Dida Inc. - Proxy Solicitation & Information Statement 2017

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities of COSCO SHIPPING Energy Transportation Co., Ltd..

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

(a joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 01138)

(1) PROPOSED NON-PUBLIC ISSUANCE OF A SHARES (2) CONNECTED TRANSACTION — PROPOSED SUBSCRIPTION OF A SHARES BY THE CONTROLLING SHAREHOLDER (3) PROPOSED ADOPTION OF SHAREHOLDERS RETURN PLAN (4) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION (5) WHITEWASH WAIVER UNDER THE TAKEOVERS CODE

(6) MAJOR TRANSACTION: CONSTRUCTION OF NEW VESSELS

(7) SPECIAL DEAL AND

(8) SUPPLEMENTAL NOTICE OF EXTRAORDINARY GENERAL MEETING

Independent Financial Adviser to the Independent Board Committee and Independent Shareholders

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

A letter from the Board is set out on pages 7 to 39 of this circular. A letter from the Independent Board Committee to the Independent Shareholders is set out on pages 40 to 41 of this circular. A letter from Messis Capital Limited, the Independent Financial Adviser, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 42 to 84 of this circular.

A notice convening the EGM to be held at 9:30 a.m. on Monday, 18 December 2017 at 3rd Floor, Ocean Hotel, No. 1171 Dong Da Ming Road, Hongkou District, Shanghai, the People’s Republic of China was despatched to the Shareholders on 3 November 2017, which is reproduced on pages EGM-1 to EGM-5 of this circular. A supplemental notice of EGM relating to the Special Deal, the proposed Amendments to Articles and the Vessel Agreements is set out on pages EGM-6 to EGM-8 of this circular.

A notice convening the H Shares Class Meeting to be held at 9:30 a.m. on Monday, 18 December 2017 at 3rd Floor, Ocean Hotel, No. 1171 Dong Da Ming Road, Hongkou District, Shanghai, the People’s Republic of China was despatched to the Shareholders on 3 November 2017, which is reproduced on pages HCM-1 to HCM-4 of this circular. A supplemental notice of the H Shares Class Meeting relating to the Special Deal is set out on pages HCM-5 to HCM-7 of this circular.

The respective supplemental proxy forms for use at the EGM and the Class Meetings are enclosed. Whether or not you are able to attend the above meetings, please complete and return the enclosed proxy forms in accordance with the instructions printed thereon as soon as practicable and in any event by not less than 24 hours before the time appointed for the holding of the meeting or any adjournment thereof (i) in case of holders of H Shares, to the Company’s Hong Kong branch share registrar, Hong Kong Registrars Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, (ii) in case of holders of A shares, to the Office of the Board of the Company at 18th Floor, 118 Yuanshen Road, Pudong New District Shanghai, the People’s Republic of China. Completion and return of the proxy form will not preclude you from attending and voting in person at the meeting or at any adjourned meetings should you so wish.

* For identification purpose only

4 December 2017

CONTENT

		Page
DEFINITIONS . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		7
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . .		40
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . . . . . .		42
APPENDIX I —	PROPOSAL IN RESPECT OF THE PROPOSED
	NON-PUBLIC ISSUANCE OF A SHARES . . . . . . . . . . . . . .	I-1
APPENDIX II —	FEASIBILITY REPORT ON THE USE OF PROCEEDS
	FROM THE PROPOSED NON-PUBLIC ISSUANCE OF
	A SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
APPENDIX III —	STATEMENT ON THE EXEMPTION FROM THE
	PREPARATION OF A REPORT ON THE UTILISATION
	OF PROCEEDS FROM PREVIOUS FUND RAISING . . . . .	III-1
APPENDIX IV —	REMEDIAL MEASURES REGARDING DILUTION ON
	CURRENT RETURNS BY THE PROPOSED NON-PUBLIC
	ISSUANCE OF A SHARES . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
APPENDIX V —	FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . . .	V-1
APPENDIX VI —	SHAREHOLDERS’ RETURN PLAN . . . . . . . . . . . . . . . . . . . .	VI-1
APPENDIX VII —	PROPOSED AMENDMENTS TO THE COMPANY’S
	ARTICLES OF ASSOCIATION . . . . . . . . . . . . . . . . . . . . . . .	VII-1
APPENDIX VIII —	GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . .	VIII-1
NOTICE OF EGM	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	EGM-1
SUPPLEMENTAL NOTICE OF EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		EGM-6
NOTICE OF H SHARES CLASS MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		HCM-1
SUPPLEMENTAL NOTICE OF H SHARES CLASS MEETING . . . . . . . . . . . . . . . . .		HCM-5

— i —

DEFINITIONS

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

“A Share(s)”

the domestic share(s) in the ordinary share capital of the Company with a par value of RMB1.00 each, which are listed on the Shanghai Stock Exchange

“A Shareholder(s)” holder(s) of A Share(s)
“A Shares Class Meeting” the class meeting of the A Shareholders
“Announcement” the announcement of the Company dated 31 October 2017 in relation to, among other things, the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and the Shareholders’ Return Plan
“Articles of Association”
the articles of association of the Company
“associate(s)” or “close associate(s)”
has the meaning ascribed to it under the Listing Rules
“Average Trading Price”
“Benchmark Price”
the average trading price of the A Shares during the 20 trading days immediately preceding the Price Determination Date, which is calculated by dividing the total turnover of the A Shares by the total trading volume of the A Shares during the 20 trading days immediately preceding the Price Determination Date for illustration purpose only, RMB6.81 being the net asset value per Share set out in the most recent audited consolidated financial statement of the Company as at the Latest Practicable Date
“Board”
the board of directors of the Company
“Cap”
the maximum of 806,406,572 A Shares to be issued pursuant to the Proposed Non-public Issuance of A Shares
“Class Meetings”
the A Shares Class Meeting and the H Shares Class Meeting
“Company” COSCO SHIPPING Energy Transportation Co., Ltd.* (中遠海運能源運輸股份有限公司), a joint stock limited company established in the PRC, whose H shares and A shares are listed on Main Board of the Hong Kong Stock Exchange (Stock Code: 1138) and the Shanghai Stock Exchange (Stock Code: 600026), respectively
“connected person(s)” has the meaning ascribed to it under the Listing Rules

— 1 —

DEFINITIONS

“controlling shareholder”

has the meaning ascribed to it under the Listing Rules

“COSCO Shipping” China COSCO Shipping Corporation Limited* (中國遠洋海運集團有限公司), a PRC state-owned enterprise and the indirect controlling shareholder of the Company

“COSCO Shipping Concert COSCO Shipping and parties acting in concert with it for the Group” purpose of the Takeovers Code, including CSG and its subsidiaries
“CSG” China Shipping (Group) Company* (中國海運(集團)總公司), a PRC state-owned enterprise wholly-owned by COSCO Shipping and the direct controlling shareholder of the Company
“CSRC” China Securities Regulatory Commission (中國證券監督管理委員會)
“Dalian Shipbuilding” Dalian Shipbuilding Industry Company Limited* (大連船舶重工集團有限公司), a Chinese company. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, Dalian Shipbuilding and its ultimate beneficial owners are independent third parties not connected with the Company and its connected persons (as defined in the Listing Rules)
“Director(s)” director(s) of the Company
“EGM”
the extraordinary general meeting of the Company to be convened to consider and, if thought fit, approve, among other things, (i) the Proposed Non-public Issuance of A Shares, (ii) the Subscription, (iii) the Specific Mandate, (iv) the Whitewash Waiver, (v) the Special Deal, (vi) the Shareholders’ Return Plan, (vii) the Proposed Amendments to Articles, and (viii) the Vessel Agreements and the transactions contemplated thereunder
“Executive”
the Executive Director of the Corporate Finance Division of the SFC or any of its delegate(s)
“Group”
the Company and its subsidiaries as at the date of this circular
“H Share(s)”
the overseas listed foreign shares in the ordinary share capital of the Company with a par value of RMB1.00 each, which are listed on Main Board of the Hong Kong Stock Exchange
“H Shareholder(s)”
holder(s) of H Share(s)
“H Shares Class Meeting” the class meeting of the H Shareholders

— 2 —

DEFINITIONS

“HK$”
“HKFRS”
“Hong Kong”
“Hong Kong Stock Exchange”
“Independent Board Committee”
“Independent Financial Adviser”
“Independent Shareholders”
“Independent Third Party(ies)”
“Latest Practicable Date”
“Listing Rules”

Hong Kong dollar, the lawful currency of Hong Kong

the Hong Kong Financial Reporting Standards

the Hong Kong Special Administrative Region of the PRC

The Stock Exchange of Hong Kong Limited

the independent board committee of the Company comprising Mr. Wang Wusheng, Mr. Ruan Yongping, Mr. Ip Sing Chi, Mr. Rui Meng and Mr. Teo Siong Seng being all the independent non-executive Directors, which is formed in accordance with the Listing Rules and the Takeovers Code to advise the Independent Shareholders on the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and the Special Deal

Messis Capital Limited, a corporation licensed to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO, which has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and the Special Deal

Shareholders other than (i) COSCO Shipping and parties acting in concert with it and (ii) all other parties (if any) who are interested or involved in the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and/or the Special Deal

person(s) who are not connected person(s) of the Company

1 December 2017, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained in this circular

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

— 3 —

DEFINITIONS

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

“PRC GAAP”

the Generally Accepted Accounting Principles in the PRC

“PRC Legal Advisers”

Grandall Law Firm (Shanghai), the PRC legal advisers to the Company

“Price Determination Date” the first day of the period when the A Shares are issued under the Proposed Non-public Issuance of A Shares

“Proposed Amendments to the proposed amendments to the Company’s articles of Articles” association, the particulars of which are set out in Appendix VII of this circular “Proposed Non-public Issuance of the proposed non-public issuance of not more than A Shares” 806,406,572 A Shares by the Company to not more than 10 specific target subscribers, including COSCO Shipping which proposes to participate via the Subscription “Relevant Period” the period of six months preceding the date of the Announcement and ending on the Latest Practicable Date “RMB” Renminbi, the lawful currency of the PRC “SASAC” State-owned Assets Supervision and Administration Commission of the State Council of the PRC (中華人民共和國國務院國有資產監督管理委員會) “SFC” the Securities and Futures Commission of Hong Kong “SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as amended and supplemented from time to time “Share(s)” A Share(s) and H Share(s) “Shareholder(s)” holder(s) of Share(s)

— 4 —

DEFINITIONS

“Shareholders’ Return Plan” the shareholders’ return plan for the coming three years (2017-2019) of the Company, the full text of the English translation of the Shareholders’ Return Plan, (original which was prepared in Chinese), is set out in Appendix VI to this circular
“Special Deal” the Proposed Non-public Issuance of A Shares which constitutes a special deal under Rule 25 of the Takeovers Code
“special resolution” votes representing more than two-thirds of voting rights held by Shareholders (including proxies thereof) attending the relevant general meeting
“Specific Mandate” the specific mandate to be sought from the Independent Shareholders at the EGM and the Class Meetings to issue the A Shares under the Proposed Non-public Issuance of A Shares
“Subscription” the proposed subscription of A Shares by COSCO Shipping pursuant to the Subscription Agreement
“Subscription Agreement” the subscription agreement dated 30 October 2017 entered into between the Company and COSCO Shipping, pursuant to which COSCO Shipping has conditionally agreed to subscribe for, and the Company has conditionally agreed to issue, such number of A Shares for an amount of not more than RMB4.2 billion under the Proposed Non-public Issuance of A Shares
“Suezmaxs” three Suezmax crude oil carriers of 158,000 dead weight tons each
“Supervisor(s)” Supervisor(s) of the Company “Takeovers Code” the Hong Kong Code on Takeovers and Mergers “trading day(s)” a day on which the Shanghai Stock Exchange or the Hong Kong Stock Exchange (as the case may be) is open for dealing or trading in securities
“Vessel Agreements” Seven agreements all dated 20 November 2017, each of which is entered into between the Vendor and the Company for the construction of the VLCCs and Suezmaxs

“VLCCs” four very large crude oil carriers of 319,000 dead weight tons each

— 5 —

		DEFINITIONS
“Whitewash	Waiver”	a waiver sought to be granted by the Executive pursuant to
		Note 1 on dispensation from Rule 26 of the Takeovers Code
		in respect of the obligation of COSCO Shipping to make a
		general offer for all the issued A Shares (and a comparable
		offer to acquire all issued H Shares) not already owned by or
		agreed to be acquired by the COSCO Shipping Concert Group
		which may otherwise arise as a result of the Subscription
“%”		per cent

For the purpose of this circular, translation of RMB into HK$ or vice versa have been calculated by using an exchange rate of RMB1.00 equal to HK$1.1783. Such exchange rate has been used, where applicable, for the purpose of illustration only and does not constitute a representation that any amounts were, may have been or will be exchanged at such rate or any other rates or at all.

* For identification purpose only.

— 6 —

LETTER FROM THE BOARD

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

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

(Stock Code: 01138)

Executive Directors Mr. Huang Xiaowen Mr. Liu Hanbo Mr. Lu Junshan

Registered address in the PRC Room A-1015 No. 188 Ye Sheng Road China (Shanghai) Pilot Free Trade Zone People’s Republic of China

Non-executive Directors

Mr. Feng Boming Mr. Zhang Wei Ms. Lin Honghua

Principal place of business in Hong Kong 20/F, Alexandra House 18 Chater Road Central, Hong Kong

Independent Non-executive Directors

Mr. Wang Wusheng Mr. Ruan Yongping Mr. Ip Sing Chi Mr. Rui Meng Mr. Teo Siong Seng

4 December 2017

To the Shareholders,

Dear Sir or Madam,

(1) PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

(2) CONNECTED TRANSACTION —

PROPOSED SUBSCRIPTION OF A SHARES BY THE CONTROLLING SHAREHOLDER

(3) PROPOSED ADOPTION OF SHAREHOLDERS RETURN PLAN

(4) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION

(5) WHITEWASH WAIVER UNDER THE TAKEOVERS CODE

(6) MAJOR TRANSACTION: CONSTRUCTION OF NEW VESSELS

(7) SPECIAL DEAL AND

(8) SUPPLEMENTAL NOTICE OF EXTRAORDINARY GENERAL MEETING

— 7 —

LETTER FROM THE BOARD

I. INTRODUCTION

Reference is made to the Announcement. As disclosed in the Announcement, on 30 October 2017, the Board has approved the Proposed Non-public Issuance of A Shares, pursuant to which the Company will issue a maximum of 806,406,572 A Shares (subject to adjustment) to not more than 10 specific target subscribers, including COSCO Shipping, which would raise gross proceeds of RMB5.4 billion (subject to regulatory approval).

Reference is also made to the announcement dated 20 November 2017 issued by the Company in respect of, among other things, the entering into the Vessel Agreements by the Company in relation to the construction of the Tankers subject to approval by the Shareholders at the EGM.

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

(a) further details of the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver, the Special Deal, the Shareholders’ Return Plan and the Proposed Amendments to Articles;
(b) the letter from the Independent Board Committee to the Independent Shareholders containing its recommendation in respect of the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and the Special Deal;
(c) the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders containing its recommendation in respect of the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and the Special Deal;
(d) further information in relation to the Vessel Agreements; and
(e) the respective supplemental notices of the EGM and the H Shares Class Meeting.

— 8 —

LETTER FROM THE BOARD

II. PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

(1) Details of the Proposed Non-public Issuance of A Shares

The details of the Proposed Non-public Issuance of A Shares are set out below.

Class and par value of Shares to be issued:

A Shares with a par value of RMB1.00 each.

Method and time of issuance:

The Proposed Non-public Issuance of A Shares will be carried out by way of non-public issue of A Shares to not more than 10 specific target subscribers, including COSCO Shipping. The Company will complete the Proposed Non-public Issuance of A Shares within six months after obtaining the approval from the CSRC.

Number of A Shares to be issued:

A maximum of 806,4406,572 A Shares (referred to as the “Cap” below) will be issued under the Proposed Non-public Issuance of A Shares, which represents:

(i) approximately 29.5 % of the existing issued A Shares and approximately 20.0% of the existing total issued share capital of the Company as at the date of the Announcement; and
(ii) approximately 22.8% of the enlarged issued A Shares and approximately 16.7% of the enlarged total issued share capital of the Company upon completion of the Proposed Non-public Issuance of A Shares.

The Cap will be adjusted if there occurs any ex-right or ex-dividend event (such as distribution of dividend, bonus issue, capitalization of capital reserves, additional issuance or placing of new Shares) between date of the Announcement and the date of share issuance under the Proposed Non-public Issuance of A Shares. If dividend is distributed in the form of cash, the cap will remain unchanged as cash dividend has no impact on the equity per Share; whereas if dividend is distributed in the form of share (i.e. scrip dividend), equity per Share will be diluted and the cap will be increased by 20% of the number of Shares being issued as scrip dividend. In the event that there occurs capitalization of capital reserves, additional issuance or placement of new Shares, equity per Share will be diluted and the cap will be increased by 20% of the number of Shares being issued as a result of the relevant events.

— 9 —

LETTER FROM THE BOARD

Subject to the Cap, the Board proposes that the Shareholders at the EGM and the Class Meetings grant to the Board and its authorised person(s) such authority as necessary for determining the final number of A Shares to be issued based on the market conditions and negotiations with the sponsor (the lead manager) with reference to the amount of proceeds to be raised and the actual amount of subscription received.

COSCO Shipping undertakes to subscribe for such number of A Shares for a subscription amount of not more than RMB4.2 billion under the Proposed Non-public Issuance of A Shares.

The Proposed Non-public Issuance of A Shares is not underwritten.

Target subscribers:

The target subscribers for the Proposed Non-public Issuance of A Shares will be not more than 10 specific subscribers (including COSCO Shipping). The target subscribers other than COSCO Shipping include securities investment fund management companies, securities companies, trust investment companies, finance companies, insurance institutional investors, qualified foreign institutional investors and other qualified investors in compliance with applicable laws and regulations. Securities investment fund management companies, which subscribe for the A Shares with two or more of the funds managed by them, shall each be taken as one single subscriber. Trust companies may only subscribe for the A Shares with their own funds.

The H Shareholders are not entitled to subscribe for A Shares under the Proposed Non-public Issuance of A Shares. Please refer to the section headed “VII — Implications under the Takeovers Code — 2. Special Deal in relation to the Proposed Non-public Issuance of A Shares” below for further details.

The final list of subscribers (other than COSCO Shipping) will be determined by the Board and its authorised person(s) with the authorisation by the Shareholders at the EGM and the Class Meetings and the sponsor (the lead manager) based on the price inquiry results in accordance with the price priority principle and applicable laws and regulations, after obtaining the approval documents issued by the CSRC in respect of the Proposed Non-public Issuance of A Shares.

— 10 —

LETTER FROM THE BOARD

As at the Latest Practicable Date, apart from the Subscription Agreement, the Company has not entered into any agreement with any potential subscribers in respect of the Proposed Non-public Issuance of A Shares. The Company currently expects that, with the exception of COSCO Shipping: (i) the A Shares to be issued under the Proposed Non-public Issuance of A Shares will only be issued to subscribers who and whose ultimate beneficial owners are Independent Third Parties, and none of them will become substantial shareholders of the Company nor, together with parties acting in concert with it, would trigger mandatory general offer obligation under the Takeovers Code, upon completion of their respective subscriptions of the A Shares under the Proposed Non-public Issuance of A Shares; and (ii) the subscribers will not be parties acting in concert with COSCO Shipping. The Company will comply with all the relevant requirements of the Listing Rules and the Takeovers Code (if applicable) should there be any changes or if otherwise necessary.

Price Determination Date, issue price and pricing principles:

The Price Determination Date of the Proposed Non-public Issuance of A Shares is the first day of the period when the A Shares are issued under the Proposed Non-public Issuance of A Shares.

The issue price shall not be lower than both (i) 90% of the Average Trading Price and (ii) the net asset value per share as set out at the latest audited consolidated financial statement of the Company. The final issue price will be determined by the Board and its authorised person(s) with the authorisation by the Shareholders at the EGM and the Class Meetings and the sponsor (the lead manager) based on the price inquiry results in accordance with the price priority principle and applicable laws and regulations, after obtaining the approval documents issued by the CSRC in respect of the Proposed Non-public Issuance of A Shares.

All the target subscribers will subscribe for the A Shares under the Proposed Non-public Issuance of A Shares at the same issue price in cash. COSCO Shipping will not participate in the price inquiry exercise for the Proposed Non-public Issuance of A Shares, and will accept the price inquiry results and subscribe for the A Shares at the same issue price as other target subscribers.

— 11 —

LETTER FROM THE BOARD

As at the Latest Practicable Date, given the net asset value per Share as set out in the most recent audited consolidated financial statements of 2016 of the Company is RMB6.81. On such basis, it is expected the minimum issue price would, subject to regulatory approval, be at least RMB6.81 (that is, the Benchmark Price).

The Benchmark Price represents:-

(i) a premium of approximately 11.6% over the closing price of RMB6.10 of the A Shares as at the Latest Practicable Date;
(ii) a premium of approximately 5.58% over the closing price of the Company’s A Shares at RMB6.45 as quoted on the Shanghai Stock Exchange on 26 October 2017, being the last trading day immediately before the date of the Announcement;
(iii) a premium of approximately 5.42% over the average closing price of the A Shares of RMB6.46 as quoted on the Shanghai Stock Exchange for the last five trading days including and up to 26 October 2017; and
(iv) a premium approximately 6.07% over the average closing price of the A Shares of RMB6.42 as quoted on the Shanghai Stock Exchange for the last ten trading days including and up to 26 October 2017.

In the event that the issue price is expected to fall below the Benchmark Price, the Company will re-comply with the necessary approval requirements including, among other things, Independent Shareholders’ approval requirements under the Listing Rules and for a new whitewash waiver under the Takeovers Code. For illustration purpose only, an example where the issue price may fall below the Benchmark Price is if any of (i) 90% of the Average Trading Price and (ii) the net asset value per share as set out at the latest audited consolidated financial statement of the Company immediately preceding the date of issue ended up being less than RMB6.81. The latter scenario may arise if, for example, the Proposed Non-public Issuance of A Shares is undertaken in 2018 and the net asset value per share as set out in the Company’s 2017 audited consolidated financial statement is less than RMB6.81.

— 12 —

LETTER FROM THE BOARD

The issue price will be correspondingly adjusted (taking into account the decrease in value per share attributable to the Company as a result of distribution by the Company) if there occurs any ex-right or ex-dividend event (such as distribution of dividend, bonus issue, capitalization of capital reserves, additional issuance or placing of new Shares) between the Price Determination Date and the date of share issuance under the Proposed Non-public Issuance of the A Shares.

For information purpose only, set out below is the arithmetic calculations in respect of the abovementioned possible adjustment to the issue price:-

(a) If there occurs bonus issue or capitalization of capital reserves, the formula for the adjustment is set out below:

P1 = P0/(1+n)

(b) If there occurs additional issuance or placing of new Shares, the formula for the adjustment is set out below:

P1 = (P0+Axk)/(1+k)

P1 = (P0+Axk)/(1+n+k)

(d) If there occurs distribution of cash dividend, the formula for the adjustment is set out below:

P1 = P0 - D

(e) If (a), (b) and (d) above happen at the same time, the formula for the adjustment is set out below:

P1 = (P0-D+Axk)/(1+n+k)

Where,

(i) P0 is the issue price before adjustment;
(ii) n is the ratio of (A) Shares being issued upon capitalization of capital reserves for each Share, and/or (B) Shares being issued upon distribution of share dividend for each Share by the Company between the Price Determination Date and the date of share issuance under the Proposed Non-public Issuance of the A Shares;

— 13 —

LETTER FROM THE BOARD

(iii) k is the ratio of Shares being issued under additional issuance or placing of new Shares for each Share;
(iv) A is the price at which Shares are issued under additional issuance or placing of new Shares;
(v) D is the amount of cash dividend per Share in RMB distributed by the Company between the Price Determination Date and the date of share issuance under the Proposed Non-public Issuance of the A Shares; and
(vi) P1 is the issue price after adjustment.

Conditions precedent of The Proposed Non-public Issuance of A Shares is conditional the Proposed Non-public upon: Issuance of A Shares:

(i) the obtaining of the approval from the Shareholders at the EGM and the Class Meetings;
(ii) the obtaining of the approval from the SASAC;
(iii) the obtaining of the approval from the CSRC; and
(iv) the obtaining of the Whitewash Waiver and approval of the same by the Independent Shareholders at the EGM.

According to the PRC Legal Advisers, none of the above conditions (i) to (iii) may be waived. The grant of the Whitewash Waiver is a condition precedent to the Proposed Non-public Issuance of A Shares and the Subscription. If the Whitewash Waiver is not granted, the condition precedent on the Whitewash Waiver may be waived so that the Proposed Non-public Issuance of A Shares may still proceed, but the size of the Subscription (in terms of number of A Shares to be issued to COSCO Shipping as a proportion to all A Shares to be issued pursuant to the Proposed Non-public Issuance of A Shares) is expected to be reduced to the extent that COSCO Shipping would not incur any obligation to make a general offer under the Takeovers Code and other subscribers will be invited to subscribe for such portion instead.

An application for the approval of the Proposed Non-public Issuance of A Shares has been submitted to the SASAC on 13 November 2017 by COSCO Shipping.

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LETTER FROM THE BOARD

As at the Latest Practicable Date, no application for the approval of the Proposed Non-public Issuance of A Shares has been submitted to the CSRC by the Company. The Company will submit the application for approval to the CSRC following the approval by the SASAC and by the Independent Shareholders of the Proposed Non-public Issuance of A Shares at the EGM and the Class Meetings, in accordance with applicable laws and regulations in the PRC. Application has also been made to the SFC for the grant of the Whitewash Waiver. Please refer to the section headed “Whitewash Waiver under the Takeovers Code” in this circular for detail.

Lock-up period:

COSCO Shipping shall not transfer the A Shares subscribed under the Proposed Non-public Issuance of A Shares within 36 months from the date of completion of the Proposed Non-public Issuance of A Shares. All other target subscribers shall not transfer the A Shares subscribed under the Proposed Non-public Issuance of A Shares within 12 months from the date of completion of the Proposed Non-public Issuance of A Shares.

Place of listing of the A The Company will apply to the Shanghai Stock Exchange for Shares to be issued: the listing of, and permission to deal in, the A Shares to be issued under the Proposed Non-public Issuance of A Shares. The A Shares to be issued under the Proposed Non-public Issuance of A Shares can be traded on the Shanghai Stock Exchange upon the expiration of the lock-up period.

Use of proceeds:

The gross proceeds to be raised from the Proposed Non-public Issuance of A Shares is RMB5.4 billion (subject to regulatory approval) (inclusive of the subscription for an amount of not more than RMB4.2 billion by COSCO Shipping pursuant to the Subscription Agreement), which are intended to be used in the following manner:

(i) as to approximately RMB4.99 billion for the construction of 14 oil tankers; and
(ii) as to approximately RMB0.41 billion for the completion of acquisition of two Panamax oil tankers previously entered into.

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LETTER FROM THE BOARD

On the above basis, the net proceeds from the Proposed Non-public Issuance of A Shares (after deducting all applicable costs and expenses incurred in connection with the Proposed Non-public Issuance of A Shares estimated to be approximately RMB24 million) are expected to be approximately RMB5.38 billion. To the extent the actual proceeds to be raised from the Proposed Non-public Issuance of A Shares are less than the aggregate amount of the proceeds as per the above allocation, the Company will make up for the shortfall by utilising its internal resources or other means of financing. The Board may make adjustments as to the specific projects, the order of priority and the specific amount allocated for each project based on the net proceeds actually raised. Before the receipt of the proceeds to be raised from the Proposed Non-public Issuance of A Shares, the Company will, depending on the status of the projects, finance these projects by funds raised through other means of financing, which will be substituted by the proceeds raised from the Proposed Non-public Issuance of A Shares in accordance with relevant procedures as required by applicable laws and regulations once the same becomes available.

Please refer to the “Feasibility Report on the Use of Proceeds from the Proposed Non-public Issuance of A Shares” as set out in Appendix II to this circular for further details of the use of proceeds.

Specific Mandate to issue A Shares:

The Company will issue the A Shares under the Specific Mandate to be sought from the Independent Shareholders at the EGM and the Class Meetings.

Rights of the A Shares to be issued:

The A Shares to be issued under the Proposed Non-public Issuance of A Shares, when fully paid and issued, will rank pari passu in all respects amongst themselves and with the A Shares in issue at the time of the issuance of such A Shares, including entitlements as Shareholders to the Company’s undistributed profits accumulated from before the Proposed Non-public Issuance of A Shares.

Validity period of the resolution:

The resolution regarding the Proposed Non-public Issuance of A Shares shall be valid for 12 months from the date of the passing of the resolution at the EGM and the Class Meetings.

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LETTER FROM THE BOARD

(2) Proposal in relation to the Proposed Non-public Issuance of A Shares

Each of the following 10 resolutions in the proposal in relation to the Proposed Non-public Issuance of A Shares will be submitted, by way of special resolutions, for the Independent Shareholders’ consideration and approval at the EGM, the A Shares Class Meeting and the H Shares Class Meeting.

(i) class and par value of shares to be issued;
(ii) method and time of issuance;
(iii) target subscribers and method of subscription;
(iv) Price Determination Date, issue price and pricing principles;
(v) number of A Shares to be issued;
(vi) lock-up period;
(vii) place of listing of the A Shares to be issued;
(viii) amount of proceeds raised and use of proceeds;
(ix) arrangements relating to accumulated profits prior to the Proposed Non-public Issuance of A Shares; and
(x) validity period of the resolutions on the Proposed Non-public Issuance of A Shares.
(3) Proposal in relation to the satisfaction by the Company of the criteria for non-public issuance of A Shares

Pursuant to the Company Law of the PRC, the Securities Law of the PRC, the “Measures for Administration of the Issuance of Securities by Listed Companies” 《上市公司證券發行管理辦法》( ) and the Implementation Rules for the Non-public Issuance of Shares by Listed Companies, the Company, following self-examination and verification of the actual situation and relevant matters of the Company, considers that the Company satisfies all the criteria for non-public issuance of A Shares.

The proposal in relation to the satisfaction of the criteria for non-public issuance of A Shares will be submitted, by way of ordinary resolution, for the Shareholders’ consideration and approval at the EGM.

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LETTER FROM THE BOARD

(4) Proposal in relation to the “Proposal in respect of the Proposed Non-public Issuance of A Shares”

The “Proposal in respect of the Proposed Non-public Issuance of A Shares”, which was prepared in the Chinese language, was disclosed in the overseas regulatory announcement of the Company dated 31 October 2017. The full text of the English translation of the “Proposal in respect of the Proposed Non-public Issuance of A Shares” is set out in Appendix I to this circular. In the event of any discrepancy between the English translation and the Chinese version of the document, the Chinese version shall prevail.

The proposal in relation to the “Proposal in respect of the Proposed Non-public Issuance of A Shares” will be submitted, by way of special resolution, for the Independent Shareholders’ consideration and approval at the EGM, the A Shares Class Meeting and the H Shares Class Meeting.

(5) Proposal in relation to the “Feasibility Report on the Use of Proceeds from the Proposed Non-public Issuance of A Shares”

The “Feasibility Report on the Use of Proceeds from the Proposed Non-public Issuance of A Shares”, which was prepared in the Chinese language, was disclosed in the overseas regulatory announcement of the Company dated 31 October 2017. The full text of the English translation of the “Feasibility Report on the Use of Proceeds from the Proposed Non-public Issuance of A Shares” is set out in Appendix II to this circular. In the event of any discrepancy between the English translation and the Chinese version of the document, the Chinese version shall prevail.

The proposal in relation to the “Feasibility Report on the Use of Proceeds from the Proposed Non-public Issuance of A Shares” will be submitted, by way of special resolution, for the Independent Shareholders’ consideration and approval at the EGM.

(6) Proposal in relation to the exemption from the preparation of a report on the utilisation of proceeds from previous fund raising

The “Statement on the Exemption from the Preparation of a Report on the Utilisation of Proceeds from Previous Fund Raising”, which was prepared in the Chinese language, was disclosed in the overseas regulatory announcement of the Company dated 31 October 2017. The full text of the English translation of the “Statement on the Exemption from the Preparation of a Report on the Utilisation of Proceeds from Previous Fund Raising” is set out in Appendix III to this circular. In the event of any discrepancy between the English translation and the Chinese version of the document, the Chinese version shall prevail.

The proposal in relation to the exemption from the preparation of a report on the utilisation of proceeds from previous fund raising will be submitted, by way of ordinary resolution, for the Shareholders’ consideration and approval at the EGM.

(7) Proposal in relation to the “Remedial Measures Regarding Dilution on Current Returns by the Proposed Non-public Issuance of A Shares”

Pursuant to the requirements set out in the “Opinion of the State Council on Further Facilitating the Healthy Development of the Capital Markets” 《國務院關於進一步促進資本市場健康發展的若干(

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LETTER FROM THE BOARD

意見》), the “Opinions of the General Office of the State Council on Further Strengthening the Protection of the Legitimate Rights and Interests of Minority Investors in the Capital Markets” 《國( 務院辦公廳關於進一步加強資本市場中小投資者合法權益保護工作的意見》) and the “Guidance Opinion on Matters Pertaining to Dilution of Return for the Current Period Resulting from Initial Offering and Refinancing or Material Asset Restructuring” 《關於首發及再融資、重大資產重組攤薄( 即期回報有關事項的指導意見》), the Company has prepared the “Remedial Measures Regarding Dilution on Current Returns by the Proposed Non-public Issuance of A Shares”.

The “Remedial Measures Regarding Dilution on Current Returns by the Proposed Non-public Issuance of A Shares”, which was prepared in the Chinese language, was disclosed in the overseas regulatory announcement of the Company dated 31 October 2017. The full text of the English translation of “Remedial Measures Regarding Dilution on Current Returns by the Proposed Non-public Issuance of A Shares” is set out in Appendix IV to this circular. In the event of any discrepancy between the English translation and the Chinese version of the document, the Chinese version shall prevail.

The proposal in relation to the “Remedial Measures Regarding Dilution on Current Returns by the Proposed Non-public Issuance of A Shares”, will be submitted, by way of ordinary resolution, for the Shareholders’ consideration and approval at the EGM.

(8) Proposal in relation to the undertakings by the relevant persons with regards to the remedial measures regarding dilution on current returns by the Proposed Non-public Issuance of A Shares

Pursuant to the requirements set out in the “Guidance Opinion on Matters Pertaining to Dilution of Return for the Current Period Resulting from Initial Offering and Refinancing or Material Asset Restructuring” 《關於首發及再融資、重大資產重組攤薄即期回報有關事項的指導意見》( ), each of (i) CSG, (ii) COSCO Shipping and (iii) the Directors and senior management of the Company has provided an undertaking to the Company to ensure the due implementation of the “Remedial Measures Regarding Dilution on Current Returns by the Proposed Non-public Issuance of A Shares”.

The form of the aforementioned undertakings was set out in the “Remedial Measures Regarding Dilution on Current Returns by the Proposed Non-public Issuance of A Shares”, which was prepared in the Chinese language and disclosed in the overseas regulatory announcement of the Company dated 31 October 2017. The full text of the English translation of “Remedial Measures Regarding Dilution on Current Returns by the Proposed Non-public Issuance of A Shares” is set out in Appendix IV to this circular. In the event of any discrepancy between the English translation and the Chinese version of the document, the Chinese version shall prevail.

The proposal in relation to the undertakings by the Company’s controlling shareholders, Directors and senior management with regards to the remedial measures regarding dilution on current returns by the Proposed Non-public Issuance of A Shares, will be submitted, by way of ordinary resolution, for the Shareholders’ consideration and approval at the EGM.

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LETTER FROM THE BOARD

(9) Proposal in relation to the Specific Mandate

As stated in the section headed “II. Proposed Non-public Issuance of A Shares — 1. Details of the Proposed Non-public Issuance of A Shares — Specific Mandate to issue A Shares” above, the Company will issue the A Shares under the Proposed Non-public Issuance of A Shares pursuant to the Specific Mandate to be sought from the Independent Shareholders at the EGM and the Class Meetings.

In this connection, the Board proposes to seek the approval from the Independent Shareholders at the EGM and the Class Meetings for granting the Specific Mandate to the Board to issue not more than 806,406,572 A Shares to not more than 10 specific target subscribers, including COSCO Shipping, which would raise gross proceeds of RMB5.4 billion (subject to regulatory approval).

The Cap, being 806,406,572 A Shares, represents (i) approximately 29.5% of the existing issued A Shares and approximately 20.0% of the existing total issued share capital of the Company as at the date of the Announcement; and (ii) approximately 22.8% of the enlarged issued A Shares and approximately 16.7% of the enlarged total issued share capital of the Company upon completion of the Proposed Non-public Issuance of A Shares.

The proposal in relation to the Specific Mandate will be submitted, by way of special resolution, for the Independent Shareholders’ consideration and approval at the EGM, the A Shares Class Meeting and the H Shares Class Meeting.

(10) Proposal in relation to the authorisation to the Board and any person authorised by the Board to handle all matters in connection with the Proposed Non-public Issuance of A Shares

In order to ensure effective and efficient implementation of the Proposed Non- Public Issuance of A Shares, the Board proposes to seek approval from the Shareholders at the EGM and the Class Meetings for authorisation to the Board and any person authorised by the Board to handle all matters in connection with the Proposed Non-public Issuance of A Shares in accordance with the relevant laws and regulations, including but not limited to the following:

(i) authorise the Board and persons authorised by it to formulate and implement specific proposals for the Proposed Non-public Issuance of A Shares in accordance with the proposals as approved by the Shareholders and specific circumstances at the time of issuance, including but not limited to target subscribers, timing of the issuance, number of A Shares to be issued, the issuance period, the subscription price, method of subscription and other matters relating to determination of the subscription price;
(ii) authorise the Board and persons authorised by it to supplement, amend and modify the relevant documents and application underlying the Proposed Non-public Issuance of A Shares and accompanying documents in response to changes in the relevant regulations, policies and market conditions;
(iii) authorise the Board and persons authorised by it to handle the filing and registration matters relating to the Proposed Non-public Issuance of A Shares, prepare, revise and submit the application documents for to the Proposed Non-public Issuance of A Shares in accordance with the requirements of the relevant securities regulatory authorities;

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LETTER FROM THE BOARD

(iv) authorise the Board and persons authorised by it to determine and engage intermediaries such as sponsor (lead manager), revise, supplement, sign, submit, report and execute all agreements and documents relating to the Proposed Non-public Issuance of A Shares, including without limited to, placing and sponsoring agreement, subscription agreement, material contracts involved in implementing the investment projects with the proceeds raised;
(v) authorise the Board and persons authorised by it to set up a designated account for the Proposed Non-public Issuance of A Shares which shall be used solely for depositing, management and use of the proceeds raised (and for no other purposes), and execute tripartite custodian agreement with the sponsor and the relevant commercial bank within one month upon the proceeds becoming available;
(vi) authorise the Board and persons authorised by it to increase the registered capital of the Company, amend the Articles of Association and handle relevant registration and filing procedures in accordance with the results of the Proposed Non-public Issuance of A Shares;
(vii) authorise the Board and persons authorised by it to handle registration, lock-up and listing of the A Shares with the Shanghai Stock Exchange and the Shanghai branch of China Securities Depository and Clearing Co., Ltd. upon completion of the Proposed Non-public Issuance of A Shares;
(viii) authorise the Board and persons authorised by it to make adjustments to the specific arrangement on the use of the proceeds raised within the scope as permitted under the relevant Shareholders’ resolutions;
(ix) if there is any new requirement under the law or by the securities regulatory authorities or if there is any change to the market condition, authorize the Board and persons authorised by it to adjust the Proposed Non-public Issuance of A Shares and the use of proceeds raised and continue to handle matters relating to the Proposed Non-public Issuance of A Shares (other than those matters requiring Shareholders’ approval in accordance with the relevant laws, regulations or Articles of Association or as requested by the regulatory authorities) in accordance with the requirements of relevant laws and regulations, and by relevant governmental authorities and securities regulatory authorities;
(x) authorise the Board and persons authorised by it to handle the filing, listing and other relevant matters relating to the Proposed Non-public Issuance of A Shares within the scope permitted under the laws, regulations, normative documents and the Articles of Association;
(xi) authorise the Board and persons authorised by it to determine whether to continue with the Proposed Non-public Issuance of A Shares in the event of material change in market condition, polices or laws; and
(xii) authorise the Board and persons authorised by it to handle all other matters in connection with the Proposed Non-public Issuance of A Shares not listed in (i) to (xi) above.

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LETTER FROM THE BOARD

The aforementioned authorisation shall be valid for 12 months from the date of the approval by the Shareholders.

The proposal in relation to the authorisation to the Board and any person authorised by the Board to handle all matters in connection with the Proposed Non-public Issuance of A Shares will be submitted, by way of special resolution, for the Independent Shareholders’ consideration and approval at the EGM, the A Shares Class Meeting and the H Shares Class Meeting.

(11) Proposal in relation to the adoption of the Shareholders’ Return Plan

Pursuant to the Notice Regarding Further Implementation of Cash Dividend Distribution of Listed Companies 《關於進一步落實上市公司現金分紅有關事項的通知》( ) and Listed Companies Regulatory Guidance No. 3 — Cash Dividends Distribution of Listed Companies 《上市公司監管指( 引第3號—上市公司現金分紅》) both issued by the CSRC, the Guideline on the Distribution of Cash Dividends by Listed Companies of the Shanghai Stock Exchange 《上海證券交易所上市公司現金分( 紅指引》) issued by the Shanghai Stock Exchange and the Articles of Association, the Board has formulated and proposes to adopt the Shareholders’ Return Plan, which was prepared in the Chinese language.

Further details of the Shareholders’ Return Plan can be found in the Company’s overseas regulatory announcement dated 31 October 2017 and the full text of the English translation the Shareholders’ Return Plan is set out in Appendix VI to this circular. In the event of any discrepancy between the English translation and the Chinese version of the document, the Chinese version shall prevail. The proposal in relation to the Shareholders’ Return Plan will be proposed for Shareholders’ approval at the EGM by way of an ordinary resolution.

III. CONNECTED TRANSACTION — PROPOSED SUBSCRIPTION OF A SHARES BY COSCO SHIPPING

The principal terms of the Subscription Agreement are set out below.

Principal terms of the Subscription Agreement

Date: 30 October 2017

Parties: (1) The Company, as the issuer; and (2) COSCO Shipping, as the subscriber.

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LETTER FROM THE BOARD

Number of A Shares to be issued:

Subject to the Cap, the number of the A Shares to be issued to COSCO Shipping under the Subscription Agreement will be determined by the Board and its authorised person(s) with the authorisation by the Shareholders at the EGM and the Class Meetings, based on the market conditions and negotiations with the sponsor (the lead manager) with reference to the amount of proceeds to be raised and the actual amount of subscription received.

Pursuant to the Subscription Agreement, COSCO Shipping undertakes to subscribe for such number of A Shares for an amount of not more than RMB4.2 billion under the Proposed Non-public Issuance of A Shares.

Subscription price and pricing principles:

The subscription price will be determined on the same basis as other A Shares to be issued under the Proposed Non-public Issuance of A Shares as mentioned above.

COSCO Shipping will not participate in the pricing exercise for the Proposed Non-public Issuance of A Shares, but will accept results of market inquiry and subscribe for the A Shares at the same subscription price as other target subscribers.

The issue price will be correspondingly adjusted if there occurs any ex-right or ex-dividend event (such as distribution of dividend, bonus issue, capitalization of capital reserves, additional issuance or placing of new Shares) between the Price Determination Date and the date of the Proposed Non-public Issuance of A Shares.

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LETTER FROM THE BOARD

The aggregate subscription price under the Subscription Agreement will be paid by COSCO Shipping to the Company in cash by bank transfer on the specific payment date as confirmed by the sponsor (the lead manager) in the notice of payment.

Conditions precedent of the Subscription:

The Subscription is conditional upon:

(i) the obtaining of the approval from the Shareholders at the EGM and the Class Meetings;
(ii) the obtaining of the approval from the SASAC;
(iii) the obtaining of the approval from the CSRC; and
(iv) the obtaining of the Whitewash Waiver and approval of the same by Independent Shareholders at the EGM.

An application for the approval of the Subscription has been submitted to the SASAC on 13 November 2017 by COSCO Shipping.

As at the Latest Practicable Date, no application for the approval of the Subscription has been submitted to the CSRC by the Company. The Company will submit the application for approval to the CSRC following the approval by the SASAC and by the Independent Shareholders of the Subscription at the EGM and the Class Meetings, in accordance with applicable laws and regulations in the PRC.

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LETTER FROM THE BOARD

Lock-up period:

Pursuant to the Subscription Agreement, COSCO Shipping shall not transfer the A Shares subscribed by it under the Proposed Non-public Issuance of A Shares within 36 months from the date of completion of the Proposed Non-public Issuance of A Shares.

Rights of the A Shares to The A Shares to be issued under the Subscription, when fully be issued: paid and issued, will rank pari passu in all respects amongst themselves and with the A Shares in issue at the time of the issuance of such A Shares, including entitlements as Shareholders to the Company’s undistributed profits accumulated from before the Proposed Non-public Issuance of A Shares.

2. Information on the parties to the Subscription Agreement

The Company

The Company is a joint stock company established under the laws of the PRC with limited liability, the H Shares of which are listed on the Main Board of the Hong Kong Stock Exchange and the A Shares of which are listed on the Shanghai Stock Exchange. The Group is principally engaged in (a) investment holding; and/or (b) oil and LNG shipment along the PRC coast and international shipment; and/or (c) vessel chartering.

Cosco Shipping

COSCO Shipping is a state-owned enterprise which is the indirect controlling shareholder of the Company through CSG. CSG is a large shipping conglomerate involved in the 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. Proposal in relation to the execution of the Subscription Agreement and the transactions contemplated thereunder

The proposal in relation to the execution of the Subscription Agreement and the transactions contemplated thereunder will be submitted, by way of special resolution, for the Independent Shareholders’ consideration and approval at the EGM, the A Shares Class Meeting and the H Shares Class Meeting.

Proposal in relation to the Subscription constituting a connected transaction under the relevant PRC laws and regulations

As at the Latest Practicable Date, COSCO Shipping and its associates control or are entitled to exercise control over the voting rights in respect of 1,554,631,593 A Shares and no H Shares, representing approximately 38.56% of the total issued share capital of the Company. Accordingly, COSCO Shipping is a controlling shareholder of the Company, and the Subscription constitutes a connected transaction under the relevant PRC laws and regulations.

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LETTER FROM THE BOARD

The proposal in relation to the Subscription constituting a connected transaction under PRC laws and regulations will be submitted, by way of special resolution, for the Independent Shareholders’ consideration and approval at the EGM.

5. Proposal in relation to the waiver of COSCO Shipping’s obligation to make a general offer of the securities of the Company as a result of the Subscription under the relevant PRC laws and regulations

Immediately after completion of the Proposed Non-public Issuance of A Shares, and assuming the Subscription is undertaken in full at the Benchmark Price, and there being no other changes to the share capital of the Company apart from as a result of the Proposed Non-public Issuance of A Shares, the aggregate shareholding by COSCO Shipping and its associates in the Company is expected to increase to approximately 45.00% of the then enlarged total issued share capital of the Company, thereby triggering an obligation to make a general offer of the securities of the Company to other Shareholders pursuant to the relevant requirements of “Measures for the Administration of the Takeover of Listed Companies” 《上市公司收購管理辦法》( ) issued by CSRC.

In order to satisfy the relevant conditions for obtaining a waiver of COSCO Shipping’s obligation to make a general offer of the securities of the Company as a result of the Subscription, COSCO Shipping undertakes that the A Shares to be subscribed by it under the Proposed Non-public Issuance of A Shares shall not be transferred within 36 months from the date of completion of the Proposed Non-public Issuance of A Shares. Please refer to the sections headed “II. Proposed Non-public Issuance of A Shares — 1. Details of the Proposed Non-public Issuance of A Shares — Lock-up period” and “III. Connected Transaction — Proposed Subscription of A Shares by COSCO Shipping — 1. Principal terms of the Subscription Agreement — Lock-up period” for further details of the lock-up undertakings.

The proposal in relation to the waiver of COSCO Shipping’s obligation to make a general offer of the securities of the Company as a result of the Subscription under the relevant PRC laws and regulations will be submitted, by way of special resolution, for the Independent Shareholders’ consideration and approval at the EGM.

IV. EFFECT ON THE SHAREHOLDING STRUCTURE OF THE COMPANY

Effect of the Proposed Non-public Issuance of A Shares and the Subscription on the shareholding structure of the Company

As at the Latest Practicable Date, the total number of issued Shares in the capital of the Company is 4,032,032,861 Shares, which comprises 2,736,032,861 A Shares and 1,296,000,000 H Shares.

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LETTER FROM THE BOARD

For illustrative purpose, the shareholding structure of the Company (i) as at the Latest Practicable Date, and (ii) immediately after completion of the Proposed Non-public Issuance of A Shares (assuming that (a) COSCO Shipping subscribes for such number of A Shares for an amount of RMB4.2 billion at the Benchmark Price, (b) the other target subscribers subscribe for such number of A Shares for an aggregate amount of RMB1.2 billion at the Benchmark Price and (c) there is no change in the total issued share capital of the Company since the Latest Practicable Date save for the issue of the A Shares pursuant to the Proposed Non-public Issuance of A Shares) is as set out below:

				Immediately upon	completion of	the Proposed	the Proposed
	Existing (as at	the Latest Practicable Date)		Non-public	Issuance of A	Shares
		Percentage of	Percentage of		Percentage of	Percentage of
	Class and	the relevant	all voting	Class and	the relevant		all issued
	No. of voting	class of	rights of the	No. of	class of	voting	rights of
Shareholder	rights	voting rights	Company	voting rights	voting rights	the	Company
COSCO Shipping and parties
acting in concert with it
(Note 1)
- COSCO Shipping	0	0	0	616,740,088	17.48%		12.78%
				A Shares
				(Note 2)
- CSG	1,554,631,593	56.82%	38.56%	1,554,631,593	44.05%		32.22%
	A Shares			A Shares
Subtotal	1,554,631,593	56.82%	38.56%	2,171,371,681	61.53%		45.00%
	A Shares			A Shares
Other target subscribers under the	—	—	—	176,211,453	4.99%		3.65%
Proposed Non-public Issuance				A Shares
of A Shares
GIC Private Limited (Note 3)	129,082,000	9.96%	3.20%	129,082,000	9.96%		2.68%
	H Shares			H Shares
Prudential plc	117,444,000	9.06%	2.91%	117,444,000	9.06%		2.43%
	H Shares			H Shares
Other Public Shareholders	1,181,401,268	43.18%	29.30%	1,181,401,268	33.48%		24.49%
	A Shares			A Shares
	1,049,474,000	80.98%	26.03%	1,049,474,000	80.98%		21.75%
	H Shares			H Shares
Total:	2,736,032,861	100%	67.86%	3,528,984,402	100%		73.14%
	A Shares			A Shares
	1,296,000,000	100%	32.14%	1,296,000,000	100%		26.86%
	H Shares			H Shares

Notes:

1. COSCO Shipping is the indirect controlling shareholder of the Company and is deemed interested in the 1,536,924,595 A Shares (representing approximately 38.12% of the total voting rights of the Company) held by CSG as at the Latest

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LETTER FROM THE BOARD

Practicable Date. CSG holds (a) 7,000,000 A Shares (representing approximately 0.17% of the total voting rights of the Company as at the Latest Practicable Date) through CICC-CCB-Zhongjin Ruihe collective asset management schemes ( 中金公司 - 建設銀行 - 中金瑞和集合資產管理計劃 ), (b) 2,065,494 A Shares (representing approximately 0.05% of the total voting rights of the Company as at the Latest Practicable Date) through Guotai Junan securities asset management-Industrial Bank - Guotai Junan Junxiang Xinli No.6 collective asset management schemes ( 國泰君安證券資管 - 興業銀行 - 國泰君安君享新利六號集合資產管理計劃 ), (c) 8,641,504 A Shares (representing approximately 0.21% of the total voting rights of the Company as at the Latest Practicable Date) through AEGON-INDUSTRIAL Fund Management Co., Ltd - China Shipping (Group) Company collective asset management schemes ( 興業全球基金 - 上海銀行 - 中國海運 ( 集團 ) 總公司 ). Therefore, CSG and its subsidiaries are interested in 1,554,631,593 A Shares in aggregate as at the Latest Practicable Date, representing approximately 38.56% of the total number of voting rights in the Company as at the Latest Practicable Date.

2. Assuming the issuance price for the Proposed Non-public Issuance of A Shares is at the Benchmark Price, COSCO Shipping is expected to acquire 616,740,088 A Shares through the Subscription, representing approximately 12.78% of the total issued Shares on a fully diluted basis. On this basis, together with the deemed interest of CSG pursuant to the SFO, COSCO Shipping will be interested in approximately 45.00% of the total issued Shares of the Company under the SFO immediately upon completion of the issuance of the A Shares underlying the Proposed Non-public Issuance of A Shares.

3. According to the information disclosed to the Company under Division 2 and Division 3 of Part XV of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), GIC Private Limited held the above Shares as an investment manager.

As the final issue price under the Proposed Non-public Issuance of A Shares is not pre-determined as at the Latest Practicable Date and will be determined nearer the time of actual issuance as described above in this circular, the actual number of A Shares to be issued to and the subscription price to be paid by COSCO Shipping and the other target subscribers under the Proposed Non-public Issuance of A Shares may not be the same as shown in the table above.

2. Fund raising activities in the past twelve months

The Company has not conducted any equity fund raising exercises during the 12 months immediately preceding the Latest Practicable Date.

V. REASONS FOR AND BENEFITS OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES AND THE SUBSCRIPTION

Reasons for the Proposed Non-public Issuance of A Shares and the Subscription

The Board considers that the Proposed Non-public Issuance of A Shares is conducive to the comprehensive and sustainable development of the Company’s business and would provide funding for Company’s further development in its maritime transportation business, and that the Proposed Non-public Issuance of A Shares and the Subscription are on normal commercial terms that are fair and reasonable, and are in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

The gross proceeds to be raised from the Proposed Non-public Issuance of A Shares is RMB5.4 billion. The net proceeds from the Proposed Non-public Issuance of A Shares (after deducting all applicable costs and expenses incurred in connection with the Proposed Non-public Issuance of A Shares of approximately RMB24 million) are intended to be used primarily for construction / acquisition of vessels as detailed above in this circular. These align with the expansion plan of the Company.

In addition, the Subscription also demonstrates the confidence COSCO Shipping places in the Company and COSCO Shipping’s support to the development of the business of the Company.

The terms and conditions of the Subscription Agreement are agreed after arm’s length negotiations between the Company and COSCO Shipping. As stated in the section headed “Implications under the Listing Rules”, one executive Director and three non-executive Directors have abstained from voting on the relevant Board resolutions approving the Proposed Non-public Issuance of A Shares and the Subscription.

Alternative financing

The Company has considered other fund raising methods such as obtaining debt financing and conducting rights issue or public offering to satisfy the funding needs of the Group.

As disclosed in the interim report of the Group for the six months ended 30 June 2017, the Group’s net debt-to-equity ratio, being the ratio of total debts less cash and cash equivalents over total equity, was approximately 82.9% as at 30 June 2017, which was higher than that as at 31 December 2016 (being approximately 73.6%). The Directors considered that taking into account the current gearing level of the Group, raising funds by equity financing with interest-free nature could reduce the gearing ratio of the Group. The Directors therefore concluded that equity financing can improve the leverage position of the Group as compared to debt financing.

Given that the issued H Share capital of the Company is significantly lower than the issued A Share capital of the Company, and that as of the Latest Practicable Date, there has been a significant premium of the price of A Shares trading on the Shanghai Stock Exchange over the price of H Shares trading on the Hong Kong Stock Exchange. If the Company were to conduct fund raising by issuance of new H Shares with a mandate size of 20% of all existing H Shares to raise gross proceeds equivalent to RMB5.4 billion, the Company does not consider the implicit pricing per H Share presents a more feasible fundraising opportunity than the Proposed Non-public Issuance of A Shares. Alternatively, if the pricing for H Shares fundraising were to be kept at a feasible level, the number of H Shares required to be issued in order to achieve the same level of fundraising will be substantially more than that required for the Proposed Non-public Issuance of A Shares. This would lead to a greater dilution effect on the shareholding of the existing Shareholders and would not be in the interests of the Independent Shareholders.

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LETTER FROM THE BOARD

H Shares with gross proceeds of RMB5.4 billion at a feasible pricing level, the Directors (excluding the independent non-executive Directors whose view is set out in the section headed “Letter from the Independent Board Committee” in this circular below) considered that it is in the interests of the Company and the Shareholders as a whole to raise funds by the Proposed Non-public Issuance of A Shares (including the Subscription).

VI. IMPLICATIONS UNDER THE LISTING RULES

As at the Latest Practicable Date, COSCO Shipping and its associates control or are entitled to exercise control over the voting rights in respect of 1,554,631,593 A Shares, representing approximately 38.56% of all the issued Shares in the Company. Accordingly, COSCO Shipping is a controlling shareholder of the Company and therefore a connected person of the Company. The Subscription constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules and is therefore subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Mr. Huang Xiaowen, an executive Director, and Mr. Feng Boming, Mr. Zhang Wei and Ms. Lin Honghua, who are non-executive Directors, hold directorship(s) or act as senior management in COSCO Shipping and/or its subsidiaries other than the Group, and accordingly, Mr. Huang Xiaowen, Mr. Feng Boming, Mr. Zhang Wei and Ms. Lin Honghua have abstained from voting on the relevant Board resolutions approving the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and/or the Special Deal. Mr. Feng Boming, Mr. Zhang Wei and Ms. Lin Honghua are also therefore not included in the Independent Board Committee for the purposes of Rule 2.8 of the Takeovers Code. As at the Latest Practicable Date, none of the aforementioned Directors hold any Shares. Save as aforementioned, none of the other Directors has a material interest in the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and/or the Special Deal and hence no other Director has abstained from voting on such Board resolutions.

The Directors (excluding the independent non-executive Directors (whose view is set out in the section headed “Letter from the Independent Board Committee” in this circular below) and also excluding the Directors who are required to abstain from voting) are of the view that while the transactions contemplated under the Subscription Agreement is not in the ordinary and usual course of business of the Group, the terms of the Subscription Agreement are on normal commercial terms, and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

VII. IMPLICATIONS UNDER THE TAKEOVERS CODE

1. Application for the Whitewash Waiver

As at the Latest Practicable Date, COSCO Shipping and its associates hold the voting rights in respect of 1,554,631,593 A Shares and no H Shares, representing approximately 38.56% of the total issued share capital of the Company.

Upon completion of the Proposed Non-public Issuance of A Shares and assuming the issuance is conducted at the Benchmark Price, the COSCO Shipping Concert Group’s holding of voting rights in

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LETTER FROM THE BOARD

respect of all the Shares is expected to increase from approximately 38.56% to approximately 45.00% on a fully diluted basis. As a result of such acquisition of voting rights in the Company, unless the Whitewash Waiver is granted, COSCO Shipping will incur an obligation to make a mandatory offer under Rule 26 of the Takeovers Code for all the Shares other than those already held or agreed to be acquired by the COSCO Shipping Concert Group. The grant of the Whitewash Waiver is a condition precedent to the Proposed Non-public Issuance of A Shares and the Subscription. If the Whitewash Waiver is not granted, the condition precedent on the Whitewash Waiver may be waived so that the Proposed Non-public Issuance of A Shares may still proceed, but the size of the Subscription (in terms of number of A Shares to be issued to COSCO Shipping as a proportion to all A Shares to be issued pursuant to the Proposed Non-public Issuance of A Shares) is expected to be reduced to the extent that COSCO Shipping would not incur any obligation to make a general offer under the Takeovers Code and other subscribers will be invited to subscribe for such portion instead.

An application has been made to the Executive for the Whitewash Waiver pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code. The Executive has agreed, subject to the approval of the Independent Shareholders at the EGM by way of poll and such other condition(s) as may be imposed by the Executive, to grant the Whitewash Waiver. COSCO Shipping and parties acting in concert with it, and any other Shareholders who are involved or interested in the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and/or the Special Deal are required to abstain from voting at the EGM in respect of the resolution approving the Whitewash Waiver.

As at the Latest Practicable Date, the Company does not believe that the Proposed Non-public Issuance of A Shares and the Subscription give rise to any concerns in relation to compliance with other applicable rules or regulations (including the Listing Rules). If a concern should arise after the Latest Practicable Date, the Company will endeavour to resolve the matter to the satisfaction of the relevant authority as soon as possible but in any event before the despatch of this circular. The Company notes that the Executive may not grant the Whitewash Waiver if the Proposed Non-public Issuance of A Shares and the Subscription do not comply with other applicable rules and regulations.

The proposal in relation to the Whitewash Waiver will be submitted, by way of ordinary resolution, for the Independent Shareholders’ consideration and approval at the EGM.

2. Special Deal in relation to the Proposed Non-public Issuance of A Shares

Pursuant to Rules 23 and 24 of the Rules for the Implementation Rules for the Non-public Issuance of Shares by Listed Companies 《上市公司非公開發行股票實施細則》( ), where the board resolution of the company has not identified specific target subscribers for the non-public issuance of shares, the sponsor shall issue invitation for subscription to eligible specific target subscribers after obtaining approval documents from the CSRC. The list of eligible specific target subscribers shall include: (i) investors who have submitted a letter of intent after the announcement of the board resolution by the company; (ii) the top 20 Shareholders of the Company; and (iii) not less than 20 securities investment fund management companies, 10 securities companies and five insurance institutional investors, which are eligible under the Measures for the Administration of Securities Offering and Underwriting 《證券發行與承銷管理辦法》( ).

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LETTER FROM THE BOARD

According to the applicable PRC laws, regulations and regulatory requirements, foreign investors cannot subscribe in non-public issue of A shares of listed companies by way of cash unless they are approved qualified foreign institutional investors or foreign strategic investors. After considering the applicable PRC laws, regulations and regulatory requirements, and with a view to avoiding possible delay and uncertainty as a result of foreign investors’ participation in the fundraising exercise, the scope of targeted subscribers under the Proposed Non-public Issuance of A Shares will exclude all the H Shareholders (including approved qualified foreign institutional investors, foreign strategic investors and approved PRC investors which could invest in H Shares, including the qualified domestic institutional investors and the southbound trading investors under the Shanghai-Hong Kong Stock Connect). According to the PRC Legal Advisers, the aforementioned scope of targeted subscribers is in compliance with the applicable PRC laws, regulations and regulatory requirements.

In addition, the identity of the target subscribers (and whether the target subscribers include existing A Shareholders) cannot be pre-determined as of the Latest Practicable Date. Therefore, given the top 20 Shareholders of the Company are required to be approached pursuant to the above PRC regulatory requirements for invitation to subscribe for A Shares under the Proposed Non-public Issuance of A Shares, and their subscription (or any other subscriber who is a Shareholder) may be accepted by the Company. Accordingly, the Proposed Non-public Issuance of A Shares will constitute a Special Deal under Rule 25 of the Takeovers Code which is not capable of being extended to all Shareholders and requires the consent of the Executive. Such consent, if granted, is expected to be subject to, among other things, (i) the Independent Financial Adviser publicly stating that in its opinion, the terms of the Special Deal are fair and reasonable and (ii) the approval of the Special Deal by the Independent Shareholders by way of poll at the EGM and Class Meetings. In addition, pursuant to the Articles of Association and the applicable PRC laws and regulations, if the rights attached to any class of shares are varied, a special resolution shall be passed at the Shareholders’ general meeting and by holders of Shares of the affected class passed at a separate general meeting of the holders of Shares of the class.

Accordingly, the resolution in respect of the Special Deal will be submitted, by way of special resolution, for Independent Shareholders’ consideration and approval at the EGM and the Class Meetings. COSCO Shipping and parties acting in concert with it and those who are involved in or interested in the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and/or the Special Deal will abstain from voting on the resolution to be proposed at the EGM and the Class Meetings to approve the Special Deal.

An application has been made by the Company to the Executive for its consent to the Special Deal pursuant to Rule 25 of the Takeovers Code. Such consent, if granted, is expected to be subject to, among other things, (i) the Independent Financial Adviser publicly stating that in its opinion, the terms of the Special Deal are fair and reasonable as far as the Independent Shareholders are concerned, and (ii) the approval of the Special Deal by the Independent Shareholders by way of poll at the EGM and the Class Meetings.

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LETTER FROM THE BOARD

VIII. PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION

The Board proposes to make certain amendments to the Company’s articles of association in relation to its profit distribution plan in accordance with the relevant laws and regulations in then PRC, including the Guidance on the Articles of Association of Listed Companies (revised in 2016) 《上市公司章程指引》( (2016修訂)) and the Listed Companies Regulatory Guidance No. 3 — Cash Dividends Distribution of Listed Companies 《上市公司監管指引第( 3號—上市公司現金分紅》) issued by the CSRC and the Guideline on the Distribution of Cash Dividends by Listed Companies of the Shanghai Stock Exchange 《上海證券交易所上市公司現金分紅指引》( ) issued by the Shanghai Stock Exchange.

The full text of the English translation of the Proposed Amendments to Articles is set out in Appendix VII. In the event of any discrepancy between the English translation and the Chinese version of the Proposed Amendments to Articles, the Chinese version shall prevail.

The proposal in relation to the Proposed Amendments to Articles will be submitted, by way of special resolution, for the Shareholders’ consideration and approval at the EGM.

IX. MAJOR TRANSACTION: CONSTRUCTION OF NEW VESSELS

1. The Vessel Agreements

Set out below are the details of the Vessel Agreements:

Date: 20 November 2017 Parties (i) The Company, as purchaser (ii) Dalian Shipbuilding, as vendor

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Vendor and its ultimate beneficial owners are independent third parties not connected with the Company and its connected persons (as defined in the Listing Rules), and that the Vendor is not a shareholder of the Company.

Subject matter: The Company entered into the Vessel Agreements with the Vendor for the construction of the VLCCs and the Suezmaxs.

VLCCs

The expected delivery dates for each of the VLCCs are on or before 31 August 2020, 31 October 2020, 31 December 2020 and 31 March 2021, respectively.

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LETTER FROM THE BOARD

Suezmaxs

The expected delivery dates for each of the Suezmaxs are on or before 31 August 2020, 30 November 2020 and 31 January 2021, respectively.

Consideration:

The total consideration for the construction of the VLCCs and the Suezmaxs is approximately RMB 3,673,154,400 (equivalent to approximately HK$4,328,079,370) (subject to adjustments as set out in the section headed “Adjustment to consideration” below).

The consideration is determined by reference to the market price of crude oil tankers ranging in sizes from 280,000 to 320,000 dead weight tons and 150,000 to 160,000 dead weight tons respectively during the past 6 months.

The Company has announced the Proposed Non-public Issuance of A Shares and wish to pay for the Tankers with internal financial resources and funds from non-public issuance. If the Proposed Non-public Issuance of Shares does not proceed, the construction of the VLCCs and Suezmaxs under the Vessel Agreements is expected to be funded by the Company’s internal resources or other means of financing including bank borrowings.

Payment terms: The prices of the VLCCs and the Suezmaxs will be payable in RMB in cash. Relevant payments under each of the Vessel Agreements will be payable in 5 instalments at various stages of the construction of the relevant VLCC and the Suezmaxs, in the proportion of 5%, 10%, 10%, 10% and 65% of the aggregate price of the relevant VLCC and the Suezmaxs respectively.

Adjustment to consideration:

VLCCs

Each of the Vessel Agreements provides that there will be no adjustment in the price of the relevant VLCC if the delivery is delayed for a period not exceeding 30 days. If the delay exceeds such period of time but does not exceed 210 days, respectively, there will be a reduction in the price of the relevant VLCC determined on the basis of the extent of the delay. Such reductions in the price will be calculated based on daily reduction rates of RMB 100,500 (equivalent to approximately HK$118,419) per day, subject to a maximum aggregate amount of reductions of RMB 18,090,000 (equivalent to approximately HK$21,315,455) in respect of each VLCC. Under the Vessel Agreements, delay will be permitted on account of force majeure events.

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LETTER FROM THE BOARD

If the delay exceeds 210 days, unless the parties agree otherwise, the Company has the right to refuse to accept delivery of the relevant VLCC in which case all payments paid under the relevant Agreement together with interests will be refunded to the Company.

Suezmaxs

Each of the Vessel Agreements provides that there will be no adjustment in the price of the relevant Suezmax if the delivery is delayed for a period not exceeding 45 days. If the delay exceeds such period of time but does not exceed 225 days, there will be a reduction in the price of the relevant Suezmax determined on the basis of the extent of the delay. Such reductions in the price will be calculated based on daily reduction rates of RMB 67,000 (equivalent to approximately HK$78,946) per day, subject to a maximum aggregate amount of reductions of RMB 12,060,000 (equivalent to approximately HK$14,210,303) in respect of each Suezmaxs.

If the delay exceeds 225 days, unless the parties agree otherwise, the Company has the right to refuse to accept delivery of the relevant Suezmax in which case all payments paid under the relevant Agreement together with interests will be refunded to the Company.

There will be other downward adjustments in price of the relevant VLCC and Suezmax if its performance (such as speed, fuel consumption rate, tonnage) exceeds or falls below certain agreed criteria (as the case may be). However, should the relevant performance exceed or fall below certain agreed benchmark, the Company has the right to refuse delivery of the relevant VLCC or Suezmax and accept a refund with interest from the Vendor, or negotiate a new price for the relevant VLCC or Suezmax.

2. Information on the parties to the Vessel Agreements

Please refer to the section headed “III. Connected Transaction — Proposed Subscription of A Shares by COSCO Shipping — 2. Information on the parties to the Subscription Agreement” above for the information of the Company.

Dalian Shipbuilding is principally engaged in the provision of shipbuilding services.

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LETTER FROM THE BOARD

3. Reasons for and benefits of entering into the Vessel Agreements

The Directors are optimistic of the demand in the import crude oil transportation market and its persistent growth in the coming years. The Directors are of the view that the construction and ownership of the Tankers will enable the Group to take advantage of the business opportunities in the shipping market, enjoy economies of scale, optimize its overall route arrangements and improve its operating efficiency and profitability.

The Directors consider that the terms of the Vessel Agreements are determined on an arm’s length basis, and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

4. Financial effect of the Vessel Agreements

In respect of the Vessel Agreements, they will not have any significant immediate effect on the earnings and assets of the Group. Their impact on the Group’s assets and earnings will be reflected progressively upon the respective delivery of the VLCCs and Suezmaxs. As for their impact on the liabilities of the Group, these will take effect progressively as and when the Company make respective instalment payments towards the purchase price of each of the Tankers, further details of which are set out in the section headed “IX. Major Transaction: Construction of New Vessels — 1. The Vessel Agreements” of this circular.

5. Implications under the Listing Rules

The entering into of the Vessel Agreements constitutes a major transaction of the Company under the Listing Rules as certain of the applicable percentage ratios (as defined under the Listing Rules) in respect of the transactions exceeds 25% but are all less than 100%. Accordingly, the Vessel Agreements are subject to reporting, announcement and shareholders’ approval requirements by way of ordinary resolution under Chapter 14 of the Listing Rules.

X. EGM AND CLASS MEETINGS

The EGM will be convened to consider and, if thought fit, approve resolutions relating to (i) the Proposed Non-public Issuance of A Shares, (ii) the Subscription, (iii) the Specific Mandate, (iv) the Whitewash Waiver, (v) the Special Deal, (vi) the Shareholders’ Return Plan, (vii) the Proposed Amendments to Articles and (viii) the Vessel Agreements.

The Class Meetings will be convened to consider and, if thought fit, approve resolutions relating to (i) the Proposed Non-public Issuance of A Shares, (ii) the Subscription, (iii) the Specific Mandate and (iv) the Special Deal.

At the EGM and/or the Class Meetings, Resolutions relating to the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate and the Special Deal will be proposed by way of special resolutions; and resolutions relating to the Whitewash Waiver, the Shareholders’ Return Plan, the proposed Amendments to Articles and the Vessel Agreements will be proposed by way of ordinary resolutions.

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LETTER FROM THE BOARD

The voting at the EGM and/or the Class Meetings in relation to the resolutions referred to above will be conducted by way of poll.

The Company proposes to convene the EGM, the A Shares Class Meeting and the H Shares Class Meeting at 9:30 a.m. on Monday, 18 December 2017 at 3rd Floor, Ocean Hotel, No. 1171 Dong Da Ming Road, Hongkou District, Shanghai, the People’s Republic of China.

A notice convening the EGM was despatched to the Shareholders on 3 November 2017 and a copy of which is set out on pages EGM-1 to EGM-5 of this circular for reference. A supplemental EGM notice relating to the Special Deal and the Vessel Agreements is set out on pages EGM-6 to EGM-8 of this circular.

A notice convening the H Shares Class Meeting was despatched to the Shareholders on 3 November 2017 and a copy of which is set out on pages HCM-1 to HCM-4 of this circular for reference. A supplemental H Shares Class Meeting notice relating to the Special Deal is set out on pages HCM-5 to HCM-7 of this circular.

CSG, holding approximately 38.56% of voting rights in respect of all the Shares, and those Shareholders who are involved in or interested in the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver or the Special Deal will be required to abstain from voting on the resolutions to be proposed at the EGM and/or the Class Meetings in relation to the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and the Special Deal, as the case may be. In the event that a Shareholder becomes a subscriber under the Proposed Non-public Issuance of A Shares, such Shareholder will be required to abstain from voting at the EGM and/or the Class Meetings. Save as aforementioned, to the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, as at the Latest Practicable Date, no other Shareholder has a material interest in the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and the Special Deal and therefore no other Shareholder is required to abstain from voting on the relevant resolutions at the EGM and/or the Class Meetings.

Any Shareholders with a material interest in the transactions contemplated under the Vessel Agreements and their close associates shall abstain from voting on the resolution approving the Vessel Agreements and the transactions contemplated thereunder. To the best of the knowledge, information and belief of the Directors having made all reasonable enquiries, as at the Latest Practicable Date, no Shareholder has a material interest in the Vessel Agreements and therefore no Shareholder would be required to abstain from voting on the proposed resolution to approve the Vessel Agreements and the transactions contemplated thereunder in the EGM.

The original proxy forms and reply slips were despatched to the Shareholders on 3 November 2017 for use at the EGM and the Class Meetings respectively. The respective supplemental proxy forms are despatched to the Shareholders together with this circular. These supplemental proxy form are respectively for the purpose of the resolutions as set out respectively in the supplemental notice of the EGM and the Class Meetings dated 4 December 2017 and only serves as a supplement to the original proxy form for the EGM and/or the Class Meetings.

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LETTER FROM THE BOARD

Whether or not you intend to attend the EGM and/or the Class Meetings, you are requested to complete and return the enclosed supplemental proxy form (for use at the EGM and/or the Class Meetings) in accordance with the instructions printed thereon as soon as possible to the Company’s Hong Kong H share registrar and transfer office, Hong Kong Registrars Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong (in case of holders of H Shares) or the Office of the Secretary to the Board of Directors of the Company at 18th Floor, 118 Yuanshen Road, Pudong New District Shanghai, the People’s Republic of China (in case of holders of A Shares) but in any event not less than 24 hours before the time appointed for the holding of the EGM and/or the Class Meetings (or any adjournment thereof). Completion and return of the said supplemental proxy form will not preclude you from attending and voting in person at the EGM and/or the Class Meetings or at any adjourned meeting should you so wish, but in such event the instrument appointing a proxy shall be deemed to be revoked.

The supplemental proxy form will not affect the validity of any proxy form duly completed and delivered by you in respect of the resolutions set out in the original notice of the EGM and/or the Class Meetings dated 3 November 2017. If you have validly appointed a proxy to attend and act for you at the EGM and/or the Class Meetings but do not duly complete and deliver the relevant supplemental proxy form enclosed, your proxy will be entitled to vote at his discretion, as the case may be, the resolutions no.15 and 16 and 17 as set out in the supplemental notice of the EGM and/or resolution no.6 set out in the supplemental notice of the HCM dated 4 December 2017. If you do not duly complete and deliver the original proxy form for the EGM and/or the Class Meetings but have duly completed and delivered the supplemental proxy form and validly appointed a proxy to attend and act for you at the EGM and/or the Class Meetings, your proxy will be entitled to vote at his discretion on all the resolutions set out in the notice of the EGM and/or the Class Meetings dated 3 November 2017. If the proxy being appointed to attend the EGM and/or the Class Meetings under the supplemental proxy form is different from the proxy appointed under the original proxy form and both proxies attended the EGM and/or the Class Meetings, the proxy validly appointed under the original proxy form shall be designated to vote at the EGM and/or the Class Meetings.

XI. RECOMMENDATION

Messis Capital Limited has been appointed by the Company as the Independent Financial Adviser with the approval of the Independent Board Committee to advise the Independent Board Committee and the Independent Shareholders in respect of the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and the Special Deal.

The Independent Board Committee, after considering the advice from the Independent Financial Adviser, is of the view that while the Proposed Non-public Issuance of A Shares and the Subscription are not conducted in the ordinary and usual course of business of the Group, the terms of the Proposed Non-public Issuance of A Shares and the Subscription Agreement are on normal commercial terms and that the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and the Special Deal are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole. Accordingly,

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LETTER FROM THE BOARD

the Independent Board Committee recommends the Independent Shareholders to vote in favour of all the resolutions to be proposed at the EGM and the Class Meetings to approve the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and the Special Deal.

The Directors (excluding the independent non-executive Directors whose view is set out in the section headed “Letter from the Independent Board Committee” in this circular below) are of the view that the resolutions to be proposed at the EGM and the Class Meetings are in the best interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends all the Shareholders to vote in favour of the resolutions to be proposed at the EGM and the Class Meetings.

XII. FURTHER INFORMATION

Your attention is drawn to (i) the letter from the Independent Board Committee set out on pages 40 to 41 of this circular, containing its recommendation in respect of the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and the Special Deal, and (ii) the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders set out on pages 42 to 84 of this circular, containing its recommendation in respect of the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and the Special Deal.

The Independent Shareholders are advised to read the aforesaid letters before deciding as to how to vote on the resolutions approving, among other things, the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and the Special Deal.

By order of the Board COSCO SHIPPING Energy Transportation Co., Ltd.* Yao Qiaohong Company Secretary

* For identification purpose only .

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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

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

(Stock Code: 01138)

4 December 2017

To the Independent Shareholders

Dear Sir or Madam,

(1) PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

(2) CONNECTED TRANSACTION — PROPOSED SUBSCRIPTION OF A SHARES BY THE CONTROLLING SHAREHOLDER (3) PROPOSED ADOPTION OF SHAREHOLDERS RETURN PLAN (4) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION

(5) WHITEWASH WAIVER UNDER THE TAKEOVERS CODE AND

(6) SPECIAL DEAL

We refer to the circular of the Company dated 4 December 2017 (the “ Circular ”), of which this letter forms part. Unless otherwise defined, capitalised terms used herein shall have the same meanings as those defined in the Circular.

We have been appointed as members of the Independent Board Committee to advise the Independent Shareholders in respect of the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and the Special Deal, details of which are set out in the “Letter from the Board” in the Circular. Messis Capital Limited has been appointed as the Independent Financial Adviser with our approval to advise the Independent Board Committee and the Independent Shareholders in this regards.

We wish to draw your attention to the “Letter from the Board” set out on pages 7 to 39 of the Circular and the “Letter from the Independent Financial Adviser” set out on pages 42 to 84 of the Circular and the additional information set out in the appendices of this Circular.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having taken into account, among other things, the principal factors and reasons considered by, and the advice of, the Independent Financial Adviser as set out in the “Letter from the Independent Financial Adviser” in the Circular, we concur with the view of the Independent Financial Adviser and consider that while the Proposed Non-public Issuance of A Shares and the Subscription are not conducted in the ordinary and usual course of business of the Group, the terms of the Proposed Non-public Issuance of A Shares and the Subscription Agreement are on normal commercial terms and that the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and the Special Deal are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.

Accordingly, we recommend you to vote in favour of the resolutions to be proposed at the EGM and the relevant Class Meeting for approving the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and the Special Deal.

Yours faithfully,

Independent Board Committee

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

For identification purpose only.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of the letter from Messis Capital Limited, the Independent Financial Adviser, for the purpose of inclusion in this circular, to the Independent Board Committee and the Independent Shareholders in respect of the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and the Special Deal.

==> picture [241 x 46] intentionally omitted <==

4 December 2017

To: The Independent Board Committee and the Independent Shareholders of COSCO SHIPPING ENERGY TRANSPORTATION CO., LTD.*

Dear Sir or Madam,

(1) PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

(2) CONNECTED TRANSACTION - PROPOSED SUBSCRIPTION OF A SHARES BY COSCO SHIPPING

(3) SPECIFIC MANDATE

(4) WHITEWASH WAIVER UNDER THE TAKEOVERS CODE

(5) SPECIAL DEAL

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and the Special Deal, details of which are set out in the letter from the Board (the “ Letter from the Board ”) contained in the circular of the Company to the Shareholders dated 4 December 2017 (the “ Circular ”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires.

On 30 October 2017, the Board has approved the Proposed Non-public Issuance of A Shares, pursuant to which the Company will issue a maximum of 806,406,572 A Shares (subject to adjustment) to not more than 10 specific target subscribers, including COSCO Shipping, which would raise gross proceeds of RMB5.4 billion (subject to regulatory approval). As part of the Proposed Non-public Issuance of A Shares, on 30 October 2017, the Company and COSCO Shipping entered into the Subscription Agreement pursuant to which COSCO Shipping has conditionally agreed to subscribe for, and the Company has conditionally agreed to issue, such number of A Shares for an amount of not more than RMB4.2 billion under the Proposed Non-public Issuance of A Shares.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The issue price of the A Shares to be issued under the Proposed Non-public Issuance of A Shares shall not be lower than both (i) 90% of the Average Trading Price (being the average trading price of the A Shares during the 20 trading days immediately preceding the Price Determination Date) and (ii) the net asset value per Share as set out at the latest audited consolidated financial statement of the Company. The final issue price will be determined by the Board and its authorised person(s) with the authorisation by the Shareholders at the EGM and the Class Meetings and the sponsor (the lead manager) based on the price inquiry results in accordance with the price priority principle and applicable laws and regulations, after obtaining the approval documents issued by the CSRC in respect of the Proposed Non-public Issuance of A Shares.

Mr. Huang Xiaowen, an executive Director, and Mr. Feng Boming, Mr. Zhang Wei and Ms. Lin Honghua, who are non-executive Directors, hold directorship(s) or act as senior management in COSCO Shipping and/or its subsidiaries other than the Group, and accordingly, Mr. Huang Xiaowen, Mr. Feng Boming, Mr. Zhang Wei and Ms. Lin Honghua have abstained from voting on the relevant Board resolutions approving the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and/or the Special Deal. Mr. Feng Boming, Mr. Zhang Wei and Ms. Lin Honghua are also therefore not included in the Independent Board Committee for the purposes of Rule 2.8 of the Takeovers Code. As at the Latest Practicable Date, none of the aforementioned Directors hold any Shares. Save as aforementioned, none of these Directors has a material interest in the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and/or the Special Deal and hence no other Director has abstained from voting on such Board resolutions.

The Independent Board Committee (comprising all independent non-executive Directors, namely, Mr. Wang Wusheng, Mr. Ruan Yongping, Mr. Ip Sing Chi, Mr. Rui Meng and Mr. Teo Siong Seng, has been formed in accordance with Chapter 14A of the Listing Rules and Rule 2.8 of the Takeovers Code to advise the Independent Shareholders on the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and the Special Deal. No non-executive Directors is included as they hold directorship(s) or senior management office(s) in COSCO Shipping and/or its subsidiaries other than the Group. We, Messis Capital Limited, have been appointed as the Independent Financial Adviser with the approval of the Independent Board Committee to advise the Independent Board Committee and the Independent Shareholders in these regards and to give our opinion for the Independent Board Committee’s consideration when making their recommendations to the Independent Shareholders.

— 43 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As at the Latest Practicable Date, we did not have any relationship with or interest in the Company or any of their respective substantial shareholders, directors or chief executives, or any of their respective associates, or any party acting, or presumed to be acting, in concert with any of them. Accordingly, we are considered suitable to give independent advice to the Independent Board Committee. During the past two years, we did not have any business engagements with the Company. During the past two years, we were appointed as an independent financial adviser for COSCO SHIPPING Development Co., Ltd., a connected person of the Company, for five occasions, details of which are set out in its circulars dated 4 December 2015, 10 June 2016, 1 December 2016, 19 May 2017 and 31 May 2017. Notwithstanding the above, the previous engagements with COSCO SHIPPING Development Co., Ltd. would not affect our independence from the Company, in particular that we did not serve as a financial adviser to (i) the Company, (ii) COSCO SHIPPING or its subsidiaries, and (ii) any core connected person of the Company within 2 years prior to 14 November 2017, being date of making our independence declaration to the Hong Kong Stock Exchange pursuant to Rule 13.85(1) of the Listing Rules. Apart from normal professional fees paid or payable to us in connection with this appointment as the Independent Financial Adviser, we do not and did not have any relationship (business, financial or otherwise) amounted to a significant connection (as referred to in Rule 2.6 of the Takeovers Code) with the Company within the past two years for us of a kind reasonably likely to create, or to create the perception of, a conflict of interest for us or which is reasonably likely to affect the objectivity of our advice. Accordingly, we consider that we are independent pursuant to Rule 13.84 of the Listing Rules and Rule 2.6 of the Takeovers Code.

BASIS OF OUR OPINION

In arriving at our recommendations, we have relied on the statements, information and representations contained in the Circular and the information and representations provided to us by the Company, the Directors and the management of the Company. We have assumed that all information, representations and opinions contained or referred to in the Circular and all information and representations which have been provided by the Company, the Directors and the management of the Company for which they are solely and wholly responsible, are true and accurate at the time they were made and will continue to be accurate as at the Latest Practicable Date and the Shareholders will be notified of any material changes to such statements, information, opinions and/or representations as soon as possible in accordance with Rule 9.1 of the Takeovers Code. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the management of the Company.

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

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Circular includes particulars given in compliance with the Takeovers Code for the purpose of giving information with regard to the Group. All the Directors jointly and severally accept full responsibility for the accuracy of the information in this Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this Circular have been arrived at after due and careful consideration and there are no other facts not contained in this Circular, the omission of which would make any of the statements in this circular misleading.

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

This letter is issued for the information of the Independent Board Committee and the Independent Shareholders solely in connection with their consideration of the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and the Special Deal. Except for its inclusion in the Circular, this letter is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purposes, without our prior written consent.

PRINCIPAL FACTORS AND REASONS CONSIDERED

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

1. BACKGROUND AND REASONS FOR THE SUBSCRIPTION

1.1 Background information on the Company

1.2 Financial performance on the Group

Set out below is a summary of the consolidated statements of profit or loss of the Group for each of the three years ended 31 December 2014, 2015 and 2016 and for the six months ended 30 June 2017 and 30 June 2016, which are extracted from the Company’s annual report for the years ended 31 December 2016 and 31 December 2015, and the Company’s interim report for the six months ended 30 June 2017.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	For the six	months
	ended 30	June	Year	ended 31 December
	2016	2017	2016	2015	2014
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
	(unaudited	(unaudited)	(audited)	(audited)	(audited)
	& restated)			(restated)
*Continuing operations*
Turnover	5,314,709	4,905,703	9,658,291	10,709,298	12,273,849
Operating costs	(3,490,638)	(3,593,594)	(6,956,661)	(7,505,633)	(10,885,620)
Gross profit	1,824,071	1,312,109	2,701,630	3,203,665	1,388,229
Profit for the period/year from
continuing operations	1,112,833	921,855	1,206,174	2,784,955	401,827
*Discontinued operation*
Profit/(loss) for the period/year
from discontinued operation,
net of tax	760,501	—	760,501	(1,527,222)	—
Profit for the period/year
attributable to owners of the
Company	1,850,664	865,410	1,934,064	1,180,921	309,413

Continuing operations

Revenue from continuing operations decreased from approximately RMB12.3 billion for the year ended 31 December 2014 to approximately RMB10.7 billion for the year ended 31 December 2015, representing a decrease of approximately 12.7%. Such decrease was mainly due to the discontinued operations of dry bulk shipment in 2015, whereas the revenue derived in such segment was approximately RMB6.7 billion in 2014. Revenue from oil shipment business in 2014 was approximately RMB5.5 billion and then increased to approximately RMB10.7 billion in 2015, which was due to the consolidation of the operating results of COSCO SHIPPING Tanker (Dalian) Co., Ltd (the “ Dalian Tanker ”) into the Group’s financial statements for the year ended 31 December 2015. According to the annual report of the Company for the year ended 31 December 2016, following the completion of acquisition of Dalian Tanker, it was accounted for as combination of businesses under common control. Hence, the acquisition was accounted for using the principles of merger accounting, as prescribed in Accounting Guideline 5 “Merger Accounting for Common Control Combinations” issued by the HKICPA. The financial information of Dalian Tanker was incorporated into these consolidated financial statements.

Profit for the year from continuing operations increased from approximately RMB401.8 million in 2014 to approximately RMB2.8 billion, which was mainly due to the increase in gross profit which was attributable to (i) the consolidation of the operating results of the Dalian Tanker into the Group’s financial statement for the year ended 31 December 2015 as mentioned above; and (ii) the decrease in operating expenses. The operating expenses decreased from approximately RMB10.9 billion in 2014 to approximately RMB7.5 billion, mainly due to (i) decrease in fuel costs affected by significant slump of international oil price and the Group’s efforts to control costs and (ii) decrease in sea crew costs as the Group implemented reform of its crew management system.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Revenue from continuing operations decreased from approximately RMB10.7 billion for the year ended 31 December 2015 to approximately RMB9.7 billion for the year ended 31 December 2016, representing a decrease of approximately 9.8%. Such decrease was mainly due to the decrease in revenue from international oil shipment. According to the annual report of the Company for the year ended 31 December 2016, the decrease in revenue from international oil shipment market was due to various adverse factors such as the slowdown of global economic growth, the sluggish increase in international oil prices, OPEC continuing to consider reducing oil production, and the increase in new transportation capacity, while overall transportation prices appeared to have started on a downward trend.

Profit for the year from continuing operations decreased from approximately RMB2.8 billion in 2015 to approximately RMB1.2 billion in 2016, which was mainly due to (i) the decrease in revenue as mentioned above; (ii) the decrease in other income and net gains of approximately RMB994.5 million due to the decrease in government subsidies of approximately RMB610.5 million and the increase in net loss on disposal of property, plant and equipment of approximately RMB239.8 million and (iii) the increase in administrative expenses of approximately RMB180.2 million.

Revenue from continuing operations decreased from approximately RMB5.3 billion for the six months ended 30 June 2016 to approximately RMB4.9 billion for the six months ended 30 June 2017, representing a decrease of approximately 7.7%. Such decrease was mainly due to the decrease in revenue from international oil shipment of approximately 20.9% to approximately RMB3.2 billion which was mainly attributable to the decrease in shipping price as a result of fast growth of foreign oil trade shipping capacities in the first half of 2017 led to a general decrease in shipping prices of various types of vessels as compared to the corresponding period of last year, despite the overall demand for global crude oil shipping maintains a stable uptrend during the first half of 2017.

Profit for the six months ended 30 June 2017 from continuing operations decreased from approximately RMB1.1 billion to approximately RMB921.9 million, which was mainly due to (i) the decrease in revenue as mentioned above; (ii) the decrease in share of profits of associates of approximately RMB16.3 million and (iii) the decrease in share of profits of joint ventures of approximately RMB9.8 million.

Discontinued operation

The Group’s discontinued operations can be categorised as dry bulk shipment. According to the annual report of the Group for the year ended 31 December 2016, the Group underwent a major asset restructuring in 2016. As at 30 June 2016, the Group completed the disposal of dry bulk shipping segment and the acquisition of the Dalian Tanker. In order to build a specialised crude oil and refined oil transportation fleet and to become a global leader in the oil transportation market in terms of transportation capacities, the Group entered into an asset transfer agreement to dispose of the entire dry bulk shipment segment, which included China Shipping Bulk Carrier Co., Limited, a former wholly-owned subsidiary of the Company, and its subsidiaries, an associate and joint ventures, to China COSCO Bulk Shipping (Group) Co., Ltd. at a consideration of RMB4,993,243,000 which was settled on a net basis with the acquisition of Dalian Tanker during the year. The transaction became effective subsequent to the approval by independent shareholders at the annual general meeting held on 20 May 2016.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below are the unaudited condensed consolidated financial performance of the Group for the nine months ended 30 September 2017 which are prepared in accordance with PRC GAAP, as extracted from the Company’s announcement dated 30 October 2017.

	For the nine	months ended
	30 September
	2016	2017
	RMB’000	RMB’000
	(unaudited)	(unaudited)
Gross revenue from operations	10,832,222	7,275,509
Gross costs from operations	9,742,681	6,335,516
Operating profit	2,372,757	1,285,058
Profit for the period attributable to owners of the Company	2,219,826	1,247,612

The revenue of the Group decreased from approximately RMB10.8 billion for the nine months ended 30 September 2016 to approximately RMB7.3 billion, representing a decrease of approximately 32.8%. Such decrease in gross revenue from operations was due to (i) the absence of contribution of revenue from dry bulk segment which was disposed at 30 June 2016 and (ii) decrease in revenue from international oil shipment from various types of vessels of approximately 40-60%.

Profit for the nine months ended 30 September 2017 decreased from approximately RMB2.2 billion to approximately RMB1.2 billion, which was mainly due to (i) the decrease in revenue as mentioned above and hence the operating profit and (ii) one off gain on disposal of dry bulk segment of approximately RMB0.7 billion in June 2016.

1.3 Financial position on the Group

	As at
	30 June		As at 31 December
	2017	2016	2015	2014
	RMB’000	RMB’000	RMB’000	RMB’000
	(unaudited)	(audited)	(audited)	(audited)
			(restated)
NON-CURRENT ASSETS
Investment properties	1,104,907	1,104,907	1,097,975	1,032,239
Property, plant and equipment	43,352,631	41,854,733	63,136,985	50,530,575
Prepaid land lease payments	78,410	79,599	81,978	—
Goodwill	58,168	58,168	—	—
Investments in associates	2,080,907	1,994,902	2,040,968	1,711,702
Investments in joint ventures	2,073,881	2,169,448	6,187,294	4,790,637
Loan receivables	1,866,313	1,453,585	2,119,286	786,540
Available-for-sale investments	344,091	279,761	125,863	35,284
Deferred tax assets	51,092	52,258	486,993	408,052
Total non-current assets	51,010,400	49,047,361	75,277,342	59,295,029

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	As at
	30 June		As at 31 December
	2017	2016	2015	2014
	RMB’000	RMB’000	RMB’000	RMB’000
	(unaudited)	(audited)	(audited)	(audited)
			(restated)
CURRENT ASSETS
Current portion of loan receivables	11,385	18,899	—	—
Inventories	540,638	451,402	715,086	835,304
Trade and bills receivables	1,204,819	1,206,458	2,791,298	1,746,263
Prepayments, deposits and other receivables	1,212,561	908,984	1,887,095	812,667
Pledged bank deposits	24,136	24,134	45,731	611,900
Cash and cash equivalents	6,447,387	6,364,583	4,863,247	2,449,240
Total current assets	9,440,926	8,974,460	10,302,457	6,455,374
CURRENT LIABILITIES
Trade and bills payable	1,191,873	1,349,984	1,477,972	990,669
Other payables and accruals	775,658	1,153,027	1,165,492	104,696
Dividends payable	535,572	—	—	—
Current portion of provision and other
liabilities	310,572	302,551	181,308	142,287
Current portion of derivative financial
instruments	—	—	4,258	—
Current portion of interest-bearing bank and
other borrowings	5,410,751	4,624,633	11,063,827	8,243,090
Current portion of other loans	1,557	2,251	—	44,714
Current portion of obligations under finance
lease	—	—	48,751	43,979
Current portion of bonds payable	—	—	—	4,143,383
Current portion of employee benefits
payable	12,620	12,620	13,130	—
Tax payable	29,162	120,136	134,312	5,024
Total current liabilities	8,267,765	7,565,202	14,089,050	13,717,842
Net current assets	1,173,161	1,409,258	(3,786,593)	(7,262,468)
Total assets less current liabilities	52,183,561	50,456,619	71,490,749	52,032,561

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	As at
	30 June		As at 31 December
	2017	2016	2015	2014
	RMB’000	RMB’000	RMB’000	RMB’000
	(unaudited)	(audited)	(audited)	(audited)
			(restated)
NON-CURRENT LIABILITIES
Provision and other liabilities	207,506	208,068	174,553	139,528
Derivative financial instruments	521,563	474,988	411,385	291,553
Interest-bearing bank and other borrowings	18,578,289	16,881,809	32,411,923	23,425,343
Other loans	1,120,171	1,049,820	1,199,539	930,946
Obligations under finance leases	—	—	354,003	404,481
Bonds payable	3,983,892	3,982,045	3,978,488	3,975,124
Employee benefits payables	136,630	140,890	145,380	—
Deferred tax liabilities	322,248	295,917	245,386	217,857
Total non-current liabilities	24,870,299	23,033,537	38,920,657	29,384,832
Net assets	27,313,262	27,423,082	32,570,092	22,647,729
EQUITY
Issued capital	4,032,033	4,032,033	4,032,033	3,481,405
Reserves	23,235,869	23,381,056	27,675,185	18,347,595
Non-controlling interests	45,360	9,993	862,874	818,729
Total equity	27,313,262	27,423,082	32,570,092	22,647,729

As at 31 December 2015, the non-current assets of the Group amounted to approximately RMB75.3 billion as compared to approximately RMB59.3 billion as at 31 December 2014. Such increase was due to the increase in property, plant and equipment as a result of additions of vessel and additions of construction in progress property, plant and equipment. The current assets of the Group as at 31 December 2015 amounted to approximately RMB10.3 billion as compared to approximately RMB6.5 billion as at 31 December 2014. Such increase was due to increase in cash and cash equivalents The current liabilities of the Group as at 31 December 2015 amounted to approximately RMB14.1 billion as compared to approximately RMB13.7 billion as at 31 December 2014, which was mainly due to increase in current portion of interest-bearing bank and other borrowings. The non-current liabilities of the Group as at 31 December 2015 amounted to approximately RMB38.9 billion as compared to approximately RMB29.4 billion as at 31 December 2014, which was mainly due to increase in interest-bearing bank and other borrowings. As a result of foregoing, the total equity of the Group as at 31 December 2015 increased to approximately RMB32.6 billion as compared to approximately RMB22.6 billion as at 31 December 2014.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As at 31 December 2016, the non-current assets of the Group amounted to approximately RMB49.0 billion as compared to approximately RMB75.3 billion as at 31 December 2015. Such decrease was mainly due to the decrease in property, plant and equipment as a result of disposal of discontinued operations. The current assets of the Group as at 31 December 2016 amounted to approximately RMB9.0 billion as compared to approximately RMB10.3 billion as at 31 December 2015. Such decrease was due to decrease in trade and bills receivables. The current liabilities of the Group as at 31 December 2016 amounted to approximately RMB7.6 billion as compared to approximately RMB14.1 billion as at 31 December 2015, which was mainly due to decrease in current portion of interest-bearing bank and other borrowings as a result of repayment of unsecured other borrowings. The non-current liabilities as at 31 December 2016 of the Group amounted to approximately RMB23.0 billion as compared to approximately RMB38.9 billion as at 31 December 2015, which was mainly due to decrease in interest-bearing bank and other borrowings as a result of repayment of unsecured bank borrowings and unsecured other borrowings. As a result of foregoing, the total equity of the Group as at 31 December 2016 decreased to approximately RMB27.4 billion as compared to approximately RMB32.6 billion as at 31 December 2015.

As at 30 June 2017, the non-current assets of the Group amounted to approximately RMB51.0 billion as compared to approximately RMB49.0 billion as at 31 December 2016. Such increase was mainly due to the increase in property, plant and equipment as a result of additions of construction in progress. The current assets of the Group as at 30 June 2017 amounted to approximately RMB9.4 billion as compared to approximately RMB9.0 billion as at 31 December 2016. Such increase was due to increase in cash and cash equivalents and prepayments, deposits and other receivables. The current liabilities of the Group as at 30 June 2017 amounted to approximately RMB8.3 billion as compared to approximately RMB7.6 billion as at 31 December 2016, which was mainly due to increase in current portion of interest-bearing bank and other borrowings as a result of the increase in unsecured other borrowings. The non-current liabilities of the Group as at 30 June 2017 amounted to approximately RMB24.9 billion as compared to approximately RMB23.0 billion as at 31 December 2016, which was mainly due to increase in interest-bearing bank and other borrowings as a result of increase in secured bank borrowings. As a result of foregoing, the total equity of the Group as at 30 June 2017 decreased to approximately RMB27.3 billion as compared to approximately RMB27.4 billion as at 31 December 2016.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below are the unaudited condensed consolidated financial position of the Group as at 30 September 2017 which are prepared in accordance with PRC GAAP, as extracted from the Company’s announcement dated 30 October 2017.

	As at	As at
	30 September	31 December
	2017	2016
	RMB’000	RMB’000
	(unaudited)	(audited)
NON-CURRENT ASSETS
Investment properties	1,104,908	1,104,908
Fixed assets	40,809,055	33,334,557
Long-term equity investment	4,066,558	3,999,964
Construction in progress	3,822,872	8,917,825
Total non-current assets	52,169,468	49,288,992
CURRENT ASSETS
Cash and cash equivalents	6,317,119	6,409,203
Accounts receivable	901,184	1,142,070
Inventory	608,413	456,984
Other receivables	597,896	341,579
Total current assets	9,059,741	9,020,485
CURRENT LIABILITIES
Accounts payable	1,218,805	1,353,797
Short-term borrowings	2,413,401	1,872,990
Non-current liabilities due within one year	3,448,801	2,753,895
Total current liabilities	7,710,860	7,313,937
NON-CURRENT LIABILITIES
Long-term borrowings	19,207,862	16,953,209
Bonds payable	3,984,810	3,982,045
Long-term payables	1,139,376	1,049,820
Total non-current liabilities	25,879,928	23,407,538
EQUITY
Share capital	4,032,033	4,032,033
Capital Reserves	7,580,544	7,576,579
Total equity attributable to owners of the parent company	27,433,213	27,413,506
Non-controlling interests	205,208	174,495
Total equity	27,638,421	27,588,001

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Under PRC GAAP, as at 30 September 2017, the non-current assets of the Group amounted to approximately RMB52.2 billion as compared to approximately RMB49.3 billion as at 31 December 2016. Such increase was mainly due to the increase in fixed assets and long term equity investment. The current assets of the Group as at 30 September 2017 amounted to approximately RMB9.1 billion as compared to approximately RMB9.0 billion as at 31 December 2016. Such increase was due to increase in inventory and other receivables due to increase in balance with new joint venture company. The current liabilities of the Group as at 30 September 2017 amounted to approximately RMB7.7 billion as compared to approximately RMB7.3 billion as at 31 December 2016, which was mainly due to increase in short term borrowings and non-current liabilities due within one year. The non-current liabilities of the Group as at 30 September 2017 amounted to approximately RMB25.9 billion as compared to approximately RMB23.4 billion as at 31 December 2016, which was mainly due to increase in long term borrowings. As a result of foregoing, the total equity of the Group as at September 2017 was approximately RMB27.6 billion.

1.4 Background information on COSCO Shipping

As disclosed in the section headed “III. Connected Transaction — Proposed Subscription of A Shares by COSCO Shipping” of the Letter from the Board, COSCO Shipping has conditionally agreed to subscribe for, and the Company has conditionally agreed to issue, such number of A Shares for an amount of not more than RMB4.2 billion under the Proposed Non-public Issuance of A Shares. COSCO Shipping will not participate in the price determination exercise for the Proposed Non-public Issuance of A Shares, but will accept results of market inquiry and subscribe for the A Shares at the same subscription price as other target subscribers.

1.5 Reasons for and benefits of the Proposed Non-public Issuance of A Shares

As discussed in the section headed “1.2 Financial performance on the Group” above, in order to build a specialised crude oil and refined oil transportation fleet and to become a global leader in the oil transportation market in terms of transportation capacities, the Group underwent a major asset restructuring by completing the disposal of dry bulk shipping segment and the acquisition of the Dalian Tanker. Further, according to the interim report of the Group for the six months ended 30 June 2017 (the “ 2017 Interim Report ”), during the first half of 2017, the Group achieved further progress in its fleet development. The net cash outflow from investing activities of the Group was approximately RMB4.2 billion during the first half of 2017 which mainly include the payments of construction of vessels, purchase of a vessel, compensation to a fellow subsidiary for the decrease in equity under the transition period in respect of disposal of discontinued operation, loans to joint ventures and investment in an associate, of which capital expenditure for the progress payment for

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

vessels construction paid by the Group was approximately RMB3.3 billion. In terms of fleet expansion, six new tankers with a total capacity of approximately 892,000 deadweight tonnes and two new LNG vessels with capacity of approximately 348,000 cubic metres have been delivered for use during the first half of 2017.

By virtue of the aforementioned major asset restructuring in 2016, the Company focuses on its oil shipments and LNG Shipment businesses. In light of this, as stated in the Letter from the Board, the Board considered that the Proposed Non-public Issuance of A Shares is conducive to the comprehensive and sustainable development of the Company’s business and specifically, is expected to fund the construction of 16 vessels, further expanding the Company’s fleet and related scale of operation. In addition, the Subscription also demonstrates the confidence that COSCO SHIPPING places in the Company and COSCO SHIPPING’s support to the development of the business of the Company.

The Group’s gearing ratio, being the ratio of net interest-bearing financial liabilities less cash equivalents over total equity, was approximately 82.9% as at 30 June 2017, which was higher than that as at 31 December 2016 of approximately 73.6%. The long term capital raised from the Proposed Non-public Issuance of A Shares would also optimise the Group’s capital structure and reduce the Company’s consolidated debt-to-asset ratio, which enables the Group to obtain further debt financing and lower the costs of its debt financing. As set out in Appendix I to this Circular, the consolidated debt-to-asset ratio of the Group as at 30 June 2017 was approximately 54.8%. Upon completion of the Proposed Non-public Issuance of A Shares, the consolidated debt-to-asset ratio of the Group will be decreased to approximately 50.3%, which will effectively reduce the Group’s financial risks, enhance the Group’s ability to continue as going concern and competitiveness in the industry.

The Company has not conducted any equity fund raising exercises during the 12 months immediately preceding the Latest Practicable Date.

As advised by the management of the Company, the gross proceeds to be raised from the Proposed Non-public Issuance of A Shares is RMB5.4 billion (subject to regulatory approval) (inclusive of the subscription for an amount of not more than RMB4.2 billion by COSCO Shipping pursuant to the Subscription Agreement), which are intended to be used in the following manner:

(i) as to approximately RMB4.99 billion for the construction of 14 additional oil tankers; and
(ii) as to approximately RMB0.41 billion for the completion of acquisition of two Panamax oil tankers.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

the receipt of the proceeds to be raised from the Proposed Non-public Issuance of A Shares, the Company will, depending on the status of the projects, finance these projects by funds raised through other means of financing, which will be substituted by the proceeds raised from the Proposed Non-public Issuance of A Shares in accordance with relevant procedures as required by applicable laws and regulations once the same becomes available.

To understand further for the reasons of the Proposed Non-public Issuance of A Shares, we have reviewed the “Feasibility Report on the use of proceeds from the Proposed Non-public Issuance of A Shares”, details of which are set out in the Appendix II to the Circular (the “ Feasibility Report ”), provided to us by the Company for the following:

(i) Acquisition of 14 oil tankers

On 30 October 2017, the tenth meeting of the Board in 2017 considered and approved the acquisition of four VLCC oil tankers and three Suez oil tankers from Dalian Shipbuilding Industry Co., Ltd. and acquisition of five Aframax oil tankers (including two LR2 product oil tankers) and two Panamax oil tankers (65,000-tonne class) from Guangzhou Shipyard International Company Limited and China Shipbuilding International Trading Company Limited, respectively. The total price of above 14 oil tankers was RMB5.8 billion.

(ii) Acquisition of two Panamax oil tankers

On 24 June 2015, COSCO Group issued the “Reply on Acquisition of Three VLCC and Five Product Oil Tankers (72,000-tonne class) by Dalian Ocean Shipping Company Limited” (COSCO Zhanfa [2015] No.178) 《關於大遠公司訂造( 3艘VLCC和5艘7.2萬噸成品油輪的批復》（中遠戰發[2015]178號）), agreed that the Company acquires two Panamax oil tankers (72,000-tonne class) from China Shipbuilding Industry Group Co., Ltd. (中國船舶重工集團有限公司) at the total agreed price of US$104,770,000.

We noted from the above that the proceeds raised from the Proposed Non-public Issuance of A Shares will be utilised to acquire oil tankers. We have reviewed the Feasibility Report and noted that in 2014, the State Council issued the Certain Opinions Concerning the Promotion of the Healthy Development of Marine Industry 《關於促進海運業健康發展的若干意見》( ) and the Ministry of Transport issued the Plan for Implementation of the Certain Opinions of the State Council Concerning the Promotion of the Healthy Development of Marine Industry 《貫徹落實( <國務院關於促進海運業健康發展的若干意見>的實施方案》), which signify that building “maritime power” has formally become a national strategy and explicitly state some key tasks such as “to optimize of the structure of maritime fleet”, “to improve the global maritime network” and “to promote the transformation and upgrading of shipping enterprises”. Further, in November 2015, the Ministry of Finance issued the Administrative Measures on Subsidies for the Retirement and Disassembling of Vessels and the Standardization of Vessel Models 《船舶報廢拆解和船型標準化補助資金管理辦法》( ) to accelerate the structural adjustment and promote the transformation and upgrade for the shipbuilding industry and shipping industry by encouraging the elimination of obsolete sea crafts, inland crafts and fishing crafts and guiding the building or rebuilding of energy-efficient demonstration vessel. In addition, in 2015, the National Development and Reform Commission issued the Notice on Issues related to the Management of Imported Crude Oil Usage Rights of the National Development and Reform

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Commission 《國家發展改革委關於進口原油使用管理有關問題的通知》( ), permitting eligible local refineries to use imported crude oil. According to the notice of the Ministry of Commerce, from 2015 to 2017, the permitted quota of crude oil for non-state-owned trading are 37,600,000 tons, 87,600,000 tons and 87,600,000 tons, respectively. The expansion of qualifications for importing crude oil to local refineries and the increasing market competition among local refineries have effectively stimulated purchase demand for imported crude oil. From the above, we noted that relevant national strategies and specific supporting measures provide strong policy support on the building of modern energy shipping fleet.

Furthermore, pursuant to the Feasibility Report, we noted that the acquisition of oil tankers can expand and upgrade the Group’s scale of the fleet to maintain its leading shipping capacity in the world taking into account (i) the Group’s strategy to become a global leader in the oil transportation market in terms of transportation capacity as discussed above and (ii) the expected lack of shipping capacity of the Group after 2018 taking into account the impact on the Group’s shipping capacity with an aging fleet where average operating cycle of single vessel is 20 years and the current shipbuilding schedule and progress which will extremely impair its competitiveness in the market and lead to the increase in operating costs such as repair and maintenance costs and fuel consumption costs.

Having considered (i) the Group’s strategy to become a global leader in the oil transportation market in terms of transportation capacities; (ii) the Group has been expanding its fleet scale as discussed in the Interim Report 2017 and the acquisition and hence usage of the oil tankers are in line with the Group’s principal business; (iii) the long term capital raised from the Proposed Non-public Issuance of A Shares would also optimise the Company’s capital structure and reduce the Company’s consolidated debt-to-asset ratio; (iv) relevant national strategies and specific supporting measures provide strong policy support on the building of modern energy shipping fleet and (v) the acquisition of the oil tankers can supplement and upgrade its shipping capacity on a timely basis and optimise the age composition of the fleet further to maintain and increase its shipping capacity and reduce its fleeting operating costs, we concur the Directors’ views that the Proposed Non-public Issuance of A Shares is in the interests of the Company and the Shareholders as a whole.

1.6 Financing alternatives of the Company

As at 30 June 2017, the cash and cash equivalents were approximately RMB6.4 billion, which is expected to meet capital needs of regular operating cash flows of the Group. As such, the Company has considered other fund raising methods such as obtaining debt financing and conducting rights issue or public offering for the abovementioned plans of use of proceeds.

(i) Debt financing

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Other equity financing alternatives

Given that the issued H Share capital of the Company is significantly lower than the issued A Share capital of the Company, the expected size of the fund to be raised by rights issue, open offer or placement of H Shares will be less than approximately RMB5.4 billion. Based on the closing prices of the H Shares and the A Shares on the Latest Practicable Date, the market capitalisation of H Shares and A Shares was approximately HK$5.4 billion (or approximately RMB4.7 billion) and RMB16.7 billion, representing approximately 22.0% and 78.0% of the Company’s total market capitalisation of approximately RMB21.4 billion, respectively.

The average trading price of the H Shares during the 20 trading days immediately preceding the date of the Announcement was approximately HK$4.43 per Share (equivalent to approximately RMB3.89 per Share), which is significantly lower than that of the A Shares of approximately RMB6.41 per Share. If the Company conducts a fund raising exercise by issuance of new H Shares in Hong Kong with proceeds of RMB5.4 billion, assuming a pricing basis of not lower than 90% of the Average Trading Price, the number of H Shares to be issued will be substantially more than that required for the Proposed Non-public Issuance of A Shares, which will lead to a greater dilution effect to the shareholding of the existing Shareholders and will not be in the interests of the Independent Shareholders.

Having considered that (i) equity financing can improve the leverage position of the Group as compared to debt financing; (ii) the issued H Share capital of the Company is significantly lower than the issued A Share capital of the Company; and (iii) the greater dilution effect to the shareholding of the existing Shareholders if the Company conducts a fund raising exercise by issuance of new H Shares in Hong Kong with a proceed of RMB5.4 billion with the same pricing basis as the Proposed Non-public Issuance of A Shares, we concur with the Directors’ view that it is in the interests of the Company and the Shareholders as a whole to raise funds by the Proposed Non-public Issuance of A Shares (including the subscription of A Shares by COSCO SHIPPING).

2. THE TERMS OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

2.1 Details of the Proposed Non-public Issuance of A Shares

The details of the Proposed Non-public Issuance of A Shares are summarised and set out below:

Class and par value of Shares A Shares with a par value of RMB1.00 each. to be issued:

Method and time of issuance:

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Number of A Shares to be issued:

A maximum of 806,406,572 A Shares (referred to as the “ Cap ” below) will be issued under the Proposed Non-public Issuance of A Shares, which represents:

(i) approximately 29.5 % of the existing issued A Shares and approximately 20.0% of the existing total issued share capital of the Company as at the date of this announcement; and
(ii) approximately 22.8% of the enlarged issued A Shares and approximately 16.7% of the enlarged total issued share capital of the Company upon completion of the Proposed Non-public Issuance of A Shares.

COSCO Shipping undertakes to subscribe for such number of A Shares for a subscription amount of not more than RMB4.2 billion under the Proposed Non-public Issuance of A Shares.

The Proposed Non-public Issuance of A Shares is not underwritten.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Target subscribers:

As at the Latest Practicable Date, apart from the Subscription Agreement, the Company has not entered into any agreement with any potential subscribers in respect of the Proposed Non-public Issuance of A Shares. The Company currently expects that, with the exception of COSCO Shipping: (i) the A Shares to be issued under the Proposed Non-public Issuance of A Shares will only be issued to subscribers who and whose ultimate beneficial owners are third parties independent of the Company and its connected persons, and none of them will become substantial shareholders of the Company nor, together with parties acting in concert with it, would trigger mandatory general offer obligation under the Takeovers Code, upon completion of their respective subscriptions of the A Shares under the Proposed Non-public Issuance of A Shares; and (ii) the subscribers will not be parties acting in concert with COSCO Shipping. The Company will comply with all the relevant requirements of the Listing Rules and the Takeovers Code (if applicable) should there be any changes or if otherwise necessary.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Price Determination Date, issue price and pricing principles:

The Price Determination Date of the Proposed Non-public Issuance of A Shares is the first day of the period when the A Shares are issued under the Proposed Non-public Issuance of A Shares.

The issue price shall not be lower than both (i) 90% of the Average Trading Price and (ii) the net asset value per share as set out at the latest audited consolidated financial statement of the Company. The final issue price will be determined by the Board and its authorized person(s) with the authorisation by the Shareholders at the EGM and the Class Meetings and the sponsor (the lead manager) based on the price inquiry results in accordance with the price priority principle and applicable laws and regulations, after obtaining the approval documents issued by the CSRC in respect of the Proposed Non-public Issuance of A Shares.

Given the net asset value per Share as at the Latest Practicable Date as set out in the latest 2016 audited consolidated financial statements of the Company is RMB6.81, on such basis it is expected the minimum issue price would, subject to regulatory approval, be at least RMB6.81 (the Benchmark Price). This represents a premium of approximately 5.58% over the closing price of the Company’s A Shares at RMB6.45 on 26 October 2017, being the last trading day immediately before the Latest Practicable Date. In the event that the issue price is expected to fall below the Benchmark Price, the Company will re-comply with the necessary approval requirements including, among other things, Independent Shareholders’ approval requirements under the Listing Rules and for a new whitewash waiver under the Takeovers Code.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Conditions precedent of the Proposed Non-public Issuance of A Shares:

The Proposed Non-public Issuance of A Shares is conditional upon:

(i) the obtaining of the approval from the Shareholders at the EGM and the Class Meetings;
(ii) the obtaining of the approval from the SASAC;
(iii) the obtaining of the approval from the CSRC; and
(iv) the obtaining of the Whitewash Waiver and approval of the same by Independent Shareholders at the EGM.

An application for the approval of the Subscription has been submitted to the SASAC on 13November 2017 by COSCO Shipping.

Lock-up period:

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Place of listing of the A Shares The Company will apply to the Shanghai Stock Exchange for to be issued: the listing of, and permission to deal in, the A Shares to be issued under the Proposed Non-public Issuance of A Shares. The A Shares to be issued under the Proposed Non-public Issuance of A Shares can be traded on the Shanghai Stock Exchange upon the expiration of the relevant lock-up period as referred to above.

Specific Mandate to issue The Company will issue the A Shares under the Specific A Shares: Mandate to be sought from the Independent Shareholders at the EGM and the Class Meetings. Rights of the A Shares to be The A Shares to be issued under the Proposed Non-public issued Issuance of A Shares, when fully paid and issued, will rank pari passu in all respects amongst themselves and with the A Shares in issue at the time of the issuance of such A Shares, including entitlements as Shareholders to the Company’s undistributed profits accumulated from before the Proposed Non-public Issuance of A Shares.

Validity period of the The resolution regarding the Proposed Non-public Issuance of resolution: A Shares shall be valid for 12 months from the date of the passing of the resolution at the EGM and the Class Meetings.

2.2 Subscription price of the A Shares under the Subscription Agreement and the Specific Mandate
2.2.1 Principle terms of the Subscription Agreement

As part of the Proposed Non-public Issuance of A Shares, on 30 October 2017, the Company and COSCO Shipping entered into the Subscription Agreement pursuant to which COSCO Shipping has conditionally agreed to subscribe for, and the Company has conditionally agreed to issue, such number of A Shares as would be issued for an amount of not more than RMB4.2 billion under the Proposed Non-public Issuance of A Shares. The issue price shall not be lower than the both (i) 90% of the Average Trading Price and (ii) the net asset value per share as set out at the latest audited consolidated financial statement of the Company.

The final subscription price will be determined by the Board and its authorised person(s) with the authorisation by the Shareholders at the EGM and the Class Meetings and the sponsor (the lead manager) based on the price inquiry results in accordance with the price priority principle and applicable laws and regulations, after obtaining the approval documents issued by the CSRC in respect of the Proposed Non-public Issuance of A Shares. The issue price will be correspondingly adjusted if there occurs any ex-right or ex-dividend event (such as distribution of dividend, bonus issue, capitalization of capital reserves, additional issuance or placing of new Shares) between the Price Determination Date and the date of the Proposed Non-public Issuance of A Shares. The aggregate subscription price under the Subscription Agreement will be paid by COSCO Shipping to the Company in cash by bank transfer on the specific payment date as confirmed by the sponsor (the lead manager) in the notice of payment.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We noted that the subscription price was not fixed as at the date of the Subscription Agreement. We obtained and reviewed the aforesaid regulations (including《關於修改〈上市公司非公開發行股票實施細則〉的決定》(Decision on Amending Implementing Rules on Non-Public Issuance of Shares by Listed Companies) (the “Non-Public Stock Offerings Amendment Decision”) published by CSRC on 17 February 2017 and《發行監管問答 — 關於引導規範上市公司融資行為的監管要求》(the Issuance Regulatory Questions and Answers — Regulatory Requirements regarding Guiding and Regulating Listed Companies’ Financing Activities) (collectively, the “ New PRC Regulations ”) published by the CSRC on 17 February 2017) and the “Measure for Administration of the Issuance of Securities by Listed Companies” 《上市公司證券發行管理辦法》( ) (the “ Measures ”) and acknowledged that the basis is in compliance with the regulations of the PRC.

Accordingly, we have searched over 巨潮資訊網 (Cninfo, www.cninfo.com.cn, being a website designated by CSRC for the purpose of information disclosure) with companies listed on the Shanghai Stock Exchange to identify non-public A shares issuance proposal or revised non-public A shares issuance proposal as published from 17 February 2017 (i.e. the date of the Non-Public Stock Offerings Amendment Decision) up to and including the date of the Announcement which applications had not yet been accepted (受理) by CSRC before 17 February 2017 (the “ Comparables* ”), for comparison purpose. We have identified 50 Comparables and despite that the businesses, operations, prospects as well as market capitalization and the fund raising size of the relevant A-share issuance of the Company are not exactly the same as the subject companies of the Comparables, we consider that the Comparables are exhaustive, fair and representative as they represents the prevailing market practice of the Shanghai Stock Exchange for non-public issuance of A-shares subsequent to the implementation of the New PRC Regulations. In addition, as discussed below, given that (i) all the issuing companies (including the Comparables and the Company) shall follow the New PRC Regulations and the Measures in respect of, among others, the price referencing date, pricing principle and lock-up period; (ii) pursuant to the New PRC Regulations and the Measures, the subscription prices of the issuing companies shall not be fixed before their respective price referencing date (i.e. the first day of the issuance period); (iii) the basis for A-share issue price of the issuing companies shall reflect their corresponding market prices and (iv) the Proposed non-public issuance of A-share will be restructured should the issue price lower than the most recent audited net assets value per share of the Company

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(i.e. RMB6.81 as set out in the most recent audited consolidated financial statements of 2016 of the Company); we consider that the Comparables and market comparable analysis are adequate and appropriate to demonstrate the market practices and the fairness of the issue price regarding issuance of A-shares after the New PRC Regulations becoming effective. Summarised below is our relevant findings:

	Market
	Capitalisation
	as at Latest			Date of
	Practicable		Stock	proposal/ latest	Basis for A-share
Company	Date	Principal business	Code	revised proposal	issue price
中遠海運控股股份有限	RMB56.6	Principally engaged in	SH601919	30 October 2017	Not less than (i) 90% of
公司	billion	container shipping and			the 20-day average
COSCO Shipping		related businesses			trading price of	the
Holdings Co., Ltd					A-shares immediately
					preceding the	price
					referencing date	(i.e.
					the first day of	the
					issuance period);	and
					(ii) last audited	net
					asset value per share of
					the company
中遠海運發展股份有限	RMB33.2	Principally engaged in	SH601866	30 October 2017	Not less than (i) 90% of
公司	billion	the ship leasing and			the 20-day average
COSCO Shipping		transportation			trading price of	the
Development Co., Ltd		businesses			A-shares immediately
					preceding the	price
					referencing date	(i.e.
					the first day of	the
					issuance period);	and
					(ii) last audited	net
					asset value per share of
					the company
東方金鈺股份有限公司	RMB14.2	Principally engage in	SH600086	12 October 2017	Not less than 90% of
Eastern Gold Jade Co.,	billion	processing, wholesale			the 20-day average
Ltd		and sales of jewelry			trading price of	the
					A-shares immediately
					preceding the	price
					referencing date	(i.e.
					the first day of	the
					issuance period)

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	Market
	Capitalisation
	as at Latest			Date of
	Practicable		Stock	proposal/ latest	Basis for A-share
Company	Date	Principal business	Code	revised proposal	issue price
江蘇長電科技股份有限	RMB29.9	Engage in	SH600584	29 September	Not less than	90% of
公司	billion	semiconductor business		2017	the 20-day	average
Jiangsu Changjiang					trading price	of	the
Electronics Technology					A-shares immediately
Co., Ltd					preceding the		price
					referencing date		(i.e.
					the first day	of	the
					issuance period)
鵬博士電信傳媒集團股	RMB28.6	Engage in value-added	SH600804	27 September	Not less than	90% of
份有限公司	billion	telecommunications		2017	the 20-day	average
Dr. Peng		service			trading price	of	the
Telecom&Media Group					A-shares immediately
Co., Ltd					preceding the		price
					referencing date		(i.e.
					the first day	of	the
					issuance period)
諾德投資股份有限公司	RMB11.8	Engaged in develops,	SH600110	26 September	Not less than	90% of
NUODE INVESTMENT	billion	manufactures and		2017	the 20-day	average
CO, LTD		distributes new			trading price	of	the
		material new energy			A-shares immediately
		products.			preceding the		price
					referencing date		(i.e.
					the first day	of	the
					issuance period)
杭州永創智慧設備股份	RMB3.8 billion	Manufacturers labeling	SH603901	26 September	Not less than	90% of
有限公司		machines, case		2017	the 20-day	average
Hangzhou Youngsun		erectors, case packers,			trading price	of	the
Intelligent Equipment		case sealers, and			A-shares immediately
Co., Ltd		belt/roller conveyors.			preceding the		price
					referencing date		(i.e.
					the first day	of	the
					issuance period)

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	Market
	Capitalisation
	as at Latest			Date of
	Practicable		Stock	proposal/ latest	Basis for A-share
Company	Date	Principal business	Code	revised proposal	issue price
維格娜絲時裝股份有限	RMB3.0 billion	Designs, produces and	SH603518	25 September	Not less than 90% of
公司		sells high-end		2017	the 20-day average
V Grass Fashion Co.,		women’s fashion wear.			trading price of the
Ltd					A-shares immediately
					preceding the price
					referencing date (i.e.
					the first day of the
					issuance period)
武漢當代明誠文化股份	RMB6.2 billion	Produces and	SH600136	22 September	90% of the 20-day
有限公司		distributes movies and		2017	average trading price of
Wuhan DDMC Culture		TV shows			the A-shares
Co., Ltd					immediately preceding
					the price referencing
					date (i.e. the first day of
					the issuance period)
大唐國際發電股份有限	RMB49.2	Develops and operates	SH601991	20 September	Not less than 90% of
公司	billion	power plants, sells		2017	the 20-day average
Datang International		electricity, repairs and			trading price of the
Power Generation Co.,		maintains power			A-shares immediately
Ltd		equipment, and			preceding the price
		provides power-related			referencing date (i.e.
		technical services			the first day of the
					issuance period)
中石化石油工程技術服	RMB37.7	Engage in oilfield	SH600871	20 September	Not less than 90% of
務股份有限公司	billion	services		2017	the 20-day average
Sinopec Oilfield					trading price of the
Service Corporation					A-shares immediately
					preceding the price
					referencing date (i.e.
					the first day of the
					issuance period)

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	Market
	Capitalisation
	as at Latest			Date of
	Practicable		Stock	proposal/ latest	Basis for A-share
Company	Date	Principal business	Code	revised proposal	issue price
中國南方航空股份有限	RMB94.0	Provides commercial	SH600029	19 September	Not less than the higher
公司	billion	airline services		2017	of (i) 90% of the 20-day
China Southern Airlines					average trading price of
Company Limited					the A-shares
					immediately preceding
					the price referencing
					date (i.e. the first day of
					the issuance period);
					and (ii) last audited net
					asset value per share of
					the company
四川成渝高速公路股份	RMB11.4	Develops, invests in,	SH601107	18 September	(i) 90% of the 20-day
有限公司	billion	and operates		2017	average trading price of
Sichuan Expressway		infrastructure projects			the A-shares
Company Limited		including toll roads,			immediately preceding
		bridges, tunnels, and			the price referencing
		ancillary facilities.			date (i.e. the first day of
					the issuance period);
					and (ii) last audited net
					asset value per share of
					the company,
					whichever is higher
龍建路橋股份有限公司	RMB2.8 billion	Operates as a	SH600853	18 September	90% of the 20-day
Longjian Road &		contractor for highway		2017	average trading price of
Bridge Co., Ltd		construction projects			the A-shares
		and highway			immediately preceding
		maintenance.			the price referencing
					date (i.e. the first day of
					the issuance period)
北京首創股份有限公司	RMB25.8	Manages infrastructure	SH600008	14 September	Not less than 90% of
Beijing Capital Co., Ltd	billion	facilities and operates		2017	the 20-day average
		hotels.			trading price of the
					A-shares immediately
					preceding the price
					referencing date (i.e.
					the first day of the
					issuance period)

— 67 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	Market
	Capitalisation
	as at Latest			Date of
	Practicable		Stock	proposal/ latest	Basis for A-share
Company	Date	Principal business	Code	revised proposal	issue price
國美通訊設備股份有限	RMB2.9 billion	Manufactures	SH600898	11 September	Not less than	90% of
公司		telecommunications		2017	the 20-day	average
Gome Telecom		equipment			trading price	of	the
Equipment Co., Ltd.					A-shares immediately
					preceding the		price
					referencing date		(i.e.
					the first day	of	the
					issuance period)
浙江海正藥業股份有限	RMB14.5	Develops and	SH600267	31 August 2017	Not less than	90% of
公司	billion	manufactures			the 20-day	average
Zhejiang Hisun		pharmaceutical			trading price	of	the
Pharmaceutical Co., Ltd		products			A-shares immediately
					preceding the		price
					referencing date		(i.e.
					the first day	of	the
					issuance period)
長江精工鋼結構（集團）	RMB6.5 billion	Manufactures and sells	SH600496	28 August 2017	Not less than	90% of
股份有限公司		agricultural machinery			the 20-day	average
Changjiang & JingGong					trading price	of	the
Steel Building (Group)					A-shares immediately
Co., Ltd					preceding the		price
					referencing date		(i.e.
					the first day	of	the
					issuance period)
華能國際電力股份有限	RMB86.3	Develops, constructs,	SH600011	22 August 2017	Not less than	90% of
公司	billion	owns and operates			the 20-day	average
Huaneng Power		coal-fired power plants			trading price	of	the
International, Inc.					A-shares immediately
					preceding the		price
					referencing date		(i.e.
					the first day	of	the
					issuance period)
中國聯合網路通信股份	RMB213.1	Provides a variety of	SH600050	20 August 2017	RMB6.83 per A share
有限公司	billion	telecommunication			(Note)
China United Network		services
Communication Limited

— 68 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	Market
	Capitalisation
	as at Latest			Date of
	Practicable		Stock	proposal/ latest	Basis for A-share
Company	Date	Principal business	Code	revised proposal	issue price
廣西綠城水務股份有限	RMB6.9 billion	Supplies water and	SH601368	7 August 2017	Not less than 90% of
公司		treats sewage.			the 20-day average
Guangxi Nanning					trading price of the
Waterworks Co., Ltd					A-shares immediately
					preceding the price
					referencing date (i.e.
					the first day of the
					issuance period)
東方證券股份有限公司	RMB87.1	Provides investment	SH600958	7 August 2017	Not less than 90% of
Orient Securities	billion	advisory and brokerage			the 20-day average
Company Limited		services			trading price of the
					A-shares immediately
					preceding the price
					referencing date (i.e.
					the first day of the
					issuance period)
上海廣澤食品科技股份	RMB3.7 billion	Manufactures and	SH600882	1 August 2017	90% of the 20-day
有限公司		distributes dairy			average trading price of
Shanghai Ground Food		products			the A-shares
Tech Co., Ltd.					immediately preceding
					the price referencing
					date (i.e. the first day of
					the issuance period)
南京銀行股份有限公司	RMB68.5	Operates in	SH601009	31 July 2017	(i) 90% of the 20-day
Bank of Nanjing Co.,	billion	commercial banking			average trading price of
Ltd		business			the A-shares
					immediately preceding
					the price referencing
					date (i.e. the first day of
					the issuance period);
					and (ii) last audited net
					asset value per share of
					the company,
					whichever is higher

— 69 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	Market
	Capitalisation
	as at Latest			Date of
	Practicable		Stock	proposal/ latest	Basis for A-share
Company	Date	Principal business	Code	revised proposal	issue price
宜賓紙業股份有限公司	RMB2.6 billion	Manufactures and	SH600793	31 July 2017	Not less than	90% of
Yibin Paper Industry		markets newsprint			the 20-day	average
Co., Ltd		paper, packaging			trading price	of	the
		paper, and paper pulp			A-shares immediately
					preceding the		price
					referencing date		(i.e.
					the first day	of	the
					issuance period)
廣西豐林木業集團股份	RMB5.0 billion	Manufactures and sells	SH601996	25 July 2017	Not less than	90% of
有限公司		medium (high) density			the 20-day	average
Guangxi Fenglin Wood		fiberboard, plywood,			trading price	of	the
Industry Group Co.,		as well as conducts			A-shares immediately
Ltd.		silvicultural forestry			preceding the		price
		business.			referencing date		(i.e.
					the first day	of	the
					issuance period)
中糧屯河糖業股份有限	RMB17.2	Processes and sells	SH600737	21 July 2017	Not less than	90% of
公司	billion	ketchup, produces soft			the 20-day	average
Cofco Tunhe Sugar Co.,		drink beverages, and			trading price	of	the
Ltd		processes agricultural			A-shares immediately
		products			preceding the		price
					referencing date		(i.e.
					the first day	of	the
					issuance period)
金健米業股份有限公司	RMB3.0 billion	Manufactures,	SH600127	12 July 2017	Not less than	90% of
Jinjian Cereals Industry		processes, and markets			the 20-day	average
Co., Ltd		rice, flour, and			trading price	of	the
		cooking oil			A-shares immediately
					preceding the		price
					referencing date		(i.e.
					the first day	of	the
					issuance period)

— 70 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Market Capitalisation as at Latest Date of Practicable Stock proposal/ latest Basis for A-share Company Date Principal business Code revised proposal issue price 山東華泰紙業股份有限 RMB7.6 billion Manufactures and sells SH600308 5 July 2017 Not less than 90% of 公司 paper products, the 20-day average Shandong Huatai Paper trading price of the Industry Shareholding A-shares immediately Co., Ltd preceding the price referencing date (i.e. the first day of the issuance period) 兗州煤業股份有限公司 RMB52.7 Operates underground SH600188 29 June 2017 Not less than 90% of Yanzhou Coal Mining billion mining and coal the 20-day average Co., Ltd preparation and trading price of the operation businesses. A-shares immediately preceding the price referencing date (i.e. the first day of the issuance period) 通策醫療投資股份有限 RMB9.6 billion Provides dental and SH600763 7 July 2017 90% of the 20-day 公司 oral health care average trading price of Top Choice Medical services. the A-shares Investment Co., Inc immediately preceding the price referencing date (i.e. the first day of the issuance period) 華泰證券股份有限公司 RMB127.8 Provides securities SH601688 27 May 2017 Not less than 90% of Huatai Securities Co., billion brokerage services, the 20-day average Ltd research consulting trading price of the services, investment A-shares immediately banking, fixed-income preceding the price services and asset referencing date (i.e. management services. the first day of the issuance period)

— 71 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	Market
	Capitalisation
	as at Latest			Date of
	Practicable		Stock	proposal/ latest	Basis for A-share
Company	Date	Principal business	Code	revised proposal	issue price
遠東智慧能源股份有限	RMB13.5	Engages in the system	SH600869	26 May 2017	Not less than 90% of
公司	billion	design, research and			the 20-day average
Far East Smarter		development,			trading price of the
Energy Co., Ltd		manufacturing,			A-shares immediately
		marketing and services			preceding the price
		of wires and calbles			referencing date (i.e.
					the first day of the
					issuance period)
上海申達股份有限公司	RMB6.0 billion	Operates in textile	SH600626	17 May 2017	Not less than 90% of
Shanghai Shenda Co.,		products import and			the 20-day average
Ltd		export trading, textile			trading price of the
		products			A-shares immediately
		manufacturing, and			preceding the price
		property management.			referencing date (i.e.
					the first day of the
					issuance period)
吉林高速公路股份有限	RMB4.4 billion	Invests, develops,	SH601518	10 May 2017	90% of the 20-day
公司		builds and operates			average trading price of
Jilin Expressway Co.,		toll roads			the A-shares
Ltd					immediately preceding
					the price referencing
					date (i.e. the first day of
					the issuance period)
江蘇江南高纖股份有限	RMB5.2 billion	Manufactures polyester	SH600527	28 April 2017	Not less than 90% of
公司		tops and composite			the 20-day average
Jiangnan High Polymer		short fiber			trading price of the
Fiber Co., Ltd					A-shares immediately
					preceding the price
					referencing date (i.e.
					the first day of the
					issuance period)

— 72 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	Market
	Capitalisation
	as at Latest			Date of
	Practicable		Stock	proposal/ latest	Basis for A-share
Company	Date	Principal business	Code	revised proposal	issue price
北京銀行股份有限公司	RMB133.9	Provides banking	SH601169	24 April 2017	(i) 90% of the 20-day
Bank of Beijing Co.,	billion	services			average trading price of
Ltd					the A-shares
					immediately preceding
					the price referencing
					date (i.e. the first day of
					the issuance period);
					and (ii) last audited net
					asset value per share of
					the company,
					whichever is higher
天津創業環保集團股份	RMB15.8	Processes sewage	SH600874	24 April 2017	Not less than 90% of
有限公司	billion	water and constructs			the 20-day average
Tianjin Capital		sewage water			trading price of the
Environmental		processing plant			A-shares immediately
Protection Group					preceding the price
Company Limited					referencing date (i.e.
					the first day of the
					issuance period)
杭州士蘭微電子股份	RMB16.8	Develops, researches,	SH600460	30 March 2017	Not less than 90% of
有限公司	billion	tests, and sells			the 20-day average
Hangzhou Silan		integrated circuits.			trading price of the
Microelectronics Co.,					A-shares immediately
Ltd					preceding the price
					referencing date (i.e.
					the first day of the
					issuance period)
大唐華銀電力股份有限	RMB7.3 billion	Generates and sells	SH600744	24 March 2017	Not less than 90% of
公司		electric power			the 20-day average
Datang Huayin Electric					trading price of the
Power., Ltd					A-shares immediately
					preceding the price
					referencing date (i.e.
					the first day of the
					issuance period)

— 73 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	Market
	Capitalisation
	as at Latest			Date of
	Practicable		Stock	proposal/ latest	Basis for A-share
Company	Date	Principal business	Code	revised proposal	issue price
恒通物流股份有限公司	RMB3.1 billion	Offers consultation and	SH603223	23 March 2017	Not less than	90% of
Hengtong Logistics Co.,		management services			the 20-day	average
Ltd		for the transportation			trading price	of	the
		of freight and cargo			A-shares immediately
					preceding the		price
					referencing date		(i.e.
					the first day	of	the
					issuance period)
引力傳媒股份有限公司	RMB4.0 billion	Provides strategy	SH603598	21 March 2017	Not less than	90% of
Inly Media Co., Ltd		consulting and media			the 20-day	average
		agency services.			trading price	of	the
					A-shares immediately
					preceding the		price
					referencing date		(i.e.
					the first day	of	the
					issuance period)
廣州粵泰集團股份有限	RMB16.5	Invests in, owns, and	SH600393	20 March 2017	Not less than	90% of
公司	billion	develops real estate			the 20-day	average
Guangzhou Yuetai		properties.			trading price	of	the
Group Co., Ltd					A-shares immediately
					preceding the		price
					referencing date		(i.e.
					the first day	of	the
					issuance period)
廣西桂東電力股份有限	RMB4.4 billion	Generates and	SH600310	13 March 2017	Not less than	90% of
公司		distributes			the 20-day	average
Guangxi Guidong		hydroelectric power.			trading price	of	the
Electric Power Co. Ltd					A-shares immediately
					preceding the		price
					referencing date		(i.e.
					the first day	of	the
					issuance period)

— 74 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	Market
	Capitalisation
	as at Latest			Date of
	Practicable		Stock	proposal/ latest	Basis for A-share
Company	Date	Principal business	Code	revised proposal	issue price
南京化纖股份有限公司	RMB2.6 billion	Manufactures viscose	SH600889	9 March 2017	Not less than	90% of
Nanjing Chemical Fiber		filament fibers and			the 20-day	average
Co., Ltd		produces tap water			trading price	of	the
					A-shares immediately
					preceding the		price
					referencing date		(i.e.
					the first day	of	the
					issuance period)
保定天威保變電氣股份	RMB10.4	Manufactures and	SH600550	8 March 2017	Not less than	90% of
有限公司	billion	markets electrical			the 20-day	average
Baoding Tianwei		equipment.			trading price	of	the
Baobian Electric Co.,					A-shares immediately
Ltd					preceding the		price
					referencing date		(i.e.
					the first day	of	the
					issuance period)
西藏旅遊股份有限公司	RMB3.7 billion	Provides travel agent	SH600749	6 March 2017	Not less than	90% of
Tibert Tourism Co., Ltd		services, manages and			the 20-day	average
		operates hotels and			trading price	of	the
		restaurants			A-shares immediately
					preceding the		price
					referencing date		(i.e.
					the first day	of	the
					issuance period)
四川沱牌捨得酒業股份	RMB14.2	Manufactures and sells	SH600702	1 March 2017	Not less than	90% of
有限公司	billion	a variety of liquors			the 20-day	average
Sichuan Tuopai Shede					trading price	of	the
Spirits Co., Ltd.					A-shares immediately
					preceding the		price
					referencing date		(i.e.
					the first day	of	the
					issuance period)

— 75 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	Market
	Capitalisation
	as at Latest			Date of
	Practicable		Stock	proposal/ latest	Basis for A-share
Company	Date	Principal business	Code	revised proposal	issue price
盛屯礦業集團股份有限	RMB12.8	Mines and	SH600711	27 February 2017	90% of the 20-day
公司	billion	manufactures lead and			average trading price of
Chengtun Mining Group		zinc bulk concentrate			the A-shares
Co., Ltd					immediately preceding
					the price referencing
					date (i.e. the first day of
					the issuance period)
重慶市迪馬實業股份	RMB10.2	Manufactures and	SH600565	21 February 2017	Not less than 90% of
有限公司	billion	markets bulletproof			the 20-day average
Chongqing Dima		cash delivery vehicles,			trading price of the
Industry Co., Ltd.		vehicles for police use,			A-shares immediately
		and other specially			preceding the price
		designed vehicles			referencing date (i.e.
					the first day of the
					issuance period)

Note: As disclosed in the non-public A shares issuance proposal published by 中國聯合網路通信股份有限公司 (China United Network Communication Limited) on 20 August 2017, the issuance of non-public A shares as part of its mixed ownership reform plan, 中國聯合網路通信股份有限公司 (China United Network Communication Limited) had communicated with CSRC and other government bodies, CSRC and other government bodies approved to follow the previous regulations on non-public issuance of A shares, which is amended on 17 February 2017.

As shown by the above table, the A-share issue prices of the Comparables (except for 中國聯合網路通信股份有限公司 (China United Network Communication Limited)) were not fixed as at the date of their relevant announcements. Moreover, we noted that (i) the basis of the subscription price is comparable to those of the Comparables; and (ii) the Price Determination Date and the price referencing dates of the Comparables will be the first day of the issuance period. In addition, we have reviewed the Opinions Concerning Regulating the Work Relating to the Restructuring of State-owned Enterprises《關於規範國有企業改制工作的意見》issued by SASAC and noted that, among others, the pricing for the transfer of the shares of the listed stated-owned enterprises should be reasonable and make reference to the enterprises’ profitability and market performance and should be on the basis of not lower than the net asset value per share of the enterprises.

Having considered that (i) the subscription price will reflect the then latest market prices of A Share; (ii) the basis of subscription price is comparable to those of the Comparables; (iii) the basis of the subscription price is in compliance with the New PRC Regulations and the Opinions Concerning Regulating the Work Relating to the Restructuring of State-owned Enterprises; (iv) the subscription price will be the same to all subscribers; and (v) the Proposed non-public issuance of A-share will be restructured should the issue price will be lower than the most recent audited net assets value per share

— 76 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

of the Company (i.e. RMB6.81 as set out in the most recent audited consolidated financial statements of 2016 of the Company), we concur with the Directors that it is in line with the market practice and acceptable that the subscription price was not fixed as at the date of the Subscription Agreement and the basis for the determination of the Subscription Price is on normal commercial terms and fair and reasonable so far as the Independent Shareholders are concerned.

Lock-up period

With reference to the Letter from the Board, COSCO Shipping shall not transfer the A Shares subscribed under the Proposed Non-public Issuance of A Shares within 36 months from the date of the completion of the Proposed Non-public Issuance of A Shares. All other target subscribers shall not transfer the A Shares subscribed under the Proposed Non-public Issuance of A Shares within 12 months from the date of the completion of the Proposed Non-public Issuance of A Shares.

Having considered that the above lock-up periods were determined in accordance with the New PRC Regulations, which stipulates that the lock-up period of shares shall be 36 months for share issued to certain categories of subscribers (including controlling shareholders, actual controllers and strategic investors introduced by the board of the listed issuer), and 12 months for share issued to other types of subscribers, we are of the view that the terms of the Subscription Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

3. POSSIBLE EFFECTS OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

3.1 Financial effects to the Group

As advised by the Directors, the Proposed Non-public Issuance of A Shares and the Subscription would have the following financial effects to the Group:

(i) Net assets value and net asset value per Share

As referred to in the 2017 Interim Report, the unaudited consolidated net assets value of the Group attributable to the Shareholders as at 30 June 2017 was approximately RMB27.3 billion. The Directors expected that the Group’s net assets value and net asset value per Share would increase after completion of the Proposed Non-public Issuance of A Shares as the net proceeds from the Proposed Non-public Issuance of A Shares will bring in additional funds to the Group. In addition, as the issue price shall not be lower than the latest audited net asset value per Share, it is expected that the net assets value per Share will be decreased slightly upon completion of the Issuance (after taking into account certain costs in relation to the Issuance). However, having considered the overall benefits of the Issuance in the long run, we consider that the benefits outweigh the possible minimal reductions in the net asset value per Share.

(ii) Gearing

The Directors expect that the Group’s consolidated debt-to-asset ratio will be reduced from approximately 54.8% as at 30 June 2017 to approximately 50.3% immediately after the completion of the Proposed Non-public Issuance of A Shares, in view of the fact that additional funds will be brought to the Group without any increase in debt.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the above, we concur with the Directors’ view that the Proposed Non-public Issuance of A Shares would have an overall positive effect on the financial position of the Group. It should be noted that the aforementioned analysis is for illustrative purposes only and do not purport to represent how the financial position of the Group will be upon completion of the Proposed Non-public Issuance of A Shares.

It should be noted that the aforementioned analysis is for illustrative purposes only and do not purport to represent how the actual financial position of the Group will be upon completion of the Proposed Non-public Issuance of A Shares and the Subscription.

3.2 Potential dilution to the shareholding of the existing Shareholders

As at the Latest Practicable Date, the total issued share capital of the Company is 4,032,032,861 Shares, which comprises 2,736,032,861 A Shares and 1,296,000,000 H Shares.

The shareholding structure of the Company (i) as at the Latest Practicable Date and (ii) immediately after completion of the Proposed Non-public Issuance of A Shares (assuming that (a) COSCO Shipping subscribes for such number of A Shares for an amount of RMB4.2 billion at the Benchmark Price, (b) the other target subscribers subscribe for such number of A Shares for an aggregate amount of RMB1.2 billion at the Benchmark Price and (c) there is no change in the total issued share capital of the Company since the Latest Practicable Date save for the issue of the A Shares pursuant to the Proposed Non-public Issuance of A Shares) is as set out below:

					Immediately upon	completion of	the Proposed	the Proposed
	Existing (as at	the Latest Practicable Date)			Non-public	Issuance of A	Shares
		Percentage of	Percentage			Percentage of	Percentage of
	Class and	the relevant	of all voting		Class and	the relevant		all issued
	No. of voting	class of	rights of	the	No. of voting	class of	voting	rights of
Shareholder	rights	voting rights	Company		rights	voting rights	the	Company
COSCO Shipping and parties
acting in concert with it
(Note 1)
- COSCO Shipping	0	0		0	616,740,088	17.48%		12.78%
					A Shares
					(Note 2)
- CSG	1,554,631,593	56.82%	38.56%		1,554,631,593	44.05%		32.22%
	A Shares				A Shares
Subtotal	1,554,631,593	56.82%	38.56%		2,171,371,681	61.53%		45.00%
	A Shares				A Shares
Other target subscribers under the	—	—		—	176,211,453	4.99%		3.65%
Proposed Non-public Issuance					A Shares
of A Shares
GIC Private Limited (Note 3)	129,082,000	9.96%	3.20%		129,082,000	9.96%		2.68%
	H Shares				H Shares
Prudential plc	117,444,000.00	9.06%	2.91%		117,444,000.00	9.06%		2.43%
	H Shares				H Shares

— 78 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

					Immediately upon	completion of	completion of	the Proposed	the Proposed
	Existing (as at	the	Latest Practicable Date)		Non-public	Issuance of A		Shares
		Percentage of		Percentage		Percentage of		Percentage of
	Class and	the relevant		of all voting	Class and	the relevant			all issued
	No. of voting		class of	rights of the	No. of voting		class of	voting	rights of
Shareholder	rights	voting rights		Company	rights	voting rights		the	Company
Other Public Shareholders	1,181,401,268		43.18%	29.30%	1,181,401,268		33.48%		24.49%
	A Shares				A Shares
	1,049,474,000.00		80.98%	26.03%	1,049,474,000.00		80.98%		21.75%
	H Shares				H Shares
Total:	2,736,032,861		100%	67.86%	3,528,984,402		100%		73.14%
	A Shares				A Shares
	1,296,000,000		100%	32.14%	1,296,000,000		100%		26.86%
	H Shares				H Shares

Note:

COSCO Shipping is the indirect controlling shareholder of the Company and is deemed interested in the 1,536,924,595 A Shares (representing approximately 38.12% of the total voting rights of the Company) held directly by CSG as at the date hereof. CSG also holds (a) 7,000,000 A Shares (representing approximately 0.17% of the total voting rights of the Company as at the Latest Practicable Date) through CICC-CCB-Zhongjin Ruihe collective asset management schemes ( 中金公司 - 建設銀行 - 中金瑞和集合資產管理計劃 ), (b) 2,065,494 A Shares (representing approximately 0.05% of the total voting rights of the Company as at the Latest Practicable Date) through Guotai Junan securities asset management-Industrial Bank — Guotai Junan Junxiang Xinli No.6 collective asset management schemes ( 國泰君安證券資管 - 興業銀行 - 國泰君安君享新利六號集合資產管理計劃 ), (c) 8,641,504 A Shares (representing approximately 0.21% of the total voting rights of the Company as at the Latest Practicable Date) through AEGON-INDUSTRIAL Fund Management Co., Ltd - China Shipping (Group) Company collective asset management schemes ( 興業全球基金 - 上海銀行 - 中國海運 ( 集團 ) 總公司 ). Therefore, CSG and its subsidiaries are interested in 1,554,631,593 A Shares in aggregate as at the date hereof, representing approximately 38.56% of the total number of voting rights in the Company as at the Latest Practicable Date.
Assuming the issuance price for the Proposed Non-public Issuance of A Shares is at the Benchmark Price, COSCO Shipping is expected to acquire 616,740,088 A Shares through the Subscription, representing approximately 12.78% of the total issued Shares on a fully diluted basis. On this basis, together with the deemed interest of CSG pursuant to the SFO, COSCO Shipping will be interested in approximately 45.00% of the total issued Shares of the Company under the SFO immediately upon completion of the issuance of the A Shares underlying the Proposed Non-public Issuance of A Shares.
According to the information disclosed to the Company under Division 2 and Division 3 of Part XV of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), GIC Private Limited held the above Shares as an investment manager.

Upon completion of the Proposed Non-public Issuance of A Shares (assuming there is no adjustment to the issue price of A Shares and no change in the total issued share capital of the Company since the Latest Practicable Date save for the issue of the Shares pursuant to the Proposed Non-public Issuance of A Shares), (i) the shareholding of the public A Shareholders will be decreased from approximately 29.3% to approximately 24.5%; and (ii) the shareholding of the public H Shareholders will be decreased from approximately 32.1% to approximately 26.9%.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Although there will be dilution effect to the shareholding interest of existing public shareholders of H Shares as a result of the Proposed Non-public Issuance of A Shares, we have, however, taken into account (i) the reasons for and benefits of the Proposed Non-public Issuance of A Shares, the Subscription and proposed use of proceeds as set out in the section headed “1.5 Reasons for and benefits of the Proposed Non-public Issuance of A Shares”; (ii) the alternative fund raising methods available to the Company as set out in the section headed “1.6 Financing alternatives of the Company”; (iii) the fairness and reasonableness of the basis of determining the subscription price of the A Shares to be issued as set out in the section headed “2. The terms of the Proposed Non-public Issuance of A Shares”, we consider that the Proposed Non-public Issuance of A Shares is an acceptable means of funds raising by the Company and the shareholding dilution effects upon completion of the Proposed Non-public Issuance of A Shares is acceptable so far as the Independent Shareholders are concerned.

4. THE WHITEWASH WAIVER

Upon completion of the Proposed Non-public Issuance of A Shares and assuming the issuance is conducted at the Benchmark Price, the COSCO Shipping Concert Group’s holding of voting rights in respect of all the Shares is expected to increase from approximately 38.6%to approximately 45.0% on a fully diluted basis. As a result of such acquisition of voting rights in the Company, unless the Whitewash Waiver is granted, COSCO Shipping will incur an obligation to make a mandatory offer under Rule 26 of the Takeovers Code for all the Shares other than those already held or agreed to be acquired by the COSCO Shipping Concert Group. The grant of the Whitewash Waiver is a condition precedent to the Proposed Non-public Issuance of A Shares and the Subscription. If the Whitewash Waiver is not granted, the condition precedent on the Whitewash Waiver may be waived so that the Proposed Non-public Issuance of A Shares may still proceed, but the size of the Subscription (in terms of number of A Shares to be issued to COSCO Shipping as a proportion to all A Shares to be issued pursuant to the Proposed Non-public Issuance of A Shares) is expected to be reduced to the extent that COSCO Shipping would not incur any obligation to make a general offer under the Takeovers Code and other subscribers will be invited to subscribe for such portion instead.

An application has been made to the Executive for the Whitewash Waiver pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code. The Whitewash Waiver, if granted by the Executive, is expected to be subject to, among other things, the approval of the Independent Shareholders at the EGM by way of poll. COSCO Shipping and parties acting in concert with it, and any other Shareholders who are involved or interested in the Proposed Non-public Issuance of A Shares, the Subscription and the Whitewash Waiver are required to abstain from voting at the EGM in respect of the resolution approving the Whitewash Waiver.

Having considered the benefits of the Proposed Non-public Issuance of A Shares as mentioned in the previous sections in this letter, in particular, (i) the Proposed Non-public Issuance of A Shares is a reasonable financing means available to the Group; (ii) the Proposed Non-public Issuance of A Shares would optimise the Company’s capital structure and reduce the Company’s debt ratio to obtain further debt financing and lower the costs of its debt financing; (iii) the Proposed Non-public Issuance of A Shares would provide funding for the acquisition of vessels; the basis of the subscription price is in compliance with the New PRC Regulations and in line with market practice; (iv) the dilution effect to the Independent Shareholders as a result of the Proposed Non-public Issuance of A Shares is acceptable due to the reasons as elaborated under the section headed “3.2 Potential dilution to the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

shareholding of the existing Shareholders” of this letter; and (v) the Proposed Non-public Issuance of A Shares would have an overall positive effect on the financial position of the Group, we are of the view that the granting of the Whitewash Waiver, which is a condition precedent for the completion of the Subscription and the Proposed Non-public Issuance of A Shares, is fair and reasonable so far as the independent Shareholders are concerned, and in the interests of the Company and the Shareholders as a whole.

5. THE SPECIAL DEAL

As stated in the Letter from the Board, according to the applicable PRC laws, regulations and regulatory requirements, foreign investors cannot subscribe in non-public issue of A shares of listed companies by way of cash unless they are approved qualified foreign institutional investors or foreign strategic investors. After considering the applicable PRC laws, regulations and regulatory requirements, and with a view to avoiding possible delay and uncertainty as a result of foreign investors’ participation in the fundraising exercise, the scope of targeted subscribers under the Proposed Non-public Issuance of A Shares will exclude all the H Shareholders (including approved qualified foreign institutional investors, foreign strategic investors and approved PRC investors which could invest in H Shares, including the qualified domestic institutional investors and the southbound trading investors under the Shanghai-Hong Kong Stock Connect). According to the PRC Legal Advisers, the aforementioned scope of targeted subscribers is in compliance with the applicable PRC laws, regulations and regulatory requirements. In addition, the identity of the target subscribers (and whether the target subscribers include existing A Shareholders) cannot be pre-determined as of the Latest Practicable Date. Therefore, given the top 20 Shareholders of the Company are required to be approached pursuant to the above PRC regulatory requirements for invitation to subscribe for A Shares under the Proposed Non-public Issuance of A Shares, their subscription (or any other subscriber who is a Shareholder) may be accepted by the Company.

Accordingly, the Proposed Non-public Issuance of A Shares (including any subscription by any subscriber who is a Shareholder), will constitute a Special Deal under Rule 25 of the Takeover Codes which is not capable of being extended to all Shareholders and requires the consent of the Executive. An application has been made by the Company to the Executive for its consent to the Special Deal pursuant to Rule 25 of the Takeovers Code. Such consent, if granted, will be subject to, among other things, (i) the Independent Financial Adviser publicly states that in its opinion the terms of the Special Deal are fair and reasonable and (ii) the approval of the Special Deal by the Independent Shareholders by way of a poll at the EGM and the Class Meetings. In addition, pursuant to the Articles of Association and the applicable PRC laws and regulations, if the rights attached to any class of shares are varied, a special resolution shall be passed at the Shareholders’ general meeting and by holders of Shares of the affected class passed at a separate general meeting of the holders of Shares of the class. Accordingly, the resolution in respect of the Special Deal will be submitted, by way of special resolution, for Independent Shareholders’ consideration and approval at the EGM and the Class Meetings. COSCO Shipping and parties acting in concert with it and those who are involved in or interested in the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and/or the Special Deal will abstain from voting on the resolution to be proposed at the EGM and the Class Meetings to approve the Special Deal.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As set out in the Letter from the Board, we are given to understand that,

(i) pursuant to Rules 23 and 24 of the Implementation Rules for the Non-public Issuance of Shares by Listed Companies, where the board resolution of the Company has not identified specific target subscribers for the non-public issuance of shares, the sponsor shall issue invitation for subscription to eligible specific target subscribers after obtaining approval documents from the CSRC. The list of eligible specific target subscribers shall include: (i) investors who have submitted a letter of intent after the announcement of the board resolution by the company; (ii) the top 20 shareholders of the company; and (iii) not less than 20 securities investment fund management companies, 10 securities companies and five insurance institutional investors, which are eligible under the Measures for the Administration of Securities Offering and Underwriting 《證券發行與承銷管理辦法》( ). As at the Latest Practicable Date, the Company has yet to obtain approval from CSRC and no invitation documents have been delivered;
(ii) according to the relevant provisions such as the Implementation Rules for the Proposed Non-public Issuance of A Shares by Listed Companies, the final issue price will be determined by the Board and its authorised person(s) with the authorisation by the Shareholders at the EGM and the Class Meetings and the sponsor (the lead manager) based on the price inquiry results in accordance with the price priority principle and applicable laws and regulations, after obtaining the approval documents issued by the CSRC in respect of the Proposed Non-public Issuance of A Shares.

Pursuant to the “Letter from the Board”, COSCO Shipping will not participate in the price inquiry exercise for the Proposed Non-public Issuance of A Shares, and will accept the price inquiry results and subscribe for the A Shares at the same issue price as other target subscribers.

(iii) the H Shareholders (other than COSCO Shipping) are not entitled to subscribe for A Shares under the Proposed Non-public Issuance of A Shares; and
(iv) COSCO Shipping and parties acting in concert with it and those who are involved in or interested in the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and/or the Special Deal will abstain from voting on the resolution to be proposed at the EGM and the Class Meetings to approve the Special Deal.

Taking into account (i) the Special Deal is in compliance with the Implementation Rules for the Proposed Non-public Issuance of A Shares by Listed Companies; (ii) COSCO Shipping will not participate in pricing exercise for the Proposed Non-public Issuance of A Shares, but will accept results of market inquiry and subscribe for the A Shares at the same subscription price as other target subscribers; (iii) all the A Shareholders, who are interested to participate in the Proposed Non-public Issuance of A Shares, are entitled to express interest and receive invitation documents; (iv) all the H Shareholders (other than COSCO Shipping) are not entitled to subscribe for A Shares under the Proposed Non-public Issuance of A Shares to ensure the independence of H Shareholders; (v) COSCO Shipping and parties acting in concert with it and those who are involved in or interested in the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and the Special Deal will abstain from voting in respect of the resolutions to approve the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Waiver and the Special Deal at the EGM and/or the Class Meetings; (vi) greater dilution effect to the shareholding of the existing Shareholders would be resulted if the Company conducts a fund raising exercise by issuance of new H Shares in Hong Kong, as explained in the section of “1.6 Financing alternatives of the Company” in this letter; and (vi) all Independent Shareholders are entitled to vote at the EGM and the Class Meetings for or against the special resolution in relation to the Special Deal, we are of the view that the approval of the Special Deal by the Independent Shareholders at the EGM and/or the Class Meetings is fair and reasonable, and in the interests of the Independent Shareholders as a whole.

RECOMMENDATION AND CONCLUSION

Having taken into account the above-mentioned principal factors and reasons, in particular:

the information of the Group and COSCO SHIPPING as set out in the section headed “1.1 Background Information on the Company” and “1.4 Background Information on COSCO SHIPPING;
the reasons for and benefits of the Proposed Non-public Issuance of A Shares and Subscription and the financing alternatives considered by the Company as set out in the section headed “1.5 Reasons for and benefits of the Proposed Non-public Issuance of A Shares”;
the details of the Proposed Non-public Issuance of A Shares as set out in the section headed “2.1 Details of the Proposed Non-public Issuance of A Shares”;
the financing alternatives considered by the Company as set out in the section headed “1.6 Financing alternatives of the Company”;
our analysis on the fairness and reasonableness of the subscription price and the lock-up arrangement under the Subscription and the Specific Mandate as set out in the section headed “2.2. Subscription price of the A Shares under the Subscription Agreement and the Specific Mandate”;
the potential effects on the Group’s financial and the shareholding of the existing Shareholdings as set out in the section headed “3. Possible Effects of the Revised Proposed Non-public Issuance of A Shares”,
the analysis on fairness and reasonableness of granting the Whitewash Waiver as set out in the section headed “4. The Whitewash Waiver”, and
the analysis on fairness and reasonableness of the Special Deal as set out in the section headed “5. The Special Deal”,

we are of the opinion that although the Proposed Non-public Issuance of A Shares and the Subscription are not in the ordinary and usual course of the business of the Group, the Proposed Non-public Issuance of A Shares and entering into of the Subscription Agreement (together with the transactions contemplated thereunder) are in the interests of the Company and the Shareholders as a whole, and the terms of the Proposed Non-public Issuance of A Shares, the Subscription Agreement and the Specific

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Mandate are on normal commercial terms and fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend the Independent Shareholders, as well as the Independent Board Committee to recommend the Independent Shareholders, to vote in favour of the resolutions to be proposed at the EGM and/or the Class Meetings to approve the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and the Special Deal.

Note: In this letter from the Independent Financial Adviser, currency translation has been made at the rate of RMB1.00 to HK$1.138

For identification purpose only

Yours faithfully, For and on behalf of Messis Capital Limited Thomas Lai Vincent Cheung Chief Executive Officer Managing Director

Mr. Thomas Lai is a licensed person registered with the Securities and Futures Commission and regarded as a responsible officer of Messis Capital Limited to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO and has over 20 years of experience in corporate finance industry.

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

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APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

The below sets out the English translation of the text of the Company’s proposal in respect of the Proposed Non-public Issuance of A Shares. This appendix contains information including analysis which is prepared pursuant to the relevant requirement prescribed under the Guiding Opinions on Matters Relating to the Dilution of Current Returns as a Result of Initial Public Offering, Refinancing and Major Asset Restructuring (CSRC Announcement [2015] No. 31) 《關於首發及再融資、重大資 ( 產重組攤薄即期回報有關事項的指導意見》 ) issued by the CSRC. Such analysis (including assumptions) adopted in preparation thereof are for illustration purposes only and does not constitute a commitment, profit forecast or performance commitment by the Company.

中遠海運能源運輸股份有限公司 COSCO SHIPPING Energy Transportation Co., Ltd.

（Registered address: Room A-1015, 188 Yesheng Road, Pilot Free Trade Zone, Shanghai, China）

==> picture [103 x 67] intentionally omitted <==

PROPOSAL FOR NON-PUBLIC ISSUANCE OF A SHARES

October 2017

— I-1 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

STATEMENT OF THE COMPANY

The Company and all members of the board of directors (the “Board”) warrant the truthfulness, accuracy and completeness of the information herein without any false interpretations, misleading statements and material omissions.
Following the completion of the Non-public Issuance of A Shares, the Company shall be responsible for any of its changes in operation and profits, and the investors shall be responsible for investment risks caused by the Non-public issuance of A Shares.
The Proposal is the interpretation made by the Board for the Non-public Issuance of A Shares, and any statement against the information herein shall be deemed as misrepresentation.
In case of any doubts, the investors shall consult their own stock brokers, lawyers, professional accountants or other professional advisers.
Any information herein shall not represent material judgment, confirmation, approval or verification of competent authorities for the Non-public Issuance of A Shares. The effectiveness and completion of any matters relating to Non-public Issuance of A Shares herein have not yet been approved or verified by the competent authorities.

— I-2 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

SPECIAL NOTES

The matters relating to the Non-public Issuance of A Shares were approved at the tenth meeting of the Board of 2017 held on 30 October 2017 and are subject to approval by the SASAC, consideration and approval at the General Meeting, A shares class meeting and H shares class meeting, and verification and approval by the CSRC.
The target subscribers of the Issuance are no more than 10 specific subscribers including COSCO Shipping, the Indirect Controlling Shareholder of the Company.

The target subscribers other than COSCO Shipping include securities investment fund management companies, securities companies, trust investment companies, finance companies, insurance institutional investors, qualified foreign institutional investors and other domestic legal investors and natural persons that meet the provisions of the CSRC. A securities investment fund subscribing through over two funds managed by it will be regarded as one target subscriber. Any trust investment companies as target subscriber may only pay the subscription price with their own funds. The H shareholders of the Company are not to subscribe for the shares under the Non-public Issuance of A Shares. (In case of other provisions on the target subscribers under laws, administrative regulations, administrative rules of the CSRC or normative documents, such provisions shall prevail.)

The final list of subscribers (other than COSCO Shipping) will be determined by the Board of the Company and its authorised person(s) with the authorisation by the Shareholders at the General Meeting after consultation with the sponsor (the lead underwriter) of the Non-public Issuance of A Shares based on actual circumstances of the subscription of target subscribers, after obtaining the approval from the CSRC in respect of the Non-public Issuance of A Shares. The target subscribers will subscribe shares under the Issuance with cash.

The Price Determination Date of the Non-public issuance of A Shares is the first day of the Issuance. The issue price of the Non-public issuance of A Shares shall not be lower than the 90% of the average trading price of the A Shares during the 20 trading days immediately preceding the Price Determination Date (the average trading price of the A Shares during the 20 trading days immediately preceding the Price Determination Date=the total trading amount of A Shares during the 20 trading days immediately preceding the Price Determination Date/ the total trading volume of A Shares during the 20 trading days immediately preceding the Price Determination Date) and shall not be lower than the latest audited net asset value per share as at the date of the Issuance.

The specific price of the Issuance shall be determined by the Board and by its authorized persons with the authorisation by the Shareholders at the General Meeting of the Company and the sponsor (the lead underwriter) by accepting market quotations built upon the said Issue Price and with reference to bid prices of target subscribers in a price priority pursuant to relevant provisions such as Implementation Rules, after obtaining the approval from CSRC in respect of the Non-public Issuance.

— I-3 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

COSCO Shipping will not participate in market quotations process but is subject to the result of market quotations. The subscription price attributable to it is the same as to other target subscribers. The Issue Price of the Non-public Issuance will be adjusted accordingly in cases of ex-right or ex-dividend matters of A Shares of the Company; such as distribution of dividend, bonus issue, capitalisation of capital reserve, issuance of new shares or placement of shares during the period from the Price Determination Date to the date of the Issuance.

Pursuant to the Supervision Q&A on Issuance —Regulatory Requirements relating to Guidance on Standardizing Financing Activities of Listed Companies 《發行監管問答( —關於引導規範上市公司融資行為的監管要求》) promulgated by the CSRC, the number of shares to be issued under the Non-public Issuance of A Shares shall be no more than 20% of the total share capital of the Company prior to the Issuance, i.e. no more than 806,406,572 shares (including), the specific number of shares to be issued shall be determined by the Board of the Company and its authorized persons after consultation with the sponsor (the lead underwriter) under the authorisation at the General Meeting based on the actual circumstances of the subscription. The MAXIMUM NUMBER OF A SHARES under the Non-public Issuance will be adjusted accordingly in cases of ex-right or ex-dividend matters of A shares of the Company; such as distribution of dividend, bonus issue, conversion of capital reserve into share capital, issuance of new shares or placement of shares during the period from the Board Resolution Date of the Non-public Issuance of A Shares to the date of the Issuance.

COSCO Shipping is committed to subscribing for the shares under the Non-public Issuance of the Company with cash and the total amount of subscription will not exceed RMB4.2 billion.

All of the shares under the Non-public Issuance of A Shares to be subscribed by COSCO Shipping shall not be transferred within 36 months from the completion of the Issuance; and the shares to be subscribed by other target subscribers shall not be transferred within 12 months from the completion of the Issuance. The shares will be dealt with according to relevant provisions of CSRC and SSE following the end of lock-up period.
The gross proceeds from the Non-public Issuance of A Shares shall amount to RMB5.4 billion (the amount finally approved by the CSRC shall prevail). Excluding issuance expenses, the net proceeds will be used for following purposes:(1) acquisition of 14 oil tankers;(2) acquisition of two Panamax oil tankers (72,000-tonne class).
The resolutions with respect to the Non-public Issuance of A Shares will be valid within 12 months from the date of approval at the General Meeting, the A Shares class meeting and the H Shares class meeting.
The Non-public Issuance will not cause changes in the controlling shareholder or beneficial controller of the Company and will not result in the distribution of shareholdings not meeting listing requirements

— I-4 —

APPENDIX I PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

The undistributed accumulated profits of the Company before the Issuance shall be shared by the existing and new shareholders upon completion of the Issuance.
According to the requirements of the Notice Regarding Further Implementation of Cash Dividends Distribution by Listed Companies 《關於進一步落實上市公司現金分紅有關事項的通( 知》) and the Listed Companies Regulatory Guidance No. 3 — Cash Dividends Distribution of Listed Companies 《上市公司監管指引第( 3號——上市公司現金分紅》), Investors shall pay attention to the details on the Company’s existing profit distribution policy, profit distribution for the last three years and our Shareholders’ dividends distribution return plan under “Section V Profit Distribution” herein.
According to the requirements of the Guiding Opinions on Matters Relating to the Dilution of Current Returns as a Result of Initial Public Offering, Refinancing and Major Asset Restructuring 《關於首發及再融資、重大資產重組攤薄即期回報有關事項的指導意見》( ) promulgated by the CSRC, the Company has made analysis on the dilution of current returns arising from the Issuance. For more information, please refer to “Section VI Analysis on Dilution of Current Returns Arising from the Non-public Issuance and Remedial Measures” herein.

— I-5 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

Definitions

In the Proposal, unless the context requires otherwise, the capitalized terms used herein shall have the following meanings:

Company/COSCO SHIP ENGY/ Issuer/Listed Company

COSCO SHIPPING Energy Transportation Co., Ltd., formerly known as “COSCO SHIPPING Development Co., Ltd.”

Indirect Controlling Shareholder/ COSCO Shipping/Group

China COSCO Shipping Corporation Limited

Direct Controlling Shareholder/ China Shipping

China Shipping (Group) Company

COSCO Group

China Ocean Shipping (Group) Company

Non-public Issuance of A Shares/ Issuance of A shares to specific subscribers by COSCO SHIP Non-public Issuance/ ENGY through the non-public issuance Issuance

Proposal

Proposal for the Non-public Issuance of A Shares by COSCO SHIPPING Energy Transportation Co., Ltd.

General Meeting the general meeting of COSCO SHIPPING Energy Transportation Co., Ltd. Board the board of directors of COSCO SHIPPING Energy Transportation Co., Ltd. Articles of Association the Articles of Association of COSCO SHIPPING Energy Transportation Co., Ltd. Actual Controller State-owned Assets Supervision and Administration Commission of the State Council Price Determination Date the first date in the period of the Non-public Issuance Share Subscription Agreement the Share Subscription Agreement Between COSCO the Share Subscription Agreement Between SHIPPING Energy Transportation Co., Ltd. and China COSCO Shipping Corporation Limited entered into by the Issuer and COSCO Shipping on 30 October 2017 Company Law the Company Law of the People’s Republic of China Securities Law the Securities Law of the People’s Republic of China

— I-6 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

Listing Rules the Rules Governing the Listing of Stocks on the Shanghai Stock Exchange (2014 Revision) Implementation Rules Implementing Rules on Non-public Issuance of Shares by Listed Companies (2017 Revision) 《上市公司非公開發行股( 票實施細則(2017修訂)》) CSRC China Securities Regulatory Commission SSE The Shanghai Stock Exchange SASAC State-owned Assets Supervision and Administration Commission of the State Council Grandall Grandall Law Firm (Shanghai) Baker Tilly/Baker Tilly China/ Baker Tilly China (Special General Partnership) Accountant RMB, RMB10,000 and RMB100 Renminbi 1 Yuan, Renminbi 10,000 Yuan, Renminbi 100 million million Yuan, respectively VLCC very large crude carriers, an oil tanker with a capacity of 200,000 DWT to 320,000 DWT SUEZMAX oil tanker SUEZMAX, an oil tanker with a capacity of 120,000 DWT to 200,000 DWT AFRAMAX oil tanker AFRAMAX, an oil tanker with a capacity of 80,000 DWT to 120,000 DWT PANAMAX oil tanker PANAMAX, an oil tanker with a capacity of 60,000 DWT to 80,000 DWT LNG carrier a vessel designed for transporting liquefied natural gas at a temperature of minus 163 degrees Celsius COA contract of affreightment, a contract between a ship-owner and the charterer, in which the ship-owner agrees to complete the transportation of specified goods for the charterer in the ship during a specified time Collective Scheme a wealth management product developed by securities firms or fund subsidiaries, that pools money from the customers and investment in pre-agreed equity or fixed income investment products by the professional investors BP one of the world’s largest oil and petrochemical conglomerate

— I-7 —

APPENDIX I PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

Clarksons a leading international integrated shipping service provider Drewry an independent international shipping research and consultancy

In the Proposal, any discrepancies in any tables between totals and sums of amounts listed are due to rounding.

— I-8 —

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

APPENDIX I

SECTION I SUMMARY OF THE PROPOSAL FOR THE NON-PUBLIC ISSUANCE OF A SHARES

I. Basic Information of the Issuer

Legal name: 中遠海運能源運輸股份有限公司 English name: COSCO SHIPPING Energy Transportation Co., Ltd. Registered address: Room A-1015, 188 Yesheng Road, Pilot Free Trade Zone, Shanghai, China Office address: F/18, 118 Yuanshen Road, Pudong New Area, Shanghai A shares listed: The Shanghai Stock Exchange Abbreviation for A shares: COSCO SHIP ENGY Code of A shares: 600026 H shares listed: The Stock Exchange of Hong Kong Limited Abbreviation for H shares: COSCO SHIP ENGY Code of H shares: 01138 Legal representative: Huang Xiaowen Incorporation date: 3 May 1994 Postal code: 200120 Tel: 021-65967678 Fax: 021-65966160 Company website: www.coscoshippingenergy.com E-mail: [email protected]

Business scope: Main businesses: transport of coastal, ocean and Yangtze River cargos, ship chartering, agency and forwarding operation of cargos; sideline businesses: ship trading, repair and manufacturing of containers, agency for purchase and sale of accessories and spare parts of ships, consulting on and transfer of ship technologies, marine and mechanical management of domestic costal bulk carriers and oil tankers, overhaul and maintenance of ships, and management of international ships (Businesses that require pre-approvals according to the laws and regulations can only be conducted after obtaining approvals from the relevant authorities).

II. Background and Purpose of the Non-public Issuance

(I) Background of the Non-public Issuance

The shipping industry integration has entered a new stage and scale development has become the industry trend

The shipping industry is a capital and technology intensive industry with significant investment. During the process of strategic adjustment of the industry, the global shipping market has experienced large-scale enterprise mergers, acquisitions, integration and restructuring, which will facilitate the eastward centralization and scale development of shipping industry. In 2016, various merger cases has further explicated that scale development has become the mainstream trend of shipping industry, such as that two domestic large shipping groups, COSCO Group and China Shipping, underwent restructuring, the Sinotrans & CSC Group (中外運長航集團) consolidated into China Merchants

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APPENDIX I PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

Group as a whole, CMA CGM SA (法國達飛) acquired the Neptune Orient Lines (NOL) (東方海皇), Hapag-LIoyd (赫伯羅特) acquired the UNITED ARAB SHIPPING CO. (S.A.G) (阿拉伯聯合輪船) and Maersk Line acquired the Hamburg SÜd (漢堡南美). COSCO SHIP ENGY can purchase and build various types of oil tankers through the Non-public Issuance, which will help to expand the scale and enhance the capabilities of the Company, as well as improve the competitiveness of the Company in global market.

“Be a powerful shipping country” has become the national strategy, “one belt, one road” strategy promotes the globalization layout

In 2014, the State Council issued the Certain Opinions Concerning the Promotion of the Healthy Development of Marine Industry 《關於促進海運業健康發展的若干意見》( ), and the Ministry of Communications issued the Plan for Implementation of the Certain Opinions of the State Council Concerning the Promotion of the Healthy Development of Marine Industry 《貫徹落實( <國務院關於促進海運業健康發展的若干意見>的實施方案》), which officially make “Be a powerful shipping country” a national strategy, and plan comprehensive construction path from four aspects, namely “General requirements”, “Key tasks”, “Protective measures” and “Organization and implementation”, to offer extensive policy opportunities for development of shipping industry. With the “one belt, one road” construction initiated by China being warmly responded by Asia and worldwide, the energy companies in China have accelerated their pace of overseas expansion, and participate in the exploration and development of overseas oil and gas resources proactively. Meanwhile, the State attracts the overseas energy companies to invest in domestic energy cooperation projects and stablish strategic alliance in respect of refining and sale of petroleum. Under the new energy layout of “Going out” and “Introducing in” of China, the Company establishes worldwide network and cooperates with various large domestic and international energy enterprises, implements the “Expand the east, Explore the west” strategy proactively and opens up the “third country” transportation, to seek for more cooperation opportunities.

The focus of energy consumption keeps moving eastward, “state oil state transport” facilitates the rise of oil shipping industry

The increasing demand of petroleum globally has driven the rapid growth momentum of the turnover of petroleum marine shipping. As driven by the continuous decrease in the crude oil import by Europe and America and the continuous increase in the crude oil import by Asia-Pacific countries like China and India, the focus of international shipping resources continues to move eastward, especially moving towards China. According to the estimation of Drewry, by 2020, the shipping demand of global oil tankers will amount to 12,946 billion tonne nautical miles, representing an increase of 9.2% as compared to 2016, among which, the shipping demand of crude oil will be 9,976 billion tonne nautical miles, representing an increase of 8.1% as compared to 2016. According to the statistics of General Administration of Customs of People’s Republic of China(“GACC”), in 2016, the crude oil import volume of China reached 381 million tons, representing a year-on-year increase of 13.6%, which is the highest yearly increase rate since 2010, and the reliance on import of crude oil has reached 65.4%. With the continuous reform of oil and gas, the State has released the import rights of crude oil and the use rights of imported crude oil, local production capacities of oil refining

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APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

continue to increase, and the crude oil import market of China still has large incremental space. Under the guidance of the “State oil, state transport” strategy, the market share of the domestic crude oil transportation enterprises to the crude oil import transportation market of China will keep increasing, therefore facilitate the leap of domestic oil tanker fleet.

The Company will develop energy transportation in both scale and market share, seize the industry and policy strategic opportunities

Pursuant to the group integration, the Company underwent restructuring of material assets in the first half of 2016, delaminated the bulk shipping business and expanded the energy transportation. After the completion of restructuring, the Company became the listed platform of COSCO Shipping specializing in energy transportation, the principal activities of the Company are oil transportation and LNG transportation, and the scale and capability of the Company has achieved qualitative development. As of September 30, 2017, the total shipping capacity of the Company’s oil tanker fleet ranked top in the world, with self-owned[1] and charted-in oil tanker vessels amounting to 120, and capacity of 18,346.2 thousand deadweight tons; the Company has the order of 10 oil tankers with capacity of 1,922 thousand deadweight tons. At the same time, the Company consolidated the equity interests of the only two LNG transportation companies in China into one platform, and operated 14 LNG vessels with capacity of 2,253.7 thousand m[3] ; the Company has the order of 20 vessels with capacity of 3,456 thousand m[3] . With the strong support of national policies, such as “Be a powerful shipping country”, “one belt, one road” and “ state oil, state transport”, and depending on the large energy market and increasing demand of energy transportation of China, the Company still needs to further expand the energy transportation capacity and keep its competitiveness in long run.

Strong support for “China vessels made in China” policy and promote the sustainable development of marine system

The vessel industry is a modern comprehensive and strategic industry providing technology and equipment for waterborne traffic, ocean resources development and national defense construction, which forms integral part for the nation to develop high-end equipment manufacturing and provides basis and important support for the implementation of “Be a powerful shipping country” strategy. Made in China 2025 《中國製造( 2025》) even makes “ocean engineering equipment and high technology vessels” among one of the top ten key development fields to accelerate its development. At present, China’s vessel industry ranks first in the world in terms of “vessels manufactured”, “newly received orders” and “orders at hand”, which clearly shows that China has been a giant in vessel manufacturing. However, in respect of the manufacturing of high-end vessel types, such as new energy-saving and environment protective oil tanker and LNG carriers, China still lacks competitiveness and the domestic vessel factories urges for capital to support their transformation and upgrade, and realize the “China vessels made in China” for high-end vessel types. The proceeds from the Issuance will be used to build and acquire oil tankers, which will be manufactured by domestic vessel factories, providing strong support for the sustainable development of China’s vessel industry and national marine system.

1 “self-owned” herein includes capacity of both the vesselsowned and operated by the Company and the vessels owned but leased out by the Company.

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APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

(II) Purposes of the Non-public Issuance

To seize the advantageous opportunities of low cost of vessel manufacturing and realize the capacity expansion in a cost-efficient way

The energy transportation industry shows an outstanding trend of economies of scale and the global energy consumption presents a new characteristic, the vessel fleet of various energy transportation enterprises are developing in large-scale. The Company also initiatives the “scale of the vessel fleet continues to be leading in the world” development strategy to increase its competitiveness capacities and expand its competitiveness edges. According to statistics of the database of Clarksons, currently the market costs of main vessel types of international oil tankers is lower than the average market cost of last two decades. With the slow recovery of global economy and affected by the supply and demand of the market and the price of raw materials like steel, it is expected that the price of vessel manufacturing will decrease in limited space. It would be helpful to reduce the average depreciation cost of vessels by manufacturing new vessels with lower cost, enhancing the profitability of the oil tanker fleet of the Company. Therefore, the Company intends to seize advantageous opportunities and expand the shipping capacity in cost-effective way with the proceeds from the Issuance.

To optimize the vessel type and age structure of vessel, build a world-leading oil tanker fleet

Based on the vessel manufacturing progress of current orders, the Company’s vessel fleet will have no capacity under construction after 2018, and the existing capacities will gradually enter aged stage. Till the end of “the 13th Five-Year Plan”, 26 self-owned vessels of the Company will have an age over 15 years, including 5 VLCCs, 3 SUEZMAX oil tankers, 3 AFRAMAX oil tankers and 4 PANAMAX oil tankers. More than half of the Company’s oil tankers are aged over 10 years. The operating cost of old vessels will be higher than that of new vessels significantly. The proceeds from the Non-public Issuance will be used to build various new types oil tankers, which can optimize the age structure of the vessel continuously during the period of 13th Five-Year Plan, establish a world-leading oil tanker fleet, and helps to reduce the operating cost of the vessels, such as the fuel cost. Meanwhile, by manufacturing and purchasing various new type of oil tankers, the Company is well positioned to seize the development opportunities of different stages in each of the segmental markets of energy transportation, enhance its competitiveness in each segmental market and increase the operation results of the Company.

To reduce the debt-to-asset ratio and optimize the capital structure

As of June 30, 2017, the adjusted consolidated liabilities of the Company amounted to RMB 33.138 billion, and the debt-to-asset ratio reached 54.82%. Through the Non-public Issuance, the Company will raise stable long-term capital and optimize capital structure. Besides, it will broaden debt financing potential and further enhance the financial stability, thus contributing to the overall performance of the business and sustainable development of the Company.

The Issuance reflects the Group’s powerful support for the Company’s development

With the main focus on the four aspects of its strategy of “expanding its scale, enhancing its profitability, strengthening its ability to overcome cyclical effect and becoming international global

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APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

company”, COSCO Shipping attaches great importance to the development of the “6+1” industrial clusters covering shipping, logistics, finance, manufacturing of equipment, shipping services, socialized industry and Internet-related operations based on innovative business models, so as to further enhance integration of shipping elements and spare no efforts to establish a world-leading integrated logistics supply chain provider. The Company is a professional energy transportation platform focusing on oil and gas shipping businesses in COSCO Shipping, which is the one of the best quality assets within the Group. Participation of COSCO Shipping in the Non-public Issuance and active increase of its shareholding in the Company demonstrate the strong support from COSCO Shipping in the development of the Company and its firm confidence in the long-term development of the Company.

III. Target Subscribers and Their Relationships with the Company

The target subscribers of the Issuance are no more than ten specific subscribers including COSCO Shipping, the indirect controlling shareholder of the Company.

In addition to COSCO Shipping, other target subscribers include securities investment fund management companies, securities companies, trust investment companies, finance companies, insurance institutional investors, qualified foreign institutional investors and other domestic corporation investors and natural persons that meet the provisions of the CSRC. A securities investment fund management company subscribing with over two funds managed by it will be regarded as one subscriber. Trust investment companies may only subscribe with their own funds. The H shareholders of the Company are not allowed to subscribe for the shares under the Non-public Issuance of A Shares. (If otherwise prescribed in laws, administrative regulations, administrative rules or regulative documents of the CSRC with respect to the target subscribers upon issuance, those relevant provisions shall prevail.)

In addition to COSCO Shipping, the ultimate target subscribers will be determined by the Board of the Company and its authorized person(s) with the authorization by the general meetings through negotiation with the sponsor of the Non-Public Issuance of A Shares (lead underwriter) based on the bid prices of targeted subscribers, after obtaining the approval in respect of the Non-Public Issuance of A Shares from the CSRC. All target subscribers shall subscribe for the shares under the Issuance in cash.

The specific issuance price will be determined by the Board and its authorized person(s) with the authorization by the general meetings of the Company and the sponsor (the lead underwriter) through acceptance of market quotations built upon the Issue Price described in the preceding paragraph and with reference to bid prices of targeted subscribers in accordance with the price priority principle and relevant provisions such as the Implementation Rules, after obtaining the approval documents issued by the CSRC in respect of the Non-public Issuance.

COSCO Shipping will not participate in the price inquiry exercise in the market but will accept market price inquiry results, and its subscription price is the same as that for other target subscribers.

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APPENDIX I PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

The Issue Price of the Non-public Issuance of A Shares is subject to adjustment according to ex-dividend or ex-right events such as distribution of dividend, bonus issue, conversion of capital reserve into share capital, issuance of new shares or placement of shares during the period from the price determination date to the date of the Issuance.

COSCO Shipping undertakes to subscribe for shares under the Non-Public Issuance in cash with the total subscription amount not more than RMB 4.2 billion. Upon completion of the Non-public Issuance, there will be no changes in the Actual Controller of the Company.

IV. Proposal for the Non-Public Issuance

(I) Class and nominal value of the Shares to be issued

The Shares to be issued under the Non-Public Issuance are domestically listed in RMB denominated ordinary shares (A Shares) with a nominal value of RMB1.00 each.

(II) Method of issuance and date of issue

The A shares will be issued by way of Non-Public Issuance to specific subscribers. The Company will, within six months following the approval of the CSRC, issue the A shares in due course.

(III) Target subscribers and ways of subscription

The target subscribers of the Non-Public Issuance shall not be more than ten specific subscribers, including COSCO Shipping, the indirect controlling shareholder of the Company.

The other target subscribers except COSCO Shipping will include securities investment and fund management companies, securities companies, trust investment companies, finance companies, insurance institutional investors, qualified foreign institutional investors, other domestic legal investors and natural person that meet the requirements of the CSRC. A securities investment fund subscribing through over two funds managed by it will be regarded as one subscriber. Trust investment companies acted as the target subscribers may only pay the subscription price with their own funds. The H shareholders of the Company shall not be allowed to subscribe for A shares under the Non-Public Issuance (If otherwise prescribed in laws, administrative regulations, administrative rules and regulative documents of the CSRC with respect to the target subscribers, those relevant provisions shall prevail).

After the target subscribers (except for COSCO Shipping) obtain the approval in respect of the Non-Public Issuance of A shares from the CSRC, the Board and its authorized representatives will decide the ultimate subscribers based on the status of subscription in respect of the Non-Public Issuance of A shares in accordance with the authorization granted by the Shareholders at the general meeting after consultation with the sponsor (lead underwriter). All target subscribers subscribe for the A shares in cash.

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APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

(IV) Price Determination Date, issuance price and pricing principles

The Price Determination Date of the Non-Public Issuance of A shares is the first day of the Issuance.

The issuance price of the Non-Public Issuance of A shares will not be lower than (i) 90% of the average trading price of the A shares of the Company over the 20 trading days immediately preceding the Price Determination Date (the average trading price of A shares over the 20 trading days preceding the Price Determination Date = total turnover of shares over the 20 trading days preceding the Price Determination Date/the total trading volume of shares over 20 trading days preceding the Price Determination Date), and (ii) the latest audited net assets value per share upon the Company’s Issuance.

The final price of the Non-public Issuance shall be determined by the Board and by its authorized persons as well as the sponsor (lead underwriter) in accordance with the authorization granted by the Shareholders at the general meeting through acceptance of market quotations built upon the Issue Price described in the preceding paragraph and with reference to bid prices of targeted subscribers in accordance to the price priority principle, pursuant to relevant provisions such as the Implementation Rules, after obtaining the approval from CSRC regarding the Non-public Issuance.

COSCO Shipping will not participate in the market price inquiry exercise but will accept the price inquiry result derived from market quotations. The subscription price attributable to it is the same as that to other targeted subscribers. The Issue Price of the Non-public Issuance of A Shares is subject to adjustment according to ex-dividend or ex-right events such as distribution of dividend, bonus issue, conversion of capital reserve into share capital, issuance of new shares or placement of shares during the period from the price determination date to the date of the Issuance.

(V) Number of shares to be issued

According to the Supervision Q&A on Issuance —Regulatory Requirements relating to Guidance on Standardizing FinancingActivities of Listed Companies 《發行監管問答( —關於引導規範上市公司融資行為的監管要求》) promulgated by the CSRC, not more than 20% of total capital of the Company before the Non-Public Issuance (namely 806,406,572 A shares, including806,406,572 shares) will be issued under the Non-Public Issuance. To the extent of the above Issuance, the Board and its authorized representative(s) shall determine the final number of the A shares to be issued in accordance with the authorization granted by the Shareholders at the general meeting and based on the total amount of funds raised and the actual subscription condition after consultation with the sponsor (lead underwriter).The Issue Price of the Non-public Issuance will be adjusted accordingly in cases of ex-right or ex-dividend matters of A Shares of the Company; such as distribution of dividend, bonus issue, conversion of capital reserve into share capital, issuance of new shares or placement of shares during the period from the price determination date to the date of the Issuance.

COSCO Shipping undertakes to subscribe for shares under the Non-Public Issuance in cash, total subscription funds not more than RMB 4.2 billion.

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PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

APPENDIX I

(VI) Lock-up period

A Shares under the Non-Public Issuance to be subscribed by COSCO Shipping shall not be transferred within 36 months from the completion of the Non-public Issuance, the shares to be subscribed by other target subscribers shall not be transferred within 12 months from the completion of the Non-public Issuance, which will be implemented according to requirements of CSRC and SSE after lock-up period.

(VII) Arrangement relating to the accumulated undistributed profits

All the existing and new shareholders upon completion of the Non-Public Issuance will be entitled to the accumulated undistributed profits of the Company prior to the Non-Public Issuance.

(VIII) Place of listing

After the expiration of the lock-up period of the Non-Public Issuance, the Company will apply to the SSE for the listing of, and permission to deal in, the A shares to be issued under the Non-Public Issuance.

(IX) Validity Period of the resolutions

The resolutions with respect to the Non-Public Issuance shall be valid for 12 months from the date of consideration and approval at the third extraordinary general meeting, the first A Shares Class Meeting and the first H Shares Class Meeting in 2017.

V. Amount and Use of Proceeds from the Non-Public Issuance of A Shares

The total proceeds raised from the Non-Public Issuance of A Shares shall amount to RMB5.4 billion (the amount finally approved by the CSRC shall prevail). The net proceeds after deducting issuance fees and expenses will be used for（1）acquisition of 14 oil tankers;（2）acquisition of two Panamax oil tankers (72,000-tonne class).

VI. Whether the Non-Public Issuance Constitutes a Connected Transaction

Before the Issuance, COSCO Shipping who proposes to participate in the subscription was the indirect controlling shareholder of the Company, and indirectly held a total of 38.56% equity interest in the Shares of the Company via China Shipping. Thus, the Issuance will constitute a connected transaction. The Company will strictly comply with relevant regulations to fulfill the procedures for reviewing the connected transaction and consider and approve that China Shipping should abstain from voting at the general meeting and the A Shares Class Meeting in relation to the Issuance.

VII. Whether the Non-Public Issuance Causes the Change in the Control of the Company

Before the Issuance, COSCO Shipping indirectly held a total of 38.56% equity interest in the shares of the Company through China Shipping and thus was an indirect controlling shareholder of the Company. SASAC hold 100% equity interests in COSCO Shipping, and is the actual controller of the Company.

— I-16 —

APPENDIX I PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

According to the proposal of the Non-Public Issuance, and assuming that the issuance price is RMB 6.81 per share and not less than the audited net assets value per share for the end of 2016, COSCO Shipping subscribe RMB 4.2 billion. The shareholding of COSCO Shipping in the Company, directly or indirectly, is 45.00% upon the completion of the Issuance, and COSCO Shipping will remain to be the indirect controlling shareholder of the Company. The SASAC shall remain as the beneficial controller of the Company. Therefore, the Issuance will not result in the change in control of the Company.

VIII. Approval Obtained and to be Obtained for the Non-Public Issuance

The Company held the tenth meeting of the Board in 2017 to consider and approve the proposal for the Non-Public Issuance. The Non-public Issuance is still subject to the fulfillment of following the procedures:

The Non-Public Issuance shall be subject to the approval of the SASAC;
The Non-Public Issuance shall be subject to approval of the General Meeting, the A Shares Class Meeting and the H Shares Class Meeting of the Company;
The relevant matters of the Non-Public Issuance shall be subject to Whitewash Waiver granted by the Executive of SFC (if necessary);
The Non-Public Issuance shall be subject to the approval of the CSRC.

— I-17 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

SECTION II PARTICULARS OF THE TARGET SUBSCRIBERS OF THE NONPUBLIC ISSUANCE AND SUMMARY OF THE SHARE SUBSCRIPTION AGREEMENT

The Non-public Issuance of A Shares are proposed to be issued to no more than ten specific subscribers (including COSCO Shipping) which meet the requirements of the CSRC. In addition to COSCO Shipping, other target subscribers are securities investment fund management companies, securities companies, trust investment companies, finance companies, insurance institutional investors, qualified foreign institutional investors, other domestic legal investors and natural person that meet the requirements of the CSRC. A securities investment fund management company subscribing through over two funds managed by it will be regarded as one subscriber. Trust investment companies may only pay the subscription price with their own funds. The holders of H shares of the Company shall not participate in the subscription of the Non-public Issuance of A Shares. If the laws, administrative regulations, administrative rules or normative documents of the CSRC have other provisions on the target subscribers at the time of issuance, such provisions shall prevail.

COSCO Shipping is the indirect controlling shareholder of the Issuer, the basic information of which is as follows:

I. Basic Information of COSCO Shipping

(I) Profile of COSCO Shipping

Company name: China COSCO Shipping Corporation Limited

Domicile: No. 628 Mingsheng Road, China (Shanghai) Pilot Free Trade Zone, Shanghai, the PRC Legal representative: Xu Lirong

Registered capital: RMB11,000,000,000 Date of establishment: 5 February 2016 Unified creditability code: 91310000MA1FL1MMXL

The scope of business includes international shipping, ancillary business in international maritime transportation; engagement in import and export of goods and technologies; maritime, land, air freight agency business; leasing of self-owned vessels; sales of vessels, containers and steel; design of maritime engineering equipment; investment in docks and ports, sales of communication equipment, information and technology services; warehousing (other than hazardous chemicals); engagement in technological development, transfer of technology, technological consultancy, technological services in relation to shipping, spare parts and related fields, equity investment funds. (Projects that are subject to the approval in accordance with applicable laws shall carry out operating activities only after the approval by relevant authorities)

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PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

APPENDIX I

(II) Shareholding and control

As at 30 September 2017, China Shipping directly held 153,692,460,000 A shares of COSCO SHIP ENGY, China Shipping and its subsidiaries held 1,770,700,000 A shares of COSCO SHIP ENGY through Collective Scheme, and held a total of 155,463,160,000 A shares of COSCO SHIP ENGY, accounting for 38.56% of the total share capital of COSCO SHIP ENGY, being the direct controlling shareholder of the Issuer.

The sole shareholder of China Shipping is COSCO Shipping. COSCO Shipping is affiliated to the SASAC, and is a central enterprise directly managed by the SASAC. The SASAC is the only investor and beneficial controller of COSCO Shipping.

As of the announcement date of the Proposal, the shareholding and control in relation of the Issuer was as follows:

==> picture [224 x 184] intentionally omitted <==

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

State-owned Assets Supervision and Administration
Commission of the State Council
100.00%
China COSCO Shipping Corporation Limited
100.00%
China Shipping (Group) Company
38.56%
COSCO SHIPPING Energy Transportation Co., Ltd.
----- End of picture text -----

(III) Developments of principal businesses in the last three years

In August 2015, COSCO Group and China Shipping commenced the implementation of reform and restructuring. In 18 February 2016, China COSCO Shipping Corporation Limited was formally established and listed in Shanghai; In May 2016, the SASAC gratuitously transferred 100% of its equity interest in COSCO Group and 100% of its equity interest in China Shipping to COSCO Shipping, thus COSCO Group and China Shipping became the wholly-owned subsidiaries of COSCO Shipping.

With the main focus on the four aspects of its strategy of “expanding its scale, enhancing its profitability, strengthening its ability to overcome cyclical effect and becoming international global company”, the new established COSCO Shipping has built its “6+1” industrial cluster covering shipping, logistics, finance, manufacturing of equipment, shipping services, socialized industry and Internet-related operations based on innovative business models, and became a multi-industry cluster and the world’s leading integrated logistics supply chain services group with shipping, integrated logistics and related financial service as its pillar.

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PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

APPENDIX I

(IV) Brief financial statements in last year

According to the Audit Report (Tian Zhi YeZi [2017] No. 10221) issued by Baker Tilly China Certified Public Accountants LLP, the brief financial statements in last year of the COSCO Shipping are as follows:

Main figures in the consolidated balance sheets as at 31 December 2016

Unit: RMB10,000

Items	Consolidated statements
Total assets	65,875,709.18
including: current assets	19,641,899.42
non-current assets	46,233,809.76
Total liabilities	42,046,665.66
including: current liabilities	17,480,886.12
non-current liabilities	24,565,779.55
Owner’s equity	23,829,043.51

Main figures in consolidated statement of profit for the year of 2016

	Unit: RMB10,000
Items	Consolidated statements
Total operating revenue	19,759,362.05
Total operating costs	18,524,309.97
Operation profit	2,315,618.22
Total profit	1,607,179.71
Net profit	398,750.64

Main figures in consolidated statement of cash flow for the year of 2016

Unit: RMB10,000

Items	Consolidated statements
Net cash flow generated from business activities	548,892.78
Net cash flow generated from investing activities	-3,989,988.45
Net cash flow generated from financing activities	4,083,862.08
Net increase in cash and cash equivalents	1,125,917.74

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APPENDIX I PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

(V) Punishments imposed on the target subscribers and its directors, supervisors and senior management in the last five years

COSCO Shipping and its directors, supervisors and senior management have neither been subject to administrative punishments (except for those obviously unrelated to the securities market) and criminal punishments nor involved in any major civil suit or arbitration in relation to economic disputes in the last five years.

(VI) Horizontal competition and connected transactions
Horizontal competition

COSCO SHIP ENGY completed its material assets restructuring in 2016. Following the completion of restructuring, the Company disposed all its bulk shipping business and acquired 100% of equity interest in Dalian Ocean, which is engaged in oil shipping and LNG transportation businesses. As a result, the principal activities of COSCO SHIP ENGY and its subsidiaries were changed to oil shipping and LNG transportation businesses.

China Shipping is a Direct Controlling Shareholder of COSCO SHIP ENGY. Except for COSCO SHIP ENGY, China Shipping and its controlled enterprises are not engaged in oil shipping and LNG transportation businesses. Therefore, there is no horizontal competition between China Shipping and COSCO SHIP ENGY as well as its subsidiaries.

COSCO Shipping is the only shareholder of China Shipping, and an Indirect Controlling Shareholder of COSCO SHIP ENGY. The headquarter of COSCO Shipping is only equipped with management function and doesn’t operate any specific business. Other enterprises controlled by COSCO Shipping including COSCO Group, COSCO SHIPPING Capital Insurance Co., Ltd., COSCO SHIPPING Heavy Industry Company Limited, COSCO SHIPPING Bulk Co., Ltd. and COSCO SHIPPING Logistics Co., Ltd. are not engaged in oil shipping and LNG transportation businesses. Therefore, there is no horizontal competition between COSCO Shipping and COSCO SHIP ENGY as well as its subsidiaries.

In view of the above, upon completion of the issue, there will be no horizontal competition in the principal business of the Company and COSCO Shipping, China Shipping as well as other enterprises controlled by these companies, which are not engaged in oil shipping and LNG transportation businesses.

2. Connected transaction

The Company has made adequate disclosure about the existing related parties, connected relationship and connected transaction. The connected transaction is based on the business development needs and also an act of making compensation of equal value principle according to the actual situations at arm’s length, the prices are fair without deviating from the comparable market price and the necessary procedures have been performed. The connected transaction does not affect the independence of the operation of the Company, and causes no detriment to the interest of minority shareholders.

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APPENDIX I PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

COSCO Shipping proposes to subscribe for A shares under the Non-public Issuance, which constitutes a connected transaction with the Company. Meanwhile, operation of investment projects through the Non-public Issuance involves the daily connected transaction with COSCO Shipping. The Company will stringently fulfill the information disclosure obligation and deliberation procedures in related to connected transactions, maintain its independence as a Listed Company and safeguard the interest of the Listed Company and other shareholders in strict compliance with the relevant laws, regulations and rules as well as other requirements in related to connected transactions by conforming to the principle of fairness, justness and openness.

(VII) Material transactions between the Company and the target subscribers for the 24 months prior to the disclosure of the proposal for Issuance

Within the 24 months prior to the day of the proposal of the Issuance, save for transactions disclosed by the Company in periodic reports or temporary announcements, the Company has not conducted any other material connected transactions with COSCO Shipping and its controlled enterprises.

II. Summary of Share Subscription Agreement

The Company entered into the conditional Share Subscription Agreement with COSCO Shipping, details of which are set out below:

(I) Parties and Date

Issuer: COSCO SHIPPING Energy Transportation Co., Ltd. Subscriber: China COSCO Shipping Corporation Limited Date: 30 October 2017

(II) Issuance of Shares

If all the preconditions as required in the agreement are satisfied, COSCO SHIP ENGY agrees to issue A shares to COSCO Shipping through Non-public Issuance and COSCO Shipping agrees to subscribe for the same issued by COSCO SHIP ENGY.

The shares of COSCO SHIP ENGY to be issued under the Non-public Issuance are domestic listed Renminbi ordinary shares (A shares) at a nominal value of RMB1.00 per share.

Both parties agree that, COSCO SHIP ENGY will issue A shares at an issue price of not less than 90% of the average trading price of A shares for the 20 trading days preceding the Price Determination Date of the Non-public Issuance (the average trading price of A shares for the 20 trading days preceding the Price Determination Date = the total trading amount of A shares for the 20 trading days preceding the Price Determination Date �the total trading volume of A shares for the 20 trading days preceding the Price Determination Date) and not less the latest audited net assets per share to COSCO Shipping. The final issue price of the Non-public Issuance shall be determined by the Board and its authorized persons of COSCO SHIP ENGY upon obtaining the approval documents in relation to the

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APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

Non-public Issuance from the CSRC by the Board under the authorization granted by the General Meeting of COSCO SHIP ENGY, who accept inquiry on the basis of Issue Price as determined in the abovementioned paragraph according to relevant provisions under the Implementation Rules, and the sponsor (lead underwriter) based on the bid prices offered by the subscribers from the price inquiry results and according to the price priority principle. COSCO Shipping will not participate in price inquiry exercise in the form of market auction but will accept the price inquiry results, and its subscription price is the same as the other target subscribers. The benchmark price under the Non-public Issuance will be adjusted accordingly in cases of ex-dividend or ex-right matters of A shares of COSCO SHIP ENGY such as distribution of dividend, bonus issue, capitalisation of capital reverse, issuance of new shares or placement of shares during the period from the Price Determination Date to the date of the Issuance.

COSCO Shipping agrees to subscribe for the A shares from COSCO SHIP ENGY in cash at the final determined price.

Both parties agree that, the number of A shares under the Non-public Issuance shall be no more than 806,406,572 shares (inclusive), representing not more than 20% of the total share capital of the Company prior to the Issuance. The final number of shares to be issued shall be determined by the Board and its authorized persons of the Company as authorized by the General Meeting and the actual circumstance of the subscription upon the issuance after consultation with the sponsor (lead underwriter) of the Issuance. The maximum number of shares under the Non-public Issuance will be adjusted accordingly in cases of ex-right or ex-dividend matters of A shares of COSCO SHIP ENGY such as distribution of dividend, bonus issue, conversion of capital reserve into share capital, issuance of new shares or placement of shares during the period from the Board Resolution Date to the date of Issuance.

COSCO Shipping agrees to subscribe for the A shares from COSCO SHIP ENGY in cash at the final determined price.

Both parties agree that, the number of A shares under the Non-public Issuance shall be determined by the Board and its authorized persons as authorized by the General Meeting of COSCO SHIP ENGY according to the gross proceeds, actual circumstance of the subscription upon the issuance after consultation with the sponsor (lead underwriter) of the Issuance. The maximum number of A shares under the Non-public Issuance will be adjusted accordingly in cases of ex-right or ex-dividend matters of A shares of COSCO SHIP ENGY such as distribution of dividend, bonus issue, conversion of capital reserve into share capital, issuance of new shares or placement of shares during the period from the Board Resolution Date to the date of Issuance.

COSCO Shipping undertakes to subscribe for the A shares under the Non-public Issuance with a subscription amount of not more than RMB 4.2 billion.

COSCO Shipping undertakes that upon completion of the Issuance, it will not transfer the A shares for a period of 36 months from the date of the Non-public Issuance. COSCO Shipping agrees to issue lock-up commitment and complete lock-up procedures for A shares subscribed for under the Non-public Issuance in accordance with relevant laws, regulations and relevant requirements of the CSRC, the Shanghai Stock Exchange as well as COSCO SHIP ENGY.

— I-23 —

APPENDIX I PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

Upon expiration of the lock-up period, A shares issued to COSCO Shipping under the Non-public Issuance will be listed and traded on the Shanghai Stock Exchange.

(III) Preconditions

The Non-public Issuance shall be conditional upon:

Approval of COSCO SHIP ENGY internally. The Non-public Issuance has been effectively approved by the Board, General Meeting, A Shares class meeting and H Shares class meeting of COSCO SHIP ENGY;
Approval of the SASAC. Relevant matters concerning the Non-public Issuance have been approved by the SASAC;
Whitewash waiver has been granted by the executives of the Securities & Futures Commission in relation to the matters concerning the Non-public Issuance (if necessary);
Approval of the CSRC. Relevant matters concerning the Non-public Issuance have been approved by the CSRC.

(IV) Method of payment

COSCO Shipping agrees, provided that all the pre-conditions set forth in the agreement are fulfilled, the proceeds raised from the Non-Public Issuance of A Shares shall be paid by COSCO Shipping in full to the account specifically opened for the Non-Public Issuance by the sponsor (lead underwriter) on the designated payment date determined by the sponsor (the lead underwriter).

The sponsor (lead underwriter) shall notify COSCO Shipping at least two working days in advance of the designated payment date.

COSCO SHIP ENGY will designate a certified public accountant firm with qualifications for securities and futures trading to verify the subscription capital paid by COSCO Shipping.

(V) Arrangement for the undistributed accumulated profits

Both parties agree that the undistributed accumulated profits of the Company before the Non-Public Issuance will be shared by both the new shareholders and the existing shareholders after the Non-Public Issuance.

(VI) Responsibility for breach of the agreement

Except for force majeure events, non-performance or failure to properly perform the obligations, or breach of any representation and/or warranty, under the agreement by any party to the agreement, shall be deemed as a default. Such party (the “Defaulting Party”) shall remedy its default within 30 days (the “Remedy Period”) upon receipt of the notice demanding the remedy issued by the

— I-24 —

APPENDIX I PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

non-defaulting party to the agreement (the “Non-Defaulting Party”). If the Defaulting Party fails to remedy its default upon expiration of the Remedy Period, the Non-Defaulting Party has the right to demand the Defaulting Party to bear the liability for breach of the agreement and to compensate the Non-Defaulting Party for all the losses caused by it.

When the agreement comes into force, if COSCO Shipping fails to pay the subscription money in accordance with the provisions of the agreement on schedule, it shall pay a penalty at 0.05% of the subscription amount to COSCO SHIP ENGY for each day of delay, and COSCO Shipping shall compensate COSCO SHIP ENGY for all direct economic losses arising from its delayed payment, and continue to fulfill its obligations of payment under the agreement.

When the agreement comes into force, if COSCO Shipping expressly disclaims any subscription or fails to pay the subscription amount within 30 days upon receipt of the notice demanding the subscription money issued by COSCO SHIP ENGY, COSCO SHIP ENGY shall have the right to cancel the agreement unilaterally by written notice without any responsibility, and the agreement will be cancelled on the next day from the date of the said written notice to terminate the agreement issued by COSCO SHIP ENGY. COSCO Shipping shall pay an overdue fine to COSCO SHIP ENGY for its delayed payment as well as a penalty equivalent to 1.5% of the subscription amount under the agreement. Also, COSCO Shipping shall compensate COSCO SHIP ENGY for all the losses suffered or incurred by COSCO SHIP ENGY as a result of such default (including but not limited to the underwriting fees, attorneys’ fees and auditors’ fees paid by COSCO SHIP ENGY for the Non-Public Issuance).

Upon the signing of the agreement, if the agreement is invalid due to the non-fulfillment of the pre-conditions stipulated in the agreement; the parties shall not pursue any responsibility of each other.

The terms of the responsibility for breach of the agreement shall survive after the rescission or termination of the agreement.

— I-25 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

SECTION III FEASIBILITY ANALYSIS BY BOARD ON THE USE OF PROCEEDS RAISED IN THE ISSUANCE

I. Plan on the Use of Proceeds Raised in the Issuance

The total proceeds to be raised from the Non-public Issuance shall amount to RMB5.4 billion (the amount finally approved by the CSRC shall prevail) and will be used for the following purposes after deducting the cost of Issuance:

				Unit: RMB10,000
				The amount of
			The amount of	proceeds
		Total investment	proceeds used	to be used
No.	Project name	in the projects1	in the projects	in the projects2
1	acquisition of 14 oil tankers	581,068	—	498,747
	completion of acquisition of two
	Panamax oil tankers (72,000-tonne
2	class)	69,963	20,873	41,253
Total		651,031	20,873	540,000

Note 1: the total investment of above projects amounted to US$ 972,030,000, equivalent to RMB6,510,310,000 (the exchange rate of US dollar against RMB for acquisition of 14 oil tankers projects was calculated on the basis of US$ 1 = RMB6.70 as agreed in the contracts; the exchange rate of US dollar against RMB for completion of acquisition of two Panamax oil tanker (72,000-tonne class) project was calculated on the basis of US$ 1 = RMB6.6778, the middle rate as at 30 September 2017);

Note 2: the amount of proceeds to be used in the projects is the total proceeds to be raised before deducting the cost of Issuance.

Before receiving the proceeds, the Company will, depending on the actual situation of the progress of the projects, finance these projects by its self-raised fund which shall be replaced once the proceeds have been received according to procedures required by relevant regulations. If the net amount of the proceeds raised from the Issuance is less than the aggregate amount of the proceeds proposed to be invested in the aforementioned projects, the Company will make up for the shortfall through its self-raised fund. Based on the actual net proceeds raised from the Issuance, the Board and its authorized persons may adjust and eventually decide the projects to be invested in, the priorities of and the investment amount of each project, in compliance with relevant laws and regulations.

— I-26 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

II. Overview of Investment Projects in Connection with Proceeds Raised in the Issuance

(I) Basic information of the project
Acquisition of 14 oil tankers

On 30 October 2017, the tenth meeting of the Board of the Company in 2017 considered and approved the acquisition of four VLCC oil tankers and three Suezmax oil tankers from Dalian Shipbuilding Industry Co., Ltd. and acquisition of five Aframax oil tankers (including two LR2 product oil tankers) and two Panamax oil tankers (65,000-tonne class) from Guangzhou Shipyard International Company Limited and China Shipbuilding International Trading Company Limited, respectively.

The total price of above 14 oil tankers was RMB 5,810,680,000.

Completion of Acquisition of two Panamax oil tankers (72,000-tonne class)

On 24 June 2015, COSCO Group issued the “Reply on Acquisition of Three VLCC and Five Product Oil Tankers (72,000-tonne class) by Dalian Ocean Shipping Company Limited” (COSCO Zhanfa [2015] No.178) ( 《關於大遠公司訂造3艘VLCC和5艘7.2萬噸成品油輪的批復》（中遠戰發 [2015] 178號）), agreed that the Company acquires two Panamax oil tankers (72,000-tonne class) from China Shipbuilding Industry Group Co., Ltd.( 中國船舶重工集團有限公司) at the total agreed price of US $ 104,770,000.

(II) Analysis on the Necessity of the Proceeds Raised in the Issuance
Respond to the building of national “maritime power” strategy, capture the strategic opportunities of business development

In 2014, the State Council issued the Certain Opinions Concerning the Promotion of the Healthy Development of Marine Industry 《關於促進海運業健康發展的若干意見》( )and the Ministry of Transport issued the Plan for Implementation of the Certain Opinions of the State Council Concerning the Promotion of the Healthy Development of Marine Industry 《貫徹落實( <國務院關於促進海運業健康發展的若干意見>的實施方案》), which signify that building “maritime power” has formally become a national strategy and explicitly state some key tasks such as “to optimize of the structure of maritime fleet”, “to improve the global maritime network” and “to promote the transformation and upgrading of shipping enterprises”. During the “Thirteen-five” period, the Ministry of Transport issued the “Thirteen-five” Development Plan for Water Transportation 《水運( “十三五”發展規劃》), further states that “to improve the carrier support capacity for crude oil and other key materials”. Energy transport is an important component of the maritime industry, the building of national “maritime power” strategy requires China to speed up the development of energy transport.

— I-27 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

With the major market for global economic growth transferring from western countries to eastern countries, the major market for global energy consumption transfers the same way. According to the BP World Energy Outlook 2017 《( BP世界能源展望2017年版》) published by BP, the conventional major market for energy demand has been replacing by emerging market and China will be the largest growth market for energy. According to the forecast in the 2016 Report on Development in the Foreign and Domestic Oil & Gas Industries 《( 2016年國內外油氣行業發展報告》) published by the CNPC Economics & Technology Research Institute in January 2017, China’s reliance on foreign supplies of oil will reach new high of 65%. In light of the increasing energy consumption in China, petrochemical enterprises in the country will follow the state’s “One Belt and One Road” construction by proactively engaging in the exploration and development of oil and gas in foreign countries to promote our global presence. Under the state’s “Going Out” strategy for energy and the strategic deployment of “state oil, state transport” (國油國運), strategic opportunities will arise for the energy shipping industry.

Domestic imported crude oil usage rights and crude oil import rights have been expanded, which has stimulated purchase demand for imported crude oil

As a strategic resource, oil is critical for our economic growth. The orderly expansion of imported crude oil usage rights and crude oil import rights will promote the competing integration of domestic petroleum and petrochemical industries, facilitate domestic overall refining efficiency and reduce refining costs. In this regard, in 2015, the National Development and Reform Commission issued the Notice on Issues related to the Management of Imported Crude Oil Usage Rights of the National Development and Reform Commission 《國家發展改革委關於進口原油使用管理有關問題的( 通知》), permitting eligible local refineries to use imported crude oil. According to the notice of the Ministry of Commerce, from 2015 to 2017, the permitted quota of crude oil for non-state-owned trading are 37,600,000 tons, 87,600,000 tons and 87,600,000 tons, respectively.

The expansion of qualifications for importing crude oil to local refineries and the increasing market competition among local refineries have effectively stimulated purchase demand for imported crude oil.

Expand and upgrade the scale of the fleet to maintain the leading shipping capacity in the world

As of 30 September 2017, the Company has 130 owned, charted-in and ordered oil tankers, with a shipping capacity of 20,268,200 DWT. According to the statistics of Clarksons on the shipping capacity of other shipowners in the world, the Company ranks first in terms of shipping capacity. However, in light of the significant scale effect of shipping industry, increasing market competition and frequent merger and restructuring among enterprises, each energy shipping enterprise will develop into large scale. Currently, although the Company maintains leading position in its total shipping capacity, it does not have clear advantage in large oil tankers such as VLCC. Therefore, the Company will proactively expand and upgrade the scale of its fleet to strengthen its competitivity and sharp its completive advantages.

— I-28 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

Optimize the age composition of the fleet to reduce the Company’s operating costs

As of 30 September 2017, the Company has 120 oil tankers in operation, with a shipping capacity of 18,346,200 DWT, including 43 VLCC oil tankers, 3 Suez oil tankers, 12 Aframax oil tankers and 25 Panamax oil tankers. Given the average operating cycle of single vessel is 20 years, based on current shipbuilding schedule and progress, after 2018, the Company will lack shipping capacity in progress and the existing shipping capacity will be aging gradually.

By the end of the “Thirteen-five” period, more than 50% of the Company’s owned oil tankers will exceed 10 years in age and 26 oil tankers will even exceed 15 years in age, representing 16.68% of the Company’s then shipping capacity. The aging of vessels will extremely impair our competitivity in the market and lead to the increase in operating costs such as repair and maintenance costs and fuel consumption costs. Therefore, the Company shall supplement and upgrade its shipping capacity on a timely basis and optimize the age composition of the fleet further to maintain and increase its shipping capacity and reduce its fleeting operating costs.

Diversify and scientize vessel models to improve the Company’s competitivity in niche markets

Recently, the global overall economic growth has experienced slowdown and developed countries have started the “Reindustrialization” focused on “Industry Upgrade” and “Refocus” (i.e. to upgrade to the upper part of the value chain such as design, research and development and standards). Meanwhile, the United States has effectively promoted the strategy of “Energy Independence”. The above factors have driven the transfer of the major market for global energy consumption from western countries to eastern countries and new characteristics have formed in each niche market for energy shipping:

(1) According to the forecast of Clarksons, as impacted by the relatively rapid economic growth in emerging countries, the decrease in demand for imported crude oil in the United States, the gradual increase of China’s reliance on imported crude oil and other factors, the portion of crude oil through long distance transportation to China and Japan will increase and the shipping demand for VLCC will remain moderate growth in the future.
(2) The major routes of Suez oil tankers represent the routes from West Africa to Continental Europe, from the Black Sea to Mediterranean and from Caribbean to Baia Hermosa. Aframax oil tankers mainly serve in regional short-distance transportation of crude oil. Impacted by comprehensive factors such as the increase in trading volume of energy between Middle East and India, the upgrade and expansion of Panama Canal and the development of new routes between Vostochniy Port and China, the shipping demand for Suez oil tankers and Aframax oil tankers will remain moderate growth in the future.

— I-29 —

APPENDIX I PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

(3) The demand and supply of the shipping capacity of the transportation market for domestic trading of crude oil is stable and balanced. In the market, the shipping capacity is satisfied by general models with less large shallow-draft vessels that meet particular requirements. As a result, some personalized transportation requirements from customers are not satisfied. In particular, with the production increase in refineries and the changes in oil sources, demand for shallow-draft vessels with large capacity that can traffic in rivers and berth in small wharf arises in the market and there is a structural shortfall for the supply of shipping capacity of new shallow-draft Panamax oil tankers.

Therefore, the Company will build its fleet on the principle of diversification and scientization to capture interim growth opportunities in each niche market for energy shipping, improve its competitivity in niche markets and effectively mitigate the effect of current downturn in the shipping market.

(III) Analysis on the Feasibility of the Proceeds Raised in the Issuance

The state’s policies support the building of modern energy shipping fleet

In August 2014, the State Council issued the Certain Opinions Concerning the Promotion of the Healthy Development of Marine Industry 《關於促進海運業健康發展的若干意見》( , which sets forth seven important tasks, i.e. optimizing maritime fleet composition, perfecting global maritime network, promoting transformation and upgrade of marine enterprises, vigorously developing modern shipping service industry, deepening the reform and opening-up of marine industry, enhancing international competitiveness of marine industry and boosting safe and green development to protect the state’s economic security and marine interests. In October 2014, the Ministry of Communications issued the Plan for Implementation of the Certain Opinions of the State Council Concerning the Promotion of the Healthy Development of Marine Industry 《貫徹落實( <國務院關於促進海運業健康發展的若干意見> 的實施方案》), which details specific supportive measures and sets forth requirements such as making efforts to build modern marine fleet and striving to develop energy-saving, environmental and economically efficient vessels.

In November 2015, the Ministry of Finance issued the Administrative Measures on Subsidies for the Retirement and Disassembling of Vessels and the Standardization of Vessel Models 《船舶報廢拆( 解和船型標準化補助資金管理辦法》) to accelerate the structural adjustment and promote the transformation and upgrade for our shipbuilding industry and shipping industry by encouraging the elimination of obsolete sea crafts, inland crafts and fishing crafts and guiding the building or rebuilding of energy-efficient demonstration vessel.

Relevant national strategies and specific supporting measures provide strong policy support for this investment project.

— I-30 —

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

APPENDIX I

The development of emerging market countries continue to drive global energy demand growth

Despite the economic in developed countries not yet fully recovered with weak energy demand, as well as the slowdown of economic growth in emerging market countries with industrial restructuring and other factors, since 2012, global energy consumption growth tends to slow down, but in Asia, South America and Africa and other emerging markets, the industrialization and urbanization process continues to advance, population size continues to expand. Such economies still have much room for the economic development, and will become the main driving force for global energy demand growth in the future.

According to the forecast of BP World Energy Outlook 2017(《BP世界能源展望2017年版》), the growth rate of global energy consumption is expected to be 1.3% between 2015 and 2035, and almost all new energy demand comes from the fast-growing emerging economies, with China and India increasing More than half, while China will be the largest energy growth market. The growth of global energy consumption has led to the demand for energy shipping market. With the adjustment of energy consumption regional structure from western countries to eastern countries, the demand for energy shipping market will further be increased, which will provide good development opportunities for the Company.

Shipbuilding prices are relatively low in history, which is conducive to low-cost expansion of capacity

At present, the global economic recover at a slow pace, the international energy consumption structure is in the adjustment stage. In order to seize the interim development opportunities for energy transport market segments, the Company need to expand its transport capacity. In recent years, due to the downturn of international shipping market, the global shipbuilding market continued to decline, shipbuilding prices fell sharply.

The profile of new ship contract prices for each type of oil tankers between 2008 and 2017

Unit: US$ in million

==> picture [343 x 155] intentionally omitted <==

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

16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
VLCC SUEZMAX AFRAMAX PANAMAX
----- End of picture text -----

Source: Clarksons

— I-31 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

Taking into account of the appreciation of the Renminbi, inflation, the increase in labor costs and the implementation of new shipbuilding standards leading to the increase in shipbuilding costs and other factors in the past decade, the prevailing actual shipbuilding price has been significantly lower than the level in 2004. In addition, due to the impact of market supply and demand, as well as the current recovery of steel and other raw materials prices, it is expected that further decrease in shipbuilding price will be limited. The ship price is at a historic low point recently. Shipbuilding at this stage can help companies achieve capacity expansion with low costs.

4. The Company has competitive strengths and infrastructure required for fleet expansion

The Company has good cooperation relations with over 200 foreign and domestic petrochemical companies and oil trading companies, including three domestic petroleum companies SINOPEC, CNOOC and CNPC as well as famous foreign oil companies such as Exxon Mobil, British Petroleum plc, Vitol Group, Glencore International, Trafigura. High-quality and stable customer resources has laid foundation for the Company to expand its fleets.

Based on the stable customer base and the growing demand for energy transportation, the Company continued to expand its capacity in recent years, and has the first total tanker capacity in the world. During the continuous capacity expansion, the Company has accumulated rich experience on choosing reasonable type, quantity and construction time for new vessels in order to optimize the structure of its fleets.

In addition, the oil tankers of the Company cover most of vessel types. The interaction between domestic and international trade, the large and small fleet and the black and white oil can be realized, enable the Company to maximize the effectiveness of new vessels.

5. Improving capital structure to reduce debt-to-asset ratio

Energy transportation industry is a high-investment and capital intensive industry, it is also a strong cyclical industry, thus it is exposed to greater risk relating to macroeconomic volatility. As at the end of 2014, 2015, 2016 and 30 June 2017, the consolidated debt-to-asset ratio of the Company is 65.56%, 61.21%, 52.74% and 54.82%, respectively. As compared with listed companies of A shares in the industry, the debt-to-asset ratio of the Company is at the higher level, therefore, the Company is exposed to higher financial risk and in a disadvantageous position in market competition.

— I-32 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

Debt-To-Asset Ratios of Comparable Companies in The Industry in 2014- June 2017

						Debt-to-asset ratio	Debt-to-asset ratio	Debt-to-asset ratio	Debt-to-asset ratio
				As	at	As	at	As	at	As	at
				30 June		31 December		31 December		31 December
Stock code		Stock short name		2017		2016		2015		2014
600026.SH	COSCO		SHIP ENGY		54.82		52.74		61.21		65.56
600428.SH	COSCOL				56.00		55.76		62.42		63.08
600798.SH	Ningbo Marine				48.25		49.65		50.50		62.60
	China Merchants
601872.SH	Energy Shipping				49.71		45.69		41.55		51.95
	COSCO		SHIPPING
601919.SH	Holdings				66.52		68.62		69.68		71.13
	Chang Jiang Shipping
000520.SH	Group Phoenix				46.47		49.63		50.10		75.31
	Average				53.63		53.68		55.91		64.94
	Median				52.26		51.20		55.86		64.32

Source: Wind

The Issuance can significantly increase the net assets of the Company and effectively improve its capital structure. According to the Company’s financial information of the second half of 2017, the consolidated debt-to-asset ratio of the Company will be reduced to 50.32% after the completion of the Issuance, which will effectively reduce the Company’s financial risks, enhance the Company’s ability to continue as going concern and competitiveness in the industry.

(IV) Economic benefit of projects

1. Acquisition of 14 oil tankers

The 14 oil tankers acquired include four VLCC oil tankers, three Suez oil tankers, five Aframax oil tankers (including two LR2 product oil tankers) and two Panamax oil tankers (65,000-tonne class).

After calculation, the internal rate of return for acquisition of four VLCC oil tankers is 8.5% with a static payback period of 11 years and a dynamic payback period of 17 years.

The internal rate of return for acquisition of three Suez oil tankers is 7.4% with a static payback period of 12 years and a dynamic payback period of 19 years.

— I-33 —

APPENDIX I PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

The internal rate of return for acquisition of three Aframax oil tankers is 7.4% with a static payback period of 13 years and a dynamic payback period of 21 years.

The internal rate of return for acquisition of two Aframax LR2 oil tankers is 7.2% with a static payback period of 13 years and a dynamic payback period of 21 years.

The internal rate of return for acquisition of two Panamanian oil tankers (65,000-tonne class) is 16.7% with a static payback period of 6 years and a dynamic payback period of 8 years.

Acquisition of two Panamax oil tankers (72,000-tonne class)

After calculation, the internal rate of return for acquisition of two Panamax oil tanker (72,000-tonne class) is 9.37% with a static payback period of 9 years and a dynamic payback period of 13 years.

(V) Project registration and environmental evaluation
Acquisition of 14 oil tankers

On 30 October 2017, the tenth meeting of the Board of the Company in 2017 considered and approved the acquisition of four VLCC oil tankers and three Suez oil tankers from Dalian Shipbuilding Industry Co., Ltd. and acquisition of five Aframax oil tankers (including two LR2 product oil tankers) and two Panamax oil tankers (65,000-tonne class) from Guangzhou Shipyard International Company Limited and China Shipbuilding International Trading Company Limited, respectively.

The project of acquisition of 14 oil tankers mentioned above is subject to approval from COSCO Shipping.

Completion of Acquisition of two Panamax oil tankers (72,000-tonne class)

On 24 June 2015, COSCO Group approved the Company to appoint Dalian Shipbuilding Industry Company Limited to build two Panamax oil tanker (72,000-tonne class) in accordance with the Approval of Order of Three VLCC and Five 72,000-tonne Product Oil Tankers by DO Company (Zhong Yuan Zhan Fa [2015] No. 178).

The projects invested with the proceeds are not involved in obtaining EIA approval documents issued by environmental protection departments in advance.

— I-34 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

SECTION IV DISCUSSION AND ANALYSIS OF BOARD ON THE IMPACTS OF THE ISSUANCE ON THE COMPANY

I. Changes in the Businesses and Assets Integration Initiatives, Articles of Association, Shareholding Structure, Structure of Senior Management and Business Structure of the Company after the Issuance
(I) Change in business and Whether there is an integration plan for assets

The principle businesses of the Company are oil shipments and LNG shipment. The business scope of the Company will remain unchanged upon completion of the Non-public Issuance of A Shares. The successful use of the proceeds will enable the Company to further enhance and optimize the capacity of fleets, ship types and ship age structure without causing the integration of the business and asset of the Company.

(II) Adjustment to the Articles of Association

Upon the completion of the Non-public Issuance of A Shares, the Company will make amendments to the terms with respect to provisions relevant to registered capital, total share capital and share capital structure under the Articles of Association. Other than that, the Company has no other plans to amend or adjust the Articles of Association as a result of the Issuance.

(III) Change in the shareholding structure

As of 30 September 2017, the total share capital of the Company is 4,032,032,861 shares, of which China Shipping and its subsidiaries held 1,554,631,593 A shares in total, representing 38.56% of the total share capital of the Company. China Shipping is the direct controlling shareholder of the Company. As the sole shareholder of China Shipping, COSCO Shipping is an indirect controlling shareholder of the Company. In addition, the SASAC is the beneficial controller of the Company.

— I-35 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

Assuming the price of the Non-public Issuance of A Shares is RMB 6.81 per share, the net asset of per share at the end of 2016, the proceeds will amount to 5.4 billion, of which COSCO Shipping will subscribe no more than 4.2 billion in total, the Company intends to totally issue 792,951,541 A Shares, of which COSCO Shipping will subscribe 616,740,088 shares. The particulars of change in the shareholding structure of the Company before and after the Issuance will be as follows:

	Shareholding before	the Issuance	Shareholding after	the Issuance
Name of Shareholder	Number of	Shareholding	Number of	Shareholding
	shares held	proportion	shares held	proportion
China Shipping and its
subsidiaries	1,554,631,593	38.56%	1,554,631,593	32.22%
COSCO Shipping	—	—	616,740,088	12.78%
Total of shares directly
and indirectly held by
COSCO Shipping	1,554,631,593	38.56%	2,171,371,681	45.00%
Other investors (no more
than nine investors)	—	—	176,211,453	3.65%
Other public shareholders	2,477,401,268	61.44%	2,477,401,268	51.35%
Total share capital	4,032,032,861	100.00%	4,824,984,401	100.00%

Note: The above estimates are based on the share capital structure of the Company as of 30 September 2017; number of shares held by other public shareholders includes the numbers of A shares and H shares held by public shareholders.

COSCO Shipping will, directly and indirectly, hold a total of 45.00% of the Company upon the completion of the Issuance. China Shipping shall remain as the direct controlling shareholder, COSCO Shipping shall remain as an indirect controlling shareholder of the Company and the SASAC shall remain as the actual controller of the Company. Therefore, the Non-public Issuance of A Shares will not result in the change in control of the Company.

(IV) Change in the structure of senior management

As of the date of the announcement of this proposal, the Company does not have a plan with respect to the change of the structure of senior management. Upon completion of the Non-public Issuance of A Shares, no change will occur to the senior management of the Company except for reallocation of normal human resources. In the future, if the Company intends to change its senior management structure, it will comply with necessary legal procedures and information disclosure obligation in accordance with relevant requirements.

(V) Change in business structure

The projects invested with the proceeds of the Company are carried out focusing on its principle business, and will improve the Company’s capacity and service levels and enhance its market competitiveness upon completion. Upon completion of the Non-public Issuance of A Shares, there will be no changes in business structure of the Company.

— I-36 —

APPENDIX I PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

II. Changes in Financial Condition, Profitability and Cash Flows of the Company upon Completion of the Issuance

Upon completion of the Non-public Issuance of A Shares, the total assets and net asset of the Company will increase accordingly while the gearing ratio will reduce accordingly and financial position will be improved to a large extent. Particulars of the impacts of the Issuance on financial condition, profitability and cash flows of the Company are as follows:

(I) Impact on financial position of the Company

After the proceeds from the Non-public Issuance of A Shares are in place, both of total assets and net assets of the Company will increase accordingly, capital strength will be effectively enhanced, which will help to lower the financial risks of the Company and provide guarantee to its sustainable development.

(II) Impact on the Company’s profitability

After the actual receipt of the proceeds to be raised from the Non-public Issuance of A Shares, since both net assets and total share capitals of the Company will increase, it takes time to reflect the economic benefit generated from the projects to be invested with the proceeds raised, therefore, it may lead to some degree of decline in financial indicators such as return on net assets and earnings per share of the Company in the short term.

However, the projects to be invested with the proceeds raised will enhance the operation capacity and optimize the vessel types and age of the Company, meanwhile, the introduce of new vessel will effectively reduce the Company’s fuel consumption and maintenance charges to improve the operating cost of the Company, therefore, there will be a significant increase in the Company’s market competitiveness.

(III) Impact on the Company’s cash flows

Upon completion of the Non-public Issuance of A Shares, the cash inflows from financing activities of the Company will be increased substantially in the short term. As the projects to be invested with the proceeds raised will be implemented in the future, the cash outflow of the Company generated from investment activities will be increased and the operational strength will be further improved, which helps to increase the net cash flows from operating activities of the Company.

III. Change in Business Relationship, Management Relationship, Connected Transactions and Industry Competition between the Company and the Controlling Shareholders as well as their Associates

Upon completion of the Non-public Issuance of A Shares, no substantial changes will occur to the business and management relationship between the Company and controlling shareholders as well as its associates due to the Non-public Issuance of A Shares.

— I-37 —

APPENDIX I PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

For details of the change in the connected transactions and industry competition, please refer to “(VI) Horizontal competition and connected transactions” under “I. Basic Information of COSCO Shipping” in “Section II Particulars of the Target Subscribers of the Nonpublic Issuance and Summary of the Share Subscription Agreement”.

IV. Whether There is Embezzlement of Funds or Assets by the Controlling Shareholder and Its Affiliates, or Whether Guarantee is Provided by the Company to the Controlling Shareholder and its Affiliates after the Issuance

Upon completion of the Issuance, the capital or assets of the Company will not be misappropriated by controlling shareholders or its associates. In addition, there will not be any form of illegal guarantee provided by the Company to the controlling shareholders or its associates.

V. Whether the debt structure of the Company is reasonable and whether there will be a substantial increase in the liabilities (including contingent liabilities) or a too low debt-to-asset ratio or an unreasonable financial cost through the Issuance

As of 30 June 2017, the debt-to-asset ratio of the Company in the consolidated statements was 54.82%. Upon completion of the Issuance, the net asset of the Company will be increased and the debt-to-asset ratio will be decreased. The Issuance will not significantly increase the Company’s liabilities (including contingent liabilities), nor will it cause a too low debt-to-asset ratio or an unreasonable financial cost.

VI. Risks Related to the Issuance of Shares
(I) Risks Relating to the Market
Risks relating to the fluctuation in macro-economy

Energy is the important resource guarantee for the economic development and the physical foundation of modern civilization. The shipping of oil and LNG operated by the Company has a close connection with the macroeconomic development of the world. The prosperity of the global and China’s economy directly affects the level of energy consumption and indirectly affects the operation of the Company. When the macro-economy is booming, the demand for energy resources will increase rapidly, and will, in turn, increase the shipping demand for these resources. However, when the macro-economy is in recession, the shipping demand for the energy resources will be affected inevitably.

In 2008, as affected by the financial crisis, the global economy suffered a severe damage with demand for energy consumption in the world depressed and demand growth falling, the global energy transportation market has been depressed in recent years due to such influence. Although the economic stimulus policies of governments in the world has picked up the market prosperity in some degree, the uncertainty of the global economic recovery has left the energy transportation market still at a lingering stage. Meanwhile, although China’s economy has supported sustained growth in the world energy market in recent years, however, as the China’s economy enters “New Normal” stage with economic structural adjustment and economic slowdown, it is uncertain which level of influence will the China’s economic development have on global energy consumption, and it will bring some uncertainty to the Company’s primary business expansion and development.

— I-38 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

2. Market competition risks relating to the energy transportation industry

With increased market liberalization in the energy transportation industry, and accelerated growth rate in energy transportation shipment capacity that has surpassed the growth rate in energy transportation demand, the trend of oversupply in global energy transportation shipment capacity has become more obvious, vessel utilization rate shows a declining trend, competition in the energy transportation industry has intensified. Although the Company has continuously optimized its vessel types and age structure as well as made a scientific and reasonable planning of business and shipping line structure to improve its competitiveness, however, energy transportation enterprises are in the trend of pursuing large scale vessels with increasing investment in marine technology and information equipment, which may challenge the Company in various aspects such as hull structure, service capacity, information system and management efficiency.

3. Competition risks relating to other energy and transportation modes

Maritime shipping has the advantages of large shipping capacity and low price, it is a major mode of transportation for commodities, particularly it has outstanding advantages in the transportation of cargoes such as petroleum, coal and iron ore, but other modes of transportation still pose a certain level of competition to maritime shipping. For example, the connection of crude oil transportation pipelines and the construction of deep water terminals in coastal ports of the PRC will reduce the demand for secondary transshipments of crude oil. In addition, in recent years, influenced by the factors such as the turmoil in the Middle East that threatened the world’s energy security and the changes in the world’s energy consumption structure, the world’s major energy consumers are actively pursuing diversified energy strategies. For example, the United States vigorously develops domestic leaf rock oil resources, EU continues to implement clean fuel strategy, Japan, India and other countries actively develop natural gas and China builds crude oil transportation pipeline with Russia, all of which will have certain adverse impact on the crude oil ocean shipping markets.

(II) Risks relating to business and operation

1. Risks relating to fluctuation in freight price

Freight price is one of the key factors that determine the profitability of the energy transportation industry, therefore, the fluctuation in freight price will bring uncertainty to the operating benefits of the Company. Although the Company have enhanced the stability of freight price through signing COA contracts with large domestic petroleum enterprises, establishing long-term cooperation mechanisms and setting up joint ventures, and avoided the risk arising from freight fluctuation in shipping market to a certain extent by renting out a certain percentage of the shipping capacity to lock in the revenue. However, as the supply and demand imbalance of the energy transportation market intensifies, the market freight price is subject to downward pressure, and fluctuation in freight price will still have great impact on the Company’s operating activities.

— I-39 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

2. Risks relating to fluctuation in fuel price

Fuel surcharges is one of the most important cost expenditure items for energy transportation enterprises. Fluctuation in fuel price will directly influence the production cost of the energy transportation enterprises. In recent year, crude oil price fluctuates in international market and there is also great fluctuation in the price of bunker fuel. As the new domestic and international requirements in terms of emission of ships are constantly updated, the price for fuel oil procurement of the Company will rise accordingly. Therefore, future fluctuation in fuel price will have great impact on the cost of Company’s primary business and profitability.

3. Risks relating to shipping safety

Ships might face various accidents during voyage, including running aground, fire, collision, shipwreck, piracy, environmental incident and severe weather condition as well as natural disaster, which may cause loss to ships and cargos. As such, the Company will subject to the risk of litigation and compensation, the ships and cargos may also be distrained. Amongst others, environmental pollution caused by oil leakage results in the most server danger. Once the any pollution accidents caused by oil leakage occur, the Company will be subject to substantial compensation liability, and there will be significant impact on the Company’s reputation and normal operation. The Company has controlled risks through active insurance so far as possible, however, the compensation from insurance could not fully cover the losses incurred from the above risks.

In addition, change in international relations, regional disputes, wars and terrorist activities may affect the safety and normal operation of ships. In recent years, piracy is exceptionally rampant. Piracy in waters off Somalia has become a global concern and piracy has become a major threat to shipping safety. Even though the Company has taken various measure to keep away from pirates, pirates are still the potential risks of the Company’s operation.

(III) Financial Risk

1. Risks on rate fluctuation

Debts of the Company are interest-bearing debts, including RMB and US dollar denominated debts. Accordingly, fluctuation of market rates, especially the changes in RMB and US dollar rates have great impact on the financial cost of the Company, which will further influence the net profit of the Company.

Risks relating to exchange rate

Some of the operating income and operating cost are received and paid in US dollars, and there are differences between the asset and liabilities balances denominated in US dollars. Although the Company has made appropriate proportion for US dollar income and cost and effectively reduced the risk of exchange rate fluctuation, since the foreign trade business of the Company continues to grow and the higher proportion of the US dollars denominated liabilities, the fluctuation in exchange rates have a great impact on the Company’s operation.

— I-40 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

(IV) Risks of Management

After the actual receipt of the proceeds, the total assets of the Company will be increased significantly and capital structure will be improved. The rapid increase in business and total assets bring forward higher requirements to the management level and decision-making abilities of the Company. In the future, the Company will make systematic adjustments adaptive to the human resources, internal communication, overall collaboration and company operations based on the development of fleets, and further improve and perfect the organization models and management systems. However, if we could not adjust in a timely manner, or managements in relevant aspects could not adapt to the business development needs of the Company, we could be subject to internal management risks.

(V) Risks of approval

According to the requirements under relevant laws and regulations, the Non-Public Issuance of A Shares is considered and approved by the Board of the Company, and is subject to consideration and approval by the Company’s general meeting, A Shares class meeting and H Shares class meeting, as well as the approval by the SASAC and authorizations by the CSRC. It is uncertain in whether we could obtain the approvals from the aforesaid competent authorities and the timing of the final approval or authorization.

(VI) Risks of Issuance

The Non-Public Issuance of A Shares offers a significant number of shares and amount of proceeds through non-public issuance to specific subscribers. The offering results of the Non-public Issuance of A Shares will be affected by various internal and external factors such as the overall conditions of the security markets, the development of the industry where the Company locates, the trend of the Company’s share price and the recognition of the investors on the proposal of the Issuance. As such, the Non-public Issuance of A Shares is subject to risk of issuance such as insufficient proceeds raised and failure of the issuance.

(VII) Risks on the Dilution in Earnings per Share and Return on Asset

After the actual receipt of the proceeds to be raised from the Non-public Issuance of A Shares, both total share capitals and net assets of the Company will be increased, which will dilute the earnings per share and return on asset of the Company with profit level held constant. In addition, since it will take some time to reflect the benefit of using the proceeds will take some time, and the expected level of return can only be achieved after vessels are completed and put into operation and begin to generate a stable income. During this period, the growth of the Company’s profit may be lower than that of the net asset, which may result in risks on the dilution in earnings per share and return on asset.

— I-41 —

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

APPENDIX I

SECTION V PROFIT DISTRIBUTION

I. Existing Profit Distribution Policy of the Company

The major requirements for the profit distribution policy under the current Articles of Association are as follows:

“Article 227 After the profit distribution plan has been adopted at the general meeting, the Board shall finish distributing dividends (or shares) within two months after conclusion of the general meeting.

Article 228 Basic principles of profit distribution policy:

The profit distribution policy of the Company shall be continuous and stable. Profit distribution shall be in full consideration of reasonable return to investors, the long term interests and sustainable development of the Company, and the interests of all shareholders as a whole.

The profit distribution of the Company shall be based on the distributable profit realized for the year and dividend shall be distributed to shareholders in a sequence in compliance with the statutory requirements and in proportion to their shareholdings. The same shares shall be entitled to the same rights and dividend. Shares of the Company held by the Company are not entitled to distribution.

The Company shall give priority to profit distribution in the form of cash.

Article 229 Forms of profit distribution

The Company may distribute dividends in the forms of cash, shares or a combination of both cash and shares.

Article 230 Time intervals between profit distributions

Provided that the Company makes a profit for the year, and its operating cash flow and total undistributed profit are positive, the Company shall make profit distribution at least once a year.

The Company may distribute interim profit. The Board of the Company may propose distribution of interim dividends based on the scale of profit, cash flows status, stage of development and capital requirements of the Company.

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APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

Article 231 Specific circumstances and proportions of cash dividends

Profit distributions by the Company in cash shall at least meet the following conditions:

(1) The realised distributable profit of the Company for the year (the profit after tax of the Company after recovery of losses and allocation to the common reserve) is positive with sufficient cash flows, and the cash dividend distribution will not affect the subsequent continuing operation of the Company;
(2) The auditors have issued an audit report with standardized unqualified opinions on the annual financial report of the Company.

Upon the fulfillment of the aforesaid conditions, the Company shall distribute dividend in cash. The total profit to be distributed in cash in any consecutive three years shall not be less than 30% of the average annual distributable profit realized in the three years. The actual proposal relating to the proportion of cash dividend per annum shall be recommended by the Board based on the annual profitability and the future plan of capital utilization of the Company.

Article 232 Specific conditions for share dividend distribution

The Company may distribute profit by share dividend according to actual conditions such as the accumulated distributable profit and cash flows of the Company, and on the premise that there is adequate cash dividend and a reasonable share capital structure of the Company. The actual proposal relating to the proportion of share dividends shall be recommended by the Board. In determining the specific amount for the share dividend distribution, the Board of the Company shall take full account of whether the total share capital after share dividend distribution is suitable for the current operational scale and the development of the Company, so as to ensure that the profit distribution plan is in the interest of all shareholders as a whole in the long run.

Article 233 The consideration and deliberation procedures and decision-making mechanism for the profit distribution plan

The Company’s profit distribution proposal shall be formulated by the management of the Company. In formulating the profit distribution proposal the views of investors shall be taken into account and the proposal so formulated shall be submitted to the consideration of the Board of the Company. The Board of the Company shall fully consider and deliberate the profit distribution proposal pursuant to the provisions of the Articles of Association, having fully taken into account the Company’s ability to operate continuously, and the capital required for ensuring routine production, operation and business development as well as reasonable return to investors. In deliberating and decision-making of the profit distribution proposal, the Board of the Company shall take full account of the views of the independent directors. In considering the profit distribution proposal, the Board shall record in detail the advice of the management, key points of the speeches of directors present at the meeting, opinions of independent directors, voting results of Board meetings, etc. and prepare written minutes to be kept properly as the Company’s records.

— I-43 —

APPENDIX I PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

Where the profit distribution proposal is considered by the Board, it requires the consent of more than half of all the directors to be approved. Independent directors shall provide their independent opinion on the profit distribution proposal.

The resolutions formed by the Board for the profit distribution proposal shall be submitted to the general meeting for consideration. Upon receipt of any qualifying profit distribution proposal proposed by other shareholders, the Board shall communicate with the proposing shareholder to understand the specific reasons and background for proposing the proposal, announce the contents of and reasons for the proposal in accordance with the procedures as required by the Articles of Association and the “Rules of Procedures for General Meeting” of the Company, and submit the same to the general meeting for consideration.

Where the profit distribution proposal is considered at the general meeting, the Company should proactively communicate and interact with shareholders via different channels, in particular, with the minority shareholders, and the Company shall fully listen to the opinions and demands of minority shareholders and timely answer the questions raised by minority shareholders.

Where the profit distribution plan is considered at the general meeting, it requires approval of more than half of the voting rights held by the shareholders (including proxies of shareholders) present at the meeting. Where plans for share dividend distribution or for transfer from the common reserve to share capital is considered at the general meeting, it requires approval of more than two thirds of the voting rights held by the shareholders (including proxies of shareholders) present at the general meeting.

Article 234 Under circumstances where no cash dividends are paid

Where the Company makes a profit and meets the conditions for cash dividend in the previous accounting year but has not proposed a cash dividend distribution plan, the Board shall disclose in regular reports the reasons for not proposing a cash dividend distribution plan and the purpose for the retained capital, and independent directors shall express their independent opinion thereon.

Article 235 Adjustments to profit distribution policy

In case of war, natural disaster and other force majeure events, or changes in the Company’s external operational environment resulting in material impact on its production and operations, or relatively significant changes in the Company’s operational position, the Company may adjust its profit distribution policy through amendment of the Articles of Association.

In considering the adjustment to the profit distribution policy, the Board shall obtain the consents from more than two thirds of all directors to pass the resolution. Independent directors shall express independent opinion in this regard.

— I-44 —

APPENDIX I PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

Any adjustment to the profit distribution policy shall only be submitted to the general meeting for consideration after being approved by the Board, and the Company shall provide access to online-voting for shareholders to facilitate their participation in the general meeting. The Company shall, for the sake of protecting interests of shareholders, make deliberations and explanations in the proposal to be submitted to the general meeting. Where the adjustment to the profit distribution policy is considered at the general meeting, it requires approval of more than two thirds of the voting rights held by the shareholders (including proxies of shareholders) present at the general meeting.

Article 236 Payment forms of cash dividends

Cash dividends and other amounts paid by the Company to shareholders of domestic shares shall be paid in RMB. Cash dividends and other amounts paid by the Company to shareholders of overseas listed foreign shares shall be denominated and declared in RMB and paid in foreign currency. The Company shall arrange the foreign currency for payment of cash dividends and other amounts to holders of overseas listed foreign shares and holders of other foreign shares in accordance with foreign exchange management regulations of the PRC.

Except as otherwise specified in relevant laws and regulations, if cash dividends and other amounts are paid in other currencies, the exchange rate shall be the benchmark exchange rate for RMB to other currencies quoted by the People’s Bank of China on the date of the general meeting.”

II. Specific Implementation of Cash Dividend and Profit Distribution by the Company for the Last Three Years

Cash dividend distribution for the last three years of the Company:

Unit: RMB10’000

					Proportion in net profit	Proportion in net profit
				Net profit	attributable	attributable to
				to shareholders of the		shareholders of the
				listed	company in	listed company in
	Amount of cash			annual consolidated consolidated statements
Year dividends (tax inclusive)				statements of dividends		（%）
2014			12,096.10		31,096.56	38.90%
2015			40,320.33		38,968.57	103.47%
2016			76,608.62		192,251.27	39.85%
Average annual net profit attributable to shareholders of the listed
company for the last three years						87,438.80
Proportion of accumulated cash			dividends in	average annual net profit
attributable to shareholders		of the listed company for the last three
years						147.56%

— I-45 —

APPENDIX I PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

The Company places an emphasis in creating return to its shareholders, and the accumulated profits be distributed in cash for the last three years accounted more than 30% of the average annual distributable profit for the last three years.

III. Shareholders’ Return Plan for the Next Three Years (2017-2019)

To perfect and improve the sustainable, stable and scientific decision-making and supervision system of dividend distribution of the Company, increase the transparency and practicality of the decision-making of profit distribution of the Company, generate positive returns on investment for investors and steer investors towards long-term and reasonable investment, the Shareholders’ Return Plan (2017-2019) of COSCO SHIPPING Energy Transportation Co., Ltd. is formulated by the Board of the Company in accordance with the requirements of the Company Law, Notice Regarding Further Implementation of Cash Dividend Distribution of Listed Companies 《關於進一步落實上市公司現金( 分紅有關事項的通知》) issued by the CSRC, Listed Companies Regulatory Guidance No. 3 — Cash Dividends Distribution of Listed Companies 《上市公司監管指引第( 3號— 上市公司現金分紅》) and other laws and regulations and the Articles of Association and based on the actual situation of the Company. Particulars are as follows:

（I） Major factors considered in formulating the plan

With the focus placed on the long-term and sustainable development and on the basis of comprehensive analysis on actual circumstance of its business development, the shareholders’ requirements and wishes, social capital costs and external financing environment, the Company has formulated its Shareholders’ Return Plan and established the sustainable, stable and scientific dividend return plan and mechanism for investors after taking full account of the Company’s strategic development plan and development stage, current and future profitability and size, cash flow, working capital requirement, bank credit and debt financing environment, so as to ensure the continuity and stability of profit distribution policy.

（II） Basic principles for formulation of the plan

The Company shall place an emphasis in creating reasonable return to its investors, and implement a continuous and stable profit distribution policy; the Company’s profit distribution shall neither exceed the amount of accumulated distributable profit nor the ongoing operation of the Company;
The opinions of shareholders (particularly the minority shareholders), independent directors and supervisors shall be fully considered and listened for formulating the Shareholders’ Return Plan of the Company;
Subject to compliance with relevant conditions, the Company shall give priority to dividend distribution in cash in the next three years.

— I-46 —

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

APPENDIX I

(III) Specific plan on shareholders’ return of the Company for 2017-2019
Profit distribution policy of the Company for the next three years
(1) Form of profit distribution

The Company may distribute dividends in the form of cash, shares, a combination of both cash and shares or otherwise as permitted by laws and regulations. The Company shall give priority to dividend distribution in cash over in shares.

(2) Specific conditions, proportions and time intervals of cash dividend

Except for the special circumstances that the Company plans to make material investment or significant cash expenditure within the next twelve months, the Company shall distribute its dividends in the form of cash if the Company makes profits for the current year and the accumulated undistributed profits are positive. The Company’s accumulated profits distributed in form of cash for the last three years are no less than 30% of the annual average net profit attributable to shareholders of the Listed Company for the last three years. Subject to compliance with the conditions for cash dividend distribution, the Company shall in principle distribute dividends in cash each year. When proposed by the Board and approved by the General Meeting, an interim dividend distribution may also be made in the form of cash.

The Board shall take various factors into consideration, including the Company’s industry features, development stages, business model and profitability as well as whether the Company has any substantial capital expenditure arrangements in differentiating the following circumstances and propose a differentiated policy for cash dividend distribution pursuant to the procedures stipulated in the Articles of Association:

① Where the Company is in a developed stage with no substantial capital expenditure arrangements, the dividend distributed in the form of cash shall not be less than 80% of the profit distribution;
② Where the Company is in a developed stage with substantial capital expenditure arrangements, the dividend distributed in the form of cash shall not be less than 40% of the profit distribution;
③ Where the Company is in a developing stage with substantial capital expenditure arrangements, the dividend distributed in the form of cash shall not be less than 20% of the profit distribution.

In the case that it is difficult to distinguish the Company’s stage of development but the Company has significant capital expenditure arrangements, the profit distribution may be dealt with pursuant to the preceding provisions.

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APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

(3) Specific conditions for distributing dividends in shares

The Company may distribute dividends in the form of shares based on the annual profits and cash flow and subject to the reasonableness of the cash dividend for the current year and the Company’s share capital scale.

Decision-making procedures and mechanism of profit distribution

The profit distribution plan of the Company shall be formulated by the Board pursuant to the provisions of the laws, regulations and the relevant regulatory documents and the Articles of Association, by combining with the Company’s profits, capital needs and shareholders’ return plan. Independent directors shall express clear opinions on it. Upon considered and approved by the Board, such plan shall be submitted to the General Meeting for consideration and approval. When making decisions on and formulating its profit distribution plan, the Board shall record in detail the advice of the management, key points of the speeches of the directors present at the meeting, opinions of independent directors, voting results of the Board, etc. and form written minutes to be properly kept as the Company’s records. When the specific plan on profit distribution is considered at the General Meeting, the Company shall take the initiative to communicate and exchange ideas through multiple channels with shareholders (minority shareholders in particular), effectively protect the rights of the public shareholders to attend the General Meeting, sufficiently listen to the opinions and demands of the minority shareholders, and give timely replies to issues that the minority shareholders concern about. If the Company makes a profit for the year, but the Board does not propose a profit distribution plan in cash, the Company shall explain the reasons and independent directors shall express independent views on the profit distribution plan and timely disclose them. Upon considered and approved by the Board, such plan shall be submitted to the General Meeting for consideration by way of on-site voting and online voting and the Board shall provide explanation on it at the General Meeting.

Conditions, decision-making procedures and mechanism regarding the adjustment made to the profit distribution policy

Should the Company need to adjust the profit distribution policy due to the material changes in the external operating environment or its operating status, the Company shall be focus on protection of the interests of the shareholders, and elaborate and explain the reasons in details. The adjusted profit distribution policy shall not be in violation of the relevant provisions of the CSRC, stock exchanges and the Articles of Association. The proposal regarding the adjustment made to the profit distribution policy shall be formulated by the Board. Independent directors shall express their independent opinions regarding the adjustment made to the profit distribution policy. Upon considered and approved by the Board, such proposal shall be submitted to the General Meeting for consideration and approval. The supervisory committee of the Company shall consider such proposal of the adjusted profit distribution policy formulated by the Board and sufficiently listen to the opinions of such external supervisors who do not hold any positions in the Company. Such proposal shall be passed and approved by voting by more than half of all the supervisors of the supervisory committee. When the proposal of the adjusted profit distribution policy is considered at the General Meeting, the Company shall sufficiently listen to the opinions of the public shareholders. In addition to setting up on-site voting at the meeting, online voting system shall be provided to shareholders. The passing and approval of such proposal shall require more than two-thirds of the effective votes made by the shareholders attending the General Meeting.

— I-48 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

4. Implementation of the profit distribution policy

The Board must complete the distribution of dividends (in cash or in the form of shares) within two months after the resolution approving the relevant profit distribution plan has been passed at the General Meeting.

The Company shall disclose the formulation and implementation of the cash dividend policy in details in the periodic report. If the Company records a profit for the year, but the Board does not make a cash dividend proposal, the Board shall in detail explain in the annual report for such year the reasons for not distributing cash dividends, the purpose and use plan of the retained fund not being used for cash dividends distribution. Should there be any misappropriation of the Company’s funds by the shareholders, the Company shall deduct the cash dividend distributed to such shareholder for making up such fund being misappropriated.

(IV) Decision-making mechanism of the plan

Based on the Company’s profitability, business development plan, shareholders’ return, social funding cost and external financing environment, the Board proposes the shareholders’ return plan of the Company at the General Meeting pursuant to the provisions of Articles of Association. When the proposal for the shareholders’ return plan is considered at the General Meeting, the Company shall take the initiative to communicate and exchange ideas through multiple channels with shareholders (minority shareholders in particular), sufficiently listen to the opinions and demands of the minority shareholders. Such proposal shall be passed by more than two-thirds of the effective votes holding by the shareholders (including authorized proxies) attending the General Meeting.

(V) Adjustment cycle and decision-making mechanism of the plan

1. Adjustment to the plan

The Company shall review the shareholders’ return plan of the Company for the next three years based on a three-year cycle. The Company shall, on the basis of summarizing the implementation of the shareholders’ return plan of the Company over the past three years, take full account of the factors set out in Article I of the plan as well as the opinions of shareholders (minority shareholders in particular), independent directors and supervisors, to determine whether the profit distribution policy and the shareholders’ return plan for the next three years of the Company need to be adjusted or not.

If the shareholders’ return plan shall be adjusted due to the material changes in the external operating environment of the Company or the influence of the current specific plan on the shareholders’ return on the sustainable operation of the Company, the Company may re-establish the shareholders’ return plan for the next three years according to the basic principles set out in Article II of the plan.

2. Decision-making mechanism regarding the adjustment to the plan

The adjustment made by the Company to the shareholders ’return plan shall be submitted by the Board to the General Meeting, and shall go through relevant procedures as required by the provisions of article IV of the plan.

— I-49 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

SECTION VI ANALYSIS ON DILUTION OF CURRENT RETURNS ARISING FROM THE NON-PUBLIC ISSUANCE AND REMEDIAL MEASURES

Pursuant to the relevant requirements of the Opinions of the General Office of the State Council on Further Strengthening the Protection of Small and Medium Investors’ Legitimate Interests in Capital Market (Guo Ban Fa [2013] No. 110) 《國務院辦公廳關於進一步加強資本市場中小投資者合( 法權益保護工作的意見》), the Several Opinions of the State Council on Further Promoting the Healthy Development of Capital Market (Guo Fa [2014] No. 17) 《國務院關於進一步促進資本市場( 健康發展的若干意見》) and Guiding Opinions on Matters Relating to the Dilution of Current Returns as a Result of Initial Public Offering, Refinancing and Major Asset Restructuring (CSRC Announcement [2015] No. 31) 《關於首發及再融資、重大資產重組攤薄即期回報有關事項的指導意( 見》), in order to protect the interests of the small and medium investors, the Company has conducted an analysis on the impact of the Non-Public Issuance on dilution of current returns and introduced detailed remedial measures, and relevant entities have also made commitments to fulfill the remedial measures of the Company. The particulars are as follows:

I. Impact of Dilution of Current Returns Arising from the Non-public Issuance on the Key Financial Indicators of the Company
(I) Assumptions made in estimating the impact of dilution of current returns arising from the Issuance on the key financial indicators of the Company
Assuming that the Non-public Issuance will be completed by the end of November 2017, which is an estimate only, and the actual time of completion of the Issuance will be subject to the approval by the CSRC;
Assuming that the issue price of the Non-Public Issuance will be RMB6.81 per share, which is no less than the audited net assets per share of the Listed Company as at the end of 2016, the proceeds raised from the Non-public Issuance of A Shares are RMB5.4 billion (without taking into consideration of the impacts of deducting the cost of the Issuance);
Assuming that based on the total proceeds raised from the Issuance of RMB5.4 billion and the low-end issue price of RMB6.81 per share, the number of shares to be issued under the Non-public Issuance is not more than 792,951,541 (including 792,951,541), and the final shares to be issued is subject to the number of shares approved by the CSRC;
Assuming that there is no material changes in the macro-economic environment, the industry policy and the industry development, etc.;

— I-50 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

Assuming that the impacts of using the proceeds from the Issuance on production and operation and financial positions (such as finance costs and investment income) of the Company are not to be taken into consideration;
Assuming that when predicting the Company’s total share capital, on the basis that the total share capital prior to the Non-public Issuance is 4,032,032,861 shares, only the impacts of the Non-public Issuance of A Shares will be taken into consideration, regardless of other factors causing changes in share capital;
Assuming that the Company’s net profit attributable to shareholders of the parent in 2017 increased by 10% over the previous year, the Company will realize a net profit attributable to shareholders of the parent of RMB2,114,763,993.56 (RMB1,030,638,558.04 after deduction of non-recurring gains or losses) in 2017; assuming that the Company’s net profit attributable to shareholders of the parent in 2017 decreased by 10% over the previous year, the Company will realize a net profit attributable to shareholders of the parent of RMB1,730,261,449.28 (RMB843,249,729.30 after deduction of non-recurring gains or losses) in 2017; assuming that the Company’s net profit attributable to shareholders of the parent in 2017 is almost equal to that in 2016, the Company will realize a net profit attributable to shareholders of the parent of RMB1,922,512,721.42 (RMB936,944,143.67 after deduction of non-recurring gains or losses) in 2017;
Assuming that the Company has implemented the profit distribution plan for 2016 in June 2017, that is, taking the total share capital on 31 December 2016 as its base, the Company distributed cash dividends of RMB0.19 (tax inclusive) for each ordinary share to all shareholders with the total cash dividend distributed of RMB766,086,243.59 (tax inclusive).

The above assumptions are made for estimation purposes only, and do not constitute a commitment, profit forecast and performance commitment. Investors should not make investment decisions in reliance thereon. The Company will not be held liable for any loss arising from investment decisions made by an investor based on such assumptions.

The following analysis is the regulatory requirement of the CSRC that a listed company in the PRC, whose current returns will be diluted as a result of its financing exercise, shall undertake and fulfill specific remedial measures against the diluted returns, and the directors of the listed company shall conduct a sensitivity analysis on how such financing exercise will dilute its current returns and make relevant disclosures in the issuance proposal. Therefore, in accordance with such regulatory requirement, the Company conducted a sensitivity analysis on the impact of the dilution on current returns by the non-public issuance of shares on the major financial indicators of the Company.

Investors should be aware that the following analysis should not be read as profit forecasts of the Company.

Warning Statement: Investors and shareholders of the Company are not advised to make investment decisions according to the following analysis.

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APPENDIX I PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

(II) Analysis on the impact of dilution of current returns arising from the Issuance on the key financial indicators of the Company

Based on the foregoing assumptions, the impact of dilution of current returns arising from the Issuance on the key financial indicators of the Company is analyzed as follows:

													2017-12-31/Year 2017	2017-12-31/Year 2017	2017-12-31/Year 2017	2017-12-31/Year 2017
						2016-12-31/			Prior			to the		After the
Item							Year 2016				Issuance			Issuance
Weighted average number	of ordinary
shares (10,000 shares)							403,203.29				403,203.29			409,811.22
Scenario 1: the net profit		attributable to owners						of the	parent	(net of non-recurring gains
or losses) in 2017 decreased by 10% year-on year.
Net profit attributable to the parent
(RMB10,000)							192,251.27				173,026.14			173,026.14
Net profit attributable to the parent,
net of non-recurring gains or			losses
(RMB10,000)							93,694.41				84,324.97			84,324.97
Equity attributable to owners of the
parent at end of the period
(RMB10,000)				2,741,308.95					2,789,517.71 2,834,517.71
Basic earnings per share (RMB			per
share)								0.48					0.43			0.42
Diluted earnings per share		(RMB per
share)								0.48					0.43			0.42
Weighted average return on net			assets					6.53%				6.20%			6.10%
Basic earnings per share, net of
non-recurring gains or losses			(RMB
per share)								0.23					0.21			0.21
Diluted earnings per share, net			of
non-recurring gains or losses			(RMB
per share)								0.23					0.21			0.21
Weighted average return on net			assets,
net of non-recurring gains or			losses					3.18%				3.02%			2.97%
Scenario 2: the net profit		attributable to owners						of the	parent	(net of non-recurring gains
or losses) in 2017 is almost			equal to that		in 2016.
Net profit attributable to the parent
(RMB10,000)							192,251.27				192,251.27			192,251.27
Net profit attributable to the parent,
net of non-recurring gains or			losses
(RMB10,000)							93,694.41				93,694.41			93,694.41
Equity attributable to owners of the
parent at end of the period
(RMB10,000)				2,741,308.95					2,799,130.27 2,844,130.27

— I-52 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

					2017-12-31/Year 2017	2017-12-31/Year 2017	2017-12-31/Year 2017
			2016-12-31/	Prior to the		After the
Item			Year 2016	Issuance		Issuance
Basic earnings per share (RMB per
share)			0.48		0.48		0.47
Diluted earnings per share (RMB	per
share)			0.48		0.48		0.47
Weighted average return on net assets			6.53%	6.87%		6.76%
Basic earnings per share, net of
non-recurring gains or losses (RMB
per share)			0.23		0.23		0.23
Diluted earnings per share, net of
non-recurring gains or losses (RMB
per share)			0.23		0.23		0.23
Weighted average return on net assets,
net of non-recurring gains or losses			3.18%	3.35%		3.29%
Scenario 3: the net profit attributable to owners of the parent (net of non-recurring gains
or losses) in 2017 increased by 10% year-on year.
Net profit attributable to the parent
(RMB10,000)			192,251.27	211,476.40		211,476.40
Net profit attributable to the parent,
net of non-recurring gains or losses
(RMB10,000)			93,694.41	103,063.86		103,063.86
Equity attributable to owners of the
parent at end of the period
(RMB10,000)		2,741,308.95		2,808,742.83		2,853,742.83
Basic earnings per share (RMB per
share)			0.48		0.52		0.52
Diluted earnings per share (RMB	per
share)			0.48		0.52		0.52
Weighted average return on net assets			6.53%	7.53%		7.41%
Basic earnings per share, net of
non-recurring gains or losses (RMB
per share)			0.23		0.26		0.25
Diluted earnings per share, net of
non-recurring gains or losses (RMB
per share)			0.23		0.26		0.25
Weighted average return on net assets,
net of non-recurring gains or losses			3.18%	3.67%		3.61%

— I-53 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

Note:

Basic earnings per share prior to the Issuance = net profit attributable to the holders of the ordinary shares of the Company for the current period � total share capital prior to the Issuance;
Basic earnings per share after the Issuance = net profit attributable to the holders of the ordinary shares of the Company for the current period � (total share capital prior to the Issuance + number of new shares to be issued under the Issuance � number of months from the month following the issuance month to the end of the year �12);
Weighted average return on net assets prior to the Issuance = net profit attributable to holders of the ordinary shares of the Company for the current period � (opening net assets attributable to the holders of the ordinary shares of the Company + net profit attributable to the holders of the ordinary shares of the Company for the current period � 2 — cash dividend for the current period x number of months from the month following the dividend distribution month to the end of the year �12);
Weighted average return on net assets after the Issuance = net profit attributable to holders of the ordinary shares of the Company for the current period � (opening net assets attributable to the holders of the ordinary shares of the Company + net profit attributable to the holders of the ordinary shares of the Company for the current period � 2 — cash dividend for the current period x number of months from the month following the dividend distribution month to the end of the year �12+ total proceeds raised from the Issuance x number of months from the month following the issuance month to the end of the year �12).

According to the above calculation, after the completion of the Non-public Issuance, the Company’s basic earnings per share, diluted earnings per share and weighted average return of net assets for the current period will have a certain degree of dilution.

II. Special Risk Warning for Diluted Immediate Return on the Issuance

After the proceeds from the Non-public Issuance is in place, the Company’s total equity and net assets will increase accordingly. Within a short term after the proceeds from the issuance is in place, the growth rate of the Company’s net profits may be lower than the growth rate of the net assets and the total equity; the earnings per share and weighted average return of net assets and other financial indicators may decline to a certain extent; the immediate return of shareholders has the risk of being diluted.

Investors are hereby reminded of the risk of diluted immediate return from the Non-public Issuance.

III. Description by the Board on Necessity and Rationality of the Non-public Issuance

(I) To help to expand the shipping capacity at low cost and build the world’s leading oil tanker fleet

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APPENDIX I PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

has been upgraded to a national strategy, which has accelerated the development of energy transportation industry in China. New requirements for business development of the Company have been put forward due to various factors such as economic environment and national will, which also create new opportunities.

With the increasingly fierce competition between ship owners and increasingly frequent merger, acquisition and reorganization activities, the vessels of each ship owner are gradually becoming large-scale, and the shipping capacity advantage of COSCO SHIP ENGY in large oil tanker is not obvious. It is predicted that the current international cost of oil tanker is historically relatively low as affected by factors such as market supply and demand. Through the investment project, COSCO SHIP ENGY is expected to build the world’s leading oil tanker fleet at low cost and widen the distance of shipping capacity and average age with competitors, to achieve the diversification of ship type and enhance the competitiveness and profitability of the Company’s market segment.

(II) To improve the cash flow situation and enhance shareholder return of investment

After the completion of the Non-public Issuance, it is expected that the use of newly built and acquired vessels by proceeds will gradually exert good benefit, promote the Company’s steady growth in operating income and improve the profitability level. After the completion of this investment project, the Company’s scale of shipping capacity will be further enhanced and the benefits will be further improved. At the same time, the investment project has good prospects for development and economic assessment. In the long run, the investment project is expected to increase the Company’s operating income, help improve the Company’s cash flow, provide support to the Company’s performance, whereby profitability and returns to the shareholder are expected to be further strengthened.

(III) To reduce asset-liability ratio and optimize asset structure

The proceeds from the Non-public Issuance of Shares can solve the problem of project funding requirements, by which the Company can also reduce asset-liability ratio, increase net assets and decrease financial expenses, to lay a sound foundation for future capital operation.

IV. Relationship between the Investment Projects through Non-public Issuance and the Company’s Existing Businesses and Reserves on Talent, Technology and Market Resources for the Investment Projects
(I) Relationship between the investment projects and the Company’s existing business

— I-55 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

types and two Panamanian oil tankers (72,000-tonne class).using the proceeds. The implementation of investment projects will further expand the scale of shipping capacity of the Company, consolidate the leading position of the Company, optimize the ship structure and age structure of the Company and enhance the market competitiveness and operating efficiency of the Company.

(II) Reserves on the Company’s talent, technology and market resources for the investment projects
Human resources reserve

The Company attaches importance to the development of talent, and actively promotes the talent strategy. It currently has a crew team with appropriate number of staff, reliable quality, excellent work style and high reputation in the industry which can satisfy the fleet needs of the Company, as well as a talent team on land with high comprehensive quality, reasonable personnel structure and great development potential that adapts to the development requirements of the Company. The Company will continue to strengthen the construction of talent team, and strive to form a sound talent development environment of “talents coming forward in succession, giving full scope to the talents and making the best use of talent”.

Technical reserve

The Company has the world’s leading oil tanker fleet. It reasonably selects the type, number and time for construction of new vessels by formulating the development plan of shipping capacity scientifically. The ship type and age structure of the Company’s fleet continue to optimize, with the oil tanker fleet covering the world’s major oil tanker types. After years of exploration and practice and under the baptism of competition, the Company also occupies the leading position in the world on route planning and safety management, which greatly enhances the market competitiveness.

3. Market reserve

The major customers of the Company’s oil transportation business are large domestic and foreign enterprises, such as the domestic three major oil companies including Sinopec, CNOOC and CNPC, and the well-known global oil companies including Exxon Mobil, BP, Vitol Group, Glencore International and Trafigura. The Company has established a solid business partnership with customers by providing them with high-quality transportation services. The high-quality and stable customer resources are the cornerstone for the Company’s steady development in the future.

V. Make-up Measures for the Diluted Immediate Returns of the Non-public Issuance from the Company

— I-56 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

development and make up the shareholders return through strictly implementing the proceeds management system, actively improving the using efficiency of proceeds, accelerating the Company’s main business development, improving the Company’s profitability, constantly improving the profit distribution policy, and enhancing the investor return mechanism. The measures are as follow:

1. To orderly promote the existing business, capture development trend of the industry, and actively respond to risk factors

The Company’s existing business are operating normally and it will continue to enhance its own advantages in the oil and LNG transportation market. In 2017, the delivery of tanker transportation capacity reached a cycle peak, and the international oil transport market competition will be more intense. However, the forthcoming implementation of the Ballast Water Treatment Convention during the year may lead to the temporary withdrawal of some of the transportation capacity from the market. To a further extent, this may lead to the result that the U.S. shale oil and gas revolution will promote the formation of the new pattern of oil and gas resources from the East and the West. The international crude oil market will form the two major export centres of North America and the Middle East. Asian countries such as China and India will experience rapid growth in energy consumption. Asia will become the focus of global energy trade. The adjustment of the global oil and gas trade and transport pattern has provided an opportunity for the Company to optimize the cargo source structure, the route structure and the customer mix.

In the face of a complex market environment, the Company will adhere to the “strategic leadership and innovation drive” and “maintenance of global leading position in fleet size, industrial leading position in business structure, global leading position in safety marketing and business model” strategies, strengthen the integration of thought, work and emotion between each segment and department, support and cooperate with each other, complement on each other, create a new situation of deep integration, give full play to the effect of scale and synergy, so as to enhance the risk resistant ability, sustainable development ability and core competitiveness of the Company.

2. To strengthen the management of proceeds and ensure the efficient use of proceeds

The Company has formulated Proceeds Management System to standardize the use the proceeds in accordance with the provisions of the Company Law, Securities Law, Administrative Measures on the Proceeds of the Listed Companies of Shanghai Stock Exchange, normative documents, as well as the Articles of Association. According to the Proceeds Management System and the Resolution of the Company’s Board, the proceeds from the issuance will be deposited in a special account for proceeds from the issuance designated by the Board; a three-party supervision system shall be established to make the sponsor institutions, depository banks, and the Company jointly supervise the proceeds. The proceeds shall be used according to the committed purpose and amount. After the capital raised by the Non-public Issuance is in place, the Company will actively cooperate with the sponsor to inspect and supervise the use of proceeds, so as to ensure the reasonable and standardized use of proceeds, and reasonably prevent the risks.

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APPENDIX I PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

3. To accelerate the implementation of investment projects of the Company to realise the expected return as soon as possible

The investment project funded by the proceeds raised from the Non-public Issuance is in line with national policy relevant to the industry and industry development trends, has good economic benefits and is of great significance in enhancing the Company’s core competitiveness and reducing the financial risk. After receiving the proceeds from the Non-public Issuance, the Company will speed up the implementation of business development strategy and enhance the utilization rate of proceeds to realise the expected return as soon as possible

4. To strictly implement the cash dividend policy and give investors a reasonable return

The Company has revised the Articles of Association and the profit distribution policy for the next three years, clarified the conditions of the Company’s profit distribution, improved the decision-making procedures and mechanisms of the Company’s profit distribution as well as the adjustment principle of the profit distribution policy, and strengthened the protection mechanism of the minority investors’ rights and interests in accordance with the requirements of Notice on Further Implementing Relevant Matters Concerning Cash Dividends of Listed Companies, Regulatory Guidelines for Listed Companies No.3 — Cash dividends of listed Companies and other relevant laws, regulations and regulatory documents. After the completion of the Non-public Issuance, the Company will strictly implement the current dividend policy, and strive to improve the returns of the shareholders.

5. To improve corporate governance continuously to provide systematic protection for the development of the Company

The Company will strictly comply with the requirements of laws, regulations and normative documents including the Company Law, the Securities Law and the Governance Standards of Listed Companies to improve the corporate governance structure continuously, to ensure that the shareholders will be able to exercise their rights sufficiently, to ensure that the Board will exercise its powers and make decisions scientifically, reasonably and prudently in accordance with the requirements of laws, regulations and Articles of Association, to ensure that independent directors will perform their duties conscientiously to safeguard the overall interest of the Company, in particular the lawful interests of minority shareholders, to ensure that the supervisory committee will be able to exercise independently and effectively the rights of supervision and inspection over the directors, senior management and financial conditions of the Company to provide systematic protection for the development of the Company.

— I-58 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

VI. Undertakings with Regards to the Remedial Measures for Dilution on Current Returns by the Non-public Issuance of the Company

To ensure that the remedial measures for dilution of current returns by the Proposed Non-public Issuance of A Shares of the Company are implemented, and to protect the legitimate interests of the Company and all its shareholders, each of the directors, senior management of the Company, China Shipping and COSCO shipping Group have issued their respective Letters of Undertaking Regarding Effective Implementation of Measures aiming at Remedying Diluted Current Returns Through the Non-public Issuance of Shares of COSCO SHIPPING Energy Transportation Co., Ltd. in accordance with the requirements of the applicable laws, regulations and regulatory documents including the Several Opinions of the State Council on Further Promoting the Healthy Development of the Capital Market (Guo Fa [2014] No. 17) 《國務院關於進一步促進資本市場健康發展的若干意見》( ) and the Opinions of the General Office of the State Council on Further Strengthening the Protection of Small and Medium Investors’ Legitimate Interests in the Capital Markets (Guo Ban Fa [2013] No. 110) 《國( 務院辦公廳關於進一步加強資本市場中小投資者合法權益保護工作的意見》) and the Guiding Opinions on Matters Relating to the Dilution of Current Returns as a Result of Initial Public Offering, Refinancing and Major Asset Restructuring (CSRC Announcement [2015] No. 31) 《關於首發及再融( 資、重大資產重組攤薄即期回報有關事項的指導意見》). Details of such undertakings are set out as follows:

(I) Undertakings by the Directors and Senior Management of the Company

According to the Letter of Undertakings Regarding Directors and Senior Management’s Commitment to Ensure the Implementation of the Non-public Issuance of Shares by COSCO SHIPPING Energy Transportation Co., Ltd. to Cover the Dilution of Current Returns issued by the Directors and senior management of the Company, the Directors and senior management of the Company have made the following undertakings:

“1. I hereby undertake not to transfer benefits to other entities or individuals with no consideration or under unfair terms, and shall not damage the Company’s interests in any other ways.
I hereby undertake to constrain the consumption behavior in relation to my work duty.
I hereby undertake not to use the Company’s assets for investments or consumption activities that are unrelated to the engagement and performance of my work duties.
I hereby undertake that the remuneration system formulated by the board of directors or the remuneration committee will be linked with the implementation of the Company’s remedial measures in relation to the returns of the Company.
I hereby undertake that the vesting conditions for the proposed share incentive scheme (if any) of the Company will be linked with the implementation of the Company’s remedial measures in relation to returns of the Company.

— I-59 —

APPENDIX I

PROPOSAL IN RESPECT OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

From the date of making these undertakings until completion of the Proposed Non-public Issuance of A Shares, I undertake to make supplemental undertakings in accordance with the latest regulations imposed by the CSRC, which renders the aforementioned undertakings that are inadequate to satisfy such regulatory requirements.
I hereby undertake to perform these undertakings. If I violate these undertakings and cause losses to the Company or the investors, I shall be liable to indemnify the Company or the investors for their losses in accordance with the law.”

(II) Undertakings by China Shipping

As the controlling shareholder of COSCO SHIP ENGY, China Shipping has issued the Letter of Undertakings Regarding China Shipping (Group) Company’s Commitment to Ensure the Implementation of the Non-public Issuance of Shares by COSCO SHIPPING Energy Transportation Co., Ltd. to Cover the Dilution of Current Returns and has made the following undertakings:

“The Company shall continue to ensure the independence of the Listed Company, and shall not go beyond its power to interfere with the operation management activities of the Listed Company and shall not encroach upon the interests of the Listed Company.

The Company hereby undertakes to perform these undertakings. If the Company violates such undertakings and causes losses to the Listed Company or to the investors, the Company shall be liable to indemnify the Listed Company or the investors for their losses in accordance with the law.”

(III) Undertakings by COSCO Shipping

As the controlling shareholder of COSCO SHIP ENGY and the sole shareholder of China Shipping, COSCO Shipping has issued the Letter of Undertakings Regarding China COSCO Shipping Corporation Limited’s Commitment to Ensure the Implementation of the Non-public Issuance of Shares by COSCO SHIPPING Energy Transportation Co., Ltd. to Cover the Dilution of Current Returns and has made the following undertakings:

(There is no text in this page which requires to be redacted for the Proposal for the Non-public Issuance of A Shares of COSCO SHIPPING Energy Transportation Co., Ltd.)

— I-60 —

APPENDIX II FEASIBILITY REPORT ON THE USE OF PROCEEDS FROM THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

Definitions

In this report, unless the context requires otherwise, the following expressions have the following meanings:

Company/ COSCO SHIP ENGY/	—	COSCO SHIPPING Energy Transportation Co., Ltd.,
Issuer/ Listed Company		formerly known as “COSCO SHIPPING Development
		Co., Ltd.”
Non-public Issuance of A Shares/	—	Issuance of A shares to specific subscribers by COSCO
Non-public Issuance/Issuance		SHIP ENGY through the non-public issuance
Report	—	the Feasibility Report on the Use of Proceeds from the
		Proposed Non-Public Issuance of A Shares of COSCO
		SHIPPING Energy Transportation Co., Ltd.
VLCC	—	very large crude carriers, an oiltanker with a capacity of
		200,000 DWT to 320,000 DWT
SUEZMAX oil tanker	—	SUEZMAX, anoiltanker with a capacity of 120,000
		DWT to 200,000 DWT
AFRAMAX oil tanker	—	AFRAMAX, anoiltanker with a capacity of 80,000 DWT
		to 120,000 DWT
PANAMAX oil tanker	—	PANAMAX, an oil tanker with a capacity of 60,000
		DWT to 80,000 DWT
BP	—	one of the world’s largest oil and petrochemical
		conglomerate
Clarksons	—	a leading international integrated shipping service
		provider
RMB, RMB10,000 and RMB100	—	Renminbi 1 Yuan, Renminbi 10,000 Yuan, Renminbi
million		100million Yuan, respectively

Note: In the Report, any discrepancies in any tables between totals and sums of amounts listed are due to rounding.

— II-1 —

APPENDIX II FEASIBILITY REPORT ON THE USE OF PROCEEDS FROM THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

I. Plan on the Use of Proceeds Raised in the Issuance

Unit: RMB10,000

				The amount
		Total	The amount of	of proceeds to
		investment in	proceeds used	be used in the
No.	Project name	the projects1	in the projects	projects2
1	acquisition of 14 oil tankers	581,068	—	498,747
	completion of acquisition of two
2	Panamax oil tankers (72,000-tonne class)	69,963	20,873	41,253
Total		651,031	20,873	540,000

Note 1: the total investment of above projects amounted to US$ 972,030,000, equivalent to RMB6,510,310,000 (the exchange rate of US dollar against RMB for acquisition of 14 oil tankers projects was calculated on the basis of US$ 1 = RMB6.70 as agreed in the contracts; the exchange rate of US dollar against RMB for acquisition of two Panamax oil tanker (72,000-tonne class)project was calculated on the basis of US$ 1 = RMB6.6778, the middle rate as at 30 September 2017);

Note 2: the amount of proceeds to be used in the projects is the total proceeds to be raised before deducting the cost of Issuance.

— II-2 —

APPENDIX II FEASIBILITY REPORT ON THE USE OF PROCEEDS FROM THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

II. ANALYSIS OF THE FEASIBILITY OF THE PROCEEDS

(I) Basic information of the project

1. Acquisition of 14 oil tankers

The total price of above 14 oil tankers was RMB5,810,680,000.

2. Completion of Acquisition of two Panamax oil tankers (72,000-tonne class)

On 24 June 2015, COSCO Group issued the “Reply on Acquisition of Three VLCC and Five Product Oil Tankers (72,000-tonne class) by Dalian Ocean Shipping Company Limited” (COSCO Zhanfa [2015] No.178) (《關於大遠公司訂造3艘VLCC和5艘7.2萬噸成品油輪的批復》（中遠戰發 [2015] 178號）), agreed that the Company acquires two Panamax oil tankers (72,000-tonne class) from China Shipbuilding Industry Group Co., Ltd. (中國船舶重工集團有限公司) at the total agreed price of US $ 104,770,000.

(II) Analysis on the Necessity of the Proceeds Raised in the Issuance

1. Respond to the building of national “maritime power” strategy, capture the strategic opportunities of business development

In 2014, the State Council issued the Certain Opinions Concerning the Promotion of the Healthy Development of Marine Industry 《關於促進海運業健康發展的若干意見》( )and the Ministry of Transport issued the Plan for Implementation of the Certain Opinions of the State Council Concerning the Promotion of the Healthy Development of Marine Industry 《貫徹落實( <國務院關於促進海運業健康發展的若干意見>的實施方案》), which signify that building “maritime power” has formally become a national strategy and explicitly state some key tasks such as “to optimize of the structure of maritime fleet”, “to improve the global maritime network” and “to promote the transformation and upgrading of shipping enterprises”. During the “Thirteen-five” period, the Ministry of Transport issued the “Thirteen-five” Development Plan for Water Transportation 《水運( “十三五”發展規劃》), further states that “to improve the carrier support capacity for crude oil and other key materials”. Energy transport is an important component of the maritime industry, the building of national “maritime power” strategy requires China to speed up the development of energy transport.

— II-3 —

APPENDIX II FEASIBILITY REPORT ON THE USE OF PROCEEDS FROM THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

With the major market for global economic growth transferring from western countries to eastern countries, the major market for global energy consumption transfers the same way. According to the BP World Energy Outlook 2017 《( BP世界能源展望2017年版》) published by BP, the conventional major market for energy demand has been replacing by emerging market and China will be the largest growth market for energy. According to the forecast in the 2016 Report on Development in the Foreign and Domestic Oil & Gas Industries 《( 2016年國內外油氣行業發展報告》) published by the CNPC Economics & Technology Research Institute in January 2017, China’s reliance on foreign supplies of oil will reach new high of 65%. In light of the increasing energy consumption in China, petrochemical enterprises in the country will follow the state’s “One Belt and One Road” construction by proactively engaging in the exploration and development of oil and gas in foreign countries to promote our global presence. Under the state’s “Going Out” strategy for energy and the strategic deployment of “State Oil, State Transport” (國油國運), strategic opportunities will arise for the energy shipping industry.

Domestic imported crude oil usage rights and crude oil import rights have been expanded, which has stimulated purchase demand for imported crude oil

As a strategic resource, oil is critical for our economic growth. The orderly expansion of imported crude oil usage rights and crude oil import rights will promote the competing integration of domestic petroleum and petrochemical industries, facilitate domestic overall refining efficiency and reduce refining costs. In this regard, in 2015, the National Development and Reform Commission issued the Notice on Issues related to the Management of Imported Crude Oil Usage Rights of the National Development and Reform Commission 《國家發展改革委關於進口原油使用管理有關問題( 的通知》), permitting eligible local refineries to use imported crude oil. According to the notice of the Ministry of Commerce, from 2015 to 2017, the permitted quota of crude oil for non-state-owned trading are 37,600,000 tons, 87,600,000 tons and 87,600,000 tons, respectively.

Expand and upgrade the scale of the fleet to maintain the leading shipping capacity in the world

As of 30 September 2017, the Company has 130 owned, charted-in and ordered oil tankers, with a shipping capacity of 20,268,200 DWT. According to the statistics of Clarksons on the shipping capacity of other ship owners in the world, the Company ranks first in terms of shipping capacity. However, in light of the significant scale effect of shipping industry, increasing market competition and frequent merger and restructuring among enterprises, each energy shipping enterprise will develop into large scale. Currently, although the Company maintains leading position in its total shipping capacity, it does not have clear advantage in large oil tankers such as VLCC. Therefore, the Company will proactively expand and upgrade the scale of its fleet to strengthen its competitivity and sharp its completive advantages.

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APPENDIX II FEASIBILITY REPORT ON THE USE OF PROCEEDS FROM THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

4. Optimize the age composition of the fleet to reduce the Company’s operating costs

5. Diversify and scientize vessel models to improve the Company’s competitivity in niche markets

(1) According to the forecast of Clarksons, as impacted by the relatively rapid economic growth in emerging countries, the decrease in demand for imported crude oil in the United States, the gradual increase of China’s reliance on imported crude oil and other factors, the portion of crude oil through long distance transportation to China and Japan will increase and the shipping demand for VLCC will remain moderate growth in the future.
(2) The major routes of Suez oil tankers represent the routes from West Africa to Continental Europe, from the Black Sea to Mediterranean and from Caribbean to Baia Hermosa. Aframax oil tankers mainly serve in regional short-distance transportation of crude oil. Impacted by comprehensive factors such as the increase in trading volume of energy between Middle East and India, the upgrade and expansion of Panama Canal and the development of new routes between Vostochniy Port and China, the shipping demand for Suez oil tankers and Aframax oil tankers will remain moderate growth in the future.

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APPENDIX II FEASIBILITY REPORT ON THE USE OF PROCEEDS FROM THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

(3) The demand and supply of the shipping capacity of the transportation market for domestic trading of crude oil is stable and balanced. In the market, the shipping capacity is satisfied by general models with less large shallow-draft vessels that meet particular requirements. As a result, some personalized transportation requirements from customers are not satisfied. In particular, with the production increase in refineries and the changes in oil sources, demand for shallow-draft vessels with large capacity that can traffic in rivers and berth in small wharf arises in the market and there is a structural shortfall for the supply of shipping capacity of new shallow-draft Panamax oil tankers.

(III) Analysis on the Feasibility of the Proceeds Raised in the Issuance

1. The state’s policies support the building of modern energy shipping fleet

In November 2015, the Ministry of Finance issued the Administrative Measures on Subsidies for the Retirement and Disassembling of Vessels and the Standardization of Vessel Models 《船舶報廢拆( 解和船型標準化補助資金管理辦法》) to accelerate the structural adjustment and promote the transformation and upgrade for our shipbuilding industry and shipping industry by encouraging the elimination of obsolete sea crafts, inland crafts and fishing crafts and guiding the building or rebuilding of energy-efficient demonstration vessel.

Relevant national strategies and specific supporting measures provide strong policy support for this investment project.

— II-6 —

APPENDIX II FEASIBILITY REPORT ON THE USE OF PROCEEDS FROM THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

The development of emerging market countries continue to drive global energy demand growth

According to the forecast of BP World Energy Outlook 2017 《( BP世界能源展望2017年版》), the growth rate of global energy consumption is expected to be 1.3% between 2015 and 2035, and almost all new energy demand comes from the fast-growing emerging economies, with China and India increasing More than half, while China will be the largest energy growth market. The growth of global energy consumption has led to the demand for energy shipping market. With the adjustment of energy consumption regional structure from western countries to eastern countries, the demand for energy shipping market will further be increased, which will provide good development opportunities for the Company.

Shipbuilding prices are relatively low in history, which is conducive to low-cost expansion of capacity

The profile of new ship contract prices for each type of oil tankers between 2008 and 2017

Unit: US$ in million

==> picture [325 x 153] intentionally omitted <==

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

180
150
120
90
60
30
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Aframax Suezmax VLCC Panamax
----- End of picture text -----

Source: Clarksons

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APPENDIX II FEASIBILITY REPORT ON THE USE OF PROCEEDS FROM THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

4. The Company has competitive strengths and infrastructure required for fleet expansion

5. Improving capital structure to reduce debt-to-asset ratio

Energy transportation industry is a high-investment and capital intensive industry, it is also a strong cyclical industry, thus it is exposed to greater risk relating to macroeconomic volatility. As at the end of 2014, 2015, 2016 and 30 June 2017, the consolidated debt-to-asset ratio of the Company is 65.56%,61.21%,52.74% and54.82%, respectively. As compared with listed companies of A shares in the industry, the debt-to-asset ratio of the Company is at the higher level, therefore, the Company is exposed to higher financial risk and in a disadvantageous position in market competition.

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APPENDIX II FEASIBILITY REPORT ON THE USE OF PROCEEDS FROM THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

Debt-To-Asset Ratios of Comparable Companies in The Industry in 2014- June 2017

			Debt-to-asset ratio	Debt-to-asset ratio
		As at	As at 31	As at 31	As at 31
		30 June	December	December	December
Stock code	Stock short name	2017	2016	2015	2014
600026.SH	COSCO SHIP ENGY	54.82	52.74	61.21	65.56
600428.SH	COSCOL	56.00	55.76	62.42	63.08
600798.SH	Ningbo Marine	48.25	49.65	50.50	62.60
	China Merchants Energy
601872.SH	Shipping	49.71	45.69	41.55	51.95
601919.SH	COSCO SHIPPING Holdings	66.52	68.62	69.68	71.13
	Chang Jiang Shipping Group
000520.SH	Phoenix	46.47	49.63	50.10	75.31
	Average	53.63	53.68	55.91	64.94
	Median	52.26	51.20	55.86	64.32

Source: Wind

The Issuance can significantly increase the net assets of the Company and effectively improve its capital structure. According to the Company’s financial information of the first half of 2017, the consolidated debt-to-asset ratio of the Company will be reduced to 50.32% after the completion of the Issuance, which will effectively reduce the Company’s financial risks, enhance the Company’s ability to continue as going concern and competitiveness in the industry.

(IV) Economic benefit of projects

1. Acquisition of 14 oil tankers

The 14 oil tankers acquired include four VLCC oil tankers, three Suez oil tankers, five Aframax oil tankers (including two LR2 product oil tankers) and two Panamax oil tankers(65,000-tonne class).

After calculation, the internal rate of return for acquisition of four VLCC oil tankers is 8.5% with a static payback period of 11 years and a dynamic payback period of 17 years.

The internal rate of return for acquisition of three Suez oil tankers is 7.4% with a static payback period of 12 years and a dynamic payback period of 19 years.

The internal rate of return for acquisition of three Aframax oil tankers is 7.4% with a static payback period of 13 years and a dynamic payback period of 21 years.

The internal rate of return for acquisition of two AframaxLR2 oil tankers is 7.2% with a static payback period of 13 years and a dynamic payback period of 21 years.

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APPENDIX II FEASIBILITY REPORT ON THE USE OF PROCEEDS FROM THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

The internal rate of return for acquisition of two Panamax oil tankers (65,000-tonne class) is 16.7% with a static payback period of 6 years and a dynamic payback period of 8 years.

2. Completion of Acquisition of two Panamax oil tankers (72,000-tonne class)

(V) Project registration and environmental evaluation

1. Acquisition of 14 oil tankers

The project of acquisition of 14 oil tankers mentioned above is subject to approval from China COSCO.

2. Completion of Acquisition of two Panamax oil tankers (72,000-tonne class)

The projects invested with the proceeds are not involved in obtaining EIA approval documents issued by environmental protection departments in advance.

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APPENDIX II FEASIBILITY REPORT ON THE USE OF PROCEEDS FROM THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

III. CHANGES IN FINANCIAL CONDITION, PROFITABILITY AND CASH FLOWS OF THE COMPANY UPON COMPLETION OF THE ISSUANCE

(I) Impact on financial position of the Company

(II) Impact on the Company’s profitability

(III) Impact on the Company’s cash flows

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APPENDIX II FEASIBILITY REPORT ON THE USE OF PROCEEDS FROM THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

IV. CONCLUSION

In view of the above, investment with proceeds from the Non-public Issuance is in line with relevant national industrial policy, industry development trend and the strategic targets of the Company, which will help to promote the sustainable development and core competitiveness of the Company. Therefore, utilization of proceeds from the Non-public Issuance is feasible and in line with the interests of shareholders as a whole.

COSCO SHIPPING Energy Transportation Co., Ltd.

Board of Directors

— II-12 —

APPENDIX III STATEMENT ON THE EXEMPTION FROM THE PREPARATION OF A REPORT ON THE UTILISATION OF PROCEEDS FROM PREVIOUS FUND RAISING

COSCO SHIPPING Energy Transportation Co., Ltd. Statement on Exemption from the Preparation of a Report on the Utilisation of Proceeds from Previous Fund Raising

This English translation is for reference only. In the event of any discrepancy between the English translation and the Chinese version of the document, the Chinese version shall prevail.

According to relevant requirements set out by the CSRC in the Regulation of Reports on the Utilisation of Proceeds from Previous Fund Raising 《關於前次募集資金使用情況報告的規定》( ) (Zheng Jian Fa Xing Zi [2007] No. 500): “For companies which have applied to issue securities and if the period between the date of receipt of proceeds from the previous fund raising exercise is less than five accounting years, the board of directors shall prepare relevant report on the utilisation of proceeds from previous fund raising in accordance with these requirements, and provide details on the last utilisation of proceeds (whether onshore or offshore) from closing date of the last audited financial statements on the issuer’s application documents, then the board of directors shall resolve on the report on the utilisation of proceeds from previous fund raising and shall be submitted to the shareholders’ meetings for the approval of such report”.

Since its initial public offering and listing in 2002, COSCO SHIPPING Energy Transportation Co., Ltd. (hereinafter referred to as the “ Company ”) has not launched any fund-raising exercise by way of placement of shares or issuance of new shares or convertible corporate bonds for the last five accounting years.

In view of the above, the Company is not required to prepare a report on the utilization of proceeds from previous fund raising for its non-public issuance of A Shares, nor is required to engage a certified public accountant to issue an assurance report on the utilisation of proceeds from the previous fund raising exercise.

COSCO SHIPPING Energy Transportation Co., Ltd.

Board of Directors

— III-1 —

APPENDIX IV REMEDIAL MEASURES REGARDING DILUTION ON CURRENT RETURNS BY THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

This English translation is for reference only. In the event of any discrepancy between the English translation and the Chinese version of the document, the Chinese version shall prevail.

The board of directors of the China Shipping Container Lines Company Limited hereby confirms that the information herein does not contain any false representations, misleading statements or material omissions, and the directors jointly and severally accept full responsibilities for the truthfulness, accuracy and completeness of the information contained herein.

This appendix contains information including analysis which is prepared pursuant to the relevant requirement prescribed under the Guiding Opinions on Matters Relating to the Dilution of Current Returns as a Result of Initial Public Offering, Refinancing and Major Asset Restructuring (CSRC Announcement [2015] No. 31) 《關於首發及再融資、重大資產重組攤薄即期回報有關事項的指導意 ( 見》 ) issued by the CSRC. Such analysis (including assumptions) adopted in preparation thereof are for illustration purposes only and does not constitute a commitment, profit forecast or performance commitment by the Company.

In order to further implement the requirements of the Several Opinions of the State Council on Further Promotion of the Healthy Development of the Capital Markets 《國務院關於進一步促進資本( 市場健康發展的若干意見》) (Guo Fa [2014] No. 17) and the Opinions of the General Office of the State Council on Further Strengthening the Protection of Small and Medium Investors’ Legitimate Interests in the Capital Markets 《國務院辦公廳關於進一步加強資本市場中小投資者合法權益保護( 工作的意見》) (Guo Ban Fa [2013] No. 110), and in accordance to the Guiding Opinions on Matters Relating to the Dilution of Current Returns As a Result of the Initial Public Offering, Refinancing and Major Asset Restructuring 《關於首發及再融資、重大資產重組攤薄即期回報有關事項的指導意見》( ) (CSRC Announcement [2015] No. 31), COSCO SHIPPING Energy Transportation Co., Ltd. (hereinafter referred to as the “ Company ”) has conducted a thorough analysis on the impact of the Non-public Issuance on the dilution of current returns, after which an announcement regarding the impact of dilution of current returns on the main financial indicators of the Company and the remedial measures taken by the Company was published, with details set forth as follows:

I. Regarding the impact of dilution of current returns on the main financial indicators of the company as a result of the non-public issuance

The Company intends to raise RMB 5.4 billion through the Non-public Issuance of up to 806,406,572 shares. The Company has conducted a thorough analysis of the impact of the Non-public Issuance on the main financial indicators of the Company for the corresponding year, with details set forth as follows:

(I) Assumptions made in estimating the impact of dilution of current returns arising from the Issuance on the key financial indicators of the Company
Assuming that the Non-public Issuance will be completed by the end of November 2017,which is an estimate only, and the actual time of completion of the Issuance will be subject to the approval by the CSRC;

— IV-1 —

APPENDIX IV REMEDIAL MEASURES REGARDING DILUTION ON CURRENT RETURNS BY THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

Assuming that the issue price of the Non-Public Issuance will be RMB6.81 per share, which is no less than the audited net assets per share of the Listed Company as at the end of 2016, the proceeds raised from the Non-public Issuance of A Shares are RMB5.4 billion (without taking into consideration of the impacts of deducting the cost of the Issuance);
Assuming that based on the total proceeds raised from the Issuance of RMB5.4 billion and the low-end issue price of RMB6.81 per share, the number of shares to be issued under the Non-public Issuance is not more than 792,951,541 (including 792,951,541), and the final shares to be issued is subject to the number of shares approved by the CSRC;
Assuming that there is no material changes in the macro-economic environment, the industry policy and the industry development, etc.;
Assuming that the impacts of using the proceeds from the Issuance on production and operation and financial positions (such as finance costs and investment income) of the Company are not to be taken into consideration;
Assuming that when predicting the Company’s total share capital, on the basis that the total share capital prior to the Non-public Issuance is 4,032,032,861 shares, only the impacts of the Non-public Issuance of A Shares will be taken into consideration, regardless of other factors causing changes in share capital;
Assuming that the Company’s net profit attributable to shareholders of the parent in 2017 increased by 10% over the previous year, the Company will realize a net profit attributable to shareholders of the parent of RMB2,114,763,993.56 (RMB1,030,638,558.04 after deduction of non-recurring gains or losses) in 2017; assuming that the Company’s net profit attributable to shareholders of the parent in 2017 decreased by 10% over the previous year, the Company will realize a net profit attributable to shareholders of the parent of RMB1,730,261,449.28 (RMB843,249,729.30 after deduction of non-recurring gains or losses) in 2017; assuming that the Company’s net profit attributable to shareholders of the parent in 2017 is almost equal to that in 2016, the Company will realize a net profit attributable to shareholders of the parent of RMB1,922,512,721.42 (RMB936,944,143.67 after deduction of non-recurring gains or losses) in 2017;
Assuming that the Company has implemented the profit distribution plan for 2016 in June 2017, that is, taking the total share capital on 31 December 2016 as its base, the Company distributed cash dividends of RMB0.19 (tax inclusive) for each ordinary share to all shareholders with the total cash dividend distributed of RMB766,086,243.59 (tax inclusive).

— IV-2 —

APPENDIX IV REMEDIAL MEASURES REGARDING DILUTION ON CURRENT RETURNS BY THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

Investors should be aware that the following analysis should not be read as profit forecasts of the Company.

Warning Statement: Investors and shareholders of the Company are not advised to make investment decisions according to the following analysis.

— IV-3 —

APPENDIX IV

REMEDIAL MEASURES REGARDING DILUTION ON CURRENT RETURNS BY THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

(II) Impact on the main financial indicators of the Company

Based on the foregoing assumptions, the impact of dilution of current returns arising from the Issuance on the key financial indicators of the Company is analyzed as follows:

		2017-12-31/Year 2017	2017-12-31/Year 2017
	2016-12-31	Prior to the	After the
Item	/Year 2016	Issuance	Issuance
Weighted average number of ordinary shares
(10,000 shares)	403,203.29	403,203.29	409,811.22
Scenario 1: the net profit attributable to owners of the parent (net		of non-recurring gains		or
losses) in 2017 decreased by 10% year-on year.
Net profit attributable to the parent (RMB10,000)	192,251.27	173,026.14	173,026.14
Net profit attributable to the parent, net of
non-recurring gains or losses (RMB10,000)	93,694.41	84,324.97	84,324.97
Equity attributable to owners of the parent at end
of the period (RMB10,000)	2,741,308.95	2,789,517.71	2,834,517.71
Basic earnings per share (RMB per share)	0.48	0.43		0.42
Diluted earnings per share (RMB per share)	0.48	0.43		0.42
Weighted average return on net assets	6.53%	6.20%	6.10%
Basic earnings per share, net of non-recurring gains
or losses (RMB per share)	0.23	0.21		0.21
Diluted earnings per share, net of non-recurring
gains or losses (RMB per share)	0.23	0.21		0.21
Weighted average return on net assets, net of
non-recurring gains or losses	3.18%	3.02%	2.97%
Scenario 2: the net profit attributable to owners of the parent (net		of non-recurring gains		or
losses) in 2017 is almost equal to that in 2016.
Net profit attributable to the parent (RMB10,000)	192,251.27	192,251.27	192,251.27
Net profit attributable to the parent, net of
non-recurring gains or losses (RMB10,000)	93,694.41	93,694.41	93,694.41
Equity attributable to owners of the parent at end
of the period (RMB10,000)	2,741,308.95	2,799,130.27	2,844,130.27
Basic earnings per share (RMB per share)	0.48	0.48		0.47
Diluted earnings per share (RMB per share)	0.48	0.48		0.47
Weighted average return on net assets	6.53%	6.87%	6.76%
Basic earnings per share, net of non-recurring gains
or losses (RMB per share)	0.23	0.23		0.23
Diluted earnings per share, net of non-recurring
gains or losses (RMB per share)	0.23	0.23		0.23
Weighted average return on net assets, net of
non-recurring gains or losses	3.18%	3.35%	3.29%

— IV-4 —

APPENDIX IV

REMEDIAL MEASURES REGARDING DILUTION ON CURRENT RETURNS BY THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

		2017-12-31/Year 2017	2017-12-31/Year 2017
	2016-12-31	Prior to the	After the
Item	/Year 2016	Issuance	Issuance
Scenario 3: the net profit attributable to owners of the parent (net		of non-recurring gains or
losses) in 2017 increased by 10% year-on year.
Net profit attributable to the parent (RMB10,000)	192,251.27	211,476.40	211,476.40
Net profit attributable to the parent, net of
non-recurring gains or losses (RMB10,000)	93,694.41	103,063.86	103,063.86
Equity attributable to owners of the parent at end
of the period (RMB10,000)	2,741,308.95	2,808,742.83	2,853,742.83
Basic earnings per share (RMB per share)	0.48	0.52	0.52
Diluted earnings per share (RMB per share)	0.48	0.52	0.52
Weighted average return on net assets	6.53%	7.53%	7.41%
Basic earnings per share, net of non-recurring gains
or losses (RMB per share)	0.23	0.26	0.25
Diluted earnings per share, net of non-recurring
gains or losses (RMB per share)	0.23	0.26	0.25
Weighted average return on net assets, net of
non-recurring gains or losses	3.18%	3.67%	3.61%

Note:

Basic earnings per share prior to the Issuance = net profit attributable to the holders of the ordinary shares of the Company for the current period � total share capital prior to the Issuance;
Basic earnings per share after the Issuance = net profit attributable to the holders of the ordinary shares of the Company for the current period � (total share capital prior to the Issuance + number of new shares to be issued under the Issuance �number of months from the month following the issuance month to the end of the year �12);
Weighted average return on net assets prior to the Issuance = net profit attributable to holders of the ordinary shares of the Company for the current period � (opening net assets attributable to the holders of the ordinary shares of the Company + net profit attributable to the holders of the ordinary shares of the Company for the current period � 2 — cash dividend for the current period � number of months from the month following the dividend distribution month to the end of the year �12);
Weighted average return on net assets after the Issuance = net profit attributable to holders of the ordinary shares of the Company for the current period � (opening net assets attributable to the holders of the ordinary shares of the Company + net profit attributable to the holders of the ordinary shares of the Company for the current period � 2 — cash dividend for the current period � number of months from the month following the dividend distribution month to the end of the year �12+ total proceeds raised from the Issuance � number of months from the month following the issuance month to the end of the year �12).

— IV-5 —

APPENDIX IV REMEDIAL MEASURES REGARDING DILUTION ON CURRENT RETURNS BY THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

II. Special Risk Warning for Diluted Immediate Return on the Issuance

Investors are hereby reminded of the risk of diluted immediate return from the Non-public Issuance.

III. Description by the Board on Necessity and Rationality of the Non-public Issuance

(I) To help to expand the shipping capacity at low cost and build the world’s leading oil tanker fleet

At present, the regional structure of energy consumption changes while the global energy consumption increases, which drive the increase in demand for energy transportation market, especially the long-distance transportation market. In addition, the construction of “Maritime Power” has been upgraded to a national strategy, which has accelerated the development of energy transportation industry in China. New requirements for business development of the Company have been put forward due to various factors such as economic environment and national will, which also create new opportunities.

(II) To improve the cash flow situation and enhance shareholder return of investment

— IV-6 —

APPENDIX IV REMEDIAL MEASURES REGARDING DILUTION ON CURRENT RETURNS BY THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

(III) To reduce asset-liability ratio and optimize asset structure

IV. Relationship between the Investment Projects through Non-public Issuance and the Company’s Existing Businesses and Reserves on Talent, Technology and Market Resources for the Investment Projects
(I) Relationship between the investment projects and the Company’s existing business

The Company’s business are mainly oil transportation business and LNG transportation business. As of 30 September 2017, the Company owned and rented 120 oil tankers with a total capacity of 18,350,000 tons. The Company has invested 14 LNG tankers that have been put into operation with a total capacity of 2,253,700 cubic metres. The Company intends to acquire 14 oil tankers of various types and two Panamax oil tankers (72,000-tonne class).using the proceeds. The implementation of investment projects will further expand the scale of shipping capacity of the Company, consolidate the leading position of the Company, optimize the ship structure and age structure of the Company and enhance the market competitiveness and operating efficiency of the Company.

(II) Reserves on the Company’s talent, technology and market resources for the investment projects
Human resources reserve

2. Technical reserve

— IV-7 —

APPENDIX IV

REMEDIAL MEASURES REGARDING DILUTION ON CURRENT RETURNS BY THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

3. Market reserve

V. Make-up Measures for the Diluted Immediate Returns of the Non-public Issuance from the Company

In order to ensure the effective use of the proceeds from the issuance, prevent the risk of diluted immediate returns and improve the ability to gain returns in the future, the Company has proposed to enhance asset quality, increase operating income, increase future profits, achieve sustainable development and make up the shareholders return through strictly implementing the proceeds management system, actively improving the using efficiency of proceeds, accelerating the Company’s main business development, improving the Company’s profitability, constantly improving the profit distribution policy, and enhancing the investor return mechanism. The measures are as follow:

To orderly promote the existing business, capture development trend of the industry, and actively respond to risk factors

— IV-8 —

APPENDIX IV REMEDIAL MEASURES REGARDING DILUTION ON CURRENT RETURNS BY THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

2. To strengthen the management of proceeds and ensure the efficient use of proceeds

The Company has formulated Proceeds Management System to standardize the use the proceeds in accordance with the provisions of the Company Law, Securities Law, Administrative Measures on the Proceeds of the Listed Companies of Shanghai Stock Exchange, normative documents, as well as the Articles of Association. According to theProceeds Management System and the Resolution of the Company’s Board, the proceedsfrom the issuance will be deposited in a special account for proceeds from the issuancedesignated by the Board; a three-party supervision system shall be established to make the sponsor institutions, depository banks, and the Company jointly supervise the proceeds.The proceeds shall be used according to the committed purpose and amount. After thecapital raised by the Non-public Issuance is in place, the Company will actively cooperatewith the sponsor to inspect and supervise the use of proceeds, so as to ensure thereasonable and standardized use of proceeds, and reasonably prevent the risks.

To accelerate the implementation of investment projects of the Company to realise the expected return as soon as possible

4. To strictly implement the cash dividend policy and give investors a reasonable return

The Company has revised the Articles of Association and the profit distribution policy for the next three years, clarified the conditions of the Company’s profit distribution, improved the decision-making procedures and mechanisms of the Company’s profit distribution as well as the adjustment principle of the profit distribution policy, and strengthened the protection mechanism of the minority investors’ rights and interests in accordance with the requirements of Notice on FurtherImplementing Relevant Matters Concerning Cash Dividends of Listed Companies,Regulatory Guidelines for Listed Companies No.3 — Cash dividends of listed Companies and other relevant laws, regulations and regulatory documents. After the completion of the Non-public Issuance, the Company will strictly implement the current dividend policy, and strive to improve the returns of the shareholders.

To improve corporate governance continuously to provide systematic protection for the development of the Company

— IV-9 —

APPENDIX IV REMEDIAL MEASURES REGARDING DILUTION ON CURRENT RETURNS BY THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

requirements of laws, regulations and Articles of Association, to ensure that independent directors will perform their duties conscientiously to safeguard the overall interest of the Company, in particular the lawful interests of minority shareholders, to ensure that the supervisory committee will be able to exercise independently and effectively the rights of supervision and inspection over the directors, senior management and financial conditions of the Company to provide systematic protection for the development of the Company.

VI. Undertakings with Regards to the Remedial Measures for Dilution on Current Returns by the Non-public Issuance of the Company

(I) Undertakings by the Directors and Senior Management of the Company

“1. I hereby undertake not to transfer benefits to other entities or individuals with no consideration or under unfair terms, and shall not damage the Company’s interests in any other ways.
I hereby undertake to constrain the consumption behavior in relation to my work duty.
I hereby undertake not to use the Company’s assets for investments or consumption activities that are unrelated to the engagement and performance of my work duties.

— IV-10 —

APPENDIX IV REMEDIAL MEASURES REGARDING DILUTION ON CURRENT RETURNS BY THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

I hereby undertake that the remuneration system formulated by the board of directors or the remuneration committee will be linked with the implementation of the Company’s remedial measures in relation to the returns of the Company.
I hereby undertake that the vesting conditions for the proposed share incentive scheme (if any) of the Company will be linked with the implementation of the Company’s remedial measures in relation to returns of the Company.
From the date of making these undertakings until completion of the Proposed Non-public Issuance of A Shares, I undertake to make supplemental undertakings in accordance with the latest regulations imposed by the CSRC, which renders the aforementioned undertakings that are inadequate to satisfy such regulatory requirements.
I hereby undertake to perform these undertakings. If I violate these undertakings and cause losses to the Company or the investors, I shall be liable to indemnify the Company or the investors for their losses in accordance with the law.”

(II) Undertakings by China Shipping

As the controlling shareholder of COSCO SHIP ENGY, China Shipping has issued the Letter of Undertakings Regarding China Shipping (Group) Company’s Commitment to Ensurethe Implementation of the Non-public Issuance of Shares by COSCO SHIPPING Energy Transportation Co., Ltd. to Cover the Dilution of Current Returns and has made the following undertakings:

(III) Undertakings by COSCO shipping

As the controlling shareholder of COSCO SHIP ENGY and the sole shareholder of China Shipping, COSCO shipping has issued the Letter of Undertakings Regarding China COSCO Shipping Corporation Limited’s Commitment to Ensure the Implementation of the Non-public Issuance of Shares by COSCO SHIPPING Energy Transportation Co., Ltd. to Cover the Dilution of Current Returns and has made the following undertakings:

“The Company shall continue to ensure the independence of the Listed Company, and shallnot go beyond its power to interfere with the operation management activities of the Listed Company and shall not encroach upon the interests of the Listed Company.

— IV-11 —

APPENDIX IV

REMEDIAL MEASURES REGARDING DILUTION ON CURRENT RETURNS BY THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

COSCO SHIPPING Energy Transportation Co., Ltd.

Board of Directors

— IV-12 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

I. FINANCIAL INFORMATION

The audited consolidated financial statements of the Group for the years ended 31 December 2014, 31 December 2015 and 31 December 2016, including the independent auditors’ report thereon and the notes thereto, have been published in the annual reports of the Company referred to as follows and are incorporated by reference into this circular:

(i) for the year ended 31 December 2014 (from pages 85 to 208) (http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0430/LTN20150430037.pdf)
(ii) for the year ended 31 December 2015 (from pages 85 to 198) (http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0418/LTN20160418181.pdf)
(iii) for the year ended 31 December 2016 (from pages 78 to 233) (http://www.hkexnews.hk/listedco/listconews/SEHK/2017/0428/LTN20170428109.pdf)

The above annual reports are also available at the Company’s website below:-

http://www.coscoshippingenergy.com/

Baker Tilly Hong Kong Limited, the auditors of the Company, have not issued any qualified opinion on the Group’s financial statements referred to above.

— V-1 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

The following is a summary of certain consolidated financial information of the Group (i) for the three years ended 31 December 2016 and the six months ended 30 June 2017 and 30 June 2016, as extracted from the relevant annual report/ interim report of the Company and which are prepared on the basis of HKFRS, and (ii) for the nine months ended 30 September 2017, as extracted from the Company’s announcement dated 30 October 2017, which are prepared on the basis of PRC GAAP. Due to differences on the basis of preparation, the summary of the unaudited consolidated financial information of the Company for the nine months ended 30 September 2017 is separately presented below.

Consolidated Statement of Profit or Loss and Other Comprehensive Income for the three years ended 31 December 2016 and the six months ended 30 June 2017 and 30 June 2016

Note Continuing operations Turnover 6 Operating costs Gross profit Other income and net gains 8 Marketing expenses Administrative expenses Other expenses Share of profits of associates Share of profits of joint ventures Finance costs 9 Profit before tax 10 (Income tax)/tax credit 11 Profit for the period/year from continuing operations Discontinued operation Profit/(loss) for the period/year from discontinued operation, net of tax 7 Profit for the period/year	Six months ended 30 June 2017 2016 (Unaudited) (Unaudited and restated) RMB’000 RMB’000 4,905,703 5,314,709 (3,593,594) (3,490,638) 1,312,109 1,824,071 202,293 105,924 (13,874) (8,242) (218,110) (272,909) (26,615) (36,270) 125,775 142,092 83,328 93,151 (416,638) (540,589) 1,048,268 1,307,228 (126,413) (194,395) 921,855 1,112,833 — 760,501 921,855 1,873,334	2016 RMB’000 9,658,291 (6,956,661) 2,701,630 10,039 (14,697) (678,259) (65,838) 268,099 169,458 (869,544) 1,520,888 (314,714) 1,206,174 760,501 1,966,675	2015 (Restated) RMB’000 10,709,298 (7,505,633) 3,203,665 1,004,508 (15,055) (498,083) (55,731) 215,932 223,506 (1,056,665) 3,022,077 (237,122) 2,784,955 (1,527,222) 1,257,733	2014 RMB’000 12,273,849 (10,885,620) 1,388,229 385,883 (57,470) (441,583) (45,349) 91,083 205,902 (1,204,702) 321,993 79,834 401,827 — 401,827

— V-2 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

Note Other comprehensive income 14 Item that will not be reclassified subsequently to profit or loss, net of nil tax: Remeasurement of defined benefit plan payable Items that may be reclassified subsequently to profit or loss, net of tax: Exchange realignment Fair value loss on available-for-sale investments Net loss on cash flow hedges Release upon disposal of discontinued operation Share of other comprehensive (expense)/income of associates Share of other comprehensive (expense)/income of joint ventures Other comprehensive (expense)/income for the period/year Total comprehensive income/(expense) for the period/year Profit/(loss) for the period/year attributable to owners of the Company: — Continuing operations — Discontinued operation	Six months ended 30 June 2017 2016 (Unaudited) (Unaudited and restated) RMB’000 RMB’000 — 530 (194,046) 148,383 48,286 — (49,939) (369,071) — 362,032 (11,563) (10,703) (40,649) 14,440 (247,911) 145,611 673,944 2,018,945 865,410 1,108,141 — 742,523 865,410 1,850,664	2016 RMB’000 (160) 443,913 (4,488) (30,641) 362,032 (23,590) 71,113 818,179 2,784,854 1,191,541 742,523 1,934,064	2015 (Restated) RMB’000 — 352,977 — (104,840) — 3,457 56,555 308,149 1,565,882 2,774,179 (1,593,258) 1,180,921	2014 RMB’000 — 27,750 — (434,784) — — 4,613 (402,421) (594) 309,413 — 309,413

— V-3 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

Note Profit for the period/year attributable to non-controlling interests: — Continuing operations — Discontinued operation Profit for the period/year Total comprehensive income/(expense) for the period/year attributable to: Owners of the Company Non-controlling interests Earnings per share 16 From continuing and discontinued operations — Basic and diluted From continuing operations — Basic and diluted	Six months ended 30 June 2017 2016 (Unaudited) (Unaudited and restated) RMB’000 RMB’000 56,445 4,692 — 17,978 56,445 22,670 921,855 1,873,334 621,305 2,218,468 52,639 (199,523) 673,944 2,018,945 (Unaudited) (Unaudited and restated) RMB cents RMB cents 21.46 45.90 21.46 27.48	2016 RMB’000 14,633 17,978 32,611 1,966,675 2,787,042 (2,188) 2,784,854 RMB cents 47.97 29.55	2015 (Restated) RMB’000 10,776 66,036 76,812 1,257,733 1,554,173 11,709 1,565,882 (Restated) RMB cents 29.70 69.78	2014 RMB’000 92,414 — 92,414 401,827 166,444 (167,038) (594) RMB cents 9.09 9.09

No dividend was paid or proposed during the year ended 31 December 2013.

Final dividend of RMB0.03 per share in respect of the year ended 31 December 2014 was approved by the shareholders on 18 June 2015 and a total amount of RMB120,961,000 was paid during the year ended 31 December 2015.

— V-4 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

Final dividend of RMB0.10 per share in respect of the year ended 31 December 2015 was approved by independent shareholders at the annual general meeting of the Company held on 20 May 2016 and a total amount of RMB403,203,000 was paid during the year ended 31 December 2016.

At the Board meeting held on 28 March 2017, the directors of the Company proposed a final dividend of RMB766,086,000 in respect of the year ended 31 December 2016. Such proposed final dividend is subject to the approval of the Company’s independent shareholders at the annual general meeting of the Company in 2017, and has not been recognised as a liability as at 31 December 2016.

Unaudited Consolidated Financial Results of the Company for the nine months ended 30 September 2017

	For the nine months ended	For the nine months ended
	30	September
	2017	2016
	RMB	RMB
Gross revenue from operations	7,275,509,434.22	10,832,221,787.72
Profit before taxation	1,484,948,344.67	2,390,379,715.41
Income tax	(138,423,871.79)	(143,572,420.06)
Net profit attributable to owners of parent company	1,247,612,119.07	2,219,826,491.23
Net profit attributable to minority shareholders	98,912,353.81	26,980,804.12
Earnings per share (expressed in RMB per share)
— basic and diluted	0.3094	0.5505

— V-5 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

II. UNAUDITED THIRD QUARTERLY FINANCIAL STATEMENTS OF THE GROUP FOR THE THREE/NINE MONTHS ENDED 30 SEPTEMBER 2017

Set out below are the unaudited consolidated balance sheet statements of the Group as at 30 September 2017, the consolidated income statement for the three months and nine months ended 30 September 2017, and the consolidated cash flow statement for the nine months ended 30 September 2017, which are prepared in accordance with PRC GAAP, as extracted from the Company’s announcement dated 30 October 2017. In this section, references to the “Parent Company” refer to the Company.

Consolidated Balance Sheet

Items Current assets Cash and Cash Equivalents Notes receivable Accounts receivable Funds paid in advance Interest receivable Dividends receivable Other receivables Inventory Non-current assets due within one year Other current assets Total Current Assets Non-current liabilities Financial assets available for sale Long-term receivables Long-term equity investment Investment properties Fixed assets Construction in progress Intangible assets Goodwill Long-term deferred expenses Deferred income tax asset Total non-current assets Total asset	30 September 2017 RMB 6,317,118,927.20 30,939,192.29 901,184,067.68 472,741,143.64 8,497,804.18 10,962,527.84 597,895,541.59 608,412,517.80 26,646,277.03 85,343,011.84 9,059,741,011.09 363,055,024.50 1,812,654,066.41 4,066,558,216.88 1,104,907,492.36 40,809,054,802.07 3,822,871,697.88 80,828,133.53 58,168,418.21 867,494.61 50,502,805.36 52,169,468,151.81 61,229,209,162.90	31 December 2016 RMB 6,409,203,363.82 74,076,177.86 1,142,070,492.43 427,021,914.12 1,883,436.94 1,225,556.33 341,579,532.62 456,983,984.09 18,899,240.36 147,540,937.18
		9,020,484,635.75
		279,761,297.31 1,453,585,051.23 3,999,963,858.09 1,104,907,492.36 33,334,557,038.24 8,917,825,126.78 86,610,076.87 58,168,418.21 1,355,949.47 52,257,514.65
		49,288,991,823.21
		58,309,476,458.96

— V-6 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

ems urrent liabilities Short-term borrowings Derivative financial liabilities Accounts payable Receipts in advance Salaries and wages payable Taxes payable Interests payable Dividends payable Other payables Non-current liabilities due within one year Total current liabilities on-current liabilities Long-term borrowings Bonds payable Long-term payables Long-term salaries and wages payable Estimated liabilities Deferred income Deferred income tax liabilities Other non-current liabilities Total non-current liabilities Total liabilities areholders’ equity Share capital Capital reserve Other comprehensive income Specific reserve Surplus reserve Undistributed profit Total equity attributable to owners of the parent company Minority interests Total shareholders’ equity Total liabilities and shareholders’ equity	30 September 2017 RMB 2,413,400,834.86 1,218,804,617.90 101,824,183.19 97,500,582.41 33,064,885.75 192,351,562.79 19,639,394.81 185,473,481.47 3,448,800,603.43 7,710,860,146.61 19,207,861,507.78 3,984,810,237.71 1,139,375,832.89 149,361,419.83 460,807,555.77 333,864,928.71 603,846,583.99 25,879,928,066.68 33,590,788,213.29 4,032,032,861.00 7,580,544,622.33 -95,369,216.93 39,796,570.44 2,877,436,346.44 12,998,771,762.19 27,433,212,945.47 205,208,004.14 27,638,420,949.61 61,229,209,162.90	31 December 2016 RMB 1,872,990,050.99 1,353,797,492.51 218,889,646.39 183,689,404.20 159,242,785.99 101,782,383.36 19,639,394.81 650,011,572.42 2,753,894,652.31
		7,313,937,382.98
		16,953,208,990.99 3,982,045,490.54 1,049,819,591.86 156,165,181.83 495,337,579.16 7,298.51 295,965,365.70 474,988,203.50
		23,407,537,702.09
		30,721,475,085.07
		4,032,032,861.00 7,576,579,290.64 361,936,767.08 48,275,142.27 2,877,436,346.44 12,517,245,886.71 27,413,506,294.14 174,495,079.75
		27,588,001,373.89
		58,309,476,458.96

Items

Current liabilities

Non-current liabilities

Shareholders’ equity

— V-7 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Balance Sheet of Parent Company

Items	30 September 2017	31 December 2016
	RMB	RMB
Current assets
Cash and cash equivalents	2,667,841,713.09	2,648,015,576.70
Funds paid in advance		38,394.90
Interests receivable	141,819,542.60	57,985,525.11
Dividends receivable	200,000,000.00
Other receivables	2,714,327,776.93	2,654,296,293.95
Other current assets	8,103,724.38	12,030,525.86
Total Current Assets	5,732,092,757.00	5,372,366,316.52
Non-current assets
Financial assets available for sale
Held-to-maturity investments	7,500,000,000.00	7,000,000,000.00
Long-term equity investment	16,789,966,168.88	16,591,945,762.49
Investment properties	1,227,748,666.00	1,227,748,666.00
Fixed assets	62,184,905.32	63,736,180.49
Intangible assets	637,234.28	2,548,937.11
Total non-current assets	25,580,536,974.48	24,885,979,546.09
Total assets	31,312,629,731.48	30,258,345,862.61
Current liabilities
Short-term borrowings	1,000,000,000.00
Salaries and wages payable	2,945,570.60	26,807,380.62
Taxes payable	430,373.74	10,996,660.72
Interests payable	130,600,684.93	53,104,383.56
Other payables	2,138,813,589.53	2,527,010,034.85
Total current liabilities	3,272,790,218.80	2,617,918,459.75
Non-current liabilities
Long-term borrowings
Bonds payable	3,984,810,237.71	3,982,045,490.54
Deferred income tax liabilities	176,405,189.58	173,476,028.10
Total non-current liabilities	4,161,215,427.29	4,155,521,518.64
Total liabilities	7,434,005,646.09	6,773,439,978.39
Shareholders’ equity
Share capital	4,032,032,861.00	4,032,032,861.00
Capital reserve	7,845,301,736.32	7,844,457,084.62
Other comprehensive income	273,538,865.56	271,137,193.06
Surplus reserve	2,877,436,346.44	2,877,436,346.44
Undistributed profit	8,850,314,276.07	8,459,842,399.10
Total shareholders’ equity	23,878,624,085.39	23,484,905,884.22
Total liabilities and shareholders’ equity	31,312,629,731.48	30,258,345,862.61

— V-8 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

Consolidated Income Statement

	July-	July-	January-	January-
Items	September 2017	September 2016	September 2017	September 2016
	RMB	RMB	RMB	RMB
1. Gross revenue from operations	2,166,306,454.32	2,203,179,385.04	7,275,509,434.22	10,832,221,787.72
Including: revenue from operation	2,166,306,454.32	2,203,179,385.04	7,275,509,434.22	10,832,221,787.72
2. Gross cost from operations	2,217,336,211.08	2,035,183,995.63	6,355,516,439.53	9,742,680,562.64
Including: cost from operation	1,870,009,390.16	1,684,351,474.22	5,398,592,752.28	8,228,305,427.64
Business taxes and other surcharges	7,146,883.46	1,258,580.96	30,285,965.66	18,019,384.48
Sales expenses	5,504,000.35	4,416,836.39	19,378,665.72	55,079,065.80
Administrative expenses	130,580,315.34	130,207,773.28	355,517,357.95	508,094,658.60
Financial expenses	211,188,909.62	215,044,921.25	553,413,406.23	933,217,786.21
Loss on impairment of assets	-7,093,287.85	-95,590.47	-1,671,708.31	-35,760.09
Add: Gain from changes in fair value
(Loss stated with “-”)		6,691,634.31		3,750,354.72
Investment income (Loss stated
with“-”)	110,892,814.60	139,084,316.51	319,554,723.64	1,279,465,628.96
Including: investment income from
associates and joint ventures	102,852,029.33	102,115,877.61	311,955,798.69	277,106,582.09
Other income	6,470,000.00		45,510,000.00
3. Operating profit	66,333,057.84	313,771,340.23	1,285,057,718.33	2,372,757,208.76
Add: Non-operating revenue	378,775,317.50	212,824,888.05	386,330,538.11	233,337,261.98
Including: Gains arising from disposal
of non-current assets	141,405.69		141,405.69
Less: Non-operating expenditure	-2,396,852.34	86,215,355.92	186,439,911.77	215,714,755.33
Including: Loss arising from disposal
of non-current assets	16,627.12	286,499.53	40,422.79	3,112,282.30
4. Gross profit	447,505,227.68	440,380,872.36	1,484,948,344.67	2,390,379,715.41
Less: Income tax	9,473,087.58	38,760,986.41	138,423,871.79	143,572,420.06
5. Net profit	438,032,140.10	401,619,885.95	1,346,524,472.88	2,246,807,295.35
Net profit attributable to owners of
parent company	396,007,134.95	399,451,570.63	1,247,612,119.07	2,219,826,491.23
Net profit attributable to minority
shareholders	42,025,005.15	2,168,315.32	98,912,353.81	26,980,804.12
6. Other comprehensive net income
after tax	-260,190,516.70	-71,368,850.49	-508,102,079.97	-288,835,698.37
Other comprehensive net income
after tax attributable to owners
of parent company	-213,200,500.25	-53,561,032.67	-457,305,984.01	-48,835,222.88

— V-9 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

	July-	July-	January-	January-
Items	September 2017	September 2016	September 2017	September 2016
	RMB	RMB	RMB	RMB
(1) Other comprehensive income
that may not be subsequently
reclassified into profit or loss				530,000.00
Including: 1. Changes in net liabilities
or net assets arising from the
re-measurement of defined benefit
plans				530,000.00
(2) Other comprehensive income to
be re-classified to profit or loss	-213,200,500.25	-53,561,032.67	-457,305,984.01	-49,365,222.88
Including: 1. Share of other
comprehensive income to be
re-classified to profit or loss in an
investee in accordance with equity
method	-20,566,519.98	7,667,195.09	-69,183,594.78	13,500,715.63
2. Variable profit and loss of fair
value of financial assets available
for sale	7,267,410.69		31,893,115.80
3. Effective parts of profit or loss on
cash flow hedges	-49,352,628.10	-13,133,389.52	-69,727,618.92	-162,257,873.45
4. The difference between the
translation of foreign currency
financial statements	-150,548,762.86	-48,094,838.24	-350,287,886.11	99,391,934.94
Other comprehensive net income
after tax attributable to minority
shareholders	-46,990,016.45	-17,807,817.82	-50,796,095.96	-240,000,475.49
7. Total comprehensive income	177,841,623.40	330,251,035.46	838,422,392.91	1,957,971,596.98
Total comprehensive income
attributable to owners of parent
company	182,806,634.70	345,890,537.96	790,306,135.06	2,170,991,268.35
Total comprehensive income
attributable to minority shareholders	-4,965,011.30	-15,639,502.50	48,116,257.85	-213,019,671.37
8. Earnings per share
(1) Basic	0.0994	0.1005	0.3094	0.5505
(2) Diluted	0.0994	0.1005	0.3094	0.5505

For the business combination under common control in the current period, the net profit achieved by the combined party before the combination is RMB5,234,358.32, and the net profit achieved by the combined party in the previous period was RMB6,023,798.34.

— V-10 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Income Statement of Parent Company

	July-	July-	January-	January-
	September 2017	September 2016	September 2017	September 2016
Items	RMB	RMB	RMB	RMB
1. Revenue from operations	7,529,223.46	8,701,410.22	22,360,739.16	22,496,331.65
Less: cost from operation
Business taxes and other surcharges	70,631.97	35,315.96	2,214,532.61	4,622,885.75
Sales expenses	4,970,704.84	3,527,439.57	19,378,665.72	4,640,548.86
Administrative expenses	26,088,824.62	-4,736,983.65	47,008,069.71	80,785,860.00
Financial expenses	25,076,106.37	72,170,062.15	72,469,123.31	306,915,329.34
Add: Gain from changes in fair value
(Loss stated with “-”)		-1,062,307.00
Investment income (Loss stated
with“-”)	96,248,682.52	101,411,079.53	1,296,000,481.98	-1,982,099,687.16
Including: investment income from
associates and joint ventures	13,180,780.52	11,150,368.89	37,067,650.19	29,366,951.77
Other income			440,000.00
2. Operating profit	47,571,638.18	38,054,348.72	1,177,730,829.79	-2,356,567,979.46
Add: Non-operating revenue	-14,323,547.75		-14,243,547.75	79,900.82
Less: Non-operating expenditure		1,504.00	4,000,000.00	11,685.87
Including: Loss arising from disposal
of non-current assets				2,926.87
3. Gross profit	33,248,090.43	38,052,844.72	1,159,487,282.04	-2,356,499,764.51
Less: Income tax	976,391.83	-2,218,478.61	2,929,161.48	25,418,975.89
4. Net profit	32,271,698.60	40,271,323.33	1,156,558,120.56	-2,381,918,740.40
5. Net other comprehensive income
after tax	-203,495.27	3,182,581.68	2,401,672.50
Other comprehensive income to be
re-classified to profit or loss	-203,495.27	3,182,581.68	2,401,672.50
Including: Share of other
comprehensive income to be
re-classified to profit or loss in an
investee in accordance with equity
method	-203,495.27	3,182,581.68	2,401,672.50
6. Total comprehensive income	32,068,203.33	43,453,905.01	1,158,959,793.06	-2,381,918,740.40
7. Earnings per share

(1) Basic

(2) Diluted

— V-11 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Consolidated Cash Flow Statement

	January -	January -
Items	September 2017	September 2016
	RMB	RMB
1. Cash flows from operating activities
Cash received from sales of goods and provision of services	7,858,576,217.27	10,853,500,400.90
Cash received from return of taxes and fees	89,530,291.54	197,097,248.65
Cash received from other related operating activities	1,230,521,623.91	13,053,707,105.64
Subtotal of cash inflow from operating activities	9,178,628,132.72	24,104,304,755.19
Cash paid for goods and services	4,139,903,811.23	5,720,100,770.64
Cash paid to or on behalf of employees	1,240,952,143.18	1,435,119,512.60
Taxes paid	365,122,216.49	493,914,466.68
Other cash paid relating to operating activities	1,013,032,988.58	1,504,950,603.62
Subtotal of cash outflow from operating activities	6,759,011,159.48	9,154,085,353.54
Net cash flows from operating activities	2,419,616,973.24	14,950,219,401.65
2. Cash flows from investing activities
Cash received from withdrawal of investment	51,090,153.92	5,754,973,897.21
Cash inflow from return on investment	222,057,950.11	1,005,271,388.45
Net cash inflow from disposal of fixed, intangible and other long-term assets	148,543.69	56,991.16
Net cash received from disposal of subsidiaries and other business units		8,250,431,088.09
Other cash received relating to investing activities
Subtotal of cash inflow from investing activities	273,296,647.72	15,010,733,364.91
Cash paid for purchase of fixed, intangible and other long-term assets	4,927,972,022.11	1,683,835,537.40
Cash paid for investment	610,238,021.53	7,042,419,259.42
Other cash paid relating to investing activities	339,142,810.63	1,203,842,119.76
Subtotal of cash outflow from investing activities	5,877,352,854.27	9,930,096,916.58
Net cash flows from investing activities	-5,604,056,206.55	5,080,636,448.33
3. Cash flows from financing activities
Cash received from investments	1,407,534.78	449,097.74
Cash received from borrowings	8,135,176,750.17	2,764,451,522.47
Cash received from other financing activities		19,981,324.92
Sub-total of cash inflows of financing activities	8,136,584,284.95	2,784,881,945.13
Cash paid for payment of debts	3,678,350,630.29	16,719,495,781.68
Cash paid for distribution of dividends or profits and for interest expenses	1,135,694,730.57	1,405,125,428.25
Including: Dividends and profit distributed to minority shareholders by
subsidiaries	19,635,853.05	11,850,000.00
Other cash paid relating to financing activities	76,655,451.75	100,835,760.16
Subtotal of cash outflow from financing activities	4,890,700,812.61	18,225,456,970.09
Net cash flows from financing activities	3,245,883,472.34	-15,440,575,024.96
4. Effect on cash and cash equivalents from change of exchange rates	-130,539,728.19	112,358,017.33
5. Net increase in cash and cash equivalents	-69,095,489.16	4,702,638,842.35
Add: Balance of cash and cash equivalents at the beginning of the Reporting
Period	6,383,660,211.45	4,879,308,489.33
6. Balance of cash and cash equivalents at the end of the Reporting Period	6,314,564,722.29	9,581,947,331.68

— V-12 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

Cash Flow Statement of Parent Company

	January -	January -
	September 2017	September 2016
Items	RMB	RMB
1. Cash flows from operating activities
Cash received from sales of goods and provision of services	22,360,739.16	22,496,331.65
Cash received from return of taxes and fees	41,052.25	39,900.82
Cash received from other related operating activities	503,657,816.86	6,546,474,637.60
Subtotal of cash inflow from operating activities	526,059,608.27	6,569,010,870.07
Cash paid for goods and services	1,216,348.78	770,371.58
Cash paid to or on behalf of employees	70,197,760.89	23,102,521.15
Taxes paid	13,620,020.82	37,001,537.99
Other cash paid relating to operating activities	641,187,602.60	181,677,048.68
Subtotal of cash outflow from operating activities	726,221,733.09	242,551,479.40
Net cash flows from operating activities	-200,162,124.82	6,326,459,390.67
2. Cash flows from investing activities
Cash received from withdrawal of investment		4,066,312,000.00
Cash inflow from return on investment	992,663,469.62	710,878,028.78
Net cash received from disposal of subsidiaries and other business units		5,332,385,800.00
Subtotal of cash inflow from investing activities	992,663,469.62	10,109,575,828.78
Cash paid for purchase of fixed, intangible and other long-term assets	246,392.92
Cash paid for investment	657,706,432.00	7,629,408,800.00
Other cash paid relating to investing activities	339,142,810.63
Subtotal of cash outflow from investing activities	997,095,635.55	7,629,408,800.00
Net cash flows from investing activities	-4,432,165.93	2,480,167,028.78
3. Cash flows from financing activities
Cash received from borrowings	1,000,000,000.00
Other cash received relating to financing activities		1,143,854,000.00
Sub-total of cash inflows of financing activities	1,000,000,000.00	1,143,854,000.00
Cash paid for payment of debts		6,122,945,000.00
Cash paid for distribution of dividends or profits and for interest expenses	766,786,243.59	740,344,077.20
Other cash paid relating to financing activities
Subtotal of cash outflow from financing activities	766,786,243.59	6,863,289,077.20
Net cash flows from financing activities	233,213,756.41	-5,719,435,077.20
4. Effect on cash and cash equivalents from change of exchange rates	-8,793,329.27	-2,034,760.74
5. Net increase in cash and cash equivalents	19,826,136.39	3,085,156,581.51
Add: Balance of cash and cash equivalents at the beginning of the Reporting
Period	2,648,015,576.70	375,220,780.02
6. Balance of cash and cash equivalents at the end of the Reporting Period	2,667,841,713.09	3,460,377,361.53

— V-13 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

III. AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR THE TWO YEARS ENDED 31 DECEMBER 2016

Set out below are the audited financial statements of the Group for the two years ended 31 December 2016 as extracted from the Company’s annual report for the year ended 31 December 2016.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the year ended 31 December 2016

Note Continuing operations Turnover 6 Operating costs Gross profit Other income and net gains 8 Marketing expenses Administrative expenses Other expenses Share of profits of associates Share of profits of joint ventures Finance costs 9 Profit before tax 10 Income tax 11 Profit for the year from continuing operations Discontinued operation Profit/(loss) for the period/year from discontinued operation, net of tax 7 Profit for the year Other comprehensive income 14 Items that will not be reclassified subsequently to profit or loss, net of nil tax: Remeasurement of defined benefit plan payable Items that may be reclassified subsequently to profit or loss, net of tax: Exchange realignment Fair value loss on available-for-sale investments Net loss on cash flow hedges	2016 RMB’000 9,658,291 (6,956,661) 2,701,630 10,039 (14,697) (678,259) (65,838) 268,099 169,458 (869,544) 1,520,888 (314,714) 1,206,174 760,501 1,966,675 (160) 443,913 (4,488) (30,641)	2015 (Restated) RMB’000 10,709,298 (7,505,633) 3,203,665 1,004,508 (15,055) (498,083) (55,731) 215,932 223,506 (1,056,665) 3,022,077 (237,122) 2,784,955 (1,527,222) 1,257,733 — 352,977 — (104,840)

— V-14 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

		2016	2015
	Note		(Restated)
		RMB’000	RMB’000
Release upon disposal of discontinued operation		362,032	—
Share of other comprehensive (expense)/income of
associates		(23,590)	3,457
Share of other comprehensive income of joint ventures		71,113	56,555
Other comprehensive income for the year		818,179	308,149
Total comprehensive income for the year		2,784,854	1,565,882
Profit for the year attributable to owners of the
Company:
— Continuing operations		1,191,541	2,774,179
— Discontinued operation		742,523	(1,593,258)
		1,934,064	1,180,921
Profit for the year attributable to non-controlling
interests:
— Continuing operations		14,633	10,776
— Discontinued operation		17,978	66,036
		32,611	76,812
Profit for the year		1,966,675	1,257,733
Total comprehensive income for the year attributable to:
Owners of the Company		2,787,042	1,554,173
Non-controlling interests		(2,188)	11,709
		2,784,854	1,565,882
Earnings per share	16
			(Restated)
		RMB cents	RMB cents
From continuing and discontinued operations
— Basic and diluted		47.97	29.70
From continuing operations
— Basic and diluted		29.55	69.78

The accompanying notes form part of these consolidated financial statements.

— V-15 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED STATEMENT OF FINANCIAL POSITION At 31 December 2016

31 December
31 December
2016
2015
Note
(Restated)
RMB’000
RMB’000
NON-CURRENT ASSETS
Investment properties
17
1,104,907
1,097,975
Property, plant and equipment
18
41,854,733
63,136,985
Prepaid land lease payments
19
79,599
81,978
Goodwill
20
58,168
—
Investments in associates
21
1,994,902
2,040,968
Investments in joint ventures
22
2,169,448
6,187,294
Loan receivables
23
1,453,585
2,119,286
Available-for-sale investments
24
279,761
125,863
Deferred tax assets
25
52,258
486,993
49,047,361
75,277,342
CURRENT ASSETS
Current portion of loan receivables
23
18,899
—
Inventories
26
451,402
715,086
Trade and bills receivables
27
1,206,458
2,791,298
Prepayments, deposits and other receivables
28
908,984
1,887,095
Pledged bank deposits
29
24,134
45,731
Cash and cash equivalents
29
6,364,583
4,863,247
8,974,460
10,302,457
CURRENT LIABILITIES
Trade and bills payables
30
1,349,984
1,477,972
Other payables and accruals
31
1,153,027
1,165,492
Current portion of provision and other liabilities
32
302,551
181,308
Current portion of derivative financial instruments
33
—
4,258
Current portion of interest-bearing bank and other
borrowings
34
4,624,633
11,063,827
Current portion of other loans
35
2,251
—
Current portion of obligations under finance leases
36
—
48,751
Current portion of bonds payable
37
—
—
Current portion of employee benefits payable
38
12,620
13,130
Tax payable
11
120,136
134,312
7,565,202
14,089,050
NET CURRENT ASSETS/(LIABILITIES)
1,409,258
(3,786,593)
TOTAL ASSETS LESS CURRENT LIABILITIES
50,456,619
71,490,749

1 January
2015
(Restated)
RMB’000
1,139,996
60,980,247
86,922
—
1,711,702
5,990,867
786,540
90,984
462,108
71,249,366
—
1,092,022
2,273,078
1,115,889
769,688
4,447,091
9,697,768
1,866,235
557,323
189,261
18,578
9,758,444
44,714
43,979
4,143,383
—
5,092
16,627,009
(6,929,241)
64,320,125

— V-16 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

31 December 31 December 2016 2015 Note (Restated) RMB’000 RMB’000 EQUITY Equity attributable to owners of the Company Issued capital 39 4,032,033 4,032,033 Reserves 40 23,381,056 27,675,185 27,413,089 31,707,218 Non-controlling interests 9,993 862,874 TOTAL EQUITY 27,423,082 32,570,092 NON-CURRENT LIABILITIES Provision and other liabilities 32 208,068 174,553 Derivative financial instruments 33 474,988 411,385 Interest-bearing bank and other borrowings 34 16,881,809 32,411,923 Other loans 35 1,049,820 1,199,539 Obligations under finance leases 36 — 354,003 Bonds payable 37 3,982,045 3,978,488 Employee benefits payable 38 140,890 145,380 Deferred tax liabilities 25 295,917 245,386 23,033,537 38,920,657 TOTAL EQUITY AND NON-CURRENT LIABILITIES 50,456,619 71,490,749	1 January 2015 (Restated) RMB’000 3,481,405 22,225,929
	25,707,334 596,657
	26,303,991
	158,821 291,553 31,956,005 930,946 404,481 3,975,124 — 299,204
	38,016,134
	64,320,125

Sun Jiakang	Liu Hanbo
Director	Director

The accompanying notes form part of these consolidated financial statements.

— V-17 —

APPENDIX V FINANCIAL INFORMATION OF THE GROUP


		Convertible	bonds Non-	Translation equity Retained controlling Total	reserve reserve profits Total interests equity	RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000			(1,000,649) 766,025 10,974,085 21,829,000 818,729 22,647,729		(18,026) — (3,216,686) 3,878,334 (222,072) 3,656,262	(1,018,675) 766,025 7,757,399 25,707,334 596,657 26,303,991	— — 1,180,921 1,180,921 76,812 1,257,733	352,340 — — 352,340 637 352,977	— — — (41,824) (63,016) (104,840)		16,787 — — 6,181 (2,724) 3,457		58,313 — — 56,555 — 56,555		427,440 — 1,180,921 1,554,173 11,709 1,565,882		— — — 224,390 — 224,390	— (766,025) — 3,120,694 — 3,120,694		— — (120,961) (120,961) — (120,961)	— — 199,845 199,845 254,900 454,745	— — — 1,028,034 — 1,028,034	— — 2,060,947 — — —		— — (153,877) (153,877) — (153,877)		— — — 149,971 (112,669) 37,302	— — (155,990) (7,240) 7,240 —	— — 128,684 4,855 (4,855) —		— — — — 116,859 116,859		— — — — (6,967) (6,967)	(591,235) — 10,896,968 31,707,218 862,874 32,570,092
ATTRIBUTABLE TO OWNERS OF THE COMPANY	Available-	for-sale	Safety General investments	Share Share Revaluation Capital Merger Statutory fund surplus Hedging revaluation	capital premium reserve reserve reserve reserve reserve reserve reserve reserve	RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000	At 1 January 2015 (as previously		reported) 3,481,405 4,413,848 273,418 — — 2,877,435 66,120 93,158 (121,477) 5,632	Business combination involving	entities under common control — — — (76,179) 7,189,225 — — — — —	At 1 January 2015 (restated) 3,481,405 4,413,848 273,418 (76,179) 7,189,225 2,877,435 66,120 93,158 (121,477) 5,632	Profit for the year — — — — — — — — — —	Exchange realignment — — — — — — — — — —	Net loss on cash flow hedges — — — — — — — — (41,824) —	Share of other comprehensive	income of associates — — — — — — — — (10,606) —	Share of other comprehensive	income of joint ventures — — — — — — — — — (1,758)	Total comprehensive income for the	year — — — — — — — — (52,430) (1,758)	Capital contribution from former	shareholder — — — — 224,390 — — — — —	Conversion of convertible bonds 550,628 3,336,091 — — — — — — — —	Dividends approved in respect of	previous year — — — — — — — — — —	Dividend in specie — — — — — — — — — —	Revaluation of assets — — — 1,028,034 — — — — — —	Capital reduction of a subsidiary — — — (1,025,485) (1,035,462) — — — — —	Recognition of employee benefits	payable — — — — — — — — — —	Acquisition of additional interests	in a subsidiary — — — 149,971 — — — — — —	Accrual of safety fund reserve — — — — — — 148,750 — — —	Utilisation of safety fund reserve — — — — — — (123,829) — — —	Contribution from non-controlling	interests of a subsidiary — — — — — — — — — —	Dividends paid to non-controlling	interests of subsidiaries — — — — — — — — — —	At 31 December 2015 (restated) 4,032,033 7,749,939 273,418 76,341 6,378,153 2,877,435 91,041 93,158 (173,907) 3,874

— V-18 —

APPENDIX V FINANCIAL INFORMATION OF THE GROUP


ATTRIBUTABLE TO OWNERS OF THE COMPANY	Available-	for-sale	Safety General investments Non-	Share Share Revaluation Capital Merger Statutory fund surplus Hedging revaluation Translation Retained controlling Total	capital premium reserve reserve reserve reserve reserve reserve reserve reserve reserve profits Total interests equity	RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000	At 1 January 2016 (as previously reported) 4,032,033 7,749,939 273,418 149,971 — 2,877,435 91,041 93,158 (173,907) 3,874 (642,566) 11,242,810 25,697,206 825,997 26,523,203	Business combination involving entities under	common control — — — (73,630) 6,378,153 — — — — — 51,331 (345,842) 6,010,012 36,877 6,046,889	At 1 January 2016 (restated) 4,032,033 7,749,939 273,418 76,341 6,378,153 2,877,435 91,041 93,158 (173,907) 3,874 (591,235) 10,896,968 31,707,218 862,874 32,570,092	Profit for the year — — — — — — — — — — — 1,934,064 1,934,064 32,611 1,966,675	Remeasurement of defined benefit plan payable — — — — — — — — — — — (160) (160) — (160)	Exchange realignment — — — — — — — — — — 451,543 — 451,543 (7,630) 443,913	Fair value loss on available-for-sale investments — — — — — — — — — (2,289) — — (2,289) (2,199) (4,488)	Net loss on cash flow hedges — — — — — — — — (11,045) — — — (11,045) (19,596) (30,641)	Release upon disposal of discontinued operation — — — — — — — — — — 362,032 — 362,032 — 362,032	Share of other comprehensive expense of	associates — — — — — — — — (25,197) 519 6,462 — (18,216) (5,374) (23,590)	Share of other comprehensive income of joint	ventures — — — — — — — — — (2,840) 73,953 — 71,113 — 71,113	Total comprehensive income for the year — — — — — — — — (36,242) (4,610) 893,990 1,933,904 2,787,042 (2,188) 2,784,854	Business combination involving entities under	common control — — — — (6,629,409) — — — — — — — (6,629,409) — (6,629,409)	Dividends approved in respect of previous year — — — — — — — — — — — (403,203) (403,203) — (403,203)	Accrual of safety fund reserve — — — — — — 139,397 — — — — (141,892) (2,495) 2,495 —	Utilisation of safety fund reserve — — — — — — (128,912) — — — — 130,341 1,429 (1,429) —	Disposal of discontinued operation — — — — — — (47,493) — — — — — (47,493) (1,060,766) (1,108,259)	Non-controlling interests arising from business	combination — — — — — — — — — — — — — 220,857 220,857	Dividends paid to non-controlling interests of	subsidiaries — — — — — — — — — — — — — (11,850) (11,850)	At 31 December 2016 4,032,033 7,749,939 273,418 76,341 (251,256) 2,877,435 54,033 93,158 (210,149) (736) 302,755 12,416,118 27,413,089 9,993 27,423,082	The accompanying notes form part of these consolidated financial statements.

— V-19 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 December 2016

Note NET CASH GENERATED FROM OPERATING ACTIVITIES 43 INVESTING ACTIVITIES Interest received Payments for construction in progress Purchases of property, plant and equipment Proceeds from disposal of property, plant and equipment Loans to associates Loans to joint ventures Loans to fellow subsidiaries Repayment from associates Repayment from fellow subsidiaries Dividends received from associates Dividends received from joint ventures Dividends received from available-for-sale investments Acquisition of a subsidiary from business combination involving entities under common control 44(a) Acquisition of a subsidiary, net of cash (paid)/acquired 44(b) Acquisition of additional interests in a subsidiary Net cash inflow from disposal of discontinued operation 7 Investments in associates Investments in joint ventures Decrease in pledged bank deposits NET CASH GENERATED FROM/(USED IN) INVESTING ACTIVITIES	2016 RMB’000 12,064,988 205,810 (4,228,891) (48,788) 56,133 (18,231) (454,600) — 1,238,884 10,566,129 200,000 504,938 9,640 (6,629,409) (206,024) — 4,131,313 — (133,320) 21,597 5,215,181	2015 (Restated) RMB’000 7,600,649 90,430 (3,802,415) (77,217) 676,361 (1,219,347) (9,144) (325,540) — 355,540 160,000 670,521 23,442 — 2,783 37,302 — (266,411) (566,357) 723,957 (3,526,095)

— V-20 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Note FINANCING ACTIVITIES Interest paid Dividends paid Dividends paid to non-controlling interests of subsidiaries Cash and cash equivalents distributed on dividend in specie 42 Increase in other loans Repayment of other loans Increase in interest-bearing bank and other borrowings Repayment of interest-bearing bank and other borrowings Capital element of finance leases rental paid Redemption of corporate bonds Redemption of convertible bonds Capital contribution from former shareholder NET CASH USED IN FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT 1 JANUARY Effect of foreign exchange rate changes, net CASH AND CASH EQUIVALENTS AT 31 DECEMBER	2016 RMB’000 (1,131,831) (403,203) (11,850) — 214,980 (5,031) 4,310,640 (18,807,756) (38,330) — — — (15,872,381) 1,407,788 4,863,247 93,548 6,364,583	2015 (Restated) RMB’000 (1,561,645) (120,961) (6,967) (67,381) 291,011 (14,726) 14,723,515 (16,232,144) (57,164) (1,000,000) (34,744) 224,390 (3,856,816) 217,738 4,447,091 198,418 4,863,247

The accompanying notes form part of these consolidated financial statements.

— V-21 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2016

Corporate Information

COSCO SHIPPING Energy Transportation Co., Ltd. (the “Company”) is a joint stock company with limited liability established in the People’s Republic of China (the “PRC”). The registered office of the Company is Room A-1015, No. 188 Ye Sheng Road, China (Shanghai) Pilot Free Trade Zone, the PRC and, effective from 29 November 2016, the principal place of business has been changed to 18th Floor, 118 Yuanshen Road, Pudong New District, Shanghai, the PRC.

Pursuant to a special resolution passed on 19 September 2016, and upon the issuance of a new business license dated 18 October 2016 by the Administration for Industry and Commerce of Shanghai in the PRC, the Company changed its Chinese name from “中海發展股份有限公司” to “中遠海運能源運輸股份有限公司” and its English name from “China Shipping Development Company Limited” to “COSCO SHIPPING Energy Transportation Co., Ltd.”.

During the year ended 31 December 2016, the Company and its subsidiaries (together the “Group”) were involved in the following principal activities:

(a) investment holding; and/or
(b) oil and cargo shipment along the PRC coast and international shipment; and/or
(c) vessel chartering.

As at 31 December 2015, China Shipping (Group) Company (“China Shipping”), a company established in the PRC, was regarded as the Company’s ultimate holding company. On 4 May 2016, the Company received a notice from China Shipping, pursuant to which, on 4 May 2016, the State-owned Assets Supervision and Administration Commission of the State Council, the PRC (the “SASAC”) gratuitously transferred its entire equity interest in China Shipping to China COSCO Shipping Corporation Limited (“COSCO Shipping”), a company established in the PRC (the “Controlling Shareholder Restructuring”). Upon the completion of the Controlling Shareholder Restructuring, China Shipping became a wholly-owned subsidiary of COSCO Shipping. As at 31 December 2016, in the opinion of the directors of the Company, China Shipping and COSCO Shipping were the Company’s immediate holding company and ultimate holding company respectively.

The H-Shares and A-Shares of the Company are listed on the Main Board of The Stock Exchange of Hong Kong Limited and the Shanghai Stock Exchange respectively.

These consolidated financial statements are presented in Renminbi (“RMB”), which is the functional currency of the Group, and all values are rounded to the nearest thousand except where otherwise indicated.

These consolidated financial statements have been approved for issue by the board of directors of the Company (the “Board”) on 28 March 2017.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Significant Accounting Policies

2.1 Statement of compliance

These consolidated financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), which collective term includes all applicable individual HKFRSs, Hong Kong Accounting Standards (“HKASs”) and Interpretations and Accounting Guidelines issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. These consolidated financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

The HKICPA has issued certain new and revised HKFRSs that are first effective or available for early adoption for the current accounting period of the Group and the Company. Note 4 to the consolidated financial statements provides information on any changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Group for the current and prior periods reflected in the consolidated financial statements.

A summary of the significant accounting policies adopted by the Group is set out below.

2.2 Basis of preparation

(a) In accordance with the asset transfer agreements entered into between the Company and China Ocean Shipping (Group) Company (“China Ocean Shipping”) on 29 March 2016, the Company acquired 100% equity interest in COSCO SHIPPING Tanker (Dalian) Co., Ltd. (formerly known as Dalian Ocean Shipping Company Limited) (“Dalian Tanker”) at a consideration of RMB6,629,408,800. The acquisition of Dalian Tanker was completed on 30 June 2016 and has been accounted for as combination of businesses under common control since the directors of the Company consider that the Company and Dalian Tanker are under common control of the SASAC both before and after the above mentioned acquisition.

The aforementioned acquisition of Dalian Tanker from China Ocean Shipping has been accounted for using the principles of merger accounting, as prescribed in Accounting Guideline 5 “Merger Accounting for Common Control Combinations” issued by the HKICPA. The financial information of Dalian Tanker has been incorporated into these consolidated financial statements. As a result, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the prior years have been restated to include the operating results and cash flows of Dalian Tanker. The consolidated statements of financial position as at 31 December 2015 and 1 January 2015 have been restated to include the assets and liabilities of Dalian Tanker. Respective notes to the consolidated financial statements have also been restated. All significant intragroup transactions, balances, income and expenses are eliminated on combination. The impact of the restatements is set out in note 44(a) to the consolidated financial statements.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

(b) These consolidated financial statements have been prepared on the historical cost basis, except that the following assets and liabilities are measured at fair values, as explained in the accounting policies set out below:
investment properties (see note 2.7);
certain available-for-sale investments that are measured at fair value (see note 2.11); and
derivative financial instruments (see note 2.18).

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

The preparation of consolidated financial statements in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of HKFRSs that have a significant effect on the consolidated financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 3 to the consolidated financial statements.

2.3 Basis of consolidation

These consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities) controlled by the Group. Control is achieved when the Company:

has power over the investee;
is exposed, or has rights, to variable returns from its involvement with the investee; and
has the ability to use its power to affect its returns.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

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APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Group gains control until the date when the Group ceases to control the subsidiary.

Profit or loss and each item of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group’s accounting policies.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

Changes in the Group’s ownership interests in existing subsidiaries

Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. 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 Company.

When the Group loses control of a subsidiary, a gain or loss is recognised in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable HKFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under HKAS 39 “Financial Instruments: Recognition and Measurement”, when applicable, the cost on initial recognition of an investment in an associate or a joint venture.

2.4 Business combinations

(a) Business combination involving entities under common control

Business combination involving entities under common control has been accounted for by applying the principles of merger accounting in accordance with Accounting Guideline 5 issued by the HKICPA.

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APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

In applying merger accounting, the consolidated financial statements incorporate the financial statements of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or businesses first came under the control of the controlling party. The net assets of the combining entities or businesses are combined using the existing book values from the controlling parties’ perspective. No amount is recognised for goodwill or excess of acquirers’ interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party’s interest. The consolidated statement of profit or loss and other comprehensive income includes the results of each of the combining entities or businesses from the earliest date presented or since the date when the combining entities or businesses first came under common control, where there is a shorter period, regardless of the date of the common control combination.

The comparative amounts in the consolidated financial statements have been restated as if the business combination had been completed on the earliest date of the periods being presented or when they first came under common control, whichever is shorter.

Transaction costs, including professional fees, registration fees, costs of furnishing information to shareholders, costs or losses incurred in combining operations of the previously separate businesses incurred in relation to the common control combination that are to be accounted for by using merger accounting are recognised as expenses in the year in which they were incurred.

(b) Business combination not involving entities under common control

Acquisitions of businesses not involving entities under common control are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair values, except that:

deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with HKAS 12 “Income Taxes” and HKAS 19 “Employee Benefits” respectively;
liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with HKFRS 2 “Share-based Payment” at the acquisition date; and
assets (or disposal groups) that are classified as held for sale in accordance with HKFRS 5 “Non-current Assets Held for Sale and Discontinued Operations” are measured in accordance with that standard.

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APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another HKFRS.

When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with HKAS 39, or HKAS 37 “Provisions, Contingent Liabilities and Contingent Assets”, as appropriate, with the corresponding gain or loss being recognised in profit or loss.

When a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is remeasured to its acquisition-date fair value and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised at that date.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

2.5 Goodwill

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business (see note 2.4(b)) less accumulated impairment losses, if any.

For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination.

A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods.

On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

2.6 Investments in associates and joint ventures

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

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 joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

The results and assets and liabilities of associates and joint ventures are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment, or a portion thereof, is classified as held for sale, in which case it is accounted for in accordance with HKFRS 5. Under the equity method, an investment in an associate or a joint venture is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the associate or joint venture. When the Group’s share of losses of an associate or a joint venture exceeds the Group’s interest in that associate or joint venture (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate or joint venture), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture.

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APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

An investment in an associate or a joint venture is accounted for using the equity method from the date on which the investee becomes an associate or a joint venture. On acquisition of the investment in an associate or a joint venture, any excess of the cost of the investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired.

The requirements of HKAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate or a joint venture. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with HKAS 36 “Impairment of Assets” as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with HKAS 36 to the extent that the recoverable amount of the investment subsequently increases.

When an entity of the Group transacts with an associate or a joint venture of the Group, profits and losses resulting from the transactions with the associate or joint venture are recognised in the Group’s consolidated financial statements only to the extent of interests in the associate or joint venture that are not related to the Group.

2.7 Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation. Investment properties include land held for undetermined future use, which is regarded as held for capital appreciation purpose.

Investment properties are initially measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured at fair value. Gains and losses arising from change in fair value of investment properties are included in profit or loss in the period in which they arise.

Construction costs incurred for investment properties under construction are capitalised as part of the carrying amount of the investment properties under construction.

If an item of property, plant and equipment becomes an investment property because its use has changed as evidenced by end of owner-occupation, any difference between the carrying amount and the fair value of that item at the date of transfer is recognised in other comprehensive income and accumulated in property revaluation reserve. On the subsequent sale or retirement of the asset, the relevant revaluation reserve will be transferred directly to retained profits.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the item is derecognised.

2.8 Property, plant and equipment and depreciation

Property, plant and equipment, other than construction in progress, are stated at cost or valuation less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price, costs transferred from construction in progress, any directly attributable costs of bringing the asset to its working condition and location for its intended use, as well as interest charges relating to funds borrowed during the periods of construction, installation and testing. Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to profit or loss in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment, and where the cost of the item can be measured reliably, the expenditure is capitalised as an additional cost of the asset or as a replacement.

Depreciation is calculated on the straight-line basis to write off the cost or valuation of each item of property, plant and equipment over its estimated useful life. The principal annual rates used for this purpose are as follows:

Leasehold improvements Over the remaining terms of lease Vessels 22-30 years (note) Machinery and equipment 5-15 years Motor vehicles 5-10 years Buildings 10-50 years

Note: Used vessel acquired is depreciated over its estimated remaining useful life. There was a change in the estimated useful life of the Group’s vessels during the year ended 31 December 2016 (see note 5).

Where parts of an item of property, plant and equipment have different useful lives, the cost or valuation of that item is allocated on a reasonable basis among the parts and each part is depreciated separately.

Residual values, useful lives and depreciation method are reviewed, and adjusted if appropriate, at the end of each reporting period.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

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APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

Construction in progress mainly represents the construction or renovation of vessels, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises direct costs of construction and capitalised borrowing costs on related borrowed funds during the periods of construction, installation and testing. Capitalisation of borrowing costs ceases when substantially all the activities necessary to prepare the asset for its intended use are completed. No provision for depreciation is made on construction in progress until such time when the relevant assets are completed and put into use. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.

2.9 Leasehold land and land use rights

Leasehold land and land use rights represent prepaid operating lease payments for land 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.

2.10 Impairment of non-financial assets other than goodwill

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, deferred tax assets and investment properties), the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs of disposal, and 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, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to profit or loss in the period in which it arises, unless the asset is carried at a revalued amount, in which case the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

An assessment is made at the end of each reporting period as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill and certain financial assets is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation), had no impairment loss been recognised for the asset in prior years. A reversal of such impairment loss is credited to profit or loss in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

2.11 Investments and other financial assets

Financial assets within the scope of HKAS 39 are classified as loans and receivables and available-for-sale investments, as appropriate. When financial assets are recognised initially, they are measured at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group considers whether a contract contains an embedded derivative when the Group first becomes a party to it. The embedded derivatives are separated from the host contract which is not measured at fair value through profit or loss when the analysis shows that the economic characteristics and risks of embedded derivatives are not closely related to those of the host contract.

The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at the end of each reporting period.

All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are subsequently carried at amortised cost using the effective interest method, less any impairment losses. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction costs. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument, or, where appropriate, a shorter period to the net carrying amount on initial recognition. Income is recognised on an effective interest basis for debt instruments other than those financial asset classified as fair value through profit or loss.

Available-for-sale investments

Available-for-sale investments are non-derivative financial assets in listed and unlisted equity securities that are designated as available for sale or are not classified in any of the other two categories. After initial recognition, available-for-sale investments are measured at fair value, with gains or losses recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the profit or loss.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

When the fair value of unlisted equity securities cannot be reliably measured because (i) the variability in the range of reasonable fair value estimates is significant for that investment, or (ii) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such securities are stated at cost less any impairment losses.

Fair value

The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business at the end of the reporting period. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions, reference to the current market value of another instrument which is substantially the same, a discounted cash flow analysis, and other valuation models.

2.12 Impairment of financial assets

The Group assesses at the end of each reporting period whether there is any objective evidence that a financial asset or a group of financial assets is impaired.

Assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of the impairment loss is recognised in profit or loss.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in profit or loss, to the extent that the carrying amount of the asset does not exceed its amortised cost at the reversal date.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

In relation to trade receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Group will not be able to collect all of the amounts due under the original transaction. The carrying amount of the receivables is reduced through the use of an allowance account. Impaired debts are derecognised when they are assessed as uncollectible.

Assets carried at cost

If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on these assets are not reversed.

Available-for-sale investments

If an available-for-sale investments is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, is transferred from equity to profit or loss. Impairment losses on equity investments classified as available for sale are not reversed through profit or loss.

2.13 Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where:

the rights to receive cash flows from the asset have expired;
the Group retains the rights to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or
the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

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APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, where the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

2.14 Inventories

Inventories comprise bunker oil inventories, ship stores and spare parts, and are stated at lower of cost and net realisable value. Cost is determined on the weighted average cost method basis. Net realisable value of bunkers is the expected amount to be realised from use as estimated by the directors or management.

2.15 Cash and cash equivalents

For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short-term highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the consolidated statement of financial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits and assets similar in nature to cash, which are not restricted to use.

2.16 Financial liabilities at amortised cost

Financial liabilities, including trade and bills payables, other payables and accruals, interest-bearing bank and other borrowings, other loans, obligations under finance leases and bonds payable, are initially recognised at fair value less directly attributable transaction costs. They are subsequently measured at amortised cost using the effective interest method, except when the effect of discounting would be insignificant in which case, they are carried at cost.

Gains or losses are recognised in profit or loss when the liabilities are derecognised as well as through the amortisation process.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. Interest expense is recognised on an effective interest basis.

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2.17 Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expired.

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amount is recognised in profit or loss.

2.18 Derivative financial instruments and hedging

The Group uses derivative financial instruments, such as interest rate swap agreements to hedge its risks associated with interest rate. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to profit or loss.

The fair value of interest rate swap agreements is determined by reference to the present value of estimated future cash flows.

Embedded derivatives

Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the contracts are not measured at fair value through profit or loss.

For the purpose of hedge accounting, hedges are classified as:

fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment (except for foreign currency risk); or
cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction, or a foreign currency risk in an unrecognised firm commitment.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting, the risk management objective and its strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item of transaction, the nature of the risk being hedged and how the Group will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged

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item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

Hedges which meet the strict criteria for hedge accounting are accounted for as follows:

Cash flow hedges

The effective portion of the gain or loss on the hedging instrument is recognised directly in other comprehensive income, while the ineffective portion is recognised immediately in profit or loss.

Amounts taken to equity are transferred to profit or loss when the hedged transaction affects profit or loss, such as when hedged financial income or financial expense is recognised or when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or non-financial liability.

If the forecast transaction or firm commitment is no longer expected to occur, the amounts previously recognised in equity are transferred to profit or loss. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, the amounts previously recognised in equity remain in equity until the forecast transaction or firm commitment occurs.

2.19 Convertible bonds

Convertible bonds issued by the Group contain liability, conversion option, callable option and early redemption option. Conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company’s own equity instruments is an equity instrument. Callable option and early redemption option embedded in non-derivative host liability component with risks and characteristics that are closely related to the liability component are not separated from the liability component.

On initial recognition, the fair value of the liability component (including the callable option and early redemption option which is closely related) is determined using the prevailing market interest rate of similar non-convertible debts. The difference between the gross proceeds of the issue of the convertible bond and the fair value assigned to the liability component, representing the conversion option of the holder to convert the bond into equity, is included in equity (convertible bonds equity reserve).

In subsequent periods, the liability component of the convertible bond is carried at amortised cost using the effective interest method. The conversion option is not subsequently re-measured. In addition, the conversion option classified as equity will remain in equity until the conversion option

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FINANCIAL INFORMATION OF THE GROUP

is exercised, in which case, the balance recognised in equity will be transferred to share premium. Where the conversion option remains unexercised at the maturity date of the convertible bonds, the balance recognised in equity will be transferred to retained profits. No gain or loss is recognised in profit or loss upon conversion or expiration of the conversion option.

Transaction costs that relate to the issue of the convertible bonds are allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are recognised directly in equity. Transaction costs relating to the liability component are included in the carrying amount of the liability component and are amortised over the lives of the convertible bonds using the effective interest method.

2.20 Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Provided it is probable that the economic benefits will flow to the Group and when the revenue and cost, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows:

(a) from shipping operations, on the percentage of completion basis;
(b) rental income arising from assets leased out under operating leases are recognised on a straight-line basis over the period of each lease;
(c) from vessel management, in the period in which the vessels are managed in accordance with the respective agreement;
(d) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;
(e) interest income, on an accrual basis using the effective interest method;
(f) dividend income, when the shareholders’ right to receive payment has been established; and
(g) other service income is recognised when the services are rendered.

2.21 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. The capitalisation of such borrowing costs ceases when 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 capitalised.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

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2.22 Leases

Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance leases are included in property, plant and equipment, and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to profit or loss so as to provide a constant periodic rate of charge over the lease terms.

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating leases are included in non-current assets, and rentals receivable under the operating leases are credited to profit or loss on the straight-line basis over the lease terms. Where the Group is the lessee, rentals payable under the operating leases are charged to profit or loss on the straight-line basis over the lease terms. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis.

The land and building elements of a lease of land and building are considered separately for the purpose of lease classification unless the lease payments cannot be allocated reliably between the land and building elements. In which case, the entire lease is generally treated as a finance lease and accounted for as property, plant and equipment. To the extent the allocation of the lease payments can be made reliably, leasehold interests in land are accounted for as operating leases.

2.23 Income tax

Income tax comprises current and deferred tax. Income tax is recognised in profit or loss, or in equity if it relates to items that are recognised in the same or a different period directly in equity.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.

Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

where the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

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in respect of taxable temporary differences associated with investments in subsidiaries and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled by the Group and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except:

where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

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 profit will be available to allow all or part of the deferred tax asset to be utilised. Conversely, previously unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the end of the reporting period.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit and loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

2.24 Discontinued operation

A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which:

represents a separate major line of business or geographic area of operations;

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is part of a single co-ordinated plan to dispose of a separate major line of business or geographic area of operations; or
is a subsidiary acquired exclusively with a view to re-sale.

Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held-for-sale.

When an operation is classified as a discontinued operation, the comparative consolidated statement of profit or loss and other comprehensive income is re-presented as if the operation had been discontinued from the start of the comparative year.

2.25 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). These consolidated financial statements are presented in RMB, which is the Company’s presentation and functional currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

(c) Translation for foreign operations

For the foreign operations, the Company translated all items into reporting currency - RMB. All the assets and liabilities at the end of the reporting period are translated into RMB at the market rates of exchange prevailing as at that date. The equity accounts except for the “undistributed profits” are translated into RMB at the exchange rate on the date of occurrence. Income and expenses are translated at average exchange rates. The translation difference between the assets, liabilities and equity is listed as a separate item behind “undistributed profits”. Foreign exchange gains and losses resulting from the settlement of transactions and from the monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

2.26 Dividends

Final dividends proposed by the directors of the Company are classified as a separate allocation of retained profits within the equity section of the consolidated statement of financial position, until they have been approved by the shareholders in a general meeting. When these dividends have been approved by the shareholders and declared, they are recognised as a liability.

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2.27 Government subsidies

Subsidies from the government are recognised at their fair value when there is a reasonable assurance that the Group will comply with the conditions attaching with them and that the grants will be received.

Subsidies relating to income are deferred and recognised in profit or loss over the period necessary to match them with the costs they are intended to compensate, otherwise subsidy with no future related costs are recognised as income in the period in which they become receivable.

2.28 Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably. A contingent liability is not recognised but is disclosed in the notes to the consolidated financial statements. When a change in the probability of an outflow occurs so that outflow is probable, it will then be recognised as a provision.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Group. Contingent assets are not recognised but are disclosed in the notes to the consolidated financial statements when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.

2.29 Provisions

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognised for a provision is the present value at the end of the reporting period of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in profit or loss.

Provision for an onerous contract is recognised when the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling the contract and any compensation or penalties arising from failure to fulfil the contract.

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2.30 Employee benefits

(a) 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.

(b) Bonus entitlements

The expected cost of bonus payments is recognised as a liability when the Group has a present legal or constructive obligation as a result of services rendered by employees and a reliable estimate of the obligation can be made. Liabilities for bonus are expected to be settled within twelve months and are measured at the amounts expected to be paid when they are settled.

(c) Housing funds

All full-time employees of the Group are entitled to participate in various government-sponsored housing funds. The Group contributes on a monthly basis to these funds based on certain percentages of the salaries of the employees. The Group’s liability in respect of these funds is limited to the contributions payable in each period.

(d) Retirement benefit costs

(i) Defined contribution retirement benefit plans

For employees in the PRC, the Group contributes to a defined contribution retirement scheme managed by the local municipal government in the PRC. The local municipal government in the PRC undertakes to assume the retirement benefit obligations payable to the qualified employees in the PRC for post-retirement benefits beyond the contributions made. The Group’s contributions to the retirement scheme are expensed as incurred.

For Hong Kong employees, the Group contributes to the Mandatory Provident Fund Scheme (the “MPF Scheme”) in accordance with Hong Kong Mandatory Provident Fund Schemes Ordinance. Contributions to the MPF Scheme by the Group and its employees are calculated as a percentage of employees’ remuneration received. The Group’s contributions to the MPF Scheme are expensed as incurred. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund.

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(ii) Defined benefit retirement benefit plans

The Group’s net obligation in respect of defined benefit retirement plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine the present value and the fair value of any plan assets is deducted. The calculation is performed by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Group, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan.

Service cost and net interest expense/income on the net defined benefit liability/asset are recognised in profit or loss. Current service cost is measured as the increase in the present value of the defined benefit obligation resulting from employee service in the current period. When the benefits of a plan are changed, or when a plan is curtailed, the portion of the changed benefit related to past service by employees, or the gain or loss on curtailment, is recognised as an expense in profit or loss at the earlier of when the plan amendment or curtailment occurs and when related restructuring costs or termination benefits are recognised. Net interest expense/income for the period is determined by applying the discount rate used to measure the defined benefit obligation at the beginning of the reporting period to the net defined benefit liability/asset. The discount rate is the yield at the end of the reporting period on government bonds that have maturity dates approximating the terms of the Group’s obligations.

Remeasurements arising from defined benefit retirement plans are recognised in other comprehensive income and reflected immediately in retained profits. Remeasurements comprise actuarial gains and losses, the return on plan assets (excluding amounts included in net interest on the net defined benefit liability/asset) and any change in the effect of the asset ceiling (excluding amounts included in net interest on the net defined benefit liability/asset).

(e) Enterprise annuity

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 Group’s contributions to the enterprise annuity scheme are expensed as incurred.

(f) Termination benefits

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits at the earlier of the following dates: (a) when the Group can no longer withdraw the offer of those benefits; (b) when the Group recognises costs for a restructuring that is within the scope of HKAS 37 and involves the payment of termination benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than twelve months after the end of the reporting period are discounted to present value.

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(g) Housing subsidies

The Group has provided one-off cash housing subsidies based on the PRC regulations to those eligible employees who have not been allocated with staff quarters at all or who have not been allocated with quarters up to the prescribed standards before 31 December 1998 when the staff quarter allocation schemes were terminated. The subsidies are determined based on a staff member’s years of service, position and other criteria. In addition, monthly cash housing allowances should be made to other employees following the withdrawal of allocation of staff quarters regulations, which are recognised as incurred. The liabilities recognised in the consolidated statement of financial position is the present value of the obligation of the one-off housing subsidies at the end of the reporting period and the past-service costs are recognised immediately in profit or loss.

2.31 Related parties

(a) A person, or a close member of that person’s family, is related to the Group if that person:
(i) has control or joint control of the Group;
(ii) has significant influence over the Group; or
(iii) is a member of the key management personnel of the Group or of a parent of the Group.
(b) An entity is related to the Group if any of the following conditions applies:
(i) The entity and the Group 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 Group or an entity related to the 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).

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(viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the parent of the Group.

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.

2.32 Segment reporting

Operating segments, and the amounts of each segment item reported in the consolidated financial statements, are identified from the financial information provided regularly to the Group’s chief operating decision makers for the purposes of allocating resources to, and assessing the performance of, the Group’s various lines of business and geographical locations.

Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

2.33 Events after the reporting period

Events after the reporting period that provide additional information about the Group’s position at the end of the reporting period or those that indicate the going concern assumption is not appropriate are adjusting events and are reflected in the consolidated financial statements. Events after the reporting period that are not adjusting events are disclosed in the notes to the consolidated financial statements when material.

3. Accounting Estimates and Judgements

The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. The estimates and underlying assumptions are reviewed on an ongoing basis. 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.

3.1 Fair value of investment properties

Messrs. China Tong Cheng Assets Appraisal Co., Ltd. (“China Tong Cheng”) and 遼寧永順資產評估有限公司 (“遼寧永順”), which are independent certified public valuers in the PRC, were appointed to carry out a valuation of the Group’s investment properties as at 31 December 2016 and 2015 and the date of transfer from and to property, plant and equipment. The valuation was arrived at by reference to market evidence of transaction prices for similar properties. Management has reviewed the independent property valuation and compared it with its own assumptions, with reference to comparable sales transaction data where such information is available, and has concluded that the independent property valuation of the Group’s investment properties is reasonable.

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As at 31 December 2016, the fair value of the Group’s investment properties was RMB1,104,907,000 (2015: RMB1,097,975,000).

3.2 Useful lives of property, plant and equipment

Management determines the estimated useful lives and related depreciation charges for its property, plant and equipment. This estimate is based on the historical experience of the actual useful lives of property, plant and equipment of similar nature and functions. It could change significantly as a result of technical innovations and competitor actions in response to severe industry activities. Management will increase the depreciation charge where useful lives are less than previously estimated lives, or it will write-down technically obsolete or non-strategic assets that have been abandoned or sold.

There was a change in the estimated useful life of the Group’s vessels during the year ended 31 December 2016 (see note 5).

3.3 Depreciation of vessels

The Group determines the depreciation amount of vessels based on the estimated useful lives and residual values, which are reviewed at the end of each reporting period. The principal assumptions for the Group’s estimation of the useful lives and residual values include those related to the mode of operations, government regulations and scrap value of vessels in future.

As at 31 December 2016, the net carrying amount of the Group’s vessels was RMB32,327,154,000 (2015: RMB54,912,803,000).

3.4 Impairment of vessels

The Group’s major operating assets represent vessels. Management performs review for impairment of the vessels whenever events or changes in circumstances indicate that the carrying amounts of the vessels may not be recoverable.

The recoverable amounts of vessels have been determined either based on value in use or fair value less costs of disposal method. The fair values of the assets were determined with reference to market transactions at the end of the reporting period. While the value in use calculations require the use of estimates on the projections of cash inflows from the continuous use of vessels (including the amount to be received for the disposal of vessels) and discounting rates. All these items have been historically volatile and may impact the results of the impairment assessment.

Based on management’s best estimates, no impairment losses for vessels was recognised during the year ended 31 December 2016 (2015: RMBnil).

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3.5 Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating unit to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value.

As at 31 December 2016, the carrying amount of goodwill was RMB58,168,000 (2015: RMBnil) and no impairment losses was recognised during the year. Details of the impairment of goodwill assessment calculation are provided in note 20 to the consolidated financial statements.

3.6 Impairment of investments in associates and joint ventures

Management performs review for impairment of the investments in associates and joint ventures whenever events or changes in circumstances indicate that the carrying amounts of the investments in associates and joint ventures may not be recoverable.

The recoverable amounts of investments in associates and joint ventures have been determined either based on value in use or fair value less costs of disposal method. The fair values were determined on reference of observable market prices at the end of the reporting period. While the value in use calculations are based on discounted cash flow model and require the use of estimates on the projections of cash inflows and discounting rates. All these items have been historically volatile and may impact the results of the impairment assessment.

Based on management’s best estimates, no impairment losses on investments in associates and joint ventures (2015: impairment losses of RMB193,971,000 on investments in joint ventures) was recognised during the year ended 31 December 2016.

3.7 Impairment of available-for-sale investments

The Group determines whether available-for-sale investments have suffered any impairment largely dependent on management’s judgements and assumptions. In making judgements and assumptions, the Group requires to assess the extent and duration when the fair value of an investment is lower than its cost, and the financial position and short-term business outlook of the investee company, including industry conditions, technology changes, credit ratings, default rates and counterparty risks.

Based on management’s best estimates, no impairment losses on available-for-sale investments (2015: impairment losses of RMB37,324,000) was recognised during the year ended 31 December 2016.

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3.8 Deferred tax assets

The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide 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, the differences will impact the income tax and deferred tax provisions in the period in which the determination is made.

Recognition of deferred tax assets depends on management’s expectation of future taxable profit that will be available against which the deferred tax assets can be utilised. The outcome of their actual utilisation may be different.

As at 31 December 2016, no deferred tax assets (2015: deferred tax assets of RMB432,331,000) in relation to unused tax losses has been recognised in the consolidated statement of financial position. The realisability of the deferred tax assets mainly depends on whether sufficient future profits or taxable temporary differences will be available in the future. In cases where the actual future profits generated are less than expected, a material reversal of deferred tax assets may arise, which would be recognised in profit or loss for the period in which such a reversal takes place.

3.9 Net realisable value of inventories

The Group makes provision for slow-moving or obsolete inventories based on an assessment of the net realisable value of the inventories. Provisions are applied to the inventories where events or changes in circumstances indicate that net realisable value is less than cost. The determination of net realisable value requires the use of judgement and estimates. Where the expectation is different from the original estimate, such difference will have impact on carrying amount of the inventories and provisions of inventory expenses in the period in which such estimate has been changed.

As at 31 December 2016, no allowance for inventories was recognised (2015: RMBnil).

3.10 Provision for impairment of trade and other receivables

The Group makes provision for doubtful debts based on an assessment of the recoverability of, trade and other receivables. Provisions are applied to trade and other receivables where events or changes in circumstances indicate that the balances may not be collectible. The identification of doubtful debts requires the use of judgement and estimates based on the credit history of the customers and the current market conditions. Where the expectation is different from the original estimate, such difference will have an impact on the carrying amount of receivables and doubtful debt expenses in the period in which such estimate has been changed.

As at 31 December 2016, allowance for trade and other receivables amounted to RMB44,298,000 (2015: RMB466,000).

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3.11 Provision for onerous contracts

Management estimates the provision for onerous contracts being the present obligation 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 estimated future freight rates by reference to market statistics and information while unavoidable costs are estimated based on charterhire payments that the Group is obliged to make under the non-cancellable chartered-in vessel contracts.

As at 31 December 2016, management conducted an assessment of the non-cancellable chartered-in vessel contracts and had made a provision of RMB495,338,000 (2015: RMB340,447,000) for onerous contracts (see note 32). Those contracts under assessment relate to leases (i) with lease term expiring within twenty-four months from the end of the reporting period; and (ii) with lease term expiring over twenty-four months from the end of the reporting period in respect of the period being covered by the chartered-out vessel contracts.

The market is currently highly volatile and freight rates longer than twenty-four months are difficult to predict with a reasonable certainty. Management considers that it cannot reasonably assess as to whether the chartered-in contracts with lease terms expiring over twenty-four months after the end of the reporting period, and with period not being covered by chartered-out vessel contracts are onerous as the economic benefits expected to be received from those contracts cannot be reliably measured.

As at 31 December 2016, had the estimated freight rates for the onerous contracts, with all other variables held constant, increased or decreased by 10% from management’s estimates, the provision for onerous contracts would have been decreased or increased by RMB55,572,000 (2015: RMB54,538,000).

3.12 Voyages in progress

The Group recognises a percentage of estimated total revenues and expenses for any voyage remains incomplete as at the end of the reporting period. The percentage is calculated based on the number of days completed to the estimated voyage period. If the actual voyage period was different from the estimate, the estimated revenue and voyage expenses would be affected in the following reporting period.

3.13 Provision of voyage expenses

Invoices for voyage expenses are normally received several months after the transaction. For voyages completed or in progress as at the end of the reporting period, voyage expenses are estimated based on the latest quotation and voyage statistics obtained from vendors. If the actual voyage expenses were different from the estimate, this would have an impact on the estimated voyage expenses in the following reporting period.

— V-50 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Adoption of New and Revised HKFRSs and Changes in Accounting Policies

Impact of new and revised HKFRSs

In the current year, the Group has adopted the following amendments to HKFRSs issued by the HKICPA that are first effective and relevant to the Group’s financial year beginning on 1 January 2016.

Amendments to HKFRSs Annual Improvements to HKFRSs 2012-2014 Cycle Amendments to HKAS 1 Disclosure Initiative Amendments to HKAS 16 and Clarification of Acceptable Methods of Depreciation and HKAS 38 Amortisation Amendments to HKAS 27 Equity Method in Separate Financial Statements Amendments to HKFRS 11 Accounting for Acquisition of Interests in Joint Operations

The adoption of the amendments to HKFRSs in the current year has had no material impact on the consolidated financial statements of the Group for the current or prior years and/or on the disclosures set out in these consolidated financial statements.

Impact of new and revised HKFRSs issued but not yet effective

The Group has not early applied the following new and revised HKFRSs that have been issued and relevant to the Group but are not yet effective for the financial year beginning on 1 January 2016.

Amendments to HKFRSs Annual Improvements to HKFRSs 2014-2016 Cycle[4] Amendments to HKAS 7 Disclosure Initiative[1] Amendments to HKAS 12 Recognition of Deferred Tax Assets for Unrealised Losses[1] HKFRS 9 Financial Instruments[2] Amendments to HKFRS 10 and Sale or Contribution of Assets between an Investor and its HKAS 28 Associate or Joint Venture[5] HKFRS 15 Revenue from Contracts with Customers[2] HKFRS 16 Leases[3]

1 Effective for annual periods beginning on or after 1 January 2017.

2 Effective for annual periods beginning on or after 1 January 2018.

3 Effective for annual periods beginning on or after 1 January 2019.

4 Effective for annual periods beginning on or after 1 January 2017 or 1 January 2018 as appropriate.
5 Available for application — the mandatory effective date will be determined when the outstanding phase of amendments to HKFRS 10 and HKAS 28 are finalised.

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APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

The Group is in the process of making an assessment of what the impact of these new and revised standards is expected to be in the period of initial application. So far the Group has identified some aspects of the new standards which may have a significant impact on the consolidated financial statements. Further details of the expected impacts are discussed below. As the Group has not completed its assessment, further impacts may be identified in due course and will be taken into consideration when determining whether to adopt any of these new requirements before their effective date and which transitional approach to take, where there are alternative approaches allowed under the new standards.

HKFRS 9

HKFRS 9 will replace the current standard on accounting for financial instruments, HKAS 39. HKFRS 9 introduces new requirements for classification and measurement of financial assets, calculation of impairment of financial assets and hedge accounting. On the other hand, HKFRS 9 incorporates without substantive changes the requirements of HKAS 39 for recognition and derecognition of financial instruments and the classification of financial liabilities. Expected impacts of the new requirements on the Group’s consolidated financial statements are as follows:

(a) Classification and measurement

HKFRS 9 contains three principal classification categories for financial assets: measured at (1) amortised cost, (2) fair value through profit or loss (“FVTPL”) and (3) fair value through other comprehensive income (“FVTOCI”) as follows:

The classification for debt instruments is determined based on the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the asset. If a debt instrument is classified as FVTOCI then effective interest, impairments and gains or losses on disposal will be recognised in profit or loss.
For equity securities, the classification is FVTPL regardless of the entity’s business model. The only exception is if the equity security is not held for trading and the entity irrevocably elects to designate that security as FVTOCI. If an equity security is designated as FVTOCI then only dividend income on that security will be recognised in profit or loss. Gains, losses and impairments on that security will be recognised in other comprehensive income without recycling.

Based on the preliminary assessment, the Group expects that its financial assets currently measured at amortised cost and FVTPL will continue with their respective classification and measurements upon the adoption of HKFRS 9.

— V-52 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

With respect to the Group’s financial assets currently classified as “available-for-sale”, these are investments in equity securities which the Group may classify as either FVTPL or irrevocably elect to designate as FVTOCI (without recycling) on transition to HKFRS 9. The Group has not yet decided whether it will irrevocably designate these investments as FVTOCI or classify them as FVTPL. Either classification would give rise to a change in accounting policy as the current accounting policy for available-for-sale equity investments is to recognise fair value changes in other comprehensive income until disposal or impairment, when gains or losses are recycled to profit or loss in accordance with the Group’s policies set out in note 2.11 to the consolidated financial statements. This change in policy will have no impact on the Group’s net assets and total comprehensive income but will impact on reported performance amounts such as profit and earnings per share.

The classification and measurement requirements for financial liabilities under HKFRS 9 are largely unchanged from HKAS 39, except that HKFRS 9 requires the fair value change of a financial liability designated at FVTPL that is attributable to changes of that financial liability’s own credit risk to be recognised in other comprehensive income (without reclassification to profit or loss). The Group currently does not have any financial liabilities designated at FVTPL and therefore this new requirement may not have any impact on the Group on adoption of HKFRS 9.

(b) Impairment

The new impairment model in HKFRS 9 replaces the “incurred loss” model in HKAS 39 with an “expected credit loss” model. Under the expected credit loss model, it will no longer be necessary for a loss event to occur before an impairment loss is recognised. Instead, an entity is required to recognise and measure expected credit losses as either 12-month expected credit losses or lifetime expected credit losses, depending on the asset and the facts and circumstances. This new impairment model may result in an earlier recognition of credit losses on the Group’s trade receivables and other financial assets. However, a more detailed analysis is required to determine the extent of the impact.

(c) Hedge accounting

HKFRS 9 does not fundamentally change the requirements relating to measuring and recognising ineffectiveness under HKAS 39. However, greater flexibility has been introduced to the types of transactions eligible for hedge accounting. The Group preliminarily assesses that its current hedge relationships will qualify as continuing hedges upon the adoption of HKFRS 9 and therefore it expects that the accounting for its hedging relationships will not be significantly impacted.

— V-53 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

HKFRS 15

HKFRS 15 establishes a comprehensive framework for recognising revenue from contracts with customers. HKFRS 15 will replace the existing revenue standards, HKAS 18 “Revenue”, which covers revenue arising from sale of goods and rendering of services. The Group is currently assessing the impacts of adopting HKFRS 15 on its consolidated financial statements. Based on the preliminary assessment, the Group has identified the following areas which are likely to be affected:

Timing of revenue recognition

The Group’s revenue recognition policies are disclosed in note 2.20 to the consolidated financial statements. Currently, revenue arising from the provision of services is recognised over time, whereas revenue from the sale of goods is generally recognised when the risks and rewards of ownership have passed to the customers. Under HKFRS 15, revenue is recognised when the customer obtains control of the promised good or service in the contract. HKFRS 15 identifies three situations in which control of the promised good or service is regarded as being transferred over time:

(i) When the customer simultaneously receives and consumes the benefits provided by the entity’s performance, as the entity performs;
(ii) When the entity’s performance creates or enhances an asset (for example work in progress) that the customer controls as the asset is created or enhanced;
(iii) When the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.

If the contract terms and the entity’s activities do not fall into any of these three situations, then under HKFRS 15 the entity recognises revenue for the sale of that good or service at a single point in time, being when control has passed. Transfer of risks and rewards of ownership is only one of the indicators that will be considered in determining when the transfer of control occurs.

As a result of this change from the risk-and-reward approach to the contract-by-contract transfer-of-control approach, it is possible that once the Group adopts HKFRS 15 some of the Group’s contracts that are currently recognised at a point in time may meet the HKFRS 15 criteria for revenue recognition over time. This will depend on the terms of the sales contract and the enforceability of any specific performance clauses in that contract, which may vary depending on the jurisdiction in which the contract would be enforced. It is also possible that for the remainder of the Group’s contracts the point in time when revenue is recognised may be earlier or later than under the current accounting policy. However, further analysis is required to determine whether this change in accounting policy may have a material impact on the amounts reported in any given financial reporting period.

— V-54 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

HKFRS 16

As disclosed in note 2.22 to the consolidated financial statements, currently the Group classifies leases into finance leases and operating leases and accounts for the lease arrangements differently, depending on the classification of the lease. The Group enters into some leases as the lessor and others as the lessee. HKFRS 16 is not expected to impact significantly on the way that lessors account for their rights and obligations under a lease. However, once HKFRS 16 is adopted, lessees will no longer distinguish between finance leases and operating leases. Instead, subject to practical expedients, lessees will account for all leases in a similar way to current finance lease accounting, i.e. at the commencement date of the lease the lessee will recognise and measure a lease liability at the present value of the minimum future lease payments and will recognise a corresponding “right-of-use” asset. After initial recognition of this asset and liability, the lessee will recognise interest expense accrued on the outstanding balance of the lease liability, and the depreciation of the right-of-use asset, instead of the current policy of recognising rental expenses incurred under operating leases on a systematic basis over the lease term. As a practical expedient, the lessee can elect not to apply this accounting model to short-term leases (i.e. where the lease term is 12 months or less) and to leases of low-value assets, in which case the rental expenses would continue to be recognised on a systematic basis over the lease term.

HKFRS 16 will primarily affect the Group’s accounting as a lessee of leases for property, plant and equipment which are currently classified as operating leases. The application of the new accounting model is expected to lead to an increase in both assets and liabilities and to impact on the timing of the expense recognition in the statement of profit or loss over the period of the lease. As disclosed in note 48 to the consolidated financial statements, as at 31 December 2016, the majority of Group’s future minimum lease payments under non-cancellable operating leases are payable either within one year, between one and five years after the reporting date or in more than five years. Some of these amounts may therefore need to be recognised as lease liabilities, with corresponding right-of-use assets, once HKFRS 16 is adopted. The Group will need to perform a more detailed analysis to determine the amounts of new assets and liabilities arising from operating lease commitments on adoption of HKFRS 16, after taking into account the applicability of the practical expedient and adjusting for any leases entered into or terminated between now and the adoption of HKFRS 16 and the effects of discounting.

The Group is considering whether to adopt HKFRS 16 before its effective date of 1 January 2019. However, early adoption of HKFRS 16 is only permitted if this is no earlier than the adoption of HKFRS 15. It is therefore unlikely that HKFRS 16 will be adopted before the effective date of HKFRS 15, being 1 January 2018.

— V-55 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

5. Changes in Accounting Estimates

Effective from 1 January 2016, the Group adjusted the residual value of vessels from USD420 (equivalent to RMB2,560) to USD280 (equivalent to RMB1,818) per light displacement ton. Effective from 1 October 2016, the Group adjusted the estimated useful lives of vessels from 25 years to a range of 22 to 30 years whereas used vessels acquired are depreciated over their estimated remaining useful lives. As a result of these changes in accounting estimates, the depreciation increased by approximately RMB104,016,000 for the year ended 31 December 2016, and that would have increased by approximately RMB1,652,459,000 for the future periods.

6. Revenue and Segment Information

Segment information is presented by way of two segment formats: (i) on a primary segment reporting basis, by business segment; and (ii) on a secondary segment reporting basis, by geographical segment.

The Group’s business segments are categorised as follows:

(i) oil shipment
oil shipment
vessel chartering
(ii) dry bulk shipment
coal shipment
iron ore shipment
other dry bulk shipment
vessel chartering

The Group’s operating businesses are structured and managed separately, according to the nature of their operations and the services they provide. Each of the Group’s business segments represents a strategic business unit that offers services which are subject to risks and returns that are different from those of other business segments.

Dry bulk shipment segment was discontinued on 30 June 2016 (see note 7).

— V-56 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Business segments

There is seasonality for the Group’s turnover but the effect is small. An analysis of the Group’s turnover and contribution to profit from operating activities by principal activity and geographical area of operations for the year is set out as follows:

By principal activity: Continuing operations Oil shipment — Oil shipment — Vessel chartering Others Discontinued operation Dry bulk shipment — Coal shipment — Iron ore shipment — Other dry bulk shipment — Vessel chartering Other income and net gains Marketing expenses Administrative expenses Other expenses Share of profits of associates Share of profits of joint ventures Finance costs Elimination of discontinued operation Profit before tax		2016 Turnover Contribution RMB’000 RMB’000 7,272,450 2,031,913 2,264,478 741,200 9,536,928 2,773,113 121,363 (71,483) 9,658,291 2,701,630 729,618 (10,058) 1,075,647 234,534 390,046 (64,254) 666,480 (73,190) 2,861,791 87,032 12,520,082 2,788,662 10,039 (14,697) (678,259) (65,838) 268,099 169,458 (869,544) (87,032) 1,520,888		2015 Turnover Contribution (Restated) (Restated) RMB’000 RMB’000 8,691,879 3,038,607 1,920,821 292,137 10,612,700 3,330,744 96,598 (127,079) 10,709,298 3,203,665 1,562,249 41,629 2,260,133 185,647 809,473 (80,639) 1,502,159 34,366 6,134,014 181,003 16,843,312 3,384,668 1,004,508 (15,055) (498,083) (55,731) 215,932 223,506 (1,056,665) (181,003) 3,022,077

— V-57 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

Total segment assets Oil shipment Dry bulk shipment (discontinued) Others Total segment liabilities Oil shipment Dry bulk shipment (discontinued) Others	2016 RMB’000 41,871,688 — 16,150,133 58,021,821 17,702,082 — 12,896,657 30,598,739	2015 (Restated) RMB’000 41,174,217 35,051,713 9,353,869
		85,579,799
		31,076,636 15,928,745 6,004,326
		53,009,707

The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 2 to the consolidated financial statements. Segment contribution represents the gross profit incurred by each segment without allocation of central administration costs (including emoluments of directors, supervisors and senior management), marketing expenses, other expenses, share of profits of associates, share of profits of joint ventures, other income and net gains and finance costs. This is the measure reported to the Group’s chief operating decision makers for the purposes of resource allocation and performance assessment.

As at 31 December 2016, the net carrying amounts of the Group’s oil tankers, liquefied petroleum gas (“LPG”) vessels, liquefied natural gas (“LNG”) vessels and dry bulk vessels were RMB30,634,523,000 (2015: RMB29,619,447,000), RMB75,724,000 (2015: RMB88,585,000), RMB1,616,907,000 (2015: RMBnil) and RMBnil (2015: RMB25,204,771,000) respectively.

— V-58 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Geographical segments

By geographical area: Continuing operations Domestic International Discontinued operation Domestic International Other income and net gains Marketing expenses Administrative expenses Other expenses Share of profits of associates Share of profits of joint ventures Finance costs Elimination of discontinued operation Profit before tax Turnover Total segment turnover Less: inter-segment transactions Total consolidated turnover	2016 Turnover Contribution RMB’000 RMB’000 2,593,038 1,097,631 7,065,253 1,603,999 9,658,291 2,701,630 1,248,307 61,954 1,613,484 25,078 2,861,791 87,032 12,520,082 2,788,662 10,039 (14,697) (678,259) (65,838) 268,099 169,458 (869,544) (87,032) 1,520,888 12,520,082 — 12,520,082	2015 Turnover Contribution (Restated) (Restated) RMB’000 RMB’000 2,464,766 1,022,342 8,244,532 2,181,323 10,709,298 3,203,665 2,663,532 (60,411) 3,470,482 241,414 6,134,014 181,003 16,843,312 3,384,668 1,004,508 (15,055) (498,083) (55,731) 215,932 223,506 (1,056,665) (181,003) 3,022,077 16,843,312 — 16,843,312

— V-59 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Other information

Year ended 31 December 2016 Additions to non-current assets Depreciation and amortisation Provision for onerous contracts Loss on disposal of property, plant and equipment, net Interest income Year ended 31 December 2015 (restated) Additions to non-current assets Depreciation and amortisation Provision for onerous contracts (Loss)/gain on disposal of property, plant and equipment, net Interest income	Oil shipment Dry bulk shipment (discontinued) RMB’000 RMB’000 2,467,590 25,299 1,636,954 552,828 288,763 9,557 (315,637) (2,133) 29,297 2,074 2,600,625 222,619 1,409,997 1,027,999 101,448 45,135 (75,846) (1,345,412) 33,467 6,283	Others RMB’000 1,704,180 29,325 115,557 (8) 56,868 2,317,569 21,490 79,048 1 69,340	Total RMB’000 4,197,069 2,219,107 413,877 (317,778 88,239
			5,140,813 2,459,486 225,631 (1,421,257 109,090

The principal assets employed by the Group are located in the PRC and, accordingly, no geographical segment analysis of assets and expenditures has been prepared for the years ended 31 December 2016 and 2015.

Major customers

During the year, management recognised the following two (2015: two) customers as the Group’s major customers. Revenue arising from the provision of oil transportation services to the major customers were set out as follows:

		2016	2015
			(Restated)
		RMB’000	RMB’000
Customer	A	2,537,047	2,680,397
Customer	B	1,288,920	1,208,355

— V-60 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

7. Discontinued Operation

In order to build a specialised crude oil and refined oil transportation fleet and to become a global leader in the oil transportation market in terms of transportation capacities, the Group entered into an asset transfer agreement to dispose of the entire dry bulk shipment segment, which included China Shipping Bulk Carrier Co., Limited (“Bulk Carrier”), a former wholly-owned subsidiary of the Company, and its subsidiaries, an associate and joint ventures, to China COSCO Bulk Shipping (Group) Co., Ltd. (“COSCO Bulk”) at a consideration of RMB4,993,243,000 which was settled on a net basis with the acquisition of Dalian Tanker during the year (see note 44(a)). The transaction became effective subsequent to the approval by independent shareholders at the annual general meeting held on 20 May 2016. On 30 June 2016, the Group completed the whole transaction of disposal of dry bulk shipment segment and the acquisition of Dalian Tanker.

The dry bulk shipment segment was not previously classified as held-for-sale or as a discontinued operation. The comparative consolidated statement of profit or loss and other comprehensive income has been restated to show the discontinued operation separately from continuing operations.

— V-61 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

(a) Results of discontinued operation

		For the six	For the year
		months ended	ended
		30 June	31 December
	Note	2016	2015
		RMB’000	RMB’000
Turnover		2,861,791	6,134,014
Operating costs and other operating expenses		(3,075,185)	(6,588,405)
Other income and net losses		(26,591)	(1,199,938)
Share of (losses)/profits of associates and joint ventures		(60,252)	42
Results from operating activities		(300,237)	(1,654,287)
Income tax credit		93,886	127,065
Results from operating activities, net of tax		(206,351)	(1,527,222)
Gain on disposal of discontinued operation		966,852	—
Profit/(loss) for the period/year		760,501	(1,527,222)
Profit/(loss) for the period/year attributable to:
Owners of the Company		742,523	(1,593,258)
Non-controlling interests		17,978	66,036
		760,501	(1,527,222)
Earnings/(loss) per share	16 (c)
		RMB cents	RMB cents
From discontinued operation
— Basic and diluted		18.42	(40.08)

— V-62 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

(b) Net cash generated from discontinued operation

			For the six	For the year
			months ended	ended
			30 June	31 December
			2016	2015
			RMB’000	RMB’000
Net	cash	generated from operating activities	1,217,130	1,952,527
Net	cash	used in investing activities	(43,233)	(121,876)
Net	cash	used in financing activities	(628,678)	(1,704,895)
Net	cash	inflow for the period/year	545,219	125,756

The carrying amounts of the identified assets/(liabilities) of discontinued operation at the date of disposal are as follows:

	30 June 2016
	RMB’000
Property, plant and equipment	24,999,770
Investment in an associate	315,165
Investments in joint ventures	3,880,361
Available-for-sale investments	4,300
Deferred tax assets	579,363
Inventories	298,893
Trade and bills receivables	1,660,360
Prepayments, deposits and other receivables	3,456,816
Cash and cash equivalents	1,201,073
Trade and bills payables	(590,836)
Other payables and accruals	(17,390,349)
Provision and other liabilities	(63,293)
Interest-bearing bank and other borrowings	(12,322,281)
Other loans	(875,349)
Obligations under finance leases	(378,610)
Tax payable	(2,765)

— V-63 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

30
Net assets disposed of
Safety fund reserve
Cumulative exchange differences in respect of the net assets of the
subsidiaries reclassified from equity to profit or loss upon disposal of
the subsidiaries
Non-controlling interests
Gain on disposal
Total consideration satisfied by:
Consideration received in cash
Payable in respect of compensation to COSCO Bulk for the decrease in
equity under transition period (note)
Net cash inflow on disposal:
Consideration received in cash
Cash and cash equivalents disposed of
Net cash inflow

June 2016
RMB’000
4,772,618
(47,493)
362,032
(1,060,766)
966,852
4,993,243
5,332,386
(339,143)
4,993,243
5,332,386
(1,201,073)
4,131,313

Note:

The payable to COSCO Bulk was included in other payables and accruals as at 31 December 2016.

— V-64 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

8. Other Income and Net Gains

Continuing operations Other income Government subsidies (note) Interest income from loan receivables Bank interest income Dividends received from available-for-sale investments Rental income from investment properties Others Other gains/(losses) Gain on revaluation of investment properties, net Exchange losses, net Impairment losses on available-for-sale investments Fair value gain on step acquisition of a subsidiary (note 44(b)) Loss on disposal of property, plant and equipment, net Others Other income and net gains	2016 RMB’000 238,753 45,348 40,817 9,640 16,085 38,804 389,447 1,212 (72,261) — 6,603 (315,645) 683 (379,408) 10,039	2015 (Restated) RMB’000 849,279 62,047 40,760 22,688 30,387 54,410 1,059,571 53,311 (92,125) (37,324) — (75,845) 96,920 (55,063) 1,004,508

Note:

The government subsidies represent the subsidies granted for early retirement of vessels, business development purpose and refund of value-added tax. There were no unfulfilled conditions or contingencies relating to these subsidies.

— V-65 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Finance Costs

Continuing operations Total finance costs Interest expenses on: — bank loans and other borrowings — corporate bonds — hedge loan — convertible bonds Other finance charges Less: interest capitalised Finance costs	2016 RMB’000 876,531 207,350 3,301 — — 1,087,182 (217,638) 869,544	2015 (Restated) RMB’000 976,464 232,763 1,807 14,677 404 1,226,115 (169,450) 1,056,665

During the year, the capitalisation rate applied to funds borrowed and utilised for the vessels under construction was at a rate of 2.82% to 3.18% (2015: 1.45% to 6.15%) per annum.

— V-66 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

10. Profit Before Tax

Profit before tax is arrived at after charging:

Continuing operations Cost of shipping services rendered: Bunker oil inventories consumed and port fees Others (including vessels depreciation and crew expenses, which amount is also included in respective total amounts disclosed separately below) Staff costs (including emoluments of directors, supervisors and senior management (note 12)): Wages, salaries, crew expenses and related expenses Costs paid for defined benefit plan (note 38) Pension scheme contributions Total staff costs Operating lease rentals: minimum lease payments Land and buildings Vessels Total operating lease rentals Auditor’s remuneration Depreciation of property, plant and equipment Amortisation of prepaid land lease payments Dry-docking and repairs Impairment losses on available-for-sale investments Impairment losses on trade receivables Impairment losses on other receivables Provision for onerous contracts	2016 RMB’000 2,169,329 4,787,332 6,956,661 1,515,882 10,630 68,795 1,595,307 23,236 994,533 1,017,769 11,019 1,663,900 2,379 264,025 — 19,209 25,089 404,320	2015 (Restated) RMB’000 2,825,985 4,679,648
		7,505,633
		1,412,433 — 71,982
		1,484,415
		26,683 1,390,246
		1,416,929
		5,839 1,430,018 1,469 308,387 37,324 466 — 180,496

— V-67 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Income Tax
(a) Income tax in the consolidated statement of profit or loss and other comprehensive income

Note Continuing operations Current tax Hong Kong Profits Tax (i) — provision for the year — under/(over) provision in respect of prior years PRC Corporation Income Tax (ii) — provision for the year — under provision in respect of prior years Deferred tax Origination and reversal of temporary differences Total income tax expense	2016 RMB’000 744 19 271,300 26,038 298,101 16,613 314,714	2015 (Restated) RMB’000 571 (161) 210,769 4 211,183 25,939 237,122

Note:

(i) Hong Kong Profits Tax

The provision for Hong Kong Profits Tax was provided at 16.5% (2015: 16.5%) on the estimated assessable profits for the year ended 31 December 2016.

(ii) PRC Corporate Income Tax

Under the Law of the PRC on Corporate Income Tax Law (the “CIT Law”) and Implementation Regulation of the CIT Law, the tax rate of the Group is 25% (2015: 25%).

— V-68 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

(b) Reconciliation of the tax expense applicable to profit before tax using the statutory rate for the jurisdictions in which the Company, its subsidiaries, associates and joint ventures are domiciled to the tax expense at the applicable tax rate is as follows:

Continuing operations Profit before tax Tax at the statutory tax rate Tax effect of share of profits of associates Tax effect of share of profits of joint ventures Tax effect of expenses not deductible for tax Tax effect of income not subject to tax Under/(over) provision in respect of prior years, net Tax effect of unused tax losses not recognised Tax effect of utilisation of tax losses previously not recognised Different tax rates of subsidiaries operating in other jurisdictions Income tax expense	2016 RMB’000 1,520,888 380,222 (64,355) (42,365) 52,595 (631,725) 26,057 697,365 (89,962) (13,118) 314,714	2015 (Restated) RMB’000 3,022,077 755,519 (53,983) (55,877) 74,773 (38,811) (157) 268,694 (530,004) (183,032) 237,122

At 1 January Provision for the year Arising from acquisition of a subsidiary (note 44(b)) Under/(over) provision in respect of prior years, net Income tax paid Disposal of discontinued operation (note 7) Exchange realignment At 31 December	2016 RMB’000 134,312 277,061 9,146 24,857 (322,484) (2,765) 9 120,136	2015 (Restated) RMB’000 5,092 224,933 — (140) (95,576) — 3 134,312

— V-69 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

12. Emoluments of Directors, Supervisors and Senior Mangement

Details of the remuneration of directors, supervisors and senior management are disclosed as follows:

Independent non-executive directors (note 12(a)) — fees Executive and non-executive directors (excluded independent non-executive directors) (note 12(b)) — salaries, allowances and benefits in kind — discretionary bonus — pension scheme contributions Supervisors (note 12(b)) — salaries, allowances and benefits in kind — discretionary bonus — pension scheme contributions Senior management — salaries, allowances and benefits in kind — discretionary bonus — pension scheme contributions Total	2016 RMB’000 1,200 1,096 873 82 2,051 — — — — 3,420 2,649 289 6,358 9,609	2015 RMB’000 975
		1,260 1,190 80
		2,530
		945 1,179 80
		2,204
		2,359 1,446 163
		3,968
		9,677

— V-70 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

(a) Details of the fees paid to each of the independent non-executive directors during the year were as follows:

Note Mr. Wang Wusheng Mr. Ruan Yongping Mr. Ip Sing Chi Mr. Rui Meng (i) Mr. Teo Siong Seng (ii) Mr. Zhang Jun (iii) Mr. Wang Guoliang (iii)	2016 RMB’000 150 150 300 300 300 — — 1,200	2015 RMB’000 150 150 300 150 — 75 150
		975

Note:

(i) Appointed on 18 June 2015
(ii) Appointed on 28 December 2015
(iii) Resigned on 18 June 2015

There were no other emoluments payable to the independent non-executive directors during the year ended 31 December 2016 (2015: RMBnil).

— V-71 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

(b) Details of the remuneration paid to each of the executive, non-executive directors (excluded independent non-executive directors) and supervisors during the year were as follows:

Note Year ended 31 December 2016 Executive directors Mr. Sun Jiakang (i) Mr. Liu Hanbo (ii) Mr. Lu Junshan (ii) Mr. Xu Lirong (iii) Mr. Zhang Guofa (iv) Mr. Huang Xiaowen (v) Mr. Ding Nong (v) Mr. Yu Zenggang (v) Mr. Yang Jigui (vi) Mr. Han Jun (vi) Mr. Qiu Guoxuan (vi) Non-executive directors Mr. Feng Boming (ii) Mr. Zhang Wei (ii) Ms. Lin Honghua (ii) Supervisors Mr. Chen Jihong Mr. Xu Yifei (vii) Ms. An Zhijuan (vii) Mr. Weng Yi (ii) Mr. Luo Yuming (viii) Ms. Chen Xiuling (viii) Mr. Xu Wenrong (v)	Fees Salaries, allowance and benefits in kind Discretionary bonus Pension scheme contributions Total remuneration RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 — — — — — — 214 174 16 404 — 209 174 16 399 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 419 349 29 797 — 254 176 21 451 — 1,096 873 82 2,051 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —	Fees Salaries, allowance and benefits in kind Discretionary bonus Pension scheme contributions Total remuneration RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 — — — — — — 214 174 16 404 — 209 174 16 399 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 419 349 29 797 — 254 176 21 451 — 1,096 873 82 2,051 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —
		2,051
		— — —
		—
		— — — — — — —
		—

— V-72 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Note:

(i) Appointed on 20 May 2016
(ii) Appointed on 19 September 2016

(iii) Resigned on 3 June 2016

(iv) Resigned on 8 March 2016
(v) Resigned on 19 September 2016
(vi) Resigned on 22 August 2016
(vii) Appointed on 20 July 2016

(viii) Resigned on 20 July 2016

Note Year ended 31 December 2015 Executive directors Mr. Xu Lirong Mr. Zhang Guofa Mr. Huang Xiaowen Mr. Ding Nong Mr. Yu Zenggang Mr. Yang Jigui (i) Mr. Han Jun Mr. Qiu Guoxuan Ms. Su Min (ii) Mr. Liu Xihan (iii) Supervisors Mr. Xu Wenrong Mr. Chen Jihong Mr. Luo Yuming Ms. Chen Xiuling	Fees Salaries, allowance and benefits in kind Discretionary bonus Pension scheme contributions Total remuneration RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 628 1,120 40 1,788 — 632 70 40 742 — — — — — — — — — — — 1,260 1,190 80 2,530 — — — — — — — — — — — 508 1,037 40 1,585 — 437 142 40 619 — 945 1,179 80 2,204	Fees Salaries, allowance and benefits in kind Discretionary bonus Pension scheme contributions Total remuneration RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 628 1,120 40 1,788 — 632 70 40 742 — — — — — — — — — — — 1,260 1,190 80 2,530 — — — — — — — — — — — 508 1,037 40 1,585 — 437 142 40 619 — 945 1,179 80 2,204
		2,530
		— — 1,585 619
		2,204

— V-73 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Note:

(i) Appointed on 28 December 2015
(ii) Resigned on 28 August 2015
(iii) Resigned on 18 June 2015

There was no (2015: no) arrangement under which a director or supervisor waived or agreed to waive any remuneration during the year ended 31 December 2016.

13. Five Highest Paid Individuals

The five highest paid individuals during the year included two (2015: one) directors and no (2015: one) supervisor, details of whose emoluments are set out in note 12 to the consolidated financial statements. Details of the emoluments of the remaining three (2015: three) highest paid non-director and non-supervisor individuals for the year were as follows:

Salaries, allowances and benefits in kind Discretionary bonus Pension scheme contributions	2016 RMB’000 1,503 1,078 125 2,706	2015 RMB’000 1,789 1,133 121
		3,043

The emoluments of the three (2015: three) highest paid non-director and non-supervisor individuals fell within the following bands:

	Number of individuals	Number of individuals
	2016	2015
RMBnil to RMB855,659 (2015: RMB813,400) (equivalent to
HKD1,000,000)	1	—
RMB855,660 to RMB1,283,489 (2015: RMB813,401 to
RMB1,220,100) (equivalent to HKD1,000,001 to HKD1,500,000)	2	3

During the year ended 31 December 2016, no remuneration were paid by the Group to any of the directors, supervisors and senior management or the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office (2015: RMBnil).

— V-74 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

14. Other Comprehensive Income

Tax effects relating to each component of other comprehensive income/(expense) are as follows:

Before-tax
amount
Tax benefit
RMB’000
RMB’000
Year ended 31 December 2016
Remeasurement of defined benefit plan payable
(160)
—
Exchange realignment
443,913
—
Fair value loss on available-for-sale investments
(5,984)
1,496
Net loss on cash flow hedges
(30,641)
—
Release upon disposal of discontinued operation
362,032
—
Share of other comprehensive expense of associates
(23,590)
—
Share of other comprehensive income of joint
ventures
71,113
—
816,683
1,496
Year ended 31 December 2015 (restated)
Exchange realignment
352,977
—
Net loss on cash flow hedges
(104,840)
—
Share of other comprehensive income of associates
3,457
—
Share of other comprehensive income of joint
ventures
56,555
—
308,149
—
15.
Dividends
2016
RMB’000
Dividends recognised and paid as distribution during the year:
Final dividend for 2015 - RMB0.10 (2015: Final dividend for
2014 - RMB0.03) per share
403,203

Net-of-tax
amount
RMB’000
(160)
443,913
(4,488)
(30,641)
362,032
(23,590)
71,113
818,179
352,977
(104,840)
3,457
56,555
308,149
2015
RMB’000
120,961

Final dividend of RMB0.10 per share in respect of the year ended 31 December 2015 was approved by independent shareholders at the annual general meeting held on 20 May 2016 and a total amount of RMB403,203,000 was paid during the year.

— V-75 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

At the Board meeting held on 28 March 2017, the directors of the Company proposed a final dividend of RMB766,086,000, representing RMB0.19 per share, in respect of the year ended 31 December 2016. This proposed final dividend is subject to the approval of the Company’s independent shareholders at the forthcoming annual general meeting on a date to be fixed, and has not been recognised as a liability at the end of the reporting period.

16. Earnings Per Share

(a) From continuing and discontinued operations

The calculation of basic and diluted earnings per share is based on the profit for the year attributable to owners of the Company of RMB1,934,064,000 (2015: RMB1,180,921,000) and the weighted average number of ordinary shares of 4,032,033,000 (2015: 3,975,547,000) shares in issue during the year ended 31 December 2016.

(b) From continuing operations

The calculation of basic and diluted earnings per share from continuing operations attributable to owners of the Company is based on the earnings figures calculated as follows:

2016 RMB’000 Profit for the year attributable to owners of the Company 1,934,064 Less: profit/(loss) for the period/year from discontinued operation attributable to owners of the Company 742,523 Profit for the year from continuing operations attributable to owners of the Company 1,191,541	2015 (Restated) RMB’000 1,180,921 (1,593,258)
	2,774,179

The denominators used are the same as those detailed above for basic and diluted earnings per share from continuing and discontinued operations (see note 16(a)).

(c) From discontinued operation

The calculation of basic and diluted earnings/(loss) per share from discontinued operation is based on the profit for the period from discontinued operation attributable to owners of the Company of RMB742,523,000 (2015: loss for the year of RMB1,593,258,000) and the denominators used are the same as those detailed above for basic and diluted earnings per share from continuing and discontinued operations (see note 16(a)).

— V-76 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

17. Investment Properties

						2016	2015
							(Restated)
						RMB’000	RMB’000
Completed	investment	properties	at	fair	value	1,104,907	1,097,975

The movements of the investment properties during the year are set out below:

At 1 January Transfer from property, plant and equipment Transfer to property, plant and equipment Dividend in specie Revaluation of assets Net gain on revaluation recognised in profit or loss At 31 December	2016 RMB’000 1,097,975 5,720 — — — 1,212 1,104,907	2015 (Restated) RMB’000 1,139,996 7,264 (28,246) (74,476) 126 53,311
		1,097,975

The fair value of the Group’s investment properties as at 31 December 2016 and 2015 and the date of transfer from and to property, plant and equipment have been arrived at on the basis of a valuation carried out on the respective dates by China Tong Cheng and 遼寧永順. The fair value of the Group’s investment properties was determined based on the market comparable approach that reflects recent of transaction prices for similar properties. In estimating the fair value of the Group’s investment properties, the highest and best use of the Group’s investment properties is their current use. There has been no change from the valuation technique used in prior years.

The Group’s properties held under operating leases to earn rentals are measured using the fair value model and are classified and accounted for as investment properties.

The Group’s investment properties comprise certain commercial buildings located in the PRC, held under medium term lease.

As at 31 December 2016, the fair value of the Group’s investment properties of RMB1,104,907,000 (2015: RMB1,097,975,000), is based on Level 2 fair value hierarchy as defined under HKFRS 13 “Fair Value Measurement” which details are set out in note 51(d) to the consolidated financial statements.

— V-77 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

During the years ended 31 December 2016 and 2015, there were no transfers between Level 1 and Level 2, or transfers into or out of Level 3. The Group’s policy is to recognise transfer between levels of fair value hierarchy as at the end of the reporting period in which they occur.

18. Property, Plant and Equipment

Leasehold improvements RMB’000 At 31 December 2016 Cost or valuation At 1 January 2016 (restated) 62,896 Additions 2,627 Additions upon acquisition of a subsidiary (note 44(b)) — Transfer in/(out) — Transfer to investment properties — Disposals (4,569) Disposal of discontinued operation (note 7) (45,886) Exchange realignment 282 At 31 December 2016 15,350 Accumulated depreciation At 1 January 2016 (restated) 54,195 Charge for the year 4,440 Transfer to investment properties — Disposals (1,608) Disposal of discontinued operation (note 7) (43,125) Exchange realignment 92 At 31 December 2016 13,994 Net carrying amount At 31 December 2016 1,356 At 31 December 2015 (restated) 8,701	Buildings Construction in progress RMB’000 RMB’000 586,186 7,607,086 262 4,148,127 60,680 — — (3,312,777) (7,374) — — — — (60,427) — 535,816 639,754 8,917,825 38,850 — 23,706 — (1,654) — — — — — — — 60,902 — 578,852 8,917,825 547,336 7,607,086	Total RMB’000 76,408,860 4,197,069 448,599 — (7,374) (725,532) (30,160,159) 1,972,678
15,350	8,917,825	52,134,141
54,195 4,440 — (1,608) (43,125) 92	— — — — — —	13,271,875 2,216,728 (1,654) (352,042) (5,160,389) 304,890
13,994	—	10,279,408
1,356	8,917,825	41,854,733
8,701	7,607,086	63,136,985

— V-78 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

Leasehold improvements RMB’000 At 31 December 2015 Cost or valuation At 1 January 2015 (restated) 70,011 Additions 3,577 Additions upon acquisition of a subsidiary (note 44(b)) 214 Transfer from investment properties — Transfer in/(out) — Transfer to investment properties — Disposals (12,188) Dividend in specie — Revaluation of assets — Exchange realignment 1,282 At 31 December 2015 (restated) 62,896 Accumulated depreciation At 1 January 2015 (restated) 59,974 Charge for the year 5,847 Transfer to investment properties — Disposals (12,133) Dividend in specie — Exchange realignment 507 At 31 December 2015 (restated) 54,195 Accumulated impairment losses At 1 January 2015 (restated) — Disposal — Dividend in specie — At 31 December 2015 (restated) — Accumulated depreciation and impairment losses At 31 December 2015 (restated) 54,195 At 31 December 2014 (restated) 59,974 Net carrying amount At 31 December 2015 (restated) 8,701 At 31 December 2014 (restated) 10,037	Vessels Machinery and equipment RMB’000 RMB’000 67,000,792 133,956 55,170 10,624 — 240 — — 3,944,875 397 — — (4,995,248) (8,363) — (10,372) 231,467 20,356 1,723,392 215 67,960,448 147,053 13,276,994 94,471 2,405,877 23,621 — — (2,929,432) (6,022) — (8,089) 294,206 125 13,047,645 104,106 21,134 — (21,134) — — — — — 13,047,645 104,106 13,298,128 94,471 54,912,803 42,947 53,702,664 39,485	Motor vehicles RMB’000 50,097 1,673 4,141 — — — (6,330) (10,480) 6,057 33 45,191 39,657 3,501 — (5,723) (10,381) 25 27,079 — — — — 27,079 39,657 18,112 10,440	Buildings Construction in progress RMB’000 RMB’000 2,070,163 5,996,046 3,900 5,065,869 — — 28,246 — — (3,945,272) (7,454) — (258) — (1,560,551) — 52,140 159,547 — 330,896 586,186 7,607,086 227,463 — 19,171 — (190) — (258) — (207,336) — — — 38,850 — 621,125 — — — (621,125) — — — 38,850 — 848,588 — 547,336 7,607,086 1,221,575 5,996,046	Total RMB’000 75,321,065 5,140,813 4,595 28,246 — (7,454) (5,022,387) (1,581,403) 469,567 2,055,818
				76,408,860
				13,698,559 2,458,017 (190) (2,953,568) (225,806) 294,863
				13,271,875
				642,259 (21,134) (621,125) — 13,271,875
				14,340,818
				63,136,985
				60,980,247

— V-79 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

As at 31 December 2016, the Group’s certain vessels are leased to other parties under operating leases. Further details of the vessels under operating lease arrangements are as follows:

Vessels Cost or valuation Accumulated depreciation and impairment losses Net carrying amount	2016 RMB’000 13,550,618 (2,632,386) 10,918,232	2015 (Restated) RMB’000 5,744,565 (1,242,072) 4,502,493

Further details of the Group’s operating lease arrangements are disclosed in note 48(a) to the consolidated financial statements.

As at 31 December 2016, no vessels (2015: net carrying amount of certain vessels amounted to RMB591,780,000) were held under finance leases.

As at 31 December 2016, the Group’s certain vessels and vessels under construction were pledged to secure general banking facilities granted to the Group (see note 34).

19. Prepaid Land Lease Payments

Prepaid land lease payments represented land use rights situated in the PRC under medium-term lease and the net carrying amount are analysed as follows:

At 1 January Dividend in specie Revaluation of assets Amortisation charge for the year At 31 December	2016 RMB’000 81,978 — — (2,379) 79,599	2015 (Restated) RMB’000 86,922 (45,588) 42,113 (1,469) 81,978

— V-80 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

20. Goodwill

Cost At 1 January 2016 Arising upon acquisition of a subsidiary (note 44(b)) At 31 December 2016 Accumulated impairment losses At 1 January and 31 December 2016 Carrying amount At 31 December 2016 At 31 December 2015	RMB’000 — 58,168
	58,168
	—
	58,168
	—

The carrying amount of goodwill at the end of the reporting period is attributable to the acquisition of 深圳市三鼎油運貿易有限公司 (“Shenzhen Sanding”) during the year ended 31 December 2016.

Shenzhen Sanding is principally engaged in provision of oil transportation and vessel chartering services. The recoverable amount in respect of this subsidiary has been determined based on a value in use calculation. That calculation uses cash flow projections based on the most recent financial budgets of five years approved by management and an extrapolated financial budget for the following five years, and a discount rate of 10.45% (2015: nil). One major assumption is a nil growth rate for the extrapolation period. The growth rate is based on the relevant industry growth forecasts and do not exceed the average long-term growth rate for the relevant industry. Another key assumption for the value in use calculations is the stable budgeted gross margin, which is determined based on the subsidiary’s past performance. Management believes that any reasonably possible change in any of these assumptions would not cause the aggregate carrying amount of this subsidiary to exceed its recoverable amount.

— V-81 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

21. Investments in Associates

Share of net assets Goodwill	2016 RMB’000 1,159,797 835,105 1,994,902	2015 RMB’000 1,205,863 835,105
		2,040,968

As at 31 December 2016, the Group had investments in the following associates which are all unlisted corporate entities whose quoted market price is not available:

	Place of		Proportion of	Proportion of
	incorporation and	Issued/	ownership		Proportion of
	operations/legal	registered	interest held		voting power
Name	status	capital	by the Group		held		Principal activities
			2016	2015	2016	2015
Shanghai Beihai Shipping	The PRC	RMB763,750,000	40%	40%	40%	40%	Petroleum product
Company Limited	Limited liability						transportation and
(“Shanghai Beihai”)	company						vessel chartering
China Shipping Finance	The PRC	RMB600,000,000	25%	—	25%	—	Banking and related
Co., Ltd. (“CS Finance”)	Limited liability						financial services
(note i)	company
Aquarius LNG Shipping	Hong Kong	USD1,000	21%	21%	30%	30%	LNG vessel
Limited (“Aquarius	Limited liability						chartering
LNG”)	company
Aries LNG Shipping	Hong Kong	USD1,000	27%	27%	30%	30%	LNG vessel
Limited (“Aries LNG”)	Limited liability						chartering
	company
Capricorn LNG Shipping	Hong Kong	USD1,000	27%	27%	30%	30%	LNG vessel
Limited (“Capricorn	Limited liability						chartering
LNG”)	company
Gemini LNG Shipping	Hong Kong	USD1,000	21%	21%	30%	30%	LNG vessel
Limited (“Gemini LNG”)	Limited liability						chartering
	company
China Ore Shipping Pte	Singapore	USD88,930,875	—	49%	—	49%	Bulk transportation
Ltd. (“China Ore	Limited liability						and shipping
Shipping”) (note ii)	company						business

— V-82 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Note:

(i) In prior years, the Group recognised CS Finance as a joint venture and accounted for using the equity method under the investments in joint ventures. In March 2016, COSCO SHIPPING Development Co., Ltd. (“COSCO SHIPPING Development”), a fellow subsidiary of the Group, had completed the equity acquisition arrangement to further acquire 40% equity interest in CS Finance. As a result, COSCO SHIPPING Development held a total of 65% equity interest in CS Finance and became its controlling shareholder. Subsequent to the completion of the equity acquisition arrangement, the directors of the Company recognised CS Finance from a joint venture to an associate of the Group during the year ended 31 December 2016.

As both investments in associates and investments in joint ventures are accounted for using the equity method in the consolidated financial statements, there is no gain or loss on such transfer of share of net assets of CS Finance during the year ended 31 December 2016.

(ii) In May 2015, the Group entered into an agreement with COSCO Bulk to incorporate China Ore Shipping, pursuant to which the Group held 49% equity interest in China Ore Shipping.

China Ore Shipping with carrying amount of RMB315,165,000 was derecognised on 30 June 2016 resulting from the discontinued operation (see note 7).

All of the above associates are accounted for using the equity method in the consolidated financial statements.

— V-83 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

Summarised financial information of an associate that is material to the Group and reconciliation to the carrying amount of the Group’s interest in the associate is disclosed as follows:

At 31 December
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets
Proportion of the Group’s ownership interest
Group’s share of net assets
Goodwill
Carrying amount of the Group’s interest in the associate
Cash and cash equivalents included in current assets
Current financial liabilities (excluding trade and other payables and
provisions) included in current liabilities
Non-current financial liabilities (exclude trade and other payables
and provisions) included in non-current liabilities
Year ended 31 December
Revenue
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Dividends received from the associate
Included in the above profit for the year:
Depreciation and amortisation
Interest income
Interest expense
Income tax expense

Shanghai Beihai
2016
2015
RMB’000
RMB’000
1,809,415
1,674,602
725,724
921,040
(689)
—
(196,182)
(308,515)
2,338,268
2,287,127
40%
40%
935,307
914,851
835,105
835,105
1,770,412
1,749,956
430,816
251,770
—
49,286
—
—
1,280,925
1,336,983
545,969
486,968
2,066
—
548,035
486,968
200,000
160,000
164,612
166,497
2,235
3,454
—
—
183,162
165,289

— V-84 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

The aggregate information of the Group’s associates that are not individually material to the Group is disclosed as follows:

Aggregate carrying amount of individually immaterial associates in the consolidated financial statements Aggregate amounts of the Group’s share of: Profit for the year Other comprehensive (expense)/income Total comprehensive income for the year 22. Investments in Joint Ventures Share of net assets Goodwill Less: impairment losses	2016 RMB’000 224,490 67,401 (24,416) 42,985 2016 RMB’000 1,692,343 477,105 — 2,169,448	2015 RMB’000 291,012 21,145 3,457 24,602 2015 (Restated) RMB’000 5,904,160 477,105 (193,971) 6,187,294

— V-85 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

As at 31 December 2016, the Group had investments in the following joint ventures which are all unlisted corporate entities whose quoted market price is not available:

	Place of		Proportion of ownership	Proportion of ownership	Proportion of ownership	Proportion of ownership
	incorporation and	Issued/	interest,	voting power		and
	operations/ legal	registered	profit sharing attributable to
Name	status	capital		the Group			Principal activities
			Direct		Indirect
			2016	2015	2016	2015
Huahai Petrol	The PRC	RMB56,879,168	50%	50%	—	—	Petroleum product
Transportation &	Limited liability						transportation and
Trading Co., Limited	company						vessel chartering
CS Finance	The PRC	RMB600,000,000	—	25%#	—	—	Banking and related
	Limited liability						financial services
	company
China LNG Shipping	Hong Kong	USD335,339,434	—	—	50%	50%	Investment holding
(Holdings) Limited	Limited liability
(“CLNG”) (note i)	company
Sino-Ocean Shipping Co.,	The PRC	RMB238,772,000	—	—	50%	50%	Oil transportation
Ltd. (note i)	Limited liability						and vessel
	company						chartering
Offshore Oil (Yangpu)	The PRC	RMB20,000,000	—	—	43%##	43%##	Oil transportation
Shipping Co., Ltd.	Limited liability						and vessel
(“Yangpu Shipping”)	company						chartering
(note i)
Arctic Blue LNG Shipping	Hong Kong	USD1,000	—	—	50%	50%	Inactive
Limited	Limited liability
	company
Arctic Green LNG	Hong Kong	USD1,000	—	—	50%	50%	Inactive
Shipping Limited	Limited liability
	company
Arctic Purple LNG	Hong Kong	USD1,000	—	—	50%	50%	Inactive
Shipping Limited	Limited liability
	company
Shanghai Friendship	The PRC	RMB300,000,000	—	—	—	50%	Dry bulk
Marine Co., Limited	Limited liability						transportation and
(note ii)	company						vessel chartering
Shanghai Times Shipping	The PRC	RMB1,200,000,000	—	—	—	50%	Dry bulk
Co., Limited (“Shanghai	Limited liability						transportation and
Times”) (note ii)	company						vessel chartering

— V-86 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

	Place of		Proportion of ownership	Proportion of ownership	Proportion of ownership	Proportion of ownership
	incorporation and	Issued/	interest,	voting power		and
	operations/ legal	registered	profit sharing attributable to
Name	status	capital		the Group			Principal activities
			Direct		Indirect
			2016	2015	2016	2015
Guangzhou Development	The PRC	RMB626,497,080	—	—	—	50%	Dry bulk
Shipping Co., Limited	Limited liability						transportation and
(“Guangzhou Shipping”)	company						vessel chartering
(note ii)
Shenhua Zhonghai Marine	The PRC	RMB5,180,000,000	—	—	—	49%###	Dry bulk
Co., Limited (“Shenhua	Limited liability						transportation and
Zhonghai”) (note ii)	company						vessel chartering

In prior year, the Group recognised CS Finance as a joint venture as the Group held 25% of the issued share capital of CS Finance with other three shareholders and each of them controlled 25% of vote in the general meeting of CS Finance. The Group has recognised CS Finance from a joint venture to an associate during the year ended 31 December 2016 (see note 21).
The Group holds 43% of the issued share capital of Yangpu Shipping and controlled 43% of vote in the general meeting of Yangpu Shipping. Since Yangpu Shipping is jointly controlled by the Group and another significant shareholder by virtue of contractual arrangements among shareholders, Yangpu Shipping is regarded as a joint venture of the Group.
In 2015, the Group held 49% of the issued share capital of Shenhua Zhonghai and controlled 44% of vote in the general meeting of Shenhua Zhonghai. Since Shenhua Zhonghai was jointly controlled by the Group and another significant shareholder by virtue of contractual arrangements among shareholders, Shenhua Zhonghai was regarded as a joint venture of the Group. The joint venture was derecognised on 30 June 2016 resulting from the discontinued operation.

Note:

(i) The joint ventures were acquired from business combination involving entities under common control during the year ended 31 December 2016.
(ii) The joint ventures with total carrying amount of RMB3,880,361,000 were derecognised on 30 June 2016 resulting from the discontinued operation (see note 7).

All of the above joint ventures are accounted for using the equity method in the consolidated financial statements.

— V-87 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

Summarised financial information of a joint venture that is material to the Group and reconciliation to the carrying amount of the Group’s interest in the joint venture is disclosed as follows:

At 31 December
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets
Non-controlling interests
Proportion of the Group’s ownership interest
Group’s share of net assets
Goodwill
Carrying amount of the Group’s interest in the joint venture
Cash and cash equivalents included in current assets
Current financial liabilities (excluding trade and other payables and
provisions) included in current liabilities
Non-current financial liabilities (excluding trade and other payables
and provisions) included in non-current liabilities
Year ended 31 December
Revenue
Profit for the year
Other comprehensive income/(expense)
Total comprehensive income for the year
Dividends received from the joint venture
Included in the above profit for the year:
Depreciation and amortisation
Interest income
Interest expense
Income tax expense

CLNG
2016
2015
(Restated)
RMB’000
RMB’000
7,592,056
6,886,231
913,328
760,572
(4,277,389)
(4,273,045)
(804,347)
(477,302)
3,423,648
2,896,456
(863,677)
(792,508)
2,559,971
2,103,948
50%
50%
1,279,986
1,051,974
477,105
477,105
1,757,091
1,529,079
529,813
149,880
275,019
256,574
4,277,389
4,273,045
1,040,917
974,020
369,027
333,754
529
(1,574)
369,556
332,180
87,109
89,352
227,789
216,252
481
630
102,910
119,264
213
205

— V-88 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

Shanghai Times and Shenhua Zhonghai were derecognised on 30 June 2016 resulting from the discontinued operation. Summarised financial information of these joint ventures for the six months ended 30 June 2016 that are material to the Group is disclosed as follows:

At 31 December Non-current assets Current assets Non-current liabilities Current liabilities Net assets Proportion of the Group’s ownership interest Carrying amount of the Group’s interest in the joint ventures Cash and cash equivalents included in current assets Current financial liabilities (excluding trade and other payables and provisions) included in current liabilities Non-current financial liabilities (excluding trade and other payables and provisions) included in non-current liabilities Six months ended 30 June 2016/ year ended 31 December 2015 Revenue (Loss)/profit and total comprehensive (expense)/income for the period/year Dividends received from joint ventures Included in the above (loss)/profit for the period/year: Depreciation and amortisation Interest income Interest expense Income tax (credit)/expense	Shanghai Times 2016 2015 RMB’000 RMB’000 — 5,675,194 — 890,024 — (1,524,837) — (3,507,306) — 1,533,075 — 50% — 766,538 — 197,894 — 3,022,031 — 1,519,505 1,487,758 3,071,262 (161,745) 1,361 — 225,000 170,425 340,630 621 813 90,278 172,382 — (91)	Shenhua 2016 RMB’000 — — — — — — — — — — 879,995 18,277 — 149,325 384 46,370 6,092	Zhonghai 2015 RMB’000 6,894,792 1,435,534 (2,039,033) (342,532) 5,948,761 49% 2,914,893 87,031 — 1,999,000 2,002,173 32,548 529,200 292,233 928 102,802 11,357

— V-89 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

The aggregate information of the Group’s joint ventures that are not individually material to the Group is disclosed as follows:

Aggregate carrying amount of individually immaterial joint ventures in the consolidated financial statements Aggregate amounts of the Group’s share of: Profit for the year Other comprehensive expense Total comprehensive income for the year 23. Loan Receivables Note Loans to associates (i) Loans to joint ventures (ii) Less: current portion Non-current portion	2016 RMB’000 412,357 55,586 (2,840) 52,746 2016 RMB’000 457,153 1,015,331 1,472,484 (18,899) 1,453,585	2015 (Restated) RMB’000 976,784 110,954 (1,758) 109,196 2015 RMB’000 1,596,752 522,534 2,119,286 — 2,119,286

Note:

(i) As at 31 December 2016, loans to associates are unsecured, interest-bearing at approximately 3.30% to 6% over 3-month London Inter-bank Offered Rate (“Libor”) (2015: fixed rate of 4% and approximately 3.30% to 6.20% over 3-month Libor) per annum and repayable in 2030 and 2031 (2015: 2018, 2030 and 2031).
(ii) As at 31 December 2016, loans to joint ventures are unsecured, interest-bearing at 3-month Libor plus 0.80% (2015: 3-month Libor plus 0.80%) per annum prior to delivery of vessels and at 3-month Libor plus 1.30% (2015: 3-month Libor plus 1.30%) per annum after delivery of vessels and repayable within twenty years after the vessels construction projects are completed.

As at 31 December 2016 and 2015, all loan receivables are denominated in USD.

— V-90 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

24. Available-for-sale Investments

Listed equity investments in the PRC, at fair value Unlisted equity investments, at cost Less: impairment losses	2016 RMB’000 187,542 129,543 (37,324) 92,219 279,761	2015 (Restated) RMB’000 — 163,187 (37,324) 125,863 125,863

The fair values of the listed equity investments are based on current bid prices. All the unlisted equity investments are stated at cost as the directors of the Company are of the opinion that the unlisted equity investments do not have a quoted market price in an active market and their fair values cannot be measured reliably.

In prior years, the Group held 8% equity interest in Shenzhen Sanding and the investment was recognised as available-for-sale investments. During the year ended 31 December 2016, the Group acquired additional 43% equity interest in Shenzhen Sanding and upon the completion of the acquisition, the Group held a total of 51% equity interest in Shenzhen Sanding and regarded it as a non-wholly-owned subsidiary of the Company (see note 44(b)).

As at 31 December 2016, available-for-sale investments of RMB1,734,000 (2015: RMB1,624,000) are denominated in USD.

— V-91 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Deferred Taxation
(a) Components of deferred tax assets recognised in the consolidated statement of financial position and the movements during the year are as follows:

Tax losses Provision for assets impairment Depreciation Revaluation of assets arising from business combination RMB’000 RMB’000 RMB’000 RMB’000 At 1 January 2015 (restated) 408,052 7,813 35,428 — Arising from acquisition of a subsidiary (note 44(b)) — — — 850 Dividend in specie — — (35,341) — Recognition of defined benefit plan payable arising from capital restructuring of Dalian Tanker — — — — Credit/(charge) to profit or loss 24,279 41,058 (80) (15) At 31 December 2015 and 1 January 2016 (restated) 432,331 48,871 7 835 Arising from acquisition of a subsidiary (note 44(b)) — — — 52,571 Disposal of discontinued operation (note 7) (530,034) (48,494) — (835) Credit/(charge) to profit or loss 97,703 (377) (7) (313) At 31 December 2016 — — — 52,258	Others RMB’000 10,815 — — (1,542) (4,324) 4,949 — — (4,949) —	Total RMB’000 462,108 850 (35,341) (1,542) 60,918
		486,993 52,571 (579,363) 92,057
		52,258

— V-92 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

(b) Components of deferred tax liabilities recognised in the consolidated statement of financial position and the movements during the year are as follows:

Revaluation of investment properties Fair value change on available- for-sale investments Depreciation Unremitted earnings RMB’000 RMB’000 RMB’000 RMB’000 At 1 January 2015 (restated) 150,155 — 80,342 68,707 Charge/(credit) to profit or loss 16,247 — (5,771) (64,294) At 31 December 2015 and 1 January 2016 (restated) 166,402 — 74,571 4,413 Arising from acquisition of a subsidiary (note 44(b)) — 41,060 — — Charge/(credit) to profit or loss 4,167 — (5,327) 7,243 Credit to other comprehensive income — (1,496) — — At 31 December 2016 170,569 39,564 69,244 11,656	Others RMB’000 — — — — 4,884 — 4,884	Total RMB’000 299,204 (53,818) 245,386 41,060 10,967 (1,496) 295,917

(c) An analysis of the deferred tax balances for the consolidated statement of financial position are disclosed as follows:

Deferred tax assets Deferred tax liabilities	2016 RMB’000 52,258 (295,917) (243,659)	2015 (Restated) RMB’000 486,993 (245,386) 241,607

As at 31 December 2016, a deferred tax asset in respect of tax losses of RMB4,346,838,000 (2015: RMB5,485,035,000) has not been recognised in the consolidated financial statements as it is not certain that future taxable profit will be available against which these losses can be utilised. Included in unrecognised tax losses are losses of RMB4,308,391,000 (2015: RMB5,118,129,000) that will expire within five years. Other losses may be carried forward indefinitely. Other temporary differences are not material.

— V-93 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

26. Inventories

Bunker oil inventories Ship stores and spare parts 27. Trade and Bills Receivables Trade and bills receivables from third parties Trade receivables from joint ventures Trade receivables from fellow subsidiaries Less: allowance for doubtful debts (note 27(b))	2016 RMB’000 262,372 189,030 451,402 2016 RMB’000 1,223,309 122 5,526 1,228,957 (22,499) 1,206,458	2015 (Restated) RMB’000 480,746 234,340 715,086 2015 (Restated) RMB’000 2,741,667 40,200 12,525 2,794,392 (3,094) 2,791,298

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

As at 31 December 2016, trade and bills receivables of RMB608,241,000 (2015: RMB1,355,404,000) are denominated in USD.

— V-94 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

(a) Ageing analysis

As of the end of the reporting period, the ageing analysis of trade and bills receivables, based on the invoice date and net of allowance for doubtful debts, is as follows:

Within 3 months 4 - 6 months 7 - 9 months 10 - 12 months 1 - 2 years Over 2 years	2016 RMB’000 909,021 104,940 102,566 28,127 60,995 809 1,206,458	2015 (Restated) RMB’000 2,060,861 621,775 63,549 40,055 4,983 75
		2,791,298

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.

(b) Impairment of trade receivables

Impairment losses in respect of trade receivables are recorded using an allowance account unless the Group is satisfied that recovery of the amount is remote, in which case the impairment losses is written off against trade and bills receivables directly.

The movement of the allowance for doubtful debts during the year is as follows:

At 1 January Impairment losses recognised Uncollectible amounts written off Exchange realignment At 31 December	2016 RMB’000 3,094 19,209 — 196 22,499	2015 (Restated) RMB’000 2,661 466 (33) —
		3,094

— V-95 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

As at 31 December 2016, trade receivables of RMB22,499,000 (2015: RMB3,094,000) were determined to be impaired. The impaired receivables related to customers that were in financial difficulties and management assessed that only a portion of the receivables is expected to be recovered. Consequently, allowance for doubtful debts of RMB22,499,000 (2015: RMB3,094,000) were recognised.

(c) Trade and bills receivables that are not impaired

In determining the recoverability of a trade and bills receivable, the Group considers any change in credit quality of the trade and bills receivable 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 ended 31 December 2016, 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 RMB256,225,000 (2015: RMB411,685,000) which are past due as at the end of the reporting period for which the Group had not provided for impairment losses (2015: 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:

Within 6 months 7 - 12 months Over 1 year	2016 RMB’000 166,294 28,127 61,804 256,225	2015 (Restated) RMB’000 352,807 53,820 5,058
		411,685

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 to be fully recoverable. The Group does not hold any collateral over these balances.

— V-96 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

28. Prepayments, Deposits and Other Receivables

Prepayments Deposits and other receivables Due from fellow subsidiaries Due from joint ventures Due from related companies — joint ventures of immediate holding company — a joint venture of a fellow subsidiary Less: impairment of other receivables (note 28(a))	2016 RMB’000 303,549 336,381 130,837 163,887 — — 934,654 (25,670) 908,984	2015 (Restated) RMB’000 286,523 1,025,295 213,771 344,566 16,971 26 1,887,152 (57) 1,887,095

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

As at 31 December 2016, prepayments, deposits and other receivables of RMB452,686,000 (2015: RMB462,546,000) are denominated in USD.

(a) Impairment of other receivables

As at 31 December 2016, the Group’s net other receivables of RMB290,487,000 (2015: RMB1,005,941,000) were considered fully collectible by the directors of the Company. As at 31 December 2016, the Group’s other receivables of RMB25,670,000 (2015: RMB57,000) were impaired and full provision was made by the directors of the Company.

— V-97 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

The movement of the impairment of other receivables during the year is as follows:

At 1 January Impairment losses recognised Uncollectible amounts written off Dividend in specie Exchange realignment At 31 December	2016 RMB’000 57 25,089 — — 524 25,670	2015 (Restated) RMB’000 58,649 — (30,690) (27,902) — 57

29. Pledged Bank Deposits and 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.

As at 31 December 2016, included in cash and cash equivalents is an amount of RMB3,726,654,000 (2015: RMB794,370,000) of bank balance deposited with CS Finance.

As at 31 December 2016, included in cash and cash equivalents is an amount of RMB1,035,964,000 (2015: RMB1,969,505,000) of bank balance deposited with COSCO Finance Co., Ltd. (“COSCO Finance”), a fellow subsidiary of the Company.

As at 31 December 2016, bank deposits of RMB24,134,000 (2015: RMB45,731,000) were pledged to secure general banking facilities granted to the Group (see note 34).

As at 31 December 2016, cash and cash equivalents of RMB2,373,934,000 (2015: RMB2,343,072,000) are denominated in USD.

— V-98 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

30. Trade and Bills Payables

Trade and bills payables to third parties Trade payables to immediate holding company Trade payables to fellow subsidiaries Trade payables to joint ventures Trade payables to related companies — joint ventures of immediate holding company — joint ventures of fellow subsidiaries	2016 RMB’000 752,489 1,374 596,121 — — — 1,349,984	2015 (Restated) RMB’000 932,282 729 497,475 3,260 12,844 31,382
		1,477,972

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

As at 31 December 2016, trade and bills payables of RMB811,170,000 (2015: RMB788,935,000) are denominated in USD.

— V-99 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

(a) Ageing analysis

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

Within 3 months 4 - 6 months 7 - 9 months 10 - 12 months 1 - 2 years Over 2 years	2016 RMB’000 1,038,903 58,469 35,738 3,835 19,530 193,509 1,349,984	2015 (Restated) RMB’000 974,630 121,471 52,316 80,573 39,559 209,423
		1,477,972

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

31. Other Payables and Accruals

Other payables Accruals Due to immediate holding company Due to fellow subsidiaries Due to an associate Due to joint ventures Due to related companies — joint ventures of fellow subsidiaries	2016 RMB’000 618,310 165,775 — 366,815 4 2,123 — 1,153,027	2015 (Restated) RMB’000 966,846 102,942 80,816 14,280 — 423 185
		1,165,492

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

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

— V-100 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

As at 31 December 2016, other payables and accruals of RMB367,498,000 (2015: RMB393,682,000) are denominated in USD.

32. Provision and Other Liabilities

Provision for onerous contracts Others Less: current portion Non-current portion	2016 RMB’000 495,338 15,281 510,619 (302,551) 208,068	2015 (Restated) RMB’000 340,447 15,414
		355,861 (181,308)
		174,553

Note:

Details of provision for onerous contracts are as follows:

At 1 January Provision for the year Utilised during the year Disposal of discontinued operation (note 7) Exchange realignment At 31 December Less: current portion Non-current portion	2016 RMB’000 340,447 413,877 (208,988) (63,293) 13,295 495,338 (302,551) 192,787	2015 (Restated) RMB’000 328,789 225,631 (215,109) — 1,136
		340,447 (181,308)
		159,139

As at 31 December 2016, the Group had a provision of RMB495,338,000 (2015: RMB340,447,000) for onerous contracts relating to the non-cancellable chartered-in vessel contracts.

As at 31 December 2016, the committed charterhire expenses of non-cancellable chartered-in 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 vessel contracts of which management cannot reliably assess their onerous contracts amounted to approximately RMB3,946,995,000 (2015: RMB4,509,494,000).

— V-101 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

33. Derivative Finacial Instruments

Liabilities Current portion Non-current portion	2016 RMB’000 — 474,988 474,988	2015 (Restated) RMB’000 4,258 411,385
		415,643

As at 31 December 2016, the Group held thirty (2015: thirty-two) interest rate swap agreements and the total notional principal amount of the outstanding interest rate swap agreements was approximately USD537,040,000 (equivalent to approximately RMB3,725,448,000) (2015: approximately USD709,800,000 (equivalent to approximately RMB4,609,159,000)). The interest rate swap agreements, with maturity in 2031 and 2032 (2015: 2016, 2031 and 2032), are designated as cash flow hedges in respect of certain bank borrowings of the Group with floating interest rates.

During the year ended 31 December 2016, the floating interest rates of the bank borrowings were 3-month Libor plus 0.42%, 0.65% or 2.20% (2015: 3-month Libor plus 0.42%, 0.65% or 2.20%).

Loss on the interest rate swaps during the year is as follows:

Total fair value loss included in the hedging reserve Hedge loan interest included in finance costs Total loss on cash flow hedges of the interest rate swap agreements	2016 RMB’000 30,641 3,301 33,942	2015 (Restated) RMB’000 104,840 1,807
		106,647

On 5 March 2016, one of the interest rate swap agreements with Agricultural Bank of China with notional principal amount of USD100,000,000 was matured.

On 18 March 2016, the Group released one of the interest rate swap agreements with Citibank, N.A., Hong Kong, and its notional principal amount was USD72,760,000 prior to maturity in September 2016.

— V-102 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

34. Interest-bearing Bank and Other Borrowings

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

Maturity Annual effective interest rate (%) Current liabilities (i) Bank borrowings Secured 5% discount to the People’s Bank of China (“PBC”) Benchmark interest rate, PBC Benchmark interest rate, Libor + 0.38%, 3-month Libor + 0.42% to 2.20%, 6-month Libor + 0.40% to 1.70%, fixed rate of 4.27% to 4.80% 2017 Unsecured 10% discount to the PBC Benchmark interest rate, PBC Benchmark interest rate, Libor + 1.40% to 3%, 3-month Libor + 0.65% to 2.80%, 6-month Libor + 0.70%, fixed rate of 1.70% to 4.80% 2017 (ii) Other borrowings Secured 5% discount to the PBC Benchmark interest rate Nil Unsecured 10% discount to the PBC Benchmark interest rate, 6-month Libor + 2.10%, fixed rate of 3.05% to 5.62% 2017 Interest-bearing bank and other borrowings — current portion	2016 RMB’000 1,119,250 3,475,198 4,594,448 — 30,185 30,185 4,624,633	2015 (Restated) RMB’000 1,891,949 6,583,848
		8,475,797
		8,670 2,579,360
		2,588,030
		11,063,827

— V-103 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Maturity Annual effective interest rate (%) Non-current liabilities (i) Bank borrowings Secured 5% to 20% discount to the PBC Benchmark interest rate, PBC Benchmark interest rate, Libor + 0.38%, 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 2033 Unsecured 10% to 20% discount to the PBC Benchmark interest rate, PBC Benchmark interest rate, Libor + 1.70%, 3-month Libor + 0.65% to 2.80%, 6-month Libor + 0.70% 2018 to 2026 (ii) Other borrowings Secured 5% discount to the PBC Benchmark interest rate Nil Unsecured 10% discount to the PBC Benchmark interest rate, 6-month Libor + 2% to 2.50%, fixed rate of 3.60% to 6.15% 2025 Interest-bearing bank and other borrowings — non-current portion	2016 RMB’000 11,460,562 5,149,582 16,610,144 — 271,665 271,665 16,881,809	2015 (Restated) RMB’000 16,672,834 10,339,898
		27,012,732
		100,470 5,298,721
		5,399,191
		32,411,923

As at 31 December 2016, the Group’s interest-bearing bank and other borrowings were secured by pledges of the Group’s 24 (2015: 67) vessels and 5 (2015: 6) vessels under construction with total net carrying amount of RMB11,150,917,000 (2015: RMB25,186,540,000) and RMB6,568,108,000 (2015: RMB6,004,226,000) respectively and pledged bank deposits (see note 29).

— V-104 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

As at 31 December 2016, secured bank borrowings of RMB12,479,811,000 (2015: RMB17,101,903,000), unsecured bank borrowings of RMB7,342,329,000 (2015: RMB11,607,123,000) and unsecured other borrowings of RMBnil (2015: RMB1,948,080,000) are denominated in USD.

(b) As at 31 December 2016, the Group’s interest-bearing bank and other borrowings were repayable as follows:

Bank borrowings Other borrowings RMB’000 RMB’000 At 31 December 2016 Current portion Within one year or on demand 4,594,448 30,185 Non-current portion In the second year 4,140,120 41,060 In the third to fifth years, inclusive 4,554,026 123,180 Over five years 7,915,998 107,425 16,610,144 271,665 21,204,592 301,850 At 31 December 2015 (restated) Current portion Within one year or on demand 8,475,797 2,588,030 Non-current portion In the second year 6,113,755 1,658,540 In the third to fifth years, inclusive 11,052,349 3,680,215 Over five years 9,846,628 60,436 27,012,732 5,399,191 35,488,529 7,987,221	Total RMB’000 4,624,633
	4,181,180 4,677,206 8,023,423
	16,881,809
	21,506,442
	11,063,827
	7,772,295 14,732,564 9,907,064
	32,411,923
	43,475,750

As at 31 December 2016, no other borrowings were made from CS Finance (2015: RMB292,800,000), COSCO Finance (2015: RMB400,000,000) and China Shipping (2015: RMB7,148,080,000).

— V-105 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

35. Other Loans

Note Kantons International Investment Limited (“Kantons International”) (i) Mitsui O.S.K. Lines, Ltd. (“MOL”) (ii) Petrochina International Co., Limited (“Petrochina International”) (iii) Baosteel Resources International Company Limited (“Baosteel Resources International”) (iv) Less: current portion Non-current portion	2016 RMB’000 701,194 330,764 20,113 — 1,052,071 (2,251) 1,049,820	2015 RMB’000 519,946 241,856 17,721 420,016
		1,199,539 —
		1,199,539

Note:

(i) As at 31 December 2016, other loans amounted to RMB52,896,000 (2015: RMB45,909,000) was borrowed by East China LNG Shipping Investment Co., Limited (“ELNG”), a non-wholly-owned subsidiary of the Company, from its non-controlling shareholder, Kantons International, 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% over 3-month Libor (2015: approximately 3.30% to 6.20% over 3-month Libor) per annum and repayable within twenty years after the vessels construction projects are completed.

As at 31 December 2016, other loans amounted to RMB648,298,000 (2015: RMB474,037,000) was borrowed by China Energy Shipping Investment Co., Limited (“China Energy”), an indirect and non-wholly-owned subsidiary of the Company, from its non-controlling shareholder, Kantons International, to finance certain vessels construction projects being carried out by the subsidiaries of China Energy. The loan is unsecured, interest-bearing at 3-month Libor plus 2.20% (2015: 3-month Libor plus 2.20%) per annum and repayable within twenty years after the vessels construction projects are completed.

(ii) As at 31 December 2016, other loans amounted to RMB330,764,000 (2015: RMB241,856,000) was borrowed by China Energy from the non-controlling shareholder of its subsidiaries, MOL, to finance certain vessels construction projects being carried out by the subsidiaries of China Energy. The loans are unsecured, interest-bearing at 3-month Libor plus 2.20% (2015: 3-month Libor plus 2.20%) per annum and repayable within fifteen years after the vessels construction projects are completed.
(iii) As at 31 December 2016, other loans amounted to RMB20,113,000 (2015: RMB17,721,000) was borrowed by North China LNG Shipping Investment Co., Limited (“NLNG”), a non-wholly-owned subsidiary of the Company, from its non-controlling shareholder, Petrochina International, to finance certain vessels construction projects being carried out by the associates held by NLNG. The loan is unsecured, interest-bearing at approximately 5.10% to 5.50% over 3-month Libor (2015: approximately 4.90% to 5.50% over 3-month Libor) per annum and repayable within twenty years after the vessels construction projects are completed.

— V-106 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

(iv) As at 31 December 2015, other loans amounted to RMB420,016,000 was borrowed by Hong Kong Hai Bao Shipping Co., Limited (“Hai Bao”), a former indirect and non-wholly-owned subsidiary of the Company, from its non-controlling shareholder, Baosteel Resources International, to finance the construction of vessels and daily operations of Hai Bao. The loan was unsecured, interest-bearing at fixed rate of 3% per annum and originally repayable in 2018.

The loan with carrying amount of RMB428,921,000 was derecognised on 30 June 2016 resulting from the discontinued operation.

As at 31 December 2016 and 2015, all other loans are denominated in USD.

36. Obligations Under Finance Leases

Amounts payable under finance leases — Within one year — In the second year — In the third to fifth years, 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 2016 2015 RMB’000 RMB’000 — 65,389 — 65,358 — 196,073 — 142,988 — 469,808 — (67,054) — 402,754	Present value of minimum lease payments 2016 2015 RMB’000 RMB’000 — 48,751 — 50,917 — 167,253 — 135,833 — 402,754 — (48,751) — 354,003

As at 31 December 2015, the Group’s obligations under finance leases were secured by charges over the leased assets. Interest rates underlying all under finance leases were at 10% discount to the PBC Benchmark interest rate per annum.

The obligations under finance leases with carrying amount of RMB378,610,000 were derecognised on 30 June 2016 resulting from the discontinued operation (see note 7).

— V-107 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

37. Bonds Payables

(a) Corporate bonds

The movement of the corporate bonds during the year is set out below:

At 1 January Interest charge Redemption At 31 December Less: current portion Non-current portion	2016 RMB’000 3,978,488 3,557 — 3,982,045 — 3,982,045	2015 RMB’000 4,973,360 5,128 (1,000,000)
		3,978,488 —
		3,978,488

As at 31 December 2016, the balances of corporate bonds are as follows:

Issue date Term of the bond 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 31 RMB’000 RMB’000 1,500,000 1,487,100 1,500,000 1,488,600 1,000,000 992,400 4,000,000 3,968,100	At December 2015 Interest charge 31 RMB’000 RMB’000 1,490,804 1,214 1,493,277 1,639 994,407 704 3,978,488 3,557	At December 2016 RMB’000 1,492,018 1,494,916 995,111
			3,982,045

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 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.

— V-108 —

APPENDIX V

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.

(b) Convertible bonds

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.

No interest expense was recognised in profit or loss in respect of the convertible bonds for the year ended 31 December 2016 (2015: RMB14,677,000).

38. Employee Benefits Payable

Defined benefit plan payable Termination benefit payable Less: current portion Non-current portion	2016 RMB’000 150,630 2,880 153,510 (12,620) 140,890	2015 (Restated) RMB’000 153,400 5,110 158,510 (13,130) 145,380

(a) Details of defined benefit plan payable are as follows:

Defined benefit plan payable represents post-employment benefit plan for current civil retirees and current retirees. During the capital restructuring of Dalian Tanker in 2015, it is required to estimate the post-employment benefit plan payable which would be recognised upon completion of the capital restructuring by using actuarial valuation method. Before the capital restructuring, Dalian Tanker was not allowed to adopt actuarial valuation method to estimate the defined benefit plan payable. Independent actuarial valuation has been carried by Willis Towers Watson, an independent firm with chartered actuarial certification.

— V-109 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

The plan exposes the Group to actuarial risks, such as interest rate risk and longevity risk. Information about the plan is disclosed as follows:

(i) The amounts recognised in the consolidated statement of financial position are as follows:

Present value of unfunded obligations Less: current portion Non-current portion	2016 RMB’000 150,630 (11,500) 139,130	2015 (Restated) RMB’000 153,400 (10,950)
		142,450

Current portion of defined benefit plan payable represents the amount expected to be paid by the Group in the next twelve months. Such expected future payments will also relate to future services rendered and future changes in actuarial assumptions and market conditions.

(ii) Movements in the present value of the defined benefit plan payable are as follows:

At 1 January Transfer from other payables Recognition of defined benefit plan payable arising from capital restructuring of Dalian Tanker Remeasurement for the year Benefits paid by the Group Past service cost Interest cost At 31 December	2016 RMB’000 153,400 — — 160 (13,560) 6,250 4,380 150,630	2015 (Restated) RMB’000 — 1,065 152,335 — — — —
		153,400

The weighted average duration of the defined benefit plan is 10.2 (2015: 10.5) years.

— V-110 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

(iii) Amounts recognised in the consolidated statement of profit or loss and other comprehensive income are as follows:

Past service cost Net interest on net defined benefit liability Total amounts recognised in profit or loss Actuarial loss recognised in other comprehensive income Total defined benefit costs	2016 RMB’000 6,250 4,380 10,630 160 10,790	2015 (Restated) RMB’000 — —
		— —
		—

The past service cost and the net interest on net defined benefit liability totalling RMB10,630,000 (2015: RMBnil) were recognised in the administrative expenses for the year ended 31 December 2016.

(iv) Significant actuarial assumptions (expressed as weighted averages) and sensitivity analysis are as follows:

Discount rate Average annual increase rate of supplemental medical benefits	2016 3.25% 5%	2015 (Restated) 3% 5%

Mortality rate adopted for the defined benefit plan payable as at 31 December 2016 and 2015 was based on the China Life Insurance Mortality Table 2000-2003 issued by the China Life Insurance Regulatory Commission of the PRC.

— V-111 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

The below analysis shows how the defined benefit plan payable would have increased/ (decreased) as a result of 0.5% change of discount rate in the significant actuarial assumptions:

Increase in 0.5% Decrease in 0.5%	Effect of payable 2016 2015 (Restated) RMB’000 RMB’000 (7,330) (7,690) 8,000 8,420

The above sensitivity analysis is based on the assumption that changes in actuarial assumptions are not correlated and therefore it does not take into account the correlations between the actuarial assumptions.

(b) Details of termination benefit payable are as follows:

Termination benefit payable Less: current portion Non-current portion	2016 RMB’000 2,880 (1,120) 1,760	2015 (Restated) RMB’000 5,110 (2,180) 2,930

The Group had made offers to certain employees for encouraging them to accept voluntary redundancy before their normal retirement date (the “Early Retired Employees”).

The Group recognises a liability for the present value of the obligations relating to the termination benefit payable to these Early Retired Employees. The liability related to the termination benefit payable for the Early Retired Employees existing as at 31 December 2016 and 2015 are calculated by management using future cash flow discounting method.

During the year ended 31 December 2016, related costs paid by the Group for the termination benefit payable was RMB2,390,000 (2015: RMBnil).

— V-112 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

39. Issued Capital

Registered, issued and fully paid: Listed H-Shares of RMB1 each At 1 January and 31 December Listed A-Shares of RMB1 each At 1 January Conversion of convertible bonds At 31 December Total capital	2016 Number of shares 1,296,000,000 2,736,032,861 — 2,736,032,861 4,032,032,861	RMB’000 1,296,000 2,736,033 — 2,736,033 4,032,033	2015 Number of shares 1,296,000,000 2,185,405,286 550,627,575 2,736,032,861 4,032,032,861	RMB’000 1,296,000
				2,185,405 550,628
				2,736,033
				4,032,033

Convertible bonds converted during the year ended 31 December 2016 resulted in nil (2015: 550,627,575) shares being issued. The related conversion price was RMBnil (2015: RMB6.24) per share for the year as all the convertible bonds were delisted from the Shanghai Stock Exchange on 13 February 2015.

40. Reserves

(a) The Group

The reconciliation between the opening and closing balances of each component of the Group’s consolidated equity is set out in the consolidated statement of changes in equity.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

(b) The Company

Details of the changes in the Company’s individual components of equity between the beginning and the end of the reporting period are set out as follows:

At 1 January 2015 Profit for the year Conversion of convertible bonds Dividends approved in respect of previous year Utilisation of safety fund reserve At 31 December 2015 and 1 January 2016 Loss for the year Dividends approved in respect of previous year At 31 December 2016	Share premium Revaluation reserve RMB’000 RMB’000 4,414,124 270,254 — — 3,336,091 — — — — — 7,750,215 270,254 — — — — 7,750,215 270,254	Share premium Revaluation reserve RMB’000 RMB’000 4,414,124 270,254 — — 3,336,091 — — — — — 7,750,215 270,254 — — — — 7,750,215 270,254	Other reserve RMB’000 (1,796) — — — —	Statutory surplus reserve RMB’000 2,877,435 — — — —	Safety fund surplus reserve RMB’000 1,176 — — — (1,176)	General surplus reserve Available- for-sale investments revaluation reserve Convertible bonds equity reserve RMB’000 RMB’000 RMB’000 93,158 1,019 766,025 — — — — — (766,025) — — — — — — 93,158 1,019 — — — — — — — 93,158 1,019 —	Retained profits RMB’000 9,262,927 2,025,885 — (120,961) 1,176 11,169,027 (2,392,608) (403,203) 8,373,216	Total RMB’000 17,684,322 2,025,885 2,570,066 (120,961) —
		270,254 — —	(1,796) — —	2,877,435 — —	— — —			22,159,312 (2,392,608) (403,203)
		270,254	(1,796)	2,877,435	—			19,363,501

In accordance with the Company Law of the PRC and the Company’s articles of association, the Company is required to allocate 10% of its profit after tax, as determined in accordance with Accounting Standards for Business Enterprises issued by the Ministry of Finance of the PRC and relevant regulations (“PRC GAAP”) and regulations applicable to the Company, to the Statutory Surplus Reserve (the “SSR”) until the SSR reaches 50% of the registered capital of the Company.

According to the relevant regulations in the PRC, the reserves available for distribution is the lower of the amount determined under PRC GAAP and the amount determined under HKFRS. On this basis, as at 31 December 2016, before the proposed final dividend, the Company had reserve of RMB8,373,216,000 (2015: RMB11,169,027,000).

In addition, in accordance with the Company Law of the PRC, an amount of approximately RMB7,750,215,000 (2015: RMB7,750,215,000) standing to the credit of the Company’s share premium account was available for distribution by way of future capitalisation issues.

— V-114 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

(c) Nature and purposes of reserves
(i) Share premium

Share premium arised from the issuance of shares at prices in excess of their par value.

(ii) Revaluation reserve

The revaluation reserve has been accounted for in accordance with the accounting policies adopted for the measurement of the assets at fair value.

(iii) Capital reserve

The reserve arised from the acquisition of additional interests in a subsidiary and revaluation of assets arising from capital restructuring of a subsidiary.

(iv) Merger reserve

The reserve arised from business combination involving entities under common control in June 2016.

(v) Statutory surplus reserve

The Company is required to transfer 10% of its net profit as determined in accordance with PRC Accounting Rules and Regulations to its statutory surplus reserve. The transfer to this reserve must be before distribution of a dividend to shareholders.

(vi) Safety fund reserve

According to CaiQi [2012] No. 16 “Measures for the Extraction and Management of the Production Safety Fund for the enterprises” issued by the Ministry of Finance and the Safety Production General Bureau, the Group is required to accrue production safety fund to improve the production safety.

The accrued expenses will be transferred to production safety fund surplus reserve under equity attributable to owners of the Company for the year. When its cost being measured, within the special use conditions, full amount of relevant incurred fund recorded as production safety fund surplus reserve will be recognised in the cost of sales simultaneously. Pursuant to HKFRS, these expenditures should be recognised when incurred according to the respective accounting policy.

(vii) General surplus reserve

When the public welfare fund is utilised, an amount equal to the lower of either the cost of the assets and the balance of the public welfare fund is transferred from public welfare fund to the general surplus reserve.

— V-115 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

(viii) Hedging reserve

Changes in the fair values of derivative financial instruments and hedged items are to be charged directly and transferred to hedging reserve.

(ix) Available-for-sale investments revaluation reserve

The available-for-sale investments revaluation reserve comprises the cumulative net change in the fair value of available-for-sale investments held at the end of the reporting period.

(x) Translation reserve

The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations and exchange differences on monetary items which form part of the Group’s net investment in foreign operations, provided certain conditions are met.

(xi) Convertible bonds equity reserve

The convertible bonds equity reserve represents the equity component (conversion right) of the convertible bonds convertible in 2015.

(xii) Other reserve

The reserve arised from the acquisition of subsidiary under common control in April 2009.

— V-116 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

41. Statement of Financial Position of the Company

NON-CURRENT ASSETS Investment properties Property, plant and equipment Investments in subsidiaries Investment in an associate Investments in joint ventures Loan receivables Available-for-sale investments CURRENT ASSETS Prepayments, deposits and other receivables Current portion of loan receivables Cash and cash equivalents CURRENT LIABILITIES Other payables and accruals Current portion of interest-bearing bank and other borrowings NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES EQUITY Issued capital Reserves TOTAL EQUITY NON-CURRENT LIABILITIES Interest-bearing bank and other borrowings Bonds payable Deferred tax liabilities TOTAL EQUITY AND NON-CURRENT LIABILITIES	2016 RMB’000 1,227,749 66,285 16,123,374 150,000 229,198 7,000,000 — 24,796,606 2,724,351 — 2,648,016 5,372,367 2,617,918 — 2,617,918 2,754,449 27,551,055 4,032,033 19,363,501 23,395,534 — 3,982,045 173,476 4,155,521 27,551,055	2015 RMB’000 1,226,464 70,532 16,569,619 — 379,198 10,000,000 29,455
		28,275,268
		10,469,015 64,936 375,221
		10,909,172
		2,220,676 824,680
		3,045,356
		7,863,816
		36,139,084
		4,032,033 22,159,312
		26,191,345
		5,800,000 3,978,488 169,251
		9,947,739
		36,139,084

— V-117 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

42. Dividend in Spicie

In prior years, Dalian Tanker held 70% equity interest in each of Dalian Ocean Tower Hotel Co., Ltd. (“Tower Hotel”) and Dalian Fengyuan Real Estate Development Co., Ltd. (“Fengyuan”) and regarded them as non-wholly-owned subsidiaries. In 2015, there was a capital restructuring of Dalian Tanker and its subsidiaries (together “Dalian Tanker Group”). On 1 January 2015, Dalian Tanker distributed all equity interest held in Tower Hotel and Fengyuan and certain property, plant and equipment and other receivables (the “Other Assets”) of Tower Hotel to a fellow subsidiary of Dalian Tanker. Upon the completion of the distribution in specie in 2015, total equity of the Group increased by RMB454,745,000.

The carrying amounts of the identified assets and liabilities of Tower Hotel and Fengyuan and the Other Assets at the date of distribution are as follows:

Tower Hotel
and Fengyuan
Other Assets
RMB’000
RMB’000
At 1 January 2015
Non-current assets
Investment properties
74,476
—
Property, plant and equipment
733,367
1,105
Prepaid land lease payments
45,588
—
Deferred tax assets
35,341
—
888,772
1,105
Current assets
Trade and other receivables
5,726
499,838
Other current assets
7,377
—
Cash and cash equivalents
67,381
—
80,484
499,838
Current liabilities
Other current liabilities
1,044,944
—
Non-current liabilities
Other non-current liabilities
880,000
—
Net (liabilities)/assets
(955,688)
500,943
Non-controlling interests
254,900
—
Net (liabilities)/assets distributed on dividend in
specie
(700,788)
500,943
Net cash outflow on dividend in specie:
Cash and cash equivalents distributed
(67,381)
—

Total
RMB’000
74,476
734,472
45,588
35,341
889,877
505,564
7,377
67,381
580,322
1,044,944
880,000
(454,745)
254,900
(199,845)
(67,381)

— V-118 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

43. Notes to the Consolidated Statement of Cash Flows

Reconciliation from profit before tax to net cash generated from operating activities is as follows:

	2016	2015
		(Restated)
	RMB’000	RMB’000
Profit before tax
— from continuing operations	1,520,888	3,022,077
— from discontinued operation	666,615	(1,654,287)
Adjustments for:
Finance costs	1,023,506	1,411,790
Interest income	(88,239)	(109,090)
Gain on revaluation of investment properties, net	(1,212)	(53,311)
Loss on disposal of property, plant and equipment, net	317,778	1,421,257
Gain on disposal of discontinued operation	(966,852)	—
Dividends received from available-for-sale investments	(9,640)	(23,442)
Gain on early redemption of convertible bonds	—	(4,386)
Gain on bargain purchase	—	(1,947)
Impairment losses on investments in joint ventures	—	193,971
Impairment losses on available-for-sale investments	—	37,324
Impairment losses on trade receivables	19,209	466
Impairment losses on other receivables	25,089	—
Depreciation of property, plant and equipment	2,216,728	2,458,017
Amortisation of prepaid land lease payments	2,379	1,469
Provision for onerous contracts	413,877	225,631
Share of profits of associates	(285,789)	(215,932)
Share of profits of joint ventures	(91,516)	(223,548)
Fair value gain on step acquisition of a subsidiary	(6,603)	—

— V-119 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

Operating profit before working capital changes (Increase)/decrease in inventories Increase in trade and bills receivables Increase in prepayments Increase in deposits and other receivables Decrease in amounts due from associates Increase in amounts due from joint ventures Decrease/(increase) in amounts due from fellow subsidiaries Decrease in amounts due from related companies Increase in trade and bills payables Increase in other payables Increase in accruals (Decrease)/increase in amount due to immediate holding company Increase in amount due to an associate Increase/(decrease) in amounts due to joint ventures Increase/(decrease) in amounts due to fellow subsidiaries Decrease in amounts due to related companies Decrease in provision and other liabilities (Decrease)/increase in employee benefits payable Cash generated from operations Income tax paid Net cash generated from operating activities	2016 RMB’000 4,756,218 (32,450) (81,675) (17,026) (9,985,095) — (96,445) 82,934 16,997 360,334 17,261,890 62,833 (80,816) 4 1,700 352,535 (185) (209,121) (5,160) 12,387,472 (322,484) 12,064,988	2015 (Restated) RMB’000 6,486,059 329,359 (1,011,244) (39,356) (580,225) 3,450 (25,140) (2,168) 77,866 446,260 2,418,401 61,036 63,169 — (4,539) (312,991) (899) (218,988) 6,175 7,696,225 (95,576) 7,600,649

44. Business Combinations

(a) Business combination involving entities under common control

On 29 March 2016, the Company acquired 100% equity interest in Dalian Tanker from China Ocean Shipping at a consideration of RMB6,629,408,800 which was settled on a net basis with the disposal of discontinued operation during the year (see note 7). The principal activities of Dalian Tanker were oil and LPG shipment along the PRC coast and international shipment. The financial statements of Dalian Tanker are consolidated by the Group as the Group has control over operating and financial policies of this entity.

— V-120 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

As mentioned in note 2.2(a) to the consolidated financial statements, the Group has applied merger accounting as prescribed in Accounting Guideline 5 to account for the business combination involving entities under common control. Accordingly, Dalian Tanker has been combined since 1 January 2015, the earliest financial period presented, as if the acquisition had occurred at that time.

(i) The reconciliation of the effect arising from the business combination involving entities under common control on the consolidated statements of financial position as at 31 December 2016 and 2015 and 1 January 2015 are as follows:

The Group excluding Dalian Tanker RMB’000 At 31 December 2016 Non-current assets Investment in a subsidiary 6,629,409 Other non-current assets 34,232,653 40,862,062 Current assets Other current assets 2,530,375 Cash and cash equivalents 4,868,030 7,398,405 Current liabilities Other current liabilities 4,416,411 Net current assets/(liabilities) 2,981,994 Total assets less current liabilities 43,844,056 Equity Equity attributable to owners of the Company Issued capital 4,032,033 Reserves 23,106,183 27,138,216 Non-controlling interests (25,132) Total equity 27,113,084 Non-current liabilities Other non-current liabilities 16,730,972 Total equity and non-current liabilities 43,844,056	Dalian Tanker Adjustment Consolidated RMB’000 RMB’000 RMB’000 — (6,629,409) — 14,814,708 — 49,047,361 14,814,708 (6,629,409) 49,047,361 1,245,224 (1,165,722) 2,609,877 1,496,553 — 6,364,583 2,741,777 (1,165,722) 8,974,460 4,314,513 (1,165,722) 7,565,202 (1,572,736) — 1,409,258 13,241,972 (6,629,409) 50,456,619 6,378,153 (6,378,153) 4,032,033 526,129 (251,256) 23,381,056 6,904,282 (6,629,409) 27,413,089 35,125 — 9,993 6,939,407 (6,629,409) 27,423,082 6,302,565 — 23,033,537 13,241,972 (6,629,409) 50,456,619	Dalian Tanker Adjustment Consolidated RMB’000 RMB’000 RMB’000 — (6,629,409) — 14,814,708 — 49,047,361 14,814,708 (6,629,409) 49,047,361 1,245,224 (1,165,722) 2,609,877 1,496,553 — 6,364,583 2,741,777 (1,165,722) 8,974,460 4,314,513 (1,165,722) 7,565,202 (1,572,736) — 1,409,258 13,241,972 (6,629,409) 50,456,619 6,378,153 (6,378,153) 4,032,033 526,129 (251,256) 23,381,056 6,904,282 (6,629,409) 27,413,089 35,125 — 9,993 6,939,407 (6,629,409) 27,423,082 6,302,565 — 23,033,537 13,241,972 (6,629,409) 50,456,619
		49,047,361
		2,609,877 6,364,583
		8,974,460
		7,565,202
		1,409,258
		50,456,619
		4,032,033 23,381,056
		27,413,089 9,993
		27,423,082
		23,033,537
		50,456,619

— V-121 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

The Group
excluding
Dalian Tanker
RMB’000
At 31 December 2015
Non-current assets
Other non-current assets
61,912,752
Current assets
Other current assets
4,380,012
Cash and cash equivalents
2,085,889
6,465,901
Current liabilities
Other current liabilities
10,129,192
Net current liabilities
(3,663,291)
Total assets less current
liabilities
58,249,461
Equity
Equity attributable to owners
of the Company
Issued capital
4,032,033
Reserves
21,665,173
25,697,206
Non-controlling interests
825,997
Total equity
26,523,203
Non-current liabilities
Other non-current liabilities
31,726,258
Total equity and non-current
liabilities
58,249,461

Dalian
Tanker
Adjustment
Consolidated
(Restated)
RMB’000
RMB’000
RMB’000
13,362,106
2,484
75,277,342
1,062,048
(2,850)
5,439,210
2,777,358
—
4,863,247
3,839,406
(2,850)
10,302,457
3,961,540
(1,682)
14,089,050
(122,134)
(1,168)
(3,786,593)
13,239,972
1,316
71,490,749
6,378,153
(6,378,153)
4,032,033
(368,944)
6,378,956
27,675,185
6,009,209
803
31,707,218
36,877
—
862,874
6,046,086
803
32,570,092
7,193,886
513
38,920,657
13,239,972
1,316
71,490,749

— V-122 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

The Group
excluding
Dalian Tanker
RMB’000
At 1 January 2015
Non-current assets
Other non-current assets
59,295,029
Current assets
Other current assets
4,006,134
Cash and cash equivalents
2,449,240
6,455,374
Current liabilities
Other current liabilities
13,717,842
Net current (liabilities)/assets
(7,262,468)
Total assets less current
liabilities
52,032,561
Equity
Equity attributable to owners
of the Company
Issued capital
3,481,405
Reserves
18,347,595
21,829,000
Non-controlling interests
818,729
Total equity
22,647,729
Non-current liabilities
Other non-current liabilities
29,384,832
Total equity and non-current
liabilities
52,032,561

Dalian
Tanker
Adjustment
Consolidated
(Restated)
RMB’000
RMB’000
RMB’000
11,950,362
3,975
71,249,366
1,243,853
690
5,250,677
1,997,851
—
4,447,091
3,241,704
690
9,697,768
2,909,167
—
16,627,009
332,537
690
(6,929,241)
12,282,899
4,665
64,320,125
7,189,225
(7,189,225)
3,481,405
(3,314,530)
7,192,864
22,225,929
3,874,695
3,639
25,707,334
(222,072)
—
596,657
3,652,623
3,639
26,303,991
8,630,276
1,026
38,016,134
12,282,899
4,665
64,320,125

— V-123 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

The above adjustments represent adjustments to eliminate the paid-up capital of Dalian Tanker against the Group’s investment cost in Dalian Tanker and current accounts between the Group and Dalian Tanker as at 31 December 2016 and 2015 and 1 January 2015 respectively and adjustments to achieve consistency of accounting policies.

(ii) The effect of the business combination involving entities under common control, described above, on the Group’s basic and diluted earnings per share for the year ended 31 December 2015 is as follows:

	Impact on basic
	and diluted earnings
	per share
	RMB cents
As previously reported	10.49
Restatement arising from business combination involving entities
under common control	19.21
Restated	29.70

(iii) The effect of business combination involving entities under common control, described above, on the Group’s profit for the year for the year ended 31 December 2015 is as follows:

As previously reported Restatement arising from business combination involving entities under common control Restated	RMB’000 489,755 767,978
	1,257,733

— V-124 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

(b) Business combination not involving entities under common control
(1) Step acquisition of a subsidiary in 2016

In prior years, the Group held 8% equity interest in Shenzhen Sanding and the investment was recognised as available-for-sale investments in the consolidated financial statements. On 22 August 2016, the Group entered into a sale and purchase agreement with another shareholder, 廣州振華船務有限公司 (“Guangzhou Zhenhua”), and pursuant to the sale and purchase agreement, the Group agreed to acquire the 43% equity interest held by Guangzhou Zhenhua in Shenzhen Sanding at a consideration of RMB251,981,000 (the “Step Acquisition”).

Shenzhen Sanding is principally engaged in provision of oil transportation and vessel chartering services. The Group considers that the Step Acquisition provides a good opportunity to enlarge the Group’s business scope.

As at 12 November 2016 (the “Acquisition Date”), the fair value of the Group’s 8% equity interest in Shenzhen Sanding was RMB36,058,000. Compared with its carrying amount before valuation of RMB29,455,000, a fair value gain of RMB6,603,000 was recognised in other income and net gains during the year ended 31 December 2016.

Upon the completion of the Step Acquisition, the Company holds a total of 51% equity interest in Shenzhen Sanding which is regarded as a non-wholly-owned subsidiary of the Company and was consolidated into the Group during the year ended 31 December 2016.

— V-125 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

(i) Fair value of identifiable assets and liabilities of Shenzhen Sanding as at the Acquisition Date were as follows:

	12 November 2016
	RMB’000
Non-current assets
Property, plant and equipment	448,599
Available-for-sale investments	193,526
Deferred tax assets	52,571
	694,696
Current assets
Inventories	2,759
Trade and bills receivables	13,054
Prepayments, deposits and other receivables	80,161
Cash and cash equivalents	43,553
	139,527
Current liabilities
Trade and bills payables	6,932
Other payables and accruals	4,507
Dividends payable	20,000
Current portion of interest-bearing bank and other borrowings	30,185
Tax payable	9,146
	70,770
Non-current liabilities
Interest-bearing bank and other borrowings	271,665
Deferred tax liabilities	41,060
	312,725
Fair value of identifiable net assets acquired	450,728
Non-controlling interests	(220,857)
Fair value of identifiable net assets attributable to the equity
interest acquired by the Group	229,871

— V-126 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

(ii) Goodwill arising from the Step Acquisition

Consideration satisfied by: Fair value of the Group’s 8% equity interest in Shenzhen Sanding Cash paid Payable to Guangzhou Zhenhua Total consideration Less: fair value of identifiable net assets attributable to the equity interest acquired by the Group Goodwill	RMB’000 36,058 249,577 2,404 288,039 (229,871) 58,168

No acquisition-related costs arising from the Step Acquisition have been incurred.

Goodwill arose from these acquisitions because the cost of the economy of scale could be achieved upon completion of the acquisition. In addition, the consideration paid for the combination effectively included amounts in relation to the benefit of expected synergies, revenue growth, future market development and the assembled workforce of the above companies. These benefits are not recognised separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.

None of goodwill arising from the Step Acquisition is expected to be deductible for tax purposes.

(iii) Net cash outflow on the Step Acquisition

Consideration paid by cash Cash and cash equivalents of the subsidiary acquired Net cash outflow on the Step Acquisition	RMB’000 249,577 (43,553) 206,024

(iv) Impact of the Step Acquisition on the results of the Group

Shenzhen Sanding contributed RMB24,418,000 to turnover and profit of RMB5,557,000 to the Group’s results for the year ended 31 December 2016.

— V-127 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

Had the Step Acquisition been effected on 1 January 2016, Shenzhen Sanding would have contributed RMB194,066,000 to turnover and profit of RMB92,986,000 to the Group’s results for the year ended 31 December 2016. This pro-forma information is for illustration purposes and should not be viewed as an indication of the result of operations that would have occurred if the Step Acquisition had been completed on 1 January 2016.

(2) Acquisition of a subsidiary in 2015

On 1 July 2015, the Group acquired 100% equity interest in Shanghai Huitong Shipping Services Co., Limited (“Shanghai Huitong”) through Bulk Carrier at a consideration of RMB96,200. Shanghai Huitong is principally engaged in provision of vessels repair services.

(i) Fair value of identifiable assets and liabilities of Shanghai Huitong as at the date of acquisition were as follows:

	1 July 2015
	RMB’000
Non-current assets
Property, plant and equipment	4,595
Deferred tax assets	850
	5,445
Current assets
Inventories	1,439
Trade and other receivables	14,429
Cash and cash equivalents	2,879
	18,747
Current liabilities
Trade and other payables	22,149
Fair value of identifiable net assets acquired	2,043

— V-128 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

(ii) Gain on bargain purchase arising from acquisition

Consideration satisfied by: Cash paid Less: fair value of identifiable net assets attributable to the equity interest acquired by the Group Gain on bargain purchase	RMB’000 96 (2,043) (1,947)

No acquisition-related costs arising from acquisition have been incurred.

Gain on bargain purchase of RMB1,947,000 was recognised upon the completion of the acquisition of Shanghai Huitong. All the gain on bargain purchase was recognised in the other income and net losses of the discontinued operation for the year ended 31 December 2015.

(iii) Net cash inflow on acquisition of a subsidiary

Consideration paid by cash Cash and cash equivalents of the subsidiary acquired Cash inflow on acquisition	RMB’000 96 (2,879) (2,783)

Shanghai Huitong was no longer a subsidiary of the Group as at 30 June 2016 arising from the discontinued operation.

45. Changes in Ownership Interests in a Subsidiary Without Change of Control

Pursuant to equity transfer agreement which was effective on 6 November 2015, the Group acquired additional 49% equity interest in CS Puyuan Marine Co., Limited (“CS Puyuan”), through China Shipping Development (Hong Kong) Marine Co., Limited (“CSDHK”), a wholly-owned subsidiary of the Company. Upon the completion of the transaction in 2015, CS Puyuan became an indirect wholly-owned subsidiary of the Company.

— V-129 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

The details of the changes in the equity interest in the subsidiary in 2015 are summarised as follows:

Carrying amount of non-controlling interests acquired Waive of loan from non-controlling interests Consideration received from non-controlling interests Excess of consideration received over carrying amount	RMB’000 (4,190) 116,859 37,302 149,971

The excess of consideration received from non-controlling interests over the carrying amount of non-controlling interests acquired of RMB149,971,000 had been credited to equity attributable to owners of the Company for the year ended 31 December 2015.

CS Puyuan was no longer a subsidiary of the Group as at 30 June 2016 arising from the discontinued operation.

46. Pension and Enterprise Annuity Schemes

(a) The PRC (other than Hong Kong)

(i) 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 19% to 20% (2015: 18% to 22%) of the basic salaries of the Group’s employees. Contributions made by the Group to the Scheme for the year ended 31 December 2016 amounted to RMB77,277,000 (2015: RMB88,482,000).

(ii) Enterprise annuity scheme

In 2008, the representatives of the Group’s Labour Union and the Board resolved to approve and adopt an enterprise annuity scheme. Pursuant to the annuity scheme the employer’s contributions will be 5% of the total staff costs of the 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. Under the scheme, actual amount incurred as labour costs for the year ended 31 December 2016 amounted to RMB15,452,000 (2015: RMB7,505,000).

— V-130 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

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

(b) Hong Kong

The Group operates a 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 the MPF Scheme, the employer and its employees are each required to make contributions to the MPF Scheme at 5% (2015: 5%) of the employees’ relevant income, subject to a cap of monthly relevant income of 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 year ended 31 December 2016 amounted to RMB594,000 (2015: RMB1,015,000).

47. Contingent Liablities

(i) On 20 February 2011, an oil tanker of Dalian Tanker, “Yang Mei Hu”, during the time of berthing in Mohammedia port, clashed the dock bollard. On the same day, the dock authority applied for the detention of “Yang Mei Hu” and required Dalian Tanker to compensate losses incurred by the above event. In March 2011, after the protection and indemnity club of “Yang Mei Hu” provided a guarantee letter in the amount of Dirham55 million (approximately RMB37 million) for security, “Yang Mei Hu” left the port. In April 2014, the dock authority filed suit in the local court of Morocco and required Dalian Tanker to compensate the loss in the amount of approximately RMB28 million.

Since Dalian Tanker had been insured, all compensations will be borne by the insurance companies, according to the membership certificate underwriting agreement. On 10 November 2016, one of the insurance companies paid Dirham24 million (approximately RMB16 million) to the dock authority for settlement. The case was resolved after the Group settled such amount.

(ii) 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 compensation will be borne by the insurance company. As at 31 December 2016, such contingent liability has been removed as a result of the operation discontinued on 30 June 2016.
(iii) 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 30 June 2015, 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 compensation 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 fuel leakage incident in relation to the “Daiqing 75” tanker was resolved after the Group settled such amount.

— V-131 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

(iv) ELNG holds 30% equity interest in each of Aquarius LNG and Gemini LNG, and NLNG holds 30% equity interest in each of Capricorn LNG and 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 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 Capricorn LNG Mobil Australia Resources Company Pty Ltd. Aries 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 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 USD8,200,000 (approximately RMB56,883,000).

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

(v) 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 2016, such contingent liability has been removed as a result of the operation discontinued on 30 June 2016.
(vi) 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. On 3 November 2015, the court approved the plaintiffs to withdraw the claims after an arbitration on 28 August 2015.

— V-132 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

(vii) 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 RMB3,399,130,000). 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 RMB44,397,000).
(viii) At the 2015 sixth Board meeting on 28 April 2015, the Company approved Bulk Carrier to guarantee not more than 50% of the total debt of Guangzhou Shipping, including loan and accrued interest limited to approximately RMB26,250,000, where the guarantee was unconditional and non-cancellable. The guarantee was derecognised on 30 June 2016 resulting from the discontinued operation.

48. Operating Lease Arrangements

(a) As lessor

The Group leases certain of its vessels and buildings under operating lease arrangements, with leases negotiated for an initial period of one to twenty (2015: one to three) years.

As at 31 December 2016, the Group had total future minimum lease rental receivables under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive Over five years	2016 RMB’000 1,433,392 1,018,668 3,322,649 5,774,709	2015 (Restated) RMB’000 719,521 318,640 —
		1,038,161

(b) As lessee

The Group entered into non-cancellable operating lease arrangements on vessels and buildings. The leases are negotiated for an initial period of one to fifteen (2015: one to fifteen) years.

— V-133 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

As at 31 December 2016, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive Over five years	2016 RMB’000 771,689 2,185,076 2,402,422 5,359,187	2015 (Restated) RMB’000 1,309,829 2,780,765 3,125,267 7,215,861

49. Capital Commitments

Note Authorised and contracted but not provided for: Construction and purchases of vessels (i) Project investments (ii) Equity investments (iii) Note:	2016 RMB’000 8,891,396 655,930 — 9,547,326	2015 (Restated) RMB’000 12,148,434 696,341 777,517
		13,622,292

(i) According to the construction and purchase agreements entered into by the Group, these capital commitments will fall due in 2017 to 2018.

(ii) Included in capital commitments in respect of project investments are commitments to invest in certain projects held by CLNG.
(iii) Included in capital commitments in respect of equity investments are commitments to invest in China Ore Shipping and Shenhua Zhonghai. The capital commitments were derecognised on 30 June 2016 resulting from the discontinued operation.

In addition to the above, the Group’s share of the capital commitments of its associates which are contracted but not provided for amounted to RMB121,969,000 (2015: RMB121,975,000). The Group’s share of the capital commitments of its joint ventures, which are contracted but not provided for amounted to RMB2,267,070,000 (2015: RMB2,929,925,000).

— V-134 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

50. Related Party Transactions

Transactions entered into the ordinary course of business between the Group and China Shipping and its subsidiaries other than the Group (together “China Shipping Group”), fellow subsidiaries other than subsidiaries of China Shipping, associates and joint ventures of the Group as well as other related parties for the year ended 31 December 2016, which are also considered by the directors of the Company as related party transactions, are as follows:

(1) In October 2012, the Company entered into a services agreement with China Shipping which became effective subsequent to the approval by independent shareholders at the extraordinary general meeting held on 18 December 2012. Pursuant to the services agreement, China Shipping Group and its joint ventures agreed to provide necessary supporting shipping materials and services for the ongoing operations of the oil transportation business and dry bulk cargo transportation business including dry-docking and repair services, supply of lubricating oil, fresh water, raw materials, bunker oil as well as other services for the ongoing operations for all vessels owned or bareboat chartered by the Group. The services agreement will be effective for a term of three years commencing from 1 January 2013 to 31 December 2015. The fees for the supporting shipping materials and services payable by the Group to China Shipping Group and its joint ventures will be determined by reference to, depending on applicability and availability, the state-fixed price, market price or cost.

In September 2015, the Company entered into a new services agreement with China Shipping which became effective subsequent to the approval by independent shareholders at the extraordinary general meeting held on 28 December 2015. Pursuant to the new services agreement, China Shipping Group and its joint ventures will continue to provide the Group with similar materials and services provided for in the services agreement entered into in October 2012 for a further three years commencing from 1 January 2016 to 31 December 2018.

In addition, included in the new services agreement the management services of sea crew provided by China Shipping Group and its joint ventures has covered two services agreements entered between Bulk Carrier and COSCO SHIPPING Tanker (Shanghai) Co., Ltd. (formerly known as China Shipping Tanker Co., Limited) (“Shanghai Tanker”), a wholly-owned subsidiary of the Company, and China Shipping International Ship Management Co., Ltd. (“CSISM”), a wholly-owned subsidiary of China Shipping, in April 2014 (details are outlined in note 50(2) below).

Except for the management services of sea crew included in the new services agreement, there is no significant changes in the major terms compared to the services agreement entered into in October 2012.

— V-135 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

Further details of the principal amounts paid by the Group to China Shipping Group and its joint ventures in respect of the services agreement for the year are set out below:

		2016	2015
	Pricing basis	Total value	Total value
		RMB’000	RMB’000
Supply of lubricating oil, fresh water, raw	Market prices	1,115,222	2,342,506
materials, bunker oil, mechanical and
electrical engineering, supporting
shipping materials and repairs and
maintenance services for vessels and life
boats
Oil removal treatment, maintenance,	State-fixed prices	92,259	63,776
telecommunication and navigational
services
Dry-docking, repairs, special coating and	State-fixed prices or	32,789	79,926
technical improvements of vessels	market prices
Management services of sea crew	Market prices	902,638	—
Accommodation, lodging, medical services	State-fixed prices or	—	—
and transportation for employees	market prices
Agency commissions	Market prices	60,201	74,522
Services fees on sale and purchase of	Market prices	—	4,811
vessels, accessories and other equipment
Miscellaneous management services	Market prices	12,140	27,923

In connection with the above transactions and for other operating purposes, the Group made prepayments or advances to it fellow subsidiaries and joint ventures of China Shipping from time to time.

(2) In April 2014, CSISM entered into two services agreements with Bulk Carrier and Shanghai Tanker respectively which both services agreements became effective subsequent to the approval by independent shareholders at the annual general meeting held on 6 June 2014. Pursuant to the services agreements, CSISM agreed to provide to the Group the sea crew management services for the ongoing operations for all vessels owned or bareboat chartered by the Group. The fees for the sea crew management services payable by the Group to CSISM will be determined by reference to market price.

The new services agreement outlined in note 50(1) above entered between the Company and China Shipping Group and its joint ventures has covered the above mentioned sea crew management services of which the new services agreement will be effective for a term of three years commencing from 1 January 2016 to 31 December 2018.

During the year ended 31 December 2016, no crew management fee was paid to CSISM under these two services agreements (2015: RMB1,245,832,000).

— V-136 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

(3) On 28 April 2016, Dalian Tanker entered into a materials and services framework agreement with COSCO Shipping which became effective subsequent to the approval by independent shareholders at the annual general meeting held on 20 May 2016. Pursuant to the materials and services framework agreement, COSCO Shipping and its subsidiaries other than the Group (together “COSCO Shipping Group”) agreed to provide the necessary supporting shipping materials and services (the “Agreed Supplies and Services I”) to Dalian Tanker Group and also Dalian Tanker Group agreed to provide the necessary supporting shipping materials and services (the “Agreed Supplies and Services II”) to COSCO Shipping Group. The materials and services framework agreement will be effective for a term of three years commencing from 1 January 2016 to 31 December 2018. The prices for both the Agreed Supplies and Services I provided by COSCO Shipping Group to Dalian Tanker Group and the Agreed Supplies and Services II provided by Dalian Tanker Group to COSCO Shipping Group will be determined by reference to the prevailing market price and a combination of other factors. The prevailing market price shall be determined by reference to the price chargeable by independent third parties for identical or similar type of supporting material or service at the time in the PRC or overseas (as the case may be) and the price charged to independent third parties by COSCO Shipping Group or Dalian Tanker Group (as the case may be) in the most recent transaction of a similar nature. Further details of the principal amounts paid by Dalian Tanker Group to COSCO Shipping Group in respect of the Agreed Supplies and Services I for the year are set out below:

		2016	2015
		Total value	Total value
	Pricing basis		(Restated)
		RMB’000	RMB’000
Supply of materials and fuels, mainly including	Market prices	727,048	913,460
fresh water, bunker oil and spare parts
Telecommunication and navigational services	Market prices	19	—
Dry docking, repairs, special coating, technical	Market prices	9,518	15,122
improvements of vessels
Vessels and shipping agency	Market prices	28,130	17,785
Service on sale and purchase of vessels,	Market prices	—	—
accessories and other equipment
Other miscellaneous management services	Market prices	3,782	5,217

— V-137 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

Further details of the principal amounts received by Dalian Tanker Group from COSCO Shipping Group in respect of the Agreed Supplies and Services II for the year are set out below:

		2016	2015
		Total value	Total value
	Pricing basis		(Restated)
		RMB’000	RMB’000
Supply of shipping materials	Market prices	9,089	—
Telecommunication and navigational services	Market prices	343	467
Management services of sea crew	Market prices	—	—
Accommodation, lodging, medical services and	Market prices	—	—
transportation for employees

There are certain overlapping supplies and services between the Agreed Supplies and Services I and the Agreed Supplies and Services II (mainly including the supply of shipping materials and provision of telecommunication and navigational services). It is mainly because when the vessel from one group is at a place where it is not able or not economical to receive such supplies or services from its own group due to geographic limitation, it may purchase such supplies or services from another group according to actual circumstances. Such arrangement can benefit both groups to reduce their operational costs and achieving synergy.

— V-138 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

(4) In addition to the related party transactions outlined in notes 50(1) to 50(3) above, details of the Group’s related party transactions with China Shipping Group, COSCO Shipping Group, associates and joint ventures of the Group and other related companies for the year are as follows:

		2016	2015
	Note		(Restated)
		RMB’000	RMB’000
Shipment income		34,070	114,633
Vessel chartering income		157,297	246,913
Vessel chartering charges	(i)	144,941	202,947
Sale of vessels		—	195,113
Construction of vessels	(ii)	603,066	806,216
Vessel management income		2,083	6,341
Vessel management expenses		35,504	18,167
Technical services income		1,430	5,232
Sale of materials		—	56,509
Rental income, including business tax and
surcharge	(iii)	23,888	27,675
Rental expenses	(iii)	11,561	14,078
Interest income from associates		28,095	46,665
Interest income from joint ventures		8,229	5,382
Interest income from fellow subsidiaries		9,539	—
Loan interest payment	(iv)	175,722	338,697

Note:

The Group has entered into the following agreements:

(i) On 21 November 2013, Bulk Carrier entered into two bareboat charters agreements with Dalian Shipping Group Co., Limited (“Dalian Shipping”), a wholly-owned subsidiary of China Shipping, whereby Bulk Carrier will lease two dry bulk vessels, namely “Qing Feng Ling” and “Shi Long Ling”, from Dalian Shipping for a term of three years commencing from 1 December 2013 to 30 November 2016. The annual aggregate charter payment for each of the bareboat charters agreement is RMB12,154,500. The agreements were ended on 30 June 2016 resulting from the discontinued operation.

On 15 April 2014, China Shipping Bulk Carrier (Hong Kong) Co., Limited (“CS Bulk Carrier (HK)”), a former indirect and wholly-owned subsidiary of the Company, entered into four bareboat charters agreements with Dong Fang International Asset Management Limited (“Dong Fang”), an indirect wholly-owned subsidiary of China Shipping, whereby CS Bulk Carrier (HK) will lease four dry bulk vessels from Dong Fang for a term of ten years commencing from the date of delivery of the respective dry bulk vessels to CS Bulk Carrier (HK). The annual charter payment for each bareboat charters agreement is USD2,499,780. Two dry bulk vessels under two separate bareboat charters agreements were delivered to CS Bulk Carrier (HK) in October 2015 and February 2016 respectively. The agreements were ended on 30 June 2016 resulting from the discontinued operation.

On 29 April 2015, Bulk Carrier entered into a framework agreement with China Shipping (Hainan) Haisheng Shipping and Enterprise Co., Ltd. (“CS Haisheng”), a non-wholly-owned subsidiary of China Shipping, whereby Bulk Carrier will lease six dry bulk vessels from CS Haisheng for a term of eight months commencing from 1 May 2015 to 31 December 2015. The aggregate charter payment under the framework agreement for the eight months shall be no more than RMB70,000,000.

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FINANCIAL INFORMATION OF THE GROUP

On 29 April 2015, Bulk Carrier entered into three bareboat charters agreements with China Shipping Industry Co., Ltd. (“CS Industry”), a wholly-owned subsidiary of China Shipping, whereby Bulk Carrier will lease three dry bulk vessels from CS Industry for a term of eight months commencing from 1 May 2015 to 31 December 2015. The aggregate charter payment under the three bareboat charters agreements for the eight months shall be no more than RMB15,000,000.

Other remaining vessel chartering charges represented number of transactions during the year ended 31 December 2016.

(ii) On 28 September 2010, the Company entered into twelve agreements with CS Industry and China Shipping Industry (Jiangsu) Co., Ltd. (“CS Industry (Jiangsu)”), two wholly-owned subsidiaries of China Shipping, for the construction of twelve dry bulk vessels. The total consideration for the construction of the dry bulk vessels is RMB2,553,600,000. The construction of six dry bulk vessels was completed in prior years and the construction of remaining six dry bulk vessels was completed in 2015.

On 23 December 2014, Bulk Carrier entered into an assignment agreement with CS Industry, CS Industry (Jiangsu) and 廣州振興船務有限公司 (“廣州振興”), of which 廣州振興 is a wholly-owned subsidiary of China Shipping, pursuant to which 廣州振興 conditionally agreed to assign and Bulk Carrier conditionally agreed to accept the assignment of all of the 廣州振興’s rights and obligations under a construction agreement dated 28 September 2010 to engage CS Industry and CS Industry (Jiangsu) for the construction of a dry bulk vessel. The total consideration for the construction of the dry bulk vessel is RMB158,000,000. The construction of the dry bulk vessel was completed in 2015.

Other remaining amounts represented number of transactions during the year ended 31 December 2016.

(iii) On 29 March 2016, the Company entered into a property lease framework agreement with China Shipping, whereby the Group will continue to provide China Shipping Group and its associates (which associates has the meaning as defined thereto under the Listing Rules and thus including China Ocean Shipping and its subsidiaries) with property and land use right leasing services as well as receive such services from China Shipping Group and its associates. The property lease framework agreement will be effective for a term of three years commencing from 1 January 2016 to 31 December 2018. Both parties may renew the property lease framework agreement on terms and conditions agreed upon by both parties within three months before the expiration of the property lease framework agreement. The rental income received from and rental expenses paid to China Shipping Group and its associates were determined with reference to the prevailing market price.

Other remaining rental income and expenses represented number of transactions during the year ended 31 December 2016.

(iv) On 30 March 2010, the Company entered into a loan agreement with CS Finance whereby CS Finance provided a loan in the amount up to RMB1,500,000,000 to the Company for the construction of twenty-two dry bulk vessels. The loan has a term of five years commencing from 1 April 2010 to 1 April 2015. The annual interest rate of the loan is 10% discount to the 5-year term PBC Benchmark interest rate on the drawdown date, and the interest rate will be adjusted annually. Two loan assignment agreements were entered by the Company with Bulk Carrier and China Shipping Bulk Carrier (Shanghai) Co., Limited (“Bulk Carrier Shanghai”), two former wholly-owned subsidiaries of the Company, on 31 May 2012. Pursuant to the loan assignment agreements, the Company has assigned the outstanding loan balances on that date under the loan agreement dated 30 March 2010 of RMB436,560,000 and RMB109,140,000 (totalling RMB545,700,000) to Bulk Carrier and Bulk Carrier Shanghai respectively. The loan assigned to Bulk Carrier was early repaid in 2013 and the loan assigned to Bulk Carrier Shanghai was fully repaid on 1 April 2015.

On 8 August 2011, the Company entered into an entrusted loan agreement with China Shipping and CS Finance whereby China Shipping entrusted CS Finance to provide a loan in the amount of RMB3,000,000,000 to the

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APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

Company. The entrusted loan has a term of seven years commencing from 9 August 2011 to 8 August 2018. The interest rate of the entrusted loan is at fixed rate of 6.51% per annum. CS Finance will also charge an administrative fee of RMB300,000 per annum. A supplementary agreement was signed on 20 March 2015 and pursuant to the supplementary agreement, the interest rate of the entrusted loan was revised from fixed rate of 6.51% to 6.15% per annum. The loan was early repaid during the year ended 31 December 2016.

On 25 June 2012, Shanghai Jiahe Shipping Co., Limited (“Shanghai Jiahe”), a former indirect and non-wholly-owned subsidiary of the Company, entered into a loan agreement with CS Finance whereby CS Finance provided a loan in the amount of RMB53,600,000 with a term of ten years to Shanghai Jiahe. The loan is used to finance the construction of two dry bulk vessels. The interest rate of the loan is at 5% discount to the PBC Benchmark interest rate per annum. In March 2013, a further drawdown of RMB4,000,000 was made by Shanghai Jiahe from CS Finance. RMB8,500,000 was repaid during the year ended 31 December 2016. The loan was derecognised on 30 June 2016 resulting from the discontinued operation.

On 30 June 2014, CSDHK entered into an entrusted loan agreement with China Shipping and CS Finance whereby China Shipping entrusted CS Finance to provide a loan in the amount of USD100,000,000 to CSDHK. The entrusted loan has a term of three years and the interest rate of the entrusted loan is at 6-month Libor plus 2.50% per annum. The loan was early repaid during the year ended 31 December 2016.

Other remaining interest expenses represented number of transactions during the year ended 31 December 2016 and were recognised in profit or loss as finance costs.

(5) In October 2012, the Company entered into a financial services framework agreement with CS Finance which became effective subsequent to the approval by independent shareholders at the extraordinary general meeting held on 18 December 2012. Pursuant to the financial services framework agreement, China Shipping may procure CS Finance to provide the Group with a range of financial services including (i) deposit services; (ii) loan services; (iii) settlement services and (iv) foreign exchange services; and (v) other financial services as approved by China Banking Regulatory Commission. The financial services framework agreement will be effective for a term of three years commencing from 1 January 2013 to 31 December 2015 and will be automatically renewed for another three years commencing from 1 January 2016 to 31 December 2018 unless either party chooses not to renew the financial services framework agreement.

In September 2015, the Company entered into a new financial services framework agreement with CS Finance which became effective subsequent to the approval by independent shareholders at the extraordinary general meeting on held on 28 December 2015. Pursuant to the new financial services framework agreement, CS Finance will continue to provide the Group with similar services provided for in the financial services framework agreement entered into in October 2012 for a further three years commencing from 1 January 2016 to 31 December 2018. The new financial services framework agreement will be automatically renewed for another three years commencing from 1 January 2019 to 31 December 2021 unless either party chooses not to renew the new financial services framework agreement.

(6) On 28 April 2016, Dalian Tanker entered into a financial services framework agreement with COSCO Finance, which became effective subsequent to the approval by independent shareholders at the annual general meeting held on 20 May 2016. Pursuant to the financial services framework agreement, COSCO Finance will provide Dalian Tanker Group with a range

— V-141 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

of financial services including (i) deposit services; (ii) loan and financing lease services; (iii) settlement services; (iv) foreign exchange services; and (v) other financial services as approved by China Banking Regulatory Commission. The financial services framework agreement will be effective for a term of three years commencing from 1 January 2016 to 31 December 2018.

(7) Outstanding balances with related parties

Details of the Group’s current account and loan balances with its related parties as at the end of the reporting period are disclosed in notes 23, 27, 28, 29, 30, 31 and 34 to the consolidated financial statements.

(8) Details of the emoluments of key management personnel, including directors, supervisors and senior management, are included in note 12 to the consolidated financial statements.

The related party transactions as disclosed in paragraphs (1) to (6), also constitute connected transactions or continuing connected transactions as defined in Chapter 14A of the Main Board Listing Rules.

51. Financial Risk Management Objectives and Policies

The Group’s principal financial instruments include cash and cash equivalents, derivative financial instruments and interest-bearing bank and other borrowings. The main purpose of these financial instruments is to raise fund for the Group’s operations. The Group has various other financial assets and liabilities such as trade and bills receivables and trade and bills payables, which arise directly from its operations.

The Group also enters into interest rate swap transactions. The purpose is to manage the interest rate risk arising from the Group’s operations and its sources of finance. It is, and has been, throughout the year under review, the Group’s policy that no trading in financial instruments shall be undertaken.

The Group’s activities expose it to a variety of financial risks: market risk (including foreign currency risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. Management regularly manages the financial risks of the Group. Management identifies, evaluates and mitigates financial risks in close co-operation with the Group’s operating units.

(a) Market risk

(i) Foreign currency risk

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

— V-142 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

As at 31 December 2016, 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 RMB8,957,000 lower/higher (2015: RMB12,951,000 higher/lower), mainly as a result of foreign exchange gains or losses on translation of USD and HKD denominated cash and cash equivalents, receivables and payables and borrowings.

(ii) Interest rate risk

Other than the deposits placed with banks and financial institutions and loan receivables, the Group has no other significant interest-bearing assets. As the average interest rates applied to the deposits are relatively low, the directors of the Company are of the opinion that the Group is not exposed to any significant interest rate risk for these assets held as at 31 December 2016 and 2015.

The Group’s exposures to interest rate risk also arises from its borrowings. Loan receivables and borrowings issued at variable rates expose the Group to cash flow interest rate risk. Management monitors the capital market conditions and certain interest rate swap agreements with banks have been used to achieve optimum ratio between fixed and floating rates borrowings.

As at 31 December 2016, if interest rates 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 RMB150,432,000 (2015: RMB267,561,000) lower/higher, mainly as a result of higher/lower interest income on loan receivables and interest expenses on borrowings issued at floating rates.

(iii) Price risk

As at 31 December 2016, the Group’s certain available-for-sale investments amounted to RMB187,542,000 (2015: RMBnil) as disclosed in note 24 to the consolidated financial statements are measured at fair value at the end of each reporting period. Therefore, the Group is exposed to equity security price risk. Since the amounts of such investments are insignificant to the Group, the directors of the Company are of opinion that the Group is not exposed to any significant equity security price risk as at 31 December 2016 and 2015. The Group closely monitors the pricing trends in the open market in determining their long-term strategic stakeholding decisions.

(b) Credit risk

Credit risk is managed on a group basis. The Group’s credit risk mainly arises from trade and bills receivables, prepayments, deposits and other receivables, pledged bank deposits and cash and cash equivalents. Management has policies in place to monitor the exposures to these credit risks on an on-going basis.

— V-143 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

The Group has put in place policies to ensure that provision of shipping services are made to customers with an appropriate credit history and the Group performs periodic credit evaluations of its customers. The Group’s historical experience in collection of trade and other receivables falls within the recorded allowances. The Group’s exposure to credit risk arising from default of counterparties is limited as most of the counterparties are large state-owned enterprises with good credit standing and the Group does not expect any significant loss from trade debtors and for uncollected advances to those entities that have not been provided for other than impairment of trade receivables and impairment of other receivables as set out in notes 27 and 28 to the consolidated financial statements.

As at 31 December 2016, trade and bills receivables due from the top five debtors amounted to RMB401,980,000 (2015: RMB507,494,000), representing 33% (2015: 18%) of the total trade and bills receivables.

As at 31 December 2016 and 2015, the Group maintains most of its bank deposits in several major government-related financial institutions in the PRC and several non-bank financial institutions which are related parties of the Group. In view of strong state support provided to those government-related financial institutions, the directors of the Company are of the opinion that there is no significant credit risk on such assets being exposed.

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of credit facilities.

The Group aims to maintain flexibility in funding by keeping credit lines available at all times.

— V-144 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

The table below analyses the Group’s non-derivative financial liabilities and derivative financial liabilities (net settled and gross settled derivative financial instruments) into relevant maturity groupings based on the remaining period at the end of the reporting period to the contractual maturity date. The amounts disclosed in the table below are the contractual undiscounted cash flows.

Contractual undiscounted cash flows

At 31 December 2016 Trade and bills payables Other payables and accruals (excluding interest payable) Interest payable in relation to borrowings and bonds Derivative financial instruments Interest-bearing bank and other borrowings Other loans Bonds payable At 31 December 2015 (restated) Trade and bills payables Other payables and accruals (excluding interest payable) Interest payable in relation to borrowings and bonds Derivative financial instruments Interest-bearing bank and other borrowings Other loans Obligations under finance leases Bonds payable	Carrying amount RMB’000 1,349,984 1,051,245 101,782 474,988 21,506,442 1,052,071 3,982,045 29,518,557 1,477,972 896,395 269,097 415,643 43,475,750 1,199,539 402,754 3,978,488 52,115,638	Total Within one year or on demand More than one year but less than two years RMB’000 RMB’000 RMB’000 1,349,984 1,349,984 — 1,051,245 1,051,245 — 101,782 101,782 — 474,988 — — 24,051,314 5,270,698 4,712,257 1,448,767 6,616 286,853 4,988,050 202,550 202,550 33,466,130 7,982,875 5,201,660 1,477,972 1,477,972 — 896,395 896,395 — 269,097 269,097 — 415,643 4,258 — 46,923,046 12,389,053 8,796,159 1,354,083 12,600 578,530 469,808 65,389 65,358 5,190,600 202,550 202,550 56,996,644 15,317,314 9,642,597	More than two years RMB’000 — — — 474,988 14,068,359 1,155,298 4,582,950
			20,281,595
			— — — 411,385 25,737,834 762,953 339,061 4,785,500
			32,036,733

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

(d) Fair value measurement
(i) Financial assets and liabilities measured at fair value

Fair value hierarchy

The following table presents the fair value of the Group’s financial instruments measured at the end of the reporting period on a recurring basis, categorised into the three-level fair value hierarchy as defined in HKFRS 13. The level into which a fair value measurement is classified is determined with reference to the observability and significance of the inputs used in the valuation technique as follows:

Level 1 valuations: Fair value measured using only Level 1 inputs, i.e. unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 valuations: Fair value measured using Level 2, i.e. observable inputs which fail to meet Level 1, and not using significant unobservable inputs. Unobservable inputs are inputs for which market data are not available.

Level 3 valuations: Fair value measured using significant unobservable inputs.

The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy:

At 31 December 2016 Financial assets: Available-for-sale investments — Listed equity investments Financial liabilities: Derivative financial instruments At 31 December 2015 (restated) Financial liabilities: Derivative financial instruments	Level 1 RMB’000 187,542 — —	Level 2 RMB’000 — 474,988 415,643	Level 3 RMB’000 — — —	Total RMB’000 187,542
				474,988
				415,643

During the years ended 31 December 2016 and 2015, there were no transfers between Level 1 and Level 2, or transfer into or out of Level 3. The Group’s policy is to recognise transfers between levels of fair value hierarchy as at the end of the reporting period in which they occur.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

The fair values of the listed equity investments are based on the current bid price.

The fair value of interest rate swap agreements as derivative financial instruments is the estimated amount that the Group would receive or pay to terminate the swap at the end of the reporting period, taking into account current interest rates and the current creditworthiness of the swap counterparties.

(ii) Fair value of financial assets and liabilities carried at other than fair value

The carrying amounts of the Group’s financial assets and liabilities carried at cost or amortised cost are not materially different from their fair values as at 31 December 2016 and 2015.

52. Capital Management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Management monitors the Group’s capital structure on the basis of a net debt-to-equity ratio. For this purpose, the Group defines net debt as total debts which includes interest-bearing bank and other borrowings, other loans, obligations under finance leases and bonds payable less cash and cash equivalents.

The Group’s net debt-to-equity ratio as at 31 December 2016 is as follows:

Total debts Less: cash and cash equivalents Net debt Total equity Net debt-to-equity ratio	2016 RMB’000 26,540,558 (6,364,583) 20,175,975 27,423,082 74%	2015 (Restated) RMB’000 49,056,531 (4,863,247) 44,193,284 32,570,092 136%

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

53. Particulars of Principal Subsidiaries

As at 31 December 2016, particulars of the Group’s principal subsidiaries are as follows:

	Place of
	incorporation and		Class of	Proportion of			ownership
	operations/legal	Issued/registered	shares in	interest		held by the
Name	status	capital	issue		Company					Principal activities
				Direct				Indirect
				2016	2015		2016		2015
Shanghai Tanker	The PRC	RMB1,666,666,600	Ordinary	100%	100%			—	—	Oil transportation and
	Limited liability									vessel chartering
	company
Dalian Tanker (note i)	The PRC	RMB6,378,152,557	Ordinary	100%	100%			—	—	Oil transportation and
	Limited liability									vessel chartering
	company
Shenzhen Sanding (note ii)	The PRC	RMB299,020,000	Ordinary	51%	8%			—	—	Oil transportation and
	Limited liability									vessel chartering
	company
COSCO SHIPPING LNG	The PRC	RMB100,000,000	Ordinary	100%	100%			—	—	Investment holding
Investment (Shanghai)	Limited liability
Co., Ltd. (formerly	company
known as China
Shipping LNG
Investment Co., Ltd.)
CSDHK	Hong Kong	USD100,000,000	Ordinary	100%	100%			—	—	Investment holding
	Limited liability
	company
ELNG	Hong Kong	USD5,000,000	Ordinary	70%	70%			—	—	Investment holding
	Limited liability
	company
NLNG	Hong Kong	USD5,000,000	Ordinary	90%	90%			—	—	Investment holding
	Limited liability
	company
COSCO SHIPPING Tanker	Singapore	USD2,000,000	Ordinary	100%	100%			—	—	Oil transportation and
(Singapore) Pte. Ltd.	Limited liability									vessel chartering
(formerly known as	company
China Shipping
Development (S) Marine
Pte. Ltd.)
China Energy	Hong Kong	USD5,000,000	Ordinary	—		—	51%		51%	Investment holding
	Limited liability
	company
Bulk Carrier (note vi)	The PRC	RMB4,300,000,000	Ordinary	—	100%			—	—	Dry bulk transportation
	Limited liability									and vessel chartering
	company

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FINANCIAL INFORMATION OF THE GROUP

	Place of
	incorporation and		Class of	Proportion of			ownership
	operations/legal	Issued/registered	shares in	interest		held by the
Name	status	capital	issue		Company					Principal activities
				Direct				Indirect
				2016	2015		2016		2015
Bulk Carrier Shanghai	The PRC	RMB1,000,000,000	Ordinary	—		—		—	100%	Dry bulk transportation
(note vi)	Limited liability									and vessel chartering
	company
China Shipping Bulk	The PRC	RMB100,000,000	Ordinary	—		—		—	100%	Dry bulk transportation
Carrier (Wuhan) Co.,	Limited liability									and vessel chartering
Ltd. (note vi)	company
Guangzhou Jinghai	The PRC	RMB130,000,000	Ordinary	—		—		—	51%	Dry bulk transportation
Shipping Co., Limited	Limited liability									and vessel chartering
(note vi)	company
Shanghai Jiahe (note vi)	The PRC	RMB240,000,000	Ordinary	—		—		—	51%	Dry bulk transportation
	Limited liability									and vessel chartering
	company
Shanghai Huitong (note iii	The PRC	RMB200,000	Ordinary	—		—		—	100%	Vessel repair services
and vi)	Limited liability
	company
Shanghai Yinhua Shipping	The PRC	RMB200,000,000	Ordinary	—		—		—	51%	Dry bulk transportation
Co., Limited (note vi)	Limited liability									and vessel chartering
	company
Tianjin Zhonghai Huarun	The PRC	RMB768,000,000	Ordinary	—		—		—	51%	Dry bulk transportation
Marine Co., Limited	Limited liability									and vessel chartering
(note vi)	company
Hai Bao (note v and vi)	Hong Kong	USD8,000,000	Ordinary	—		—		—	51%	Investment holding
	Limited liability
	company
CS Puyuan (note iv and vi)	Hong Kong	USD19,000,000	Ordinary	—		—		—	100%	Investment holding
	Limited liability
	company
China Shipping Bulk	Hong Kong	HKD100,000	Ordinary	—		—		—	100%	Dry bulk transportation
Carrier (Hong Kong)	Limited liability									and vessel chartering
Wylex Co., Limited	company
(note vi)
CS Bulk Carrier (HK)	Hong Kong	HKD100,000 and	Ordinary	—		—		—	100%	Dry bulk transportation
(note vi)	Limited liability	USD3,000,000								and vessel chartering
	company

Note:

(i) The subsidiary was acquired from business combination involving entities under common control during the year ended 31 December 2016 (see note 44(a)).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

(ii) On 12 November 2016, the Group acquired additional 43% equity interest in Shenzhen Sanding (see note 44(b)).
(iii) On 1 July 2015, the Group acquired 100% equity interest in Shanghai Huitong through Bulk Carrier (see note 44(b)).
(iv) On 6 November 2015, the Group acquired additional 49% equity interest in CS Puyuan through CSDHK (see note 45).
(v) On 31 December 2015, the Company had disposed of its 51% equity interest in Hai Bao to Bulk Carrier.
(vi) These companies were no longer subsidiaries of the Group as at 30 June 2016 arising from the discontinued operation.

The above table lists the subsidiaries which, in the opinion of the directors of the Company, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the directors of the Company, result in particulars of excessive length.

The directors of the Company considered the Group did not have any subsidiary with material non-controlling interests. The accumulated non-controlling interests and relevant movements relating to these subsidiaries were reflected in the consolidated statement of changes in equity.

54. Events After the Reporting Period

On 20 January 2017, the Board announced that the Company entered into an capital contribution agreement with China Shipping and COSCO SHIPPING Development, pursuant to which all three parties agreed to have capital contributions by way of cash in proportion to their existing shareholdings in CS Finance. As a result, the Company will contribute RMB150 million to CS Finance as capital injection. Upon the completion of the capital contribution, the registered capital of CS Finance will be increased to RMB1,200 million while the equity interest holds by the Company in CS Finance remains at 25%. The Board considered that making a further capital contribution to CS Finance will bring considerable economic benefits to the Company.

55. Comparative Figures

Certain comparative figures have been re-presented as a result of the application of merger accounting due to the business combination involving entities under common control and the operation discontinued on 30 June 2016.

— V-150 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

IV. UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2017

The following sets out the unaudited financial statements of the Group for the six months ended 30 June 2017 prepared in accordance with HKFRS as extracted from the Company’s interim report for the six months ended 30 June 2017:

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the six months ended 30 June 2017

		Six months ended	Six months ended
		30	June
		2017	2016
			(Unaudited
	Note	(Unaudited)	and restated)
		RMB’000	RMB’000
Continuing operations
Turnover	3	4,905,703	5,314,709
Operating costs		(3,593,594)	(3,490,638)
Gross profit		1,312,109	1,824,071
Other income and net gains	4	202,293	105,924
Marketing expenses		(13,874)	(8,242)
Administrative expenses		(218,110)	(272,909)
Other expenses		(26,615)	(36,270)
Share of profits of associates		125,775	142,092
Share of profits of joint ventures		83,328	93,151
Finance costs	5	(416,638)	(540,589)
Profit before tax	6	1,048,268	1,307,228
Income tax	7	(126,413)	(194,395)
Profit for the period from continuing operations		921,855	1,112,833
Discontinued operation
Profit for the period from discontinued operation, net of tax		—	760,501
Profit for the period		921,855	1,873,334

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APPENDIX V

		Six months ended	Six months ended	Six months ended
		30	June
		2017		2016
			(Unaudited
	Note	(Unaudited)	_and _	restated)
		RMB’000	RMB’000
Other comprehensive (expense)/income	8
Item that will not be reclassified subsequently to profit or
loss, net of nil tax:
Remeasurement of defined benefit plan payable		—		530
Items that may be reclassified subsequently to profit or
loss, net of tax:
Exchange realignment		(194,046)		148,383
Fair value gain on available-for-sale investments		48,286		—
Net loss on cash flow hedges		(49,939)		(369,071)
Release upon disposal of discontinued operation		—		362,032
Share of other comprehensive expense of associates		(11,563)		(10,703)
Share of other comprehensive (expense)/income of joint
ventures		(40,649)		14,440
Other comprehensive (expense)/income for the period		(247,911)		145,611
Total comprehensive income for the period		673,944	2,018,945
Profit for the period attributable to owners of
the Company:
— Continuing operations		865,410	1,108,141
— Discontinued operation		—		742,523
		865,410	1,850,664
Profit for the period attributable to non-controlling
interests:
— Continuing operations		56,445		4,692
— Discontinued operation		—		17,978
		56,445		22,670
Profit for the period		921,855	1,873,334

— V-152 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

		Six months ended	Six months ended
		30	June
		2017	2016
			(Unaudited
	Note	(Unaudited)	and restated)
		RMB’000	RMB’000
Total comprehensive income for the period
attributable to:
Owners of the Company		621,305	2,218,468
Non-controlling interests		52,639	(199,523)
		673,944	2,018,945
Earnings per share	9
			(Unaudited
		(Unaudited)	and restated)
		RMB cents	RMB cents
From continuing and discontinued operations
— Basic and diluted		21.46	45.90
From continuing operations
— Basic and diluted		21.46	27.48

The accompanying notes form part of the interim financial information.

— V-153 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2017

		30 June	31 December
		2017	2016
			(Unaudited
	Note	(Unaudited)	and restated)
		RMB’000	RMB’000
NON-CURRENT ASSETS
Investment properties	11	1,104,907	1,104,907
Property, plant and equipment	11	43,352,631	41,854,872
Prepaid land lease payments		78,410	79,599
Goodwill		58,168	58,168
Investments in associates		2,080,907	1,994,902
Investments in joint ventures		2,073,881	2,169,448
Loan receivables		1,866,313	1,453,585
Available-for-sale investments		344,091	279,761
Deferred tax assets		51,092	52,258
		51,010,400	49,047,500
CURRENT ASSETS
Current portion of loan receivables		11,385	18,899
Inventories		540,638	451,402
Trade and bills receivables	12	1,204,819	1,207,049
Prepayments, deposits and other receivables		1,212,561	908,132
Pledged bank deposits		24,136	24,134
Cash and cash equivalents		6,447,387	6,365,791
		9,440,926	8,975,407
CURRENT LIABILITIES
Trade and bills payables	13	1,191,873	1,350,345
Other payables and accruals		775,658	1,153,143
Dividends payable	10	535,572	—
Current portion of provision and other liabilities	14	310,572	302,551
Current portion of interest-bearing bank and other
borrowings	16	5,410,751	4,624,633
Current portion of other loans		1,557	2,251
Current portion of employee benefits payable		12,620	12,620
Tax payable		29,162	120,164
		8,267,765	7,565,707

— V-154 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

			30 June	31 December
			2017	2016
				(Unaudited
		Note	(Unaudited)	and restated)
			RMB’000	RMB’000
NET CURRENT ASSETS			1,173,161	1,409,700
TOTAL ASSETS LESS CURRENT LIABILITIES			52,183,561	50,457,200
EQUITY
Equity attributable to owners of the Company
Issued capital		18	4,032,033	4,032,033
Reserves			23,235,869	23,381,473
			27,267,902	27,413,506
Non-controlling interests			45,360	10,109
TOTAL EQUITY			27,313,262	27,423,615
NON-CURRENT LIABILITIES
Provision and other liabilities		14	207,506	208,068
Derivative financial instruments		15	521,563	474,988
Interest-bearing bank and other borrowings		16	18,578,289	16,881,809
Other loans			1,120,171	1,049,820
Bonds payable		17	3,983,892	3,982,045
Employee benefits payable			136,630	140,890
Deferred tax liabilities			322,248	295,965
			24,870,299	23,033,585
TOTAL EQUITY AND NON-CURRENT LIABILITIES			52,183,561	50,457,200
Sun Jiakang	Liu Hanbo
Director	Director

The accompanying notes form part of the interim financial information.

— V-155 —

APPENDIX V FINANCIAL INFORMATION OF THE GROUP

					Non-	Translation Retained controlling Total	reserve profits interests Total equity	RMB’000 RMB’000 RMB’000 RMB’000 RMB’000			(591,235) 10,896,968 31,707,218 862,874 32,570,092		(89) 120 363 101 464			(591,324) 10,897,088 31,707,581 862,975 32,570,556	— 1,850,664 1,850,664 22,670 1,873,334		— 530 530 — 530	147,487 — 147,487 896 148,383	— — (149,125) (219,946) (369,071)		362,032 — 362,032 — 362,032		6,462 — (7,560) (3,143) (10,703)		17,280 — 14,440 — 14,440		533,261 1,851,194 2,218,468 (199,523) 2,018,945		— — (6,629,409) — (6,629,409)		— (403,203) (403,203) — (403,203)	— (72,276) (2,131) 2,131 —	— 41,987 652 (652) —	— — (47,493) (1,060,766) (1,108,259)		— — — (11,850) (11,850)	(58,063) 12,314,790 26,844,465 (407,685) 26,436,780
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY	For the six months ended 30 June 2017	ATTRIBUTABLE TO OWNERS OF THE COMPANY	Available-	for-sale	Safety General investments	Share Share Revaluation Capital Merger Statutory fund surplus Hedging revaluation	capital premium reserve reserve reserve reserve reserve reserve reserve reserve	RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000	At 1 January 2016 (as previously		reported) 4,032,033 7,749,939 273,418 76,341 6,378,153 2,877,435 91,041 93,158 (173,907) 3,874	Business combination involving entities	under common control — — — — 332 — — — — —	At 1 January 2016 (unaudited and		restated) 4,032,033 7,749,939 273,418 76,341 6,378,485 2,877,435 91,041 93,158 (173,907) 3,874	Profit for the period — — — — — — — — — —	Remeasurement of defined benefit plan	payable — — — — — — — — — —	Exchange realignment — — — — — — — — — —	Net loss on cash flow hedges — — — — — — — — (149,125) —	Release upon disposal of discontinued	operation — — — — — — — — — —	Share of other comprehensive expense of	associates — — — — — — — — (13,678) (344)	Share of other comprehensive income of	joint ventures — — — — — — — — — (2,840)	Total comprehensive income for the	period — — — — — — — — (162,803) (3,184)	Business combination involving entities	under common control — — — — (6,629,409) — — — — —	Dividends approved in respect of previous	year — — — — — — — — — —	Accrual of safety fund reserve — — — — — — 70,145 — — —	Utilisation of safety fund reserve — — — — — — (41,335) — — —	Disposal of discontinued operation — — — — — — (47,493) — — —	Dividends paid to non-controlling	interests of subsidiaries — — — — — — — — — —	At 30 June 2016 (unaudited and restated) 4,032,033 7,749,939 273,418 76,341 (250,924) 2,877,435 72,358 93,158 (336,710) 690

— V-156 —

APPENDIX V FINANCIAL INFORMATION OF THE GROUP


ATTRIBUTABLE TO OWNERS OF THE COMPANY	Available-	for-sale	Safety General investments Non-	Share Share Revaluation Capital Merger Statutory fund surplus Hedging revaluation Translation Retained controlling Total	capital premium reserve reserve reserve reserve reserve reserve reserve reserve reserve profits interests Total equity	RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000	At 1 January 2017 (as previously	reported) 4,032,033 7,749,939 273,418 76,341 (251,256) 2,877,435 54,033 93,158 (210,149) (736) 302,755 12,416,118 27,413,089 9,993 27,423,082	Business combination involving entities	under common control — — — — 332 — — — — — (60) 145 417 116 533	At 1 January 2017 (unaudited and		restated) 4,032,033 7,749,939 273,418 76,341 (250,924) 2,877,435 54,033 93,158 (210,149) (736) 302,695 12,416,263 27,413,506 10,109 27,423,615	Profit for the period — — — — — — — — — — — 865,410 865,410 56,445 921,855	Exchange realignment — — — — — — — — — — (199,739) — (199,739) 5,693 (194,046)	Fair value gain on available-for-sale		investments — — — — — — — — — 24,626 — — 24,626 23,660 48,286	Net loss on cash flow hedges — — — — — — — — (20,375) — — — (20,375) (29,564) (49,939)	Share of other comprehensive expense of	associates — — — — — — — — (11,011) 3,043 — — (7,968) (3,595) (11,563)	Share of other comprehensive expense of	joint ventures — — — — — — — — — — (40,649) — (40,649) — (40,649)	Total comprehensive income for the	period — — — — — — — — (31,386) 27,669 (240,388) 865,410 621,305 52,639 673,944	Business combination involving entities	under common control — — — — (332) — — — — — — — (332) 332 —	Dividends approved in respect of previous	year — — — — — — — — — — — (766,086) (766,086) — (766,086)	Accrual of safety fund reserve — — — — — — 50,121 — — — — (50,835) (714) 714 —	Utilisation of safety fund reserve — — — — — — (36,807) — — — — 37,030 223 (223) —	Contribution from non-controlling	interests of a subsidiary — — — — — — — — — — — — — 1,425 1,425	Dividends paid to non-controlling	interests of subsidiaries — — — — — — — — — — — — — (19,636) (19,636)	At 30 June 2017 (unaudited) 4,032,033 7,749,939 273,418 76,341 (251,256) 2,877,435 67,347 93,158 (241,535) 26,933 62,307 12,501,782 27,267,902 45,360 27,313,262	The accompanying notes form part of the interim financial information.

— V-157 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For the six months ended 30 June 2017

	Six months ended	Six months ended	Six months ended
	30	June
	2017		2016
		(Unaudited
	(Unaudited)	_and _	restated)
	RMB’000	RMB’000
NET CASH GENERATED FROM OPERATING ACTIVITIES	1,918,070	2,606,030
INVESTING ACTIVITIES
Interest received	57,608		28,575
Payments for construction in progress	(3,339,483)	(1,160,453)
Purchases of property, plant and equipment	(55,177)		(7,376)
Proceeds from disposal of property, plant and equipment	—		24
Disposal of discontinued operation, net of cash disposed of	—	(1,201,073)
Compensation to a fellow subsidiary for the decrease in
equity under the transition period in respect of disposal of
discontinued operation	(339,143)		—
Loans to associates	—		(22,049)
Loans to joint ventures	(465,561)		(223,930)
Repayment from associates	31,289	1,208,748
Dividends received from associates	—		100,000
Dividends received from joint ventures	29,240		483,438
Investment in an associate	(150,000)		—
Investment in a joint venture	—		(98,938)
Increase in pledged bank deposits	(2)		(2)
NET CASH USED IN INVESTING ACTIVITIES	(4,231,229)		(893,036)
FINANCING ACTIVITIES
Interest paid	(362,108)		(473,623)
Dividends paid	(230,514)		(120,144)
Dividends paid to non-controlling interests of subsidiaries	(19,636)		(11,850)
Increase in other loans	86,368		76,002
Repayment of other loans	(3,904)		—
Increase in interest-bearing bank and other borrowings	6,143,445	2,552,331
Repayment of interest-bearing bank and other borrowings	(3,170,448)	(4,258,598)
Contribution from non-controlling interests of a subsidiary	1,425		—
Capital element of finance leases rental paid	—		(38,330)
NET CASH GENERATED FROM/(USED IN) FINANCING
ACTIVITIES	2,444,628	(2,274,212)

— V-158 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

	Six months ended	Six months ended	Six months ended
	30	June
	2017		2016
			(Unaudited
	(Unaudited)	and restated)
	RMB’000		RMB’000
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS	131,469		(561,218)
CASH AND CASH EQUIVALENTS AT 1 JANUARY	6,365,791		4,866,247
Effect of foreign exchange rate changes, net	(49,873)		55,986
CASH AND CASH EQUIVALENTS AT 30 JUNE	6,447,387		4,361,015

The accompanying notes form part of the interim financial information.

— V-159 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

NOTES TO THE INTERIM FINANCIAL INFORMATION For the six months ended 30 June 2017

1. CORPORATE INFORMATION

COSCO SHIPPING Energy Transportation Co., Ltd. (the “ Company ”) is a joint stock company with limited liability established in the People’s Republic of China (the “ PRC ”). The registered office of the Company is Room A-1015, No.188 Ye Sheng Road, China (Shanghai) Pilot Free Trade Zone, the PRC and the principal place of business is located at 18th Floor, 118 Yuanshen Road, Pudong New District, Shanghai, the PRC.

During the period, the Company and its subsidiaries (together the “ Group ”) were involved in the following principal activities:

(a) investment holding; and/or
(b) oil shipment along the PRC coast and international shipment; and/or
(c) vessel chartering.

As at 30 June 2017, in the opinion of the directors of the Company (the “ Directors ”), China Shipping (Group) Company (“ China Shipping ”) and China COSCO Shipping Corporation Limited (“ COSCO Shipping ”), both established in the PRC, were the Company’s immediate holding company and ultimate holding company respectively.

The H-Shares and A-Shares of the Company are listed on the Main Board of The Stock Exchange of Hong Kong Limited and the Shanghai Stock Exchange respectively.

The interim financial information is presented in Renminbi (“ RMB ”), which is the functional currency of the Company, and all values are rounded to the nearest thousand except where otherwise indicated.

The interim financial information was approved for issue by the board of Directors (the “ Board ”) on 29 August 2017.

2. BASIS OF PREPARATION AND ACCOUNTING POLICIES

2.1 Basis of preparation
(a) The interim financial information has been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”) and Hong Kong Accounting Standard (“ HKAS ”) 34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants (the “ HKICPA ”).

— V-160 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

The interim financial information does not include all the information and disclosures required in an annual report, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2016 disclosed in the Company’s 2016 annual report.

(b) In accordance with the asset transfer agreement entered into between the Company and COSCO SHIPPING (North America) Inc. (“ CSNAI ”) on 15 December 2016, the Company acquired 80% equity interest in COSCO SHIPPING Tanker (USA) Inc. (“ USA Tanker ”) by capital contribution of USD320,000 (equivalent to approximately RMB2,195,000). The acquisition of USA Tanker was completed on 22 February 2017 and has been accounted for as combination of businesses under common control since the Directors consider that the Company and USA Tanker are under common control of the State-owned Assets Supervision and Administration Commission of the State Council, the PRC both before and after the above mentioned acquisition.

The aforementioned acquisition of USA Tanker from CSNAI has been accounted for using the principles of merger accounting, as prescribed in Accounting Guideline 5 “Merger Accounting for Common Control Combinations” issued by the HKICPA. The unaudited financial information of USA Tanker has been incorporated into this interim financial information. As a result, the condensed consolidated statement of profit or loss and other comprehensive income, the condensed consolidated statement of changes in equity and the condensed consolidated statement of cash flows for the prior years have been restated to include the operating results and cash flows of USA Tanker. The condensed consolidated statement of financial position as at 31 December 2016 has been restated to include the assets and liabilities of USA Tanker. Respective notes to the interim financial information have also been restated. All significant intragroup transactions, balances, income and expenses are eliminated on combination. The impact of the restatements is set out below in note 19 to the interim financial information.

2.2 Significant accounting policies

The interim financial information has been prepared on the historical cost basis, except that investment properties, certain available-for-sale investments and derivative financial instruments are measured at fair values.

A number of revised Hong Kong Financial Reporting Standards (“ HKFRSs ”) are effective for the financial year beginning on 1 January 2017. Except as described below (see note 2.3), the same accounting policies, presentation and methods of computation have been followed in this interim financial information as were applied in the preparation of the Group’s consolidated financial statements for the year ended 31 December 2016.

— V-161 —

APPENDIX V FINANCIAL INFORMATION OF THE GROUP

2.3 Adoption of new and revised HKFRSs and changes in accounting policies

Impact of revised HKFRSs

In the current period, the Group has adopted the following amendments to HKFRSs issued by the HKICPA that are first effective and relevant to the Group’s financial year beginning on 1 January 2017:

Amendments to HKFRSs Annual Amendments to HKFRS 12 “Disclosure of Interests in Improvements to HKFRSs Other Entities” 2014-2016 Cycle Amendments to HKAS 7 Statement of Cash Flows “Disclosure Initiative” Amendments to HKAS 12 Income Taxes “Recognition of Deferred Tax Assets for Unrealised Losses”

The adoption of the amendments to HKFRSs in the current period has had no material impact on the interim financial information for the current and prior accounting periods and/or on the disclosures set out in the interim financial information.

Impact of new and revised HKFRSs issued but not yet effective

The Group has not early applied the following new and revised HKFRSs that have been issued and are relevant to the Group but are not yet effective for the financial year beginning on 1 January 2017:

		Effective for annual
		periods beginning
		on or after
Amendments to HKFRSs	Amendments to HKAS 28 “Investments in	January 2018
Annual Improvements to	Associates and Joint Ventures”
HKFRSs 2014-2016 Cycle
Amendments to HKAS 40	Investment Property “Transfers of Investment	January 2018
	Property”
HKFRS 9	Financial Instruments	January 2018
HKFRS 15	Revenue from Contracts with Customers	1 January 2018
HKFRS 16	Leases	1 January 2019
Amendments to HKFRS 10	Consolidated Financial Statements and	To be determined
and HKAS 28	Investments in Associates and Joint
	Ventures “Sale or Contribution of Assets
	between an Investor and its Associate or
	Joint Venture”

— V-162 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

The Group is in the process of making an assessment of what the impact of these new and revised standards is expected to be in the period of initial application. So far the Group has identified some aspects of the new standards which may have a significant impact on the interim financial information. Further details of the expected impacts are discussed below. As the Group has not completed its assessment, further impacts may be identified in due course and will be taken into consideration when determining whether to adopt any of these new requirements before their effective date and which transitional approach to take, where there are alternative approaches allowed under the new standards.

HKFRS 16

Currently the Group classifies leases into finance leases and operating leases and accounts for the lease arrangements differently, depending on the classification of the lease. The Group enters into some leases as the lessor and others as the lessee. HKFRS 16 is not expected to impact significantly on the way that lessors account for their rights and obligations under a lease. However, once HKFRS 16 is adopted, lessees will no longer distinguish between finance leases and operating leases. Instead, subject to practical expedients, lessees will account for all leases in a similar way to current finance lease accounting, i.e. at the commencement date of the lease the lessee will recognise and measure a lease liability at the present value of the minimum future lease payments and will recognise a corresponding “right-of-use” asset. After initial recognition of this asset and liability, the lessee will recognise interest expense accrued on the outstanding balance of the lease liability, and the depreciation of the right-of-use asset, instead of the current policy of recognising rental expenses incurred under operating leases on a systematic basis over the lease term. As a practical expedient, the lessee can elect not to apply this accounting model to short-term leases (i.e. where the lease term is 12 months or less) and to leases of low-value assets, in which case the rental expenses would continue to be recognised on a systematic basis over the lease term.

HKFRS 16 will primarily affect the Group’s accounting as a lessee of leases for property, plant and equipment which are currently classified as operating leases. The application of the new accounting model is expected to lead to an increase in both assets and liabilities and to impact on the timing of the expense recognition in the statement of profit or loss over the period of the lease. As disclosed in note 21 to the interim financial information, as at 30 June 2017, the majority of Group’s future minimum lease payments under non-cancellable operating leases are payable either within one year, between one and five years after the reporting date or in more than five years. Some of these amounts may therefore need to be recognised as lease liabilities, with corresponding right-of-use assets, once HKFRS 16 is adopted. The Group will need to perform a more detailed analysis to determine the amounts of new assets and liabilities arising from operating lease commitments on adoption of HKFRS 16, after taking into account the applicability of the practical expedient and adjusting for any leases entered into or terminated between now and the adoption of HKFRS 16 and the effects of discounting.

— V-163 —

APPENDIX V FINANCIAL INFORMATION OF THE GROUP

3. REVENUE AND SEGMENT INFORMATION

The Group’s business segments are categorised as follows:

(i) oil shipment
oil shipment
vessel chartering
(ii) others

The operations of the dry bulk shipment segment was discontinued on 30 June 2016.

— V-164 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Business segments

By principal activity: Continuing operations Oil shipment — Oil shipment — Vessel chartering Others Discontinued operation Dry bulk shipment — Coal shipment — Iron ore shipment — Other dry bulk shipment — Vessel chartering Other income and net gains Marketing expenses Administrative expenses Other expenses Share of profits of associates Share of profits of joint ventures Finance costs Elimination of discontinued operation Profit before tax	Six months ended 30 June 2017 2016 Turnover Contribution Turnover Contribution (Unaudited) (Unaudited) (Unaudited and restated) (Unaudited and restated) RMB’000 RMB’000 RMB’000 RMB’000 3,712,017 853,609 3,941,569 1,486,532 885,269 351,287 1,322,627 372,282 4,597,286 1,204,896 5,264,196 1,858,814 308,417 107,213 50,513 (34,743) 4,905,703 1,312,109 5,314,709 1,824,071 — — 729,618 (10,058) — — 1,075,647 234,534 — — 390,046 (64,254) — — 666,480 (73,190) — — 2,861,791 87,032 4,905,703 1,312,109 8,176,500 1,911,103 202,293 105,924 (13,874) (8,242) (218,110) (272,909) (26,615) (36,270) 125,775 142,092 83,328 93,151 (416,638) (540,589) — (87,032) 1,048,268 1,307,228

— V-165 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

	30 June	31 December
	2017	2016
		(Unaudited
	(Unaudited)	and restated)
	RMB’000	RMB’000
Total segment assets
Oil shipment	42,469,021	41,871,688
Others	17,982,305	16,151,219
	60,451,326	58,022,907
Total segment liabilities
Oil shipment	18,421,494	17,702,082
Others	14,716,570	12,897,210
	33,138,064	30,599,292

Segment contribution represents gross profit incurred by each segment without allocation of central administration costs (including emoluments of directors, supervisors and senior managements), marketing expenses, other expenses, share of profits of associates, share of profits of joint ventures, other income and net gains and finance costs. This is the measure reported to the Group’s chief operating decision makers for the purposes of resources allocation and performance assessment.

As at 30 June 2017, the net carrying amounts of the Group’s oil tankers, liquefied petroleum gas (“ LPG ”) vessels and liquefied natural gas (“ LNG ”) vessels were RMB31,857,632,000 (31 December 2016: RMB30,634,523,000), RMB122,512,000 (31 December 2016: RMB75,724,000) and RMB4,740,826,000 (31 December 2016: RMB1,616,907,000) respectively.

— V-166 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Geographical segments

		Six months	ended 30 June	ended 30 June
		2017		2016
	Turnover	Contribution	Turnover	Contribution
			(Unaudited	(Unaudited
	(Unaudited)	(Unaudited)	and restated)	and restated)
	RMB’000	RMB’000	RMB’000	RMB’000
By geographical area:
Continuing operations
Domestic	1,452,354	568,984	1,292,188	555,166
International	3,453,349	743,125	4,022,521	1,268,905
	4,905,703	1,312,109	5,314,709	1,824,071
Discontinued operation
Domestic	—	—	1,248,307	61,954
International	—	—	1,613,484	25,078
	—	—	2,861,791	87,032
	4,905,703	1,312,109	8,176,500	1,911,103
Other income and net gains		202,293		105,924
Marketing expenses		(13,874)		(8,242)
Administrative expenses		(218,110)		(272,909)
Other expenses		(26,615)		(36,270)
Share of profits of associates		125,775		142,092
Share of profits of joint ventures		83,328		93,151
Finance costs		(416,638)		(540,589)
Elimination of discontinued
operation		—		(87,032)
Profit before tax		1,048,268		1,307,228
Turnover
Total segment turnover		4,905,703		8,176,500
Less: inter-segment transactions		—		—
Total consolidated turnover		4,905,703		8,176,500

— V-167 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Other information

Six months ended 30 June 2017 (unaudited) Additions to non-current assets Depreciation and amortisation Provision for onerous contracts Loss on disposal of property, plant and equipment, net Interest income Six months ended 30 June 2016 (unaudited and restated) Additions to non-current assets Depreciation and amortisation Provision for onerous contracts Loss on disposal of property, plant and equipment, net Interest income	Oil shipment Dry bulk shipment (discontinued) RMB’000 RMB’000 2,245,167 — 837,732 — 104,430 — (24) — 18,525 — 537,935 25,299 828,176 552,828 227,028 9,557 (265) (2,133) 14,494 2,074	Others RMB’000 755,156 54,587 80,281 — 64,580 704,120 12,269 — (3) 23,470	Total RMB’000 3,000,323 892,319 184,711 (24) 83,105 1,267,354 1,393,273 236,585 (2,401) 40,038

The principal assets employed by the Group are located in the PRC and, accordingly, no geographical segment analysis of assets and expenditure has been prepared for the six months ended 30 June 2017 and 2016.

— V-168 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

4. OTHER INCOME AND NET GAINS

	Six months ended	Six months ended	Six months ended
	30	June
	2017		2016
		(Unaudited
	(Unaudited)	_and _	restated)
	RMB’000	RMB’000
Continuing operations
Other income
Interest income from loan receivables	30,679		20,297
Bank interest income	52,426		17,667
Rental income from investment properties	12,128		12,095
Government subsidies (note)	39,349		8,855
Others	52,588		61,417
	187,170		120,331
Other gains/(losses)
Exchange gains/(losses), net	15,147		(11,819)
Loss on disposal of property, plant and equipment, net	(24)		(268)
Loss on revaluation of investment properties, net	—		(2,941)
Others	—		621
	15,123		(14,407)
	202,293		105,924

Note:

The government subsidies mainly represent the subsidies granted for business development purpose and refund of value-added tax. There were no unfulfilled conditions or contingencies relating to these subsidies.

— V-169 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

5. FINANCE COSTS

	Six months ended	Six months ended	Six months ended
		30	June
	2017		2016
	(Unaudited)		(Unaudited)
	RMB’000		RMB’000
Continuing operations
Total finance costs
Interest expenses on:
— bank loans and other borrowings	378,213		542,811
— corporate bonds	102,289		102,744
— hedge loan	25,148		277
	505,650		645,832
Less: interest capitalised	(89,012)		(105,243)
	416,638		540,589

During the period, the capitalisation rate applied to funds borrowed and utilised for the vessels under construction was at a rate of 2% to 3.46% (six months ended 30 June 2016: 2.82% to 2.85%) per annum.

— V-170 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

6. PROFIT BEFORE TAX

Profit before tax is arrived at after charging:

	Six months ended	Six months ended
	30	June
	2017	2016
		(Unaudited
	(Unaudited)	and restated)
	RMB’000	RMB’000
Continuing operations
Cost of shipping services rendered:
Bunker oil inventories consumed and port fees	1,331,488	1,008,359
Others (including vessel depreciation and crew expenses, which
amount is also included in respective total amounts disclosed
separately below)	2,262,106	2,482,279
	3,593,594	3,490,638
Operating lease rentals: minimum lease payments
Land and buildings	14,482	10,635
Vessels	223,185	562,170
Total operating lease rentals	237,667	572,805
Staff costs (including emoluments of directors, supervisors and
senior management, wages, salaries, crew expenses and related
expenses, cost paid for defined benefit plan and pension scheme
contributions)	678,207	657,508
Depreciation of property, plant and equipment	891,130	840,445
Amortisation of prepaid land lease payments	1,189	—
Dry-docking and repairs	80,073	104,937
Impairment losses on trade receivables	3,307	60
Impairment losses on other receivables	2,114	—
Provision for onerous contracts	184,711	227,028

— V-171 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

7. INCOME TAX

		Six months ended	Six months ended
		30	June
		2017	2016
			(Unaudited
	Note	(Unaudited)	and restated)
		RMB’000	RMB’000
Continuing operations
Current income tax
— PRC	(i)	115,045	190,578
— Hong Kong	(ii)	—	—
— Other districts	(iii)	14	34
		115,059	190,612
Deferred tax		11,354	3,783
Total income tax expense		126,413	194,395

Note:

(i) PRC Corporate Income Tax

Under the Law of the PRC on Corporate Income Tax Law (the “ CIT Law ”) and Implementation Regulation of the CIT Law, the tax rate of the Group is 25% (six months ended 30 June 2016: 25%).

(ii) Hong Kong Profits Tax

Hong Kong Profits Tax was not provided for in the interim financial information as the Group did not have any assessable profits arising in Hong Kong during the six months ended 30 June 2017 and 2016.

(iii) Taxes or profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries or jurisdictions in which the entities within the Group operate.

— V-172 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

8. OTHER COMPREHENSIVE (EXPENSE)/INCOME

Tax effects relating to each component of other comprehensive (expense)/income are as follows:

	Before-tax		Net-of-tax
	amount	Tax benefit	amount
	RMB’000	RMB’000	RMB’000
Six months ended 30 June 2017 (unaudited)
Exchange realignment	(194,046)	—	(194,046)
Fair value gain on available-for-sale investments	64,381	(16,095)	48,286
Net loss on cash flow hedges	(49,939)	—	(49,939)
Share of other comprehensive expense of associates	(11,563)	—	(11,563)
Share of other comprehensive expense of joint
ventures	(40,649)	—	(40,649)
	(231,816)	(16,095)	(247,911)
Six months ended 30 June 2016 (unaudited and
restated)
Remeasurement of defined benefit plan payable	530	—	530
Exchange realignment	148,383	—	148,383
Net loss on cash flow hedges	(369,071)	—	(369,071)
Release upon disposal of discontinued operation	362,032	—	362,032
Share of other comprehensive expense of associates	(10,703)	—	(10,703)
Share of other comprehensive income of joint
ventures	14,440	—	14,440
	145,611	—	145,611

9. EARNINGS PER SHARE

(a) From continuing and discontinued operations

The calculation of basic and diluted earnings per share is based on the profit for the period attributable to owners of the Company of RMB865,410,000 (six months ended 30 June 2016: RMB1,850,664,000) and the weighted average number of ordinary shares of 4,032,033,000 (six months ended 30 June 2016: 4,032,033,000) shares in issue during the period.

— V-173 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

(b) From continuing operations

The calculation of basic and diluted earnings per share from continuing operations attributable to owners of the Company is based on the earnings figures calculated as follows:

	Six months ended	Six months ended
	30	June
	2017	2016
		(Unaudited
	(Unaudited)	and restated)
	RMB’000	RMB’000
Profit for the period attributable to owners of the Company	865,410	1,850,664
Less: profit for the period from discontinued operation attributable
to owners of the Company	—	742,523
Profit for the period from continuing operations attributable to
owners of the Company	865,410	1,108,141

The denominators used are the same as those detailed above for basic and diluted earnings per share from continuing and discontinued operations (see note 9(a)).

10. DIVIDENDS

	Six months ended	Six months ended
	30	June
	2017	2016
	(Unaudited)	(Unaudited)
	RMB’000	RMB’000
Dividends recognised as distribution during the period:
Final dividend for 2016 — RMB0.19 (six months ended 30 June
2016: Final dividend for 2015 — RMB0.10) per share	766,086	403,203

Final dividend of RMB0.19 per share in respect of the year ended 31 December 2016 was approved by shareholders on 8 June 2017 and a total amount of RMB230,514,000 was paid during the period.

The Directors do not recommend the payment of an interim dividend for the period (six months ended 30 June 2016: RMBnil).

— V-174 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

11. INVESTMENT PROPERTIES AND PROPERTY, PLANT AND EQUIPMENT

As at 30 June 2017, the Group’s investment properties with fair value of RMB1,104,907,000 (31 December 2016: RMB1,104,907,000) were leased out. There was no significant change in the fair value of investment properties during the period. The Group’s investment properties comprise certain commercial buildings located in the PRC, held under medium term lease.

As at 30 June 2017, the fair value of the Group’s investment properties is based on Level 2 fair value hierarchy as defined under HKFRS 13 “Fair Value Measurement” which details are set out in the consolidated financial statements disclosed in the Company’s 2016 annual report. There were no transfers between Level 1 and Level 2, or transfers into or out of Level 3 in the current and prior periods.

During the period, additions to construction in progress amounted to RMB2,945,146,000 (six months ended 30 June 2016: RMB1,260,842,000).

During the period, 8 vessels (six months ended 30 June 2016: no construction of vessels) at a cost of RMB5,656,959,000 (six months ended 30 June 2016: RMBnil) were completed and were transferred from construction in progress to vessels.

12. TRADE AND BILLS RECEIVABLES

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

	30 June	31 December
	2017	2016
		(Unaudited
	(Unaudited)	and restated)
	RMB’000	RMB’000
Within 3 months	975,581	909,612
4 - 6 months	78,670	104,940
7 - 9 months	43,907	102,566
10 - 12 months	37,181	28,127
1 - 2 years	62,876	60,995
Over 2 years	6,604	809
	1,204,819	1,207,049

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 are related to a large number of diversified customers, there is no significant concentration of credit risk. Trade and bills receivables are non-interest-bearing.

— V-175 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

13. TRADE AND BILLS PAYABLES

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

	30 June	31 December
	2017	2016
		(Unaudited
	(Unaudited)	and restated)
	RMB’000	RMB’000
Within 3 months	639,633	1,039,264
4 - 6 months	152,511	58,469
7 - 9 months	122,747	35,738
10 - 12 months	55,163	3,835
1 - 2 years	12,643	19,530
Over 2 years	209,176	193,509
	1,191,873	1,350,345

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

14. PROVISION AND OTHER LIABILITIES

	30 June	31 December
	2017	2016
	(Unaudited)	(Unaudited)
	RMB’000	RMB’000
Provision for onerous contracts	502,776	495,338
Others	15,302	15,281
	518,078	510,619
Less: current portion	(310,572)	(302,551)
Non-current portion	207,506	208,068

— V-176 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Details of provision for onerous contracts are as follows:

	30 June	31 December
	2017	2016
	(Unaudited)	(Unaudited)
	RMB’000	RMB’000
At beginning of the period/year	495,338	340,447
Provision during the period/year	184,711	413,877
Utilised during the period/year	(165,469)	(208,988)
Disposal of discontinued operation	—	(63,293)
Exchange realignment	(11,804)	13,295
At end of the period/year	502,776	495,338
Less: current portion	(310,572)	(302,551)
Non-current portion	192,204	192,787

As at 30 June 2017, the Group had a provision of RMB502,776,000 (31 December 2016: RMB495,338,000) for onerous contracts relating to the non-cancellable chartered-in vessel contracts.

As at 30 June 2017, the committed charterhire expenses of non-cancellable chartered-in 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 vessel contracts of which management cannot reliably assess their onerous contracts amounted to RMB3,466,254,000 (31 December 2016: RMB3,946,995,000).

15. DERIVATIVE FINANCIAL INSTRUMENTS

Interest rate swap agreements, denominated in United States dollars (“ USD ”), have been entered into to achieve an appropriate mix of fixed and floating rate exposure consistent with the Group’s policy. As at 30 June 2017, the Group had interest rate swap agreements with total notional principal amount of approximately USD554,364,000 (equivalent to approximately RMB3,755,484,000) (31 December 2016: approximately USD537,040,000 (equivalent to approximately RMB3,725,448,000)) which will be matured in 2031 and 2032 (31 December 2016: 2031 and 2032). These interest rate swap agreements are designated as cash flow hedges in respect of the Group’s certain bank borrowings with floating interest rates.

During the period, the floating interest rates of the bank borrowings were 3-month London Inter-bank Offered Rate (“ Libor ”) plus 2.20% (six months ended 30 June 2016: 3-month Libor plus 0.42%, 0.65% or 2.20%).

— V-177 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

Loss on the interest rate swaps during the period is as follows:

	Six months ended 30 June	Six months ended 30 June
	2017	2016
	(Unaudited)	(Unaudited)
	RMB’000	RMB’000
Total fair value loss included in the hedging reserve	(49,939)	(369,071)
Hedge loan interest included in finance costs	(25,148)	(277)
Total loss on cash flow hedges of the interest rate swap agreements	(75,087)	(369,348)

16. INTEREST-BEARING BANK AND OTHER BORROWINGS

(a) As at 30 June 2017, details of the interest-bearing bank and other borrowings are as follows:

					30 June	31 December
					2017	2016
		Annual effective interest rate (%)		Maturity	(Unaudited)	(Unaudited)
					RMB’000	RMB’000
Current liabilities
(i)	Bank borrowings
		20% discount to the People’s Bank of
			China (“PBC”) Benchmark interest
			rate, Libor + 0.38%,
			3-month Libor + 1.15% to 2.20%,
			6-month Libor + 0.42% to 1.40%,	2017 to
	Secured		fixed rate of 4.27% to 4.80%	2018	1,037,253	1,119,250
		PBC Benchmark interest rate,
			Libor + 0.70% to 1.40%,
			3-month Libor + 0.70% to 2.10%,	2017 to
	Unsecured		6-month Libor + 0.70%	2018	3,343,313	3,475,198
					4,380,566	4,594,448
(ii)	Other borrowings
	Unsecured	10% discount to the PBC Benchmark		2017 to
			interest rate, fixed rate of 3.60%	2018	1,030,185	30,185
Interest-bearing bank and			other borrowings
—	current portion				5,410,751	4,624,633

— V-178 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

						30 June	31 December
						2017	2016
Annual	effective	interest	rate	(%)	Maturity	(Unaudited)	(Unaudited)
						RMB’000	RMB’000

Non-current liabilities (i) Bank borrowings Secured 20% discount to the PBC Benchmark interest rate, PBC Benchmark interest rate, Libor + 0.38%, 3-month Libor + 1.15% to 2.20%, 6-month Libor + 0.42% to 1.40%, fixed rate of 4.27% to 4.80% 2018 to 2033 Unsecured PBC Benchmark interest rate, Libor + 1.70%, 3-month Libor + 0.80% to 1.75%, 6-month Libor + 0.70% 2018 to 2026 (ii) Other borrowings Unsecured 10% discount to the PBC benchmark interest rate 2025 Interest-bearing bank and other borrowings — non-current portion	12,805,682 5,530,942 18,336,624 241,665 18,578,289	11,460,562 5,149,582
		16,610,144
		271,665
		16,881,809

As at 30 June 2017, the Group’s interest-bearing bank and other borrowings were secured by pledges of the Group’s 31 (31 December 2016: 24) vessels and 3 (31 December 2016: 5) vessels under construction with total net carrying amount of RMB16,250,877,000 (31 December 2016: RMB11,150,917,000) and RMB3,900,848,000 (31 December 2016: RMB6,568,108,000) respectively and pledged bank deposits.

— V-179 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

(b) As at 30 June 2017, the interest-bearing bank and other borrowings were repayable as follows:

Bank borrowings Other borrowings RMB’000 RMB’000 As at 30 June 2017 (unaudited) Current portion Within one year or on demand 4,380,566 1,030,185 Non-current portion In the second year 3,580,322 41,060 In the third to fifth years, inclusive 5,958,657 123,180 Over five years 8,797,645 77,425 18,336,624 241,665 22,717,190 1,271,850 As at 31 December 2016 (unaudited) Current portion Within one year or on demand 4,594,448 30,185 Non-current portion In the second year 4,140,120 41,060 In the third to fifth years, inclusive 4,554,026 123,180 Over five years 7,915,998 107,425 16,610,144 271,665 21,204,592 301,850	Total RMB’000 5,410,751
	3,621,382 6,081,837 8,875,070
	18,578,289
	23,989,040
	4,624,633
	4,181,180 4,677,206 8,023,423
	16,881,809
	21,506,442

— V-180 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

17. BONDS PAYABLE

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

RMB’000 At 31 December 2016 (unaudited) 3,982,045 Interest charge 1,847 At 30 June 2017 (unaudited) 3,983,892

Details of the balances of corporate bonds are as follows:

Issue date Term of the bond 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 At 31 December 2016 (Unaudited) RMB’000 RMB’000 RMB’000 1,500,000 1,487,100 1,492,018 1,500,000 1,488,600 1,494,916 1,000,000 992,400 995,111 4,000,000 3,968,100 3,982,045	Interest charge At 30 June 2017 (Unaudited) RMB’000 RMB’000 625 1,492,643 854 1,495,770 368 995,479 1,847 3,983,892	Interest charge At 30 June 2017 (Unaudited) RMB’000 RMB’000 625 1,492,643 854 1,495,770 368 995,479 1,847 3,983,892
			3,983,892

— V-181 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

18. ISSUED CAPITAL

Registered, issued and fully paid: Listed H-Shares of RMB1 each At beginning and end of the period/year Listed A-Shares of RMB1 each At beginning and end of the period/year Total	30 June 2017 (Unaudited) Number of shares RMB’000 1,296,000,000 1,296,000 2,736,032,861 2,736,033 4,032,032,861 4,032,033	31 December 2016 (Unaudited) Number of shares RMB’000 1,296,000,000 1,296,000 2,736,032,861 2,736,033 4,032,032,861 4,032,033	31 December 2016 (Unaudited) Number of shares RMB’000 1,296,000,000 1,296,000 2,736,032,861 2,736,033 4,032,032,861 4,032,033
			4,032,033

19. BUSINESS COMBINATION INVOLVING ENTITIES UNDER COMMON CONTROL

On 22 February 2017, the Company acquired 80% equity interest in USA Tanker from CSNAI by capital contribution of approximately RMB2,195,000. The principal activity of USA Tanker is provision of agency services. The financial statements of USA Tanker are consolidated by the Group as the Group has control over operating and financial policies of this entity.

As mentioned in note 2.1(b) to the interim financial information, the Group has applied merger accounting as prescribed in Accounting Guideline 5 to account for the business combination involving entities under common control. Accordingly, USA Tanker has been combined since 1 January 2016, the earliest financial period presented, as if the acquisition had occurred at that time.

— V-182 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

(a) The reconciliation of the effect arising from the business combination involving entities under common control on the condensed consolidated statements of financial position as at 30 June 2017 and 31 December 2016 is as follow:

	The Group
	excluding
	USA Tanker	USA Tanker	Adjustment	Consolidated
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
	RMB’000	RMB’000	RMB’000	RMB’000
At 30 June 2017
Non-current assets
Investment in a subsidiary	2,195	—	(2,195)	—
Other non-current assets	51,010,278	122	—	51,010,400
	51,012,473	122	(2,195)	51,010,400
Current assets
Other current assets	2,994,377	288	(1,126)	2,993,539
Cash and cash equivalents	6,444,002	3,385	—	6,447,387
	9,438,379	3,673	(1,126)	9,440,926
Current liabilities
Other current liabilities	8,267,829	1,062	(1,126)	8,267,765
Net current assets	1,170,550	2,611	—	1,173,161
Total assets less current
liabilities	52,183,023	2,733	(2,195)	52,183,561
Equity
Equity attributable to owners
of the Company
Issued capital	4,032,033	2,815	(2,815)	4,032,033
Reserves	23,235,795	(82)	156	23,235,869
	27,267,828	2,733	(2,659)	27,267,902
Non-controlling interests	44,949	—	411	45,360
Total equity	27,312,777	2,733	(2,248)	27,313,262
Non-current liabilities
Other non-current liabilities	24,870,246	—	53	24,870,299
Total equity and non-current
liabilities	52,183,023	2,733	(2,195)	52,183,561

— V-183 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

	The Group
	excluding
	USA Tanker	USA Tanker	Adjustment	Consolidated
				(Unaudited
	(Audited)	(Unaudited)	(Unaudited)	and restated)
	RMB’000	RMB’000	RMB’000	RMB’000
At 31 December 2016
Non-current assets
Other non-current assets	49,047,361	139	—	49,047,500
Current assets
Other current assets	2,609,877	596	(857)	2,609,616
Cash and cash equivalents	6,364,583	1,208	—	6,365,791
	8,974,460	1,804	(857)	8,975,407
Current liabilities
Other current liabilities	7,565,202	1,362	(857)	7,565,707
Net current assets	1,409,258	442	—	1,409,700
Total assets less current
liabilities	50,456,619	581	—	50,457,200
Equity
Equity attributable to owners
of the Company
Issued capital	4,032,033	415	(415)	4,032,033
Reserves	23,381,056	166	251	23,381,473
	27,413,089	581	(164)	27,413,506
Non-controlling interests	9,993	—	116	10,109
Total equity	27,423,082	581	(48)	27,423,615
Non-current liabilities
Other non-current liabilities	23,033,537	—	48	23,033,585
Total equity and non-current
liabilities	50,456,619	581	—	50,457,200

— V-184 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

The above adjustments represent adjustments to eliminate the paid-up capital of USA Tanker against the Group’s investment cost in USA Tanker and non-controlling interests arising from the acquisition of USA Tanker, current accounts between the Group and USA Tanker as at 30 June 2017 and 31 December 2016 respectively and adjustments to achieve consistency of accounting policies.

(b) The effect of the business combination involving entities under common control, as described above, on the Group’s basic and diluted earnings per share for the six months ended 30 June 2016 is as follows:

	Impact on basic
	and diluted
	earnings per share
	RMB cents
As previously reported	45.90
Restatement arising from business combination involving entities under
common control	—
Restated	45.90

(c) The effect of business combination involving entities under common control, as described above, on the Group’s profit for the period for the six months ended 30 June 2016 is as follows:

As previously reported Restatement arising from business combination involving entities under common control Restated	RMB’000 1,873,301 33
	1,873,334

20. CONTINGENT LIABILITIES

(i) On 20 February 2011, an oil tanker of COSCO SHIPPING Tanker (Dalian) Co., Ltd. (“ Dalian Tanker ”), a wholly-owned subsidiary of the Company, “Yang Mei Hu”, during the time of berthing in Mohammedia port, clashed with the dock bollard. On the same day, the dock authority applied for the detention of “Yang Mei Hu” and required Dalian Tanker to compensate losses incurred by the above event. In March 2011, after the protection and indemnity club of “Yang Mei Hu” provided a guarantee letter in the amount of Dirham55 million (equivalent to approximately RMB37 million) for security, “Yang Mei Hu” left the port. In April 2014, the dock authority commenced legal proceedings in the local court of Morocco and required Dalian Tanker to compensate the loss in the amount of approximately RMB28 million.

— V-185 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

Since Dalian Tanker had been insured, all compensations will be borne by the insurance companies, according to the membership certificate underwriting agreement. On 10 November 2016, one of the insurance companies paid Dirham24 million (equivalent to approximately RMB16 million) to the dock authority for settlement. The case was resolved after the Group settled such amount.

(ii) East China LNG Shipping Investment Co., Limited, a non-wholly-owned subsidiary of the Company, holds 30% equity interest in each of Aquarius LNG Shipping Limited (“ Aquarius LNG ”) and Gemini LNG Shipping Limited (“ Gemini LNG ”), and North China LNG Shipping Investment Co., Limited, a non-wholly-owned subsidiary of the Company, holds 30% equity interest 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 construction of the LNG vessels, the four companies would, in accordance with the time charters agreements to be signed, lease the LNG vessels to the following charterers:

Company name

Charterer

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, and (2) to secure 30% of such amount payable to the charterers under the lease.

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

— V-186 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

(iii) At the 2014 seventh Board meeting 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 Group for the Yamal LNG project. To secure the obligation of the ship building contracts, time charter agreements and supplemental construction contracts, the Group provides corporate guarantees to the shipbuilders, Daewoo Shipbuilding & Marine Engineering Co., Ltd. and DY Maritime Limited. The total aggregate liability of the Group under the corporate guarantees is limited to USD490,000,000 (equivalent to approximately RMB3,319,456,000). In addition, the Group provides owner’s guarantees to the charterer, YAMAL Trade Pte. Ltd. The total aggregate liability of the Group under the owner’s guarantees is limited to USD6,400,000 (equivalent to approximately RMB43,356,000).

21. OPERATING LEASE ARRANGEMENTS

(a) As lessor

The Group leases certain of its vessels and buildings under operating lease arrangements, with leases negotiated for an initial period of one to twenty (31 December 2016: one to twenty) years.

As at 30 June 2017, the Group had total future minimum lease rental receivables under non-cancellable operating leases falling due as follows:

	30 June	31 December
	2017	2016
	(Unaudited)	(Unaudited)
	RMB’000	RMB’000
Within one year	1,185,413	1,433,392
In the second to fifth years, inclusive	2,678,259	1,018,668
Over five years	9,657,426	3,322,649
	13,521,098	5,774,709

(b) As lessee

The Group entered into non-cancellable operating lease arrangements on vessels and buildings. The leases are negotiated for an initial period of one to fifteen (31 December 2016: one to fifteen) years.

— V-187 —

APPENDIX V

FINANCIAL INFORMATION OF THE GROUP

As at 30 June 2017, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

			30 June	31 December
			2017	2016
				(Unaudited
			(Unaudited)	and restated)
			RMB’000	RMB’000
Within one year			711,498	771,940
In the second to fifth years, inclusive			2,015,738	2,186,410
Over	five years		1,967,052	2,402,489
			4,694,288	5,360,839
22.	CAPITAL COMMITMENTS
			30 June	31 December
			2017	2016
		Note	(Unaudited)	(Unaudited)
			RMB’000	RMB’000
Authorised and contracted but not provided for:
Construction and purchases of vessels		(i)	5,904,736	8,891,396
Project investments		(ii)	606,309	655,930
			6,511,045	9,547,326

Note:

(i) According to the construction and purchase agreements entered into by the Group, these capital commitments will fall due in 2017 to 2018.
(ii) Included in capital commitments in respect of project investments are commitments to invest in certain projects held by China LNG Shipping (Holdings) Limited, a joint venture of the Group.

In addition to the above, the Group’s share of the capital commitments of its associate which are contracted but not provided for amounted to RMB52,938,000 (31 December 2016: RMB121,969,000). The Group’s share of the capital commitments of its joint ventures, which are contracted but not provided for amounted to RMB1,798,617,000 (31 December 2016: RMB2,267,070,000).

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23. RELATED PARTY TRANSACTIONS

Transactions entered into the ordinary course of business between the Group and China Shipping and its subsidiaries other than the Group (together “ China Shipping Group ”), fellow subsidiaries other than subsidiaries of China Shipping, associates and joint ventures of the Group as well as other related parties for the period, which are also considered by the Directors as related party transactions, are as follows:

(1) In September 2015, the Company entered into a new services agreement with China Shipping which became effective subsequent to the approval by independent shareholders at the extraordinary general meeting held on 28 December 2015. Pursuant to the new services agreement, China Shipping Group and its joint ventures will continue to provide the Group with similar materials and services provided for in the services agreement entered into in October 2012 (which related to provide necessary supporting shipping materials and services for the ongoing operations of the transportation business including dry-docking and repair services, supply of lubricating oil, fresh water, raw materials, bunker oil as well as other services for the ongoing operations for all vessels owned or bareboat chartered by the Group) for a further three years commencing from 1 January 2016 to 31 December 2018.

The fees for the agreed supplies and services will be determined by reference to the prevailing market price of the agreed supplies and services and a combination of other factors. The prevailing market price shall be determined by reference to the price chargeable by independent third parties for identical or similar type of supporting shipping material or service at the time in the PRC or overseas (as the case may be) and the price charged to independent third parties by China Shipping in the most recent transaction of a similar nature.

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FINANCIAL INFORMATION OF THE GROUP

Details of the principal amounts paid by the Group to China Shipping Group and its joint ventures in respect of the services agreement for the period are set out below:

	Six months	ended 30 June
	2017	2016
	Total value	Total value
	(Unaudited)	(Unaudited)
	RMB’000	RMB’000
Supply of lubricating oil, fresh water, raw materials,
bunker oil, mechanical and electrical engineering,
supporting shipping materials and repairs and
maintenance services for vessels and life boats	665,055	833,234
Oil removal treatment, maintenance, telecommunication
and navigational services	9,265	26,351
Dry-docking, repairs, special coating and technical
improvements of vessels	11,093	32,175
Management services of sea crew	296,640	589,153
Accommodation, lodging, medical services and
transportation for employees	—	—
Agency commissions	16,631	44,264
Services fees on sale and purchase of vessels,
accessories and other equipment	—	—
Miscellaneous management services	775	10,258

In connection with the above transactions and for other operating purposes, the Group made prepayments or advances to its fellow subsidiaries and joint ventures of China Shipping from time to time.

(2) On 28 April 2016, Dalian Tanker entered into a materials and services framework agreement with COSCO Shipping which became effective subsequent to the approval by independent shareholders at the annual general meeting held on 20 May 2016. Pursuant to the materials and services framework agreement, COSCO Shipping and its subsidiaries other than the Group (together “ COSCO Shipping Group ”) agreed to provide the necessary supporting shipping materials and services (the “ Agreed Supplies and Services I ”) to the Dalian Tanker and its subsidiaries (together “ Dalian Tanker Group ”) and also Dalian Tanker Group agreed to provide the necessary supporting shipping materials and services (the “ Agreed Supplies and Services II ”) to COSCO Shipping Group. The materials and services framework agreement will be effective for a term of three years commencing from 1 January 2016 to 31 December 2018. The prices for both the Agreed Supplies and Services I provided by COSCO Shipping Group to Dalian Tanker Group and the Agreed Supplies and Services II provided by Dalian Tanker Group to COSCO Shipping Group will be determined by reference to the prevailing market price and a combination of other factors. The prevailing market price shall be determined by reference to the

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APPENDIX V

price chargeable by independent third parties for identical or similar type of supporting material or service at the time in the PRC or overseas (as the case may be) and the price charged to independent third parties by the COSCO Shipping Group or Dalian Tanker Group (as the case may be) in the most recent transaction of a similar nature.

Details of the principal amounts paid by Dalian Tanker Group to COSCO Shipping Group in respect of the Agreed Supplies and Services I for the period are set out below:

	Six months	ended 30 June
	2017	2016
	Total value	Total value
	(Unaudited)	(Unaudited)
	RMB’000	RMB’000
Supply of materials and fuels, mainly including fresh water,
bunker oil and spare parts	259,210	212,164
Telecommunication and navigational services	1,285	—
Dry docking, repairs, special coating, technical improvements
of vessels	36	3,259
Vessels and shipping agency	2,267	10,693
Service on sale and purchase of vessels, accessories and other
equipment	—	—
Other miscellaneous management services	171	—

Details of the principal amounts received by Dalian Tanker Group from COSCO Shipping Group in respect of the Agreed Supplies and Services II for the period are set out below:

	Six months	ended 30 June
	2017	2016
	Total value	Total value
	(Unaudited)	(Unaudited)
	RMB’000	RMB’000
Supply of shipping materials	8,702	—
Telecommunication and navigational services	—	343
Management services of sea crew	—	—
Accommodation, lodging, medical services and transportation
for employees	—	—

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FINANCIAL INFORMATION OF THE GROUP

(3) In addition to the related party transactions outlined in notes 23(1) to 23(2) above, details of the Group’s related party transactions with China Shipping Group, COSCO Shipping Group, associates and joint ventures of the Group and other related companies for the period are as follows:

		Six months	ended 30 June
		2017	2016
			(Unaudited
	Note	(Unaudited)	and restated)
		RMB’000	RMB’000
Shipment income		7,444	38,185
Vessel chartering income		54,408	105,155
Vessel chartering charges		—	144,941
Construction of vessels		59,834	—
Purchase of materials		939	—
Vessel management income		8,460	9,549
Vessel management expenses		22,122	16,001
Technical services income		—	1,430
Technical services expenses		1,822	—
Rental income, including business tax and surcharge	(i)	14,036	11,858
Rental expenses	(i)	7,095	7,039
Agency commission expenses		3,640	—
Miscellaneous management services expenses		19	498
Interest income from associates		16,315	16,225
Interest income from joint ventures		14,364	4,074
Loan interest payment	(ii)	1,700	162,052

Note:

The Group has entered into the following agreements:

(i) On 29 March 2016, the Company entered into a property lease framework agreement with China Shipping, whereby the Group will continue to provide China Shipping Group and its associates (which associates has the meaning as defined thereto under the Listing Rules and thus including China Ocean Shipping and its subsidiaries) with property and land use right leasing services as well as receive such services from China Shipping Group and

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FINANCIAL INFORMATION OF THE GROUP

its associates. The property lease framework agreement will be effective for a term of three years commencing from 1 January 2016 to 31 December 2018. Both parties may renew the property lease framework agreement on terms and conditions agreed upon by both parties within three months before the expiration of the property lease framework agreement. The rental income received from and rental expenses paid to China Shipping Group and its associates were determined with reference to the prevailing market price.

Other remaining rental income and expenses represented number of transactions during the period.

(ii) On 8 August 2011, the Company entered into an entrusted loan agreement with China Shipping and China Shipping Finance Co., Ltd. (“ CS Finance ”), an associate of the Group, whereby China Shipping entrusted CS Finance to provide a loan in the amount of RMB3,000,000,000 to the Company. The entrusted loan has a term of seven years commencing from 9 August 2011 to 8 August 2018. The interest rate of the entrusted loan is at fixed rate of 6.51% per annum. CS Finance will also charge an administrative fee of RMB300,000 per annum. A supplementary agreement was signed on 20 March 2015 and pursuant to the supplementary agreement, the interest rate of the entrusted loan was revised from fixed rate of 6.51% to 6.15% per annum. The loan was early repaid in 2016.

On 30 June 2014, China Shipping Development (Hong Kong) Marine Co., Limited (“ CSDHK ”), a wholly-owned subsidiary of the Company, entered into an entrusted loan agreement with China Shipping and CS Finance whereby China Shipping entrusted CS Finance to provide a loan in the amount of USD100,000,000 to CSDHK. The entrusted loan has a term of three years and the interest rate of the entrusted loan is at 6-month Libor plus 2.50% per annum. The loan was early repaid in 2016.

Other remaining interest expenses represented number of transactions during the period and were recognised in profit or loss as finance costs.

(4) In September 2015, the Company entered into a new financial services framework agreement with CS Finance which became effective subsequent to the approval by independent shareholders at the extraordinary general meeting on held on 28 December 2015. Pursuant to the new financial services framework agreement, CS Finance will continue to provide the Group with similar services provided for in the financial services framework agreement entered into in October 2012 (which related to a range of financial services including (i) deposit services; (ii) loan services; (iii) settlement services and (iv) foreign exchange services; and (v) other financial services as approved by China Banking Regulatory Commission) for a further three years commencing from 1 January 2016 to 31 December 2018. The new financial services framework agreement will be automatically renewed for another three years commencing from 1 January 2019 to 31 December 2021 unless either party chooses not to renew the new financial services framework agreement.
(5) On 28 April 2016, Dalian Tanker entered into a financial services framework agreement with COSCO Finance Co., Ltd. (“ COSCO Finance ”), a fellow subsidiary of the Company, which became effective subsequent to the approval by independent shareholders at the annual general meeting held on 20 May 2016. Pursuant to the financial services framework agreement, COSCO Finance will provide Dalian Tanker Group with a range of financial services including (i) deposit services; (ii) loan and financing lease services; (iii) settlement services; (iv) foreign exchange services; and (v) other financial services as approved by China Banking Regulatory Commission. The financial services framework agreement will be effective for a term of three years commencing from 1 January 2016 to 31 December 2018.

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APPENDIX V

(6) Outstanding balances with related parties
(i) As at 30 June 2017, included in loan receivables represent loans to associates of RMB426,567,000 (31 December 2016: RMB457,153,000), which are unsecured, interest-bearing at approximately 4.84% to 5.60% over 3-month Libor (31 December 2016: approximately 3.30% to 6% over 3-month Libor) per annum and repayable in 2030 and 2031 (31 December 2016: 2030 and 2031).

As at 30 June 2017, included in loan receivables represent loans to joint ventures of RMB1,451,131,000 (31 December 2016: RMB1,015,331,000), which are unsecured, interest-bearing at 3-month Libor plus 0.80% (31 December 2016: 3-month Libor plus 0.80%) per annum prior to delivery of vessels and at 3-month Libor plus 1.30% (31 December 2016: 3-month Libor plus 1.30%) per annum after delivery of vessels and repayable in twenty years after the vessels construction projects are completed.

(ii) As at 30 June 2017, included in trade and bill receivables are amounts due from joint ventures and fellow subsidiaries amounted to RMB12,502,000 (31 December 2016: RMB5,648,000), which are unsecured, non-interest-bearing and under normal credit period as other trade receivables.
(iii) As at 30 June 2017, included in prepayments, deposits and other receivables are amounts due from associates, joint ventures and fellow subsidiaries amounted to RMB797,456,000 (31 December 2016: RMB294,724,000).
(iv) As at 30 June 2017, included in cash and cash equivalent is an amount of RMB4,091,897,000 (31 December 2016: RMB3,726,654,000) of bank balance deposited with CS Finance.

As at 30 June 2017, included in cash and cash equivalent is an amount of RMB962,148,000 (31 December 2016: RMB1,035,964,000) of bank balance deposited with COSCO Finance.

(v) As at 30 June 2017, included in trade and bills payables are amounts due to immediate holding company, an associate and fellow subsidiaries amounted to RMB361,064,000 (31 December 2016: RMB596,734,000), which are unsecured, non-interest-bearing and under normal credit period as other trade payables.
(vi) As at 30 June 2017, included in other payables and accruals are amounts due to immediate holding company, an associate, joint ventures and fellow subsidiaries amounted to RMB47,180,000 (31 December 2016: RMB368,942,000).
(vii) As at 30 June 2017, included in other borrowings represent an amount of RMB1,000,000,000 (31 December 2016: RMBnil) which borrowed from immediate holding company, unsecured, interest-bearing at fixed rate of 3.60% per annum and repayable in 2018.

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APPENDIX V

Except for those amounts mentioned in (i), (ii), (iv), (v) and (vii) above, the amounts due with immediate holding company, associates, joint ventures, fellow subsidiaries and other related parties are unsecured, non-interest-bearing and repayable on demand.

24. FAIR VALUE MEASUREMENTS

(a) Financial assets and liabilities measured at fair value

Fair value hierarchy

The following table shows an analysis of financial instruments recorded at fair value at the end of the reporting period by level of the fair value hierarchy:

At 30 June 2017 (unaudited) Financial assets: Available-for-sale investments — Listed equity investments Financial liabilities: Derivative financial instruments At 31 December 2016 (unaudited) Financial assets: Available-for-sale investments — Listed equity investments Financial liabilities: Derivative financial instruments	Level 1 RMB’000 251,923 — 187,542 —	Level 2 RMB’000 — 521,563 — 474,988	Level 3 RMB’000 — — — —	Total RMB’000 251,923
				521,563
				187,542
				474,988

Fair value hierarchy has been defined in the Group’s consolidated financial statements disclosed in the Company’s 2016 annual report. There was no transfers between Level 1 and Level 2, or transfer into or out of Level 3 in the current and prior periods.

The fair values of the listed equity investments are based on the current bid price.

The fair value of interest rate swap agreements as derivative financial instruments is the estimated amount that the Group would receive or pay to terminate the swap at the end of the reporting period, taking into account the current interest rates and the current creditworthiness of the swap counterparties.

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APPENDIX V

(b) Fair value of financial assets and liabilities carried at other than fair value

The carrying amounts of the Group’s financial assets and liabilities carried at cost or amortised cost are not materially different from their fair values as at 30 June 2017 and 31 December 2016.

25. COMPARATIVE FIGURES

Certain comparative figures have been re-presented as a result of the application of merger accounting due to the business combination involving entities under common control.

— V-196 —

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APPENDIX V

V. INDEBTEDNESS STATEMENT

At the close of business on 31 October 2017, being the latest practicable date for the purpose of indebtedness statement prior to printing of this circular, the total outstanding interest-bearing bank and other borrowings, other loans and corporate bonds of the Group are as follows:

	Total	Secured	Unsecured
	RMB’000	RMB’000	RMB’000
Interest-bearing bank and other borrowings	25,559,288	15,297,894*	10,261,394
Other loans	1,149,068	—	1,149,068
Corporate bonds	3,984,810	—	3,984,810

Secured by pledges of the Group’s certain vessels and certain vessels under construction.

At the close of business on 31 October 2017, the Group has the following significant contingent liabilities and guarantees:

(i) East China LNG Shipping Investment Co., Limited, a non-wholly-owned subsidiary of the Company, holds 30% equity interest in each of Aquarius LNG Shipping Limited (“Aquarius LNG”) and Gemini LNG Shipping Limited (“Gemini LNG”), and North China LNG Shipping Investment Co., Limited, a non-wholly-owned subsidiary of the Company, holds 30% equity interest 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 construction of the LNG vessels, the four companies would, in accordance with the 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.

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, and (2) to secure 30% of such amount payable to the charterers under the lease.

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FINANCIAL INFORMATION OF THE GROUP

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

(ii) At the 2014 seventh Board meeting 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 Group for the Yamal LNG project. To secure the obligation of the ship building contracts, time charter agreements and supplemental construction contracts, the Group provides corporate guarantees to the shipbuilders, Daewoo Shipbuilding & Marine Engineering Co., Ltd. and DY Maritime Limited. The total aggregate liability of the Group under the corporate guarantees is limited to USD490,000,000 (equivalent to approximately RMB3,319,456,000). In addition, the Group provides owner’s guarantees to the charterer, YAMAL Trade Pte. Ltd. The total aggregate liability of the Group under the owner’s guarantees is limited to USD6,400,000 (equivalent to approximately RMB43,356,000).

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 31 October 2017, the 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 Group since 31 October 2017 up to and including the Latest Practicable Date.

VI. WORKING CAPITAL

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

VII. FINANCIAL TRADING PROSPECTS OF THE GROUP

1. Competitive landscape and development trend in the industry

According to estimates of the relevant international organisations, the world economy is expected to grow by approximately 3.5% in 2017. This will be the best economic condition in recent years. Meanwhile, as the deep level problems of the world economy has not yet been resolved, it is still facing plenty of instabilities and uncertainties.

Both challenges and opportunities will exist in the international oil shipment market in future. In the short term, oversupply of shipping capacity in the international oil shipment market will continue, together with the arrival of traditional low season in the third quarter, market shipment prices will continue to be under pressure. In the medium to long term, global demand for oil tanker shipping capacity will continue to grow, particularly under the impact of significant growth in crude oil exports of the USA and strong growth of import demand from Asian countries such as China, the

— V-198 —

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FINANCIAL INFORMATION OF THE GROUP

demand for long-haul shipments will continue to increase. Meanwhile, with increasingly strict environmental protection requirements and operating cost pressure from old vessels, many old oil tankers may be scrapped and demolished in the next few years, and the market supply and demand conditions may be changed accordingly by then.

For the coastal oil shipment market in future, with accelerated progress in the domestic construction of pipelines and large-scale terminals, changes have occurred in the logistics structure of oil shipments for land refineries, demand for inland water transshipment for imported crude oil may enter underground channels, however benefiting from the open policies for domestic import and crude oil rights, the original demand for waterborne shipment of crude oil will remain stable with a upward trend. Overall speaking, the future coastal oil shipment market will remain stable.

LNG as a clean energy will have broad development prospects in future. According to the 2017 LNG outlook report released by an international energy group, the global LNG trading volume in 2020 will increase by 50% as compared to 2014; while another international energy group forecast that global LNG demand in 2030 will double from 2012; a research institute forecast that global LNG production capacity will increase by 60% in five years. Hence, a large quantity of new LNG projects will be constructed and will commence operation globally in the future.

2. Development strategies and work initiatives of the Company

Based on the macroeconomic environment, industry environment and development opportunities as mentioned above, the Group will position its operations in line with the “One Belt One Road” initiative and establish its foothold in “national oil national shipment” to further compete in the international market. In the second half of 2017 and in the near future, the Group will focus on the following aspects of work:

(1) Optimise business structure and layout, enhance operating benefits of shipping routes. Firstly, to create core shipping routes. The Group will explore deeply into the shipping demand of customers, strive to create core shipping routes with high revenue and high stability, and to secure stable and solid basic revenue.

Secondly, to strengthen important shipping routes. The Group will deepen business cooperation with large international oil companies and expand into highly profitable western regional markets; it will leverage on the linkage in domestic and international shipments of the Company to enhance the development of regional oil shipment trading routes.

Thirdly, to seize future shipping routes. The Group will fully leverage and play the key roles in “One Belt One Road” and the “Maritime Silk Road”, by following the immediate business development pace of energy enterprises in the PRC, it will strengthen cooperation and realise win-win benefits to secure transportation safety of national energy resources.

(2) Increase LNG business development efforts, expand the scale of stable income business. The Group will focus on tracking the development status of domestic and international new LNG projects, and by following closely the pattern of global LNG trade of Chinese energy

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FINANCIAL INFORMATION OF THE GROUP

enterprises, it will strive to seek new investment opportunities of LNG projects. By adhering to the principle of developing project vessels, investment in LNG vessels shall be bundled with long-term projects, investment gains of vessels should be locked-in to further enhance the portion of stable income business in the Group to strengthen the corporate profitability and risk resistance ability.

(3) Develop shipping capacity by multiple strategies, enlarge the economies of scale of the fleet of the Group. At present, both the international ship purchase/building market and oil tanker company valuations are at relatively low levels. The Group will track market movements closely in order to capture appropriate low cost development and acquisition opportunities decisively for further reducing the average cost and enlarging the economies of scale of the fleet of the Group. Meanwhile, by leveraging the advantages of the long-term cooperation and win-win mechanism established with strategic customers over the years, and other means such as increasing efforts in time charter cooperation with large customers as well as building customised shipping capacity for large customers and leasing out by way of time charters, cargo sources and income of new shipping capacity will be locked-in simultaneously with the development of shipping capacity to avoid development risk.
(4) Adhere to cost-oriented strategies, improve cost control capabilities continuously. The Group will continue to implement the fuel price locking mechanism by improving the accuracy of estimating the trend of oil prices and formulating long-term, medium-term and short-term operation plans to stay in line with the market pace. Meanwhile, reasonably determine the best efficient cruising speed and comprehensively enhance lean management in all aspects of fuel consumption to control fuel oil consumption. Besides, the Group will further increase the effort of integrating internal resources, continue to strengthen communication and coordination with cargo suppliers, and strive to achieve new breakthrough in the management and control of various costs and expenses in order to create low cost competitive advantages.
(5) To accelerate the pace of overseas business expansion based on the results of global network building. The Group has formed a global layout with China as its headquarters and with overseas networks based in Singapore, London, Houston and Hong Kong. In the next phase, all overseas networks will be fully utilised to assist the business developments of Chinese energy enterprises under the “One Belt One Road” initiative, and to deepen cooperation with large international oil companies to implement the service concept of “providing full range shipping solutions for global customers” by offering all types of vessels at all times with comprehensive customised services to enhance the loyalty of customers, optimise the business structure and improve the operation efficiency.
(6) Implement safety marketing measures to ensure safe development of enterprise. Safety is the lifeline for oil shipment enterprise, and is also the core competitiveness of the Group. The Group will accelerate the construction and implementation of a unified safety management system to further promote the merging of safety culture, safety concepts, safety system and safety measures for enhancing the core competitiveness of the Group continuously.

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FINANCIAL INFORMATION OF THE GROUP

(7) Emphasise on nurturing talents, strengthen team building. The Group will formulate team building plans for skeleton personnel according to fleet development plans and development needs of various business segments to strengthen the building of an international and composite team of skeleton personnel. Meanwhile, the Group will actively explore and establish a long-term mechanism for education and training, advocate the equity incentive plan actively, strive to build a high-quality shipping crew to secure human resources for fleet development.

— V-201 —

SHAREHOLDERS’ RETURN PLAN

APPENDIX VI

COSCO SHIPPING Energy Transportation Co., Ltd. Shareholders’ Return Plan For The Next Three Years From 2017 To 2019

To perfect and improve the sustainable, stable and scientific decision-making and supervision system of dividend distribution of COSCO SHIPPING Energy Transportation Co., Ltd. (hereinafter referred to as the “ Company ”), increase the transparency and practicality of the decision-making of profit distribution of the Company, generate positive returns on investment for investors and steer investors towards long-term and reasonable investment,the Shareholders’ Return Plan (2017-2019) of COSCO SHIPPING Energy Transportation Co., Ltd. is formulated by the Board of the Companyin accordance with the requirements of the Company Law, Notice Regarding Further Implementation of Cash Dividend Distribution of Listed Companies 《關於進一步落實上市公司現金分紅有關事項的通( 知》) issued by the CSRC, Listed Companies Regulatory Guidance No. 3 — Cash Dividends Distribution of Listed Companies 《上市公司監管指引第( 3號— 上市公司現金分紅》) and other laws and regulations and the Articles of Association and based on the actual situation of the Company. Particulars are as follows:

I. Major factors considered in formulating the plan

With the focus placed on the long-term and sustainable development and on the basis of comprehensive analysis on actual circumstance of its business development, the shareholders’ requirements and wishes, social capital costs and external financing environment, the Company has formulated its Shareholders’ Return Plan and established the sustainable, stable and scientific dividend return plan and mechanism for investors after taking full account of the Company’sstrategic development plan and development stage, current and future profitability and size, cash flow, working capital requirement, bank credit and debt financing environment, so as to ensure the continuity and stability of profit distribution policy.

II. Basic principles for formulation of the plan
The Company shall place an emphasis in creating reasonable return to its investors, and implement a continuous and stable profit distribution policy; the Company’s profit distribution shall neither exceed the amount of accumulated distributable profit nor the ongoing operation of the Company;
The opinions of shareholders (particularly the minority shareholders), independent directors and supervisors shall be fully considered and listened for formulating the Shareholders’ Return Plan of the Company;
Subject to compliance with relevant conditions, the Company shall give priority to dividend distribution in cash in the next three years.

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SHAREHOLDERS’ RETURN PLAN

APPENDIX VI

III. Specific plan on shareholders’ return of the Company for 2017-2019
Profit distribution policy of the Company for the next three years
(1) Form of profit distribution

(2) Specific conditions, proportions and time intervals of cash dividend

Except for the special circumstances that the Company plans to make material investment or significant cash expenditure within the next twelve months, the Company shall distribute its dividends in the form of cash if the Company makes profits for the current year and the accumulated undistributed profits are positive. The Company’s accumulated profits distributed in form of cash for the last three years are no less than 30% of the annual average net profit attributable to shareholders of the Listed Company for the last three years. Subject to compliance withthe conditions for cash dividend distribution, the Company shall in principle distribute dividends in cash each year. When proposed by the Board and approved by the General Meeting, an interim dividend distribution may also be made in the form of cash.

① Where the Company is in a developed stage with no substantial capital expenditure arrangements, the dividend distributed in the form of cash shall not be less than 80% of the profit distribution;
② Where the Company is in a developed stage with substantial capital expenditure arrangements, the dividend distributed in the form of cash shall not be less than 40% of the profit distribution;
③ Where the Company is in a developing stage with substantial capital expenditure arrangements, the dividend distributed in the form of cash shall not be less than 20% of the profit distribution.

— VI-2 —

SHAREHOLDERS’ RETURN PLAN

APPENDIX VI

(3) Specific conditions for distributing dividends in shares

2. Decision-making procedures and mechanism of profit distribution

3. Conditions, decision-making procedures and mechanism regarding the adjustment made to the profit distribution policy

— VI-3 —

SHAREHOLDERS’ RETURN PLAN

APPENDIX VI

4. Implementation of the profit distribution policy

IV. Decision-making mechanism of the plan

V. Adjustment cycle and decision-making mechanism of the plan

1. Adjustment to the plan

— VI-4 —

APPENDIX VI SHAREHOLDERS’ RETURN PLAN

Decision-making mechanism regarding the adjustment to the plan

VI. Supplementary provisions

The board of directors is responsible for the interpretation of the Plan which will be effective from the date of approval at the shareholders’ general meeting of the Company. Any matters not covered herein shall be handled in accordance with the requirements of relevant laws and regulations as well as normative documents and the Articles of Association.

COSCO SHIPPING Energy Transportation Co., Ltd.

Board of Directors

— VI-5 —

APPENDIX VII

PROPOSED AMENDMENTS TO THE COMPANY’S ARTICLES OF ASSOCIATION

The below table sets out the proposed amendments to the Articles of Association to be proposed at the EGM:-

	Original provisions of the Articles	Original provisions of the Articles	Original provisions of the Articles	Original provisions of the Articles	Original provisions of the Articles	of
		Association						Proposed Amendments to Articles
	Chapter	14 Accounting regulation and						Chapter 14 Accounting regulation and
		profit distribution						profit distribution
Article 228 Basic principles of profit					distribution			Article 228 Basic principles of profit
policy of the		Company						distribution policy and policy for cash
								dividend distribution of the Company
The profit distribution policy shall				be continuous
and stable. Profit			distribution shall be			in	full	Basic principles of profit distribution policy
consideration of reasonable return to investors,								of the Company:
the	long	term	interests and		sustainable
development		of the	Company, and the interests of					The profit distribution policy shall be
all	shareholders		as a whole.		The	profit		continuous and stable. Profit distribution shall
distribution of the			Company shall be based on					be in full consideration of reasonable return to
the	distributable profit realized for the year and							investors, the long term interests and sustainable
dividend shall be distributed to shareholders in a								development of the Company, and the interests
sequence in		compliance with		the statutory				of all shareholders as a whole. The profit
requirements		and	in proportion		to		their	distribution of the Company shall be based on
shareholdings. The			same shares shall be entitled					the distributable profit realized for the year and
to the same		rights	and dividend.	Shares		of the		dividend shall be distributed to shareholders in a
Company held by the Company are					not entitled			sequence in compliance with the statutory
to distribution. The			Company shall give priority					requirements and in proportion to their
to profit distribution in the form of					cash.			shareholdings. The same shares shall be entitled
								to the same rights and dividend. Shares of the
								Company held by the Company are not entitled
								to distribution. The Company shall give priority
								to profit distribution in the form of cash.
								Policy for cash dividend distribution:
								The Board shall take various factors into
								consideration, including the Company’s
								industry features, development stages,
								business model and profitability as well as
								whether the Company has any substantial
								capital expenditure arrangements in
								differentiating the following circumstances
								and propose a differentiated policy for cash
								dividend distribution pursuant to the
								procedures stipulated in the Articles of
								Association:
								①Where the Company is in a developed stage
								with no substantial capital expenditure
								arrangements, the dividend distributed in the
								form of cash shall not be less than 80% of the
								profit distribution;

— VII-1 —

APPENDIX VII

PROPOSED AMENDMENTS TO THE COMPANY’S ARTICLES OF ASSOCIATION

② Where the Company is in a developed stage with substantial capital expenditure arrangements, the dividend distributed in the form of cash shall not be less than 40% of the profit distribution; ③ Where the Company is in a developing stage with substantial capital expenditure arrangements, the dividend distributed in the form of cash shall not be less than 20% of the profit distribution. In the case that it is difficult to distinguish the Company’s stage of development but the Company has significant capital expenditure arrangements, the profit distribution may be dealt with pursuant to the preceding provisions. Article 232 Specific conditions for share Article 232 Specific conditions for share dividend distribution dividend distribution The Company may distribute profit by share The Company may distribute profit by share dividend according to actual conditions such as dividend according to actual conditions such as the accumulated distributable profit and cash the accumulated distributable profit and cash flows of the Company, and on the premise that flows of the Company, and on the premise that there is adequate cash dividend and a reasonable there is adequate cash dividend and a reasonable share capital structure of the Company. The share capital structure of the Company. The actual proposal relating to the proportion of actual proposal relating to the proportion of share dividends shall be recommended by the share dividends shall be recommended by the Board. In determining the specific amount for the Board. In determining the specific amount for share dividend distribution, the Board shall take the share dividend distribution, the Board shall full account of whether the total share capital take full account of whether the total share after share dividend distribution is suitable for capital after share dividend distribution is the current operational scale and the suitable for the current operational scale and the development of the Company, so as to ensure that development of the Company, and shall take the profit distribution plan is in the interest of all full account of the factor on the Company’s shareholders as a whole in the long run. growth and the dilution of net assets per share , so as to ensure that the profit distribution plan is in the interest of all shareholders as a whole in the long run.

— VII-2 —

APPENDIX VII

PROPOSED AMENDMENTS TO THE COMPANY’S ARTICLES OF ASSOCIATION

Article 233 The consideration and deliberation Article 233 The consideration and deliberation procedures and decision-making mechanism for procedures and decision-making mechanism for the profit distribution plan the profit distribution plan The Company’s profit distribution proposal shall The Company’s profit distribution proposal be formulated by the management of the shall be formulated by the management of the Company. In formulating the profit distribution Company. In formulating the profit distribution proposal the views of investors shall be taken proposal the views of investors shall be taken into account and the proposal so formulated shall into account and the proposal so formulated be submitted to the consideration of the Board of shall be submitted to the consideration of the the Company. The Board of the Company shall Board of the Company. The Board of the fully consider and deliberate the profit Company shall fully consider and deliberate the distribution proposal pursuant to the provisions profit distribution proposal pursuant to the of the Articles of Association, having fully taken provisions of the Articles of Association, having into account the Company’s ability to operate fully taken into account the Company’s ability continuously, and the capital required for to operate continuously, and the capital required ensuring routine production, operation and for ensuring routine production, operation and business development as well as reasonable business development as well as reasonable return to investors. In deliberating and return to investors. In deliberating and decision-making of the profit distribution decision-making of the profit distribution proposal, the Board of the Company shall take proposal, the Board of the Company shall take full account of the views of the independent full account of the views of the independent directors. In considering the profit distribution directors. In considering the profit distribution proposal, the Board shall record in detail the proposal, the Board shall record in detail the advice of the management, key points of the advice of the management, key points of the speeches of directors present at the meeting, speeches of directors present at the meeting, opinions of independent directors, voting results opinions of independent directors, voting results of Board meetings, etc. and prepare written of Board meetings, etc. and prepare written minutes to be kept properly as the Company’s minutes to be kept properly as the Company’s records. records. Where the profit distribution proposal is Where the profit distribution proposal is considered by the Board, it requires the consent considered by the Board, it requires the consent of more than half of all the directors to be of more than half of all the directors to be approved. Independent directors shall provide approved. Independent directors shall provide their independent opinion on the profit their independent opinion on the profit distribution proposal. distribution proposal.

— VII-3 —

APPENDIX VII

PROPOSED AMENDMENTS TO THE COMPANY’S ARTICLES OF ASSOCIATION

The resolutions formed for the profit distribution proposal shall be submitted to the shareholders general meeting for consideration. Upon receipt of any qualifying profit distribution proposal proposed by other shareholders, the Board shall communicate with the proposing shareholder to understand the specific reasons and background for proposing the proposal, announce the contents of and reasons for the proposal in accordance with the procedures as required by the Articles of Association, and submit the same to the shareholders general meeting for consideration.

Where the profit distribution proposal is considered at the shareholders general meeting, the Company shall communicate and exchange ideas through multiple channels with shareholders (minority shareholders in particular), take full account of the opinion and demands of minority shareholders, and give timely replies to issues that concern minority shareholders. Where the profit distribution plan is considered at the shareholders general meeting, it requires the consent of more than half of all shareholders (including proxies of shareholders) carrying voting rights present at the meeting to be approved. Where plans for share dividend distribution or for transfer from the common reserve to share capital is considered at the shareholders general meeting, it requires the consent of more than two thirds of the shareholders (including proxies of shareholders) carrying voting rights present at the shareholders general meeting to be approved.

— VII-4 —

GENERAL INFORMATION

APPENDIX VIII

1. RESPONSIBILITY STATEMENT

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

The circular includes particulars given in compliance with the Takeovers Code for the purpose of giving information with regard to the Group. All the Directors jointly and severally accept full responsibility for the accuracy of the information in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any of the statements in this circular misleading.

2. MARKET PRICE

The table below shows the closing prices of the H Shares on the Hong Kong Stock Exchange and the A Shares on the Shanghai Stock Exchange (i) on the last trading day of each of the six calendar months immediately preceding the date of the Announcement and up to the Latest Practicable Date; (ii) on the last trading day immediately preceding the date of the Announcement; (iii) on the date of the Announcement; and (iv) on the Latest Practicable Date.

	Closing price	Closing price
Date	per H Share	per A Share
	HK$	RMB
28 April 2017	4.25	6.67
31 May 2017	4.45	6.24
30 June 2017	4.36	6.63
31 July 2017	4.40	6.84
31 August 2017	4.47	6.66
29 September 2017	4.33	6.35
26 October 2017 (being the last trading day of the A	4.52	6.45
Shares immediately preceding the date of the
Announcement)
30 October 2017 (being the last trading day of the H	4.57	(suspended)
Shares immediately preceding the date of the
Announcement)
31 October 2017 (being the date of the Announcement)	(suspended)	(suspended)
30 November 2017	4.17	6.01
1 December 2017 (being the Latest Practicable Date)	4.18	6.10

— VIII-1 —

GENERAL INFORMATION

APPENDIX VIII

3. SHARE CAPITAL

The registered and issued share capital of the Company (i) as at the Latest Practicable Date; and (ii) immediately after completion of the Proposed Non-public Issuance of A Shares (assuming that (i) the entire Cap is issued at the Benchmark Price and (ii) there is no change in the total issued share capital of the Company since the Latest Practicable Date save for the issue of the A Shares pursuant to the Proposed Non-public Issuance of A Shares):

As at the Latest Practicable Date:

Number of Shares

A Shares H Shares Total	2,736,032,861 1,296,000,000
	4,032,032,861

Immediately after completion of the Proposed Non-public Issuance of A Shares (assuming that (i) the entire Cap is issued at the Benchmark Price and (ii) there is no change in the total issued share capital of the Company since the Latest Practicable Date save for the issue of the A Shares pursuant to the Proposed Non-public Issuance of A Shares):

Number of Shares

A Shares H Shares Total	3,542,439,433 1,296,000,000
	4,838,439,433

The A Shares to be issued under the Proposed Non-public Issuance of A Shares when issued and fully paid, shall rank pari passu in all aspects amongst themselves with the A Shares in issue at the time of the issuance of such A Shares.

Since 31 December 2016 (being the end of the last financial year of the Company) and up to the Latest Practicable Date, no new Shares have been issued by the Company.

As at the Latest Practicable Date, the Company has no outstanding warrants, options or securities convertible into Shares.

— VIII-2 —

GENERAL INFORMATION

APPENDIX VIII

4. DISCLOSURE OF INTERESTS

Interests and short positions of Directors, Supervisors and chief executives

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

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

(i) Mr. Huang Xiaowen, an executive Director, is also an executive vice president and party committee member of COSCO Shipping;
(ii) Mr. Feng Boming, an non-executive Director, is also the general manager of the strategic and corporate management division of COSCO Shipping;
(iii) Mr. Zhang Wei, an non-executive Director, is also a general manager of the operating management division of COSCO Shipping;
(iv) Ms. Lin Honghua, an non-executive Director, is also the chief auditor of the finance and accounting division of COSCO Shipping;
(v) Mr. Weng Yi, a Supervisor, is also the safety director and general manager of the safety management department of COSCO Shipping.

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

Interests of substantial Shareholders

As at the Latest Practicable Date, so far as was known to the Directors, Supervisors or chief executive(s) of the Company, the interests or short positions of the Shareholders who are entitled to exercise or control 5% or more of the voting power at any general meeting or other persons (other than a Director, Supervisor or chief executive(s) of the Company) in the Shares or underlying shares of the Company which were required to be notified to the Company pursuant to Divisions 2 and 3 of Part

— VIII-3 —

APPENDIX VIII

GENERAL INFORMATION

XV of the SFO, or which were required to be recorded in the register kept by the Company pursuant to Section 336 of the SFO or which have been notified to the Company and the Hong Kong Stock Exchange were as follow:

				Approximate
				percentage of the	Approximate
				total number of	percentage of the
				the relevant class	issued share
			Number of	of Shares of the	capital of the
			Shares interested	Company	Company
Name of Shareholder	Class of Shares	Capacity	(Note 1)	(%)	(%)
CSG	A Shares	Beneficial owner	1,536,924,595(L)	56.17	38.12
			(Note 2)
	A Shares	Other	17,706,998(L)
			(Note 2)
COSCO Shipping	A Shares	Interest of	1,554,631,593(L)	56.82	38.56
		controlled	(Note 2)
		corporation
GIC Private Limited	H Shares	Investment	129,082,000(L)	9.96	3.20
		manager
Prudential plc	H Shares	Interest of	117,444,000(L)	9.06	2.91
		controlled
		corporation

Notes:

“L” means long position in the shares and “P” means shares in the lending pool.
Such shareholding includes 1,536,924,595 A Shares directly held by CSG. CSG also holds (a) 7,000,000 A Shares (representing approximately 0.17% of the total voting rights of the Company as at the Latest Practicable Date) through CICC-CCB-Zhongjin Ruihe collective asset management schemes (中金公司-建設銀行-中金瑞和集合資產管理計劃), (b) 2,065,494 A Shares (representing approximately 0.05% of the total voting rights of the Company as at the Latest Practicable Date) through Guotai Junan securities asset management-Industrial Bank - Guotai Junan Junxiang Xinli No.6 collective asset management schemes (國泰君安證券資管-興業銀行-國泰君安君享新利六號集合資產管理計劃), (c) 8,641,504 A Shares (representing approximately 0.21% of the total voting rights of the Company as at the Latest Practicable Date) through AEGON-INDUSTRIAL Fund Management Co., Ltd - China Shipping (Group) Company collective asset management schemes (興業全球基金-上海銀行-中國海運 (集團) 總公司). Therefore, CSG and its subsidiaries are interested in 1,554,631,593 A Shares in aggregate as at the Latest Practicable Date, representing approximately 38.56% of the total number of voting rights in the Company as at the Latest Practicable Date.

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

— VIII-4 —

GENERAL INFORMATION

APPENDIX VIII

5. SERVICE CONTRACTS

As at the Latest Practicable Date, save as disclosed below, (a) none of the Directors or Supervisors had entered or proposed to enter into a service contract with any member of the Group which is not determinable by the Group within one year without payment of compensation (other than statutory compensation) and (b) none of the Directors or Supervisors had entered into a service contract with the Company or any of its subsidiaries or associated companies (as defined under the Takeovers Code), which (i) have been entered into or amended within 6 months before the date of the Announcement; (ii) are continuous contracts with a notice period of 12 months or more; or (iii) are fixed term contracts with more than 12 months to run irrespective of the notice period:-

the service contract with Mr. Huang Xiaowen, an executive Director was entered into on 10 October 2017 for a term from 10 October 2017 up to and including 17 June 2018 (or the date of the Company’s annual general meeting in 2018, whichever is earlier). Pursuant to such service contract, Mr. Huang will not receive any remuneration (whether fixed or variable) from the Group as a Director and the service contract may be terminated by either party giving at least three months’ prior notice in writing.

6. MATERIAL CHANGE

Save and except as disclosed below, the Directors confirm that there is no material change in the financial or trading position or outlook of the Group since 31 December 2016, being the date to which the latest audited consolidated financial statements of the Group were made up, up to and including the Latest Practicable Date:

(i) as disclosed in the third quarterly report of the Group for the nine months ended 30 September 2017, which have been prepared in accordance with the Generally Accepted Accounting Principles of the PRC, the Group recorded a net profit (before exceptional items) of approximately RMB1,247.6 million, for the nine months ended 30 September 2017 as compared to the adjusted net profit of approximately RMB2,219.8 million for the corresponding period of 2016, representing a decline of approximately 43.8%. This is primarily due to the combination of the reasons that (a) the Group still operated the dry bulk cargo business from January to June 2016 but disposed such business at the end of June 2016; (b) the retrospective recognition as extraordinary income for the six months ended 30 June 2016 the profits from a subsidiary acquired on 30 June 2016, and (c) a year-on-year decrease of approximately 40% to 60% in the daily revenue level of the market of different types of vessels for foreign trade oil transportation in the first three quarters of 2017. As a result of the extraordinary items described in (a) and (b) above, the Group recorded net profit after exceptional items of RMB1,113.1 million for the nine months ended 30 September 2017, as compared to RMB775.7 million for the corresponding period in 2016. Further details with respect to the above are set out in the Company’s third quarterly report for the nine months ended 30 September 2017 dated 30 October 2017.
(ii) as disclosed in the interim report of the Group for the six months ended 30 June 2017, which have been prepared in accordance with the Hong Kong Accounting Standards, the Group recorded an unaudited net profit attributable to the owners of the Company for the

— VIII-5 —

APPENDIX VIII

GENERAL INFORMATION

six months ended 30 June 2017 of approximately RMB865.4 million, a decline of approximately 53.2% as compared to an unaudited net profit attributable to the equity holders of the Company of approximately RMB1,851 million for the six months ended 30 June 2016. As disclosed in the Company’s announcement dated 18 July 2017, Such decrease was primarily attributable to:- (A) that during the six months ended 30 June 2016, the Group recorded net profit from the discontinued dry bulk cargo business sold by the Group in June 2016, and since then no such profit was recorded by the Group; and (B) a year-on-year decrease of approximately 40-60% in the daily revenue level of the market of different types of vessels for foreign trade oil transportation in the first half of 2017.
(iii) on 25 January 2017, the Board approved the provision for liabilities in respect of estimated losses on chartering contracts of approximately RMB230 million in total which are to be accounted for in the financial statements of 2016. Such provision was subsequently approved by Shareholders at an extraordinary general meeting of the Company held on 16 March 2017. For details, please refer to the Company’s announcement dated 25 January 2017 and the circular dated 26 January 2017.

7. DIRECTORS AND SUPERVISORS’ INTERESTS IN THE GROUP ASSETS OR CONTRACTS OR ARRANGEMENTS SIGNIFICANT TO THE GROUP

As at the Latest Practicable Date:

(i) none of the Directors or Supervisors had any direct or indirect interest in any assets which had been, since 31 December 2016 (being the date to which the latest audited consolidated financial statements of the Group were made up) acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group; and
(ii) none of the Directors or Supervisors was materially interested in any contract or arrangement subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group.

8. ARRANGEMENTS IN CONNECTION WITH THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

As at the Latest Practicable Date:

(i) save for the Subscription Agreement, no agreement, arrangement or understanding (including any compensation arrangement) exists between COSCO Shipping or parties acting in concert with it and any of the Directors, recent Directors, Shareholders or recent Shareholders having any connection with or dependence upon the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and/or the Special Deal;

— VIII-6 —

GENERAL INFORMATION

APPENDIX VIII

(ii) there was no benefit to be given to any Directors as compensation for loss of office or otherwise in connection with the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and/or the Special Deal;
(iii) there was no agreement or arrangement between any Director and any other person which is conditional on or dependent upon the outcome of, or otherwise connected with, the Propose d Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and/or the Special Deal;
(iv) save for the Subscription Agreement, there was no material contract entered into by COSCO Shipping in which any Director has a material personal interest; and
(v) there was no agreement, arrangement or understanding pursuant to which the A Shares to be issued to COSCO Shipping under the Subscription Agreement and the Proposed Non-public Issuance of A Shares would be transferred, charged or pledged to any other persons.

9. SHAREHOLDINGS OF AND DEALINGS IN THE SECURITIES OF THE COMPANY AND COSCO SHIPPING CONCERT GROUP

As at the Latest Practicable Date:

(i) the Company did not hold, control or have direction over any relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) in COSCO Shipping and it has not dealt for value in any such securities of COSCO Shipping during the Relevant Period;
(ii) none of the Directors of the Company held, controlled or had direction over any relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) in COSCO Shipping and the Company and has not dealt for value in any such securities of COSCO Shipping and the Company during the Relevant Period;
(iii) no Shares, convertible securities, warrants, options, derivatives in respect of securities in the Company and any other relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company were owned or controlled by a subsidiary of the Company or by a pension fund of any member of the Group or by an advisor to the Company (as specified in class (2) of the definition of “associate” under the Takeovers Code but excluding exempt principal traders), and none of them has dealt for value in any such securities of the Company during the Relevant Period;
(iv) save for the Subscription Agreement between the Company and COSCO Shipping (which controls an aggregate of 38.56% interests in the total issued share capital of the Company), no arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code existed between any person and the Company or any person who is an associate of the Company by virtue of classes (1), (2), (3) and (4) of the definition of “associate” under the Takeovers Code and save for the Subscription, none of them had dealt for value in any relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company during the Relevant Period;

— VIII-7 —

GENERAL INFORMATION

APPENDIX VIII

(v) no Shares, warrants, options, derivatives in respect of securities in the Company and any other relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company was managed on a discretionary basis by any fund manager (other than exempt fund managers as defined in the Takeovers Code) connected with the Company and none of them had dealt for value in any relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company during the Relevant Period;
(vi) none of the Directors of the Company owns or controls any Shares, warrants, options, derivatives or convertible securities of the Company and accordingly, they will not vote on any of the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and/or the Special Deal.
(vii) neither the Company nor any of the Directors has borrowed or lent any relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company; and
(viii) none of the members of the COSCO Shipping Concert Group has had any dealings in any securities of the Company during the Relevant Period.

As at the Latest Practicable Date, other than the 38.56% interest in the total issued share capital of the Company controlled by the COSCO Shipping Concert Group and the transactions contemplated under the Subscription Agreement and as disclosed in this circular:

(i) COSCO Shipping and parties acting in concert with it did not hold, control or have direction over any outstanding options, warrants, or any securities that are convertible into Shares or any derivatives in respect of securities in the Company, or hold, control or have direction over any relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) in the Company and none of them have dealt for value in any such securities of the Company during the Relevant Period;
(ii) COSCO Shipping and parties acting in concert with it has not borrowed or lent any relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) in the Company;
(iii) save for the Subscription Agreement, no arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code existed between any person and COSCO Shipping and parties acting in concert with it during the Relevant Period;
(iv) neither COSCO Shipping nor parties acting in concert with it has received any irrevocable commitment to vote in favour of or against the Proposed Non-public Issuance of A Shares, the Subscription, the Specific Mandate, the Whitewash Waiver and/or the Special Deal; and
(v) none of the directors or investment committee of the manager (where applicable) of COSCO Shipping and parties acting in concert with it owned or controlled any Shares, warrants, options, derivatives or convertible securities, of the Company, and none of them has dealt for value in any such securities of the Company during the Relevant Period.

— VIII-8 —

GENERAL INFORMATION

APPENDIX VIII

10. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors nor any of their respective close associates had any interest in other business which competes or may compete, either directly or indirectly, with the business of the Group.

11. LITIGATION

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

12. MATERIAL CONTRACTS

The following contracts (being contracts not entered into in the ordinary course of business) have been entered into by members of the Group within the two years immediately preceding the date of the Announcement and up to and including the Latest Practicable Date:

(a) the asset transfer agreement dated 29 March 2016 entered between the Company, China Ocean Shipping (Group) Company and China COSCO Bulk Shipping (Group) Co., Ltd in relation to (i) the acquisition by the Company of 100% equity interests of Dalian Ocean Shipping Company Limited from China Ocean Shipping (Group) Company for a consideration of RMB6,628,455,200, and (ii) the disposal by the Company of 100% equity interests in China Shipping Bulk Carrier Co., Limited to China Ocean Shipping (Group) Company (or through China COSCO Bulk Shipping (Group) Co., Ltd, for a consideration of RMB5,392,221,600;
(b) the compensation agreement dated 29 March 2016 entered between the Company and China Ocean Shipping (Group) Company regarding that the actual net profit of Dalian Ocean Shipping Company Limited shall not be lower than estimated net profit for the compensation period, the details of which are set out in the circular of Company dated 22 April 2016; and
(c) the shareholders’ agreement dated 13 November 2017 entered into by the Company, COSCO SHIPPING, COSCO SHIPPING Development Co., Ltd. (中遠海運發展股份有限公司), COSCO Shipping Tanker (Dalian) Co., Ltd. (大連中遠海運油品運輸有限公司), COSCO SHIPPING Lines Co., Ltd. (中遠海運集裝箱運輸有限公司), COSCO International Freight Co., Ltd (中遠海運國際貨運有限公司), COSCO SHIPPING Specialized Carriers Co., Ltd (中遠海運特種運輸股份有限公司), Guangzhou Ocean Shipping Co., Ltd (廣州遠洋運輸有限公司), COSCO Bulk Carrier Co., Ltd. (中遠散貨運輸有限公司), China Ocean Shipping Agency Co., Ltd. (中國外輪代理有限公司), Qingdao Ocean Shipping Co., Ltd. (青島遠洋運輸有限公司), COSCO Shipbuilding Industry Company (中遠造船工業公司), COSCO Shipyard Group Co., Ltd. (中遠船務工程集團有限公司), China Marine Bunker (Petro China) Co., Ltd. (中國船舶燃料有限責任公司), COSCO (Xiamen) Co., Ltd. (中遠海運（廈門）有限公司) and China Ocean Shipping Tally Co., Ltd. (中國外輪理貨有限公司) in relation to their respective rights and obligations in COSCO SHIPPING Finance Company Limited* (中遠海運集團財務有限責任公司).

— VIII-9 —

GENERAL INFORMATION

APPENDIX VIII

(d) the Subscription Agreement.

13. EXPERTS

The following is the qualification of the experts who have given their opinions or advices which are contained in this circular:

Name

Qualification

Messis Capital Limited A corporation licensed to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO

Grandall Law Firm (Shanghai) PRC legal advisers to the Company

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

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

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

14. MISCELLANEOUS

(a) The legal address of the Company in the PRC is Room A-1015, No. 188 Ye Sheng Road, China (Shanghai) Pilot Free Trade Zone.
(b) The principal place of business of the Company in the PRC is 118 Yuan Shen Road, Pudong New District, Shanghai, the PRC.
(c) The principal place of business of the Company in Hong Kong is 20/F, Alexandra House, 18 Chater Road, Central, Hong Kong.
(d) COSCO Shipping is a state-owned enterprise which is the indirect controlling shareholder of the Company through CSG. CSG is a large shipping conglomerate involved in the 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. The business address of COSCO Shipping is at No.678 Dong Da Ming Road, Shanghai, China.

— VIII-10 —

GENERAL INFORMATION

APPENDIX VIII

(e) The Hong Kong H Share registrar of the Company is Hong Kong Registrars Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(f) The company secretary of the Company Ms. Yao Qiaohong (“ Ms. Yao ”). Ms. Yao is an Affiliated Person of the Hong Kong Institute of Chartered Secretaries.
(g) The English translation of those entities whose name is marked with an asterisk (*) is for identification purpose only.

15. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents (i) are available for inspection during normal business hours from 9:30 a.m. to 5:30 p.m. at the principal place of business of the Company in Hong Kong at 20/F Alexandra House, 18 Chater Road, Central from the date of this circular up to and including the date of the EGM and the Class Meetings and (ii) will also be available for inspection on the website of the SFC at www.sfc.hk and the website of the Company at http://www.coscoshippingenergy.com/ from the date of this circular up to and including the date of the EGM and the Class Meetings:

(a) the Articles of Association of the Company;
(b) the articles of association of COSCO Shipping;
(c) the Subscription Agreement;
(d) the annual reports of the Company containing the audited consolidated financial statements of the Group for the three financial years ended 31 December 2014, 31 December 2015 and 31 December 2016;
(e) the interim reports of the Company containing the unaudited consolidated financial statements of the Group for the six months ended 30 June 2016 and the six months ended 30 June 2017;
(f) the announcement of the Company dated 30 October 2017 containing the Company’s 2017 third quarterly report;
(g) the letter from the Board, the text of which is set out in the section headed “Letter from the Board” in this circular;
(h) the letter from the Independent Board Committee to the Independent Shareholders, the text of which is set out in the section headed “Letter from the Independent Board Committee” in this circular;
(i) the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, the text of which is set out in the section headed “Letter from the Independent Financial Adviser” in this circular;

— VIII-11 —

GENERAL INFORMATION

APPENDIX VIII

(j) the written consents referred to in the paragraph headed “Experts” in this Appendix;
(k) the material contracts referred to in the paragraph headed “Material Contracts” in this Appendix;
(l) the service contracts referred to in the paragraph headed “Service Contracts” in this Appendix; and
(m) this circular.

— VIII-12 —

NOTICE OF EGM

==> picture [103 x 66] intentionally omitted <==

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

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

NOTICE OF EXTRAORDINARY GENERAL MEETING

Notice is hereby given that an extraordinary general meeting (the “ EGM ”) of COSCO Shipping Energy Transportation Co. Ltd. (the “ Company ”) will be held at 9:30 a.m. on 18 December 2017 (Monday) at 3rd Floor, Ocean Hotel, No. 1171 Dong Da Ming Road, Hongkou District, Shanghai, the People’s Republic of China to consider and, if thought fit, with or without modifications, pass the following resolutions. Reference is made to the Company’s announcement dated 31 October 2017 (the “ Announcement ”) and its overseas regulatory announcement dated 31 October 2017 containing details of the transactions referred to in the resolutions below. Unless otherwise defined, capitalised terms used in this notice shall have the same meanings as those defined in the Announcement.

Special Resolutions

To consider and approve the resolution in relation to the proposed non-public issuance of not more than 806,406,572 A Shares by the Company to not more than 10 specific target subcribers, including COSCO Shipping, under the Proposed Non-public Issuance of A Shares, details of which are set out in the Announcement:

“ THAT :

each of the following items in respect of the Proposed Non-public Issuance of A Shares be and is hereby approved, confirmed and ratified, and be implemented conditional upon approvals and/or authorisations having been obtained from the relevant authorities:

(i) class and par value of shares to be issued;
(ii) method and time of issuance;
(iii) target subscribers and method of subscription;
(iv) Price Determination Date, issue price and pricing principles;
(v) number of A Shares to be issued;
(vi) lock-up period;

— EGM-1 —

NOTICE OF EGM

(vii) place of listing of the A Shares to be issued;
(viii) amount of proceeds raised and use of proceeds; and
(ix) arrangement for the accumulated profits prior to the Proposed Non-public Issuance; and
(x) validity period of the resolution on the Proposed Non-public Issuance of A Shares.”
To consider and approve the resolution in relation to the “Proposal in respect of the Proposed Non-public Issuance of A Shares”, details of which are set out in the overases regulatory announcement of the Company dated 31 October 2017.
To consider and approve the resolution in relation to the “Feasibility Report on the Use of Proceeds from the Proposed Non-public Issuance of A Shares”, details of which are set out in the overseas regulatory announcement of the Company dated 31 October 2017.
To consider and approve the resolution in relation to the Subscription Agreement dated 30 October 2017 entered into between the Company and COSCO Shipping, details of which are set out in the Announcement:

“ THAT :

(a) the Subscription Agreement dated 30 October 2017 entered into between the Company and COSCO Shipping, pursuant to which COSCO Shipping has conditionally agreed to subscribe for, and the Company has conditionally agreed to issue, such number of A Shares for an amount of not more than 4.2 billion under the Proposed Non-public Issuance of A Shares, and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and
(b) any one Director be and is hereby authorised to do all acts and matters and sign such documents (including the affixation of the common seal of the Company thereon) and take all such steps as the Director in his/her opinion deem necessary, desirable or expendient to implement or give effect to the Subscription Agreement and the transactions contemplated thereunder.”
To consider and approve the resolution in relation to the Subscription constituing a connected transaction under the relevant laws and regulations of the PRC.
To consider and approve the resolution in relation to the waiver of COSCO Shipping’s obgliation to make a mandatory general offer of the securities of the Company as a result of the Subscription.

— EGM-2 —

NOTICE OF EGM

To consider and approve the resolution in relation to the Specific Mandate, details of which are set out in the Announcement:

“ THAT :

(a) the Board be and is hereby granted a specific mandate to issue not more than 806,406,572 A Shares at an issue price of not lower than the higher of (i) 90% of the Average Trading Price and (ii) the net asset value per share as set out at the latest audited consolidated financial statement of the Company to not more than 10 specific target subscribers, including COSCO Shipping, under the Proposed Non-public Issuance of A Shares (including the issue of such number of A Shares to COSCO Shipping pursuant to the Subscription Agreement); and
(b) any one Director be and is hereby authorised to do all acts and matters and sign such documents (including the affixation of the common seal of the Company thereon) and take all such steps as the Director in his/her opinion deem necessary, desirable or expendient to implement or give effect to the Specific Mandate.”
To consider and approve the resolution in relation to the authorisation to the Board and any person authorised by the Board to handle all matters in connection with the Proposed Non-public Issuance of A Shares, details of which are set out in the Announcement.

Ordinary Resolutions

To consider and approve the resolution in relation to the satisfaction by the Company of the critria for the Proposed Non-public Issuance of A Shares.
To consider and approve the resolution in relation to the exemption from reporting on the use of proceeds from the previous fund raising activity by the Company, details of which are set out in the overseas regulatory announcement of the Company dated 31 October 2017.
To consider and approve the resolution in relation to the Shareholders’ Return Plan, details of which are set out in the overseas regulatory announcement of the Company dated 31 October 2017.
To consider and approve the resolution in relation to the remedial measures regarding dilution on current returns by the Proposed Non-public Issuance of A Shares, details of which are set out in the overseas regulatory announcement of the Company dated 31 October 2017;
To consider and approve the resolution in relation to the undertakings by the relevant persons with regards to the remedial measures regarding dilution on current returns by the Proposed Non-public Issuance of A Shares, details of which are set out in the overseas regulatory announcement of the Company dated 31 October 2017.

— EGM-3 —

NOTICE OF EGM

To consider and approve the resolution in relation to the Whitewash Waiver, details of which are set out in the Announcement:

“ THAT :

(a) subject to the granting of the waiver by the Executive pursuant to Note 1 on dispensation from Rule 26 of the Takeovers Code in respect of the obligation of COSCO Shipping to make a mandatory general offer for all the issued Shares not already owned or agreed to be acquired by which may otherwise arise as a result of the Subscription, such waiver be and is hereby approved, confirmed and ratified; and
(b) any one Director be and is hereby authorised to do all acts and matters and sign such documents (including the affixation of the common seal of the Company thereon) and take all such steps as the Director in his/her opinion deem necessary, desirable or expendient to carry out or to give effect to the Whitewash Waiver.”

By order of the Board COSCO Shipping Energy Transportation Co., Ltd Yao Qiaohong Company Secretary

3 November 2017 Shanghai The People’s Republic of China

Notes:

(A) The H share register of the Company will be closed from 18 November 2017 (Saturday), to 18 December 2017 (Monday) (both days inclusive), during which no transfer of H shares will be effected. Any holders of H shares of the Company, whose names appear on the Company’s register of members on 18 December 2017 (Monday) are entitled to attend and vote at the EGM after completing the registration procedures for attending the meeting. In order to be entitled to attend and vote at the EGM, all duly completed transfer forms accompanied by the relevant share certificates must be lodged with the Company’s H share registrar not later than 4:30 p.m. on 17 November 2017 (Friday).
(B) The address of the share registrar (for share transfer) for the Company’s H shares is as follows:

Hong Kong Registrars Limited Shops 1712-1716 17th Floor Hopewell Centre 183 Queen’s Road East Wanchai Hong Kong

(C) Holders of H shares, who intend to attend the EGM, must complete the reply slips for attending the EGM and return them to the Office of the Secretary to the Board of Directors of the Company not later than 20 days before the date of the EGM, i.e. no later than 28 November 2017 (Tuesday).

— EGM-4 —

NOTICE OF EGM

Details of the Office of the Secretary to the Board of Directors of the Company are as follows:

18th Floor, 118 Yuanshen Road Pudong New District, Shanghai the People’s Republic of China Postal Code: 200120 Tel: 86(21) 6596 6666 Fax: 86(21) 6596 6160

(D) Each holder of H shares who has the right to attend and vote at the EGM is entitled to appoint in writing one or more proxies, whether that proxy is a shareholder or not, to attend and vote on his behalf at the EGM.
(E) The instrument appointing a proxy must be in writing under the hand of the appointor or his proxy duly authorised in writing or, if the principal is a legal person, under seal or under the hand of the director or proxy duly authorised. Where such instrument is signed by a person authorised by the appointor, the power of attorney authorising signature or other authorisation documents shall be notarised.
(F) For holders of H shares, the form of proxy, and if the form of proxy is signed by a person under a power of attorney or other authority on behalf of the appointor, a notarially certified copy of that power of attorney or other authority, must be delivered to the Company’s H share registrar, Hong Kong Registrars Limited at 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not less than 24 hours before the time appointed for holding the EGM (or any adjournment thereof) in order for such documents to be valid.
(G) Each holder of A shares is entitled to appoint in writing one or more proxies, whether a shareholder or not, to attend and vote on its behalf at the EGM. Notes (D) to (E) also apply to holders of A shares, except that the proxy form or other documents of authority must be delivered to the Office of the Secretary to the Board of Directors, the address of which is set out in Note (C) above, not less than 24 hours before the time appointed for holding the EGM (or any adjournment thereof) in order for such documents to be valid.
(H) If a proxy attends the EGM on behalf of a shareholder, he should produce his identity card and the instrument signed by the proxy or his legal representative, which specifies the date of its issuance. If the legal representative of a shareholder which shareholder is a legal person attends the EGM, such legal representative should produce his identity card and valid documents evidencing his capacity as such legal representative. If a shareholder which is a legal person appoints a company representative other than its legal representative to attend the EGM, such representative should produce his identity card and an authorisation instrument affixed with the seal of that shareholder (which is a legal person) and duly signed by its legal representative.
(I) The EGM is expected to last for an hour. Shareholders attending the EGM are responsible for their own transportation and accommodation expenses.
(J) As at the date of this notice, the board of directors of the Company comprises Mr. Huang Xiaowen, Mr. Liu Hanbo and Mr. Lu Junshan as executive directors, Mr. Feng Boming, Mr. Zhang Wei and Ms. Lin Honghua as non-executive directors, Mr. Wang Wusheng, Mr. Ruan Yongping, Mr. Ip Sing Chi, Mr. Rui Meng and Mr. Teo Siong Seng as independent non-executive directors.
For identification purpose only.

— EGM-5 —

SUPPLEMENTAL NOTICE OF EGM

==> picture [103 x 66] intentionally omitted <==

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

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

Notice dated 3 November 2017 had been given by the Company to convene the extraordinary general meeting (the “ EGM ”) of COSCO Shipping Energy Transportation Co., Ltd. (the “ Company ”) to be held at 9:30 a.m. on Monday, 18 December 2017 at 3rd Floor, Ocean Hotel, No. 1171 Dong Da Ming Road, Hongkou District, Shanghai, the People’s Republic of China to consider and, if thought fit, pass the resolutions set out therein. This notice is a supplemental notice following the despatch of the Company’s notice of EGM dated 3 November 2017 setting out the additional resolution proposed by the controlling shareholder of the Company in accordance with Article 78 of the Company’s Articles of Association to be passed at the EGM. Unless otherwise defined, capitalized terms used in this notice shall have the same meanings as those defined in the circular of the Company dated 4 December 2017 (“ Circular ”).

Special Resolution

“15. To consider and approve the resolution in relation to the Special Deal, the details of which are more particularly set out in the Circular:

THAT:

(a) subject to the consent of the Executive pursuant to Rule 25 of the Takeovers Code and the satisfaction of any condition(s) attached thereon imposed by the Executive, all transactions contemplated under the Proposed Non-public Issuance of A Shares which constitute a special deal under Rule 25 of the Takeovers Code be and are hereby approved, confirmed and ratified; and
(b) any one Director be and is hereby authorised to do all such acts and things and execute and deliver all such documents, deeds or instruments (including affixing the seal of the Company thereon) and take all such steps as the Director in his or her sole opinion and absolute discretion may consider necessary, appropriate or desirable to implement or give effect to the Special Deal.”

— EGM-6 —

SUPPLEMENTAL NOTICE OF EGM

“16. THAT

(a) the proposed amendments (“ Proposed Amendments ”, details of which are set out in the circular dated 4 December 2017 published by the Company) to the articles of association of the Company (“ Articles of Association ”) be and are hereby approved; and
(b) any one director of the Company be and is hereby authorized to make such adjustments or other amendments to the Articles of Association as he/she considers necessary or otherwise appropriate in connection with the Proposed Amendments or as may be required by the relevant regulatory authorities, and to file the amended Articles of Association with the relevant authorities for approval, endorsement and/or registration as appropriate, and to do or authorize doing all such acts, matters and things as he/she may in his/her absolute discretion consider necessary, expedient or desirable to give effect to and implement the Proposed Amendments to the Articles of Association.”

Ordinary Resolution

“17. To approve, confirm and ratify the seven agreements dated 20 November 2017 (the “ Agreements ”) entered into by the Company in relation to the construction of the VLCCs (as defined in the Circular) and the Suezmaxs (as defined in the Circular) at a total consideration of RMB3,673,154,400 (subject to adjustments), and the transactions contemplated therein; and to authorise the directors of the Company to exercise all powers which they consider necessary and do such other acts and things and execute such other documents which in their opinion may be necessary or desirable to implement the transactions contemplated under the Agreements.”

By Order of the Board COSCO Shipping Energy Transportation Co., Ltd. Yao Qiaohong Company Secretary

4 December 2017 Shanghai The People’s Republic of China

Notes:

(A) Please refer to the notice of the EGM dated 3 November 2017 for Resolutions 1 to 14.

— EGM-7 —

SUPPLEMENTAL NOTICE OF EGM

(B) Details of the Office of the Secretary to the Board of Directors of the Company are as follows:

18th Floor, 118 Yuanshen Road,

Pudong New District, Shanghai, The People’s Republic of China Postal Code: 200120 Tel: 86(21) 6596 6666 Fax: 86(21) 6596 6160

(C) Each holder of H Shares who has the right to attend and vote at the EGM is entitled to appoint in writing one or more proxies, whether that proxy is a shareholder or not, to attend and vote on his behalf at the EGM.
(D) The instrument appointing a proxy must be in writing under the hand of the appointor or his attorney duly authorised in writing. If that instrument is signed by an attorney of the appointor, the power of attorney authorising that attorney to sign, or other documents of authorisation, must be notarially certified.
(E) For holders of H Shares, the form of proxy, and if the form of proxy is signed by a person under a power of attorney or other authority on behalf of the appointor, a notarially certified copy of that power of attorney or other authority, must be delivered to the Company’s H share registrar, Hong Kong Registrars Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not less than 24 hours before the time appointed for holding the EGM (or any adjournment thereof) in order for such documents to be valid.
(F) Each holder of A Shares is entitled to appoint in writing one or more proxies, whether a shareholder or not, to attend and vote on its behalf at the EGM. Notes (C) to (D) also apply to holders of A Shares, except that the proxy form or other documents of authority must be delivered to the Office of the Secretary to the Board of Directors, the address of which is set out in Note (B) above, not less than 24 hours before the time appointed for holding the EGM (or any adjournment thereof) in order for such documents to be valid.
(G) If a proxy attends the EGM on behalf of a shareholder, he should produce his identity card and the instrument signed by the proxy or his legal representative, which specifies the date of its issuance. If the legal representative of a shareholder which shareholder is a legal person attends the EGM, such legal representative should produce his identity card and valid documents evidencing his capacity as such legal representative. If a shareholder which is a legal person appoints a company representative other than its legal representative to attend the EGM, such representative should produce his identity card and an authorisation instrument affixed with the seal of that shareholder (which is a legal person) and duly signed by its legal representative.
(H) The EGM is expected to last for an hour. Shareholders attending the EGM are responsible for their own transportation and accommodation expenses.
(I) As at the date of this notice, the board of directors of the Company comprises Mr. Huang Xiaowen, Mr. Liu Hanbo and Mr. Lu Junshan as executive Directors, Mr. Feng Boming, Mr. Zhang Wei and Ms. Lin Honghua as non-executive directors, Mr. Wang Wusheng, Mr. Ruan Yongping, Mr. Ip Sing Chi, Mr. Rui Meng and Mr. Teo Siong Seng as independent non-executive Directors.

* for identification purpose only

— EGM-8 —

NOTICE OF H SHARES CLASS MEETING

==> picture [103 x 66] intentionally omitted <==

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

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

NOTICE OF H SHARES CLASS MEETING

Notice is hereby given that a class meeting of H Shareholders (the “ H Shares Class Meeting ”) of COSCO Shipping Energy Transportation Co. Ltd. (the “ Company ”) will be held at 9:30 a.m. on 18 December 2017 (Monday) at 3rd Floor, Ocean Hotel, No. 1171 Dong Da Ming Road, Hongkou District, Shanghai, the People’s Republic of China to consider and, if thought fit, with or without modifications, pass the following resolutions. Reference is made to the Company’s announcement dated 31 October 2017 (the “ Announcement ”) and its overseas regulatory announcement dated 31 October 2017 containing details of the transactions referred to in the resolutions below. Unless otherwise defined, capitalised terms used in this notice shall have the same meanings as those defined in the Announcement.

Special Resolutions

To consider and approve the resolution in relation to the proposed non-public issuance of not more than 806,406,572 A Shares by the Company to not more than 10 specific target subcribers, including COSCO Shipping, under the Proposed Non-public Issuance of A Shares, details of which are set out in the Announcement:

“ THAT :

(i) class and par value of shares to be issued;
(ii) method and time of issuance;
(iii) target subscribers and method of subscription;
(iv) Price Determination Date, issue price and pricing principles;
(v) number of A Shares to be issued;

— HCM-1 —

NOTICE OF H SHARES CLASS MEETING

(vi) lock-up period;
(vii) place of listing of the A Shares to be issued;
(viii) amount of proceeds raised and use of proceeds; and
(ix) arrangement for the accumulated profits prior to the Proposed Non-public Issuance of A Shares; and
(x) validity period of the resolution on the Proposed Non-public Issuance of A Shares.”
To consider and approve the resolution in relation to the “Proposal in respect of the Proposed Non-public Issuance of A Shares”, details of which are set out in the overases regulatory announcement of the Company dated 31 October 2017.
To consider and approve the resolution in relation to the Subscription Agreement dated 30 October 2017 entered into between the Company and COSCO Shipping, details of which are set out in the Announcement:

“ THAT :

(a) the Subscription Agreement dated 30 October 2017 entered into between the Company and COSCO Shipping, pursuant to which COSCO Shipping has conditionally agreed to subscribe for, and the Company has conditionally agreed to issue, such number of A Shares for an amount of not more than RMB4.2 billion under the Proposed Non-public Issuance of A Shares, and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and
(b) any one Director be and is hereby authorised to do all acts and matters and sign such documents (including the affixation of the common seal of the Company thereon) and take all such steps as the Director in his/her opinion deem necessary, desirable or expendient to implement or give effect to the Subscription Agreement and the transactions contemplated thereunder.”
To consider and approve the resolution in relation to the Specific Mandate, details of which are set out in the Announcement:

“ THAT :

(a) the Board be and is hereby granted a specific mandate to issue not more than 806,406,572 A Shares at an issue price of not lower than the higher of (i) 90% of the Average Trading Price and (ii) the net asset value per share as set out at the latest audited consolidated financial statement of the Company to not more than 10 specific target subscribers, including COSCO Shipping, under the Proposed Non-public Issuance of A Shares (including the issue of such number of A Shares to COSCO Shipping pursuant to the Subscription Agreement); and

— HCM-2 —

NOTICE OF H SHARES CLASS MEETING

(b) any one Director be and is hereby authorised to do all acts and matters and sign such documents (including the affixation of the common seal of the Company thereon) and take all such steps as the Director in his/her opinion deem necessary, desirable or expendient to implement or give effect to the Specific Mandate.”
To consider and approve the resolution in relation to the authorisation to the Board and any person authorised by the Board to handle all matters in connection with the Proposed Non-public Issuance of A Shares.

By order of the Board COSCO Shipping Energy Transportation Co., Ltd Yao Qiaohong Company Secretary

3 November 2017 Shanghai The People’s Republic of China

Notes:

(A) The H share register of the Company will be closed from 18 November 2017 (Saturday), to 18 December 2017 (Monday) (both days inclusive), during which no transfer of H shares will be effected. Any holders of H shares of the Company, whose names appear on the Company’s register of members on 18 December 2017 (Monday) are entitled to attend and vote at the EGM after completing the registration procedures for attending the meeting. In order to be entitled to attend and vote at the EGM, all duly completed transfer forms accompanied by the relevant share certificates must be lodged with the Company’s H share registrar not later than 4:30 p.m. on 17 November 2017 (Friday).
(B) The address of the share registrar (for share transfer) for the Company’s H shares is as follows:

Hong Kong Registrars Limited Shops 1712-1716 17th Floor Hopewell Centre 183 Queen’s Road East Wanchai Hong Kong

(C) Holders of H shares, who intend to attend the H Shares Class Meeting, must complete the reply slips for attending the H Shares Class Meeting and return them to the Office of the Secretary to the Board of Directors of the Company not later than 20 days before the date of the H Shares Class Meeting, i.e. no later than 28 November 2017 (Tuesday).

Details of the Office of the Secretary to the Board of Directors of the Company are as follows:

18th Floor, 118 Yuanshen Road Pudong New District, Shanghai the People’s Republic of China Postal Code: 200120 Tel: 86(21) 6596 6666 Fax: 86(21) 6596 6160

— HCM-3 —

NOTICE OF H SHARES CLASS MEETING

(D) Each holder of H shares who has the right to attend and vote at the H Shares Class Meeting is entitled to appoint in writing one or more proxies, whether that proxy is a shareholder or not, to attend and vote on his behalf at the H Shares Class Meeting.
(E) The instrument appointing a proxy must be in writing under the hand of the appointor or his proxy duly authorised in writing or, if the principal is a legal person, under seal or under the hand of the director or proxy duly authorised. Where such instrument is signed by a person authorised by the appointor, the power of attorney authorising signature or other authorisation documents shall be notarised.
(F) For holders of H shares, the form of proxy, and if the form of proxy is signed by a person under a power of attorney or other authority on behalf of the appointor, a notarially certified copy of that power of attorney or other authority, must be delivered to the Company’s H share registrar, Hong Kong Registrars Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not less than 24 hours before the time appointed for holding the H Shares Class Meeting (or any adjournment thereof) in order for such documents to be valid.
(G) If a proxy attends the H Shares Class Meeting on behalf of a shareholder, he should produce his identity card and the instrument signed by the proxy or his legal representative, which specifies the date of its issuance. If the legal representative of a shareholder which shareholder is a legal person attends the H Shares Class Meeting, such legal representative should produce his identity card and valid documents evidencing his capacity as such legal representative. If a shareholder which is a legal person appoints a company representative other than its legal representative to attend the H Shares Class Meeting, such representative should produce his identity card and an authorisation instrument affixed with the seal of that shareholder (which is a legal person) and duly signed by its legal representative.
(H) The H Shares Class Meeting is expected to last for an hour. Shareholders attending the H Shares Class Meeting are responsible for their own transportation and accommodation expenses.
(I) As at the date of this notice, the board of directors of the Company comprises Mr. Huang Xiaowen, Mr. Liu Hanbo and Mr. Lu Junshan as executive directors, Mr. Feng Boming, Mr. Zhang Wei and Ms. Lin Honghua as non-executive directors, Mr. Wang Wusheng, Mr. Ruan Yongping, Mr. Ip Sing Chi, Mr. Rui Meng and Mr. Teo Siong Seng as independent non-executive directors.
For identification purpose only.

— HCM-4 —

SUPPLEMENTAL NOTICE OF H SHARES CLASS MEETING

==> picture [103 x 66] intentionally omitted <==

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

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

(Stock Code: 1138)

Notice dated 3 November 2017 had been given by the Company to convene the H shares class meeting (the “ H Shares Class Meeting ”) of COSCO Shipping Energy Transportation Co., Ltd. (the “ Company ”) to be held at 9:30 a.m. on Monday, 18 December 2017 at 3rd Floor, Ocean Hotel, No. 1171 Dong Da Ming Road, Hongkou District, Shanghai, the People’s Republic of China to consider and, if thought fit, pass the resolutions set out therein. This notice is a supplemental notice following the despatch of the Company’s notice of the H Shares Class Meeting dated 3 November 2017 setting out the additional resolution proposed by the controlling shareholder of the Company in accordance with Article 78 of the Company’s Articles of Association to be passed at the H Shares Class Meeting. Unless otherwise defined, capitalized terms used in this notice shall have the same meanings as those defined in the circular of the Company dated 4 December 2017 (“ Circular ”).

Special Resolution

“6. To consider and approve the resolution in relation to the Special Deal, the details of which are more particularly set out in the Circular:

THAT:

(a) subject to the consent of the Executive pursuant to Rule 25 of the Takeovers Code and the satisfaction of any condition(s) attached thereon imposed by the Executive, all transactions contemplated under the Proposed Non-public Issuance of A Shares which constitute a special deal under Rule 25 of the Takeovers Code be and are hereby approved, confirmed and ratified; and
(b) any one Director be and is hereby authorised to do all such acts and things and execute and deliver all such documents, deeds or instruments (including affixing the seal of the Company thereon) and take all such steps as the Director in his or her sole opinion and absolute discretion may consider necessary, appropriate or desirable to implement or give effect to the Special Deal.”

By order of the Board COSCO Shipping Energy Transportation Co., Ltd Yao Qiaohong Company Secretary

4 December 2017 Shanghai The People’s Republic of China

— HCM-5 —

SUPPLEMENTAL NOTICE OF H SHARES CLASS MEETING

Notes:

(A) Please refer to the notice of the H Shares Class Meeting dated 3 November 2017 for Resolutions 1 to 5.
(B) The address of the share registrar (for share transfer) for the Company’s H shares is as follows:

Hong Kong Registrars Limited Shops 1712-1716 17th Floor Hopewell Centre 183 Queen’s Road East Wanchai Hong Kong

18th Floor, 118 Yuanshen Road Pudong New District, Shanghai the People’s Republic of China Postal Code: 200120 Tel: 86(21) 6596 6666 Fax: 86(21) 6596 6160

(D) Each holder of H shares who has the right to attend and vote at the H Shares Class Meeting is entitled to appoint in writing one or more proxies, whether that proxy is a shareholder or not, to attend and vote on his behalf at the H Shares Class Meeting.
(E) The instrument appointing a proxy must be in writing under the hand of the appointor or his proxy duly authorised in writing or, if the principal is a legal person, under seal or under the hand of the director or proxy duly authorised. Where such instrument is signed by a person authorised by the appointor, the power of attorney authorising signature or other authorisation documents shall be notarised.
(F) For holders of H shares, the form of proxy, and if the form of proxy is signed by a person under a power of attorney or other authority on behalf of the appointor, a notarially certified copy of that power of attorney or other authority, must be delivered to the Company’s H share registrar, Hong Kong Registrars Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not less than 24 hours before the time appointed for holding the H Shares Class Meeting (or any adjournment thereof) in order for such documents to be valid.
(G) If a proxy attends the H Shares Class Meeting on behalf of a shareholder, he should produce his identity card and the instrument signed by the proxy or his legal representative, which specifies the date of its issuance. If the legal representative of a shareholder which shareholder is a legal person attends the H Shares Class Meeting, such legal representative should produce his identity card and valid documents evidencing his capacity as such legal representative. If a shareholder which is a legal person appoints a company representative other than its legal representative to attend the H Shares Class Meeting, such representative should produce his identity card and an authorisation instrument affixed with the seal of that shareholder (which is a legal person) and duly signed by its legal representative.
(H) The H Shares Class Meeting is expected to last for an hour. Shareholders attending the H Shares Class Meeting are responsible for their own transportation and accommodation expenses.

— HCM-6 —

SUPPLEMENTAL NOTICE OF H SHARES CLASS MEETING

(I) As at the date of this notice, the board of directors of the Company comprises Mr. Huang Xiaowen, Mr. Liu Hanbo and Mr. Lu Junshan as executive directors, Mr. Feng Boming, Mr. Zhang Wei and Ms. Lin Honghua as non-executive directors, Mr. Wang Wusheng, Mr. Ruan Yongping, Mr. Ip Sing Chi, Mr. Rui Meng and Mr. Teo Siong Seng as independent non-executive directors.

*For identification purpose only.

— HCM-7 —

AI assistant

Dida Inc. — Proxy Solicitation & Information Statement 2017

50671_rns_2017-12-03_c2291a98-73f4-4185-a0a2-21e6b4b2094e.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

CONTENT

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

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

(Stock Code: 01138)

I. INTRODUCTION

LETTER FROM THE BOARD

II. PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

LETTER FROM THE BOARD

Target subscribers:

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Lock-up period:

Use of proceeds:

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

(4) Proposal in relation to the “Proposal in respect of the Proposed Non-public Issuance of A Shares”

(6) Proposal in relation to the exemption from the preparation of a report on the utilisation of proceeds from previous fund raising

(7) Proposal in relation to the “Remedial Measures Regarding Dilution on Current Returns by the Proposed Non-public Issuance of A Shares”

LETTER FROM THE BOARD

LETTER FROM THE BOARD

(9) Proposal in relation to the Specific Mandate

LETTER FROM THE BOARD

LETTER FROM THE BOARD

(11) Proposal in relation to the adoption of the Shareholders’ Return Plan

III. CONNECTED TRANSACTION — PROPOSED SUBSCRIPTION OF A SHARES BY COSCO SHIPPING

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Lock-up period:

2. Information on the parties to the Subscription Agreement

The Company

Cosco Shipping

3. Proposal in relation to the execution of the Subscription Agreement and the transactions contemplated thereunder

LETTER FROM THE BOARD

5. Proposal in relation to the waiver of COSCO Shipping’s obligation to make a general offer of the securities of the Company as a result of the Subscription under the relevant PRC laws and regulations

IV. EFFECT ON THE SHAREHOLDING STRUCTURE OF THE COMPANY

LETTER FROM THE BOARD

LETTER FROM THE BOARD

2. Fund raising activities in the past twelve months

V. REASONS FOR AND BENEFITS OF THE PROPOSED NON-PUBLIC ISSUANCE OF A SHARES AND THE SUBSCRIPTION

Reasons for the Proposed Non-public Issuance of A Shares and the Subscription

LETTER FROM THE BOARD

Alternative financing

LETTER FROM THE BOARD

VI. IMPLICATIONS UNDER THE LISTING RULES

VII. IMPLICATIONS UNDER THE TAKEOVERS CODE

1. Application for the Whitewash Waiver

LETTER FROM THE BOARD

2. Special Deal in relation to the Proposed Non-public Issuance of A Shares

LETTER FROM THE BOARD

VIII. PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION

IX. MAJOR TRANSACTION: CONSTRUCTION OF NEW VESSELS

1. The Vessel Agreements

VLCCs

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Suezmaxs

2. Information on the parties to the Vessel Agreements

LETTER FROM THE BOARD

3. Reasons for and benefits of entering into the Vessel Agreements

4. Financial effect of the Vessel Agreements

5. Implications under the Listing Rules

X. EGM AND CLASS MEETINGS

LETTER FROM THE BOARD

LETTER FROM THE BOARD

XI. RECOMMENDATION

Dida Inc. Proxy Solicitation & Information Statement 2017

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

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

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