaoYue	The Export-Import Bank	2014.12.05	2026.12.05	538,345,862	520,400,999.93
	Ling, Bao Xiang Ling,	of China
	Bao An Ling
CS Bulk	Bao Chen Ling,	The Export-Import Bank	2015.06.18	2026.12.05	256,817,484	256,817,484
	Bao Guang Ling	of China
CS Bulk	Bao Da Ling	The Export-Import Bank	2015.06.26	2026.12.05	127,396,269	127,396,269
		of China
CS Bulk	Bao Ren Ling	The Export-Import Bank	2015.09.28	2026.12.05	125,029,674	125,029,674
		of China
CS Bulk	Bao Xing Ling, Bao	The Export-Import Bank	2015.01.21	2026.12.05	269,172,931	269,172,931
	Ning Ling	of China

— V-5 —

SUMMARY OF THE VALUATION REPORTS

APPENDIX V

1. Guarantee matters of China Shipping Bulk Carrier Co., Ltd. as at the valuation base date are as follows:

Date of Occurrence Actually (Execution Term of Guaranteed Mode of Guaranteed Date of Guarantee No. Guarantor Party Lender Guarantee Amount Agreement) (year) 1 CS Bulk Guangzhou Guangzhou Guarantee with Up to 50% of 2015.04.21 One year after Development Development limited liability the Entrusted the maturity Shipping Co., Fuel Group Loan Contract, date of loan Ltd. Co., Ltd. with a principal of RMB50 million 2 China Shipping CS Bulk The ExportJoint and RMB1.6 billion 2014.12.05 12 years (Group) Import Bank of several liability Company China

1. Litigation matters of China Shipping Bulk Carrier Co., Ltd. as at the valuation base date are as follows:

Name of Opposite Brief Description of Amount of Receiving No. Case No. Ship Side Case Dispute Company Progress 1 [2014] Min Bi Hua Xiamen Bi Huan Shan collided RMB18.88 CS Bulk Currently MinZhongZi Shan Lipeng with Lipeng No.1 of the million People’s No. 1103 Shipping other side, resulting in reviewing Co., Ltd. losses of shipsan raised by cargoes. Lipend No.1 sank in the collision and second was salvaged and judgment repaired later. CS Bulk liability has set up a liability and has limitation fund of the RMB23 million claims

Currently the Supreme People’s Court is reviewing the request raised by CS Bulk for re-consideration of the second instance judgment in respect of liability for the collision and has yet to decide on the request. Some of the claims made by 22 owners of cargoesare also waiting for judgment. The insurance company will be liable for compensation.

— V-6 —

SUMMARY OF THE VALUATION REPORTS

APPENDIX V

1. Long-term Equity Investment—(1-3)Explanation of Particular Matters Relating to Shanghai Youhao Shipping Co., Ltd.

Mortgage matters of Shanghai Youhao Shipping Co., Ltd. as at the valuation base date are as follows:

Unit: RMB Yuan

						Balance of
			Starting	Expiration		Loan as at
			Date of	Date of	Amount of	the
	Name of		Mortgage	Mortgage	Financing	Valuation
Mortgagor	Mortgaged Ship	Mortgagee	Contract	Contract	Contract	Base Date
Shanghai Youhao	Youhao No.1,	Shanghai Hongkou	2014.6.25	2021.6.25	400,000,000	253,595,690
Shipping Co., Ltd.	Youhao No.2	Branch, Bank of
	Youhao No,.3	Communications;
		China Shipping
		Finance Company
		Limited

1. Long-term Equity Investment—(1-4)Explanation of Particular Matters Relating to Guangzhou Development Shipping Co., Ltd.

Mortgage matters of Guangzhou Development Shipping Co., Ltd. as at the valuation base date are as follows:

Unit: RMB Yuan

						Balance of
			Starting	Expiration		Loan as at
			Date of	Date of	Amount of	the
	Name of		Mortgage	Mortgage	Financing	Valuation
Mortgagor	Mortgaged Ship	Mortgagee	Contract	Contract	Contract	Base Date
Guangzhou	GD No.1	Guangdong Branch,	2009.3.27	2022.3.26	201,600,000	141,120,000
Development		China Construction
Shipping Co., Ltd.		Bank
	GD No.2		2009.4.28	2022.4.27	201,600,000	141,120,000
	GD No.5		2009.4.28	2022.4.27	150,000,000	105,000,000
	GD No.3	Guangzhou Branch,	2009.03.17	2021.03.26	500,000,000	245,000,000
		China CITIC Bank

— V-7 —

SUMMARY OF THE VALUATION REPORTS

APPENDIX V

1. Long-term Equity Investment—(1-6)Explanation of Particular Matters Relating to Guangzhou Jinghai Shipping Co., Ltd.

Unit: RMB Yuan

							Balance of
				Starting	Expiration		Loan as at
				Date of	Date of	Amount of	the
		Name of		Mortgage	Mortgage	Financing	Valuation
Mortgagor		Mortgaged Ship	Mortgagee	Contract	Contract	Contract	Base Date
Guangzhou	Jinghai	Jinghai Chang	Guangdong Branch,	2015.12.23	2025.12.22	68,460,000	21,000,000
Shipping	Co., Ltd.		the Export-Import
			Bank of China

1. Long-term Equity Investment—(1-7)Explanation of Particular Matters Relating to Tianjin ZhonghaiHuarun Shipping Co., Ltd.

Mortgage matters of Tianjin ZhonghaiHuarun Shipping Co., Ltd. as at the valuation base date are as follows:

Unit: RMB Yuan

						Balance of
			Starting	Expiration		Loan as at
			Date of	Date of	Amount of	the
	Name of		Mortgage	Mortgage	Financing	Valuation
Mortgagor	Mortgaged Ship	Mortgagee	Contract	Contract	Contract	Base Date
Tianjin ZhonghaiHuarun	Huarun Power No. 7		2014.10.22	2024.3.29
Shipping Co., Ltd.
Tianjin ZhonghaiHuarun	Huarun Power No. 8		2014.10.22	2024.3.29
Shipping Co., Ltd.
Tianjin ZhonghaiHuarun	Huarun Power No. 9	TEDA Branch,	2014.10.22	2024.3.29	844,800,000	685,384,000
Shipping Co., Ltd.		Agricultural
Tianjin ZhonghaiHuarun	Huarun Power No. 10	Bank of China	2014.10.22	2024.3.29
Shipping Co., Ltd.
Tianjin ZhonghaiHuarun	Zhonghai Huarun No. 1		2014.10.22	2024.3.29
Shipping Co., Ltd.

— V-8 —

SUMMARY OF THE VALUATION REPORTS

APPENDIX V

• (6) Long-term Equity Investment—(1-8)Explanation of Particular Matters Relating to Shanghai Jiahe Shipping Co., Ltd.

Unit: RMB Yuan

Balance of Starting Expiration Loan as at Date of Date of Amount of the Name of Mortgage Mortgage Financing Valuation Mortgagor Mortgaged Ship Mortgagee Contract Contract Contract Base Date Shanghai Jiahe Jinghe No.1, Jiahe Shen energy Group 2013.6.21 2023.12.21 288,000,000 214,000,000 Shipping Co., Ltd. No.2 Finance Company Limited, CS Group Finance Co., Ltd., Shanghai Branch of Shanghai Pudong Development Bank, Shanghai Hongkou Sub-branch of Bank of Communications, Shanghai Branch of Guangdong Development Bank

• (7) Long-term Equity Investment — (1-12)Explanation of Particular Matters Relating to Hong Kong HaiBao Shipping Co., Ltd.

Mortgage matters of Hong Kong HaiBao Shipping Co., Ltd. as at the valuation base date are as follows:

							Balance of
							Borrowing as
							at the
		Name of		Execution	Term and	Amount of	Valuation
		Mortgaged		Time of Debt	Maturity Date	Borrowing	Base Date
No.	Mortgagor	Ship	Mortgagee	Contract	of Debt	(US$)	(US$)
1	Ren Da	Ren Da	The Bank of	2008.4.24	2020.6.18	64,640,000	29,088,000
	Shipping S.A.		Tokyo-Mitsubishi
			UFJ
2	Yi Da Shipping	Yi Da	Bank of China	2010.11.30	2021.5.30	57,600,000	31,680,000
	S.A.		(Hong Kong)
3	Lida Shipping	Lida and Zhida	Hong Kong	2011.6.23	2021.11.3	72,128,000	43,276,800
	S.A.		Branch, Bank
			of
			Communications

— V-9 —

APPENDIX V

SUMMARY OF THE VALUATION REPORTS

							Balance of
							Borrowing as
							at the
		Name of		Execution	Term and	Amount of	Valuation
		Mortgaged		Time of Debt	Maturity Date	Borrowing	Base Date
No.	Mortgagor	Ship	Mortgagee	Contract	of Debt	(US$)	(US$)
4	Zhida Shipping	Lida and Zhida	Hong Kong	2011.6.23	2022.1.16	72,128,000	46,883,200
	S.A.		Branch, Bank
			of
			Communications
5	Fenghua	Fenghua and	Tokyo	2012.11.13	2022.1.31	52,630,000	40,246,472
	Shipping S.A.	Guanghua	Sub-branch,
	(MV FengHua)		Bank of
			Communications
6	Fenghua	Fenghua and	Tokyo	2012.11.13	2022.6.10	25,385,387	19,412,355
	Shipping S.A.	Guanghua	Sub-branch,
	(MV Wen De)		Bank of
			Communications
7	Guanghua	Fenghua and	Tokyo	2012.11.13	2022.3.31	52,630,000	40,246,472
	Shipping S.A.	Guanghua	Sub-branch,
	(MV		Bank of
	GuangHua)		Communications
8	Guanghua	Fenghua and	Tokyo	2012.11.13	2022.7.20	25,385,387	20,905,613
	Shipping S.A.	Guanghua	Sub-branch,
	(MV Ming De)		Bank of
			Communications

— V-10 —

SUMMARY OF THE VALUATION REPORTS

APPENDIX V

• (8) Long-term Equity Investment—(1-13)Explanation of Particular Matters Relating to Shanghai Times Shipping Co., Ltd.

Mortgage matters of Shanghai Times Shipping Co., Ltd. as at the valuation base date are as follows:

			Starting	Expiration		Balance of
			Date of	Date of	Amount of	Loan as at
	Name of		Mortgage	Mortgage	Financing	the Valuation
Mortgagor	Mortgaged Ship	Mortgagee	Contract	Contract	Contract	Base Date
Shanghai Times	Yinzhi	Pudong	2009.04.08	2017.04.21	225,000,000	84,375,000
Shipping Co., Ltd.		Development Area
		Sub-branch, Bank
		of China
Shanghai Times	Yinjie	Waitan Sub-branch,	2010.12.24	2018.04.15	220,462,800	68,894,625
Shipping Co., Ltd.		ICBC
Shanghai Times	Times 20	Pudong	2010.01.22	2018.01.22	305,000,000	114,375,000
Shipping Co., Ltd.		Development Area
		Sub-branch, Bank
		of China
Shanghai Times	Yinping	Pudong	2010.01.22	2018.01.22	175,860,000	65,947,500
Shipping Co., Ltd.		Development Area
		Sub-branch, Bank
		of China
Shanghai Times	Yinneng	Pudong	2010.01.22	2018.01.22	176,040,000	66,015,000
Shipping Co., Ltd.		Development Area
		Sub-branch, Bank
		of China
Shanghai Times	Yinlian	Pudong	2010.01.08	2018.01.08	225,000,000	84,375,000
Shipping Co., Ltd.		Development Area
		Sub-branch, Bank
		of China
Shanghai Times	Times 21	Waitan Sub-branch,	2010.01.22	2018.01.22	306,114,100	114,792,409.50
Shipping Co., Ltd.		ICBC
Shanghai Times	Yindada	Waitan Sub-branch,	2011.01.10	2018.07.08	220,462,800	82,673,550
Shipping Co., Ltd.		ICBC
Shanghai Times	Times 11	Pudong	2010.12.27	2020.12.27	181,868,700	136,401,573
Shipping Co., Ltd.		Development Area
		Sub-branch, Bank
		of China
Shanghai Times	Yinrui	Business	2011.01.07	2020.12.20	101,568,285	97,568,258
Shipping Co., Ltd.		Department of
		Shanghai Banch,
		China Merchants
		Bank

— V-11 —

APPENDIX V

SUMMARY OF THE VALUATION REPORTS

			Starting	Expiration		Balance of
			Date of	Date of	Amount of	Loan as at
	Name of		Mortgage	Mortgage	Financing	the Valuation
Mortgagor	Mortgaged Ship	Mortgagee	Contract	Contract	Contract	Base Date
Shanghai Times	Yinxue	Business	2011.01.07	2020.12.20	101,568,285	97,568,258
Shipping Co., Ltd.		Department of
		Shanghai Banch,
		China Merchants
		Bank
Shanghai Times	Yinhe	Waitan Sub-branch,	2011.05.17	2022.01.01	100,829,040	100,829,040
Shipping Co., Ltd.		ICBC
Shanghai Times	Yinnian	Pudong	2011.05.19	2022.01.01	100,829,040	100,829,040
Shipping Co., Ltd.		Development Area
		Sub-branch, Bank
		of China
Shanghai Times	Yinlu	PudongDevelopment	2011.08.23	2019.08.23	140,000,000	80,000,000
Shipping Co., Ltd.		Area Sub-branch,
		Bank of China
Shanghai Times	Times 8	Waitan Sub-branch,	2011.10.01	2020.09.18	181,145,700	113,216,111.72
Shipping Co., Ltd.		ICBC
Shanghai Times	Times 9	Waitan Sub-branch,	2011.10.01	2021.09.06	182,138,100	130,911,709
Shipping Co., Ltd.		ICBC
Shanghai Times	Times 10	Pudong	2010.12.27	2020.12.27	190,000,000	136,543,410
Shipping Co., Ltd.		Development Area
		Sub-branch, Bank
		of China
Shanghai Times	Yinfu	Waitan Sub-branch,	2011.12.27	2020.05.10	139,920,000	78,705,000
Shipping Co., Ltd.		ICBC
Shanghai Times	Yinhao	Waitan Sub-branch,	2012.10.16	2020.12.18	139,920,000	87,450,000
Shipping Co., Ltd.		ICBC
Shanghai Times	Yincai	Waitan Sub-branch,	2012.01.05	2020.10.25	139,920,000	87,450,000
Shipping Co., Ltd.		ICBC

As at the valuation base date, the relevant mortgage registration has not been done for the mortgaged ships above, except for Yinzhi, Times 20, Yinping, Yinneng, Yinlian, Times 8, Yinghe and Times 9 the mortgages of which have been registered with the Maritime Safety Administration.

— V-12 —

SUMMARY OF THE VALUATION REPORTS

APPENDIX V

• (9) Long-term Equity Investment—(1-16)Explanation of Particular Matters Relating to China Shipping Bulk Carrier(Hong Kong) WylexCo., Ltd.

• China Shipping Bulk Carrier(Hong Kong) Co., Ltd.

• (1) Mortgage matters of China Shipping Bulk Carrier (Hong Kong) Co., Ltd. as at the valuation base date are as follows:

• Balance of Loan as at

• Starting Expiration Amount of the Date of Date of Financing Valuation

• Name of Loan Loan Contract Base Date

• Mortgagor Mortgaged Ship Mortgagee Contract Contract (US$) (US$) China Shipping Bulk Jin XiuFeng The Export-Import 2014.7.21 2026.7.21 37,730,000 34,585,833.32 Carrier (Hong (already renamed Bank of China Kong) Co., Ltd. Zhongliang 1), Jin Xia Feng

• China Shipping Bulk CS Xianghe, CS The Export-Import 2014.7.21 2026.7.21 148,620,000 136,584,000 Carrier (Hong Shunhe, CS Bank of China Kong) Co., Ltd. Kanghe, CS Taihe

• (2) Litigation matters of China Shipping Bulk Carrier (Hong Kong) Co., Ltd. as at the valuation base date are as follows:

• Name of Opposite Brief Description of Amount of Receiving

• No. Case No. Ship Side Case Dispute Company Progress 1 [2015] SANKO Uniocean Uniocean defaulted on US$4.65 China Currently Guangzhou GuangHaiFa KING Maritime payment of the million Shipping Maritime Court is Chu Zi Co., Ltd compensation amount as Bulk seeking to serve the No.946 provided in the Carrier complaint upon the settlement agreement (Hong defendant through relating to its default Kong) Co., appropriate ways under the time charter. Ltd. including diplomatic channels.

— V-13 —

SUMMARY OF THE VALUATION REPORTS

APPENDIX V

2. Pin An Shipping Co., Ltd.

Mortgage matters of Pin An Shipping Co., Ltd. as at the valuation base date are as follows:

						Unit: US$
						Balance of
			Starting	Expiration		Loan as at
			Date of	Date of	Amount of	the
	Name of		Loan	Loan	Financing	Valuation
Mortgagor	Mortgaged Ship	Mortgagee	Contract	Contract	Contract	Base Date
Pin An Shipping Co.,	CS Xingwang	The Bank of	2010.03.03	2020.03.03	64,640,000	29,088,000
Ltd.		Tokyo-Mitsubishi,
		Ltd.

3. Hope Shipping Co., Ltd.

Mortgage matters of Hope Shipping Co., Ltd. as at the valuation base date are as follows:

Unit: US$

						Balance of
			Starting	Expiration		Loan as at
			Date of	Date of	Amount of	the
	Name of		Loan	Loan	Financing	Valuation
Mortgagor	Mortgaged Ship	Mortgagee	Contract	Contract	Contract	Base Date
Hope Shipping Co.,	CS Hope	Bank of China	2010.11.29	2020.11.29	64,640,000	32,320,000
Ltd.

4. Ji Xiang Shipping Co., Ltd.

Mortgage matters of Ji Xiang Shipping Co., Ltd. as at the valuation base date are as follows:

						Unit: US$
						Balance of
			Starting	Expiration		Loan as at
			Date of	Date of	Amount of	the
	Name of		Loan	Loan	Financing	Valuation
Mortgagor	Mortgaged Ship	Mortgagee	Contract	Contract	Contract	Base Date
Ji Xiang Shipping Co.,	CS Ji Xiang	Bank of	2011.02.25	2021.02.25	63,112,000	34,711,600
Ltd.		Communications

— V-14 —

SUMMARY OF THE VALUATION REPORTS

APPENDIX V

5. FanHua Shipping Co., Ltd.

Mortgage matters of FanHua Shipping Co., Ltd. as at the valuation base date are as follows:

Unit: US$

						Balance of
			Starting	Expiration		Loan as at
			Date of	Date of	Amount of	the
	Name of		Loan	Loan	Financing	Valuation
Mortgagor	Mortgaged Ship	Mortgagee	Contract	Contract	Contract	Base Date
FanHua Shipping Co.,	CS FanHua	Bank of	2012.02.08	2022.02.08	79,660,000	51,779,000
Ltd.		Communications

6. RongHua Shipping Co., Ltd.

Mortgage matters of RongHua Shipping Co., Ltd. as at the valuation base date are as follows:

Unit: US$

						Balance of
			Starting	Expiration		Loan as at
			Date of	Date of	Amount of	the
	Name of		Loan	Loan	Financing	Valuation
Mortgagor	Mortgaged Ship	Mortgagee	Contract	Contract	Contract	Base Date
RongHua Shipping	CS RongHua	Bank of	2011.12.28	2021.12.28	79,660,000	47,796,000
Co., Ltd.		Communications

1. Shao Hua Shipping Co., Ltd.

Mortgage matters of Shao Hua Shipping Co., Ltd. as at the valuation base date are as follows:

						Unit: US$
						Balance of
			Starting	Expiration		Loan as at
			Date of	Date of	Amount of	the
	Name of		Loan	Loan	Financing	Valuation
Mortgagor	Mortgaged Ship	Mortgagee	Contract	Contract	Contract	Base Date
Shao Hua Shipping	CS Shao Hua	Bank of	2012.4.28	2022.4.28	81,760,000	54,312,000
Co., Ltd.		Communications

— V-15 —

APPENDIX V

SUMMARY OF THE VALUATION REPORTS

8. NianHua Shipping Co., Ltd.

Mortgage matters of NianHua Shipping Co., Ltd. as at the valuation base date are as follows:

Unit: US$

						Balance of
			Starting	Expiration		Loan as at
			Date of	Date of	Amount of	the
	Name of		Loan	Loan	Financing	Valuation
Mortgagor	Mortgaged Ship	Mortgagee	Contract	Contract	Contract	Base Date
NianHua Shipping	CS NianHua	Bank of	2012.06.28	2022.06.28	81,760,000	54,312,000
Co., Ltd.		Communications

9. YingHua Shipping Co., Ltd.

Mortgage matters of Ying Hua Shipping Co., Ltd. as at the valuation base date are as follows:

Unit: US$

						Balance of
			Starting	Expiration		Loan as at
			Date of	Date of	Amount of	the
	Name of		Loan	Loan	Financing	Valuation
Mortgagor	Mortgaged Ship	Mortgagee	Contract	Contract	Contract	Base Date
Ying Hua Shipping	CS Ying Hua	Bank of	2012.6.20	2022.6.20	81,760,000	54,312,000
Co., Ltd.		Communications

10. CaiHua Shipping Co., Ltd.

• (1) Mortgage matters of CaiHua Shipping Co., Ltd. as at the valuation base date are as follows:

						Unit: US$
						Balance of
			Starting	Expiration		Loan as at
			Date of	Date of	Amount of	the
	Name of		Loan	Loan	Financing	Valuation
Mortgagor	Mortgaged Ship	Mortgagee	Contract	Contract	Contract	Base Date
CaiHua Shipping Co.,	CS CaiHua	Bank of	30/1/2013	30/1/2023	81,760,000	61,904,000
Ltd.		Communications

— V-16 —

APPENDIX V

SUMMARY OF THE VALUATION REPORTS

(2) Litigation matters of CaiHua Shipping Co., Ltd. as at the valuation base date are as follows:

		Name of	Opposite	Brief Description of	Amount of	Receiving
No.	Case No.	Ship	Side	Case	Dispute	Company	Progress
1	[2013]	CS CaiHua	Dalian	When berthing without	RMB170	CaiHua	The Court has held three
	DaHaiShi		Nancheng	crew at a shipyard in the	million	Shipping	hearings and Dalian
	Chu Zi		Ships	custody of Dalian			Shipbuilding Industry
	No.52		Repair Co.,	Shipbuilding Industry			Company took part in
			Ltd.	Company, CS CaiHua			the litigations a third
				got out of control due to			party. As the calculation
				strong wind and collided			of damages to the
				with the floating dock of			floating dock is
				Nancheng Shipyard.			complex, the actual
							losses are hard to
							determine. The case is
							being processed now.
							The insurer shall be
							liable of compensation.
2	[2013] Da	CS CaiHua	Dalian	When berthing without	RMB1.3	CaiHua	The Court has held a
	Hai Shi		COSCO	crew at a shipyard in the	million	Shipping	hearing and Dalian
	Chu Zi		Shipyard	custody of Dalian			Shipbuilding Industry
	No.77		Co., Ltd.	Shipbuilding Industry			Company took part in
				Company, CS CaiHua			the litigations a third
				got out of control due to			party. The case is being
				strong wind and collided			processed now. The
				with the dock of Dalian			insurer shall be liable of
				COSCO Shipyard.			compensation.

— V-17 —

APPENDIX V

SUMMARY OF THE VALUATION REPORTS

		Name of	Opposite	Brief Description of	Amount of	Receiving
No.	Case No.	Ship	Side	Case	Dispute	Company	Progress
3	[2015]	CS CaiHua,	WISCO	These two ships were	US$13.49	As of the	Currently the parties are
	CMAC	CS	International	built exclusively for a	million	valuation	endeavoring to reach a
	Jing Zi	NianHua	Economic	long-term COA		base date,	settlement through
	No.000855		& Trading	(Contract of		the	consultations. The
			Corp., Ltd.	Affreightment) with		receiving	parties have agreed to
				WISCO International.		company	suspend the arbitration
				Upon delivery, these two		has not	proceedings, and CMAC
				ships were registered as		been	issued a suspension
				single-ship companies.		determined.	notice on 22 October
				The delay of the			2015.
				counter-party in
				designating the loading
				port for the first
				shipment has resulted in
				losses, in respect of
				which CS Development
				has brought the
				arbitration as a party to
				the contract.

11. JiaHui Shan Shipping Co., Ltd.

Mortgage matters of JiaHui Shan Shipping Co., Ltd. as at the valuation base date are as follows:

						Unit: US$
						Balance of
						Loan as at
			Starting	Expiration	Amount of	the
			Date of	Date of	Financing	Valuation
	Name of		Loan	Loan	Contract	Base Date
Mortgagor	Mortgaged Ship	Mortgagee	Contract	Contract	(US$)	(US$)
JiaHui Shan Shipping	JiaHui Shan	The Bank of	2011.09.21	2021.09.21	22,000,000	13,200,000
Co., Ltd.		Tokyo-Mitsubishi,
		Ltd.

— V-18 —

SUMMARY OF THE VALUATION REPORTS

APPENDIX V

12. Jia Long Shan Shipping Co., Ltd.

Mortgage matters of Jia Long Shan Shipping Co., Ltd. as at the valuation base date are as follows:

						Unit: US$
						Balance of
			Starting	Expiration		Loan as at
			Date of	Date of	Amount of	the
	Name of		Loan	Loan	Financing	Valuation
Mortgagor	Mortgaged Ship	Mortgagee	Contract	Contract	Contract	Base Date
Jia Long Shan	Jia Long Shan	The Bank of	2011.09.21	2021.09.21	22,000,000	13,200,000
Shipping Co., Ltd.		Tokyo-Mitsubishi,
		Ltd.

13. Jia Mao Shan Shipping Co., Ltd.

Mortgage matters of Jia Mao Shan Shipping Co., Ltd. as at the valuation base date are as follows:

						Unit: US$
						Balance of
			Starting	Expiration		Loan as at
			Date of	Date of	Amount of	the
	Name of		Loan	Loan	Financing	Valuation
Mortgagor	Mortgaged Ship	Mortgagee	Contract	Contract	Contract	Base Date
Jia Mao Shan	Jia Mao Shan	The Bank of	2011.12.13	2012.12.13	22,000,000	13,200,000
Shipping Co., Ltd.		Tokyo-Mitsubishi,
		Ltd.

— V-19 —

APPENDIX V

SUMMARY OF THE VALUATION REPORTS

14. Jia Sheng Shan Shipping Co., Ltd.

Mortgage matters of Jia Sheng Shan Shipping Co., Ltd. as at the valuation base date are as follows:

Unit: US$

Balance of Starting Expiration Loan as at Date of Date of Amount of the Name of Loan Loan Financing Valuation Mortgagor Mortgaged Ship Mortgagee Contract Contract Contract Base Date Jia Sheng Shan Jia Sheng Shan The Bank of 2011.09.21 2021.09.21 22,000,000 13,200,000 Shipping Co., Ltd. Tokyo-Mitsubishi, Ltd.

• (11) We have investigated the subject of valuation and related assets. Yet, as the ships falling within the scope of valuation were in the process of operating and sailing, the appraising personnel were unable to conduct an on-the-spot inspection of the ships due to such limiting factors as shipping route, berthing place and sailing time. With the assistance of the relevant owners, the appraising personnel implemented appropriate alternative procedures in respect of those ships for which an on-site inspection was not done. They checked the title certificates, construction contracts and related financial records of such ships to confirm the legality and truthfulness of ownership.They also interviewed the assets management personnel of the company, checked the relevant ship inspection reports issued by the marine inspection authority of the State, and checked the technical condition data, repair and maintenance records, daily upkeep records and operation records of such ships to confirm their overall condition.

• (12) The exchange rate used in the valuation is the exchange rate on the valuation base date, being 6.4936, and the impacts of exchange rate fluctuation on the valuation is not taken into account.

• (13) Due to the lack of basis for analyzing the impacts of the control factor and liquidity on the value of the subject of valuation, as a result of failure to obtain sufficient statistical data on transactions in the relevant market, no control premium or liquidity discount has been taken into account in the valuation.

Users of this report are advised to pay attention to the potential effect that the aforesaid special matters may have on the valuation conclusion and the proposed economic bahavior.

— V-20 —

SUMMARY OF THE VALUATION REPORTS

APPENDIX V

The above contents have been extracted from the text of the asset valuation report. Please read the text of the asset valuation report for details of this valuation project and having a reasonable understanding of the valuation conclusion.

ASSUMPTIONS OF VALUATION

This valuation report and the valuation conclusions are based on the following assumptions:

• (I) Basic Assumptions

• Transactional assumptions. Under the transactional assumptions, it is assumed that all assets to be valued are already in the process of transaction, and the Valuer carries out valuation based on a simulated market, including the transactional conditions of the assets to be value.

• Open market assumptions. Under the open market assumptions, it is assumed that the assets to be valued can be transacted in the open market to realize its market value. The market value of such assets is subject to the market mechanisms, and depends on the market quotation rather than an individual transaction. The open market herein refers to a competitive market with adequately developed and well-established market conditions as well as willing buyers and sellers who are equal to have sufficient opportunities and ample time to obtain market information,whereby the transaction is conducted on a willing and reasonable basis on either buyer or seller without any duress or restrictions.

• In-use and continue-to-use assumptions. Under the in-use and continue-to-use assumptions, it is assumed that the valued assets being used would continue to be used for its current purposes and in the same way after the change of property right and the occurrence of asset business.

(II) 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 enterprise to be valued resides, significant changes in the political, economic orsocial 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 valued enterprise runs on a going concern basis according to the actual conditions of the assets on the valuation base date.

3. It is assumed that the current and future operators and managers of the enterprise to be valued exercise due diligence, and the management of such enterprise are competent in discharging their duties to maintain the normal operation of the enterprise to be valued so that the development, production, and operation plans of which can be basically fulfilled as scheduled.

— V-21 —

SUMMARY OF THE VALUATION REPORTS

APPENDIX V

1. It is assumed that the enterprise to be valued is in full compliance with all relevant laws and regulations in the country, without committing any significant violation that prejudices corporate development and revenue.

2. It is assumed that the accounting policies to be adopted by such enterprise in the future are basically identical to those adopted during the preparation of this report in material aspects.

3. It is assumed that, based on its current management approaches and standards, the enterprise’s scope and model of business will remain consistent with the current orientation.

4. It is assumed that there will be no material changes in the requirements currently implemented or determined to be implement regarding the relevant interest rates, exchange rates, taxation bases and tax rates, and government levies.

5. It is assumed that the terms of various business qualifications of the enterprise are renewable.

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

According to the requirements of the asset valuation, these assumptions are deemed to be valid on the valuation base date. We will not accept any responsibility for any different valuation conclusions resulting from any changes in these assumptions when the economic environment changes significantly in future.

— V-22 —

GENERAL INFORMATION

APPENDIX VI

1. RESPONSIBILITY STATEMENT

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

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

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

3. INTERESTS OR SHORT POSITIONS OF SUBSTANTIAL SHAREHOLDERS OR OTHER PERSONS IN THE SHARES OR UNDERLYING SHARES

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

				Percentage in the	Percentage in
	Class of	Number of		relevant class of	total share
Name	shares	shares held	Capacity	share capital	capital
				(%)	(%)
China Shipping	A Shares	1,554,631,593(L)	Beneficial owner	56.82	38.56
(Group) Company
GIC Private Limited	H Shares	155,676,000(L)	Investment manager	12.01	3.86
SKAGEN AS	H Shares	80,220,000(L)	Investment manager	6.19	1.99
SKAGEN Kon-Tiki	H Shares	80,220,000(L)	Investment manager	6.19	1.99
Verdipapirfond
Schroders Plc	H Shares	76,944,000(L)	Investment manager	5.94	1.91

— VI-1 —

APPENDIX VI

GENERAL INFORMATION

						Percentage in the	Percentage in
			Class of	Number of		relevant class of	total share
Name			shares	shares held	Capacity	share capital	capital
						(%)
JPMorgan	Chase	&	Co.H Shares	66,043,046(L)	Interest of	5.10	1.64
				439,000(S)	corporation	0.03	0.01
				23,793,500(P)	controlled by	1.84	0.59
					substantial
					shareholder

• (L) Long positions, (S) Short positions, (P) Lending pool

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

4. SERVICE CONTRACTS

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

5. DIRECTORS’ AND SUPERVISORS’ INTERESTS

As at the Latest Practicable Date:

• (a) none of the Directors or supervisors of the Company had any direct or indirect interest in any assets which had been, since 31 December 2015 (the date to which the latest published audited accounts of the Company were made up) acquired, disposed of by or leased to any member of the Group, or were proposed to be acquired, disposed of by or leased to any member of the Group; and

• (b) none of the Directors or supervisors of the Company was materially interested in any contract or arrangement subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group.

— VI-2 —

GENERAL INFORMATION

APPENDIX VI

6. COMPETING INTERESTS

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

7. EXPERT’S QUALIFICATIONS AND CONSENT

The following are the qualifications of the experts whose name/advices and/or reports are contained in this circular:

Name Qualification TC Capital Asia Limited a corporation licensed to carry out type 1 (dealing in securities) and type 6 (advising on Corporate Finance) regulated activities under the SFO Baker Tilly Hong Kong Certified Public Accountants, Hong Kong Limited RSM Hong Kong Certified Public Accountants, Hong Kong China Tong Cheng Assets Independent Asset Valuer Appraisal Co., Ltd.

As at the Latest Practicable Date, each of the experts mentioned above, (i) had no shareholding in any member of the Group and did not have any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group; (ii) had no direct or indirect interest in any assets which had been, since 31 December 2015 (the date to which the latest published audited consolidated financial statements of the Group were made up), acquired, disposed of by, or leased to any member of Group, or were proposed to be acquired, disposed of by, or leased to any member of the Group; and (iii) has given and has not withdrawn its written consent to the issue of this circular the inclusion of its letter and the reference to its name included herein in the form and context in which it appears.

8. LITIGATION

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

9. MATERIAL CONTRACTS

Save for the following material contracts, the Enlarged Group has not entered into any material contract (not being contracts entered into in the ordinary course of business of the Enlarged Group) within the two years immediately preceding the Latest Practicable Date:

• (a) the Asset Transfer Agreement dated 29 March 2016 entered between the Company, COSCO Company and COSCO Bulk in relation to the Proposed Transactions, pursuant to which the Dalian Ocean Consideration is RMB6,628,455,200, and the CS Bulk Consideration is RMB5,392,221,600;

— VI-3 —

GENERAL INFORMATION

APPENDIX VI

• (b) the Compensation Agreement dated 29 March 2016 entered between the Company and COSCO Company.

10. MISCELLANEOUS

• (a) The company secretary of the Company is Ms. Yao Qiaohong (“Ms. Yao”). She is an Affiliated Person of The Hong Kong Institute of Chartered Secretaries.

• (b) The registered address in the PRC of CS Development is Room A-1015, No. 188 Yesheng Road, China (Shanghai) Pilot Free Trade Zone, Shanghai, the PRC and the principal place of business in the PRC of CS Development is No.670 Dongdamin Road, Shanghai, the PRC. The Hong Kong H Share registrar and transfer office of CS Development is Computershare Hong Kong Investor Services Limited at Suite 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

• (c) The English text of this circular shall prevail over their respective Chinese text in case of inconsistency.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the principal place of business of the Company in Hong Kong at 20/F, Alexandra House, Chater Road, Central, Hong Kong from the date of this circular up to 14 May 2016 (both days inclusive):

• (a) the articles of association of CS Development;

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

• (c) the Letter of recommendation from the Independent Board Committee to the Independent Shareholders, the full text of which is set out in the section headed “Letter from the Independent Board Committee” in this circular;

• (d) the Letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, the full text of which is set forth in the section headed “Letter from the Independent Financial Adviser” in this circular;

• (e) the annual reports of CS Development for the years ended 31 December 2013, 2014, and 2015;

• (f) the Accountants’ Reports of Dalian Ocean Shipping Co., Ltd., the full texts of which are set out in Appendix III to this circular;

• (g) the report on the unaudited pro forma financial information of the Enlarged Group from Baker Tilly Hong Kong, the full text of which is set out in Appendix IV to this circular;

• (h) the valuation reports from China Tong Cheng Assets Appraisal Co., Ltd., the summary of which is set out in Appendix V to this circular;

— VI-4 —

GENERAL INFORMATION

APPENDIX VI

• (i) copies of all material contracts as referred to the section headed “Material Contracts” in Appendix VI to this circular;

• (j) letters of consent issued by each expert as referred to in the section headed “Expert’s Qualifications and Consent” in Appendix VI to this circular;

• (k) the Non-competition Undertaking dated 15 June 2011 issued by China Shipping to the Company; and

• (l) a copy of this circular.

— VI-5 —

BIOGRAPHY OF THE PROPOSED DIRECTOR

APPENDIX VII

INFORMATION ON THE PROPOSED EXECUTIVE DIRECTOR

MR. Sun Jiakang (“Mr. Sun”)

Mr. Sun Jiakang (孫家康), born in March 1960 and aged 56. He is currently the Vice President and Party Committee Member of China COSCO Shipping Corporation Limited (中國遠洋海運集團有 限公司). He is currently also an executive director of China COSCO Holdings Company Limited (where its A shares are listed on the Shanghai Stock Exchange (stock code 601919) and its H shares are listed on the main board of the Hong Kong Stock Exchange (stock code 1919)). Mr. Sun was an executive director and the chairman of COSCO International Holdings Limited (where its H shares are listed on the main board of the Hong Kong Stock Exchange (stock code 0517)) from September 2013 to March 2016. He was formerly the vice Deputy Head of Shipping Division of COSCO Tianjin, the Deputy Manager (and later the Manager) of Container Transport Division III, Manager of Container Transport Division II of COSCO Container Lines Headquarters, General Manager of Transportation Division of COSCO Group, Assistant to the President of COSCO Group, Spokesperson of COSCO Group, Executive Vice President of COSCO Hong Kong(Group) Ltd., Vice-Chairman and President of COSCO Pacific Co., Ltd, Executive Vice President and Deputy Secretary of The CPC Committee of China COSCO Holdings Company Limited, President of COSCO Container Lines Ltd, Deputy Secretary of the CPC Committee of COSCO Container Lines Ltd. He also worked as the Executive Vice President, Member of Party Committee, and Secretary of the Board of Directors of the COSCO Group. He has been working in shipping industry for over 30 years, and has abundant expertise in container shipping, terminal operation, vessel chartering, and logistics, as well as abundant experience in corporation management, capital operation, and listed company management. Mr. Sun Jiakang is a senior engineer, and holds the Master’s Degree of Dalian Maritime University. He studied transportation planning and management.

It is proposed that subject to approval by the Shareholders, Mr. Sun will enter into a service contract with the Company for his election as an executive director for a term from the date of Shareholders’ approval on his election up to 17 June 2018 (or the date of the Company’s AGM in 2018, whichever is earlier). Pursuant to such proposed service contract, Mr. Sun will not receive any remuneration from the Group as a director. Such service contract will be subject to termination by either the Company or Mr. Sun by giving at least three months’ prior notice in writing. The notice of the AGM to be convened to, among other things, approve the appointment of Mr. Sun was sent to the Shareholders on 1 April 2016.

Save as disclosed above, Mr. Sun does not hold any other position with the Company or other members of the Group and does not have any relationship with any director, member of senior management or substantial or controlling shareholder of the Company. Save as disclosed above, Mr. Sun does not and has not, in the past three years, held any directorships in any other public companies the securities of which are listed on any securities market in Hong Kong or overseas. Mr. Sun does not have any interest in the shares of the Company within the meaning of Part XV of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).

Save as disclosed above, there is no other information relating to Mr. Sun that needs to be disclosed pursuant to Rules 13.51(2)(h) to (v) of the Listing Rules. There is no other matter which needs to be brought to the attention of the Shareholders in respect of Mr. Sun’s appointment as an executive director of the Company.

— VII-1 —