THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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.

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

If you have sold or transferred all your shares in Pacific Century Premium Developments Limited, you should at once hand this Circular and the accompanying form to the purchaser or to the licensed securities dealer or registered institution in securities or other agent through whom the sale was effected for transmission to the purchaser. This Circular should be read in conjunction with the accompanying Form of Acceptance, the contents of which form part of the terms of the Offer contained therein. All capitalised terms in this cover page shall have the same meanings as those defined in this Circular.

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**PACIFIC CENTURY PREMIUM DEVELOPMENTS LIMITED 盈科大衍地產發展有限公司[*]**

(incorporated in Bermuda with limited liability)

(Stock Code: 00432)

(i) CONDITIONAL CASH OFFER BY ANGLO CHINESE CORPORATE FINANCE, LIMITED ON BEHALF OF PACIFIC CENTURY PREMIUM DEVELOPMENTS LIMITED TO REPURCHASE UP TO 926,126,540 SHARES IN PACIFIC CENTURY PREMIUM DEVELOPMENTS LIMITED AT A PRICE OF HK$1.85 PER SHARE

(ii) CONNECTED TRANSACTION AND SPECIAL DEAL SUBSCRIPTION AGREEMENT TO ISSUE NEW CONVERTIBLE NOTE DUE IN 2019

(iii) POSSIBLE BONUS ISSUE OF SHARES AND ISSUE OF NEW CONVERTIBLE NOTES TO FULFIL THE MINIMUM PUBLIC FLOAT REQUIREMENT

(iv) PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

(v) PROPOSED AMENDMENTS TO BYE-LAWS

AND

(vi) NOTICE OF SPECIAL GENERAL MEETING

Financial adviser to the Company

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

A notice convening the SGM to be held at Function Room 1-3, Core F, L3 IT Street, Cyberport 3, 100 Cyberport Road, Hong Kong on Wednesday, 2 May 2012 at 12:00 noon (or immediately thereafter the annual general meeting of the Company convened at the same place and on the same date at 11:00 a.m. shall have been concluded or adjourned) is set out on pages 213 to 219 of this Circular. If you are not able to attend the meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company’s branch share registrar, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event no less than 48 hours before the time appointed for the holding of the SGM or any adjournment (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjournment thereof (as the case may be) should you so wish.

A letter from the Board is set out on pages 7 to 31 of this Circular. A letter from Anglo Chinese containing, among other things, details of the terms of the Offer are set out on pages 32 to 39 of this Circular. A letter from the Independent Board Committee containing its recommendations to the Independent Shareholders on the Offer and the Subscription Agreement is set out on pages 40 to 41 of this Circular. A letter from Rothschild to the Independent Board Committee and the Independent Shareholders containing its advice in respect of the Offer and the Subscription Agreement is set out on pages 42 to 72 of this Circular.

The procedures for acceptance of the Offer and related information are set out in appendix I to this Circular and in the accompanying Form of Acceptance. Acceptances of the Offer should be received by the Company’s branch share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, by no later than 4:00 p.m. (Hong Kong time) on Wednesday, 16 May 2012 or such later time(s) and, or date(s) as the Company may determine and announce in accordance with the requirements of the Takeovers Code.

Persons including, without limitation, custodians, nominees and trustees, who would, or otherwise intend to, forward this Circular and, or the accompanying Form of Acceptance to any jurisdiction outside Hong Kong should read carefully the details in this regard which are contained in the paragraph headed “Overseas Shareholders” in appendix I to this Circular before taking any action. It is the responsibility of each Overseas Shareholder wishing to accept the Offer to satisfy himself, herself or itself as to the full observance of the laws of the relevant jurisdiction in connection therewith, including the obtaining of any governmental, exchange control or other consents which may be required and the compliance with other necessary formalities or legal requirements. Each Overseas Shareholder is advised to seek professional advice on deciding whether to accept the Offer.

For identification purpose

5 April 2012

	Page
EXPECTED TIMETABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	iii
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
CONDITIONAL CASH OFFER TO REPURCHASE SHARES . . . . . . . . . . . . . . . . . . . . . . . . .	9
THE SUBSCRIPTION AGREEMENT AND SPECIAL DEAL . . . . . . . . . . . . . . . . . . . . . . . . .	10
SHAREHOLDING STRUCTURE OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
POSSIBLE BONUS ISSUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL . . . . . . . . . . . . . . . . . . . . . . . .	19
PROPOSED AMENDMENTS TO BYE-LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
FINANCIAL EFFECTS OF THE OFFER AND THE SUBSCRIPTION AGREEMENT . . . . . . .	21
REASONS AND BENEFITS OF THE OFFER AND
THE SUBSCRIPTION AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
INTENTIONS OF THE GROUP REGARDING THE RESTORATION OF THE MINIMUM
PUBLIC FLOAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	27
LISTING RULES AND THE CODES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28
INFORMATION ON THE GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29
INFORMATION ON THE PCCW GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29
SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29
RECOMMENDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
WARNING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31
LETTER FROM ANGLO CHINESE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
CONDITIONAL CASH OFFER TO REPURCHASE SHARES . . . . . . . . . . . . . . . . . . . . . . . . .	33
PROCEDURES FOR ACCEPTANCE AND SETTLEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .	38
OVERSEAS SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38
TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38
ANNOUNCEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	39
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	39
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . . . . . . . . .	40
LETTER FROM ROTHSCHILD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	42

— i —

			Page
APPENDIX I	—	FURTHER DETAILS OF THE OFFER. . . . . . . . . . . . . . . . . . . . . . . .	73
APPENDIX II	—	FURTHER DETAILS OF THE 2019 CONVERTIBLE NOTE. . . . . . .	83
APPENDIX III	—	FURTHER DETAILS OF THE BONUS CONVERTIBLE NOTE . . . .	87
APPENDIX IV	—	FINANCIAL INFORMATION OF THE GROUP. . . . . . . . . . . . . . . . .	102
APPENDIX V	—	UNAUDITED PRO FORMA FINANCIAL INFORMATION OF
		THE GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	177
APPENDIX VI	—	PROPERTY VALUATION REPORT . . . . . . . . . . . . . . . . . . . . . . . . . .	184
APPENDIX VII	—	STATUTORY AND GENERAL INFORMATION. . . . . . . . . . . . . . . . .	198
NOTICE OF SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			213
ACCOMPANYING DOCUMENT — PROXY FORM FOR THE SGM
ACCOMPANYING DOCUMENT — FORM OF ACCEPTANCE

— ii —

EXPECTED TIMETABLE

The timetable set out below is indicative only and may be subject to change. Any changes to the timetable will be announced by the Company.

Offer Period begins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Friday, 2 March 2012

Despatch of this Circular . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Thursday, 5 April 2012

Latest time to lodge transfer of Shares in order

to be entitled to attend the SGM . . . . . . . . . . . . . . . . . . .4:30 p.m. on Wednesday, 25 April 2012

Closure of register of members of the Company . . . . . . . . . . . . . . . . . . . . .Thursday, 26 April 2012 to Monday, 30 April 2012

Latest time to lodge form of proxy for the SGM . . . . . . . . .12:00 noon on Monday, 30 April 2012

SGM (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12:00 noon on Wednesday, 2 May 2012

Announcement of the results of the SGM and

whether the Offer has become unconditional . . . . . . . . . . . . . . . . . . . . .Wednesday, 2 May 2012 Latest Acceptance Time (Note 2) . . . . . . . . . . . . . . . . . . . . .4:00 p.m. on Wednesday, 16 May 2012

Closing date of the Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Wednesday, 16 May 2012

Announcement of the results of the Offer . . . . . . . . . . . . . . . . . . . . . . . . . .No later than 7:00 p.m. on Wednesday 16 May 2012

Latest date for despatch of cheques to the Accepting Shareholders (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Friday, 25 May 2012

Notes:

The SGM is convened to be held on Wednesday, 2 May 2012 at 12:00 noon (or immediately thereafter the annual general meeting of the Company convened at the same place and on the same date at 11:00 a.m. shall have been concluded or adjourned).
Assuming the Offer is approved by the Independent Shareholders at the SGM, consent is given by the Executive for the Special Deal, necessary approval is granted by the Stock Exchange for the listing of the Convertible Shares and the Offer becomes unconditional, the Offer will remain open for acceptance for a period of not less than 14 days after the Offer becomes unconditional.
Remittances for the total amounts due to each of the Accepting Shareholders (subject to deduction of seller’s ad valorem stamp duty payable on the Shares repurchased from such Accepting Shareholder) will be made by the Company within 7 business days of the date on which the Offer becomes, or is declared, unconditional in all respects and the date of receipt of the fully completed Form of Acceptance in accordance with the Takeovers Code.

All references to date and time contained in this Circular refer to Hong Kong time. The timetable set out above is indicative only. Further announcements will be made in the event of any changes to the timetable.

— iii —

DEFINITIONS

In this Circular, the following expressions have the following meanings, unless otherwise defined in this Circular or the context otherwise requires:

“2014 Convertible Note”
the convertible note currently in issue and in the principal amount of HK$2,420 million and due on 9 May 2014 issued by the CN Issuer and guaranteed by the Company, which is now owned by the CN Holder
“2019 Convertible Note”
the convertible note to be issued pursuant to the Subscription Agreement, the principal terms of which are summarised in the section headed “The Subscription Agreement and Special Deal — Principal Terms of the 2019 Convertible Note” in the “Letter from the Board” on pages 10 to 12 of this Circular
“Accepting Shareholder(s)”
Shareholder(s) who accept(s) the Offer by submitting duly completed Form(s) of Acceptance
“acting in concert”
having the meaning defined in the Takeovers Code
“Anglo Chinese ”
“Announcement”
Anglo Chinese Corporate Finance, Limited, a licensed corporation under the SFO to carry on Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities; and the financial adviser to the Company in respect of the Offer and the Subscription Agreement the announcement dated 2 March 2012 issued by the Company in respect of, among other things, the Offer, the Subscription Agreement and the Possible Bonus Issue
“Board” the board of Directors
“Bonus Convertible Note(s)”
the new convertible note(s) to be constituted by the Deed Poll and to be issued by the Company pursuant to the Possible Bonus Issue to Shareholders electing to receive such new convertible note(s) in lieu of their entitlements to the Bonus Shares
“Bonus Convertible Noteholder(s)”
holder(s) of the Bonus Convertible Note(s)
“Bonus Share(s)”
new Share(s) to be issued pursuant to the Possible Bonus Issue

— 1 —

DEFINITIONS

“Business Day” any day (excluding a Saturday or Sunday and any day on which a tropical cyclone warning signal no. 8 or above or a “black” rainstorm warning signal is hoisted or remains hoisted in Hong Kong at any time between 9:00 a.m. to 5:00 p.m.) on which banks are generally open for business in Hong Kong
“Bye-laws” the bye-laws of the Company “CCASS” the Central Clearing and Settlement System established and operated by HKSCC
“Circular” this circular to the Shareholders (comprising the offer document, the notice of the SGM and the proxy form for voting at the SGM) in connection with, among other things, the Offer, the Subscription Agreement and the Possible Bonus Issue
“CN Holder” PCCW-HKT Partners Limited, a company incorporated in Hong Kong with limited liability, an indirect wholly-owned subsidiary of PCCW and the existing holder of the 2014 Convertible Note
“CN Issuer” PCPD Wealth Limited, a company incorporated in Hong Kong with limited liability, a wholly-owned subsidiary of the Company and the existing issuer of the 2014 Convertible Note
“Codes” the Takeovers Code and the Repurchases Code “Companies Act” the Companies Act 1981 of Bermuda
“Company” Pacific Century Premium Developments Limited, a company incorporated in Bermuda with limited liability, the Shares of which are listed on the Main Board of the Stock Exchange
“Conditions” the conditions to which the Offer are subject as set out under the section headed “Terms and Conditions of the Offer” of appendix I to this Circular
“Conversion Share(s)” Share(s) falling to be issued upon the exercise of the conversion rights attaching to the 2019 Convertible Note

“Deed Poll” the deed poll and any other document (as from time to time altered in accordance with the Deed Poll) to be executed by the Company in order to provide for and to protect the rights and interests of the Bonus Convertible Noteholders

— 2 —

DEFINITIONS

“Director(s)” the director(s) of the Company “ECALP” Elliott Capital Advisors, L.P., which controls each of the Elliott Entities “Elliott Entities” Elliott International L.P. and The Liverpool Limited Partnership, each a substantial shareholder of the Company within the meaning of the Listing Rules, holding, in aggregate, approximately 23.39% of the issued share capital of the Company as at the Latest Practicable Date “Executive” the Executive Director of the Corporate Finance Division of the SFC or any delegate of the Executive Director “Form(s) of Acceptance” the form(s) of acceptance and transfer of Shares for use by the Shareholder(s) for accepting the Offer “Group” the Company and its subsidiaries “HK$” Hong Kong dollar(s), the lawful currency of Hong Kong “HKSCC” Hong Kong Securities Clearing Company Limited “HKSCC Nominees” HKSCC Nominees Limited “Hong Kong” the Hong Kong Special Administrative Region of the PRC “Independent Board Committee” an independent committee of the Board, comprising all the independent non-executive Directors who have no interest in the Offer and the Subscription Agreement, namely Mr Cheung Kin Piu, Valiant, Prof Wong Yue Chim, Richard, SBS, JP, and Dr Allan Zeman, GBM, GBS, JP, which has been formed to advise the Independent Shareholders in respect of the Offer and the Subscription Agreement

“Independent Shareholders” in relation to the resolutions for approval of the Offer and the Subscription Agreement at the SGM, Shareholders who are not required to abstain from voting in respect of such resolutions pursuant to the requirements of the Listing Rules and the Codes (which exclude PCCW and parties acting in concert with it which are required to abstain from voting) and also excluding the Elliott Entities and ECALP
“Investor Participant”
has the meaning ascribed to it under the CCASS Operational Procedures
“Last Trading Day”

30 January 2012, being the last trading day prior to the suspension of trading in the Shares pending the publication of the Announcement

— 3 —

DEFINITIONS

“Latest Acceptance Time” the latest time for receipt by the Registrar of the Forms of Acceptance submitted by the Shareholders, being 4:00 p.m. on Wednesday, 16 May 2012, or such later date as the Company may announce in accordance with the requirements of the Takeovers Code
“Latest Practicable Date” Monday, 2 April 2012, being the latest practicable date prior to the despatch of this Circular for the purpose of ascertaining certain information contained in this Circular
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Maturity Date” the date on which the Company shall repay the outstanding principal amount of the 2014 Convertible Note (together with all unpaid interest accrued thereon), being 9 May 2014
“Minimum Conversion Price” 140% of the 20 trading day average of the closing price of the Shares ended on the Last Trading Day (which for reference throughout this Circular is HK$1.64 per Conversion Share when rounded to the nearest cent), subject to adjustments including adjustment upon the Possible Bonus Issue
“Offer” the conditional cash offer being made by Anglo Chinese on behalf of the Company to repurchase for cancellation up to 926,126,540 Shares at the Offer Price from the Shareholders, subject to the terms and conditions set out in this Circular
“Offer Period” has the meaning ascribed to it under the Takeovers Code and commencing from the date of the Announcement
“Offer Price” HK$1.85 per Share
“Other Nominees” the nominees, depositories, trustees or custodians or any third parties other than HKSCC Nominees
“Overseas Shareholder(s)” Shareholder(s) whose address(es) as shown on the Register is (are) outside Hong Kong

— 4 —

DEFINITIONS

“PCCW”	PCCW Limited (stock code: 00008), a company incorporated
	in Hong Kong with limited liability, the shares of which are
	listed and traded on the Main Board of the Stock Exchange
	and traded in the form of American depository receipts on the
	OTC Markets Group Inc. in the United States of America and
	a substantial Shareholder holding approximately 61.53% of
	the issued share capital of the Company as at the Latest
	Practicable Date
“PCCW Group”	PCCW and its subsidiaries, other than the Group
”Possible Bonus Issue”	possible issue of Bonus Share(s) by the Company on the basis
	of up to four Bonus Shares for every one existing Share held
	by the Shareholders whose names appear on the Register on
	the record date for ascertaining the entitlements of the
	Shareholders
“PRC”	the People’s Republic of China
“Register”	the register of members of the Company
“Registrar”	Computershare Hong Kong Investor Services Limited, located
	at Shops 1712-1716, 17th Floor, Hopewell Centre, 183
	Queen’s Road East, Wanchai, Hong Kong
“Relevant Period”	the period from 2 September 2011, being the date falling six
	months before the date of the Announcement, up to and
	including the Latest Practicable Date
“Repurchases Code”	the Code on Share Repurchases
“RMB”	Renminbi, the lawful currency of the PRC
“Rothschild”	Rothschild (Hong Kong) Limited, a licensed corporation
	under the SFO to carry on Type 1 (dealing in securities), Type
	4 (advising on securities) and Type 6 (advising on corporate
	finance) regulated activities; and the independent financial
	adviser appointed to advise the Independent Board Committee
	and the Independent Shareholders regarding the terms of the
	Offer and the Subscription Agreement
“SFC”	Securities and Futures Commission of Hong Kong
“SFO”	Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)

— 5 —

DEFINITIONS

“SGM”	the special general meeting of the Company to be held at
	Function Room 1-3, Core F, L3 IT Street, Cyberport 3, 100
	Cyberport Road, Hong Kong on Wednesday, 2 May 2012 at
	12:00 noon (or immediately thereafter the annual general
	meeting of the Company convened at the same place and on
	the same date at 11:00 a.m. shall have been concluded or
	adjourned) to consider and, if thought fit, approve the
	resolution(s) in connection with, among other things, the
	Offer, and the Subscription Agreement
“Share(s)”	ordinary share(s) of HK$0.10 each in the share capital of the
	Company
“Shareholder(s)”	registered holder(s) of the Share(s)
“Special Deal”	the Subscription Agreement which constitutes a special deal
	according to Rule 25 of the Takeovers Code
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Stock Exchange Business Day”	any day (other than a Saturday or Sunday or any public
	holiday) on which the Main Board market of the Stock
	Exchange or the Alternative Stock Exchange (as defined in
	paragraph 6(e) in appendix III to this Circular) is open for
	business
“Subscription Agreement”	the subscription agreement dated 2 March 2012 entered into
	between the CN Issuer, the Company and the CN Holder in
	relation to the 2019 Convertible Note
“substantial shareholder”	has the meaning ascribed to it under the Listing Rules
“Takeovers Code”	the Code on Takeovers and Mergers
“Title Document(s)”	the relevant Share certificate(s) and, or transfer receipt(s)
	and, or any document(s) of title with respect to the ownership
	of the Share(s) (and, or, any satisfactory indemnity or
	indemnities required in respect thereof)
“trading day”	a day on which dealings in the Shares on the Stock Exchange
	take place during normal trading hours and are not suspended
	for all or part of the trading session
“%”	per cent.

— 6 —

LETTER FROM THE BOARD

The following is the full text of a letter from the Board for inclusion in this Circular.

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**PACIFIC CENTURY PREMIUM DEVELOPMENTS LIMITED 盈科大衍地產發展有限公司[*]**

(Incorporated in Bermuda with limited liability)

(Stock Code: 00432)

Executive Directors: Registered office: Li Tzar Kai, Richard (Chairman) Clarendon House Lee Chi Hong, Robert (Chief Executive Officer 2 Church Street and Deputy Chairman) Hamilton HM 11 Lam Yu Yee (Deputy Chief Executive Officer Bermuda and Chief Financial Officer) James Chan Head office and principal place of business Gan Kim See, Wendy in Hong Kong: 8[th] Floor, Cyberport 2 Independent Non-Executive Directors: 100 Cyberport Road Cheung Kin Piu, Valiant Hong Kong Prof. Wong Yue Chim, Richard, SBS, JP Dr. Allan Zeman, GBM, GBS, JP 5 April 2012

To the Shareholders

Dear Sir or Madam,

(ii) CONNECTED TRANSACTION AND SPECIAL DEAL SUBSCRIPTION AGREEMENT TO ISSUE NEW CONVERTIBLE NOTE DUE IN 2019

(iii) POSSIBLE BONUS ISSUE OF SHARES AND ISSUE OF NEW CONVERTIBLE NOTES TO FULFIL THE MINIMUM PUBLIC FLOAT REQUIREMENT

(iv) PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

(v) PROPOSED AMENDMENTS TO BYE-LAWS AND

(vi) NOTICE OF SPECIAL GENERAL MEETING

— 7 —

LETTER FROM THE BOARD

INTRODUCTION

It was announced in the Announcement that the Offer would be made by Anglo Chinese on behalf of the Company to repurchase for cancellation up to 926,126,540 Shares in accordance with the Codes. The Offer is conditional upon the fulfillment of all the conditions to which completion of the Subscription Agreement is subject and such conditions include, amongst others, the approval of the Offer and the Subscription Agreement by the Independent Shareholders at the SGM.

On 2 March 2012, the Company and the CN Issuer entered into the Subscription Agreement with the CN Holder, an indirect wholly-owned subsidiary of PCCW, whereby, subject to the terms and conditions therein, the CN Holder has agreed to subscribe for the 2019 Convertible Note to be issued by the CN Issuer on 9 May 2014 and guaranteed by the Company. The subscription for the 2019 Convertible Note will be effected by applying the whole of the redemption amount due, and not repaid, on the maturity of the 2014 Convertible Note on 9 May 2014 to the payment of the subscription money of the 2019 Convertible Note on 9 May 2014.

This letter sets out, among other things, the details of the Offer, the Subscription Agreement and the Possible Bonus Issue. Further details of the Offer, the 2019 Convertible Note pursuant to the Subscription Agreement and the Possible Bonus Issue are set out in appendix I, appendix II and appendix III to this Circular, respectively.

Under the Subscription Agreement, the CN Issuer, the Company and the CN Holder have agreed that if the 2014 Convertible Note is redeemed on 9 May 2014 but after the time prescribed under the terms of the 2014 Convertible Note for the redemption by the setting off against the subscription money for the 2019 Convertible Note on 9 May 2014, it will not constitute an event of default under the terms and conditions of the 2014 Convertible Note.

The completion of the Subscription Agreement is conditional upon, amongst other conditions, the passing by the Independent Shareholders at the SGM of the resolutions approving the Subscription Agreement and the Offer.

PCCW and parties acting in concert with it, who in aggregate held 1,481,333,333 Shares as at the Latest Practicable Date, are required to abstain from voting at the SGM on the resolutions to approve the Offer and the Subscription Agreement. The Elliott Entities and ECALP have irrevocably undertaken that no vote will be cast at the SGM on the resolutions to approve the Offer and the Subscription Agreement in respect of the Shares they or their respective nominees hold at the time of the SGM.

Following the closing of the Offer, the Company will take steps to ensure that sufficient Shares are held in the hands of the public as is required by the Listing Rules. If the Offer is declared or becomes unconditional in all respects, and if necessary and practicable, the Company intends to restore the minimum public float by way of the Possible Bonus Issue which involves a bonus issue of up to a maximum of four Bonus Shares for every one existing Share held by the Shareholders, whose names appear on the Register on the record date for ascertaining the entitlements of the Shareholders, with an option for the Shareholders to elect to receive the Bonus Convertible Notes in lieu of all (or part) of their entitlements to the Bonus Shares under the Possible Bonus Issue. The Bonus Convertible

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LETTER FROM THE BOARD

Notes will be unlisted, will carry no voting rights at general meetings of the Company and will have no maturity date, but will confer upon the holders thereof substantially the same economic interest attached to the Shares (including rights to receive payments representing any dividends declared and paid, assets distributed and shares or other securities issued under a capitalisation issue or scrip dividend scheme of the Company, to Shareholders as if the outstanding Bonus Convertible Notes held by them had been converted on the relevant record date) which the electing Shareholders would otherwise be entitled to receive under the Possible Bonus Issue had such Shareholders not elected for the Bonus Convertible Notes. The PCCW Group will be requested to elect to receive the Bonus Convertible Notes in lieu of all of their entitlements to the Bonus Shares under the Possible Bonus Issue.

If the Possible Bonus Issue is made, adjustment to the conversion price of the 2014 Convertible Note would be made by applying a fraction that would be the same as a bonus issue as if all Shareholders had not elected for the Bonus Convertible Notes. As provided for in the terms of the 2014 Convertible Note, an approved merchant bank has given its opinion that such adjustment to the conversion price of the 2014 Convertible Note will be appropriate to take into account Shares which will fall to be issued on conversion of the Bonus Convertible Notes issued pursuant to the Possible Bonus Issue. The CN Holder has, in its consent letter to the CN Issuer and the Company dated 2 March 2012, also agreed to adopt such basis of adjustment of the conversion price of the 2014 Convertible Note upon the implementation of the Possible Bonus Issue by the Company. In addition, if the Possible Bonus Issue is made, according to the terms of the Subscription Agreement, the adjustment to the Minimum Conversion Price appropriate in the case of a bonus issue would be applied as if all Shareholders had not elected to receive the Bonus Convertible Notes.

Following the closing of the Offer and taking into consideration the level of acceptances of the Offer and the number of Shares remaining in the hands of public Shareholders, under the mandate to be approved by the Shareholders, the Board will determine the ratio of the Possible Bonus Issue (if made), which ratio will be up to a maximum of four Bonus Shares for every one existing Share. If the Board determines that the Possible Bonus Issue is not the sole feasible solution or a feasible solution to restore the minimum public float of the Company, the Board will consider other additional or alternative methods, including placing of new Shares, and, or requesting PCCW to assist in the implementation of an additional or alternative plan to be adopted by the Company to meet the requirements of Rule 8.08(1) of the Listing Rules (which additional or alternative plan could involve a placing by the PCCW Group, and, or a distribution in specie by the PCCW Group, of Shares held by the PCCW Group). Until the closing of the Offer, it is not possible for the Company to determine the ratio of the Possible Bonus Issue or whether the Possible Bonus Issue is a feasible solution to restore the minimum public float of the Company.

CONDITIONAL CASH OFFER TO REPURCHASE SHARES

It is stated in the “Letter from Anglo Chinese” set out on pages 32 to 39 of this Circular that the Offer is being made by Anglo Chinese on behalf of the Company to repurchase for cancellation up to 926,126,540 Shares, representing approximately 38.47% of the issued share capital of the Company as at the Latest Practicable Date, at a price of HK$1.85 per Share which will be satisfied wholly in cash.

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LETTER FROM THE BOARD

The Offer Price is as follows:

For every Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$1.85 in cash

The Offer Price is final and it will not be further increased or revised.

The Offer is conditional upon the fulfilment of all the conditions to which completion of the Subscription Agreement is subject.

PCCW and parties acting in concert with it are required to abstain from voting at the SGM on the resolutions to approve the Offer and the Subscription Agreement. Additionally, the Elliott Entities and ECALP have irrevocably undertaken that no vote will be cast at the SGM on the resolutions to approve the Offer and the Subscription Agreement in respect of the Shares they or their respective nominees hold at the time of the SGM. Further details of the irrevocable undertakings made by PCCW, Elliott Entities and ECALP are set out in the section headed “Undertakings in relation to the Offer” on pages 36 to 38 of this Circular.

The terms of the Offer, undertakings in relation to the Offer, and procedures for acceptance are set out in the “Letter from Anglo Chinese”, appendix I to this Circular and the accompanying Form of Acceptance.

THE SUBSCRIPTION AGREEMENT AND SPECIAL DEAL

The parties to the Subscription Agreement have agreed that, subject to the terms and conditions therein, the CN Holder shall subscribe for the 2019 Convertible Note to be issued by the CN Issuer on 9 May 2014 and guaranteed by the Company. The issue of the 2019 Convertible Note pursuant to the Subscription Agreement will constitute a special deal under Rule 25 of the Takeovers Code for which the Company has applied to the Executive for consent. The Executive will normally consent to the Special Deal provided that the independent financial adviser to the Company publicly states that in his opinion the terms of the Subscription Agreement are fair and reasonable and the transactions are approved by the Independent Shareholders by way of poll at the SGM. At the SGM, the vote must be a vote of Independent Shareholders who are not involved in or interested in the Subscription Agreement otherwise than solely as Shareholders.

Principal terms of the 2019 Convertible Note

The table below summarises the principal terms and conditions of the 2019 Convertible Note pursuant to the Subscription Agreement:

Issuer	:	CN Issuer
Guarantor	:	The Company
Subscriber	:	CN Holder
Issue date	:	9 May 2014

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LETTER FROM THE BOARD

Maturity date : The business day immediately before the fifth anniversary from the issue date of the 2019 Convertible Note, which should be on 8 May 2019.
Form and ranking : Registered, unsubordinated and unsecured convertible notes ranking pari passu with all other unsecured and unsubordinated indebtedness.
Principal amount : HK$2,904,000,000 or the redemption amount of the 2014 Convertible Note due at its maturity on the Maturity Date (i.e. 9 May 2014), being 120% of the then outstanding principal amount under the terms of the 2014 Convertible Note which has not been repaid at or before its maturity on 9 May 2014, whichever is less.
Issue price : 100% of the principal amount. Interest : 5.5% per annum payable semi-annually on 30 June and 31 December in arrears, calculated on the basis of a 365-day year.
Conversion rights : The 2019 Convertible Note shall be convertible at the option of the CN Holder into Conversion Shares at the conversion price applicable at the time of conversion at any time between the issue date of the 2019 Convertible Note and the maturity date of the 2019 Convertible Note. If and to the extent that the minimum public float requirements in respect of the Shares under the Listing Rules could not be complied with immediately after the purported exercise of the conversion rights of the holder of the 2019 Convertible Note, such holder shall not be entitled to exercise such conversion rights.

In addition to the applicable number of Conversion Shares, the holder of the 2019 Convertible Note surrendered for conversion shall be entitled to receive accrued and unpaid interest in respect thereof for the period up to the date of conversion.

Conversion price : To be set on the issue date of the 2019 Convertible Note to be equal to 140% of the 20 trading day average of the closing prices of the Shares ended on such issue date, but not less than the Minimum Conversion Price.

The initial Minimum Conversion Price will be subject to adjustment for certain adjustment events occurring on or prior to the issue date of the 2019 Convertible Note, including stock dividends, stock splits, dilutive common share issuances, capital distributions (including the portion of the total cash dividends and, or, distribution in cash or in specie, for each financial year which is in excess of 4% of the market capitalisation of the Company at the time of such declaration) and other customary adjustment events, and in particular the Possible Bonus Issue. The conversion price (of the 2019 Convertible Note) is also subject to adjustment for the same adjustment events (except the Possible Bonus Issue) which occur after the issue date of the 2019 Convertible Note.

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LETTER FROM THE BOARD

Conversion shares : That number of Shares equal to the principal amount divided by the conversion price.
Redemption at : The CN Issuer shall redeem the 2019 Convertible Note in the maturity aggregate amount plus any accrued and unpaid interest in respect thereof at maturity unless the 2019 Convertible Note shall have been redeemed under the redemption options below or converted prior to maturity.
Redemption at the : The CN Holder may, on or at any time after 9 May 2017 and prior to option of the CN the maturity date, require the CN Issuer to redeem in whole or in part Holder in multiples of HK$8 million of the 2019 Convertible Note at par on the last day of an interest period; provided that the CN Holder shall provide at least 30 days’ prior irrevocable written notice to the CN Issuer of such a put expiring only on or after 9 May 2017. In addition, the CN Issuer shall pay in cash to the CN Holder upon such a put any accrued and unpaid interest through the date of completion of the exercise of the redemption option.
Redemption at the : On giving not less than 30 nor more than 90 days’ notice to the CN option of the CN Holder expiring only on or after 9 May 2017 (which notice shall be Issuer irrevocable), the CN Issuer may at any time on or after 9 May 2017 and prior to the maturity date redeem in whole or in part in multiples of HK$8 million the 2019 Convertible Note for the time being outstanding at its principal amount together with interest accrued to the date fixed for redemption, provided that the closing prices of the Shares for (i) any 20 out of the 30 consecutive trading days ended on a day immediately prior to the date of such redemption notice; and (ii) any 1 out of the 5 consecutive trading days ended on a day immediately prior to the date of such redemption notice, were at least 130% of the conversion price.

Transferability : Transferable in multiples of HK$1 million.

Listing of the 2019 Convertible Note and the Conversion Shares

No application will be made for the listing of the 2019 Convertible Note on the Stock Exchange or any other recognised stock or securities exchanges. However, application will be made by the Company to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Conversion Shares which may fall to be issued upon the exercise of the conversion rights attaching to the 2019 Convertible Note in full pursuant to the terms and conditions of the 2019 Convertible Note.

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LETTER FROM THE BOARD

Conditions of the Subscription Agreement

The Subscription Agreement is conditional upon:

(a) the passing of an ordinary resolution by way of poll to approve the Subscription Agreement and the transactions contemplated thereunder (including the issue of the Conversion Shares upon the exercise of the conversion right attaching to the 2019 Convertible Note) by the Independent Shareholders, either voting in person or by proxy, at the SGM;
(b) the passing of an ordinary resolution by way of poll to approve the Offer by the Independent Shareholders, either voting in person or by proxy, at the SGM;
(c) consent being given by the Executive for the Special Deal;
(d) all conditions attaching to the consent given by the Executive for the Special Deal under Rule 25 of the Takeovers Code being fulfilled; and
(e) necessary approval(s) being granted or agreed to be granted by the Stock Exchange (or any amended or revised approval) in each case in respect of the completion of the Subscription Agreement and the issue and future conversion of the 2019 Convertible Note, including the approval for the listing of, and permission to deal in, all the Conversion Shares which may be issued pursuant to the exercise of the conversion rights attaching to the 2019 Convertible Note issued under the terms and conditions of the Subscription Agreement on terms and conditions (if any) satisfactory to the CN Issuer, the Company and the CN Holder.

None of these conditions described in (a) to (e) above may be waived in whole or in part.

Long Stop Date for completion of the Subscription Agreement

If completion of the Subscription Agreement does not take place on or before 9 May 2015, the Subscription Agreement shall lapse and be of no further effect, save for any antecedent breaches.

Minimum Conversion Price

The Minimum Conversion Price was determined after arm’s length negotiations between the CN Holder and the Company, and represents:

(a) a premium of approximately 20% over the closing price of HK$1.37 per Share as quoted on the Stock Exchange on the Last Trading Day;
(b) a premium of approximately 27% over the average closing price of HK$1.294 per Share as quoted on the Stock Exchange for the last 5 consecutive trading days up to and including the Last Trading Day;

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LETTER FROM THE BOARD

(c) a premium of approximately 40% over the average closing price of HK$1.173 per Share as quoted on the Stock Exchange for the last 20 consecutive trading days up to and including the Last Trading Day;
(d) a discount of approximately 10% over the closing price of HK$1.82 per Share as quoted on the Stock Exchange on the Latest Practicable Date; and
(e) a discount of approximately 45% of the net asset value per Share of approximately HK$2.977 (being the Shareholders’ funds of approximately HK$7,167 million as at 31 December 2011 divided by 2,407,459,873 Shares in issue as at the Last Trading Day) pursuant to the published audited consolidated accounts of the Group as at 31 December 2011.

SHAREHOLDING STRUCTURE OF THE COMPANY

(i) In relation to the conversion of the 2014 Convertible Note and 2019 Convertible Note

Set out below is a table showing the shareholding structure of the Company (i) as at the Latest Practicable Date; (ii) upon full conversion of the 2014 Convertible Note at the current conversion price of HK$3.60; and (iii) upon full conversion of the maximum principal amount of the 2019 Convertible Note at the current Minimum Conversion Price of HK$1.64 per Conversion Share, assuming in each of the cases mentioned in (ii) and (iii) that there are no changes to the shareholding structure of the Company other than such conversion.

PCCW and parties acting in concert with it - Shares - Conversion Shares Elliott Entities and ECALP Public Shareholders	Number of Shares as at the Latest Practicable Date 1,481,333,333 — 1,481,333,333 563,129,500 362,997,040 2,407,459,873	% Number of Shares upon full conversion of the 2014 Convertible Note prior to 9 May 2014 at the current conversion price of HK$3.60 61.53 1,481,333,333 — 672,222,222 61.53 2,153,555,555 23.39 563,129,500 15.08 362,997,040 100.00 3,079,682,095	% Number of Shares upon full conversion of the 2019 Convertible Note after 9 May 2014 at the current Minimum Conversion Price of HK$1.64 48.10 1,481,333,333 21.82 1,770,731,707 69.92 3,252,065,040 18.29 — (Note) 11.79 362,997,040 100.00 3,615,062,080	% 40.98 48.98
				89.96 — 10.04
				100.00

Note:

Given the irrevocable undertaking provided by the Elliott Entities and ECALP, this column assumes that the Elliott Entities and ECALP do not hold any interest in the Shares following the closing of the Offer.

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LETTER FROM THE BOARD

(ii) In relation to the Offer

The table below shows the existing shareholding structure of the Company, and the shareholding structure of the Company assuming that (i) only the Elliott Entities and ECALP accept the Offer; and (ii) all Shareholders (other than the PCCW Group) accept the Offer in full; and in each case assuming that no additional Shares will be issued, and there are no other changes to the shareholding structure, from the Latest Practicable Date up to and including the date of closing of the Offer:

PCCW and parties acting in concert with it Elliott Entities and ECALP Public Shareholders	Number of Shares as at the Latest Practicable Date 1,481,333,333 563,129,500 362,997,040 2,407,459,873	% Number of Shares (Assuming only the Elliott Entities and ECALP accept the Offer) 61.53 1,481,333,333 23.39 — 15.08 362,997,040 (Note 1) 100.00 1,844,330,373 (Note 1)	% Number of Shares (Assuming that all Shareholders (other than the PCCW Group) accept the Offer) 80.32 1,481,333,333 — — 19.68 (Note 1) — 100.00 1,481,333,333	% 100.00_(Note 2)_ — — 100.00

Note:

Pursuant to the undertaking given by the Elliott Entities and ECALP, the Elliott Entities and ECALP are permitted to dispose of up to 120,372,993 Shares out of the total of 563,129,500 Shares held by them as of the date of the Announcement as mentioned in the section headed “Undertakings in relation to the Offer” in the “Letter from Anglo Chinese” in this Circular. The numbers and percentages in the table assume that the Elliott Entities and ECALP do not dispose of any Shares and thus accept the Offer in respect of all of the 563,129,500 Shares held by them pursuant to their undertaking. If there is any disposal by the Elliott Entities and ECALP, the number and percentage of Shares held by the public Shareholders and the total number of Shares in issue will be increased by the number of Shares so disposed of by the Elliott Entities and ECALP (assuming that no public Shareholders will become a substantial Shareholder as a result thereof) and the percentage of Shares held by PCCW and parties acting in concert with it and by the public Shareholders will be adjusted correspondingly. Assuming the Elliott Entities and ECALP dispose of all of the 120,372,993 Shares which they are permitted to dispose of and no public Shareholders will become a substantial Shareholder as a result thereof, the number of Shares held by the public Shareholders and the total number of Shares in issue will be 483,370,033 Shares and 1,964,703,366 Shares respectively, and the percentage of Shares held by PCCW and parties acting in concert with it and by the public Shareholders will be 75.40% and 24.60% respectively.
The Company and PCCW have no intentions to privatise the Company or delist the Shares.

Save as disclosed on pages 204 and 205 of this Circular, as at the Latest Practicable Date, neither the Directors nor any parties acting in concert with any of them owned, controlled or directed any Shares (or any rights over Shares).

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LETTER FROM THE BOARD

POSSIBLE BONUS ISSUE

If the Offer is declared or becomes unconditional in all respects, and if necessary and feasible, the Company intends to restore the minimum public float by way of the Possible Bonus Issue. If the Offer is not declared or does not become unconditional in all respects, the Possible Bonus Issue will not proceed. If the Possible Bonus Issue is finally determined to be adopted by the Board as the method or one of the methods to be used to restore the minimum public float of the Company, as the case may be, the Board will make a Possible Bonus Issue of up to a maximum of four Bonus Shares for every one existing Share held by the Shareholders, whose names appear on the Register on the record date for ascertaining entitlements of the Shareholders under the Possible Bonus Issue, credited as fully-paid, and each eligible Shareholder will be given the option to elect to receive the Bonus Convertible Notes in lieu of all (or part) of its entitlement to the Bonus Shares under the Possible Bonus Issue. The PCCW Group will be requested to elect for the Bonus Convertible Notes in lieu of all of its entitlements to the Bonus Shares under the Possible Bonus Issue.

The Bonus Convertible Notes will be unlisted, will carry no voting rights at general meetings of the Company and will have no maturity date, but will confer upon the holders thereof substantially the same economic interest attached to the Shares (including rights to receive payments representing any dividends declared and paid, assets distributed and shares or other securities issued under a capitalisation issue or scrip dividend scheme of the Company, to Shareholders as if the outstanding Bonus Convertible Notes held by them had been converted on the relevant record date) which the electing Shareholders would otherwise be entitled to receive under the Possible Bonus Issue had such Shareholders not elected for the Bonus Convertible Notes.

Principal Terms of the Bonus Convertible Notes

The table below summarises the proposed principal terms of the Bonus Convertible Notes:

Principal amount : Up to an amount equal to the maximum number of Bonus Shares issuable under the Possible Bonus Issue, following the cancellation of Shares tendered and accepted under the Offer, multiplied by the nominal value per Bonus Share, in the denomination of HK$0.10 per unit of the Bonus Convertible Note. Conversion price : HK$0.10 per Share, subject to adjustment in accordance with the Deed Poll. Mandatory conversion : On voluntary dissolution, liquidation or winding up of the Company, the Bonus Convertible Notes will be mandatorily converted into Shares at the then applicable conversion price. No redemption : The Bonus Convertible Notes will not be subject to redemption.

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LETTER FROM THE BOARD

Conversion period : At any time after the issue of the Bonus Convertible Notes, and the conversion date will be deemed to be the 30th Stock Exchange Business Day following the surrender of the Bonus Convertible Notes certificates by the Bonus Convertible Noteholder with a notice of conversion and the Bonus Convertible Noteholder will be deemed to be the holder of the Shares so converted with effect from the aforesaid conversion date. If and to the extent that the minimum public float requirements in respect of the Shares under the Listing Rules could not be complied with immediately after the purported exercise of the conversion rights of any holder of the Bonus Convertible Notes, such holder shall not be entitled to exercise such conversion rights. Distributions : The Bonus Convertible Notes will have no entitlement to interest but:

(i) if and whenever the Company shall pay or make any cash dividend or distribution of any kind or any distribution of assets in specie (other than distribution of Shares, debentures or other securities) to its Shareholders (the “ Distribution ”), the Company shall, subject to compliance with relevant laws, rules, regulations and requirements in Hong Kong and Bermuda, at the same time pay or distribute to each Bonus Convertible Noteholder an amount of cash or other assets being the subject matter of the Distribution which is equal to (a) the amount of cash or other assets being the subject matter of the Distribution per Share receivable by the Shareholders under the Distribution, multiplied by (b) the number of Shares which the Bonus Convertible Noteholder would have become a holder of, had such Bonus Convertible Noteholder’s Bonus Convertible Notes then outstanding been converted on the relevant record date for determining entitlement to the Distribution; or

(ii) if and whenever the Company shall issue any Shares, debentures or other securities, credited as fully-paid, out of or by way of capitalisation of its profits or reserve and, or share premium account to its Shareholders (the “ Capitalisation Issue ”), the Company shall, subject to compliance with relevant laws, rules, regulations and requirements in Hong Kong and Bermuda, issue to each Bonus Convertible Noteholder either, at the option of the Company (a) such number of Shares, debentures or securities which is equal to (1) the number of such Shares, debentures or securities receivable by the Shareholders in respect of each issued Share held by them under the Capitalisation Issue, multiplied by (2) the number of Shares which the

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LETTER FROM THE BOARD

Bonus Convertible Noteholder would have become a holder of, had such Bonus Convertible Noteholder’s Bonus Convertible Notes then outstanding been converted on the relevant record date for determining entitlement to the Capitalisation Issue, or (b) further convertible notes on the same terms and conditions as the Bonus Convertible Notes in such amount which would on conversion thereof entitle the Bonus Convertible Noteholders of such convertible notes to such number of Shares as is equal to (1) the number of Shares receivable by the Shareholders in respect of each issued Share held by them under the Capitalisation Issue, multiplied by (2) the number of Shares which the Bonus Convertible Noteholder would have become a holder of, had such Bonus Convertible Noteholder’s Bonus Convertible Notes then outstanding been converted on the relevant record date for determining entitlement to the Capitalisation Issue.

Transferability : Transferable in whole or in part in respect of its amount outstanding from time to time.
Other rights : If and whenever the Company shall offer to issue Shares or other securities by way of rights to its Shareholders (the “ Rights Issue ”), the Company shall, subject to compliance with the relevant laws, rules, regulations and requirements in Hong Kong and Bermuda, at the same time offer to each Bonus Convertible Noteholder for subscription either, at the option of the Company (a) such number of Shares or securities which is equal to (i) the number of such Shares or securities offered by the Company to the Shareholders in respect of each issued Share held by them under the Rights Issue, multiplied by (ii) the number of Shares which the Bonus Convertible Noteholder would have become a holder of, had such Bonus Convertible Noteholder’s Bonus Convertible Notes then outstanding been converted on the relevant record date for determining entitlement to the Rights Issue, or (b) further convertible notes on the same terms and conditions as the Bonus Convertible Notes in such amount which would on conversion thereof entitle the Bonus Convertible Noteholders of such convertible notes to such number of Shares as is equal to (i) the number of Shares offered for subscription by the Shareholders in respect of each issued Share held by the Shareholders under the Rights Issue, multiplied by (ii) the number of Shares which the Bonus Convertible Noteholder would have become a holder of, had such Bonus Convertible Noteholder’s Bonus Convertible Notes then outstanding been converted on the relevant record date for determining entitlement to the Rights Issue.

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LETTER FROM THE BOARD

Conditions of the Possible Bonus Issue

The Possible Bonus Issue will only be made after the Offer, if approved, becomes or is declared unconditional in all respects and if and when it is finally determined to be adopted by the Board as the method or one of the methods to be used to restore the minimum public float of the Company. To enable the Company to make the Possible Bonus Issue, the Company will seek:

(a) the passing of a special resolution by way of poll to approve the amendments to the Bye-laws which are necessary for the purpose of enabling the Company to issue the Bonus Convertible Notes;
(b) the passing of an ordinary resolution by way of poll to grant a mandate to the Directors to implement the Possible Bonus Issue, including, but not limited to, approving the terms and conditions of the Bonus Convertible Notes; and
(c) the passing of an ordinary resolution by way of poll to approve an increase in the authorised share capital of the Company.

No Shareholders will be required to abstain from voting on the above resolutions, but the Elliott Entities and ECALP have irrevocably undertaken that no vote will be cast on such resolutions in respect of the Shares they or their respective nominees hold at the time of the SGM.

The Possible Bonus Issue, if made, is expected to be conditional upon the obtaining of the necessary approval by the Stock Exchange in respect of the issue and future conversion of the Bonus Convertible Notes (including the listing of, and permission to deal in, the Bonus Shares and the Shares to be issued upon conversion of the Bonus Convertible Notes). However, no application will be made for the listing of the Bonus Convertible Notes on the Stock Exchange or any other recognised stock or securities exchanges.

Further details of the Possible Bonus Issue are set out in appendix III to this Circular.

The Possible Bonus Issue is conditional on the Offer becoming or being declared unconditional in all respects and the Possible Bonus Issue may or may not be made, and if made, it would be after the Offer is closed and would be subject to the fulfilment of conditions and may not become unconditional. A supplemental circular in relation to the Possible Bonus Issue will be made if the Possible Bonus Issue is finally determined by the Board to be adopted after the closing of the Offer.

PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

As at the Latest Practicable Date, the Company’s authorised share capital was HK$1,000,000,000 divided into 10,000,000,000 Shares, of which 2,407,459,873 Shares had been issued and were fully paid. In order to accommodate the issue of the maximum number of Shares which may fall to be issued upon the conversion of the 2019 Convertible Note, the Bonus Shares and any new Shares which may be issued by the Company on the terms and conditions of the Bonus Convertible Notes in accordance with the Deed Poll, and future issues of Shares, as and when necessary, the Board proposes to increase

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LETTER FROM THE BOARD

the authorised share capital of the Company from HK$1,000,000,000 to HK$2,000,000,000 by the creation of an additional 10,000,000,000 Shares of HK$0.10 each. The increase in the authorised share capital of the Company will be conditional upon the passing of an ordinary resolution by the Shareholders at the SGM and the Offer becoming or being declared unconditional in all respects. No Shareholder is required to abstain from voting on the resolution approving the increase in the authorised share capital of the Company but the Elliott Entities and ECALP have undertaken that no vote will be cast on such resolution in respect of the Shares they or their respective nominees hold at the time of the SGM.

PROPOSED AMENDMENTS TO BYE-LAWS

As mentioned in the Announcement, the Possible Bonus Issue, if made, will involve the issue of the Bonus Convertible Notes. Under the terms of the Deed Poll, the Bonus Convertible Noteholders will have conversion rights entitling them to convert the Bonus Convertible Notes into an equivalent number of Shares as the number of Bonus Shares which the Bonus Convertible Noteholders would otherwise be entitled to receive under the Possible Bonus Issue had the Shareholder not elected for the Bonus Convertible Notes. Also, under certain circumstances prescribed under the Deed Poll, Bonus Convertible Noteholders will also be issued further bonus convertible notes on the same terms and conditions as the Bonus Convertible Notes with rights entitling them to convert such notes into Shares.

If the Possible Bonus Issue is made, the Company intends to capitalise amounts standing to the credit of its retained earnings account to pay up Shares to be issued to the Bonus Convertible Noteholders upon conversion of the Bonus Convertible Notes and such further bonus convertible notes. There is a possibility that the Bonus Convertible Noteholders may have disposed of all their Shares and thus ceased to be Shareholders at the time of conversion. However, the existing Bye-laws do not allow the Company to use its retained earnings to pay up such Shares for issuance to persons who are not Shareholders.

In the event that the Possible Bonus Issue is made, in order to enable the Company to issue the Bonus Convertible Notes and new Shares or other securities to the Bonus Convertible Noteholders, whether upon conversion of the Bonus Convertible Notes or otherwise, and the distribution of the surplus assets of the Company to the Bonus Convertible Noteholders in the event of a winding up of the Company, in accordance with the Deed Poll and the terms and conditions of the Bonus Convertible Notes, the Board proposes that certain amendments be made to the Bye-laws, which would allow amounts standing to the credit of any of the Company’s reserve or fund (including contributed surplus) or any sum standing to the credit of the profit and loss account or otherwise available for distribution to be capitalised to pay up Shares to be issued to Bonus Convertible Noteholders upon conversion of the Bonus Convertible Notes and any further bonus convertible notes whether or not such Bonus Convertible Noteholders are also Shareholders at the time of conversion. Such amendments will be conditional upon the Offer becoming or being declared unconditional in all respects.

A special resolution to amend the Bye-laws will be put forward at the SGM. No Shareholder is required to abstain from voting on the special resolution approving the amendments to the Bye-laws but the Elliott Entities and ECALP have undertaken that no vote will be cast on such resolution at the SGM in respect of the Shares they or their respective nominees hold at the time of the SGM.

The full text of the amendments to the Bye-laws that are proposed is set out in the notice of SGM on pages 213 to 219 of this Circular.

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LETTER FROM THE BOARD

FINANCIAL EFFECTS OF THE OFFER AND THE SUBSCRIPTION AGREEMENT

The following financial information is extracted from the unaudited pro forma financial information of the Group as set out in appendix V to this Circular.

(i) Basic earnings per Share

Based on the unaudited pro forma financial information of the Group as set out in appendix V to this Circular, the financial impact of the Offer on the Group’s basic earnings per Share is expected to be as follows:

Basic earnings per Share

	Immediately	Immediately
	following	following
	completion of the	completion of the
	Offer (Assuming	Offer (Assuming
	only the Elliott	all Shareholders
Immediately before	Entities and	(other than the
completion of the	ECALP accept	PCCW Group)
Offer and the	the Offer) and the	accept the Offer)
signing of the	signing of the	and the signing of
Subscription	Subscription	the Subscription
Agreement	Agreement	Agreement
HK2.58 cents	HK3.36 cents	HK4.19 cents

The Directors are of the view that there will be no material adverse effect on the adjusted earnings per Share following the completion of the Offer. The signing of the Subscription Agreement has no immediate impact on the adjusted earnings per Share.

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LETTER FROM THE BOARD

(ii) Net asset value

Based on the unaudited pro forma financial information of the Group as set out in appendix V to this Circular, upon completion of the Offer and the signing of the Subscription Agreement, the unaudited pro forma adjusted consolidated net assets of the Group attributable to equity holders of the Company is expected to be as follows:

		Immediately following	Immediately following
		completion of the	completion of the
		Offer (Assuming only	Offer (Assuming all
		the Elliott Entities	Shareholders (other
	Immediately before	and ECALP accept	than the PCCW
	completion of the	the Offer) and the	Group) accept the
	Offer and the signing	signing of the	Offer) and the signing
	of the Subscription	Subscription	of the Subscription
	Agreement	Agreement	Agreement
	HK$ million	HK$ million	HK$ million
Net assets
attributable to
equity holders of
the Company as
at 31 December
2011	7,167	6,185	5,514
Unaudited adjusted
net assets per	HK$2.98	HK$3.35	HK$3.72
Share	per Share	per Share	per Share

Assuming only the Elliott Entities and ECALP accept the Offer

The Offer involves cash payment of approximately HK$1,042 million. Taking into account the estimated direct expenses of approximately HK$25 million to be incurred in connection with the Offer and the effect of the Subscription Agreement (note 4 to appendix V, part A.1), the unaudited adjusted net assets attributable to equity holders of the Company is expected to be reduced by HK$982 million. Since the Offer Price is lower than the unaudited adjusted net assets per Share, the Offer will therefore increase the unaudited adjusted net assets per Share from approximately HK$2.98 per Share to HK$3.35 per Share.

Assuming all Shareholders (other than the PCCW Group) accept the Offer

The Offer involves cash payment of approximately HK$1,713 million. Taking into account the estimated direct expenses of approximately HK$25 million to be incurred in connection with the Offer and the effect of the Subscription Agreement (note 4 to appendix V, Part A.1), the unaudited adjusted net assets attributable to equity holders of the Company is expected to be reduced by HK$1,653 million. Since the Offer Price is lower than the unaudited adjusted net assets per Share, the Offer will therefore increase the unaudited adjusted net assets per Share from approximately HK$2.98 per Share to HK$3.72 per Share.

— 22 —

LETTER FROM THE BOARD

(iii) Liabilities

As at 31 December 2011, the Group had total bank and other borrowings of approximately HK$2,538 million and cash and cash equivalents of approximately HK$2,855 million. The net cash of the Group (being total bank and other borrowings net of cash and cash equivalents) were approximately HK$317 million. The Group had total liabilities of approximately HK$4,519 million, comprising total bank and other borrowings of approximately HK$2,538 million, other current liabilities of approximately HK$1,312 million, and defined income tax liabilities of approximately HK$669 million.

Assuming only the Elliott Entities and ECALP accept the Offer

The net cash position of the Group immediately after completion of the Offer and the signing of the Subscription Agreement will change to net debt of approximately HK$750 million and its total liabilities will remain of HK$4,519 million. The debt to assets ratio of the Group which was approximately 22% based on the Group’s total bank and other borrowings to total assets value as at 31 December 2011, will increase to 24% immediately after completion of the Offer and the signing of the Subscription Agreement. The Directors are of the view that although the debt to assets ratio of the Company will increase from 22% to 24% resulting from the Offer and the signing of the Subscription Agreement, such ratio remains low in light of the business nature and scale of operation of the Group. The Directors, excluding the Independent Board Committee, consider the Group’s financial position and liquidity remains healthy and there will be no material adverse financial effect on the Group resulting from the implementation of the Offer and the signing of the Subscription Agreement.

Assuming all Shareholders (other than the PCCW Group) accept the Offer

The net cash position of the Group immediately after completion of the Offer and the signing of the Subscription Agreement will change to net debt of approximately HK$1,421 million and its total liabilities will remain at HK$4,519 million. The debt to assets ratio of the Group which was approximately 22% based on the Group’s total bank and other borrowings to total assets value as at 31 December 2011, will increase to 25% immediately after completion of the Offer and the signing of the Subscription Agreement. The Directors are of the view that although the debt to assets ratio of the Company will increase from 22% to 25% resulting from the Offer and the signing of the Subscription Agreement, such ratio remains low in light of the business nature and scale of operation of the Group. The Directors, excluding the Independent Board Committee, consider the Group’s financial position and liquidity remains healthy and there will be no material adverse financial effect on the Group resulting from the implementation of the Offer and the signing of the Subscription Agreement.

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LETTER FROM THE BOARD

(iv) Working capital

As at 31 December 2011, the Group had cash and cash equivalents of approximately HK$2,855 million.

Assuming only the Elliott Entities and ECALP accept the Offer

The total estimated cash payment of the Offer and the total estimated expenses in relation to the Offer will be HK$1,042 million and approximately HK$25 million, respectively. Accordingly, the completion of the Offer will reduce the cash and cash equivalents available to the Group to approximately HK$1,788 million.

As at 31 December 2011, the Group’s net current assets (being current assets less current liabilities) was approximately HK$3,444 million. The completion of the Offer and the signing of the Subscription Agreement will reduce the net current assets of the Group from approximately HK$3,444 million to HK$2,377 million.

The Directors, excluding the Independent Board Committee, are of the view that the implementation of the Offer and the Subscription Agreement will not have material adverse effect on the working capital of the Group. The Directors confirm that the Group will have sufficient working capital to meet its normal operating requirement after completion of the Offer and the signing of the Subscription Agreement.

Assuming all Shareholders (other than the PCCW Group) accept the Offer

The total estimated cash payment of the Offer and the total estimated expenses in relation to the Offer will be HK$1,713 million and approximately HK$25 million, respectively. Accordingly, the Offer will reduce the cash and cash equivalent available to the Group to approximately HK$1,117 million.

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LETTER FROM THE BOARD

REASONS AND BENEFITS OF THE OFFER AND THE SUBSCRIPTION AGREEMENT

The Offer

The Board considers that the liquidity of the Shares has been impaired by the concentration of Shares in the hands of the Elliott Entities and ECALP which, since February 2008, have accumulated a shareholding of approximately 23.39% in aggregate of the issued share capital of the Company. As a result of this concentration of shareholding, the Elliott Entities and ECALP are regarded as substantial shareholders of the Company within the meaning of the Listing Rules and their shareholdings are not considered to be held by the public under the Listing Rules. Accordingly, as at the Latest Practicable Date, only approximately 15.08% of the issued share capital of the Company was deemed to be held by the public, which did not meet the minimum 25% requirement prescribed by the Listing Rules.

The Board considers that the resultant lack of liquidity has partly contributed to limited investor interests in the Shares and the consequent level of discount to net asset value at which the Shares have been traded. Following the Offer becoming unconditional or being declared unconditional in all respects, the Elliott Entities and ECALP will, pursuant to their undertaking to accept the Offer in respect of all the Shares of which they are, or any of them is, directly or indirectly the beneficial owner(s) or in which they are or any of them is, directly or indirectly, interested as at 12:00 noon on the last date on which the Offer is capable of being validly accepted, realise part or all of their investment in the Company at the Offer Price. The Offer will also provide a liquidity opportunity to those Shareholders looking to realise their interests in the Shares. Following the closing of the Offer, which Independent Shareholders may have accepted, the intention of the Company is to restore the minimum public float to meet the requirement of the Listing Rules as soon as possible and at the same time or thereafter take steps to widen the Company’s public shareholder base with the objective of improving the liquidity of, and investor interests in, the Shares.

The Subscription Agreement

The Group currently has two large scale long term development projects, which are located in Hokkaido, Japan and Phang-Nga, Southern Thailand respectively. As these projects are still at the initial investment stage which may require more funding and time commitment, they are not expected to generate net positive cashflows for the Group in the next few years.

In addition, the 2014 Convertible Note, if not fully converted, will be repayable on 9 May 2014. Given the Company’s share price of HK$1.82 as at the Latest Practicable Date is substantially below the current conversion price of the 2014 Convertible Note of HK$3.60, the Directors are unable to assume that the CN Holder will convert the 2014 Convertible Note into Shares and therefore an amount of HK$2,904 million (being HK$2,420 million principal plus a 20% redemption premium) will likely become repayable to the CN Holder on 9 May 2014.

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LETTER FROM THE BOARD

In view of such significant funding obligations and the making of the Offer, the Directors, excluding the Independent Board Committee, believe that it is prudent and in the best interests of the Company and the Shareholders as a whole for the Company to ensure that it has adequate financing in place when the Offer is made and beyond the Maturity Date of the 2014 Convertible Note, which is repayable on 9 May 2014 for the amount of HK$2,904 million (inclusive of the 20% redemption premium under its terms) to match the funding requirements of the Company. After arm’s length negotiation, it has been agreed under the Subscription Agreement that the CN Holder will conditionally subscribe for the 2019 Convertible Note. The 2019 Convertible Note enables the Group to enjoy long term stable financing and greater financial flexibility.

The Company has an undrawn revolving credit facility of HK$2,800 million (the “Revolving Credit Facility”) which the Company intends to draw down in the near future for the property development projects and other general use, the Revolving Credit Facility will expire in September 2012 and require renewal. Based on the value of the Pacific Century Place in Beijing as assessed and disclosed in the latest valuation report which is set out in appendix VI to this Circular and Company’s recent discussions with its financing banks, the Directors are of the view that the Company is confident to renew the Revolving Credit Facility or procure similar financing facilities to meet its working capital requirements after closing of the Offer. The Company considers that in renewing the Revolving Credit Facility, the financing banks would consider, among other things, a number of factors, including the value of the collateral, the Company’s overall financial position and repayment commitment, and the Directors believe that the certainty of the 2014 Convertible Note being refinanced when it falls due would have a positive effect on the Revolving Credit Facility renewal process. In the unlikely event that the Company is unable to renew the Revolving Credit Facility or procure other financing facilities, the Company would consider adjusting its capital expenditure and development strategy so that the progress of some of the property development projects could be adjusted.

The Directors have considered other alternative sources of financing such as debt financing, convertible debt financing (from other third party sources) and equity financing. With respect to debt financing, the Directors hold the view that due to the nature of their business and the fact that the two large scale development projects are still at the initial investment stage (which requires substantial capital expenditure) with no net positive cash inflows anticipated in the near future, and the fact that the Company’s investment property in Beijing has already been used to secure the banking facilities of RMB10 million and the Revolving Credit Facility, third party debt financing in the amount required to meet the full funding needs of the Company is not likely to be available on terms that would represent a better alternative for the Company and the Shareholders, than the issuing of the 2019 Convertible Note. With respect to convertible debt financing (from other third parties) or equity financing, in light of the quantum of funding required relative to the current market capitalisation of the Company, the current trading liquidity of the Shares, the current stock market environment in Hong Kong, and the fact that the Revolving Credit Facility will become mature in September 2012, the Directors consider that such forms of financing would not be executable on terms that would be more attractive for the Company and the Shareholders than those achieved by refinancing via issuing the 2019 Convertible Note.

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LETTER FROM THE BOARD

required, the current uncertainty with regard to each of the global economic environment and the potential future stock market volatility and performance, it is in the best interests of the Company and the Shareholders to secure and strengthen the financial position of the Company at this time whilst an agreement could be reached with the CN Holder.

Given that the CN Issuer has no obligation to issue the 2019 Convertible Note if the 2014 Convertible Note is fully converted or if the unconverted balance of the redemption amount under the 2014 Convertible Note is fully repaid on its maturity, the CN Issuer would have a choice to redeem the 2014 Convertible Note without issuing the 2019 Convertible Note if a better refinancing alternative becomes available on the Maturity Date. The Directors, excluding the Independent Board Committee, believe that the entering into of the Subscription Agreement now is beneficial to the Company as it will enable the Company to secure attractive terms for the refinancing of the Revolving Credit Facility, thereby enabling the Group to enjoy long term stable financing and greater financial flexibility.

Assuming that the Subscription Agreement becomes unconditional and the 2019 Convertible Note is issued in the maximum principal amount of HK$2,904 million, the maximum number of Conversion Shares which the CN Holder would be entitled to be issued upon full conversion of the 2019 Convertible Note would be 1,770,731,707 Shares (approximately 48.98% of the issued share capital of the Company as enlarged by the issue of such Shares), assuming the conversion price is the initial Minimum Conversion Price.

INTENTIONS OF THE GROUP REGARDING THE RESTORATION OF THE MINIMUM PUBLIC FLOAT

Under Rule 8.08(1)(a) of the Listing Rules, at least 25% of the Company’s total issued share capital must at all times be held by the public. Assuming that the Offer becomes unconditional in all respects, the Company will take steps to ensure that sufficient Shares are held in the hands of the public as required by the Listing Rules.

The Stock Exchange has stated that if, upon the closing of the Offer, less than the minimum prescribed percentage applicable to the Company, being 25% of the issued Shares, are held by the public, or if the Stock Exchange believes that (i) a false market exists or may exist in the trading of the Shares; or (ii) there are insufficient Shares in public hands to maintain an orderly market, then it will consider exercising its discretion to suspend trading of the Shares on the Stock Exchange. The Company intends to remain to be listed on the Stock Exchange. The Directors will undertake to the Stock Exchange to take appropriate steps after completion of the Offer to ensure that sufficient public float exists in the Company’s shares.

Accordingly, if the Offer is declared or becomes unconditional in all respects and if necessary and practicable, the Company intends to restore the minimum public float by way of the Possible Bonus Issue (please refer to the section headed “Possible Bonus Issue” above for further details). If the Offer is not declared or does not become unconditional in all respects, then the Possible Bonus Issue will not proceed. The Bonus Convertible Notes will be unlisted, will carry no voting rights at general meetings of the Company and will have no maturity date, but will confer upon the holders thereof substantially the same economic interest attached to the Shares which the electing

— 27 —

LETTER FROM THE BOARD

Shareholders would otherwise be entitled to receive under the Possible Bonus Issue had such Shareholders not elected for the Bonus Convertible Notes. The PCCW Group will be requested to elect for the Bonus Convertible Notes in lieu of all of its entitlements to the Bonus Shares under the Possible Bonus Issue.

If the Possible Bonus Issue is made, the adjustment to the Minimum Conversion Price and to the conversion price of the 2014 Convertible Note appropriate in the case of a bonus issue would be applied as if all Shareholders had not elected to receive the Bonus Convertible Notes. Such adjustment to the Minimum Conversion Price is in accordance with the terms of the Subscription Agreement. An approved merchant bank has given its opinion that such adjustment to the conversion price of the 2014 Convertible Note would be appropriate. The CN Holder has in its consent letter dated 2 March 2012 to the CN Issuer and the Company also agreed to adopt such basis of adjustment of the conversion price of the 2014 Convertible Note upon the implementation of the Possible Bonus Issue by the Company.

Following the closing of the Offer and taking into consideration the level of acceptances of the Offer and the number of Shares remaining in the hands of public Shareholders, under the mandate to be approved by the Shareholders, the Board will determine the ratio of the Possible Bonus Issue (if made), which ratio will be up to a maximum of four Bonus Shares for every one existing Share. If the Board determines that the Possible Bonus Issue is not the sole feasible solution or not a feasible solution to restore the minimum public float of the Company, the Board will consider other additional or alternative methods, including placing of new Shares, and, or requesting PCCW to assist in the implementation of an additional or alternative plan to be adopted by the Company to meet the requirements of Rule 8.08(1) of the Listing Rules (which additional or alternative plan could involve a placing by the PCCW Group, and, or a distribution in specie by the PCCW Group, of Shares held by the PCCW Group). Until the closing of the Offer, it is not possible for the Board to determine the ratio of the Possible Bonus Issue or whether the Possible Bonus Issue is a feasible solution to restore the minimum public float of the Company.

The Company and PCCW have no intentions to privatise the Company or delist the Shares.

LISTING RULES AND THE CODES

As the CN Holder is an indirect wholly-owned subsidiary of PCCW, a substantial shareholder of the Company within the meaning of the Listing Rules, therefore, the CN Holder is a connected person of the Company within the meaning of Chapter 14A of the Listing Rules. The transaction under the Subscription Agreement constitutes a non-exempt connected transaction and is subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules. The Subscription Agreement also constitutes a special deal under Rule 25 of the Takeovers Code and therefore requires the consent by the Executive. The Company has applied to the Executive for such consent and such consent will normally be given provided that an independent financial adviser to the Company publicly states that in its opinion the terms of the Subscription Agreement are fair and reasonable and the transactions are approved by the Independent Shareholders by way of poll at the SGM.

— 28 —

LETTER FROM THE BOARD

INFORMATION ON THE GROUP

The Group is principally engaged in the development and management of premium property and infrastructure projects, as well as investment in premium grade buildings, in the Asia Pacific region.

INFORMATION ON THE PCCW GROUP

PCCW is a Hong Kong based company which holds interests in telecommunications, media, IT solutions, property development and investment, and other businesses.

PCCW holds a majority interest in the HKT Trust and HKT Limited, Hong Kong’s premier telecommunications service provider. HKT Limited meets the needs of the Hong Kong public and local and international businesses with a wide range of services including local telephony, local data and broadband, international telecommunications, mobile, and other telecommunications businesses such as customer premises equipment sale, outsourcing, consulting, and contact centres.

PCCW also owns a fully integrated multimedia and entertainment group in Hong Kong, which includes a highly successful IPTV operation, now TV. As the provider of Hong Kong’s first quadruple-play experience, PCCW offers a range of innovative media content and services across four delivery platforms — fixed-line, broadband Internet access, TV and mobile.

Also wholly-owned by PCCW, PCCW Solutions Limited is a leading information technology outsourcing and business process outsourcing provider in Hong Kong and mainland China.

In addition, PCCW holds a majority interest in the Company, and overseas investments including the wholly-owned UK Broadband Limited.

SGM

The Offer is conditional upon the fulfilment of all the conditions to which completion of the Subscription Agreement is subject. Such conditions include, amongst others, the passing of the ordinary resolutions by way of poll to approve the Offer and the Subscription Agreement by the Independent Shareholders, either voting in person or by proxy, at the SGM.

The Register will be closed from 26 April 2012 to 30 April 2012, both days inclusive, during which period no transfer of Shares will be effected. In order to be entitled to attend and vote at the

— 29 —

LETTER FROM THE BOARD

SGM, all transfers, accompanied by the relevant share certificates, should be lodged with the Registrar at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, for registration no later than 4:30 p.m. on 25 April 2012.

Whether or not you intend to attend the SGM in person, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Registrar not less than 48 hours before the time appointed for holding the SGM or any adjournment thereof (as the case may be). Such form of proxy for use at the SGM is also published on the respective websites of the Stock Exchange (www.hkexnews.hk) and the Company (www.pcpd.com). Completion and return of the form of proxy will not preclude you from attending and voting at the SGM or at any adjournment thereof (as the case may be) in person should you so wish.

In accordance with the requirements of Rule 2.9 of the Takeovers Code and Rule 13.39(4) of the Listing Rules, the votes for the resolutions by the Independent Shareholders at the SGM must be taken by poll.

PCCW and parties acting in concert with it, who in aggregate held 1,481,333,333 Shares as at the Latest Practicable Date, are required to abstain from voting at the SGM on the resolutions to approve the Offer and the Subscription Agreement. The Elliott Entities and ECALP have irrevocably undertaken that no vote will be cast at the SGM on the resolutions to approve the Offer, the Subscription Agreement, the proposed increase in the authorised share capital of the Company and the proposed amendments to the Bye-laws in respect of the Shares they hold at the time of the SGM.

Independent Shareholders should note that even if they vote in favour of the resolutions to be proposed at the SGM, they are free nonetheless to accept or not to accept the Offer.

RECOMMENDATION

The Independent Board Committee comprising the independent non-executive Directors, Mr Cheung Kin Piu, Valiant, Prof. Wong Yue Chim, Richard, SBS, JP and Dr Allan Zeman, GBM, GBS, JP has been established to advise the Independent Shareholders on the terms of the Offer and the Subscription Agreement. Rothschild has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

Your attention is drawn to the letter of recommendation from the Independent Board Committee as set out on pages 40 to 41 of this Circular. Your attention is also drawn to the letter from Rothschild as set out on pages 42 to 72 of this Circular which contains, among other things, its advice to the Independent Board Committee and the Independent Shareholders as to whether the terms of the Offer and the Subscription Agreement are fair and reasonable, and the principal factors and reasons considered by it in arriving at such advice.

As the Possible Bonus Issue, if made, will involve the issue of the Bonus Convertible Notes, in order to facilitate the implementation of the Possible Bonus Issue, if made, the Board proposes to make certain amendments to the Bye-laws and increase the authorised share capital of the Company. Therefore, if the resolutions to approve the Offer and the Subscription Agreement are passed by the

— 30 —

LETTER FROM THE BOARD

Independent Shareholders, the Board recommends the Shareholders to vote in favour of the relevant resolutions to be proposed at the SGM in connection with the Possible Bonus Issue, including an ordinary resolution to approve a mandate to the Directors to implement the Possible Bonus Issue, a special resolution to amend the Bye-laws and an ordinary resolution to increase the authorised share capital of the Company, respectively.

WARNING

As the Offer is subject to the fulfilment of conditions, it may not become unconditional and the Offer may or may not proceed.

The Offer Price is final and it will not be further increased or revised. Shareholders and potential investors should be aware that, following the making of this statement, the Company will not be allowed to increase the Offer Price (save in wholly exceptional circumstances) as a result of Rule 18.3 of the Takeovers Code.

Dealings in the Shares will continue notwithstanding the Offer has not become unconditional. During such period, persons dealing in the Shares will bear the risk that the Offer may lapse.

Trading in the Shares may be suspended following the closing of the Offer until the Company can restore its minimum public float prescribed under the Listing Rules.

Shareholders and potential investors are advised to exercise caution when dealing in the Shares.

By Order of the Board of

PACIFIC CENTURY PREMIUM DEVELOPMENTS LIMITED Lee Chi Hong, Robert

Chief Executive Officer and Deputy Chairman

— 31 —

LETTER FROM ANGLO CHINESE

The following is the full text of a letter of advice from Anglo Chinese for inclusion in this Circular.

ANGLO CHINESE CORPORATE FINANCE, LIMITED

40th Floor, Two Exchange Square, 8 Connaught Place, Central, Hong Kong. www.anglochinesegroup.com

==> picture [50 x 78] intentionally omitted <==

5 April 2012

To the Shareholders

Dear Sir or Madam,

(ii) CONNECTED TRANSACTION AND SPECIAL DEAL SUBSCRIPTION AGREEMENT TO ISSUE NEW CONVERTIBLE NOTE DUE IN 2019

(iii) POSSIBLE BONUS ISSUE OF SHARES AND ISSUE OF NEW CONVERTIBLE NOTES TO FULFIL THE MINIMUM PUBLIC FLOAT REQUIREMENT

(iv) PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

(v) PROPOSED AMENDMENTS TO BYE-LAWS

AND

(vi) NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

It was announced in the Announcement that the Offer would be made by Anglo Chinese on behalf of the Company to repurchase for cancellation up to 926,126,540 Shares, representing approximately 38.47% of the existing issued share capital of the Company as at the Last Trading Day, at the price of HK$1.85 per Share.

— 32 —

LETTER FROM ANGLO CHINESE

The Offer is conditional upon the fulfillment of all the conditions to which completion of the Subscription Agreement is subject and such conditions include the approval of the Offer and the Subscription Agreement by the Independent Shareholders at the SGM.

The principal terms of the Subscription Agreement and the principal terms and conditions of the 2019 Convertible Note are set out in the “Letter from the Board” and appendix II to this Circular, respectively. The issue of the 2019 Convertible Note pursuant to the Subscription Agreement will constitute a special deal under Rule 25 of the Takeovers Code for which the Company has applied to the Executive for consent subject to, among other things, approval of the Independent Shareholders at the SGM.

PCCW, which indirectly owned approximately 61.53% of the issued share capital of the Company as at the Latest Practicable Date, has undertaken that the Offer in respect of the Shares directly or indirectly held by it will not be accepted. The CN Holder has also given its consent to, among other things, not requiring the Company to extend any offer to it notwithstanding the terms of the 2014 Convertible Note. Therefore, the Offer is available for acceptance in respect of all the Shares held by all the Shareholders other than the PCCW Group. The Offer is not conditional on any minimum number of acceptances.

The Offer will be made in full compliance with the Codes. The consideration for the Offer, being approximately HK$1,713.3 million if the Offer is accepted in full, will be paid in cash. The Offer will be funded out of the existing internal resources of the Group. Anglo Chinese is satisfied that the Company has sufficient financial resources to enable it to satisfy acceptances of the Offer in full.

CONDITIONAL CASH OFFER TO REPURCHASE SHARES

The Offer, which is conditional upon the fulfillment of all the conditions to which completion of the Subscription Agreement is subject, is being made by Anglo Chinese on behalf of the Company to repurchase for cancellation up to 926,126,540 Shares, representing approximately 38.47% of the existing issued share capital of the Company as at the Latest Practicable Date, at the price of HK$1.85 per Share.

The Offer Price

The Offer Price of HK$1.85 per Share values the entire existing issued share capital of the Company as at the Latest Practicable Date at approximately HK$4,453.8 million.

The Offer Price represents:

(a) a premium of approximately 35% over the closing price of the Shares of HK$1.37 as quoted on the Stock Exchange on the Last Trading Day;
(b) a premium of approximately 43% over the average closing price of the Shares of approximately HK$1.294 as quoted on the Stock Exchange for the last 5 consecutive trading days up to and including the Last Trading Day;

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LETTER FROM ANGLO CHINESE

(c) a premium of approximately 51% over the average closing price of the Shares of approximately HK$1.229 as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including the Last Trading Day;
(d) a premium of approximately 58% over the average closing price of the Shares of approximately HK$1.173 as quoted on the Stock Exchange for the last 20 consecutive trading days up to and including the Last Trading Day;
(e) a premium of approximately 2% over the closing price of the Shares of HK$1.82 as quoted on the Stock Exchange on the Latest Practicable Date; and
(f) a discount of approximately 38% to the Group’s net asset value per Share of approximately HK$2.977 (being the Shareholders’ funds of approximately HK$7,167 million as at 31 December 2011 divided by 2,407,459,873 Shares in issue as at the Latest Practicable Date) pursuant to the published audited consolidated accounts of the Group as at 31 December 2011.

At the Offer Price, the Offer, if accepted in full, will result in the Company paying approximately HK$1,713.3 million to the Accepting Shareholders in cash, which will be funded out of the existing internal resources of the Group. The Directors are of the opinion that, in the event that the maximum amount of consideration is payable under full acceptance of the Offer, the Group will still maintain sufficient working capital upon completion of the Offer to pay its liabilities as they become due and to meet the normal operating requirements of the Group.

As at the Latest Practicable Date, the Company had outstanding options to subscribe for 5,000,000 Shares at HK$2.375 per Share which had been granted to a director of an indirect wholly-owned subsidiary of the Company, who is also a director of a non wholly-owned subsidiary of PCCW. In addition, the Company has the 2014 Convertible Note outstanding. As the Offer Price is lower than the exercise price of the options and the current conversion price of the 2014 Convertible Note respectively by more than 10%, the Company is not obliged under the Repurchases Code to, and will not despatch the Circular to the holder of the outstanding options and the CN Holder. The CN Holder has given its consent to not requiring the Company to extend to it any offer in respect of the 2014 Convertible Note notwithstanding the terms of the 2014 Convertible Note requiring such an offer to be made. As permitted under the Repurchases Code, the Circular will not be despatched to the holder of the outstanding options and the CN Holder, and the Company will not make any offer to the holder of the outstanding options and the CN Holder. The CN Holder has also given its consent to (i) the Possible Bonus Issue; (ii) the proposed increase in the authorised share capital of the Company and amendments to the Bye-laws (see below for details); and (iii) not regarding the suspension of trading in Shares in connection with the Offer as an event of default under the 2014 Convertible Note. The CN Holder has also agreed that the Offer (including the repurchase contemplated thereunder) will not give rise to any adjustment of the conversion price of the 2014 Convertible Note.

As at the Latest Practicable Date, save for the 2,407,459,873 Shares in issue, the 2014 Convertible Note, and the outstanding options mentioned above, there were no other Shares, outstanding options, derivatives, warrants or securities of the Company which were convertible or exchangeable into Shares.

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LETTER FROM ANGLO CHINESE

As at the Latest Practicable Date, PCCW and parties acting in concert with it were interested in 1,481,333,333 Shares, representing approximately 61.53% of the existing issued share capital of the Company. Through the CN Holder, PCCW also indirectly owns the 2014 Convertible Note which, on full conversion at the current conversion price of HK$3.60 per Share, would result in the issue of 672,222,222 Shares in its favour. As at the Latest Practicable Date, save as disclosed in this Circular, neither PCCW nor any person acting in concert with it held any other Shares, outstanding options, derivatives, warrants or securities which were convertible or exchangeable into Shares, nor had they entered into any contract or arrangement resulting in the creation of outstanding derivatives in respect of securities in the Company.

As at the Latest Practicable Date, save for the undertakings by PCCW, the Elliott Entities and ECALP as mentioned in the section headed “Undertakings in relation to the Offer” as set out in this letter, the Company had not received any indication or irrevocable commitment from any Shareholder that it would accept or reject the Offer.

Principal terms of the Offer

The principal terms of the Offer are as follows:

(a) Anglo Chinese to make the Offer to the Shareholders on behalf of the Company to repurchase up to 926,126,540 Shares at the Offer Price of HK$1.85 per Share;
(b) Shareholders may accept the Offer in respect of their holdings of Shares at the Offer Price up to their entire holdings;
(c) Forms of Acceptance duly received by or on behalf of the Company will become irrevocable and cannot be withdrawn after the Offer has been declared unconditional;
(d) the Offer Price will be paid in cash;
(e) Shares will be repurchased free of commission, levies and dealing charges, save that the amount of stamp duty (ad valorem stamp duty is calculated at a rate of HK$1 for every HK$1,000 or part thereof of the market value of the Shares to be repurchased under the Offer or the consideration payable by the Company in respect of relevant acceptances of the Offer, whichever is the higher) due on Shares repurchased attributable to the Accepting Shareholders as sellers of Shares will be deducted from the amount payable to the Accepting Shareholders and the Company will arrange payment of such stamp duty on behalf of the Accepting Shareholders;
(f) all Shares repurchased will be treated as cancelled and will not be entitled to any dividend declared for any record date set subsequent to the date of their cancellation. The issued share capital of the Company shall be diminished by the nominal value of the Shares repurchased accordingly; and

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LETTER FROM ANGLO CHINESE

(g) acceptance of the Offer by any Shareholder will, subject to the Offer becoming unconditional, be deemed to constitute a warranty by such Shareholder that all Shares sold by such Shareholder under the Offer are free from all liens, charges, options, claims, equities, adverse interests, third party rights or encumbrances whatsoever and together with all rights accruing or attaching thereto, including, without limitation, the right to receive dividends and other distributions declared, made or paid, if any, on or after the date of their cancellation.

Other terms of the Offer

Shareholders can tender their Shares for acceptance once the Offer is open for acceptance. If the Offer is declared unconditional, Shareholders will be able to tender their Shares for acceptance under the Offer for a period of not less than 14 days thereafter. The Company reserves the right to extend the time for acceptance of the Offer to the maximum period allowed under the Codes.

Acceptance of the Offer duly received by or on behalf of the Company will become irrevocable and cannot be withdrawn after the Offer has been declared unconditional. All Shares repurchased under the Offer will be cancelled.

The Offer is not conditional upon any minimum number of acceptances.

Conditions of the Offer

The Offer is conditional upon the fulfillment of all the conditions to which completion of the Subscription Agreement is subject.

Undertakings in relation to the Offer

The Elliott Entities and ECALP, which together were interested in 563,129,500 Shares as at the Latest Practicable Date (representing approximately 23.39% of the issued share capital of the Company), have jointly and severally irrevocably undertaken to the Company, that:-

(a) subject to:
(i) the terms and conditions of the Offer, the transactions to be undertaken pursuant to and in connection with the Subscription Agreement (including, without limitation, the conditions of the Subscription Agreement) and the Possible Bonus Issue as described in the Announcement remaining unchanged (the addition of any implementing provisions of the Offer which do not vary the substance of such terms and conditions or an increase in the consideration payable under the Offer which is permissible only

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LETTER FROM ANGLO CHINESE

upon wholly exceptional circumstances by virtue of Rule 18.3 of the Takeovers Code are not regarded as a change) and none of such terms or conditions in the Subscription Agreement which relates to the approval of the Offer by the Shareholders being waived or otherwise becoming ineffective in whole or in part, as at the last date on which the Offer is capable of being validly accepted (unless otherwise waived by the Elliott Entities and ECALP in writing); and

(ii) the Offer having been declared unconditional in all respects by the day immediately prior to the last day on which the Offer is capable of being validly accepted,

they will accept or procure the acceptance of the Offer in respect of all the Shares of which they are, or any of them is, directly or indirectly the beneficial owner or in which they are or any of them is, directly or indirectly, interested as at 12:00 noon on the last date on which the Offer is capable of being validly accepted;

(b) none of them shall purchase or otherwise acquire, directly or indirectly, any interest in the Shares or any rights, warrants or options to acquire or subscribe for any Shares at any time after 2 March 2012 and up to and including the last date on which the Offer is capable of being validly accepted;
(c) none of them shall sell, transfer or otherwise dispose of, in any manner, directly or indirectly, any Shares or any interest therein at any time on or prior to the last date on which the Offer is capable of being validly accepted, except pursuant to the Offer or if the number of the Shares sold, transferred or disposed of (or of any interest therein) is not more than 120,372,993 Shares in aggregate and provided that:
(i) any such sale, transfer or disposal shall be made only on-market and to buyers or acquirers the identity of which in its role as a buyer/acquirer in the relevant transaction is not known to any of the Elliott Entities and ECALP before the terms of the relevant transaction are contractually agreed;
(ii) such sale, transfer or disposal is made prior to the time at which the SGM (including any adjournment thereof) is held, such that all the SGM business in respect of the Offer and the Subscription Agreement is fully disposed of thereat, and
(iii) there is no breach by any of them of their obligations described in paragraph (d) below; and
(d) none of them shall, at any time from 2 March 2012 to the last date of the Offer Period (both days inclusive), enter into any form of agreement or arrangement or understanding with any entity in respect of any Shares sold, transferred or otherwise disposed of by any of them whereby:
(i) any such Shares will be sold or otherwise transferred back to any of them or their controlled entity, whether at its option or at the option of any other person, or otherwise; or

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LETTER FROM ANGLO CHINESE

(ii) any of them or any of their controlled entities shall retain any form of control, right or interest over or in any of such Shares.

The restrictions imposed on them in paragraph (c) above shall cease and determine and shall no longer apply to the Elliott Entities and ECALP upon expiry of the period ending at 11:00 p.m. on 30 November 2012 if the Offer shall not have become or shall not have been declared unconditional in all respects in accordance with the Codes within such aforesaid period.

Hence, immediately following the closing of the Offer, if approved, the Elliott Entities and ECALP will have disposed of all the Shares then held by them by means of acceptance of the Offer.

The Elliott Entities and ECALP have also undertaken that until the end of the Offer Period in respect of the Offer, they will not, and will procure their controlled entities not to, initiate or facilitate any approach for the purpose of securing an offer from a third party for any or all of the issued Shares nor will they or any of their controlled entities do anything (subject to the provisions of the Codes) to facilitate the making of any such offer provided that such undertaking will cease and determine and will no longer apply to the Elliott Entities and ECALP upon expiry of the period ending at 11:00 p.m. on 30 November 2012 if the Offer has not become or been declared unconditional in all respects in accordance with the Codes within such aforesaid period.

The undertakings mentioned above will lapse on the withdrawal, lapsing or termination of the Offer.

PCCW, which indirectly owned 1,481,333,333 Shares representing approximately 61.53% of the issued share capital of the Company as at the Latest Practicable Date, has irrevocably undertaken to the Company that it will procure (i) its relevant subsidiary holding such Shares and its other subsidiaries which may become holder of Shares (including in the event of any conversion of the 2014 Convertible Note, the CN Holder) not to accept the Offer or transfer any Shares held by such subsidiary or subsidiaries prior to the closing or lapse or termination of the Offer; and (ii) the CN Holder not to transfer the 2014 Convertible Note prior to closing or lapse or termination of the Offer, as the case may be.

PROCEDURES FOR ACCEPTANCE AND SETTLEMENT

Details of the procedures for acceptance and settlement are set out on pages 76 to 79 in this Circular.

OVERSEAS SHAREHOLDERS

Details of the procedures for acceptance and settlement of Overseas Shareholders are set out on page 81 in this Circular.

TAXATION

Details of the tax implication in respect of the Offer are set out on page 82 in this Circular.

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LETTER FROM ANGLO CHINESE

ANNOUNCEMENT

Details of the announcement of the result of the Offer are set out on page 82 in this Circular.

ADDITIONAL INFORMATION

Your attention is also drawn to the terms of the Offer as set out in appendix I to this Circular, the valuation report on the properties of the Group and the financial and other information as set out in the appendices to this Circular.

Shareholders are advised to consider the detailed terms of the Offer and the Subscription Agreement and read, among other things, the letter of recommendation from the Independent Board Committee and the letter of advice from Rothschild contained in this Circular before deciding whether to vote for or against the resolutions in respect of the Offer and the Subscription Agreement to be proposed at the SGM. Shareholders should also note that their voting decision on the resolutions to be proposed at the SGM relating to the Offer and the Subscription Agreement shall not affect their investment decision as to whether to accept the Offer or not. If the Shareholders are in any doubt as to any aspect of the Offer or the Subscription Agreement or as to the action to take, they should seek independent professional advice.

Yours faithfully, For and on behalf of

ANGLO CHINESE CORPORATE FINANCE, LIMITED Stuart Wong

Director

— 39 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [183 x 50] intentionally omitted <==

**PACIFIC CENTURY PREMIUM DEVELOPMENTS LIMITED 盈科大衍地產發展有限公司[*]**

(incorporated in Bermuda with limited liability) (Stock Code: 00432)

5 April 2012

To the Independent Shareholders

Dear Sir or Madam,

CONDITIONAL CASH OFFER BY ANGLO CHINESE CORPORATE FINANCE, LIMITED ON BEHALF OF PACIFIC CENTURY PREMIUM DEVELOPMENTS LIMITED TO REPURCHASE UP TO 926,126,540 SHARES IN PACIFIC CENTURY PREMIUM DEVELOPMENTS LIMITED AT A PRICE OF HK$1.85 PER SHARE

AND

CONNECTED TRANSACTION AND SPECIAL DEAL IN RELATION TO THE SUBSCRIPTION AGREEMENT TO ISSUE NEW CONVERTIBLE NOTE DUE IN 2019

We have been appointed as members of the Independent Board Committee to advise you in respect of the Offer and the Subscription Agreement. Details of the Offer and the Subscription Agreement are set out in the letter from the Board contained in the document of the Company dated 5 April 2012 (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 requires otherwise.

Your attention is drawn to the letter from Anglo Chinese set out on pages 32 to 39 of the Circular, appendices I and II set out on pages 73 to 86 of the Circular and the letter from Rothschild set out on pages 42 to 72 of the Circular, which contains its advice to the Independent Board Committee and the Independent Shareholders in respect of the Offer and the Subscription Agreement, as well as the principal factors and reasons for its advice.

Having considered the factors and reasons considered by, and the opinion of, Rothschild as stated in the aforementioned letter of advice, we are of the opinion that the terms of the Offer and the Subscription Agreement, being the Special Deal, are fair and reasonable so far as the Independent Shareholders are concerned and that the Offer and the Subscription Agreement are in the interest of the Company and the Shareholders as a whole. We therefore recommend the Independent Shareholders to vote in favour of the proposed resolutions to approve the Offer and the Subscription Agreement at the SGM.

— 40 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

We also concur with the advice of Rothschild and recommend the Independent Shareholders to accept the Offer. Notwithstanding our recommendation as aforesaid, in the event that the market price of the Shares exceeds the Offer Price during the period while the Offer is open and the sales proceeds (net of transaction costs) exceed the amount receivable under the Offer, Independent Shareholders should consider not accepting the Offer and consider seeking to sell their Shares in the market if they are able to do so.

Independent Shareholders are advised that their decision to realise or to hold their investment in the Shares depends on their own individual circumstances and investment objectives. Those Independent Shareholders who may not be able to realise a higher return from selling their Shares in the open market or are concerned about the possibility that the Company may not be able to renew its Revolving Credit Facility, procure other financing facilities to complete its property development projects according to the existing plan, or adjust capital expenditure and development strategy of the property development projects are recommended to accept the Offer, which provides a reasonable alternative exit so as to realise all or part of their investment in the Shares. Those Independent Shareholders who, after considering the information on the Group, and its intentions regarding the Offer, are attracted by the future prospects of the Group following the Offer, should consider retaining some or all of their Shares.

Independent Shareholders are recommended to consult their own professional advisers if they are in any doubt as to the taxation implications of accepting or rejecting the Offer.

Yours faithfully, Independent Board Committee

Pacific Century Premium Developments Limited

Cheung Kin Piu, Valiant Prof. Wong Yue Chim, Richard, SBS, JP Dr. Allan Zeman, GBM, GBS, JP Independent non-executive Independent non-executive Independent non-executive Director Director Director

* For identification purpose.

— 41 —

LETTER FROM ROTHSCHILD

The following is the full text of a letter of advice from Rothschild to the Independent Board Committee and the Independent Shareholders in respect of the Offer and the Subscription Agreement for inclusion in this Circular.

5 April 2012

To the Independent Board Committee and the Independent Shareholders of Pacific Century Premium Developments Limited

Dear Sirs,

CONDITIONAL CASH OFFER BY ANGLO CHINESE CORPORATE FINANCE, LIMITED ON BEHALF OF PACIFIC CENTURY PREMIUM DEVELOPMENTS LIMITED TO REPURCHASE UP TO 926,126,540 SHARES IN PACIFIC CENTURY PREMIUM DEVELOPMENTS LIMITED AT A PRICE OF HK$1.85 PER SHARE AND

CONNECTED TRANSACTION AND SPECIAL DEAL IN RELATION TO THE SUBSCRIPTION AGREEMENT TO ISSUE NEW CONVERTIBLE NOTE DUE IN 2019

INTRODUCTION

We refer to our engagement to advise the Independent Board Committee and the Independent Shareholders with respect to the Offer and the Subscription Agreement, details of which are contained in the Circular of which this letter forms a part. Rothschild has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders as to whether or not the terms of the Offer and the Subscription Agreement are fair and reasonable so far as the Independent Shareholders are concerned, and to advise the Independent Shareholders as to how they should vote on the Offer and the Subscription Agreement at the SGM and whether or not the Independent Shareholders should accept the Offer.

The terms used in this letter shall have the same meanings as defined elsewhere in the Circular unless the context otherwise requires.

Rothschild (Hong Kong) Limited Tel:+852 2525 5333 16th Floor, Alexandra House, 18 Chater Road, Central Fax:+852 2868 1728 Hong Kong SAR

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LETTER FROM ROTHSCHILD

An Independent Board Committee comprising Mr Cheung Kin Piu, Valiant, Prof Wong Yue Chim, Richard, SBS, JP, and Dr Allan Zeman, GBM, GBS, JP, all of whom are independent non-executive Directors, has been established for the purpose of advising the Independent Shareholders in connection with the Offer and the Subscription Agreement. Other than members of the Independent Board Committee, none of the executive Directors is considered independent for the purpose of giving any advice or recommendation to the Independent Shareholders in relation to the Offer and the Subscription Agreement.

In formulating our recommendation, we have relied on the information and facts supplied to us by the Company and have assumed that any information and representations made to us are true, accurate and complete in all material respects as at the date hereof and that they may be relied upon. We have also assumed that all information, representations and opinions contained or referred to in the Circular are accurate and complete in all respects, fair and reasonable and accordingly, we have relied on them.

We have been advised by the Directors that no material facts have been omitted and we are not aware of any facts or circumstances which would render the information provided and the representations made to us untrue, inaccurate, incomplete or misleading. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors. The Directors have declared in a responsibility statement set out in the “Statutory and General Information” section in Appendix VII to the Circular that they have jointly and severally accepted full responsibility for the accuracy of the information contained in the Circular and have confirmed, having made all reasonable enquiries, that, to the best of their knowledge and belief, information contained in the Circular is accurate and complete in all material respects and not misleading or deceptive, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other matters or facts the omission of which would make any statement in the Circular misleading. We believe that we have reviewed sufficient information to reach an informed view in order to provide a reasonable basis for our advice. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Group.

We have not considered the tax consequences on the Independent Shareholders of their acceptances or non-acceptances of the Offer since these are particular to their own individual circumstances. In particular, Independent Shareholders who are residents outside of Hong Kong, or subject to overseas taxes or Hong Kong taxation on securities dealings should consider their own tax position with regard to the Offer and, if in any doubt, should consult their own professional advisers.

— 43 —

LETTER FROM ROTHSCHILD

THE OFFER AND THE SUBSCRIPTION AGREEMENT

For details of the terms of the Offer and the Subscription Agreement, your attention is drawn to the “Letter from the Board”, “Letter from Anglo Chinese”, “Further details of the Offer” and “Further details of the 2019 Convertible Note” in the Circular. In summary, the Offer and the Subscription Agreement involve:

A conditional cash offer being made by Anglo Chinese on behalf of the Company to repurchase for cancellation up to 926,126,540 Shares, representing approximately 38.47% of the existing issued share capital of the Company as at the Latest Practicable Date, at the price of HK$1.85 per Share; and
CN Holder conditionally agreeing to subscribe for the 2019 Convertible Note to be issued by the CN Issuer on 9 May 2014 and guaranteed by the Company pursuant to the conditional Subscription Agreement. The subscription amount for the 2019 Convertible Note will be the outstanding redemption amount due, and not repaid, on the maturity of the 2014 Convertible Note. The CN Issuer has no obligation to issue the 2019 Convertible Note if the 2014 Convertible Note is fully converted or if the unconverted redemption amount is fully repaid for redemption upon its maturity.

The Elliott Entities and ECALP, which together were interested in 563,129,500 Shares, representing approximately 23.39% of the issued share capital of the Company as at the Latest Practicable Date, have jointly and severally irrevocably undertaken to the Company, that they will accept or procure the acceptance of the Offer in respect of all the Shares of which they are, or any of them is, directly or indirectly the beneficial owner or in which they are or any of them is, directly or indirectly, interested as at 12:00 noon on the last date on which the Offer is capable of being validly accepted. The Elliott Entities and ECALP have undertaken that they would not, during the Offer Period acquire any voting rights of Shares in the Company but they are entitled to dispose of up to 120,372,993 Shares of which they have interests, representing up to 5% of the issued capital of the Company, before the time of the SGM (including any adjournment thereof). Please refer to the section headed “Undertakings in relation to the Offer” in the “Letter from Anglo Chinese” in the Circular for further details of the undertakings provided by the Elliott Entities and ECALP.

As the CN Holder is an indirect wholly-owned subsidiary of PCCW, a substantial shareholder of the Company within the meaning of the Listing Rules, therefore, the CN Holder is a connected person of the Company within the meaning of Chapter 14A of the Listing Rules. The transaction under the Subscription Agreement constitutes a non-exempt connected transaction and is subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules. The Subscription Agreement also constitutes a special deal under Rule 25 of the Takeovers Code for which the Company has applied to the Executive for consent subject to, among other things, approval of the Independent Shareholders at the SGM.

— 44 —

LETTER FROM ROTHSCHILD

The Subscription Agreement is conditional upon, amongst other conditions, the approval of the Independent Shareholders at the SGM of the resolutions approving the Subscription Agreement and the Offer.

The Offer is conditional upon the fulfilment of all the conditions to which completion of the Subscription Agreement is subject.

PRINCIPAL FACTORS, REASONS AND ANALYSES

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

A. THE OFFER

1. Background and rationale of the Offer

The Group is principally engaged in the development and management of premium property and infrastructure projects, as well as investment in premium grade buildings, in the Asia Pacific region. The Group currently owns the Pacific Century Place, which is an investment property of the Company located in Beijing, China, and it constitutes a substantial component of the Group’s property portfolio. In terms of property development, the Group has two large scale development projects overseas: one is an all-season resort project in Hokkaido, Japan, and the other project is in Phang-Nga, Southern Thailand. In the past, the Group had developed the Cyberport project in Hong Kong, however, over 99% of the residential units in the Cyberport project has been sold and there are only three houses from the Cyberport project (Villa Bel-Air) remaining to be sold as at the Latest Practicable Date.

The Company has indicated that since 2008, the Company’s public float has fallen below the minimum percentage prescribed under the Listing Rules and such shortfall was due to the accumulation of shareholding by the Elliott Entities and ECALP (indirectly) to a level exceeding 10% and hence such shareholding could not be treated as part of the public float within the meaning of the Listing Rules. As stated in the “Letter from the Board” in the Circular, the Board considered that the liquidity of the Shares has been impaired by the concentration of Shares in the hands of the Elliott Entities and ECALP (indirectly). As at the Latest Practicable Date, the Elliott Entities together with ECALP (indirectly) had a shareholding of approximately 23.39% of the issued share capital of the Company. As a result of this concentration of shareholding, only approximately 15.08% of the issued share capital of the Company was deemed to be held by the public, and the Board believes that the lack of liquidity has partly contributed to the limited investor interests in the Shares and the consequent level of discount to net asset value at which the Shares have been traded.

It is also stated in the “Letter from the Board” in the Circular that if necessary and practicable, it is the intention of the Board to restore the public float of the Company by way of the Possible Bonus Issue (please refer to the section headed “Possible Bonus Issue” in the “Letter from the Board” in the Circular for details) to at least 25% to meet the requirement of the Listing Rules as soon as possible after the closing of the Offer and at the same time or thereafter take steps to widen the Company’s

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LETTER FROM ROTHSCHILD

public shareholder base with the objective of improving the liquidity of, and investor interests in, the Shares. Shareholders should note that the Possible Bonus Issue may or may not be made, and if made, it would be after the Offer is closed and would be subject to the fulfilment of conditions and may not become unconditional.

It is also noted that the Company and PCCW have no intentions to privatise the Company or delist the Shares.

Since the Elliott Entities and ECALP have undertaken to accept the Offer after it becomes unconditional and the Company is committed to take steps to ensure that sufficient Shares are held in the hands of the public after the closing of the Offer as required by the Listing Rules, we concur with the Board’s view that the Offer and the Possible Bonus Issue (or a combination of other additional or alternative methods as stated in the “Letter from the Board”) represents a possible method to restore public float of the Company and in addition, the Offer will provide a liquidity opportunity to Shareholders looking to realise their interests in the Shares.

2. Valuation considerations

In assessing the valuation of the Shares, we have taken into consideration the following principal factors: (i) historical financial performance of the Company; (ii) future prospects of the Company; (iii) Net Asset Value (“NAV”) and Net Tangible Asset Value (“NTAV”) of the Company; and (iv) analysis of the Offer Price.

(i) Historical financial performance of the Company

The following is a summary of the audited consolidated statement of comprehensive income of the Group for the three years ended 31 December 2011 as extracted from the “Financial Information of the Group” in Appendix IV to the Circular.

Table 1 — Summary of audited consolidated statement of comprehensive income

	For the	years ended 31	December
	2011	2010	2009
		(HK$ million)
Turnover	2,126	1,495	4,222
Gross profit	841	747	1,190
Operating profit	328	1,409	966
Profit attributable to equity holders of the Company	62	864	594
Earnings per share (HK cents)
Basic	2.58 cents	35.89 cents	24.68 cents
Diluted	2.58 cents	33.16 cents	24.11 cents

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LETTER FROM ROTHSCHILD

Turnover and gross profit margin

Turnover of the Group decreased by approximately 64.6% from approximately HK$4,222 million for the year ended 31 December 2009 to approximately HK$1,495 million for the year ended 31 December 2010. The reason for the decrease in turnover was primarily due to the completion of sales of a major phase of Bel-Air residential units recognised in 2009 and that there were less revenue of Bel-Air residential units being recognised in 2010.

In spite of the decrease in turnover, gross profit margin increased from approximately 28.2% in 2009 to approximately 50.0% in 2010. Such increase in gross profit margin was mainly due to a higher proportion of revenue recorded from the ONE Pacific Heights project in 2010, which has a higher gross profit margin than the Bel-Air residential units.

Turnover of the Group increased by approximately 42.2% from approximately HK1,495 million for the year ended 31 December 2010 to approximately HK$2,126 million for the year ended 31 December 2011. The reason for the increase was primarily due to an increase in revenue recognised from the sale of Villa Bel-Air houses in 2011.

Despite the increase in turnover, gross profit margin decreased from approximately 50.0% in 2010 to approximately 39.6% in 2011. The decrease in gross profit margin was mainly due to a higher proportion of revenue recognised from the sales of Villa Bel-Air houses in 2011, which has a lower gross profit margin than the ONE Pacific Heights project.

Operating profit and profit attributable to equity holders of the Company

Operating profit increased by approximately 45.9% from approximately HK$966 million for the year ended 31 December 2009 to approximately HK$1,409 million for the year ended 31 December 2010. Despite the decrease in turnover, the increase in operating profit was primarily attributable to the surplus on revaluation of investment properties of approximately HK$1,150 million in 2010 (2009: nil), which mainly related to the revaluation of the Group’s investment property in mainland China. The increase in profit attributable to equity holders of the Company was primarily attributable to the increase in operating profit as stated above.

Operating profit decreased by approximately 76.7% from approximately HK$1,409 million for the year ended 31 December 2010 to approximately HK$328 million for the year ended 31 December 2011. Despite the increase in turnover, the decrease in operating profit was primarily attributable to decrease in surplus on revaluation of investment properties by 96.3% from approximately HK$1,150 million in 2010 to HK$43 million in 2011. The decrease in profit attributable to equity holders of the Company was primarily attributable to the decrease in operating profit as stated above.

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LETTER FROM ROTHSCHILD

(ii) Future prospects of the Company

Since a substantial proportion of the Group’s revenue is derived from property development and the Company confirmed that it has no current intention to substantially change the business direction of the Group, in assessing the future prospects of Group we have taken into consideration the Group’s existing businesses and the property development projects.

In respect of the property development business, the Company has three unsold houses at Villa Bel-Air and two overseas projects in Hokkaido, Japan and Phang-Nga, Southern Thailand respectively. Based on our discussions with the Directors, we understand that the overseas projects are still at the initial investment stage and are not expected to generate net positive cashflows in the next few years. Other than the above, the Group will continue to identify suitable development projects in Asia and other parts of the world but as at the Latest Practicable Date, there has been no new property development project identified.

With regards to property investment business, the Group owns a commercial and residential complex, namely the Pacific Century Place, in Beijing, China. The gross rental income from this property accounted for a significant proportion of the Group’s revenue from this segment. The Group’s revenue from property investment amounted to approximately HK$214 million, HK$216 million and HK$262 million, representing approximately 5.1%, 14.4% and 12.3% of the Group’s total turnover for the three years ended 31 December 2009, 2010 and 2011 respectively. The Group currently has no plan to sell the Pacific Century Place and rental income from this investment property will continue to contribute to the Group’s turnover.

In view of the fact that the major historical source of revenue, namely the Bel-Air residential development, has three remaining houses unsold and the two property development projects in Japan and Thailand are not going to generate net positive cash inflows in the next few years, we are of the view that the near term performance of the Company could be impacted by the lack of property development project available to the market and it may continue to be so until a significant property development project is ready for sale.

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LETTER FROM ROTHSCHILD

(iii) NAV and NTAV of the Company

The NAV and NTAV of the Group (as calculated based on the audited consolidated financial statements of the Group as disclosed in the “Financial Information of the Group” in Appendix IV to the Circular) as at 31 December 2011 were approximately HK$7,167 million and approximately HK$7,149 million respectively and can be analysed as follows.

Table 2 — NAV and NTAV analysis[1]

Investment properties
Properties under development
Properties held for development
Properties held for sale
Property and property-related assets for the property development
and investment business
Cash and cash equivalents, and restricted cash
Other assets
Total assets
Less:liabilities
NAV
Less: Intangible assets
NTAV
Total number of issued Shares as at 31 December 2011
NAV per Share (HK$)
NTAV per Share (HK$)

As at 31 December 2011
HK$ million
% of the
total assets
5,469
46.8%
508
4.3%
618
5.3%
456
3.9%
7,051
60.3%
3,558
30.4%
1,077
9.2%
11,686
100.0%2
(4,519)
7,167
(18)
7,149
2,407,459,873
2.98
2.97

Notes:

The above should be read in conjunction with the “Financial information of the Group” in Appendix IV to the Circular.
Percentages of total assets do not add up to 100.0% due to rounding.

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LETTER FROM ROTHSCHILD

As illustrated in Table 2 above, the Group’s total assets are mainly represented by property and property-related assets for the property development and investment business and cash and cash equivalent and restricted cash (representing approximately 60.3% and 30.4% of the total assets as at 31 December 2011 respectively).

Amongst the Group’s property and property-related assets, the major item was investment properties of approximately HK$5,469 million which was primarily represented by the Pacific Century Place located in Beijing, China (approximately 46.8% of the Group’s total assets as at 31 December 2011).

Other property and property-related assets include properties under development of approximately HK$508 million which primarily relate to the Hanazono resort project in Hokkaido, Japan, properties held for development of approximately HK$618 million which primarily relate to the property development project in Phang-Nga, Southern Thailand, and properties held for sale of approximately HK$456 million which primarily relate to the remaining houses at Villa Bel-Air, Hong Kong.

The Group held cash and cash equivalents and restricted cash of approximately HK$3,558 million, with cash and cash equivalents of approximately HK$2,855 million and restricted cash of approximately HK$703 million as at 31 December 2011. Cash and cash equivalents was held primarily for funding the Group’s capital expenditure for the two property development projects and working capital needs, and restricted cash represented mainly the cash held in specific bank accounts which the usage of the funds are specified in the Cyberport Project Agreement.

The Group’s liabilities were primarily borrowings of approximately HK$2,538 million, which comprised mainly the 2014 Convertible Note, representing approximately 56.2% of the Group’s total liabilities as at 31 December 2011.

(iv) Analysis of the Offer Price

The Offer Price of HK$1.85 per Share represents:

a premium of approximately 35% over the closing price of HK$1.37 per Share as quoted on the Stock Exchange on the Last Trading Day;
a premium of approximately 43% over the average closing price of approximately HK$1.29 per Share based on the daily closing prices as quoted on the Stock Exchange for the last 5 consecutive trading days up to and including the Last Trading Day;
a premium of approximately 62% over the average closing price of approximately HK$1.14 per Share based on the daily closing prices as quoted on the Stock Exchange for the last 30 consecutive trading days up to and including the Last Trading Day;

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LETTER FROM ROTHSCHILD

a premium of approximately 57% over the average closing price of approximately HK$1.18 per Share based on the daily closing prices as quoted on the Stock Exchange for the last 120 consecutive trading days up to and including the Last Trading Day;
a premium of approximately 2% over the closing price of HK$1.82 per Share as quoted on the Stock Exchange on the Latest Practicable Date;
a discount of approximately 38% to the audited consolidated NAV per Share of approximately HK$2.98 as at 31 December 2011;
a discount of approximately 38% to the audited consolidated NTAV per Share of approximately HK$2.97 as at 31 December 2011; and
an implied price-to-earnings ratio (“PER”) of approximately 72 times the basic earnings per Share of HK cents 2.58 for the year ended 31 December 2011.

We have analysed the Offer Price in this section by reviewing: (a) the historical Share price performance; (b) the price to NTAV of the Group; (c) trading multiples of companies comparable to the Company; and (d) recent voluntary general offers of companies listed in Hong Kong.

(a) Historical Share price performance

The Company had declared and paid a special dividend of HK$1.32 per Share in May 2010. Given that the special dividend represented a significant amount of the then net asset value of the Company and the then market price of the Shares, the trading price of the Shares recorded a significant decrease on the ex-dividend date, being 3 May 2010. When comparing and analysing the Offer Price relative to the historical price performance of the Shares, we have used the adjusted historical closing prices of the Shares prior to 3 May 2010 which has taken into account the special dividend of HK$1.32 per Share declared in May 2010 (“Adjusted Closing Price”).

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LETTER FROM ROTHSCHILD

The graph below illustrates the average Adjusted Closing Price of the Shares for the one-year (the “One-Year Period”) and three-year period (the “Three-Year Period”) prior to and including the Last Trading Day and the daily Adjusted Closing Price and trading volume of the Shares from 31 January 2009 and up to and including the Latest Practicable Date.

Chart 1 — Daily Adjusted Closing Price and trading volume of the Shares

==> picture [394 x 195] intentionally omitted <==

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

2.0 60
Offer price of HK$1.85 per Share
50
1.6
Average for the One-Year Period (HK$1.34)
40
1.2 Average for the Three-Year Period (HK$1.30)
30
0.8 Closing price on Last Trading Day of HK$1.37 per Share
20
0.4
10
0.0 0
Feb-09 Jul-09 Dec-09 May-10 Nov-10 Apr-11 Sep-11 Mar-12
The Company - Trading Volume (right scale) The Company - Share price (left scale)
Offer Price (left scale) Average for the One-Year Period (left scale)
Average for the Three-Year Period (left scale)
Share price (HK$)
Trading volume (million shares)
----- End of picture text -----

Source: Bloomberg

The table set out below is a summary of the highest, lowest and average closing prices of the Shares and the number of trading days on which the closing prices of the Shares was above the Offer Price during the One-Year Period and the Three-Year Period.

Table 3 — Trading performance of the Adjusted Closing Price

	One-Year		Three-Year
	Period	As at	Period(Note)	As at
Highest closing price	HK$1.64	16 February 2011	HK$1.83	30 April 2010
Lowest closing price	HK$0.95	4 October 2011	HK$0.80	20 March 2009
Average closing price	HK$1.34		HK$1.30
Number of trading days in the period
closed above the Offer Price	0 day		0 day

Source: Bloomberg

Note: Closing prices during the Three-Year Period are based on the Adjusted Closing Prices.

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LETTER FROM ROTHSCHILD

As illustrated in Chart 1 and Table 3 above, the Shares had consistently closed below the Offer Price during the One-Year Period and the Three-Year Period. The Offer Price of HK$1.85 is approximately 12.8% and 1.1% higher than the highest closing price of HK$1.64 and HK$1.83 per Share during the One-Year Period and the Three-Year Period respectively. In addition, the Offer Price is approximately 38.0% higher than the average closing price of HK$1.34 per Share during the One-Year Period and approximately 42.3% higher than the average closing price of HK$1.30 per Share during the Three-Year Period.

In addition, we have compared the performance of the Adjusted Closing Price of the Shares against the Primary Comparable Companies (as defined below) from 31 January 2009 and up to and including the Latest Practicable Date. Details of the selection criteria of Comparable Companies are set out in the paragraph headed “Trading multiple analysis” below.

Chart 2 — Performance of the Shares versus Primary Comparable Companies

==> picture [384 x 165] intentionally omitted <==

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

2.5
2.0
1.5
1.0
0.5
Closing price on Last Trading Day of HK$1.37 per Share
0.0
Feb-09 Jul-09 Dec-09 May-10 Nov-10 Apr-11 Sep-11 Mar-12
The Company Tai Cheung Holdings Limited (rebased)
SEA Holdings Limited (rebased) Hong Kong Ferry (Holdings) Company Limited (rebased)
Hon Kwok Land Investment Company Limited (rebased) Lai Sun Development Company Limited (rebased)
Share price (HK$)
----- End of picture text -----

Source: Bloomberg

As demonstrated in Chart 2 above, except for Lai Sun Development Company Limited the performance of the Shares has in general underperformed the Primary Comparable Companies during the Three-Year Period.

(b) Price to NTAV

The Offer Price of HK$1.85 per Share represents a discount of approximately 37.7% to the consolidated NTAV per Share of approximately HK$2.97 as at 31 December 2011. We have compared the performance of the Adjusted Closing Price of the Shares in terms of its discount to NTAV per Share during the Three-Year Period and up to and including the Latest Practicable Date, with the discount to NTAV implied by the Offer Price, as well as the averages for the One-Year Period and the Three-Year Period, which is set out in Chart 3 below.

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LETTER FROM ROTHSCHILD

Chart 3 — Price to NTAV analysis

==> picture [437 x 164] intentionally omitted <==

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

(20%)
The payment of the special dividend of HK$1.32 per Share
(30%)
Discount to NTAV implied by the Offer Price (37.7%)
(40%)
Average for the Three-Year Period (47.2%)
(50%)
Average for the One-Year Period (52.3%)
(60%)
(70%) Last Trading Day (53.3%)
Feb-09 Jul-09 Dec-09 May-10 Nov-10 Apr-11 Sep-11 Mar-12
The Company - (discount) to adjusted NTAV Discount to NTAV implied by the Offer Price
Average for the Three-Year Period Average for the One-Year Period
(Discount to NTAV %)
----- End of picture text -----

Sources: Bloomberg and consolidated financial statements of the Group

Note: The above price to NTAV has been calculated based on the Adjusted Closing Price, and the NTAV of the Company prior to the interim result announcement date of the Company on 13 August 2010 has been adjusted to reflect the payment of the HK$1.32 special dividend.

As illustrated in Chart 3 above, the Shares had been trading at a discount to NTAV during the Three-Year Period and up to and including the Latest Practicable Date, with an average discount to NTAV of approximately 52.3% and 47.2% during the One-Year Period and Three-Year Period respectively. Further, we also note that the Shares have been trading at a deeper discount to NTAV than the discount implied by the Offer Price for most of the Three-Year Period and the discount to NTAV implied by the Offer Price of approximately 37.7% was lower than the average trading discount to NTAV during the One-Year Period and the Three-Year Period.

(c) Trading multiple analysis

We have reviewed the trading multiples of companies comparable to the Company (the “Comparable Companies”). Since the majority of the Company’s turnover was derived from property development and investment in Hong Kong and China, the Comparable Companies we have chosen are companies listed on the Stock Exchange and whose principle activities include property development and investment in Hong Kong and China. In selecting the Comparable Companies, we have taken into account their respective sizes, in terms of market capitalisation and their business activities. In particular, we have reviewed all the property and property-related companies listed on the Stock Exchange with market capitalisation between HK$1,000 million and HK$10,000 million (as at the Latest Practicable Date), and we have selected those with a higher proportion of their revenue generated from property development businesses in Hong Kong and China (with a focus in Hong Kong) for the purpose of our analysis. We believe these criteria would highlight companies which provide a fair and representative comparison to the Company. The companies we have selected based on the criteria set out above are Tai Cheung Holdings Limited, Lai Sun Development Company Limited, SEA Holdings Limited, Hong Kong Ferry (Holdings) Company Limited and Hon Kwok Land Investment Company Limited (the “Primary Comparable Companies”).

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LETTER FROM ROTHSCHILD

In addition, as a supplementary reference to our analysis we have also reviewed companies listed in Hong Kong with market capitalisation between HK$1,000 million and HK$10,000 million (as at the Latest Practicable Date), and a majority of their revenue generated from property investment businesses in Hong Kong and China (the “Secondary Comparable Companies”).

In analysing the trading multiples, we considered that asset based multiple such as Price to NTAV ratio to be more appropriate as the business of the Company is capital intensive in nature. As such, we have compared the discount to NTAV implied by the Offer Price to those of the Comparable Companies, and our analysis is summarised in the following table.

Table 4 — Comparable Companies trading multiples

						Premium
				Last	Last	over/
		Closing		published	published	(discount to)
	Stock	share	Market	NTAV per	consolidated	NTAV per
	code	price1	capitalisation1	share	NTAV	share	PER
		(HK$)	(HK$ million)	_(HK$) _	(HK$ million)	(%)	(Times)
*Primary Comparable Companies*
Tai Cheung Holdings Limited 2	88	5.08	3,137	8.37	5,167	(39.3)	4.4
Lai Sun Development Company Limited 3	488	0.12	2,408	0.64	12,915	(81.4)	1.0
SEA Holdings Limited 4	251	3.56	2,382	14.75	9,890	(75.9)	2.2
Hong Kong Ferry (Holdings) Company
Limited 4	50	6.50	2,316	13.27	4,729	(51.0)	4.1
Hon Kwok Land Investment Company
Limited 2	160	2.74	1,316	8.67	4,166	(68.4)	2.8
Simple average						(63.2)	2.9
*Secondary Comparable Companies*
Winsor Properties Holdings Limited 4	1036	20.70	5,375	43.59	11,319	(52.5)	2.2
Tian Teck Land Limited 2	266	6.70	3,181	11.00	5,222	(39.1)	5.9
Melbourne Enterprises Limited 5	158	124.00	3,100	161.58	4,040	(23.3)	3.1
Y.T. Realty Group Limited 4	75	1.95	1,559	5.65	4,521	(65.5)	3.6
Cheuk Nang (Holdings) Limited 6	131	3.23	1,337	9.81	4,063	(67.1)	4.5
Dan Form Holdings Company Limited 4	271	1.00	1,247	2.92	3,643	(65.8)	2.4
Shenzhen High-Tech Holdings Limited 4	106	0.58	1,152	0.93	1,855	(37.9)	16.3
Simple average						(50.2)	5.4
Simple average - overall						(55.6)	4.4
The Company under the Offer	432	1.85	4,454	2.97	7,149	(37.7)	71.8

Source: Bloomberg and the latest published consolidated financial statements of the respective companies

Notes:

As at the Latest Practicable Date
Last published NTAV per share and consolidated NTAV as at 30 September 2011. PER based on basic earnings per share for the year ended 31 March 2011

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LETTER FROM ROTHSCHILD

Last published NTAV per share and consolidated NTAV as at 31 January 2012. PER based on basic earnings per share for the year ended 31 July 2011
Last published NTAV per share and consolidated NTAV as at 31 December 2011. PER based on basic earnings per share for the year ended 31 December 2011
Last published NTAV per share and consolidated NTAV as at 30 September 2011. PER based on basic earnings per share for the year ended 30 September 2011
Last published NTAV per share and consolidated NTAV as at 31 December 2011. PER based on basic earnings per share for the year ended 30 June 2011

As illustrated in Table 4 above, the discount to NTAV implied by the Offer Price of approximately 37.7% is lower than the range of discount to NTAV per share of the Primary Comparable Companies which is between 39.3% and 81.4%.

(d) Recent voluntary general offers (“VGOs”) of companies listed in Hong Kong

We have reviewed all VGOs announced since 1 January 2009 up to and including the Latest Practicable Date for companies listed on the Stock Exchange. Since PCCW is already holding approximately 61.53% of the Shares and PCCW and the Company have no intention to privatise the Company or delist the Shares, in analysing the Offer Price, we have selected VGOs for which the target company is in the property or construction sector, the respective offeror and parties acting in concert with the offeror were already the controlling shareholders of the target company, the offeror had no intention to privatise the target and the respective independent financial adviser has given a fair and reasonable opinion as precedents (the “VGO Precedents”). We believe this period captures appropriately recent premium and/or discount applied to VGOs of companies listed in Hong Kong and the VGOs selected based on such criteria would be a fair and representative comparison to the Offer. Our analysis is summarised in the following table.

Table 5 — VGO Precedents

	Offer	Percentage		Premium/(Discount) to	Premium/(Discount) to	Premium/(Discount) to	Premium/
	price	subject to		average	share price		(Discount)
Company	(HK$)	the offer	1 day	5 days	30 days 120 days		to NTAV
CSI Properties Limited	0.26	16.7%	31.4%	32.4%	27.1%	18.9%	(61.9%)
Shui On Construction and
Materials Limited	12.00	11.0%	24.4%	25.8%	31.5%	27.7%	(36.2%)
Simple average			27.9%	29.1%	29.3%	23.3%	(49.1%)
The Company under the Offer	1.85	38.5%	35.0%	43.0%	61.8%	56.7%	(37.7%)

Sources: Bloomberg, the Stock Exchange website and circulars of respective companies

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LETTER FROM ROTHSCHILD

Based on the VGO Precedents shown in Table 5 above, the discount to NTAV per share ranges from approximately 36.2% to approximately 61.9%, with an average discount to NTAV per share of approximately 49.1%, while the Offer Price implied a discount of approximately 37.7% to the audited NTAV per Share as of 31 December 2011. In terms of comparison between the offer prices and the historical average closing prices of one, five, 30 and 120 trading days before the respective last trading days, the premiums implied by the Offer Price are higher than the higher end of the range of premiums offered by the VGO Precedents.

3. Trading volume

The table below sets out the trading volume of the Shares per month, the monthly trading volume as a percentage of the issued share capital of the Company and the monthly trading volume as a percentage of the Shares held by the public for the period from 1 January 2011 to 30 March 2012.

Table 6 — Liquidity analysis of the Shares

		Monthly trading volume	Monthly trading volume	Monthly trading volume
			of the Shares as a		Monthly	trading volume
	Monthly trading		percentage of total		of the Shares as a
	volume of the	issued share		capital of	percentage of public
	Shares		the	Company	float of the Company
	(million shares)
2011
January	36.3			1.5%		8.7%
February	90.1			3.7%		21.5%
March	99.3			4.1%		25.1%
April	26.6			1.1%		6.7%
May	28.6			1.2%		7.2%
June	16.7			0.7%		4.2%
July	20.6			0.9%		5.2%
August	16.6			0.7%		4.2%
September	7.9			0.3%		2.1%
October	10.0			0.4%		2.7%
November	3.4			0.1%		0.9%
December	7.0			0.3%		1.9%
2012
January	9.3			0.4%		2.5%
February	0.0			0.0%		0.0%
March	102.1			4.2%		27.5%
Average monthly trading
volume (1 January 2011
to 30 January 2012)	28.6			1.2%		7.1%

Source: Bloomberg and the Company’s interim and annual reports

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LETTER FROM ROTHSCHILD

As illustrated in Table 6 above, before the Announcement, we note that the monthly trading volume of the Shares ranged from approximately 3.4 million Shares to approximately 99.3 million Shares for the period from 1 January 2011 to 30 January 2012 (the trading of the Shares have been suspended since the afternoon of 31 January 2012 and resumed on 5 March 2012). The average monthly trading volume of the Shares for the period from 1 January 2011 to 30 January 2012 was approximately 28.6 million Shares, representing approximately 1.2% of the total issued share capital of the Company, or approximately 7.1% of the public float of the Company. We noticed that the trading volume of the Shares increased significantly since 16 February 2011 and continued through to March 2011 and it was likely due to a press article on 16 February 2011 regarding the Group’s intention to dispose its interest in Pacific Century Place in Beijing. If the trading volume of these two months were excluded, the average monthly trading volume represented approximately 4.2% of the public float of the Company.

In addition to the above analysis, we have also compared the trading volume of the Shares with those of the Primary Comparable Companies for the period 1 January 2011 to 30 January 2012, which is set out in the table below.

Table 7 — Liquidity of Primary Comparable Companies

	Average monthly
	trading volume of the
	shares as a percentage
	of public float from
	1 January 2011 to
Primary Comparables	30 January 2012
Tai Cheung Holdings Limited	1.4%
Lai Sun Development Company Limited	7.2%
SEA Holdings Limited	0.5%
Hong Kong Ferry(Holdings) Company Limited	0.4%
Hon Kwok Land Investment Company Limited	1.3%
Simple average	2.2%
The Company (excluding February 2011 and March 2011)	4.2%

Source: Bloomberg and the companies’ respective interim and annual reports

As shown in Table 7 above, the trading volume of the Shares as a percentage of the public float is within the range of the Primary Comparable Companies of 0.4% to 7.2%.

Having taken into account the rationale of the Offer, the Board’s intention to restore public float after closing of the Offer, and the Board’s view that the Offer will provide a liquidity opportunity to Shareholders who would like to realise their interests in the Shares, and in conjunction with the above analyses, we consider the terms of the Offer fair and reasonable.

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LETTER FROM ROTHSCHILD

B. SUBSCRIPTION AGREEMENT

1. Background and rationale of the Subscription Agreement

As referred to in the “Letter from the Board” in the Circular, the Company currently has two large scale long term development projects in Hokkaido, Japan and Phang-Nga, Southern Thailand, which are still at the initial investment stage and may require more funding and time commitment and hence they are not expected to generate net positive cashflows in the next few years.

As a result of such significant funding obligations, and the making of the Offer, the Directors, excluding the Independent Board Committee, believe that it is prudent and in the best interests of the Company and the Shareholders as a whole for the Company to ensure that it has adequate financing in place when the Offer is made and beyond the Maturity Date of the 2014 Convertible Note to meet its financing obligations as they fall due and to continue to fund its existing development projects.

The Company has an undrawn revolving credit facility of HK$2,800 million (the “Revolving Credit Facility”) which the Company intends to draw down in the near future for the property development projects and other general use. The Revolving Credit Facility will expire in September 2012 and requires renewal. It is noted in the “Letter from the Board” that based on the value of the Pacific Century Place in Beijing as assessed and disclosed in the latest valuation report and the Company’s recent discussions with its financing banks, the Directors are of the view that the Company is confident to renew the Revolving Credit Facility or procure similar financing facilities to meet its working capital requirements after closing of the Offer. Based on our discussion with the Directors, we understand that in renewing the Revolving Credit Facility, the financing bank would consider a number of factors, including the value of the collateral, the Company’s overall financial position and repayment commitment, and the Directors believe that the certainty of the 2014 Convertible Note being refinanced when it falls due would have a positive effect on the Revolving Credit Facility renewal process. In the unlikely event that the Company is unable to renew the Revolving Credit Facility or procure other financing facilities, we understand that the Company would consider adjusting its capital expenditure and development strategy so that the progress of some of property development projects could be adjusted.

Accordingly, the Company has entered into the Subscription Agreement to secure additional financing in the form of the 2019 Convertible Note of a principal amount up to HK$2,904 million (or the unpaid redemption amount of the 2014 Convertible Note at the Maturity Date on 9 May 2014).

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LETTER FROM ROTHSCHILD

Based on our discussions with the Directors, we understand that the Directors have considered other alternative sources of financing such as debt financing, convertible debt financing (from other third party sources) and equity financing. With respect to debt financing, the Directors hold the view that due to the nature of their business and the fact that the two large scale development projects are still at the initial investment stage (which requires substantial capital expenditure) with no net positive cash inflows anticipated in the near term, and the fact that the Company’s investment property in Beijing has already been used to secure the banking facilities of RMB10 million and the Revolving Credit Facility, third party debt financing in the amount required to meet the full funding needs of the Company is not likely to be available on terms that would represent a better alternative for the Company and the Shareholders, than the issuing of the 2019 Convertible Note and we concur with the view of the Directors. With respect to convertible debt financing (from other third parties) or equity financing, in light of the quantum of funding required relative to the current market capitalisation of the Company, the current trading liquidity of the Shares, the current stock market environment in Hong Kong, and the fact that the Revolving Credit Facility will mature in September 2012, we concur with the Directors that such forms of financing would not be executable on terms that would be more attractive for the Company and the Shareholders than those achieved by re-financing via issuing the 2019 Convertible Note.

Although the capital required for the property development projects spreads over a number of years and the redemption of the 2014 Convertible Note does not fall due until 2014, the Directors have also considered whether better financing alternatives might exist if the Company were to wait to consider such alternative financing. The Directors believe that given the quantum of refinancing required, the current uncertainties with regard to each of the global economic environment and the potential future stock market volatility and performance, it is in the best interests of the Company and the Shareholders to secure and strengthen the financial position of the Company at this time whilst an agreement can be reached with the CN Holder.

Given that the CN Issuer has no obligation to issue the 2019 Convertible Note if the 2014 Convertible Note is fully converted or if the unconverted balance of the redemption amount under the 2014 Convertible Note can be fully repaid at maturity, the CN Issuer would have a choice to redeem the 2014 Convertible Note without issuing the 2019 Convertible Note if a better refinancing alternative becomes available at the Maturity Date of the 2014 Convertible Note. The Directors (excluding the Independent Board Committee) believe that the entering into of the Subscription Agreement now is beneficial to the Company as it will enable the Company to secure attractive terms for the refinancing of the Revolving Credit Facility, thereby enabling the Group to enjoy long term stable financing and greater financial flexibility.

Taking into account the factors discussed above, and having reviewed the financial position of the Company, we concur with the Directors that the reasons for entering into the Subscription Agreement now are justifiable.

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LETTER FROM ROTHSCHILD

2. Principal terms of the Subscription Agreement

For details of the terms of the Subscription Agreement, your attention is drawn to the “Letter from the Board” in the Circular and “Further details of the 2019 Convertible Note” in Appendix II to the Circular.

3. Evaluation of the key terms and conditions of the Subscription Agreement

(i) The conversion price

Based on the Subscription Agreement, the conversion price will be set, on the issue date of the 2019 Convertible Note (i.e. 9 May 2014), at a level equal to 140% of the 20 trading day average of the closing price of the Shares ending on such issue date, but not less than the Minimum Conversion Price, being 140% of the 20 trading day average of the closing prices of the Shares ended on the Last Trading Day. The Minimum Conversion Price of HK$1.64 represents a premium of approximately 19.7% over the closing Share price on the Last Trading Day of HK$1.37 and a premium of approximately 22.4% over the average closing Share price of the One-Year Period of HK$1.34.

To the extent that the share price declines prior to the issue date of the 2019 Convertible Note to a level lower than the Minimum Conversion Price, the conversion price of the 2019 Convertible Note will still be subject to the Minimum Conversion Price, meaning the ownership dilution the Shareholders might incur, in the event the CN Holder converts at or prior to maturity, is capped at approximately 1,770.7 million Conversion Shares as of the Latest Practicable Date (subject to customary adjustments to the Minimum Conversion Price for certain corporate actions which may increase the maximum number of shares underlying the 2019 Convertible Notes as outlined in the Subscription Agreement, including stock splits, the Possible Bonus Issue and capital distributions).

To the extent that the calculation of the conversion price at the time the 2019 Convertible Note is issued results in a conversion price above the Minimum Conversion Price, the amount of ownership dilution the Shareholders might incur from conversion of the 2019 Convertible Notes will be reduced.

(ii) Comparison with other issue and subscription of convertible notes/bonds and the 2014 Convertible Note

As part of our analysis, we have identified, based on information publicly available, all convertible notes/bonds that have been issued and subscribed for from 1 October 2011 up to the Latest Practicable Date (being the recent 6-month period prior to the Latest Practicable Date) as announced by companies listed on the Stock Exchange and we have selected those with a tenor of three to five years as comparable convertible notes/bonds (the “Comparable CNs”).

Based on our research, we have identified 17 transactions that meet the said criteria. Shareholders should note that the Comparable CNs are not identical to the 2019 Convertible Note. In particular, shareholders should take into account that: (i) the businesses, operations and prospects of the Company are not the same as the companies issuing the Comparable CNs; (ii) the Subscription

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LETTER FROM ROTHSCHILD

Agreement represents a contingent agreement to subscribe for a convertible note at a future date, which is structurally different to the Comparable CNs as they were issued shortly after subscription; and (iii) the 2019 Convertible Note will have a conversion price which is the higher of the Minimum Conversion Price and a 40% premium to the 20 trading day average of the closing prices of the Shares at the time of issue, meaning the actual conversion premium could be higher than 40% if the Share price falls below the Minimum Conversion Price prior to the issue date of the 2019 Convertible Note. Shareholder should also note that in comparing the Comparable CNs against the 2019 Convertible Note, convertible bond investors usually make an investment decision based upon all of the features of the instrument taken as a whole (the annual interest rate, premium/discount of the conversion price relative to the market share price at the time of subscription and the first investor redemption date). Notwithstanding such differences and caveats, the Comparable CNs are able to reflect the prevailing market conditions and provide a relevant reference for the terms of the recent issues and subscriptions of convertible notes/bonds of Hong Kong listed companies. Our relevant observations are summarised below:

Table 8 — Comparable CNs and the 2014 Convertible Note

							Premium/	Premium/
							(Discount) of	(Discount) of
							the conversion	the conversion
							price relative	price relative to
							to the closing	average closing
						Yield to	price on the	price of the 20
				Annual	Maturity/	maturity/	last trading day	trading days
Date of		Original	HK$	interest	put date (if	put (if	prior to	prior to
announcement	Company name	currency	equivalent	rate	applicable)	applicable)	announcement	announcement
			(HK$ million)	(%)	(years)	(%)	(%)	(%)
13 Mar 2012	361 Degrees	US$	1,170	4.5	5/3	4.5/4.5	27.4	16.5
	International Limited
13 Mar 2012	China Eco-Farming	HK$	20	Nil	3	Nil	20.5	30.4
	Limited
07 Mar 2012	Siberian Mining Group	US$	546	3.0	3	4.9	0.0	14.9
	Company Limited
06 Mar 2012	Wah Nam International	HK$	78	5.0	3	5.0	15.4	14.1
	Holdings Limited
08 Feb 2012	Chiho-Tiande Group	HK$	816	4.0	3	4.0	60.4	50.3
	Limited
27 Jan 2012	China Properties Group	HK$	500	5.0	4	5.0	1.3	7.2
	Limited
26 Jan 2012	Opes Asia Development	HK$	75	3.0	3	3.0	1.4	0.9
	Limited
20 Jan 2012	China Public Healthcare	HK$	100	Nil	5	1.0	(18.3)	(16.4)
	(Holding) Limited
19 Jan 2012	Li Ning Company	RMB	915	4.0	5	4.0	15.2	18.4
	Limited

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LETTER FROM ROTHSCHILD

							Premium/	Premium/
							(Discount) of	(Discount) of
							the conversion	the conversion
							price relative	price relative to
							to the closing	average closing
						Yield to	price on the	price of the 20
				Annual	Maturity/	maturity/	last trading day	trading days
Date of		Original	HK$	interest	put date (if	put (if	prior to	prior to
announcement	Company name	currency	equivalent	rate	applicable)	applicable)	announcement	announcement
			(HK$ million)	(%)	(years)	(%)	(%)	(%)
22 Dec 2011	Culture Landmark	HK$	75	12.0	4	12.0	5.3	(9.2)
	Investment Limited
14 Dec 2011	Interchina Holdings	HK$	295	2.0	3	2.0	(18.4)	(13.0)
	Company Limited
05 Dec 2011	Computech Holdings	HK$	50	Nil	3	Nil	(44.4)	(52.2)
	Limited
30 Nov 2011	Hilong Holding Limited	HK$	233	3.5	3	14.4	67.8	54.0
17 Nov 2011	New Focus Auto Tech	US$	298	Nil	4	Nil	31.8	25.3
	Holdings Limited
07 Nov 2011	The United Laboratories	RMB	1,208	7.5	5/2	7.5/7.5	22.0	20.3
	International Holdings
	Limited
18 Oct 2011	Amber Energy Limited	HK$	125	2.0	5	2.0	39.8	50.1
03 Oct 2011	Rising Development	HK$	100	5.0	3	5.0	6.4	(19.3)
	Holdings Limited
Minimum				Nil		Nil/4.5	(44.4)	(52.2)
Maximum				12.0		14.4/7.5	67.8	54.0
Simple average				3.6		4.4/6.0	13.7	11.3
2014 Convertible	Note (for reference only)	HK$	2,420	1.0	10	2.8	(25.0)	(11.3)
2019 Convertible	Note	HK$	2,904	5.5	5/3	5.5/5.5	19.71	40.02

Source: Thomson Reuters, website of the Stock Exchange (www.hkex.com.hk)

Notes:

Calculated based on the Minimum Conversion Price
Conversion price will be set on the issue date, at a level equal to 140% of the 20 trading day average of the closing prices of the Shares ending on such issue date, but not less than the Minimum Conversion Price.

(a) The conversion price

As shown in the table above, we observe that the conversion price of the Comparable CNs relative to the 20 trading day average closing price prior to the respective last trading day shows a range between a discount of 52.2% to a premium of 54.0%, with an average of approximately

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LETTER FROM ROTHSCHILD

11.3% premium. In comparison, the conversion price pursuant to the Subscription Agreement would represent a 40% premium over the 20 trading day average of the closing prices of the Shares ending on such issue date which is higher than the average premium of the Comparable CNs and more favourable than the conversion price premium/discount of the 2014 Convertible Note which represented a discount of 11.3% to the 20 trading average closing price of the Shares as at its corresponding last trading day, and we also noted that only three out of the 17 Comparable CNs has conversion premium higher than the 2019 Convertible Note.

Similarly, we compared the conversion premiums/discounts relative to the corresponding closing prices on the last trading day prior to announcement of the Comparable CNs, the conversion premium implied by the 2019 Convertible Note (based on the Minimum Conversion Price) of 19.7% is also higher than the simple average of the Comparable CNs of approximately 13.7% premium and the conversion price discount of the 2014 Convertible Note of 25.0%.

Conversion premium represents the extent by which the conversion price of a convertible security exceeds the market price of the underlying security at the time the convertible security is issued and a higher conversion premium means lower dilution to the shareholders of the issuer of the convertible security. As noted above, the conversion premium of the 2019 Convertible Note is higher than the conversion premium of most of the Comparable CNs and as such it would represent a smaller dilution to the Shareholders than most of the Comparable CNs, if converted.

(b) Interest rate and yield to maturity/put

As shown in the table above, the interest rate of the Comparable CNs ranges from 0.0% to 12.0% with an average of approximately 3.6%, and the yield to maturity of the Comparable CNs ranges from 0.0% to 14.4% with an average of approximately 4.4%. Only some of the Comparable CNs allow the note holder to put back the convertible note to the respective issuer, for those Comparable CNs the yield to put ranges from 4.5% to 7.5% with an average of approximately 6.0%. The interest rate, yield to maturity and yield to put of the 2019 Convertible Note pursuant to the Subscription Agreement are all 5.5%, which are within the range of the Comparable CNs, and although the interest rate and yield to maturity are above the mean of the Comparable CNs and the 2014 Convertible Note, we believe that these are reflective of the nature of the Company, its financial position and its significant funding requirements and should be considered in conjunction with other terms of the 2019 Convertible Note such as the proposed conversion premium above.

(c) Maturity

In reviewing the convertible notes issued by companies listed on the Stock Exchange for the six-month period prior to the Latest Practicable Date, we observe that the maturity of the convertible notes ranges from one to five years (with a majority ranges from three to five years). The maturity of the proposed 2019 Convertible Note, as per the Subscription Agreement is five years, which falls on the upper end of the range and we believe that a longer maturity can enable the Group to enjoy longer term stable financing and greater financial flexibility.

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LETTER FROM ROTHSCHILD

(iii) Other terms of the Subscription Agreement

We have also reviewed the other major terms of the Subscription Agreement including but not limited to the terms of the 2019 Convertible Note (further details of which are set out in Appendix II to the Circular) governing amongst other things, the conversion rights, the redemption options and the transferability, and are not aware of any terms which are not in line with terms that would have been available from independent third parties.

(iv) Further considerations

In reaching our opinion, we have also taken into consideration a number of factors, including the financial position of the Company, its significant funding needs and obligations, the tenor of the 2019 Convertible Note, the volatility of the Shares and the size of the 2014 Convertible Note refinancing requirement relative to the traded free-float and liquidity of the underlying Shares and the current Hong Kong dollar interest rate curve.

Having considered the above factors and compared the key terms of the Subscription Agreement (containing the terms of the 2019 Convertible Note) against the terms of the Comparable CNs, and notwithstanding the differences between the nature and financial situation of the Company in comparison with the Comparable CNs, we note that the terms and conditions are generally in line with the recent precedents. We also note that, despite the size of the 2019 Convertible Note being larger than the Comparable CNs and that it represents a significant portion of the Company’s market capitalisation and NAV, the key terms of the 2019 Convertible Note are still within the range of the Comparable CNs. This further supports our view that the terms of the 2019 Convertible Note as a whole are reasonable.

4. Possible dilution effect on the shareholding interests of the existing public Shareholders

As at the Latest Practicable Date, there were approximately 2,407.5 million Shares in issue. If the maximum amount of HK$2,904 million of the 2019 Convertible Note is issued on 9 May 2014 and fully converted at the Minimum Conversion Price of HK$1.64 each, a maximum of approximately 1,770.7 million Conversion Shares will be allotted and issued upon the exercise of the conversion rights attaching to the 2019 Convertible Note, which represents: (i) approximately 73.5% of the issued share capital of the Company as at the Latest Practicable Date; and (ii) approximately 49.0% of the issued share capital of the Company as enlarged by the issue of the approximately 1,770.7 million Conversion Shares, assuming none of the outstanding share options are converted or exercised. In this situation, the shareholding of the existing public Shareholders in the Company will be reduced from approximately 15.1% to approximately 10.0% immediately after the full conversion of the 2019 Convertible Note, assuming none of the outstanding share options are converted or exercised and the Elliot Entities and ECALP accepted the Offer in full. In the event that the trading price of the Shares increases prior to the issue date of the 2019 Convertible Note, then the conversion price set on the issue date would be higher than the Minimum Conversion Price, and the amount of dilution to Shareholders would be less.

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LETTER FROM ROTHSCHILD

However, if and to the extent that the minimum public float requirements in respect of the Shares under the Listing Rules could not be complied with immediately after the purported exercise of the conversion rights of any holder of the 2019 Convertible Note, such holder shall not be entitled to exercise such conversion rights.

In this regard, taking into account that: (i) the significant funding obligations as well as the financial position of the Company; (ii) the Directors have already considered alternative financing options but considered that financing alternatives with more attractive terms is not likely to be available; and (iii) the Company will have a choice to repay the 2014 Convertible Note and not to issue the 2019 Convertible Note if a better refinancing alternative becomes available at the maturity date of the 2014 Convertible Note, we are of the view that the terms of the Subscription Agreement, as a whole are fair and reasonable.

C. FINANCIAL EFFECTS

As the Offer involves the repurchase and cancellation of Shares and Elliott Entities together with ECALP have undertaken to accept the Offer in respect of Shares held by them subject to the right of disposal as explained above, upon completion of the Offer, the number of Shares outstanding will be reduced. In addition, in accordance with the Hong Kong Financial Reporting Standard (“HKFRS”), the Subscription Agreement will be treated as a financial instrument of the Group and is initially recognised at fair value.

For illustrative purposes, we have summarised below the financial effects of the Offer and the Subscription Agreement to the Group. Further details of the financial effects of the Offer and the Subscription Agreement are set out in the “Letter from the Board” in the Circular and the “Unaudited pro forma financial information of the Group” in Appendix V to the Circular.

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LETTER FROM ROTHSCHILD

			Immediately
		Immediately	following
		following	completion of the
		completion of the	Offer (Assuming
		Offer (Assuming	all Shareholders
	Immediately	only the Elliott	(other than the
	before	Entities and	PCCW Group)
	completion of	ECALP accept	accept the Offer)
	the Offer and the	the Offer) and	and the signing
	signing of the	the signing of	of the
	Subscription	the Subscription	Subscription
	Agreement	Agreement	Agreement
	(audited)	(unaudited)	(unaudited)
Weighted average number of Shares
in issue (shares)	2,407,459,873	1,844,330,373	1,481,333,333
In respect of earnings:
Basic earnings per Share (HK cents)	2.58 cents	3.36 cents	4.19 cents
In respect of NAV:
Consolidated NAV of the Group as at
31 December 2011 (HK$ million)	7,167	6,185	5,514
NAV per Share (HK$)	2.98	3.35	3.72
In respect of gearing:
Net debt to NAV (%)	Net cash	12.1%	25.8%
Debt to assets (%)	21.7%	23.7%	25.3%

Assuming only the Elliott Entities together with ECALP accept the Offer

The basic earnings per Share will increase from HK cents 2.58 per Share to HK cents 3.36 per Share, representing an increase of approximately 30.2%.

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LETTER FROM ROTHSCHILD

Under this scenario, the Offer involves a maximum cash payment of HK$1,042 million. Taking into account the estimated expenses of approximately HK$25 million to be incurred in connection with the Offer and the recognition of the financial instrument relating to the Subscription Agreement, the unaudited consolidated NAV of the Group is expected to decrease by HK$982 million. Since the Offer Price is lower than the audited consolidated NAV per Share of HK$2.98, the Offer will therefore increase the unaudited consolidated NAV per Share from approximately HK$2.98 per Share to HK$3.35 per Share, representing an increase of approximately 12.4%.

The financial position of the Group immediately after completion of the Offer and the signing of the Subscription Agreement will change from a net cash position as at 31 December 2011 to a net debt of approximately HK$750 million. The net debt to NAV ratio and the debt to assets ratio of the Group will be increased from zero to approximately 12.1% and from 21.7% to 23.7% respectively, which we believe are still within acceptable limit.

Assuming all Shareholders (other than the PCCW Group) accept the Offer

The basic earnings per Share will increase from HK cents 2.58 per Share to HK cents 4.19 per Share, representing an increase of approximately 62.4%.

Under this scenario, the Offer involves a maximum cash payment of HK$1,713 million. Taking into account the estimated expenses of approximately HK$25 million to be incurred in connection with the Offer and the recognition of the financial instrument relating to the Subscription Agreement, the unaudited consolidated NAV of the Group is expected to decrease by HK$1,653 million. Since the Offer Price is lower than the unaudited consolidated NAV per Share, the Offer will therefore increase the unaudited consolidated NAV per Share from approximately HK$2.98 per Share to HK$3.72 per Share, representing an increase of approximately 24.8%.

The financial position of the Group immediately after completion of the Offer and the signing of the Subscription Agreement will change from a net cash position as at 31 December 2011 to a net debt of approximately HK$1,421 million. The net debt to NAV ratio and the debt to assets ratio of the Group will be increased from zero to approximately 25.8% and from 21.7% to 25.3% respectively, which we believe are still within acceptable limit.

As also noted in the “Letter from the Board”, the Directors, excluding the Independent Board Committee, are of the view that the implementation of the Offer will not have material adverse effect on the working capital of the Group and the Directors have confirmed that the Group will have sufficient working capital to meet its normal operating requirement after completion of the Offer. Based on the above and given that the Directors hold the view that the Company is confident to renew the Revolving Credit Facility or procure similar financing facilities to meet its working capital requirements after closing of the Offer, we also share the view that the implementation of the Offer will not have a material adverse effect on the working capital of the Group.

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LETTER FROM ROTHSCHILD

In respect of the 2019 Convertible Note, we understand that under the HKFRS, it will only be recognised upon issue, and the respective amounts of the equity and debt portion of the 2019 Convertible Note on the consolidated balance sheet of the Group as well as the effective interest rate to be applied for the calculation of interest expense on the consolidated statement of comprehensive income of the Group can only be determined using the prevailing market rates at the time of issue (i.e. May 2014), hence the Company is not able to quantify its financial effects under the HKFRS in the Circular.

D. THE POSSIBLE BONUS ISSUE

As stated in the “Letter from the Board” in the Circular, following the closing of the Offer, the Company will take steps to ensure that sufficient Shares are held in the hands of the public as required by the Listing Rules; and if necessary and practicable, the Company intends to restore the minimum public float by way of the Possible Bonus Issue. The number of Bonus Shares to be issued will be up to a maximum of four Bonus Shares for every one existing Share held by the Shareholders and the exact issuance ratio is yet to be determined by the Board. Each eligible Shareholder will be given the option to elect to receive the Bonus Convertible Notes in lieu of all (or part) of its entitlement to the Bonus Shares under the Possible Bonus Issue.

Independent Shareholders should note that the Possible Bonus Issue may or may not be made, and if made, it would be after the Offer is closed and would be subject to the fulfilment of conditions and may not become unconditional. Further, the Possible Bonus Issue may possibly lead to a decrease in the market price of the Shares given the dilution of the market value of the Company per Share. Independent Shareholders are advised that their decision to elect for receiving the Bonus Shares or the Bonus Convertible Notes depends on their own individual circumstances and investment objectives. Independent Shareholders are also recommended to consult their own professional advisers if they are in any doubt as to the taxation implications of receiving the Bonus Shares or the Bonus Convertible Notes.

SUMMARY

Having considered the above principal factors, reasons and analyses, we draw your attention to the following in arriving at our recommendation:

A. THE OFFER

(a) The public float of the Company has been below 25% since 2008 and the Board considers that the concentration of shareholdings and hence the lack of liquidity of the Shares has contributed to the limited investor interests in the Shares and the level of discount to NAV at which the Shares have been traded. As the Company is committed to take steps to restore the public float of the Company after closing of the Offer, we concur with the Board’s view that the Offer and the Possible Bonus Issue (or a combination of other additional or alternative methods) represents a possible method to restore public float of the Company;

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LETTER FROM ROTHSCHILD

(b) Given the lack of liquidity of the Shares, the Offer will provide a liquidity opportunity to Shareholders looking to realise their interests in the Shares at a premium to the Share price prior to the Announcement;
(c) The financial performance of the Company for the past three years have been largely dependent on the property development projects in Hong Kong, namely the Bel-Air residential project and the One Pacific Height residential project as well as from the revaluation of investment properties in China. Given that (i) the Company’s property development projects in Hong Kong have been largely completed; (ii) it has no current intention to realise its investment properties; and (iii) its other overseas property development projects are at the initial investment stage, the near term performance of the Group could be impacted by the lack of property development project available to the market and it may continue to be so until a significant property development project is ready for sale;
(d) The Offer Price is higher than the closing price of the Shares for the entire Three-Year Period and is approximately 12.8% and 1.1% higher than the highest closing price of the Shares during the One-Year Period and Three-Year Period respectively;
(e) The Offer Price represents a premium of approximately 35%, 43%, 62% and 57% over the 1-day, 5-day, 30-day and 120-day average closing price of the Shares and are higher than the average of the premiums implied by the VGO Precedents;
(f) The Offer Price implied a discount to NTAV of approximately 37.7% as at 31 December 2011, which is lower than the average discount to NTAV of those of the Primary Comparable Companies of approximately 63.2%, lower than the average discount to NTAV of the Shares implied by the closing price of the Shares for the One-Year Period and Three-Year Period of 52.3% and 47.2%, respectively and lower than the average discount to NTAV implied by the VGO Precedents of 49.1%; and
(g) The Company and PCCW have no intentions to privatise the Company or delist the Shares.

B. THE SUBSCRIPTION AGREEMENT

(a) Having taken into account a number of factors including the financial position of the Company, its significant funding needs and obligations, the volatility of the Shares, the size of the 2014 Convertible Note refinancing requirement relative to the traded free-float and liquidity of the underlying Shares and the current Hong Kong dollar interest rate curve, we concur with the views of the Directors that finding alternative sources of funding with acceptable terms will be challenging;

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LETTER FROM ROTHSCHILD

(b) The conversion price will be set on the issue date to be equal to 140% of the 20 trading day average of the closing prices of the Shares ending on such issue date of the 2019 Convertible Note, but not less than the Minimum Conversion Price which represents 140% of the 20 trading day average of the closing prices of the Shares ended on the Last Trading Day, an approximately 19.7% premium over the closing Share price on the Last Trading Day and an approximately 22.4% premium over the average closing Share price of the One-Year Period;
(c) Despite the different nature and financial situation of the Company, the conversion premium of the 2019 Convertible Note is higher than the average conversion premium of the Comparable CNs and the 2014 Convertible Note and the interest rate pursuant to the 2019 Convertible Note is within the range of the Comparable CNs. Furthermore, based on our discussion with the Directors, we understand that there are no better financing alternatives, with more attractive terms, currently offered by third parties to the Company;
(d) The 5-year tenor of the 2019 Convertible Note can enable the Group to enjoy longer term stable financing and greater financial flexibility; and
(e) The Company has the option to repay the unconverted balance of the 2014 Convertible Note and hence it can elect not to issue the 2019 Convertible Note and draw down the loan thereunder if better alternative becomes available on the maturity date of the 2014 Convertible Note.

OPINION AND RECOMMENDATIONS

Having considered the above principal factors and reasons, we consider the terms of the Offer and Subscription Agreement to be fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the ordinary resolutions to approve the Offer and the Subscription Agreement at the SGM and to accept the Offer.

In the event that the market price of the Shares exceeds the Offer Price during the period while the Offer is open and the sales proceeds (net of transaction costs) exceed the amount receivable under the Offer, Independent Shareholders should consider not accepting the Offer and consider seeking to sell their Shares in the market if they are able to do so.

Independent Shareholders are advised that their decision to realise or to hold their investment in the Shares depends on their own individual circumstances and investment objectives. Those Independent Shareholders who may not be able to realise a higher return from selling their Shares in the open market or are concerned about the possibility that the Company may not be able to renew its Revolving Credit Facility or procure other financing facilities to complete its property development projects according to the existing plan, or adjust capital expenditure and development strategy of the property development projects are recommended to accept the Offer, which provides a reasonable alternative exit so as to realise all or part of their investment in the Shares. Those Independent

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LETTER FROM ROTHSCHILD

Shareholders who, after considering the information on the Group, and its intentions regarding the Offer, are attracted by the future prospects of the Group following the Offer, should consider retaining some or all of their Shares.

Independent Shareholders are recommended to consult their own professional advisers if they are in any doubt as to the taxation implications of accepting or rejecting the Offer.

Yours very truly, For and on behalf of Rothschild (Hong Kong) Limited

Kelvin Chau Managing Director

Wallace Wong Director

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FURTHER DETAILS OF THE OFFER

APPENDIX I

Anglo Chinese is making the Offer to the Shareholders on behalf of the Company to repurchase the Shares, on the terms and subject to the conditions set out in this Circular. The terms and conditions of the Offer are set out below.

TERMS AND CONDITIONS OF THE OFFER

The Offer

The Company will repurchase for cancellation up to 926,126,540 Shares at the Offer Price. The Offer Price is HK$1.85 per Share and is final and will not be further increased or revised.

Conditions

The Offer is conditional upon the fulfillment of all the conditions to which completion of the Subscription Agreement is subject. The Subscription Agreement is conditional upon:

(a) the passing of an ordinary resolution by way of poll to approve the Subscription Agreement and the transactions contemplated thereunder (including the issue of the Conversion Shares upon the exercise of the conversion right attaching to the 2019 Convertible Note) by the Independent Shareholders, either voting in person or by proxy, at the SGM;
(b) the passing of an ordinary resolution by way of poll to approve the Offer by the Independent Shareholders, either voting in person or by proxy, at the SGM;
(c) consent being given by the Executive for the Special Deal;
(d) all conditions attaching to the consent given by the Executive for the Special Deal under Rule 25 of the Takeovers Code being fulfilled; and
(e) necessary approval(s) being granted or agreed to be granted by the Stock Exchange (or any amended or revised approval) in each case in respect of the completion of the Subscription Agreement and the issue and future conversion of the 2019 Convertible Note, including the approval for the listing of, and permission to deal in, all the Conversion Shares which may be issued pursuant to the exercise of the conversion rights attaching to the 2019 Convertible Note issued under the terms and conditions of the Subscription Agreement on terms and conditions (if any) satisfactory to the CN Issuer, the Company and the CN Holder.

None of these conditions described in (a) to (e) above may be waived in whole or in part.

The Offer is not conditional upon any minimum number of Shares tendered for acceptance.

Maximum number of Shares to be repurchased

The maximum number of Shares which will be repurchased by the Company pursuant to the Offer is 926,126,540 Shares, representing approximately 38.47% of the issued share capital of the Company of 2,407,459,873 Shares as at the Latest Practicable Date.

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FURTHER DETAILS OF THE OFFER

APPENDIX I

Shareholders

The Offer is available to all Shareholders.

Acceptance

Shareholders may accept the Offer in respect of any number of their Shares at the Offer Price up to their entire holding of the Shares by submitting to the Registrar a duly completed Form of Acceptance, accompanied by the Title Documents, by no later than the Latest Acceptance Time. Each Share may only be accepted under the Offer once.

Forms of Acceptance which have been duly completed and received by the Registrar by no later than the Latest Acceptance Time will constitute irrevocable acceptances of the Offer after the Offer has been declared unconditional.

All of the Shares repurchased by the Company will be free of commissions and dealing charges, but seller’s ad valorem stamp duty payable by the Accepting Shareholders, calculated at a rate of HK$1.00 for every HK$1,000 or part thereof of the market value of the Shares to be repurchased under the Offer or the consideration payable by the Company in respect of the relevant acceptances of the Offer, whichever is the higher, will be deducted by the Company from the amount payable to the Accepting Shareholders. The Company will arrange for payment of the seller’s ad valorem stamp duty on behalf of the Accepting Shareholders to the Stamp Office in accordance with the Stamp Duty Ordinance (Chapter 117 of the Laws of Hong Kong).

All Shares repurchased under the Offer will be cancelled in accordance with the Bye-laws and will not rank for any dividends after their cancellation.

Subject to the Offer becoming unconditional, the submission of a Form of Acceptance by an Accepting Shareholder in the manner described above will be deemed to constitute a warranty from such Accepting Shareholder to Anglo Chinese and the Company that all Shares sold by such Accepting Shareholder under the Offer are fully paid, free from all liens, charges, encumbrances, equitable interests, rights of pre-emption or other third party rights of any nature and together with all rights attaching thereto on or after the date of their cancellation (including the right to all dividends and distributions (if any) declared, made or paid on or after the date of their cancellation).

Acceptance period

If the Offer becomes unconditional, the Offer will remain open for acceptance for a period of not less than 14 days thereafter. In order to be valid, the duly completed Form of Acceptance, together with the Title Documents in respect of such number of Shares which the relevant Accepting Shareholders intend to accept under the Offer, must be delivered to and received by the Registrar by no later than the Latest Acceptance Time, which is currently expected to be 4:00 p.m. on Wednesday, 16 May 2012, or such later time, and or date as the Company may, with the prior consent of the Executive, decide and announce.

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FURTHER DETAILS OF THE OFFER

APPENDIX I

The date on which the Conditions are expected to be satisfied is Wednesday, 2 May 2012. Such date may be postponed by the Company, subject to receiving the prior consent of the Executive on the Special Deal and necessary approval(s) being granted or agreed to be granted by the Stock Exchange for the listing of the Convertible Shares.

Irrevocable acceptances

Forms of Acceptance which have been duly completed and received by the Registrar by no later than the Latest Acceptance Time will constitute irrevocable acceptance of the Offer after the Offer has been declared unconditional.

General

The Shares to be repurchased under the Offer shall be fully paid, free from all liens, charges, encumbrances, equitable interests, rights of pre-emption or other third party rights of any nature and together with all rights attaching thereto on or after the date of their cancellation (including the right to all dividends and distributions (if any) declared, made or paid on or after the date of their cancellation).

Shareholders may accept the Offer by completing and returning the accompanying Form of Acceptance in accordance with the instructions set out in this Circular and the instructions printed on the Form of Acceptance. A Form of Acceptance may be rejected as invalid if the procedures contained in this Circular and in the Form of Acceptance are not complied with.

The Offer and all acceptances of it, the Forms of Acceptance and all contracts made pursuant to the Offer, and all actions taken or made or deemed to be taken or made pursuant to these terms will be governed by and construed in accordance with Hong Kong laws. Delivery of a Form of Acceptance will constitute submission to the non-exclusive jurisdiction of the Hong Kong courts.

Failure of any person to receive this Circular will not invalidate any aspect of the Offer. Extra prints of this Circular will be available for collection by any Shareholder at the office of the Registrar and the principal place of business of the Company during office hours between the date of despatch of this Circular and the Latest Acceptance Time, and on the Stock Exchange’s website at www.hkexnews.hk for at least 7 days from the date of its publication, and the Company’s website at http://www.pcpd.com.

The right of acceptance of the Offer is personal to the Shareholders and is not capable of being assigned or renounced in favour of others or otherwise transferred by the Shareholders.

All questions as to the number of Shares repurchased or the price to be paid therefor, and the validity, form, eligibility (including the time of receipt), acceptance or payment of any acceptance will be determined by the Company, which determination will be final and binding on all of the parties concerned (except as otherwise required under the applicable law or by the Executive). The Company reserves the absolute right to reject any or all acceptances it determines not to be in proper form or the acceptance or payment therefor which may, in the opinion of the Company, be unlawful. An

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FURTHER DETAILS OF THE OFFER

APPENDIX I

acceptance may be rejected as invalid unless all defects or irregularities have been cured or waived. None of the Company or the Registrar or any other persons is or will be obliged to give notice of any defects or irregularities in acceptances and none of them will incur any liability for failure to give any such notice.

All communications, notices, Forms of Acceptance, Title Documents and remittances to be delivered or sent by, to or from any Shareholder will be delivered or sent by, to or from them, or their designated agents, at their risk and none of the Company, Anglo Chinese, the Registrar or any of their respective directors or any other persons involved shall accept any liability for any loss or any other liabilities whatsoever which may arise in respect thereof.

Should any Shareholder require any assistance in completing the Form of Acceptance or have any enquiries regarding the procedures for tendering and settlement or any other similar aspect of the Offer, such Shareholder may contact the Registrar at its hotline at (852) 2862 8555 during the period from Thursday, 5 April 2012 to the closing date of the Offer (both days inclusive) between 9:00 a.m. and 6:00 p.m. from Mondays to Fridays (other than public holidays).

The Company reserves its right to waive any defects or irregularities in any Form of Acceptance received by the Registrar.

PROCEDURES FOR ACCEPTANCE AND SETTLEMENT

General procedures for acceptance

In order to accept the Offer, Shareholders should complete and return the accompanying Form of Acceptance in accordance with the instructions set out in this Circular and the instructions printed on the Form of Acceptance. The instructions set out in this Circular should be read together with the instructions printed on the Form of Acceptance (which instructions form part of the terms of the Offer).

In order to be valid, the duly completed Form of Acceptance, together with the Title Documents in respect of such number of Shares which the relevant Shareholder intends to accept under the Offer, should be delivered by post or by hand to the Registrar, located at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, as soon as possible after receipt of the Form of Acceptance but in any event so as to reach the Registrar by no later than 4:00 p.m. on Wednesday, 16 May 2012, or such later time and, or date as the Company may, with the prior consent of the Executive, decide and announce.

No Form of Acceptance received after the Latest Acceptance Time will be accepted.

If the Form of Acceptance is executed by a person other than the registered holder, appropriate evidence of authority (e.g. a grant of probate or certified copy of a power of attorney) must be delivered to the Registrar with the completed Form of Acceptance.

No acknowledgement of receipt of any Form of Acceptance or Title Documents will be given.

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APPENDIX I

FURTHER DETAILS OF THE OFFER

The Company reserves the right, at its sole discretion, to investigate, in relation to any acceptance, whether the representations and warranties set out in this appendix could have been properly given by the relevant Shareholder and, if such investigation is made and as a result the Company determines (for any reason) that any such representation and, or warranty could not have been properly given, such acceptance may be rejected as invalid.

Nominee holdings

If the Title Documents in respect of Shares owned by a Shareholder are in the name of a nominee company or a name other than his/her own, and such Shareholder wishes to accept the Offer (either in full or in respect of part of his/her holding(s) of the Shares), he/she must either:

(i) instruct the nominee company, or other nominee to accept the Offer on his/her behalf and requesting it to deliver the Form of Acceptance duly completed together with the Title Documents to the Registrar within such deadline (which may be earlier than the deadline specified under the Offer) as may be stipulated by the nominee; or
(ii) arrange for the Shares to be registered in his/her name by the Company through the Registrar, and send the Form of Acceptance duly completed together with the Title Documents to the Registrar; or
(iii) where his/her Shares have been maintained with his/her licensed securities dealer/custodian bank through CCASS, instruct his/her licensed securities dealer/custodian bank to authorise HKSCC Nominees Limited to accept the Offer on his/her behalf on or before the deadline set by HKSCC Nominees Limited. In order to meet the deadline set by HKSCC Nominees Limited, that Shareholder should check with his/her broker or custodian bank for the timing on processing of his/her instruction, and submit such instruction to his/her broker or custodian bank as required by them; or
(iv) if that Shareholder’s Shares have been lodged with his/her Investor Participant Account with CCASS, authorise his/her instruction via the CCASS Phone System or CCASS Internet System on or before the deadline set by HKSCC Nominees Limited.

Shareholders whose Shares are held by a nominee company should note that the nominee company will be regarded as a single Shareholder according to the Register.

Shareholders whose Shares are held by nominee(s) should ensure that they undertake the above applicable course of action promptly so as to allow their nominee(s) sufficient time to complete the acceptance procedure on their behalf by the Latest Acceptance Time.

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FURTHER DETAILS OF THE OFFER

APPENDIX I

Recent transfers

If a Shareholder has lodged transfer(s) of Shares for registration in his/her name and has not yet received the Share certificate(s) and wishes to accept the Offer, he/she should nevertheless complete the Form of Acceptance and deliver it to the Registrar together with the transfer receipt(s) duly signed by him/her by no later than the Latest Acceptance Time. Such action will be deemed to be an authority to the Company or its agent(s) to collect from the Company or the Registrar on his/her behalf the relevant Share certificate(s) when issued and to deliver such Share certificate(s), subject to the terms of the Offer, as if it/they was/were delivered to the Registrar with the Form of Acceptance.

Lost or unavailable share certificates

If the Title Document(s) is/are not readily available and, or, is/are lost and a Shareholder wishes to accept the Offer, the Form of Acceptance should nevertheless be completed and delivered to the Registrar so as to reach the Registrar by no later than the Latest Acceptance Time and the Title Documents should be forwarded to the Registrar as soon as possible thereafter and in any event before the Latest Acceptance Time.

Acceptances of the Offer may, at the discretion of the Company, be treated as valid even if not accompanied by the Title Documents but, in such cases, the consideration payable under the Offer will not be despatched until the relevant Title Document(s) has/have been received by the Registrar.

If a Shareholder has lost his/her Title Document(s), he/she should write to the Registrar and request a letter of indemnity in respect of the lost Title Document(s) (as the case may be) which, when completed in accordance with the instructions given, should be returned, together with the Form of Acceptance and any Title Documents which are available, to the Registrar either by post or by hand, so to arrive not later than the Latest Acceptance Time. In such case, such Shareholder will be informed of the fees payable to the Registrar for which he/she will be responsible.

Additional Forms of Acceptance

If a Shareholder has lost the accompanying Form of Acceptance or such original has become unusable, and requires a replacement of such form, he/she should write to the Registrar or visit the Registrar at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, and request an additional Form of Acceptance. Alternatively, he/she could download it from the website of the Stock Exchange at www.hkexnews.hk or the Company’s website at http://www.pcpd.com/.

Settlement

Pursuant to Rule 20.1 of the Takeovers Code, the Shares represented by acceptances of the Offer shall be paid for by the Company as soon as possible but in any event within 7 business days of the later of the date on which the Offer becomes, or is declared, unconditional and the date of receipt of a duly completed Form of Acceptance accompanied by the Title Documents.

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APPENDIX I

FURTHER DETAILS OF THE OFFER

Subject to the Offer becoming unconditional and provided that a duly completed Form of Acceptance accompanied by the relevant Title Documents are received by the Registrar by no later than the Latest Acceptance Time, a cheque for the amount representing the consideration due to you in respect of the Shares tendered by you under the Offer will be despatched to you by ordinary post at your own risk as soon as possible but in any event within 7 business days of the later of the date on which the Offer becomes, or is declared, unconditional and the date on which the duly completed Form of Acceptance which renders such acceptance complete and valid is received by the Registrar.

If the Offer does not become unconditional, the Title Documents will be returned and, or sent to each Accepting Shareholder (by ordinary post at that Accepting Shareholder’s own risk) within 7 business days of the lapse of the Offer. Where any Accepting Shareholder has sent one or more transfer receipt(s) and in the meantime one or more Share certificate(s) has/have been collected on that Accepting Shareholder’s behalf in respect thereof, that Accepting Shareholder will be sent (by ordinary post at his/her own risk) such Share certificate(s) in lieu of the transfer receipt(s).

New Shareholders

Any Shareholder may collect a copy of this Circular from the Registrar located at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong during business hours between Thursday, 5 April 2012 to the closing date of the Offer, both dates inclusive. Such Shareholder may also contact the Registrar (through the enquiry hotline under the section headed “Terms and conditions of the Offer — General” of this appendix) and request a copy of this Circular to be sent to his/her registered address as recorded in the Register.

EFFECT OF ACCEPTANCE OF THE OFFER BY THE SHAREHOLDERS

Each Shareholder by whom, or on whose behalf, a Form of Acceptance is executed irrevocably undertakes, represents, warrants and agrees to and with the Company and Anglo Chinese (so as to bind him/her, his/her personal representatives, heirs, successors and assigns) to the effect:

Deeming provisions

The following provisions apply in the case of incorrectly completed, incomplete or illegible Form of Acceptance:

(a) if the Form of Acceptance is not completed at all or a mark other than a legible number is inserted, the Shareholder is deemed to have accepted the Offer in regard to such number of Shares as shall be equal to the number of the Shares tendered by such Shareholder, as supported by the Title Documents submitted together with the relevant Form of Acceptance; and
(b) if the total number of Shares inserted in the Form of Acceptance is greater than the Shares tendered by the relevant Shareholder as supported by the Title Documents submitted

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FURTHER DETAILS OF THE OFFER

APPENDIX I

together with the relevant Form of Acceptance, such Shareholder will be deemed to have accepted the Offer in regard to such number of Shares as shall be equal to the number of the Shares tendered by him/her, as supported by the Title Documents submitted together with the relevant Form of Acceptance.

Representations and warranties

By delivery to the Registrar a duly completed Form of Acceptance accompanied with the Title Documents, the Accepting Shareholder represents and warrants to the Company and Anglo Chinese:

(a) that he/she has full power and authority to tender, sell, assign and transfer all the Shares (together with all rights attaching thereto) specified in such Form of Acceptance for repurchase and that the Shares are fully paid, free from all liens, charges, encumbrances, equitable interests, rights of pre-emption or other third party rights of any nature and together with all rights attaching thereto on or after the date of their cancellation (including the right to all dividends and distributions (if any) declared, made, or paid on or after the date of their cancellation); and
(b) that if he/she is a resident in or a citizen of a jurisdiction outside Hong Kong, he/she has fully observed all applicable legal or other requirements and that the Offer may be accepted by him/her lawfully under the laws of the relevant jurisdiction;

Appointment and authority

The execution of the Form of Acceptance constitutes:

(a) an irrevocable appointment of any director or officer of the Company or Anglo Chinese, or such other person as any of them may direct, as such Accepting Shareholder’s agent; and
(b) an irrevocable instruction to the Accepting Shareholder’s agent to complete and execute the Form of Acceptance and, or, any other document at the discretion of such Accepting Shareholder’s agent on behalf of such Accepting Shareholder and to do any other acts or things as may in the opinion of the Accepting Shareholder’s agent be necessary, expedient or desirable for the purpose of the Company repurchasing some or all of the Shares (as the Company may in its absolute discretion determine) of such Accepting Shareholder;

Undertakings

By duly executing the Form of Acceptance, the Accepting Shareholder:

(a) agrees to ratify and confirm each and every act or thing which may be done or effected by the Company or any Accepting Shareholder’s agent in the proper exercise of its or his/her powers and, or, authorities under the terms of the Offer;

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APPENDIX I

FURTHER DETAILS OF THE OFFER

(b) undertakes to deliver to the Registrar the Title Documents in respect of the Shares for which the Offer is (or is deemed to be) accepted, or an indemnity or indemnities acceptable to the Company in lieu thereof, or to procure the delivery of such document(s) to such person as soon as possible thereafter and, in any event, no later than the Latest Acceptance Time;
(c) accepts that the provisions of the Form of Acceptance and the other terms and conditions in this Circular are deemed to be incorporated into the terms and conditions of the Offer;
(d) undertakes to execute any further documents, take any further action and give any further assurances which may be required in connection with his/her acceptance of the Offer as the Company may consider to be necessary, expedient or desirable, including without limitation, to complete the repurchase of any Shares in respect of which he/ she has accepted or is deemed to have accepted the Offer free from all liens, charges, encumbrances, equitable interests, rights of pre-emption or other third party rights of any nature and together with all rights attaching thereto on or after the date of their cancellation and, or to perfect any of the authorities expressed to be given hereunder;
(e) authorises the Company or the Accepting Shareholder’s agent to procure the despatch by post of the consideration to which he/she is entitled at his/her risk to the first-named holder at his/her registered address in the Form of Acceptance; and
(f) submits to the jurisdiction of the courts of Hong Kong in relation to all matters arising out of or in connection with the Offer or this Circular.

OVERSEAS SHAREHOLDERS

The making of the Offer to and the acceptance of the Offer by Overseas Shareholders may be subject to the laws of the relevant jurisdictions. Such overseas laws may prohibit the making of the Offer to the Overseas Shareholders or requiring the compliance with filing, registration or other requirements. Shareholders who are citizens or residents or nationals of jurisdictions outside Hong Kong should obtain appropriate legal advice on, or inform themselves about and observe all applicable legal and regulatory requirements.

It is the responsibility of each person who wishes to accept the Offer to satisfy itself, himself or herself as to the full observance of the laws of the relevant jurisdictions in that connection, including, but not limited to, the obtaining of any governmental, exchange, regulatory or other consents which may be required or the compliance with other necessary formalities, regulations or legal requirements and the payment of any transfer or cancellation or other taxes or duties due in respect of such jurisdiction. Any acceptance by any person shall be deemed to constitute a representation and warranty from such person to the Company that all applicable local laws and requirements have been complied with. Shareholders should consult their professional advisers if in doubt.

The Company will give notice of any matter in relation to the Offer to the Shareholders by issuing announcements or advertisements in accordance with the Bye-laws, the Listing Rules and the Codes and, if so given, such notice is valid notwithstanding the fact that any Overseas Shareholder may not actually receive it.

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FURTHER DETAILS OF THE OFFER

APPENDIX I

TAXATION

Shareholders are recommended to consult their own professional advisers if they are in any doubt as to the taxation implications of their acceptance of the Offer. It is emphasised that none of the Company, its ultimate beneficial owners and parties acting in concert with any of them, Anglo Chinese, Rothschild, the Registrar or any of their respective directors or any persons involved shall accept responsibility for any taxation effects on, or liabilities of, any person or persons as a result of their acceptance of the Offer.

ANNOUNCEMENTS

Following the SGM at which the Offer is to be approved by the Independent Shareholders, the Company will announce through the Stock Exchange’s website the results of the SGM and whether or not the Offer has become unconditional.

By 6:00 p.m. (or such later time as the Executive may permit) on the closing date of the Offer, the Company shall inform the Executive and the Stock Exchange of its decision in relation to the revision, extension or expiry of the Offer (if any) and shall publish an announcement through the website of the Stock Exchange by 7:00 p.m. on such date stating whether the Offer has been revised, extended or expired. A draft of such announcement must be submitted to the Executive and the Stock Exchange by 6:00 p.m. for clearance and publication of such announcement duly cleared must be made through the website of the Stock Exchange by 7:00 p.m. on the same day. The announcement shall (except in the case of lapse of the Offer) specify the total number of Shares (and rights over Shares) that have been accepted for repurchase under the Offer and shall also set out the results of the Offer.

In calculating the total number of the Shares represented by the Forms of Acceptance, acceptances which are not in all respects in order or are subject to verification will be stated separately.

INTERPRETATION

A reference in this Circular to a Shareholder includes a reference to a person who, by reason of an acquisition or transfer of Shares, is entitled to execute a Form of Acceptance and in the event of more than one person executing a Form of Acceptance, the provisions of this Circular apply to them jointly and severally.

A reference in this Circular and the Form of Acceptance to the masculine gender includes the feminine and neuter genders, and a reference to the singular includes the plural, and vice versa.

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FURTHER DETAILS OF THE 2019 CONVERTIBLE NOTE

APPENDIX II

The principal terms and conditions of the 2019 Convertible Note pursuant to the Subscription Agreement are summarised below:

1. Issuer

CN Issuer

2. Guarantor

The Company

3. Subscriber

CN Holder

4. Issue date

9 May 2014

5. Maturity date

The business day immediately before the fifth anniversary from the issue date of the 2019 Convertible Note, which should be on 8 May 2019.

6. Form and ranking

Registered, unsubordinated and unsecured convertible notes ranking pari passu with all other unsecured and unsubordinated indebtedness.

7. Principal amount

HK$2,904,000,000 or the redemption amount of the 2014 Convertible Note due at its maturity on the Maturity Date (i.e. 9 May 2014), being 120% of the then outstanding principal amount under the terms of the 2014 Convertible Note which has not been repaid at or before its maturity on 9 May 2014, whichever is less.

8. Issue price

100% of the principal amount

9. Interest

5.5% per annum payable semi-annually on 30 June and 31 December in arrears, calculated on the basis of a 365-day year.

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FURTHER DETAILS OF THE 2019 CONVERTIBLE NOTE

APPENDIX II

10. Conversion rights

The 2019 Convertible Note shall be convertible at the option of the CN Holder into Conversion Shares at the conversion price applicable at the time of conversion at any time between the issue date of the 2019 Convertible Note and the maturity date of the 2019 Convertible Note. If and to the extent that the minimum public float requirements in respect of the Shares under the Listing Rules could not be complied with immediately after the purported exercise of the conversion rights by the holder of the 2019 Convertible Note, such holder shall not be entitled to exercise such conversion rights (“Restrictions on Conversion”). In relation to Restrictions on Conversion, nothing shall prohibit the holder of the 2019 Convertible Note from exercising the conversion rights if at the time of the exercise of such conversion rights, such holder and, or, the Company has taken other action(s) simultaneously such that there will be no non-compliance of the above minimum public float requirements under the Listing Rules immediately after the issuance of the Conversion Shares.

In addition to the applicable number of the Conversion Shares, the holder of the 2019 Convertible Note surrendered for conversion shall be entitled to receive accrued and unpaid interest in respect thereof for the period up to the date of conversion.

11. Conversion Shares

The number of Conversion Shares to be issued upon exercise of the conversion rights under the 2019 Convertible Note is equal to the principal amount divided by the conversion price. No fraction of a Share will be issued on conversion but a cash payment (except in cases where any such cash payment would amount to less than HK$10) will be made to the CN Holder in a sum equal to such remaining portion of the principal amount of the 2019 Convertible Note in respect of which the conversion rights are purported to be exercised but for which no Conversion Share is issued as aforesaid.

Assuming that the Subscription Agreement becomes unconditional and the 2019 Convertible Note at the maximum principal amount of HK$2,904 million is issued, the maximum number of Conversion Shares which the CN Holder would be entitled to be issued upon full conversion of the 2019 Convertible Note would be 1,770,731,707 Shares (approximately 48.98% of the enlarged issued share capital of the Company), assuming the conversion price is the initial Minimum Conversion Price.

12. Ranking of the conversion shares

Shares to be issued upon conversion shall rank pari passu in all respects with all other Shares in issue on the date of the conversion notice and shall be entitled to all dividends, bonuses and other distributions the record date of which falls on a date on or after the date of the conversion notice.

13. Conversion price

To be set on the issue date of the 2019 Convertible Note to be equal to 140% of the 20 trading day average of the closing price of the Shares ended on such issue date, but not less than the Minimum Conversion Price.

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APPENDIX II

FURTHER DETAILS OF THE 2019 CONVERTIBLE NOTE

The Minimum Conversion Price was determined after arm’s length negotiations between the CN Holder and the Company, and represents:

(a) a premium of approximately 20% over the closing price of HK$1.37 per Share as quoted on the Stock Exchange on the Last Trading Day;
(b) a premium of approximately 27% over the average closing price of HK$1.294 per Share as quoted on the Stock Exchange for the last 5 consecutive trading days up to and including the Last Trading Day;
(c) a discount of approximately 10% over the closing price of HK$1.82 per Share as quoted on the Stock Exchange on the Last Practicable Date; and
(d) a discount of approximately 45% of the net asset value per Share of approximately HK$2.977 (being the Shareholders’ funds of approximately HK$7,167 million as at 31 December 2011 divided by 2,407,459,873 Shares as at the Last Trading Day) pursuant to the published audited consolidated accounts of the Group as at 31 December 2011.

14. Redemption at maturity

The CN Issuer shall redeem the 2019 Convertible Note in the aggregate amount plus any accrued and unpaid interest in respect thereof at maturity unless the 2019 Convertible Note shall have been redeemed under the redemption options below or converted prior to maturity.

15. Redemption at the option of the CN Holder

The CN Holder may, on or at any time after 9 May 2017 and prior to the maturity date, require the CN Issuer to redeem in whole or in part in multiples of HK$8 million of the 2019 Convertible Note at par on the last day of an interest period; provided that the CN Holder shall provide at least 30 days’ prior irrevocable written notice to the CN Issuer of such a put expiring only on or after 9 May 2017. In addition, the CN Issuer shall pay in cash to the CN Holder upon such a put any accrued and unpaid interest through the date of completion of the exercise of the redemption option.

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FURTHER DETAILS OF THE 2019 CONVERTIBLE NOTE

APPENDIX II

16. Redemption at the option of the CN Issuer

On giving not less than 30 nor more than 90 days’ notice to the CN Holder expiring only on or after 9 May 2017 (which notice shall be irrevocable), the CN Issuer may at any time on or after 9 May 2017 and prior to the maturity date redeem in whole or in part in multiples of HK$8 million the 2019 Convertible Note for the time being outstanding at its principal amount together with interest accrued to the date fixed for redemption, provided that the closing prices of the Shares for (i) any 20 out of the 30 consecutive trading days ended on a day immediately prior to the date of such redemption notice; and (ii) any 1 out of the 5 consecutive trading days ended on a day immediately prior to the date of such redemption notice, are at least 130% of the conversion price.

17. Transferability

Transferable in multiples of HK$1 million.

18. Voting

The CN Holder will not be entitled to attend or vote at any meeting of the Company by reason only of it being a holder of the 2019 Convertible Note.

19. Listing

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FURTHER DETAILS OF THE BONUS CONVERTIBLE NOTES

APPENDIX III

The Bonus Convertible Notes will be issued subject to and with the benefit of the Deed Poll to be executed by the Company and they will be issued in registered form and will form one class and rank pari passu in all respects with each other.

The principal terms and conditions of the Bonus Convertible Notes will be set out in the certificates for the Bonus Convertible Notes and will include provisions to the effect set out below. Bonus Convertible Noteholders will be entitled to the benefit of, be bound by, and be deemed to have notice of all such terms and conditions and the provisions of the Deed Poll, a copy of the draft of which is available for inspection by the Shareholders at the head office and principal place of business of the Company located at 8th Floor, Cyberport 2, 100 Cyberport Road, Hong Kong during normal business hours on any Business Day, up to and including Wednesday, 16 May 2012.

1. Status

The Bonus Convertible Notes constitute direct, unconditional, unsubordinated and unsecured obligations of the Company and shall at all times rank pari passu and without any preference among themselves. The payment obligations of the Company in respect of the Bonus Convertible Notes shall, save for such exceptions as may be provided by applicable legislation, at all times rank at least equally with all its other present and future unsecured and unsubordinated obligations.

2. Form, Denomination and Title

(a) Form and denomination

The Bonus Convertible Notes will be in registered form in the denomination of HK$0.10 (each, a “ Bonus Convertible Note ”). A note certificate (each, a “ Certificate ”) will be issued to each Bonus Convertible Noteholder in respect of its registered holding of the Bonus Convertible Notes. Each Bonus Convertible Note and each Certificate will have an identifying number which will be recorded on the relevant Certificate and in the register of Bonus Convertible Noteholders which the Company will procure to be kept by the registrar and the paying, transfer and conversion agent in respect of the Bonus Convertible Notes (the “ Bonus CN Registrar ”).

(b) Title

The holder of any Bonus Convertible Note will (except as otherwise required by law) be treated as its absolute owner for all purposes (regardless of any notice of ownership, trust or any interest in it or any writing on, or the theft or loss of, the Certificate issued in respect of it) and no person will be liable for so treating the holder. “ Bonus Convertible Noteholder ” and (in relation to a Bonus Convertible Note) “ holder ” mean the person in whose name a Bonus Convertible Note is registered as recorded in the register of Bonus Convertible Noteholders.

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FURTHER DETAILS OF THE BONUS CONVERTIBLE NOTES

APPENDIX III

Payment to or entitlement of the Bonus Convertible Noteholder
(a) If and whenever the Company shall, in respect of the issued Shares, pay or make any cash dividend or distribution of any kind or any distribution of assets in specie (other than the Capitalisation Issue referred to in paragraph 3(b) below) to the Shareholders (for the purpose of this appendix, the “ Distribution ”), the Company shall, subject to compliance with the relevant laws, rules, regulations and requirements in Hong Kong and in Bermuda and the applicable listing rules of the Stock Exchange (or if applicable, the Alternative Stock Exchange (as defined in paragraph 6(e) below)), at the same time pay or distribute to each Bonus Convertible Noteholder an amount of cash or other assets the subject matter of the Distribution which is equal to (i) the amount of cash or other assets the subject matter of the Distribution per Share receivable by the Shareholders under the Distribution, multiplied by (ii) the number of Shares which such Bonus Convertible Noteholder would have become a holder of, had the Bonus Convertible Notes then outstanding held by the Bonus Convertible Noteholder been converted in accordance with the conditions of the Bonus Convertible Note (the “ Conditions ”) on the record date for determining entitlement to the Distribution.
(b) If and whenever the Company shall, in respect of the issued Shares, issue any Shares or debentures or securities, credited as fully paid, out of or by way of capitalisation of its profits or reserves and, or, share premium account (whether or not issued in lieu of the whole or any part of a cash dividend) to its Shareholders (for the purpose of this appendix, the “ Capitalisation Issue ”), subject to compliance with the relevant laws, rules, regulations and requirements in Hong Kong and in Bermuda and the applicable listing rules of the Stock Exchange (or if applicable, the Alternative Stock Exchange), the Company shall, on the date of the Capitalisation Issue, issue to each Bonus Convertible Noteholder either, at the option of the Company, (a) such number of Shares, debentures or securities which is equal to (i) the number of such Shares, debentures or securities receivable by the Shareholders in respect of each issued Share held by them under the Capitalisation Issue, multiplied by (ii) the number of Shares which such Bonus Convertible Noteholder would have become a holder of, had the Bonus Convertible Notes then outstanding held by the Bonus Convertible Noteholder been converted in accordance with the Conditions on the record date for determining entitlement to the Capitalisation Issue; or (b) further convertible notes on the same terms and conditions as the Bonus Convertible Notes in such amount which would on conversion thereof entitle the holder thereof to such number of Shares as is equal to (i) the number of Shares receivable by the Shareholders in respect of each issued Share held by them under the Capitalisation Issue, multiplied by (ii) the number of Shares which such Bonus Convertible Noteholder would have become a holder of, had the Bonus Convertible Notes then outstanding held by the Bonus Convertible Noteholder been converted in accordance with the Conditions on the record date for determining entitlement to the Capitalisation Issue.

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FURTHER DETAILS OF THE BONUS CONVERTIBLE NOTES

APPENDIX III

4. Transfer, Transmission and Register of Noteholders; Issue of Certificates

(a) Transfer, Transmission and Register of Noteholders

Subject to the registrar and paying, transfer and conversion agency agreement to be entered into between the Company and the Bonus CN Registrar whereby the Bonus CN Registrar will be appointed as the registrar and the paying, transfer and conversion agent in respect of the Bonus Convertible Note (the “ Agency Agreement ”), a Bonus Convertible Note may be transferred in whole or in part in respect of its amount outstanding from time to time by delivering the Certificate issued in respect of that Bonus Convertible Note, with the form of transfer in any usual or common form or such other form as may be approved by the Directors duly completed, signed and stamped (if required), to the specified office of the Bonus CN Registrar. Where the transferor or the transferee is a clearing house or its nominee(s) (or such other company as may be approved by the Board for this purpose), the transfer may be executed under the hands of authorised person(s) or by machine imprinted signatures on its behalf or of such person(s), as the case may be. No transfer of title to any Bonus Convertible Note will be effective unless and until entered on the register of Bonus Convertible Noteholders and provided that such transfer is in compliance with the regulations concerning transfer of Bonus Convertible Notes. For this purpose, the Company shall procure to be kept by the Bonus CN Registrar a register of the Bonus Convertible Noteholders and subject to the provisions of the Deed Poll and the conditions of the Bonus Convertible Notes, the provisions of the Company’s Bye-laws for the time being in relation to the registration, transmission and transfer of Shares shall apply, mutatis mutandis, to the registration, transmission and transfer of the Bonus Convertible Notes and shall have full effect as if the same had been incorporated in the Deed Poll.

(b) Closing of Register of Noteholders

The register of Bonus Convertible Noteholders may be closed from time to time, subject to the same restrictions, mutatis mutandis, as apply to the closure of the register of Shareholders of the Company under the applicable law or regulation and the Bye-laws of the Company. If any Conversion Rights (as defined in paragraph 6(a)(i) below) are exercised during the period for which the register of Bonus Convertible Noteholders is closed, the first day upon which the register of Bonus Convertible Noteholders reopens shall be deemed to be the relevant Conversion Date (as defined in paragraph 6(b)(i) below) for all purposes in respect of such exercise of Conversion Rights.

(c) Delivery of New Certificates

Each new Certificate to be issued upon a transfer of Bonus Convertible Note will, within fourteen Business Days of receipt by the Bonus CN Registrar of the form of transfer duly completed, signed and stamped (in required), be made available for collection at the specified office of the Bonus CN Registrar or, if so requested in the form of transfer, be mailed by uninsured mail at the risk of the holder entitled to the Bonus Convertible Note (but free of charge to the holder) to the address specified in the form of transfer.

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APPENDIX III

FURTHER DETAILS OF THE BONUS CONVERTIBLE NOTES

Where only part of the amount of the Bonus Convertible Notes in respect of which a Certificate is issued is, subject to the Conditions, to be transferred or converted, a new Certificate in respect of the remaining amount of the Bonus Convertible Notes not so transferred or converted will, within fourteen Business Days after the Conversion Date (as defined in sub-paragraph 6(b)(i) below), be made available for collection without charge at the specified office of the Bonus CN Registrar or, if so requested by the holder, be mailed by uninsured mail at the risk of the holder of the Bonus Convertible Notes not so transferred or converted (but free of charge to the holder) to the address of such holder appearing on the register of Bonus Convertible Noteholders.

For the purposes of the Conditions, “ Business Day ” shall mean any day (excluding a Saturday, a Sunday and any day on which a tropical cyclone warning signal no.8 or above or a “black” rainstorm warning signal is hoisted or remains hoisted in Hong Kong at any time between 9 a.m. to 5 p.m.) on which banks are generally open for business in Hong Kong.

(d) Fees in Respect of Formalities

Registration of transfer of the Bonus Convertible Notes will be effected by or on behalf of the Company or the Bonus CN Registrar, but upon payment of such transfer charge as determined in accordance with the Bonus CN Registrar’s scale of charges as revised from time to time and upon payment which shall not exceed the maximum fees prescribed by the Stock Exchange from time to time under the Listing Rules (or the giving of such indemnity as the Company, or the Bonus CN Registrar may require) in respect of any tax or other governmental charge which may be imposed in relation to it.

(e) Regulations

All transfers of the Bonus Convertible Notes and entries on the register of Bonus Convertible Noteholders will be made subject to the detailed regulations concerning transfers of Bonus Convertible Notes scheduled to the Agency Agreement. The regulations may be changed by the Company, with the prior written approval of the Bonus CN Registrar. A copy of the current regulations will be mailed (free of charge) by the Bonus CN Registrar to any Bonus Convertible Noteholder upon request.

5. Interest

The Bonus Convertible Notes do not bear any interest.

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FURTHER DETAILS OF THE BONUS CONVERTIBLE NOTES

APPENDIX III

Conversion
(a) Conversion Period and Conversion Price
(i) Subject to and upon compliance with the provisions of the Conditions, the right of a Bonus Convertible Noteholder to convert any Bonus Convertible Note into Shares (the “ Conversion Rights ”) attaching to any Bonus Convertible Note may be exercised, at the option of the holder thereof, at any time on or after the date of the Deed Poll (at the place where the Certificate representing such Bonus Convertible Note is deposited for conversion) for so long as the Bonus Convertible Notes remain outstanding until the outstanding Bonus Convertible Notes are mandatorily converted in accordance with sub-paragraph 9(a) below (the “ Conversion Period ”). Bonus Convertible Noteholders have the right to convert their Bonus Convertible Notes into Shares at any time during the Conversion Period PROVIDED THAT a Bonus Convertible Noteholder shall not be entitled to exercise its Conversion Rights if and to the extent that the minimum public float requirements in respect of the Shares under the Listing Rules could not be complied with immediately after the purported exercise of any Conversion Rights of the Bonus Convertible Noteholder (“ Restrictions on Conversion ”). In relation to the Restrictions on Conversion, nothing shall prohibit a Bonus Convertible Noteholder from exercising the Conversion Rights if at the time of the exercise of such Conversion Rights, such Bonus Convertible Noteholder and, or, the Company has taken other action(s) simultaneously such that there will be no non-compliance of the above minimum public float requirements under the Listing Rules immediately after the issuance of the Shares upon such conversion. Upon conversion, the right of the converting Bonus Convertible Noteholder to any payment by the Company in respect of the Bonus Convertible Notes to be converted shall be extinguished and released, and the Company shall allot and issue Shares credited as paid up in full as provided in this paragraph 6.

The number of Shares to be issued on conversion of a Bonus Convertible Note will be determined by dividing the amount of the Bonus Convertible Note to be converted by the Conversion Price (as defined in sub-paragraph 6(a)(iii) below) in effect on the Conversion Date (as defined in sub-paragraph 6(b)(i) below).

(ii) If more than one Bonus Convertible Note is converted at any one time by the same holder, the number of Shares to be issued upon such conversion will be calculated on the basis of the aggregate amount of the Bonus Convertible Notes to be converted. Fractions of Shares will not be issued on conversion and no cash adjustments will be made in respect thereof. Notwithstanding the foregoing, in the event of a consolidation or re-classification of Shares by operation of law or otherwise occurring after the date of the Deed Poll, the Company will upon conversion of the Bonus Convertible Notes pay in cash (in HK dollars by means of a HK dollar cheque drawn on a bank in Hong Kong) a sum equal to such portion of the amount of the Bonus Convertible Note or Bonus Convertible Notes in respect of which the Conversion Rights are exercised as corresponds to any fraction of a Share not issued as aforesaid if such sum exceeds HK$100.

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(iii) The price at which Shares will be issued upon conversion (the “ Conversion Price ”) will initially be HK$0.10 per Share but will be subject to adjustment in the manner provided in sub-paragraph 6(c) below.
(b) Procedure for conversion
(i) To exercise the Conversion Right attaching to any Bonus Convertible Note, the holder thereof must complete, execute and deposit at his own expense during normal business hours at the specified office of the Bonus CN Registrar a notice of conversion (a “ Conversion Notice ”) in duplicate in the form (for the time being current) obtainable from the specified office of the Bonus CN Registrar, together with the relevant Certificate and any amount to be paid by the Bonus Convertible Noteholder pursuant to this sub-paragraph 6(b)(i).

The conversion date in respect of a Bonus Convertible Note (the “ Conversion Date ”) must fall at a time when the Conversion Right attaching to that Bonus Convertible Note is expressed in the Conditions to be exercisable and will be deemed to be (i) the 30th Stock Exchange Business Day immediately following the date of the surrender of the Certificate in respect of such Bonus Convertible Note and delivery of such Conversion Notice and, if applicable, any payment to be made or indemnity given under the Conditions in connection with the exercise of such Conversion Right or, (ii) in the case of a mandatory conversion pursuant to sub-paragraph 9(a), the relevant mandatory conversion date. A Conversion Notice once delivered shall be irrevocable. “ Stock Exchange Business Day ” means any day (other than a Saturday or Sunday or any public holiday) on which the Main Board market of the Stock Exchange or the Alternative Stock Exchange (as defined in paragraph 6(e) below), as the case may be, is open for business.

A Bonus Convertible Noteholder delivering a Certificate with respect to a Bonus Convertible Note for conversion must pay to the paying, transfer and conversion agent (the “ Agent ”) appointed by the Company for the purpose of the Bonus Convertible Notes any taxes and capital, stamp, issue and registration duties arising on conversion (other than any taxes or capital or other duties payable in Bermuda, Hong Kong, or in the place of the Alternative Stock Exchange, as the case may be, by the Company in respect of the allotment and issue of Shares and listing of the Shares on conversion) (“ Taxes ”) (if any) and such Bonus Convertible Noteholder must pay all, if any, taxes arising by reference to any disposal or deemed disposal of a Bonus Convertible Note in connection with such conversion. The Company will pay all other expenses arising on the issue of Shares on conversion of the Bonus Convertible Notes. The Agent and the Company are under no obligation to determine whether a Bonus Convertible Noteholder is liable to pay any Taxes including capital, stamp, issue, registration or similar taxes and duties or the amounts payable (if any) in connection with this sub-paragraph 6(b)(i).

(ii) As soon as practicable, and in any event not later than 14 Business Days after the Conversion Date, the Company will, in the case of the Bonus Convertible Notes converted on exercise of the Conversion Right and in respect of which a Conversion Notice has been delivered and the relevant Certificate and amounts payable by the relevant Bonus

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FURTHER DETAILS OF THE BONUS CONVERTIBLE NOTES

Convertible Noteholder (if any) deposited as permitted by sub-paragraph (b)(i) above, register the person or persons designated for the purpose in the Conversion Notice (which must be the same person(s) as the relevant holder(s) of the Bonus Convertible Note(s) to be converted) as the holder(s) of the relevant number of Shares in the Register in Hong Kong and will make a certificate or certificates for the relevant Shares available for collection at the Bonus CN Registrar’s principal office in Hong Kong or, if so requested in the relevant Conversion Notice, will mail such certificate or certificates to the person(s) and at the place specified in the Conversion Notice, together with any other securities, property or cash required to be delivered upon conversion.

If the Conversion Date in relation to any Bonus Convertible Note shall be on or after a date with effect from which an adjustment to the Conversion Price takes retroactive effect pursuant to any of the provisions referred to in sub-paragraph 6(c) below and Clause 9 of the Deed Poll and the relevant Conversion Date falls on a date when the relevant adjustment has not yet been reflected in the then current Conversion Price, the Company will procure that the provisions of this sub-paragraph (ii) shall be applied, mutatis mutandis, to such number of Shares as is equal to the excess of the number of Shares which would have been required to be issued on conversion of such Bonus Convertible Note if the relevant retroactive adjustment had been given effect as at the said Conversion Date over the number of Shares previously issued pursuant to such conversion, and in such event and in respect of such number of Shares references in this sub-paragraph (ii) to the Conversion Date shall be deemed to refer to the date upon which such retroactive adjustment becomes effective (disregarding the fact that it becomes effective retroactively).

The person or persons designated for that purpose in the Conversion Notice (which must be the same person(s) as the relevant holder(s) of the Bonus Convertible Notes so converted) will be deemed for all purposes to be the holder(s) of record of the number of Shares issuable upon conversion with effect from the relevant Conversion Date. The Shares issued upon conversion of the Bonus Convertible Notes will in all respects rank pari passu with the Shares in issue on the relevant Conversion Date except for any right excluded by mandatory provisions of applicable law. A holder of Shares issued on conversion of the Bonus Convertible Notes shall not be entitled to any rights the record date for which precedes the relevant Conversion Date.

(c) Adjustment to Conversion Price

The Conversion Price will be subject to adjustment, in the event(s) set out in the Deed Poll, being:

(i) any alteration to the nominal value of the Shares as a result of consolidation or subdivision or reclassification; or
(ii) if the Company considers that it would be appropriate for an adjustment to be made to the Conversion Price as a result of any event(s) or circumstances not referred to in clause 9.1 of the Deed Poll, the Company shall, at its own expense, consult an independent investment bank of international repute (acting as experts) selected by the Company to determine as soon as practicable what adjustment (if any) to the Conversion Price is fair and reasonable

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FURTHER DETAILS OF THE BONUS CONVERTIBLE NOTES

to take account thereof and the date on which such adjustment should take effect, and upon such determination by the independent investment bank such adjustment (provided that the adjustment would not reduce the Conversion Price below the par value of the Shares) shall be made and take effect in accordance with such determination;

provided that where the circumstances giving rise to any adjustment pursuant to this sub-paragraph 6(c) have already resulted or will result in an adjustment to the Conversion Price or where the circumstances giving rise to any adjustment arise by virtue of the circumstances which have already given or will give rise to an adjustment to the Conversion Price, such modification (if any) shall be made to the operation of the provisions of this sub-paragraph 6(c) as may be advised by the independent investment bank to be in their opinion appropriate to give the intended result.

On any adjustment, the resultant Conversion Price, if not an integral multiple of one (1) Hong Kong cent, shall be rounded down to the nearest one (1) Hong Kong cent. No adjustment shall be made to the Conversion Price where such adjustment (rounded down if applicable) would be less than one per cent. of the Conversion Price then in effect. Any adjustment not required to be made, and any amount by which the Conversion Price has not been rounded down, shall be carried forward and taken into account in any subsequent adjustment. Notice of any adjustments shall be given to Bonus Convertible Noteholders in accordance with paragraph 15 of this appendix as soon as practicable after the determination thereof.

The Conversion Price may not be reduced so that, on conversion of the Bonus Convertible Notes, Shares would fall to be issued at a discount to their par value.

Where more than one event which gives or may give rise to an adjustment to the Conversion Price occurs within such a short period of time that in the opinion of the independent investment bank a modification would need to be made to the foregoing provisions in order to give the intended result, such modification shall be made as may be advised by the independent investment bank to be in their opinion appropriate in order to give such intended result.

No adjustment will be made to the Conversion Price (i) when an anti-dilution event set out in paragraph 7 arises; or (ii) when the Company pays or makes a Distribution to the Shareholders and makes payment to the Bonus Convertible Noteholders as referred to in Clause 3.1 of the Deed Poll and sub-paragraph 3(a) of this appendix; or (iii) when the Company makes any Capitalisation Issue and issue any Shares, debentures or securities or further convertible notes to the Bonus Convertible Noteholders as referred to in Clause 3.2 of the Deed Poll and sub-paragraph 3(b) of this appendix; or (iv) when Shares or other securities (including rights or options) are issued, offered or granted pursuant to any Employee Share Scheme (as defined below).

“ Employee Share Scheme ” shall mean any scheme as may be approved by the Company at a general meeting (whether before or after the date of the Deed Poll) and in compliance with the applicable listing rules of the Stock Exchange (or if applicable, the Alternative Stock Exchange) pursuant to which Shares or other securities (including rights or options) are issued to employees (including directors) or former employees of the Company, its subsidiaries and, or associated companies, and, or consultants, professional and other advisers to the Company, its subsidiaries and,

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FURTHER DETAILS OF THE BONUS CONVERTIBLE NOTES

or associated companies, and, or, chief executives and, or, substantial shareholders of the Company, its subsidiaries and, or, associated companies, and, or, employees of substantial shareholders of the Company, its subsidiaries and, or, associated companies (including without limitation the share option schemes adopted by the Company on 17 March 2003 and 23 May 2005 respectively).

(d) Consolidation, amalgamation or merger

In the case of any consolidation, amalgamation or merger of the Company with any other corporation (other than a consolidation, amalgamation or merger in which the Company is the continuing corporation), or in the case of any sale or transfer of all, or substantially all, of the assets of the Company, the Company will forthwith notify the Bonus Convertible Noteholders of such event in accordance with paragraph 15 and (so far as legally possible) cause the corporation resulting from such consolidation, amalgamation or merger or the corporation which shall have acquired such assets, as the case may be, to execute a deed poll supplemental to the Deed Poll to ensure that the holder of each Bonus Convertible Note then outstanding will have the right (during the period in which such Bonus Convertible Note shall be convertible) to convert such Bonus Convertible Note into the class and amount of shares and other securities and property receivable upon such consolidation, amalgamation, merger, sale or transfer by a holder of the number of Shares which would have become liable to be issued upon conversion of such Bonus Convertible Note immediately prior to such consolidation, amalgamation, merger, sale or transfer. Such supplemental deed poll will provide for adjustments which will be as nearly equivalent as may be practicable to the adjustments provided for in the foregoing provisions of this paragraph. The above provisions of this paragraph 6(d) will apply in the same way to any subsequent consolidations, amalgamation, mergers, sales or transfers.

(e) Undertakings

The Company has undertaken in the Deed Poll that it will use all reasonable endeavours to maintain a listing on the Stock Exchange for all the issued Shares for the time being (save for any suspension of trading of a temporary nature) and to obtain and maintain a listing for all the Shares to be issued (i) on exercise of the Conversion Rights; (ii) pursuant to the terms and conditions of the Bonus Convertible Notes and (iii) on exercise of the conversion rights attaching to any further convertible notes which may be issued by the Company to the Bonus Convertible Noteholders on the same terms and conditions as the Bonus Convertible Notes in accordance with the Deed Poll and the Conditions or, if the Company is unable to obtain or maintain such listing having used such reasonable endeavours, use all reasonable endeavours to obtain and maintain a listing for such Shares on any other stock exchange (each an “ Alternative Stock Exchange ”) as the Company may from time to time determine and will forthwith give notice to the Bonus Convertible Noteholders in accordance with paragraph 15 of the listing or delisting of the Shares on the Stock Exchange or such Alternative Stock Exchange.

The Company has undertaken in the Deed Poll to pay the expenses of the issue of, and all expenses of obtaining and maintaining listing for, the Shares arising on conversion of the Bonus Convertible Notes.

The Company has also given certain other undertakings in the Deed Poll for the protection of the Conversion Rights.

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APPENDIX III

Anti-dilution events
(a) Rights Issues of Shares or Options over Shares: If and whenever the Company shall offer to issue Shares or other securities to its Shareholders by way of rights, or offer to issue or grant to Shareholders by way of rights, options, warrants or other rights to subscribe for or purchase or otherwise acquire any Shares or other securities (for the purpose of this appendix, the “ Rights Issue ”), the Company, subject to compliance with the relevant laws, rules, regulations and requirements in Hong Kong and in Bermuda and the applicable listing rules of the Stock Exchange (or if applicable, the Alternative Stock Exchange), shall at the same time offer to each Bonus Convertible Noteholder for subscription either, at the option of the Company (a) such number of Shares or securities which is equal to (i) the number of such Shares or securities offered by the Company to the Shareholders in respect of each issued Share held by them under the Rights Issue, multiplied by (ii) the number of Shares which such Bonus Convertible Noteholder would have become a holder of, had the Bonus Convertible Notes then outstanding held by the Bonus Convertible Noteholders been converted in accordance with the Conditions on the record date for determining entitlement under the Rights Issue, in which case, the subscription price per Share or for each of the securities offered to the Bonus Convertible Noteholder would be the same as the subscription price per Share or for each of the securities offered to the Shareholders under the Rights Issue; or (b) further convertible notes on the same terms and conditions as the Bonus Convertible Notes in such amount which would on conversion thereof entitle the holder thereof to such number of Shares as is equal to (i) the number of Shares offered for subscription by the Shareholders in respect of each issued Share held by the Shareholders under the Rights Issue, multiplied by (ii) the number of Shares which such Bonus Convertible Noteholder would have become a holder of, had the Bonus Convertible Notes then outstanding held by the Bonus Convertible Noteholder been converted in accordance with the Conditions on the record date for determining the Shareholders’ rights entitlement under the Rights Issue provided that the latest time and date for payment and the manner and format of payment for Shareholders under the Rights Issue shall apply mutatis mutandis to Bonus Convertible Noteholders tendering payment for taking up the Shares or securities or further convertible notes being offered by the Company as aforesaid so long as and to the extent permitted by relevant laws, rules, regulations and requirements in Hong Kong and in Bermuda and the applicable listing rules of the Stock Exchange (or if applicable, the Alternative Stock Exchange).
(b) Other events: If the Company in its sole and absolute discretion determines that any event(s) or circumstance(s) not referred to in paragraph 3, paragraph 6(c) or (d) or paragraph 9(a) would have a dilutive effect on the rights of Bonus Convertible Noteholders (as if Bonus Convertible Noteholders had fully converted their Bonus Convertible Notes into Shares), other than an event or circumstance which would have an equally dilutive effect on Shareholders and Bonus Convertible Noteholders (as if Bonus Convertible Noteholders had fully converted their Bonus Convertible Notes into Shares) alike, the Company may, at its own expense, consult an independent investment bank of international repute (acting as experts) selected by the Company to determine as soon as practicable what action to be taken by the Company would be fair and reasonable to Bonus Convertible Noteholders in view of such event(s) or circumstance(s), and upon such determination by the independent investment bank, the Company may at its sole and absolute discretion take such action.

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APPENDIX III

8. Payments

Any payment required to be made by the Company to the Bonus Convertible Noteholders in respect of the Bonus Convertible Notes pursuant to the Deed Poll and the Conditions will be made by Hong Kong dollar cheque drawn on a bank in Hong Kong mailed to the registered address of the Bonus Convertible Noteholder. Any payment in respect of each Bonus Convertible Note will be paid to the holder whose name is shown on the register of Bonus Convertible Noteholders on the due date for such payment (or, if it is not a Business Day, the immediately following Business Day).

All payments are subject in all cases to any applicable fiscal or other laws and regulations, but without prejudice to the provisions of paragraph 10 of this appendix. No commissions or expenses shall be charged to the Bonus Convertible Noteholders in respect of such payments.

For the purposes of making payment in respect of the Bonus Convertible Notes, the cheque will be mailed (at the risk and, if mailed at the request of the Bonus Convertible Noteholder otherwise than by ordinary mail, at the expense of the Bonus Convertible Noteholder) on the due date for payment (or, if it is not a Business Day, the immediately following Business Day).

The Bonus Convertible Noteholders will not be entitled to any interest or other payment for any delay after the due date in receiving the amount due which arises from circumstances other than the fault of the Company, or if a cheque mailed in accordance with this paragraph 8 arrives after the due date for payment.

9. Mandatory conversion, cancellation and redemption

(a) Mandatory conversion of the Bonus Convertible Notes

Unless previously converted as provided in the Deed Poll, where there is a voluntary dissolution, liquidation or winding-up of the Company, the Company shall forthwith give written notice to the Agent in compliance with the Deed Poll and, all the Bonus Convertible Notes outstanding one Business Day prior to the holding of the general meeting of the Shareholders approving the dissolution, liquidation or winding-up shall be mandatorily and automatically converted by the Company on that same day, into such number of Shares as would have been issued by the Company if such Bonus Convertible Notes had been converted pursuant to the exercise by the Bonus Convertible Noteholders of the Conversion Rights pursuant to paragraph 6 of this appendix. The mandatory conversion of such Bonus Convertible Notes by the Company shall be made in accordance with all provisions of paragraph 6 (as modified to reflect a conversion by the Company of the Bonus Convertible Notes) and subject to the followings:

(i) notwithstanding that a Bonus Convertible Noteholder has failed to surrender any certificate(s) in respect of any Bonus Convertible Note, such Bonus Convertible Note shall be automatically cancelled and of no further effect upon a voluntary dissolution, liquidation or winding-up of the Company; and

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APPENDIX III

(ii) all Bonus Convertible Notes to be mandatorily converted pursuant to this sub-paragraph 9(a) shall be so converted notwithstanding that the number of such Bonus Convertible Notes is not an integral multiple of the authorised denomination.

(b) No redemption of the Bonus Convertible Notes

The Bonus Convertible Notes shall not be redeemed or purchased by the Company and none of the Bonus Convertible Noteholders shall have the right to require the Company to redeem or purchase the Bonus Convertible Notes or any part of the amount thereof.

(c) Cancellation

All Bonus Convertible Notes which are converted will forthwith be cancelled. Certificates in respect of all Bonus Convertible Notes cancelled will be forwarded to or to the order of the Bonus CN Registrar and such Bonus Convertible Notes may not be reissued or resold. Immediately upon the date of the commencement of the dissolution, liquidation or winding-up of the Company, all the Bonus Convertible Notes will be automatically cancelled whether or not the relevant Certificates are surrendered to the Bonus CN Registrar, provided that in the case of an involuntary dissolution, liquidation or winding-up of the Company, holders of the Bonus Convertible Notes whose Bonus Convertible Notes were cancelled not as a result of a conversion but as a result of an involuntary dissolution, liquidation or winding-up of the Company shall be entitled to receive out of the assets of the Company the same amount and at the same time as are paid with respect to the Shares, and for the purpose of calculation, each Bonus Convertible Note shall be deemed to be equal to the number of Shares into which it can be converted upon exercise of the Conversion Rights attached thereto in accordance with paragraph 6 above.

10. Taxation

All payments by the Company under or in respect of the Deed Poll or the Bonus Convertible Notes will be made without deduction or withholding for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed or levied by or within Hong Kong or any authority thereof or therein having power to tax, unless such deduction or withholding is required by law. In such event, the Company will pay such additional amounts as will result in the receipt by the Bonus Convertible Noteholders of such amounts as would otherwise have been received by them had no such withholding or deduction been required, except that no such additional amounts shall be payable in respect of any Bonus Convertible Note:

(a) to a holder (or to a third party on behalf of a holder) who is subject to such taxes, duties, assessments or governmental charges in respect of such Bonus Convertible Note by reason of his having some connection with Hong Kong other than the mere holding of the Bonus Convertible Note or by the receipt of any payment made in respect of the Bonus Convertible Note or where the withholding or deduction could be avoided by the holder making a declaration of non-residence or other similar claim for exemption to the appropriate authority which such holder is legally capable and competent of making but fails to do so; or

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APPENDIX III

(b) if the Certificate in respect of such Bonus Convertible Note is surrendered (where such surrender is required) more than 30 days after the Relevant Date (as defined below) except to the extent that the holder would have been entitled to such additional amounts on surrendering the relevant Certificate for payment on the last day of such period of 30 days.

“ Relevant Date ” shall mean whichever is the later of (a) the date on which such payment first becomes due and (b) if the full amount payable has not been received in Hong Kong by the Bonus CN Registrar on or prior to such due date, the date on which, the full amount having been so received, notice to that effect shall have been given to the Bonus Convertible Noteholders.

11. Prescription

Claims in respect of any payment in respect of the Bonus Convertible Notes due and payable will become void unless made within six years from the Relevant Date (as defined in paragraph 10 above) in respect thereof.

12. Meetings of Bonus Convertible Noteholders, modification and waiver

(a) The Deed Poll contains provisions for convening meetings of Bonus Convertible Noteholders to consider any matter affecting their interests, including the sanctioning by a resolution passed at a meeting of Bonus Convertible Noteholders duly convened and held in accordance with the provisions as set out in Schedule 3 of the Deed Poll by a majority consisting of not less than three-quarters of the votes cast (the “ Extraordinary Resolution ”), of a modification of the Bonus Convertible Note or the provisions of the Deed Poll. The quorum at any such meeting for passing an Extraordinary Resolution will be two or more persons holding or representing over 50 per cent. in aggregate amount of the Bonus Convertible Notes for the time being outstanding or, at any adjournment of such meeting, two or more persons being or representing Bonus Convertible Noteholders whatever the aggregate amount of the Bonus Convertible Notes so held or represented. An Extraordinary Resolution passed at any meeting of Bonus Convertible Noteholders will be binding on all Bonus Convertible Noteholders, whether or not they are present at the meeting. The Deed Poll provides that a written resolution signed by or on behalf of the holders of not less than 90 per cent. of the aggregate amount of Bonus Convertible Notes outstanding shall be as valid and effective as a duly passed Extraordinary Resolution.
(b) The Bonus Convertible Noteholders agree to (i) any modification (except as mentioned above) of, or the waiver or authorisation of any breach or proposed breach of, the Bonus Convertible Notes or the Deed Poll which is not, in the opinion of an independent investment bank of international repute (acting as experts) selected by, and at the cost and expense of, the Company, materially prejudicial to the interests of the Bonus Convertible Noteholders or (ii) any modification of the Bonus Convertible Notes or the Deed Poll which is of a formal, minor or technical nature or to correct a manifest error or to comply with mandatory provisions of law. Any such modification, waiver or authorisation will be binding on the Bonus Convertible Noteholders and any such modification will be notified by the Company to the Bonus Convertible Noteholders as soon as practicable thereafter.

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APPENDIX III

13. Replacement of certificates

If any Certificate is mutilated, defaced, destroyed, stolen or lost, it may be replaced at the specified office of the Bonus CN Registrar upon payment by the claimant of such costs as may be incurred in connection therewith which shall not exceed HK$2.00 or such other amount as may be permitted under the Bye-laws and the listing rules of the Stock Exchange (or, if applicable, the Alternative Stock Exchange) from time to time, as determined by the Company and on such terms as to evidence and indemnity as the Company may reasonably require. Mutilated or defaced Certificates must be surrendered before replacements will be issued.

In case of lost Certificate, the procedure for replacement shall follow Section 71A of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) as if “ shares in the Company ” includes the Bonus Convertible Notes.

14. Further issues

The Company may from time to time, at the absolute discretion of the Company, create and issue further convertible notes having the same terms and conditions as the Bonus Convertible Notes in all respects and so that such further issue of convertible notes shall be consolidated and form a single series with the Bonus Convertible Notes. Such further convertible notes may be constituted by a deed supplemental to the Deed Poll.

15. Notices

(a) Subject to paragraph 15(b) below, all notices to Bonus Convertible Noteholders shall be validly given if mailed to them at their respective addresses in the register of Bonus Convertible Noteholders maintained by the Bonus CN Registrar or published in a leading newspaper having general circulation in Hong Kong. Any such notice shall be deemed to have been given on the date which is two (2) Business Days after the date of despatch, or on the date of such publication (as the case may be).
(b) To the extent permitted by the listing rules of the Stock Exchange (or if applicable, the Alternative Stock Exchange) and all applicable laws and regulations, the Company may send or otherwise make available notices to a Bonus Convertible Noteholder by electronic means provided that the Company must first have received from such Bonus Convertible Noteholder either (a) that Bonus Convertible Noteholder’s prior express positive confirmation in writing or (b) the Bonus Convertible Noteholder’s deemed consent, in the manner specified in the listing rules of the Stock Exchange (or if applicable, the Alternative Stock Exchange), to receive or otherwise have made available to him such notices by such electronic means. Any such notice shall be deemed to have been given on the day following that on which it is successfully transmitted or at such later time as may be prescribed by the listing rules of the Stock Exchange (or if applicable, the Alternative Stock Exchange) or any applicable laws or regulations.

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APPENDIX III

16. Agents

The name of the initial Bonus CN Registrar (acting as initial registrar, paying, transfer and conversion agent) and its initial specified office are set out at the end of the Conditions. The Company reserves the right, at any time to vary or terminate the appointment of any of them and to appoint additional or other persons in their place, provided that the Company will at all times maintain (i) a conversion agent, a transfer agent and a paying agent and (ii) a registrar, each having a specified office in Hong Kong, so long as any Bonus Convertible Note remains outstanding. Notice of any such termination or appointment or of any changes in the specified offices or identity of the Bonus CN Registrar (acting as registrar, transfer agent, paying agent and conversion agent) will be given promptly by the Company to the Bonus Convertible Noteholders.

17. Governing law and jurisdiction

The Bonus Convertible Notes, the Deed Poll and the relevant agreement appointing the Agent are governed by, and shall be construed in accordance with, the laws of Hong Kong. In relation to any legal action or proceedings arising out of or in connection with the Deed Poll, the Agency Agreement and the Bonus Convertible Notes, the Company has in the Deed Poll irrevocably submitted to the courts of Hong Kong.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

A. THREE-YEAR FINANCIAL INFORMATION

Set out below is the consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows of Pacific Century Premium Developments Limited (the “Company”) and its subsidiaries (the “Group”) for each of the three years ended 31 December 2009, 31 December 2010 and 31 December 2011, and the consolidated balance sheets as at 31 December 2009, 31 December 2010 and 31 December 2011, which are extracted from the published audited consolidated financial statements of the Group for the three years then ended. The auditor’s reports in respect of the Group’s consolidated financial statements for each of the three years ended 31 December 2009, 31 December 2010 and 31 December 2011 did not contain any qualification. The consolidated statements of comprehensive income, consolidated statements of changes in equity, consolidated statements of cash flows and consolidated balance sheets are prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRS”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

During the three years under reporting, the Group did not contain any non-controlling interest in the consolidated statements of comprehensive income, consolidated statements of changes in equity, consolidated statements of cash flows and consolidated balance sheets.

The consolidated statements of comprehensive income for each of the three years ended 31 December 2009, 31 December 2010 and 31 December 2011, did not consist of material exceptional item which is required to be shown in the respective consolidated statements of comprehensive income.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2011

Note(s) Turnover 4, 5 Cost of sales Gross profit General and administrative expenses Other income Other gains, net 6 Surplus on revaluation of investment properties 14 Operating profit Interest income Finance costs 7 Profit before taxation 8 Income tax 11 Profit attributable to equity holders of the Company Other comprehensive income/(loss): Currency translation differences: Exchange differences on translating foreign operations Less: Reclassification adjustments arose from disposal of subsidiaries Other comprehensive income/(loss) for the year, net of tax Total comprehensive income Earnings per share (expressed in Hong Kong cents per share) Basic 13 Diluted 13 Dividends Special dividend of HK$1.32 per ordinary share proposed after the balance sheet date 12	2011 2,126 (1,285) 841 (580) 24 — 43 328 28 (163) 193 (131) 62 240 — 240 302 2.58 cents 2.58 cents —	2010 2009 HK$ million 1,495 4,222 (748) (3,032) 747 1,190 (524) (610) 34 210 2 176 1,150 — 1,409 966 16 11 (174) (155) 1,251 822 (387) (228) 864 594 268 24 — (73) 268 (49) 1,132 545 35.89 cents 24.68 cents 33.16 cents 24.11 cents — 3,178

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2011

Note Balance at 1 January Total comprehensive income for the year Special dividend 27 Payment under Acquisition Agreement dated 5 March 2004 27 Balance at 31 December	2011 2010 HK$ million 6,865 8,911 302 1,132 — (3,178) — — 7,167 6,865	2009 8,437 545 — (71) 8,911

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CONSOLIDATED BALANCE SHEET As at 31 December 2011

Note(s) ASSETS AND LIABILITIES Non-current assets Investment properties 14 Property, plant and equipment 15 Properties under development 16(a) Properties held for development 16(b) Intangible asset 17 Goodwill 18 Other receivables Deferred income tax assets 29(b) Current assets Properties under development/held for sale 16(c) Sales proceeds held in stakeholders’ accounts 21(a) Restricted cash 21(b), 30(b) Trade receivables, net 21(c) Prepayments, deposits and other current assets Amounts due from fellow subsidiaries 36(c) Amounts due from related companies 36(c) Cash and cash equivalents 30(b)	2011 2010 HK$ million 5,469 5,152 281 215 508 428 618 624 14 — 4 4 3 3 — — 6,897 6,426 456 773 632 845 703 2,249 12 10 112 109 16 50 3 3 2,855 2,179 4,789 6,218	2009 3,866 181 356 548 — 3 6 13
		4,973
		683 1,271 949 172 151 42 2 5,506
		8,776

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FINANCIAL INFORMATION OF THE GROUP

Note(s) Current liabilities Short-term borrowings 21(d) Current portion of long-term borrowings 22 Trade payables 21(e) Accruals, other payables and deferred income 21(f) Deposits received on sales of properties Amounts due to fellow subsidiaries 36(c) Amount payable to the HKSAR Government under the Cyberport Project Agreement 23 Current income tax liabilities Net current assets Total assets less current liabilities Non-current liabilities Long-term borrowings 22 Deferred income tax liabilities 29(a) Net assets REPRESENTING: Issued equity 24 Reserves	2011 2010 HK$ million 9 — 24 24 45 31 573 976 64 65 4 4 603 1,606 23 108 1,345 2,814 3,444 3,404 10,341 9,830 2,505 2,374 669 591 3,174 2,965 7,167 6,865 4,321 4,321 2,846 2,544 7,167 6,865	2009 — 24 45 1,237 84 6 833 102
		2,331
		6,445
		11,418
		2,241 266
		2,507
		8,911
		4,321 4,590
		8,911

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COMPANY BALANCE SHEET As at 31 December 2011 Note ASSETS AND LIABILITIES Non-current assets Investment in subsidiaries 19 Current assets Amounts due from subsidiaries 19 Cash and cash equivalents Current liabilities Accruals and other payables Amount due to a subsidiary 19 Net current assets Total assets less current liabilities Net assets REPRESENTING: Share capital 24(b) Reserves 27	2011 2010 HK$ million 2,870 2,870 7,102 6,773 1 1 7,103 6,774 1 2 3,172 3,174 3,173 3,176 3,930 3,598 6,800 6,468 6,800 6,468 241 241 6,559 6,227 6,800 6,468	2009 2,870
		6,782 —
		6,782
		2 —
		2
		6,780
		9,650
		9,650
		241 9,409
		9,650

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CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 December 2011

Note NET CASH GENERATED FROM /(USED IN) OPERATING ACTIVITIES 30(a) INVESTING ACTIVITIES Purchase of property, plant and equipment Payment for investment properties Purchase of intangible asset Proceeds from disposal of property, plant and equipment Proceeds from disposal of subsidiaries, net of cash disposed 34 Acquisition of property management operation of a subsidiary, net of cash acquired 35 NET CASH (USED IN)/GENERATED FROM INVESTING ACTIVITIES FINANCING ACTIVITIES Repayment of borrowings Payment under Acquisition Agreement dated 5 March 2004 27 Proceeds from bank loan Dividends paid NET CASH USED IN FINANCING ACTIVITIES INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Exchange difference CASH AND CASH EQUIVALENTS Balance at 1 January Balance at 31 December 30(b)	2011 2010 HK$ million 804 (109) (111) (63) (27) — (14) — 1 1 — — — — (151) (62) (3) — — — — — — (3,178) (3) (3,178) 650 (3,349) 26 22 2,179 5,506 2,855 2,179	2009 3,134 (64) — — — 842 (3) 775 — (71) 11 — (60) 3,849 3 1,654 5,506

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NOTES TO THE FINANCIAL STATEMENTS

Amount expressed in Hong Kong dollars unless otherwise stated

1. GENERAL INFORMATION

Pacific Century Premium Developments Limited (the “Company”) and its subsidiaries (together the “Group”) are principally engaged in the development and management of property and infrastructure and investment in properties in Hong Kong and in the Asia-Pacific region.

The Company is a limited liability company incorporated in Bermuda and its securities are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The address of its registered office is Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.

At 31 December 2011, the directors consider the parent company of the Group to be Asian Motion Limited, a company incorporated in British Virgin Islands, and the ultimate holding company of the Group to be PCCW Limited (“PCCW”), a company incorporated in Hong Kong. PCCW produces financial statements available for public use.

2. BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES

a. Statement of compliance

These financial statements have been prepared in accordance with the applicable HKFRS issued by the HKICPA and the disclosure requirements of the Companies Ordinance of Hong Kong. The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to the years presented, unless otherwise stated.

b. Basis of preparation of the financial statements

The consolidated financial statements for the years ended 31 December 2009, 31 December 2010 and 31 December 2011 comprise the Company and its subsidiaries.

The measurement basis used in the preparation of the financial statements is the historical cost convention, as modified by the revaluation of investment properties, which are carried at fair value.

The preparation of financial statements in conformity with HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3.

The HKICPA has issued certain new and revised HKFRS that are first effective or available for early adoption for the current accounting period of the Group. The following sets out the changes in accounting policies for the current and prior accounting periods reflected in these financial statements.

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Standards, amendments and interpretations effective from 1 January 2011 adopted by the Group but have no significant impact on the Group’s financial statements

HKAS 24 (Revised)	Related Party Disclosures
HKAS 32 (Amendment)	Classification of Rights Issues
HK(IFRIC)-Int 14	Prepayments of a Minimum Funding Requirement
HK(IFRIC)-Int 19	Extinguishing Financial Liabilities with Equity Instruments

The following new standards, amendments and interpretations have been issued but are not yet effective for the year ended 31 December 2011 and which the Group has not early adopted:

HKAS 1 (Amendment)	Presentation of Financial Statements (effective for annual
	periods beginning on or after 1 July 2012)
HKAS 12 (Amendment)	Deferred Tax: Recovery of Underlying Assets (effective for
	annual periods beginning on or after 1 January 2012)
HKAS 19 (Amendment)	Employee Benefits (effective for annual periods beginning on
	or after 1 January 2013)
HKAS 27	Separate Financial Statements (effective for annual periods
	beginning on or after 1 January 2013)
HKAS 28	Investments in Associates and Joint Ventures (effective for
	annual periods beginning on or after 1 January 2013)
HKFRS 1 (Amendment)	Severe Hyperinflation (effective for annual periods beginning
	on or after 1 July 2011)
HKFRS 7 (Amendment)	Disclosures — Transfers of Financial Assets (effective for
	annual periods beginning on or after 1 July 2011)
HKFRS 9	Financial Instruments (effective for annual periods beginning
	on or after 1 January 2015)
HKFRS 10	Consolidated Financial Statements (effective for annual
	periods beginning on or after 1 January 2013)
HKFRS 11	Joint Arrangements (effective for annual periods beginning on
	or after 1 January 2013)
HKFRS 12	Disclosure of Interests in Other Entities (effective for annual
	periods beginning on or after 1 January 2013)
HKFRS 13	Fair Value Measurement (effective for annual periods
	beginning on or after 1 January 2013)

The Group is in the process of making an assessment of what the impact of these amendments is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have a significant impact on the Group’s results of operations and financial position except for the amendments to HKAS 12, Income Taxes. The amendments to HKAS 12 will be adopted in the 2012 financial statements and the Group will be required to make retrospective adjustments at that time to the amounts reported in respect of the year ended 31 December 2011, to the extent that the tax consequences that would apply on the sale of the properties at their carrying amount would differ from the amounts accrued for deferred tax under the current policy, in respect of those properties

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

which are not held within a business model whose objective is to consume substantially all of the economic benefits embodied in the property over time. The Group has not yet completed its assessment of the impact of this new accounting policy on the provision for deferred tax liabilities.

c. Subsidiaries

Subsidiaries are all entities (including special purpose entities) that are controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases.

The Group uses the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.

Intra-group balances and transactions, and any unrealised profits arising from intra-group transactions, are eliminated in full in preparing the consolidated financial statements. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

In the Company’s balance sheet, investment in subsidiaries is stated at cost less any impairment losses (note 2(i)). The results of subsidiaries are recognised by the Company to the extent of dividends received and receivable at the balance sheet date.

d. Revenue recognition

Provided it is probable that the economic benefits will flow to the Group and that the revenue and costs, if applicable, can be measured reliably, revenue is recognised in the income statement as follows:

(i) Sales of properties

Revenue and profits arising from sales of completed properties are recognised upon execution of legally binding unconditional sales contracts upon which the beneficial interest in the properties passes to the purchasers together with the significant risks and rewards of ownership.

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For pre-completion contracts for the sales of development properties for which legally binding unconditional sales contracts were entered, revenue and profits are recognised upon completion of the development and when significant risks and rewards of ownership have been transferred. Deposits and instalments received from purchasers prior to this stage are included in current liabilities.

(ii) Rental income from operating leases

Rental income receivable under operating leases is recognised in the income statement in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives granted are recognised in the income statement as an integral part of the aggregate net lease payments receivable. Contingent rentals are recognised as income in the accounting period in which they are earned.

(iii) Contract revenue

Revenue from a fixed price contract is recognised using the percentage of completion method, measured by reference to the percentage of estimated value of work done to date against total contract revenue.

(iv) Service income

Service income is recognised when services are rendered to customers.

(v) Interest income

Interest income from bank deposits is accrued on a time-apportioned basis using the effective interest method by reference to the principal outstanding and the rates applicable.

e. Operating leases

Leases of assets under which the lessor has not transferred all the risks and benefits of ownership are classified as operating leases.

(i) Assets held for use in operating leases (as lessor)

Where the Group leases out assets under operating leases, the assets are included in the balance sheet according to their nature as set out in note 2(g). Revenue arising from operating leases is recognised in accordance with the Group’s revenue recognition policies, as set out in note 2(d)(ii).

(ii) Operating lease charges

Leases in which a significant portion of the risks and rewards of ownership retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are expensed in the income statement on a straight-line basis over the period of the lease.

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APPENDIX IV

Up-front payments made for leasehold land held under operating leases are presented in the balance sheet as prepayments for operating leases and are amortised in the income statement on a straight-line basis over the period of the lease or where there is impairment, the impairment is expensed in the income statement.

f. Freehold land, property, plant and equipment and depreciation

Freehold land is stated at cost less impairment losses (note 2(i)) as the land has an indefinite useful life and are not subject to depreciation.

Property, plant and equipment held for own use are stated in the balance sheet at cost less accumulated depreciation and impairment losses (note 2(i)). The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use, including qualifying borrowing costs (note 2(t)). Subsequent expenditure relating to property, plant and equipment that has already been recognised is added to the carrying amount of the asset and is depreciated over the original remaining useful life of the asset when it is probable that future economic benefits will flow to the Group and the costs can be measured reliably. All other subsequent expenditure, such as repairs and maintenance and overhaul costs, is recognised as an expense in the period in which it is incurred.

Gains or losses arising from the retirement or disposal of property, plant and equipment are determined as the difference between the estimated net disposal proceeds and the carrying amount of the asset and are recognised in the income statement on the date of retirement or disposal.

Depreciation is calculated to write off the cost on a straight-line basis over the estimated useful lives as follows:

Buildings and structures 5 to 51 years Other plant and equipment 2 to 17 years

The useful lives of property, plant and equipment are reviewed, and adjusted if appropriate, at each balance sheet date.

g. Investment properties

Investment properties are land and/or buildings which are owned or held under a leasehold interest to earn rental income and/or for capital appreciation, and which are not occupied by the Group.

Land held under operating leases are classified and accounted for as an investment property when the rest of the definition of investment property is met. The operating lease is accounted for as if it were a finance lease.

Investment properties are initially measured at their cost, including directly attributable construction costs, borrowing costs and other related transaction costs. After initial recognition, investment properties are stated in the balance sheet at fair value. Fair value is based on active market

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APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

prices, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If this information is not available, the Group uses alternative valuation methods such as recent prices on less active markets or discounted cash flow projections. These valuations are performed in accordance with the guidance issued by the International Valuation Standards Committee and are prepared or reviewed annually by independent external valuers. The fair value of investment properties reflects, among other things, rental income from current leases and assumptions about rental income from future leases in the light of current market conditions. The fair value also reflects, on a similar basis, any cash outflows that could be expected in respect of the properties. Changes in fair value arising on the revaluation of investment properties are recognised in the income statement.

Subsequent costs are included in the asset’s carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed in the income statement during the financial period in which they are incurred.

h. Intangible asset (other than goodwill)

Other intangible asset acquired by the Group is stated at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses (see note 2(i)).

Amortisation of intangible asset with finite useful lives is charged to income statement on a straight-line basis over the asset’s estimated useful lives. The right for rental collection is amortised from the date it is available for use and the estimated useful life is 21 years.

Both the intangible asset’s useful life and the method of amortisation are reviewed annually.

i. Impairment of investment in subsidiaries and non-financial assets

Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognised no longer exists or may have decreased:

interest in freehold land;
property, plant and equipment;
intangible asset;
properties under development/held for development/held for sale;
pre-paid interests in leasehold land classified as being held under an operating lease;
investment in subsidiaries; and
goodwill.

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FINANCIAL INFORMATION OF THE GROUP

If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised in the income statement whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash inflows (a cash-generating unit).

(i) Calculation of recoverable amount

The recoverable amount of an asset is the greater of its fair value less costs to sell and its value in use. Fair value less costs to sell is the amount obtainable from the sale of an asset in an arm’s length transaction between knowledgeable, willing parties, less the costs of disposal. 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.

(ii) Reversals of impairment losses

An impairment loss of an asset other than goodwill is reversed if there has been a favourable change in the estimates used to determine the recoverable amount.

A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to the income statement in the year in which the reversals are recognised.

j. Properties under development/held for development/held for sale

Properties under development are carried at the lower of cost and the estimated net realisable value. Cost includes original land acquisition costs, costs of land use rights, construction expenditures incurred and other direct development costs attributable to such properties, including interest incurred on loans directly attributable to the development prior to the completion of construction. The net realisable value is determined by reference to estimated sale proceeds of properties sold in the ordinary course of business less all estimated selling expenses.

Properties under development with the development expected to be completed within one year from the balance sheet date, which have either been pre-sold or are intended for sale, are classified under current assets.

Properties held for development represent interests in land held for future development which are stated in the balance sheet at cost less impairment losses (note 2(i)).

Properties held for sale represent completed properties available for sale which are stated at the lower of cost and the estimated net realisable value. They are classified under current assets.

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k. Goodwill

Goodwill represents the excess of the cost of a business combination over the Group’s interest in the net fair value of the acquiree’s net identifiable assets, liabilities and contingent liabilities at the date of acquisition.

Goodwill is stated in the consolidated balance sheet at cost less accumulated impairment losses (note 2(i)). Goodwill is allocated to cash-generating units and is tested annually for impairment. Impairment losses on goodwill are not reversed. On disposal of an entity or business unit, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.

l. Construction contracts

The accounting policy for contract revenue is set out in note 2(d)(iii) above and construction costs are recognised when incurred. When the outcome of a construction contract can be estimated reliably, contract costs are recognised as expenses by reference to the stage of completion of the contract activity at the balance sheet date. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. When the outcome of a construction contract cannot be estimated reliably, revenue is recognised only to the extent that it is probable the contract costs incurred will be recoverable and contract costs are recognised as an expense in the period in which they are incurred.

Construction contracts in progress at the balance sheet date are recorded in the balance sheet at the net amount of costs incurred plus recognised profits less recognised losses, estimated value of work performed including progress billing, and are presented in the balance sheet as the “Gross amounts due from customers for contract work” (as an asset) or the “Gross amounts due to customers for contract work” (as a liability), as applicable. Progress billings for work performed on a contract not yet paid by customers are included in the balance sheet under “Trade receivables, net”.

m. Trade and other receivables

Trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than twelve months after the balance sheet date. These are classified as non-current assets. Trade and other receivables are included in the balance sheet under “Trade receivables, net” and “Prepayments, deposits and other current assets”.

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of loans and receivables is established when there is objective evidence that the Group will not be able to collect amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probably that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade

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APPENDIX IV

receivables are impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the assets is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement.

n. Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition, less bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management.

o. Derivative financial instruments

Convertible notes that can be converted to equity share capital at the option of the holder, where the number of shares that would be issued on conversion and the value of the consideration that would be received at that time do not vary, are accounted for as compound financial instruments which contain both a liability component and an equity component.

The fair value of the liability portion of convertible notes is determined using a market interest rate for an equivalent non-convertible debt. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or maturity of the debt. The remainder of the proceeds is allocated to the conversion option, which is recognised and included in shareholders’ equity, net of income tax effects. The carrying amount of the financial liability is measured on the amortised cost basis using effective interest method minus principal repayments. The conversion option is an equity instrument that is recognised in the convertible notes reserve in equity until either the note is converted or redeemed. If the note is converted, the convertible notes reserve, together with the carrying amount of the liability component at the time of conversion, is transferred to share capital and share premium as consideration for the shares issued. If the note is redeemed, the convertible notes reserve is transferred directly to retained earnings.

Derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value at each balance sheet date. The gain or loss on re-measurement to fair value is recognised immediately in the income statement.

Rental guarantee contract of the Group is categorised as a financial liability at fair value through profit or loss at inception and is initially recognised at fair value on the date on which a contract is entered into and subsequently re-measured at its fair value at each balance sheet date. Changes in fair value of the rental guarantee contract are recognised in the income statement.

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p. Financial guarantees issued

Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the “holder”) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.

A financial guarantee contract issued by the Company or the Group and not designated as at fair value through profit or loss is recognised initially at its fair value less transaction costs that are directly attributable to the issue of the financial guarantee contract. Subsequent to initial recognition, the Company or the Group measures the financial guarantee contract at the higher of: (i) the amount determined in accordance with HKAS 37 “Provisions, Contingent Liabilities and Contingent Assets”; and (ii) the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with HKAS 18 “Revenue”.

q. Trade and other payables

Trade and other payables are recognised initially at fair value and thereafter stated at amortised cost using the effective interest method unless the effect of discounting would be immaterial, in which case they are stated at cost.

r. Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Company or the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate of the amount required to settle the obligation. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

Where it is not probable that an outflow of resources will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

s. Borrowings

Borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, borrowings are stated at amortised cost with any difference between the amount initially recognised, being the proceeds net of transaction costs, and the redemption value being recognised in the income statement over the period of the borrowings, using the effective interest method.

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t. Borrowing costs

Borrowing costs are expensed in the income statement in the period in which they are incurred, except to the extent that they are capitalised as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale.

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditures for the asset are being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or completed.

u. Income tax

Income tax for the year comprises current income tax and movements in deferred income tax assets and liabilities. Income tax is recognised in the income statement.

(i) Current income tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
(ii) Deferred income tax assets and liabilities arise from deductible and taxable temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the tax bases respectively. Deferred income tax assets also arise from unused tax losses and unused tax credits.

All deferred income tax liabilities are recognised while deferred income tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

The amount of deferred income tax provided is based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred income tax assets and liabilities are not discounted.

(iii) Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the Company or the Group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met:
in the case of current tax assets and liabilities, the Company or the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or

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  - in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:

     - the same taxable entity; or

     - different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.

v. Employee benefits
(i) Salaries, annual bonuses, annual leave entitlements, leave passage and the cost to the Group of non-monetary benefits are accrued in the year in which the associated services are rendered by employees of the Group. Where payment or settlement is deferred and the effect would be material, provisions are made for the estimated liability as a result of services rendered by employees up to the balance sheet date.
(ii) Defined contribution retirement schemes (including the Mandatory Provident Fund) are offered to employees of the Group. The schemes are operated by PCCW and the assets of such schemes are generally held in separate trustee-administered funds. The schemes are generally funded by payments from the relevant companies of the PCCW Group and the Group and, in some cases, employees themselves, taking into account of the recommendations of independent qualified actuaries.

The Group’s contributions to the defined contribution retirement schemes are recognised as expenses in the income statement in the period to which the contributions relate. Under the defined contribution retirement schemes, the employer is required to make contributions to the scheme at rates specified under the rules of the scheme. Where employees leave the scheme prior to the full vesting of the employer’s contributions, the amount of forfeited contributions is used to reduce the contributions payable by the Group.

(iii) The Group and PCCW operate share option schemes where employees (including directors) are granted options to acquire shares of the Company or PCCW at specified exercise prices. The fair value of the employee services received in exchange for the grant of the options is recognised as staff costs in the income statement with a corresponding increase in an employee share-based compensation reserve under equity. The fair value of the options granted is measured at grant date using the trinomial option pricing model, taking into account the terms and conditions upon which the options were granted, and spread over the respective vesting period during which the employees become unconditionally entitled to the options. At each balance sheet date, the Group revises its estimates of the number of share options that is expected to become vested. The impact of the revision of original estimates, if any, is recognised in the income statement with a corresponding adjustment to the employee share-based compensation reserve over the remaining vesting period. On vesting date, the amount recognised as staff costs is adjusted to reflect the actual number of share options that vest (with a corresponding adjustment to the employee share-based

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

compensation reserve). The equity amount is recognised in the employee share-based compensation reserve until either the share options are exercised (when it is transferred to the share premium account) or the share options expire (when it is released directly to retained earnings). When the share options are exercised, the proceeds received, net of any directly attributable transaction cost, are credited to share capital (nominal value) and share premium.

w. Foreign currency translation

Companies comprising the Group maintain their books and records in the primary currencies of their operations (the “functional currencies”). The consolidated financial statements are presented in Hong Kong dollars, which is the Company’s functional and presentation currency.

Foreign currencies transactions during the year are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the balance sheet date. Exchange gains and losses are recognised in the income statement.

The results of foreign operations are translated into Hong Kong dollars at the exchange rates approximating the foreign exchange rates ruling at the dates of transactions. Balance sheet items of foreign operations, including goodwill arising on consolidation of foreign operations acquired, are translated into Hong Kong dollars at the foreign exchange rates ruling at the balance sheet date. The resulting exchange differences are recognised directly in the currency translation reserve under equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to currency translation reserve under equity. On disposal of a foreign operation, the cumulative amount of the exchange differences recognised in the currency translation reserve under equity which relate to that foreign operation is included in the calculation of the profit or loss on disposal.

x. Segment reporting

Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Group’s most senior executive management 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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

y. Dividend distribution

Dividend distribution to the Company’s shareholders is recognised as a liability in the consolidated financial statements and the Company’s financial statements in the period in which the dividends are approved by the Company’s shareholders.

3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

a. The management have made judgements in applying the Group’s accounting policies. The judgements that have the most significant effect on the amounts recognised in the financial statements are discussed below:
(i) Sales recognition on properties sold

When the inflow of economic benefits associated with the property sales transaction is assessed to be probable and significant risks and rewards of ownership of properties are transferred to the purchasers, the Group recognised the revenue in respect of the properties sold.

Management made judgement as to whether the economic benefits associated with the property sales transaction will flow to the Group. Likelihood of inflow of economic benefits to the Group is demonstrated by the purchaser’s commitment to pay, which in turn is supported by substantial investment that gives the purchaser a stake in the property sufficient that the risk of loss through default motivates the purchaser to honour the obligation to the Group. Inflow of economic benefits associated with the property sales transaction is also assessed by considering location of the property and the prevailing market price of similar properties.

Management has also made judgement as to when the significant risks and rewards of ownership of properties are transferred to the purchasers. Risks and rewards of ownership of properties are transferred to the purchasers upon execution of legally binding unconditional sales contracts upon which the beneficial interests in the properties pass to the purchasers.

The judgement on the likelihood of inflow of economic benefits associated with the property sales transaction and when risks and rewards of ownership of properties are transferred would affect the Group’s profit for the year and the carrying value of properties under development/held for sale.

(ii) Purchase price allocation

The fair value of the assets of the subsidiary acquired at the acquisition date was determined by management’s assessment of the fair value of the assets. A portion of the purchase price is allocated to the business of the acquired subsidiary based on the cash flow forecast of the business. Had

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APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

management determined that a different fair value of the assets of the subsidiary acquired at the acquisition date and different assumptions were used for the preparation of the cash flow forecast of the business of the acquired subsidiary, this would have caused different amount of asset value and goodwill at the date of acquisition.

b. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom be equal to the related actual results. The estimates and assumptions 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:
(i) Cost of sales and amount payable to the HKSAR Government under the Cyberport Project Agreement

Pursuant to the agreement dated 17 May 2000 entered into with the Government of the Hong Kong Special Administrative Region (the “HKSAR Government”) (“Cyberport Project Agreement”), the HKSAR Government is entitled to receive approximately 65 per cent of the surplus cash flow earned from the Cyberport project. The amounts paid and payable to the HKSAR Government are part of the Group’s costs of developing the Cyberport project.

The amount payable to the HKSAR Government is a financial liability that is measured at amortised cost. Borrowing costs associated with this liability are capitalised as part of the properties under development.

The estimated cost of developing the Cyberport project, including construction costs and the amounts paid and payable to the HKSAR Government, is allocated to the cost of properties sold on a systematic basis over the life of the project using a relative value approach. This approach considers the value of development costs attributable to phases for which revenue has been recognised to date relative to the total expected value of development costs for the development as a whole. The revision of estimates of these relative values during 2011 has resulted in the costs of properties sold recorded in the year ended 31 December 2011 being decreased by HK$151 million (2010: decreased by HK$95 million; 2009: increased by HK$59 million).

(ii) Estimated valuation of investment properties

The best evidence of fair value is current prices in an active market for similar leases and other contracts. In the absence of such information, the Group determines the amount within a range of reasonable fair values estimates. In making its estimates, the Group considers both (i) information from the valuations of investment properties performed by external professional valuers by using the market value approach and (ii) other principal assumptions, including the receipt of contractual rentals, expected future market rentals in view of the current usage and condition of the investment properties, supported by the terms of any existing leases and other contracts, and discount rates to determine the fair value of the investment properties. Had the Group used different future market rentals, discount rates and other assumptions, the fair value of the investment properties would be different and thus caused impact to the consolidated income statement. As at 31 December 2011, the fair value of the investment properties was HK$5,469 million (2010: HK$5,152 million; 2009: HK$3,866 million).

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APPENDIX IV

(iii) Derivative financial instruments

The fair value of the liability portion of a convertible debt was determined by using a market interest rate for an equivalent non-convertible debt at the date the convertible notes was issued in May 2004. This amount is recorded as a financial liability and is measured on the amortised cost basis using effective interest method minus principal repayment. Had management determined that a different market interest rate of an equivalent non-convertible debt was appropriate at the date the convertible notes was issued in May 2004, this would have caused different amount of finance costs charged to the income statement for each accounting period.

(iv) Deferred income tax

While deferred income tax liabilities are provided in full on all taxable temporary differences, deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. In assessing the amount of deferred income tax assets that need to be recognised, the Group considers future taxable income and ongoing prudent and feasible tax planning strategies. In the event that the Group’s estimates of projected future taxable income and benefits from available tax strategies are changed, or changes in current tax regulations are enacted that would impact the timing or extent of the Group’s ability to utilise the tax benefits of net operating loss carried forward in the future, adjustments to the recorded amount of net deferred income tax assets and income tax would be made. As at 31 December 2011, the deferred income tax assets netted off against the deferred income tax liabilities recognised in the consolidated balance sheet was HK$20 million (2010: HK$23 million; 2009: HK$28 million) (note 29(a)).

(v) Impairment of investment in subsidiaries and non-financial assets

At each balance sheet date, the Group reviews internal and external sources of information to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognised no longer exists or may have decreased:

interest in freehold land;
property, plant and equipment;
intangible asset;
properties under development/held for development/held for sale;
pre-paid interests in leasehold land classified as being held under an operating lease;
investment in subsidiaries; and
goodwill.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

The sources used to identify indications of impairment are often subjective in nature and the Group is required to use judgement in applying such information to its business. The Group’s interpretation of this information has a direct impact on whether an impairment assessment is performed as at any given balance sheet date.

If an indication of impairment is identified, such information is further subject to an exercise that requires the Group to estimate the recoverable value, representing the greater of the asset’s fair value less cost to sell or its value in use. Depending on the Group’s assessment of the overall materiality of the asset under review and complexity of deriving reasonable estimates of the recoverable value, the Group may perform such assessment utilising internal resources or the Group may engage external advisors to counsel the Group in making this assessment. Regardless of the resources utilised, the Group is required to make many assumptions to make this assessment, including the utilisation of such asset, the cash flows to be generated, appropriate market discount rates and the projected market and regulatory conditions. Changes in any of these assumptions could result in a material change to future estimates of the recoverable value of any asset.

4. TURNOVER

Turnover comprises revenues recognised in respect of the following businesses:

Property development Property investment Other businesses	The Group 2011 2010 HK$ million 1,710 1,100 262 216 154 179 2,126 1,495	2009 3,855 214 153
		4,222

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

5. SEGMENT INFORMATION

Information regarding the Group’s reportable segments as provided to the Group’s most senior executive management for the purposes of resources allocation and assessment of segment performance for the year ended 31 December is set out below:

a. Business segments

		Property					Property
	development			in		investment			Other businesses
	Hong Kong					in mainland China				(note i)		Elimination			Consolidated
	2011	2010	2009			2011	2010	2009	2011	2010	2009	2011	2010	2009	2011	2010	2009
									HK$ million
Revenue from external
customers	1,710	1,100	3,855			260	215	212	156	180	155	—	—	—	2,126	1,495	4,222
Inter-segment revenue	—	—			—	—	—	—	10	4	38	(10)	(4)	(38)	—	—	—
Reportable segment revenue	1,710	1,100	3,855			260	215	212	166	184	193	(10)	(4)	(38)	2,126	1,495	4,222
Interest income	2	2			2	11	6	5	—	—	—	—	—	—	13	8	7
Unallocated interest income															15	8	4
Consolidated interest income															28	16	11
Finance costs	—	—			—	1	1	—	—	—	—	—	—	—	1	1	—
Unallocated finance costs															162	173	155
Consolidated finance costs															163	174	155
Depreciation and amortisation	1	1			2	20	16	13	19	16	15	—	—	—	40	33	30
Unallocated depreciation and
amortisation															9	9	6
Consolidated depreciation
and amortisation															49	42	36
Provision for / (Reversal of)
impairment losses	—	(33)		91		1	1	—	—	1	15	—	—	—	1	(31)	106
Profit/(loss) before taxation	440	440		901		179	1,247	85	(41)	(51)	171	—	—	—	578	1,636	1,157
Unallocated corporate
expenses															(385)	(385)	(335)
Consolidated profit before
taxation															193	1,251	822

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

Consolidated 2011 2010 2009 125 382 222 6 5 6	Consolidated 2011 2010 2009 125 382 222 6 5 6	Consolidated 2011 2010 2009 125 382 222 6 5 6
131	387	228
236 2	92 13	86 7
238	105	93
9,485 2,201	11,016 1,628	8,640 5,109
11,686	12,644	13,749
1,904 2,615	3,321 2,458	2,479 2,359
4,519	5,779	4,838

(i) Revenue from segments below the quantitative thresholds are attributable to seven operating segments of the Group. Those segments include property development in Thailand and Japan, property management in Hong Kong and Japan, asset management, facilities management and ski operation. None of these segments have ever met any of the quantitative thresholds for determining reportable segments.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

b. Geographical information

The following table sets out information about geographical location of (i) the Group’s revenue from external customers and (ii) the Group’s investment properties, property, plant and equipment, non-current properties under development, properties held under development, intangible asset, goodwill and other non-current receivables (“specified non-current assets”). The geographical location of customers is based on the location at which the services were provided or the goods delivered. The geographical location of the specified non-current assets is based on the physical location of the asset, in the case of property, plant and equipment, the location of the operation to which they are allocated, in case of intangible asset and goodwill, and the location of operations.

		Revenue from			Specified
	external customers			non-current assets
	2011	2010	2009	2011	2010	2009
			_HK$ _	million
Hong Kong (place of
domicile)	1,754	1,189	3,951	62	52	50
Mainland China	262	217	220	5,547	5,226	3,923
Japan	110	89	51	668	523	437
Thailand	—	—	—	620	625	550
	2,126	1,495	4,222	6,897	6,426	4,960

6. OTHER GAINS, NET

		The	Group
	2011		2010	2009
		HK$ million
Gain on rental guarantee	—		2	40
Gain on disposal of subsidiaries (note 34)	—		—	232
Impairment losses (note 18)	—		—	(96)
	—		2	176

— 128 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

7. FINANCE COSTS

Interest expenses: 2014 Convertible Note wholly repayable over two years, but not exceeding five years Other borrowing costs Less: Interest expenses capitalised into properties under development	The Group 2011 2010 HK$ million 166 157 18 17 184 174 (21) — 163 174	2009 149 6
		155 —
		155

The borrowing costs have been capitalised at 6.87 per cent per annum (2010: Nil; 2009: Nil).

— 129 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

8. PROFIT BEFORE TAXATION

Profit before taxation is stated after crediting and charging the following:

		The Group
	2011	2010	2009
		HK$ million
Crediting:
Gross rental income from investment
properties	262	216	214
Other rental income	—	—	6
Less: outgoings	(20)	(24)	(31)
Other income from deposits forfeited	22	20	209
Surplus on revaluation of investment
properties	43	1,150	—
Charging:
Cost of properties sold	1,219	640	2,917
Depreciation	49	42	35
Amortisation of leasehold land	—	—	1
Staff costs, included in:
- cost of sales	22	46	63
- general and administrative expenses	185	157	171
Contributions to defined contribution
retirement scheme, included in:
- cost of sales	—	2	3
- general and administrative expenses	7	8	11
Auditors’ remuneration	4	4	4
Operating lease rental of land and buildings,
included in:
- cost of sales	—	—	2
- general and administrative expenses	48	48	40
Operating lease rental of equipment	3	1	1
Provision for/(Reversal of) impairment of
trade receivables	1	(32)	10
Net foreign exchange loss/(gain)	3	(7)	(3)

— 130 —

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

								Retirement	scheme	contributions			—	1,130	—	349	349	866		—	—	—	—	2,694
										Bonuses			—	36,804	—	1,544	2,572	5,219		—	—	—	—	46,139
		2009
			Salaries,	allowances,	other	allowances	and	benefits	in	kind			—	7,333	—	3,326	3,326	9,723		—	—	—	—	23,708
									Directors’	fee			—	—	—	—	—	—		200	67	200	200	667
								Retirement	scheme	contributions			—	871	—	349	425	866		—	—	—	—	2,511
	The Group	2010								Bonuses	HK$ ’000		—	—	—	1,811	14,020	3,984		—	—	—	—	19,815
a. Cash and cash equivalents paid/payable by the Group during the year		2011	Salaries, Salaries,	allowances, allowances,	other other	allowances allowances	and and	benefits Retirement benefits	Directors’ in scheme Directors’ in	fee kind Bonuses contributions fee kind		Executive Directors	Li Tzar Kai, Richard — — — — — —	Lee Chi Hong, Robert (note i) — 7,800 16,665 819 — 6,500	Alexander Anthony Arena (note ii, iii) — — — — — —	James Chan — 3,401 2,500 357 — 3,326	Gan Kim See, Wendy — 5,500 6,265 578 — 4,051	Lam Yu Yee — 9,933 3,584 866 — 9,723	Independent Non-executive Directors	Cheung Kin Piu, Valiant 210 — — — 200 —	Tsang Link Carl, Brian (note iv) — — — — — —	Prof Wong Yue Chim, Richard, SBS, JP 210 — — — 200 —	Dr. Allan Zeman, GBM, GBS, JP 210 — — — 200 —	630 26,634 29,014 2,620 600 23,600

— 131 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

i. Bonus payment was calculated in accordance with contractual term as stated in the employment contract. Offered to waive the basic salary and housing benefits of HK$3.67 million and HK$1.83 million payable to him by a wholly-owned subsidiary in 2009 and 2010 respectively.
ii. The remuneration of executive director employed by PCCW, the ultimate holding company of the Group, is borne by PCCW.
iii. Resigned as an executive director on 29 November 2011.
iv. Resigned as an independent non-executive director on 11 June 2009.
v. The total directors’ emoluments for the year ended 31 December 2011 were HK$59 million (2010: HK$47 million; 2009: HK$73 million).
b. Share-based compensation

For executive director employed by PCCW, the value of his services under PCCW’s share option scheme borne by PCCW, is excluded from the analysis below.

The Group 2011 Grant date Exercise price of share options Number of share options/ shares outstanding at beginning of year Number of share options granted/ (lapsed) Number of share options exercised/ shares transferred Number of share options/ shares outstanding at end of year Number of share options vested Share-based compensation charged to income statement (note ii) HK$ HK$’000 Executive Directors Lee Chi Hong, Robert 25 July 2003 4.35 5,000,000 — — 5,000,000 5,000,000 — James Chan 25 July 2003 4.35 210,000 — — 210,000 210,000 — Gan Kim See, Wendy 25 July 2003 4.35 240,000 — — 240,000 240,000 — —	Realised benefits (note i) HK$’000 — — —
	—

The Group
2011
Grant date
Exercise price
of share
options
Number of
share options/
shares
outstanding
at beginning
of year
Number of
share options
granted/
(lapsed)
Number of
share options
exercised/
shares
transferred
Number
of share
options/
shares
outstanding
at end
of year
Number of
share options
vested
Share-based
compensation
charged to
income
statement
(note ii)
HK$
HK$’000
Executive Directors
Lee Chi Hong, Robert
25 July 2003
4.35
5,000,000
—
—
5,000,000
5,000,000
—
James Chan
25 July 2003
4.35
210,000
—
—
210,000
210,000
—
Gan Kim See, Wendy
25 July 2003
4.35
240,000
—
—
240,000
240,000
—
—

Realised
benefits
(note i)
HK$’000
—
—
—

—

— 132 —

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

The Group 2010 Grant date Exercise price of share options Number of share options/ shares outstanding at beginning of year Number of share options granted/ (lapsed) Number of share options exercised/ shares transferred Number of share options/ shares outstanding at end of year Number of share options vested Share-based compensation charged to income statement (note ii) HK$ HK$’000 Executive Directors Lee Chi Hong, Robert 25 July 2003 4.35 5,000,000 — — 5,000,000 5,000,000 — James Chan 25 July 2003 4.35 210,000 — — 210,000 210,000 — Gan Kim See, Wendy 25 July 2003 4.35 240,000 — — 240,000 240,000 — —	Realised benefits (note i) HK$’000 — — —
	—

The Group
2010
Grant date
Exercise price
of share
options
Number of
share options/
shares
outstanding
at beginning
of year
Number of
share options
granted/
(lapsed)
Number of
share options
exercised/
shares
transferred
Number
of share
options/
shares
outstanding
at end
of year
Number of
share options
vested
Share-based
compensation
charged to
income
statement
(note ii)
HK$
HK$’000
Executive Directors
Lee Chi Hong, Robert
25 July 2003
4.35
5,000,000
—
—
5,000,000
5,000,000
—
James Chan
25 July 2003
4.35
210,000
—
—
210,000
210,000
—
Gan Kim See, Wendy
25 July 2003
4.35
240,000
—
—
240,000
240,000
—
—

Realised
benefits
(note i)
HK$’000
—
—
—

—

The Group 2009 Grant date Exercise price of share options Number of share options/ shares outstanding at beginning of year Number of share options granted/ (lapsed) Number of share options exercised/ shares transferred Number of share options/ shares outstanding at end of year Number of share options vested Share-based compensation charged to income statement (note ii) HK$ HK$’000 Executive Directors Lee Chi Hong, Robert 25 July 2003 4.35 5,000,000 — — 5,000,000 5,000,000 — 8 February 2005 4.475 1,000,000 (1,000,000) — — — — James Chan 25 July 2003 4.35 210,000 — — 210,000 210,000 — Gan Kim See, Wendy 25 July 2003 4.35 240,000 — — 240,000 240,000 — —	Realised benefits (note i) HK$’000 — — — —
	—

The Group
2009
Grant date
Exercise price
of share
options
Number of
share options/
shares
outstanding
at beginning
of year
Number of
share options
granted/
(lapsed)
Number of
share options
exercised/
shares
transferred
Number
of share
options/
shares
outstanding
at end
of year
Number of
share options
vested
Share-based
compensation
charged to
income
statement
(note ii)
HK$
HK$’000
Executive Directors
Lee Chi Hong, Robert
25 July 2003
4.35
5,000,000
—
—
5,000,000
5,000,000
—
8 February 2005
4.475
1,000,000
(1,000,000)
—
—
—
—
James Chan
25 July 2003
4.35
210,000
—
—
210,000
210,000
—
Gan Kim See, Wendy
25 July 2003
4.35
240,000
—
—
240,000
240,000
—
—

Realised
benefits
(note i)
HK$’000
—
—
—
—

—

— 133 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

i. Realised benefits

No director exercised share options in 2011, 2010 and 2009. The realised benefits represent the market value of the relevant shares at the date of transfer.

ii. Share-based compensation charged to income statement

Share-based compensation is a trinomial option pricing model calculation of the fair value of share options at the date of grant. Share-based compensation is amortised in the income statement over the vesting period of the related share options. These values do not represent realisable gains which are affected by a combination of a number of factors, including, performance of PCCW’s share price, vesting period and timing of exercise. The details of these share options are disclosed in note 26.

10. FIVE TOP-PAID EMPLOYEES

a. Of the five highest paid individuals in the Group, four (2010: four; 2009: four) are directors whose emoluments are set out in note 9. Details of the emoluments of the remaining highest paid individual (2010: one; 2009: one) are as follows:

Salaries and other short-term employee benefits Bonuses	The Group 2011 2010 HK$ million 4 3 — 6 4 9	2009 — 5
		5

b. The emoluments of the remaining individual (2010: one; 2009: one) are within the emolument ranges as set out below:

HK$4,000,001 - HK$4,500,000 HK$4,500,001 - HK$5,000,000 HK$9,500,001 - HK$10,000,000	The Group 2011 2010 Number of individuals 1 — — — — 1 1 1	2009 — 1 —
		1

The employees, whose emoluments are disclosed above, include senior executives who were also directors of the subsidiaries during the year. One director offered to waive the basic salary and housing benefits of HK$3.67 million and HK$1.83 million payable to him by a wholly-owned subsidiary in 2009 and 2010 respectively.

— 134 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

11. INCOME TAX

Hong Kong profits tax has been provided at the rate of 16.5 per cent (2010: 16.5 per cent; 2009: 16.5 per cent) on the estimated assessable profits for the year.

Taxation for mainland China and overseas subsidiaries has been calculated on the estimated assessable profits for the year at the rates prevailing in the respective jurisdictions.

Hong Kong profits tax - Provision for current year - Over provision in respect of prior years Income tax outside Hong Kong - Provision for current year - Under/(Over) provision in respect of prior years Deferred income tax relating to the origination and reversal of temporary differences (note 29)	The Group 2011 2010 HK$ million 74 65 (8) (24) 15 17 1 — 49 329 131 387	2009 185 — 8 (1) 36 228

Reconciliation between income tax and the Group’s accounting profit at applicable tax rates is set out below:

Profit before taxation Notional tax on profit before taxation, calculated at 16.5 per cent (2010: 16.5 per cent; 2009: 16.5 per cent) Effect of different tax rates of subsidiaries operating outside Hong Kong Tax effect of income not subject to taxation Tax effect of expenses not deductible for taxation purposes Tax losses for which no deferred income tax asset was recognised Utilisation of previously unrecognised tax losses Over provision in respect of prior years Others Income tax	The Group 2011 2010 HK$ million 193 1,251 32 206 19 115 (3) (2) 79 62 11 18 (11) — (7) (24) 11 12 131 387	2009 822 136 3 (1) 85 18 (12) (1) — 228

— 135 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

12. DIVIDENDS

Final dividend Special dividend of HK$1.32 per ordinary share proposed after the balance sheet date	2011 2010 HK$ million — — — — — —	2009 — 3,178
		3,178

There was no final dividend paid for 2011, 2010 and 2009.

Special dividend of HK$3,178 million for 2009, which comprised HK$1.32 per ordinary share was paid on 17 May 2010. The special dividend proposed after the balance sheet date for 2009 had not been recognised as a liability as at the balance sheet date.

13. EARNINGS PER SHARE

The calculations of basic and diluted earnings per share based on the share capital of the Company are as follows:

Earnings Earnings for the purpose of calculating the basic earnings per share Finance costs on 2014 Convertible Note Earnings for the purpose of calculating the diluted earnings per share	2011 2010 HK$ million 62 864 145 157 207 1,021	2009 594 149
		743

— 136 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

Weighted average number of ordinary shares for the purpose of calculating the basic earnings per share Effect of dilutive potential ordinary shares on conversion of 2014 Convertible Note and employee share options Weighted average number of ordinary shares for the purpose of calculating the diluted earnings per share	2011 2,407,459,873 672,222,222 3,079,682,095	2010 2009 Number of shares 2,407,459,873 2,407,459,873 672,222,222 672,222,222 3,079,682,095 3,079,682,095	2010 2009 Number of shares 2,407,459,873 2,407,459,873 672,222,222 672,222,222 3,079,682,095 3,079,682,095
			3,079,682,095

The diluted earnings per share for 2011 are the same as the basic earnings per share as all potential additional ordinary shares are anti-dilutive.

14. INVESTMENT PROPERTIES

Balance at 1 January Capitalised subsequent expenditures Transfer from properties under development Surplus on revaluation of investment properties Exchange differences Balance at 31 December	The Group 2011 2010 HK$ million 5,152 3,866 35 — — — 43 1,150 239 136 5,469 5,152	2009 3,831 — 27 — 8
		3,866

Investment property in mainland China was revalued as at 31 December 2011 by an independent professional valuer on a market value basis. Certain furnished equipment and furniture amounted to HK$70 million (2010: HK$55 million; 2009: HK$45 million) included in the valuation of the investment property is recognised separately as property, plant and equipment.

For the investment property in Hong Kong, the usage of this property is constrained by the Group’s undertaking to the lessee. With reference to the valuation performed by an independent professional valuer as at 31 December 2011, management has performed a valuation as at 31 December 2011 using the discounted cashflow projection assuming such constraint and current tenancy agreement will continue in its existing manner in the foreseeable future.

— 137 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

The increase in fair value of the investment properties in 2011 amounted to HK$43 million (2010: increased by HK$1,150 million; 2009: Nil) was credited to the consolidated income statement as “Surplus on revaluation of investment properties”.

In the consolidated income statement, cost of sales includes direct operating expenses of HK$20 million (2010: HK$24 million; 2009: HK$27 million) that generate rental income while direct operating expenses of HK$5 million (2010: HK$11 million; 2009: HK$12 million) relating to investment properties that were unlet.

The carrying amount of investment properties is analysed as follows:

Held in Hong Kong On long lease (over 50 years) Held in mainland China On long lease (over 50 years) On medium-term lease (10-50 years)	The Group 2011 2010 HK$ million 45 27 981 912 4,443 4,213 5,469 5,152	2009 27 722 3,117
		3,866

15. PROPERTY, PLANT AND EQUIPMENT

The Group Freehold land Buildings and structures Other plant and equipment Projects under constructions HK$ million At 1 January 2009 At cost 4 56 198 — Less: Accumulated depreciation — (1) (84) — Net book value 4 55 114 — Net book value at 1 January 2009 4 55 114 — Additions — 1 44 — Depreciation — (3) (32) — Exchange differences — (1) (1) — Net book value at 31 December 2009 4 52 125 —	Total 258 (85)
	173
	173 45 (35) (2)
	181

— 138 —

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

The Group
Freehold
land
Buildings
and
structures
Other
plant and
equipment
Projects
under
constructions
HK$ million
At 31 December 2009
At cost
4
56
241
—
Less: Accumulated depreciation
—
(4)
(116)
—
Net book value
4
52
125
—
Net book value at 1 January 2010
4
52
125
—
Additions
2
7
48
8
Disposals
—
(1)
—
—
Depreciation
—
(3)
(39)
—
Exchange differences
1
7
4
—
Net book value at 31 December 2010
7
62
138
8
At 31 December 2010
At cost
7
69
296
8
Less: Accumulated depreciation
—
(7)
(158)
—
Net book value
7
62
138
8
Net book value at 1 January 2011
7
62
138
8
Additions
—
52
51
—
Transfers
—
—
2
(2)
Disposals
—
—
(1)
—
Depreciation
—
(4)
(45)
—
Exchange differences
—
6
7
—
Net book value at 31 December 2011
7
116
152
6
At 31 December 2011
At cost
7
128
300
6
Less: Accumulated depreciation
—
(12)
(148)
—
Net book value
7
116
152
6

Total
301
(120)
181
181
65
(1)
(42)
12
215
380
(165)
215
215
103
—
(1)
(49)
13
281
441
(160)
281

— 139 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

16. PROPERTIES UNDER DEVELOPMENT/HELD FOR DEVELOPMENT/HELD FOR SALE

a. Properties under development

				The	Group
			2011		2010	2009
				_HK$ _	million
Properties	under	development	508		428	356

Properties under development as at 31 December 2009, 2010 and 2011 represents freehold land in Japan which is held by an indirectly wholly-owned subsidiary.

b. Properties held for development

Balance at 1 January Additions Transfer to properties under development Exchange differences Balance at 31 December	The Group 2011 2010 HK$ million 624 548 22 16 — — (28) 60 618 624	2009 860 — (336) 24
		548

Properties held for development as at 31 December 2009, 2010 and 2011 represents freehold land in Thailand, for which the Group intends for future development projects. The land in Thailand is held by the Group through a long-term operating lease agreement with the legal owners, 39 per cent owned entities, established to hold the land, whose financial statements have been consolidated into these financial statements (note 20).

c. Properties held for sale

					The	Group
				2011		2010	2009
					_HK$ _	million
Properties	held	for	sale	456		773	683

— 140 —

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Pursuant to the Cyberport Project Agreement, the Group was granted an exclusive right and obligation to design, develop, construct and market the Cyberport project at Telegraph Bay on the Hong Kong Island. The Cyberport project consists of commercial and residential portions. The completed commercial portion was transferred to the HKSAR Government at no consideration. The associated costs incurred have formed part of the development costs of the residential portion. The construction of residential portion of the Cyberport project was completed in November 2008.

17. INTANGIBLE ASSET

Costs: Balance at 1 January Additions Balance at 31 December Accumulated amortisation: Balance at 1 January and 31 December Carrying amount: Balance at 31 December	The Group 2011 2010 HK$ million — — 14 — 14 — — — 14 —	2009 — —
		—
		—
		—

Intangible asset as at 31 December 2011 represents the right for rental collection.

— 141 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

18. GOODWILL

The Group
2011
2010
HK$ million
Costs:
Balance at 1 January
100
99
Acquisition of the property management
operation of a subsidiary (note 35)
—
—
Exchange differences
—
1
Balance at 31 December
100
100
Accumulated impairment losses:
Balance at 1 January
(96)
(96)
Impairment losses (note 6)
—
—
Balance at 31 December
(96)
(96)
Carrying amount:
Balance at 31 December
4
4
Goodwill is allocated to the Group’s cash-generating units identified as follows:
The Group
2011
2010
HK$ million
Other business — property management
operation
4
4
Balance at 31 December
4
4

2009
96
3
—
99
—
(96)
(96)
3
2009
3
3

Management has performed assessments on the recoverable amount of the property management operation which are determined based on the cash flow forecast of the business. Management considered there is no impairment of goodwill in relation to the property management operation as at 31 December 2009, 2010 and 2011.

The impairment losses recognised in 2009 related to the property development division and ski operation.

— 142 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

19. INVESTMENT IN SUBSIDIARIES

					The Company
				2011	2010	2009
					HK$ million
Unlisted	shares,	at	cost	2,870	2,870	2,870

Dividends from the mainland China entities accounted for as subsidiaries will be declared based on the profits in the statutory financial statements of these mainland China entities which are prepared using accounting principles generally accepted in the People’s Republic of China. Such profits are different from the amounts reported under HKFRS.

As at 31 December 2011, the Group has financed the operations of certain of its entities in mainland China amounting to approximately US$110 million (2010: US$111 million; 2009: US$111 million) which have not been registered with the State Administration of Foreign Exchange. As a result, remittances in foreign currency of these amounts outside mainland China may be restricted.

The balances with subsidiaries are unsecured, non-interest bearing and have no fixed terms of repayment. The amounts due from subsidiaries as at 31 December 2011 were HK$7,102 million (2010: HK$6,773 million; 2009: HK$6,782 million) and the amount due to a subsidiary as at 31 December 2011 was HK$3,172 million (2010: HK$3,174 million; 2009: Nil).

20. PRINCIPAL SUBSIDIARIES AND ENTITIES CONSOLIDATED INTO THE FINANCIAL STATEMENTS

	Place of		Nominal value of	Equity	interest
	incorporation/		issued capital/	attributable to
Company name	operations	Principal activities	registered capital	the Company
				Directly	Indirectly
Beijing Jing Wei House and	The People’s Republic	Property development	US$100,000,000	—	100%
Land Estate Development	of China
Co., Ltd.
北京京威房地產開發
有限公司1
Beijing Jingwei Property	The People’s Republic	Property management	US$410,000	—	100%
Management Co., Ltd.	of China
北京京威物業管理有限公司1
北京裕澤諮詢服務有限公司1	The People’s Republic	Consulting and	US$100,000	—	100%
	of China	property management
Carlyle International Limited	Hong Kong	Entrustment work	HK$2	—	100%
Cyber-Port Limited	Hong Kong	Property development	HK$2	—	100%
Cyber-Port Management Limited	Hong Kong	Provision of project	HK$2	—	100%
		management services
Dong Si (Holdings) Limited	Hong Kong	Financing and leasing	HK$1	—	100%

— 143 —

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

	Place of		Nominal value of	Equity	interest
	incorporation/		issued capital/	attributable to
Company name	operations	Principal activities	registered capital	the Company
				Directly	Indirectly
Harmony TMK	Japan	Property development	JPY4,250,000,000	—	100%
			(JPY100,000,000
			specified capital
			and
			JPY4,150,000,000
			preference shares)
Ipswich Holdings Limited	British Virgin Islands	Investment holding	US$2	100%	—
Island South Property	Hong Kong	Property management	HK$2	—	100%
Management Limited
Kabushiki Kaisha Niseko	Japan	Property management	JPY10,000,000	—	100%
Management Service		and travel agency
		services
Madeline Investments Limited	Hong Kong	Trademark registrant	HK$2	—	100%
盈科大衍地產發展有限公司
Nihon Harmony Resorts KK	Japan	Ski operation	JPY405,000,000	—	100%
Partner Link Investments	British Virgin Islands/	Investment holding	US$1	—	100%
Limited	Hong Kong
PCPD Facilities Management	Hong Kong	Property management	HK$2	—	100%
Limited
PCPD Real Estate Agency	Hong Kong	Property sales agency	HK$2	—	100%
Limited
PCPD Services Limited	Hong Kong	Provision of	HK$2	—	100%
		administrative services
PCPD Wealth Limited	Hong Kong	Investment holding	HK$1	—	100%
Pride Pacific Limited	Hong Kong	Financing	HK$2	—	100%
Talent Master Investments	British Virgin Islands/	Property development	US$1	—	100%
Limited	Hong Kong
Phang-nga Leisure Limited	Thailand	Property holding	THB2,000,000	—	39%
Phang-nga Paradise Limited	Thailand	Property holding	THB2,000,000	—	39%

Note:

1 Represents a wholly foreign owned enterprise.

— 144 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

21. CURRENT ASSETS AND LIABILITIES

a. Sales proceeds held in stakeholders’ accounts

The balance represents proceeds from the sales of properties of the Group’s property development projects that are retained in bank accounts opened and maintained by stakeholders. For the amounts related to residential portion of Cyberport project, they will be transferred to specific bank accounts, which are restricted in use, pursuant to certain conditions and procedures as stated in the Cyberport Project Agreement. The sales proceeds held in stakeholders’ accounts of HK$632 million as at 31 December 2011 (2010: HK$845 million; 2009: HK$1,271 million) are exposed to credit risk.

b. Restricted cash

Pursuant to the Cyberport Project Agreement, the Group has a restricted cash balance of approximately HK$696 million as at 31 December 2011 (2010: HK$2,245 million; 2009: HK$936 million) held in specific bank accounts. The uses of the funds are specified in the Cyberport Project Agreement.

The remaining balance of HK$7 million (2010: HK$4 million; 2009: HK$13 million) represents amount held on behalf of properties owners whose properties are managed by the Group. The uses of the funds are specified in the agreements between the owners and the Group.

c. Trade receivables, net

Trade receivables Less: Provision for impairment Trade receivables, net	The Group 2011 2010 HK$ million 14 11 (2) (1) 12 10	2009 205 (33) 172

Trade receivables in respect of properties sold are payable by the purchasers pursuant to the terms of the sales contracts. Other trade receivables have a normal credit period ranges up to 30 days from the date of the invoice unless there is separate mutual agreement on extension of the credit period.

— 145 —

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

The carrying amounts of the Group’s trade receivables are denominated in the following currencies:

Renminbi Hong Kong dollar Japanese yen Aging analysis of trade receivables Current One to three months More than three months	The Group 2011 2010 HK$ million 7 1 2 4 3 5 12 10 The Group 2011 2010 HK$ million 8 10 3 — 3 1 14 11	2009 1 162 9
		172
		2009 13 — 192
		205

(i) Aging analysis of trade receivables

(ii) Provision for receivable impairment

The movement in the provision for receivable impairment during the year, including specific and collective loss components, is as follows:

Balance at 1 January Impairment loss recognised/(reversed) Uncollectible amount written off Balance at 31 December	The Group 2011 2010 HK$ million 1 33 1 (32) — — 2 1	2009 33 10 (10)
		33

— 146 —

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

(iii) Trade receivables of HK$14 million (2010: HK$11 million; 2009: HK$205 million) are exposed to credit risk. Trade receivable of HK$2 million was impaired (2010: HK$1 million; 2009: HK$192 million) and the amount of provision was HK$2 million as at 31 December 2011 (2010: HK$1 million; 2009 : HK$33 million). The other amounts in trade receivables balance relate to a wide range of customers for whom there is no recent history of default.

As at 31 December 2011, HK$1 million trade receivable was past due over three months but not impaired (2010: Nil; 2009: Nil). 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 still considered fully recoverable.

d. Short-term borrowings

Bank borrowings - Secured	The Group 2011 2010 HK$ million 9 —	2009 —

On 22 September 2009, an indirect wholly-owned subsidiary of the Company entered into the RMB Facility Agreement (the “RMB Facility”) which the lender would make available a term loan facility up to the aggregate amount of RMB10 million. Any loan made under the RMB Facility must be repaid on or before 24 September 2012. The RMB Facility is secured by the assets owned by the indirect wholly-owned subsidiary. On 10 December 2009, the indirect wholly-owned subsidiary made a drawdown of RMB10 million under the RMB Facility. On 3 August 2011, a supplemental agreement was entered with the lender which the loan will be repaid in four equal instalments on 12 December 2011, 12 March 2012, 12 June 2012 and 24 September 2012. On 12 December 2011, RMB 2.5 million was repaid.

On 22 September 2009, an indirect wholly-owned subsidiary of the Company was granted a three-year revolving loan facility up to an aggregate amount of HK$2,800 million (the “HKD Facility”). Such facility is secured by the shares and assets of certain indirect wholly-owned subsidiaries. In case the RMB Facility is in default, the lenders under the HKD Facility could demand for immediate repayment of principal and interest accrued under the HKD Facility. No drawdown under this revolving loan facility was made by the Group as at 31 December 2011.

The HKD Facility is subjected to the fulfilment of covenants relating to certain balance sheet ratios of the Group, as are commonly found in lending arrangements with financial institutions. If the covenants were breached, the drawn down facilities would have become payable on demand. The Group regularly monitors its compliance with these covenants. Further details of the Group’s management of liquidity risk are set out in note 37(c). As at 31 December 2009, 2010 and 2011, none of the covenants were breached.

— 147 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

e. Trade payables

An aging analysis of trade payables is set out below:

Current One to three months More than three months	The Group 2011 2010 HK$ million 42 29 2 1 1 1 45 31	2009 13 32 —
		45

f. Accruals, other payables and deferred income

Accruals, other payables and deferred income represents accrual for construction costs and operating costs, retention payables, tenants deposits and deferred income.

22. LONG-TERM BORROWINGS

Repayable within a period - not exceeding one year - over one year, but not exceeding two years - over two years, but not exceeding five years Representing: HK$2,420 million 2014 Convertible Note (note a) Bank borrowings (note 21(d)) Secured Unsecured	The Group 2011 2010 HK$ million 24 24 — 12 2,505 2,362 2,529 2,398 2,529 2,386 — 12 2,529 2,398 — 12 2,529 2,386	2009 24 — 2,241
		2,265
		2,254 11
		2,265
		11
		2,254

— 148 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

a. The 2014 Convertible Note with a principal amount of HK$2,420 million or any part that may, at the discretion of PCCW or its designated subsidiary, the holder of the notes, be converted into 672,222,222 new shares of HK$0.10 of the Company each at a conversion price of HK$3.60 per share, subject to adjustment, issued to PCCW or its designated subsidiary at any time and from time to time on or after the date of issue (but on or prior to the maturity date of 9 May 2014) at the relevant conversion price.

The 2014 Convertible Note may be redeemed at 120 per cent of the outstanding principal amount if conversion does not occur. The Company has granted rights to an indirect wholly-owned subsidiary, the issuer of the notes, to purchase 672,222,222 shares of the Company at HK$3.60 per share with expiry in 2014.

Interest expense on the 2014 Convertible Note is calculated using the effective interest method by applying the effective interest rate of 6.87 per cent (2010: 6.87 per cent; 2009: 6.87 per cent) to the liability component.

As at 31 December 2011, the convertible notes reserve amounted to HK$769 million (2010: HK$769 million; 2009: HK$769 million).

23. AMOUNT PAYABLE TO THE HKSAR GOVERNMENT UNDER THE CYBERPORT PROJECT AGREEMENT

The Group 2011 Government share under the Cyberport Project Agreement (note a) Others HK$ million Balance at 1 January 2011 1,574 32 Addition to amount payable 1,100 2 Settlement during the year (2,105) — Balance at 31 December 2011 569 34	Total 1,606 1,102 (2,105) 603

— 149 —

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

The Group
2010
Government
share under
the Cyberport
Project
Agreement
(note a)
Others
HK$ million
Balance at 1 January 2010
803
30
Addition to amount payable
771
2
Balance at 31 December 2010
1,574
32
The Group
2009
Government
share under
the Cyberport
Project
Agreement
(note a)
Others
HK$ million
Balance at 1 January 2009
6,149
27
Addition to amount payable
996
3
Settlement during the year
(6,342)
—
Balance at 31 December 2009
803
30

Total
833
773
1,606
Total
6,176
999
(6,342)
833

a. Pursuant to the Cyberport Project Agreement (note 16(c)), the HKSAR Government shall be entitled to receive payments of approximately 65 per cent from the surplus cashflow arising from the sales of the residential portion of the Cyberport project, net of certain allowable costs incurred on the project, as stipulated under certain terms and conditions of the Cyberport Project Agreement. Amount payable to the HKSAR Government is considered as a part of the development costs for the Cyberport project. The amount payable to the HKSAR Government is based on estimated sales proceeds of the residential portion of the project and the estimated development costs of the Cyberport project. The estimated amount to be paid to the HKSAR Government during the forthcoming year is classified as current liabilities.

— 150 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

24. ISSUED EQUITY

Ordinary shares of HK$0.10 each at 1 January 2009, 31 December 2009, 31 December 2010, and 31 December 2011

The	Group
Number of		Issued
shares		equity
	_HK$ _	million
(note a)	(note a)
2,407,459,873		4,321

a. Due to the use of reverse acquisition basis of accounting (as stated in note 2(d) to the 2004 Financial Statements), the amount of issued equity, which includes share capital and share premium in the consolidated balance sheet, represents the amount of issued equity of the legal subsidiary, Ipswich Holdings Limited, at date of completion of the reverse acquisition plus equity changes attributable to the Group after the reverse acquisition. The equity structure (i.e. the number and type of shares) reflects the equity structure of the legal parent, Pacific Century Premium Developments Limited, for all accounting periods presented.
b. The following is the movement in the share capital of the Company:

Authorised: Ordinary shares of HK$0.10 each at 1 January 2009, 31 December 2009, 31 December 2010 and 31 December 2011 Issued and fully paid: Ordinary shares of HK$0.10 each at 1 January 2009, 31 December 2009, 31 December 2010 and 31 December 2011	The Company Number of shares Nominal value HK$ million 10,000,000,000 1,000 2,407,459,873 241	The Company Number of shares Nominal value HK$ million 10,000,000,000 1,000 2,407,459,873 241
		241

— 151 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

25. EMPLOYEE RETIREMENT BENEFITS

Defined contribution retirement schemes

Employees of the Group are entitled to join the defined contribution retirement schemes operated by PCCW, including the Mandatory Provident Fund Scheme (the “MPF scheme”) under the Hong Kong Mandatory Provident Fund Schemes Ordinance, for employees employed under the jurisdiction of the Hong Kong Employment Ordinance. The schemes are administered by independent trustees.

Under the defined contribution retirement scheme, the employer is required to make contributions to the scheme at rates specified under the rules of the scheme. Where employees leave the scheme prior to the full vesting of the employer’s contributions, the amount of forfeited contributions is used to reduce the contributions payable by the Group.

Under the MPF scheme, the employer and its employees are each required to make contributions to the scheme at 5 per cent of the employees’ relevant income, subject to a cap of monthly relevant income of HK$20,000. Contributions to the scheme vest immediately upon the completion of the service in the relevant service period.

26. EQUITY COMPENSATION BENEFITS

Share option scheme

In order to align the terms of the share option scheme of the Company with those of PCCW and in view of the limited number of shares capable of being issued relative to the current capital base of the Company, under the 2003 share option scheme, which was approved and adopted on 17 March 2003 and was valid for ten years after the date of adoption, the shareholders of the Company approved the termination of the 2003 share option scheme and adoption of a new share option scheme (the “2005 Scheme”) at the Company’s annual general meeting held on 13 May 2005. The 2005 Scheme became effective on 23 May 2005 following its approval by the shareholders of PCCW. No further share options will be granted under the 2003 share option scheme following its termination, but the provisions of such scheme will remain in full force and effect with respect to the options granted (note (ii) below) prior to its termination.

Under the 2005 Scheme, the board of directors of the Company may, at its discretion, grant share options to any eligible person to subscribe for shares in the Company subject to the terms and conditions stipulated in the 2005 Scheme. The exercise price of the options under the 2005 Scheme is determined by the board of directors of the Company in its absolute discretion but in any event shall not be less than the highest of (i) the closing price of the shares of the Company as stated in the daily quotations sheet of the Stock Exchange on the date of grant; (ii) the average closing price of the shares of the Company as stated in the daily quotations sheet of the Stock Exchange for the five days last preceding the date of grant on which days it has been possible to trade shares on the Stock Exchange; and (iii) the nominal value of the share of the Company on the date of grant. The overall limit on the number of shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the 2005 Scheme and any other share option schemes of the Company must not exceed 30 per cent of the shares in issue from time to time. In addition, the maximum number of shares in

— 152 —

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

respect of which options may be granted under the 2005 Scheme shall not (when aggregated with any shares subject to any grants made after 23 May 2005 pursuant to any other share option schemes of the Company) exceed 10 per cent of the issued share capital of the Company on 23 May 2005 (or some other date if renewal of this limit is approved by shareholders).

Details of share options granted by the Company pursuant to the 2003 share option scheme and the share options outstanding at 31 December are as follows:

(i) Movements in share options

Balance at 1 January and 31 December Options vested at 31 December	Number of options 2011 2010 5,000,000 5,000,000 5,000,000 5,000,000	2009 5,000,000
		5,000,000

(ii) Details of share options outstanding as at 31 December

			2011		2010		2009
		Exercise	Consideration	Number of	Consideration	Number of	Consideration	Number of
Date of grant	Exercise period	price	received	options	received	options	received	options
		HK$	HK$		HK$		HK$
20 December 2004	20 December 2004 to	2.375	1	5,000,000	1	5,000,000	1	5,000,000
	19 December 2014
			1	5,000,000	1	5,000,000	1	5,000,000

During the years ended 31 December 2009, 31 December 2010 and 31 December 2011, no share options were granted under the 2005 Scheme or 2003 share option scheme. All of the share options granted related to 2003 share option scheme remained unexpired as at 31 December 2011.

(iii) Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:

		2011		2010		2009
	Average		Average		Average
	exercise price		exercise price		exercise price
	in HK$ per	Number of	in HK$ per	Number of	in HK$ per	Number of
	share	options	share	options	share	options
Balance at 1 January and
31 December	2.375	5,000,000	2.375	5,000,000	2.375	5,000,000

All the share options outstanding at the end of the year will expire on 19 December 2014.

— 153 —

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

The fair value of the share options granted in December 2004 under 2003 share option scheme determined using the trinomial option pricing model was HK$12.9 million using share price of HK$2.325, exercise price of HK$2.375, risk-free interest rate of 3.95 per cent, volatility of 0.50 with expected life for ten years and no expected dividend per share. As the share options were vested before 1 January 2005, no expenses were charged to the current and prior years’ consolidated income statements as allowed by the transitional provision of HKFRS 2 “Share-based Payment”.

27. RESERVES

Balance at 1 January 2011 Total comprehensive income for the year Balance at 31 December 2011 Balance at 1 January 2010 Total comprehensive income for the year Special dividend (note 12) Balance at 31 December 2010	Issued equity 4,321 — 4,321 Issued equity 4,321 — — 4,321	Capital reserve (565) — (565) Capital reserve (565) — — (565)	The Group 2011 Currency translation reserve Convertible notes reserve Employee share-based compensation Reserve HK$ million 1,031 769 17 240 — — 1,271 769 17 The Group 2010 Currency translation reserve Convertible notes reserve Employee share-based compensation reserve HK$ million 763 769 17 268 — — — — — 1,031 769 17	Retained Earnings 1,292 62 1,354 Retained earnings 3,606 864 (3,178) 1,292	Total 6,865
					302
					7,167
					Total 8,911
					1,132 (3,178)
					6,865

— 154 —

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

					The Group	The Group	The Group	The Group
					2009
											Employee
				Currency	Convertible					share-based
	Issued	Capital		translation	notes				compensation				Retained
	equity	reserve		reserve	reserve						reserve		earnings	Total
					HK$ million
Balance at 1 January 2009	4,321	(565)		812	769							17	3,083	8,437
Total comprehensive income for
the year	—		—	(49)		—						—	594	545
Payment under Acquisition
Agreement dated 5 March 2004
(note 36(a)(i))	—		—	—		—						—	(71)	(71)
Balance at 31 December 2009	4,321	(565)		763	769							17	3,606	8,911
					The		Company
							2011
										Employee
				Capital					share-based
		Share	redemption		Other			compensation					Retained
		premium		reserve	reserve						reserve		earnings	Total
					_HK$ _	million
Balance at 1 January 2011		3,882		1	769						17		1,558	6,227
Total comprehensive income for the year		—		—	—						—		332	332
Balance at 31 December 2011		3,882		1	769						17		1,890	6,559
					The		Company
							2010
										Employee
				Capital					share-based
		Share	redemption		Other			compensation					Retained
		premium		reserve	reserve						reserve		earnings	Total
					_HK$ _	million
Balance at 1 January 2010		3,882		1	769						17		4,740	9,409
Total comprehensive loss for the year		—		—	—						—		(4)	(4)
Special dividend (note 12)		—		—	—						—		(3,178)	(3,178)
Balance at 31 December 2010		3,882		1	769						17		1,558	6,227

— 155 —

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

			The	Company
				2009
				Employee
		Capital		share-based
	Share	redemption	Other	compensation	Retained
	premium	reserve	reserve	reserve	earnings	Total
			_HK$ _	million
Balance at 1 January 2009	3,882	1	769	17	1,087	5,756
Total comprehensive income for the year	—	—	—	—	3,724	3,724
Payment under Acquisition Agreement
dated 5 March 2004 (note 36(a)(i))	—	—	—	—	(71)	(71)
Balance at 31 December 2009	3,882	1	769	17	4,740	9,409

28. EMPLOYEE SHARE-BASED COMPENSATION RESERVE

							The	Group
						2011		2010	2009
							_HK$ _	million
At	1	January	and	31	December	17		17	17

The share options are granted to the directors and employees of the Group to subscribe for shares in PCCW or the Company in accordance with the terms and conditions of the share option scheme (note 2(v)(iii)).

— 156 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

29. DEFERRED INCOME TAX

a. The components of deferred income tax liabilities recognised in the consolidated balance sheet and the movements during the year are as follows:

The Group Accelerated tax depreciation Revaluation of properties Others HK$ million At 1 January 2009 260 (6) (14) Charged/(Credited) to consolidated income statement (note 11) 31 — (5) At 31 December 2009 291 (6) (19) At 1 January 2010 291 (6) (19) Charged/(Credited) to consolidated income statement (note 11) 29 288 (1) Exchange differences 10 — (1) At 31 December 2010 330 282 (21) At 1 January 2011 330 282 (21) Charged to consolidated income statement (note 11) 31 9 9 Exchange differences 16 13 — At 31 December 2011 377 304 (12)	Total 240 26
	266
	266 316 9
	591
	591 49 29
	669

— 157 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

Deferred income tax liabilities recognised in the consolidated balance sheet Less: Amount of deferred income tax assets netted off against deferred income tax liabilities recognised in the consolidated balance sheet Balance at 31 December	The Group 2011 2010 HK$ million 689 614 (20) (23) 669 591	2009 294 (28) 266

b. The deferred income tax assets in respect of tax losses carried forward are recognised to the extent that realisation of the related tax benefit through utilisation against future taxable profits is probable. The components of deferred income tax assets recognised in the consolidated balance sheet and the movements during the year are as follows:

The Group Tax losses Others HK$ million At 1 January 2009 16 7 (Charged)/Credited to consolidated income statement (note 11) (16) 6 At 31 December 2009 — 13 At 1 January 2010 — 13 Charged to consolidated income statement (note 11) — (13) At 31 December 2010 and 31 December 2011 — —	Total 23 (10) 13 13 (13) —

c. The Group has unrecognised estimated tax losses of HK$344 million as at 31 December 2011 (2010: HK$373 million; 2009: HK$265 million) to be carried forward for deduction against future taxable profits. HK$183 million (2010: HK$216 million; 2009: HK$128 million) tax losses relating to subsidiaries operating outside Hong Kong would be expired within one to seven years from 31 December 2011, the remaining HK$161 million (2010: HK$157 million; 2009: HK$137 million) tax losses are mainly relating to Hong Kong companies which can be carried forward indefinitely.

— 158 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

30. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

a. Reconciliation of profit before taxation to net cash generated from/(used in) operating activities

Profit before taxation Adjustments for: Interest income Finance costs Gain on disposal of subsidiaries Depreciation Amortisation of leasehold land Provision for/(Reversal of) impairment losses Surplus on revaluation of investment properties Operating profit before changes in working capital	The Group 2011 2010 HK$ million 193 1,251 (28) (16) 163 174 — — 49 42 — — 1 (31) (43) (1,150) 335 270	2009 822 (11) 155 (232) 35 1 96 — 866

— 159 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

Decrease/(Increase) in operating assets: - properties under development/held for sale - properties held for development - other non-current receivables - prepayments, deposits and other current assets - sales proceeds held in stakeholders’ accounts - restricted cash - trade receivables - amounts due from fellow subsidiaries - amounts due from related companies (Decrease)/Increase in operating liabilities: - trade payables, accruals, other payables and deferred income - deposits received on sales of properties - gross amounts due to customers for contract work - amounts due to fellow subsidiaries - amount payable to the HKSAR Government under the Cyberport Project Agreement Cash generated from/(used in) operations Interest paid Interest received Tax paid - in Hong Kong - outside Hong Kong Net cash generated from/(used in) operating activities	The Group 2011 2010 HK$ million 281 (115) (22) (16) — 1 (31) 39 213 426 1,546 (1,300) (3) 194 34 (8) — (1) (404) (287) (1) (19) — — — (2) (1,003) 773 945 (45) (24) (25) 34 12 (137) (45) (14) (6) 804 (109)	2009 1,625 — — (22) 5,723 (219) 1,748 (32) — (539) (385) (5) (9) (5,343) 3,408 (45) 12 (237) (4) 3,134

— 160 —

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

b. Analysis of cash and cash equivalents

		The Group
	2011	2010	2009
		HK$ million
Cash and bank balances	3,558	4,428	6,455
Less: Restricted cash	(703)	(2,249)	(949)
Cash and cash equivalents at 31 December	2,855	2,179	5,506
COMMITMENTS
Capital
		The Group
	2011	2010	2009
		HK$ million
Authorised and contracted for	117	76	18
Authorised but not contracted for	10	1	10
	127	77	28

31. COMMITMENTS

a. Capital

An analysis of the above capital commitments by nature is as follows:

Property development for projects Investment properties Property, plant and equipment Others	The Group 2011 2010 HK$ million 86 67 40 7 — 2 1 1 127 77	2009 2 25 1 —
		28

— 161 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

b. Operating leases
(i) As at 31 December the total future minimum lease payments under non-cancellable operating leases were payable as follows:

Land and buildings (as lessee)

		The Group
	2011	2010	2009
		HK$ million
Within 1 year	47	30	36
After 1 year but within 5 years	72	9	12
After 5 years	6	—	—
	125	39	48

The leases typically run for an initial period of one to six years. One of the leases includes contingent rental with reference to the turnover of the lessee’s operations.

Equipment (as lessee)

Within 1 year After 1 year but within 5 years	The Group 2011 2010 HK$ million 5 6 1 2 6 8	2009 5 2
		7

The leases typically run for an initial period of one to eight years. None of these leases include contingent rentals.

(ii) The Group leases out properties under operating leases. The leases typically run for an initial period of one to fifteen years. Five of the leases include contingent rental with reference to the turnover of the lessees’ operations. As at 31 December, the total future minimum lease receivables under non-cancellable operating leases are as follows:

— 162 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

Land and buildings (as lessor)

Within 1 year After 1 year but within 5 years After 5 years	The Group 2011 2010 HK$ million 179 220 305 324 70 70 554 614	2009 180 143 18
		341

32. CONTINGENT LIABILITIES

Save as disclosed elsewhere in the consolidated financial statements, contingent liabilities and the guarantees provided by the Group and the Company are set out as follows:

(i) The Company has provided a guarantee to the noteholder of the 2014 Convertible Note in respect of the performance of its indirect wholly-owned subsidiary’s obligation under the 2014 Convertible Note including the due and punctual payment of all sums under the 2014 Convertible Note and the issuances of 672,222,222 shares of the Company at HK$3.6 per share upon conversion of the 2014 Convertible Note by the noteholder (note 22(a)). Such guarantee has no impact to the Group’s consolidated financial statements.
(ii) On 22 September 2009, the Company and an indirect wholly-owned subsidiary had executed guarantees in favour of the lenders of a revolving loan facility, the HKD Facility, in the principal amount of HK$2,800 million granted to an indirect wholly-owned subsidiary. As at 31 December 2011, there was no drawdown under the HKD Facility (note 21(d)).
(iii) One of the indirect wholly-owned subsidiaries has given a guarantee to one of its lessees such that in case the alteration of its properties could not be carried out in order to allow the expansion of the existing leased areas of the lessee, the indirect wholly-owned subsidiary would purchase the refurbishment at the carrying value from the lessee up to RMB10 million, provided that the lessee serves termination notice due to the aforesaid reason.

33. BANKING FACILITY

Aggregate banking facilities as at 31 December 2011 were HK$2,809 million (2010: HK$2,812 million; 2009: HK$2,811 million) of which the unused facilities amounted to HK$2,800 million (2010: HK$2,800 million; 2009: HK$2,800 million). Summary of major borrowings is set out in note 21(d) and note 22.

— 163 —

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Security pledged for certain banking facilities includes:

			The	Group
		2011		2010	2009
			_HK$ _	million
Investment	properties	5,424		5,125	3,839

34. DISPOSAL OF SUBSIDIARIES

On 5 October 2009, the Group disposed the entire share capital of two subsidiaries to a third party.

The net assets of these disposed subsidiaries at the date of disposal were as follows:

	The Group
	2009
	HK$ million
Net assets disposed of:
Properties under development	672
Prepayments, deposits and other current assets	20
Cash and cash equivalents	71
Accruals, other payables and deferred income	(7)
Current income tax liabilities	(2)
	754
Consideration settled by cash	(913)
	(159)
Reclassification adjustment from currency translation reserve	(73)
Gain on disposal (note 6)	(232)
	The Group
	2009
	HK$ million
Consideration settled by cash	913
Cash and cash equivalents of disposed subsidiaries	(71)
Cash inflow on disposal of subsidiaries	842

There was no material disposal during the years ended 31 December 2010 and 31 December

— 164 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

35. BUSINESS COMBINATION

On 30 November 2009, the Group acquired 100 per cent of the share capital of Kabushiki Kaisha Niseko Management Service, a company incorporated in Japan, which provides property management in Hokkaido, Japan. The acquired business contributed revenues of approximately HK$1 million and no net profit to the Group for the period from 30 November 2009 to 31 December 2009.

	The Group
	2009
	HK$ million
Purchase consideration in cash for property management operation
of Kabushiki Kaisha Niseko Management Service	4
Fair value of net assets acquired (note (a))	(1)
Goodwill (note 18)	3

The goodwill is attributable to future profit generated from the property management operation.

(a) The assets and liabilities of the property management operation as at 30 November 2009 were as follows:

			Acquiree’s
			carrying
	Fair value		amount
		_HK$ _	million
Other non-current receivables		1	1
Restricted cash		10	10
Trade receivables, net		2	2
Prepayments, deposits and other current assets		1	1
Cash and cash equivalents		1	1
Trade payables		(1)	(1)
Accruals, other payables and deferred income		(13)	(13)
Net assets acquired		1	1

— 165 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

	The Group
	2009
	HK$ million
Purchase consideration settled in cash	(4)
Cash and cash equivalents of property management operation
acquired	1
Cash outflow on acquisition of property management operation	(3)

There was no material acquisition during the years ended 31 December 2010 and 31 December 2011.

36. MATERIAL RELATED PARTY TRANSACTIONS

The Group is controlled by PCCW which owns approximately 61.53 per cent (2010: 61.53 per cent; 2009: 61.53 per cent) of the Company’s shares. The remaining approximately 38.47 per cent (2010: 38.47 per cent; 2009: 38.47 per cent) of the shares are held by public and by a substantial shareholder.

In addition to the transactions and balances disclosed elsewhere in these financial statements, the following transactions were carried out with related parties:

a. During the year, the Group had the following significant transactions with related companies:

		The Group
	2011	2010	2009
		HK$ million
Sales of services:
- Fellow subsidiaries
Facility management services	—	44	49
Office leases rental	10	7	7
Other services	1	—	—
- Related companies
Facility management services	22	22	23
Office leases rental	1	2	2
Other services	3	—	—

— 166 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

		The Group
	2011	2010	2009
		HK$ million
Purchases of services:
- Fellow subsidiaries
Corporate services	5	6	6
Office sub-leases	6	7	8
Information technology and other
logistic services	5	12	18
- Related companies
Other services	—	3	3

(i) During the year ended 31 December 2009, the Group made a provisional prepayment of approximately HK$71 million to PCCW, being the retained profit of Cyber-Port Limited (“CPL”) accrued up to 10 May 2004 in accordance with the Acquisition Agreement dated 5 March 2004 entered into between the Group and PCCW. The provisional prepayment was conditional on the conditions that (i) CPL has repaid the loan owed to PCCW, and (ii) CPL has surplus funds for distribution. The accrued profit of CPL can be adjusted downwards by claims, losses or damages incurred and the amount will be finalised upon the final completion of the Cyberport Project pursuant to Cyberport Project Agreement (see note 23 for details). This arrangement was disclosed on page 16 of the Company’s circular to the shareholders dated 2 April 2004 and approved by the shareholders on 28 April 2004. The above conditions were fulfilled as of 31 December 2009.

The above transactions were carried out after negotiations between the Group and the related parties in the ordinary course of business. In respect of transactions for which the price or volume has not yet been agreed with the relevant related parties, the directors have determined the relevant amounts based on their best estimation.

b. Details of key management compensation

Salaries and other short-term employee benefits Bonuses Directors’ fee Post-employment benefits	The Group 2011 2010 HK$ million 26 23 29 20 1 1 3 3 59 47	2009 23 46 1 3
		73

— 167 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

The remuneration of executive director employed by PCCW, the ultimate holding company of the Group, is borne by PCCW.

c. Year-end balances arising from sales/purchases of services and loan interest

Receivables from related parties: - Fellow subsidiaries - Related companies Payables to related parties: - Fellow subsidiaries	The Group 2011 2010 HK$ million 16 50 3 3 19 53 4 4	2009 42 2
		44
		6

d. Loan from a fellow subsidiary

The loan from a fellow subsidiary represents the face value of the 2014 Convertible Note with principal value of HK$2,420 million (see note 22(a) for details). The movements of the face value of the loan from a fellow subsidiary during the year are as follows:

Balance at January 1, Interest expenses Interest paid Provision for redemption premium Balance at December 31,	The Group 2011 2010 HK$ million 2,742 2,693 24 24 (24) (24) 48 49 2,790 2,742	2009 2,645 24 (24) 48
		2,693

37. FINANCIAL RISK MANAGEMENT

The Group’s investment policy is to prudently invest all surplus funds managed by the Group in a manner which will satisfy liquidity requirements, safeguard financial assets and manage risks while optimising return on investments.

— 168 —

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

The Group’s activities expose it to a variety of financial risks: foreign exchange risk, credit risk, liquidity risk and fair value interest rate risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s performance.

Risk management is carried out by a central treasury department (“Group Treasury”) under policies approved by the Board. Group Treasury identifies, evaluates and hedges financial risks in close co-operation with the Group’s business units. The Board provides principal policies for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investing excess liquidity.

a. Foreign exchange risk

The Group operates in the Asia-Pacific region and is exposed to foreign exchange risk arising from various currency exposures. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. The risk management policy is to have the liquid assets mainly denominated in Hong Kong dollars, US dollars and Renminbi. As US dollar is pegged to Hong Kong dollar, the Group does not expect any significant movements in the US dollar/Hong Kong dollar exchange rate. The Group ensures that the net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates where necessary to address short-term imbalances.

At the reporting date, the balance sheet exposure to foreign currency risk that was significant to the Group is as follows:

						The Group
				2011		2010	2009
				US	Japanese	US Japanese	US	Japanese
				dollar	yen	dollar yen	dollar	yen
						HK$ million
Cash	and	cash	equivalents	906	28	1,187 2	1,712	1

The Group has certain investments in foreign operations, where the net assets are exposed to foreign currency translation risk. The Group’s currency exposure with respect to these operations is mainly from Renminbi, Thai baht and Japanese yen.

Sensitivity analysis for foreign currency exposure

A 5 per cent appreciation of Hong Kong dollar against the following currencies at 31 December 2011 would have decreased in profit after tax and equity by the amounts shown below. This represents the translation of financial assets and liabilities at the balance sheet date. It assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2009 and 2010.

— 169 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

						The	Group
			2011		2010					2009
			Decrease in				Decrease in			Decrease in
			other				other			other
			comprehensive			comprehensive				comprehensive
	Decrease		income for	Decrease			income for	Decrease		income for
	in	profit	currency	in	profit		currency	in	profit	currency
	after tax		translation	after tax			translation	after tax		translation
					_HK$ _	million
US dollar		(45) —			(59)		—		(73) —
Renminbi		—	(273)		—		(212)		—	(202)
Thai baht		—	(31)		—		(31)		—	(28)
Japanese yen		(1) (36)			—		(28)		—	(27)

The Company is not exposed to foreign exchange risk.

b. Credit risk

The Group is exposed to credit risk, which is the risk that a counterparty will be unable to pay outstanding amounts in full when due. The Group has policies in place to ensure that the pre-sale of the properties and the sale of completed properties are both binding and enforceable. For the property investment and other business segments, the Group obtained rental deposits from the tenants while for other businesses, certain customers are fellow subsidiaries and related parties which the credit risk is relatively low and other individual customers are with good repayment history. For the property pre-sale, there is a certain degree of concentrations of credit risk but the Group, through the binding and enforceable pre-sale contracts, manages the concentrated credit risk.

As at 31 December 2011, the Group has a certain concentration of credit risk as 42 per cent (2010: 51 per cent; 2009: 94 per cent) of the total trade receivables was due from three customers.

The credit quality of cash and cash equivalents and restricted cash balances can be assessed by reference to Moody’s ratings (if available) as follows:

— 170 —

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

Cash and cash equivalents

Aa1 Aa2 Aa3 A1 A2 Baa1 Baa2 Unrated Balance as at 31 December Restricted cash Aaa Aa2 Unrated Balance as at 31 December	The Group 2011 2010 HK$ million 50 90 — 274 2,141 540 339 573 210 576 6 13 89 84 20 29 2,855 2,179 The Group 2011 2010 HK$ million 696 2,245 — — 7 4 703 2,249	2009 — 820 2,741 1,077 777 8 79 4
		5,506
		2009 — 936 13
		949

— 171 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

c. Liquidity risk

Due to the dynamic nature of the Group’s underlying businesses, prudent liquidity risk management implies maintaining sufficient cash and cash equivalents to meet operational needs and possible investment opportunities.

The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

The Group
Within 1
year or on
demand
More than
1 year but
within 2
years
More than
2 years but
within 5
years
More than
5 years
Total
contractual
undiscounted
cash flow
HK$ million
At 31 December 2011
Short-term borrowings
9
—
—
—
9
Trade payables
45
—
—
—
45
Accruals and other payables
556
—
—
—
556
Amounts due to fellow subsidiaries
4
—
—
—
4
Amount payable to the HKSAR
Government under the Cyberport Project
Agreement
603
—
—
—
603
Long-term borrowings
24
24
2,913
—
2,961
At 31 December 2010
Trade payables
31
—
—
—
31
Accruals and other payables
957
—
—
—
957
Amounts due to fellow subsidiaries
4
—
—
—
4
Amount payable to the HKSAR
Government under the Cyberport Project
Agreement
1,606
—
—
—
1,606
Long-term borrowings
24
36
2,937
—
2,997
At 31 December 2009
Trade payables
45
—
—
—
45
Accruals and other payables
1,234
—
—
—
1,234
Amounts due to fellow subsidiaries
6
—
—
—
6
Amount payable to the HKSAR
Government under the Cyberport Project
Agreement
833
—
—
—
833
Long-term borrowings
24
24
2,973
—
3,021

Carrying
Amount
9
45
556
4
603
2,529

31
957
4
1,606
2,398

45
1,234
6
833
2,265

— 172 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

d. Interest rate risks

Apart from the cash and cash equivalents which are for working capital, the Group has no significant interest-bearing assets. The Group’s income and operating cash flows are substantially independent of changes in market interest rates.

The Group’s interest rate risk arises primarily from long-term borrowings. Borrowings at variable rates and fixed rates expose the Group to cash flow interest rate risk and fair value interest rate risk respectively.

The following table details the interest rate profile of the Group’s borrowings at the balance sheet date.

			The	Group
	2011		2010		2009
	Effective		Effective		Effective
	interest	HK$	interest	HK$	interest	HK$
	rate	million	rate	million	rate	million
Fixed rate borrowings:
Loan from a fellow subsidiary
(note 36(d))	6.87%	2,790	6.87%	2,742	6.87%	2,693
Variable rate borrowings:
Bank borrowings (note 21(d))	5.99%	9	5.48%	12	5.40%	11
Total borrowings		2,799		2,754		2,704

The contractual repricing date of the variable rate borrowings as at 31 December 2011 is three months.

As the balance of the variable rate borrowings is not significant, the effect on change in interest rate to the Group is minimal.

38. CAPITAL MANAGEMENT

The Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital.

The Group actively and regularly reviews and manages its capital structure to maintain a balance between the higher shareholder returns that might be possible with higher level of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions.

— 173 —

APPENDIX IV

FINANCIAL INFORMATION OF THE GROUP

The Group monitors capital on the basis of the debt-to-adjusted capital ratio. This ratio is calculated as net debt divided by adjusted capital. Net debt is calculated as the loan from a fellow subsidiary and bank loan less cash and cash equivalents. Adjusted capital comprises the issued equity and retained earnings.

The debt-to-adjusted capital ratio decreased from 10 per cent as at 31 December 2010 to a net cash position as at 31 December 2011. Management’s strategy is to maintain the debt-to-adjusted capital ratio within 20 per cent. The debt-to-adjusted capital ratios at 31 December 2009, 31 December 2010 and 31 December 2011 were as follows:

Loan from a fellow subsidiary (note 36(d)) Bank loan Less: Cash and cash equivalents (note 30(b)) Net (cash)/debt Issued equity Add: Retained earnings Adjusted capital Debt-to-adjusted capital ratio	The Group 2011 2010 HK$ million 2,790 2,742 9 12 (2,855) (2,179) (56) 575 4,321 4,321 1,354 1,292 5,675 5,613 N/A 10%	2009 2,693 11 (5,506) (2,802) 4,321 3,606 7,927 N/A

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements, except for the financial covenant requirements under the loan facilities agreements with external parties.

39. POST BALANCE SHEET EVENT

On 31 January 2012, the Board announced that there will be certain capital reorganisation proposals of the Company involving a conditional cash offer on behalf of the Company to repurchase the shares of the Company; arrangements to enable the Company to fulfil the minimum public float requirement under the Rules Governing the Listing of Securities on The Stock Exchange following closing of the offer; and the issue of a new convertible note upon the maturity of the convertible note in the principal amount of HK$2,420 million issued by the Company and due in 2014.

— 174 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

40. APPROVAL OF THE FINANCIAL STATEMENTS

The 2011 financial statements were approved by the board of directors on 28 February 2012.

B. INDEBTEDNESS

At the close of business on 31 January 2012, being the latest practicable date for the purpose of this indebtedness statement, the Group had outstanding borrowings of approximately HK$2,551 million, comprising RMB7.5 million short-term bank loan (equivalent to approximately HK$9 million) and HK$2,542 million being the carrying amount of the liability portion of the 2014 Convertible Note in the Group’s financial statements.

As at 31 January 2012, the Group had total capital commitments in respect of the acquisition of property, plant and equipment, investment properties and property development amounting to approximately HK$127 million.

At the close of business on 31 January 2012, the Group had no material contingent liabilities.

Save as aforesaid and apart from intra-group liabilities, the Group did not have, at the close of business on 31 January 2012, any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptance credits, debentures, mortgages, charges, material obligations under hire purchase contracts or finance leases, guarantees, or other material contingent liabilities.

For the purpose of the above indebtedness statement, foreign currency amounts have been translated into Hong Kong dollars at the exchange rates prevailing at the close of business on 31 January 2012.

C. MATERIAL CHANGES

The Directors confirm there has not been any material change in the financial or trading position or outlook of the Group since 31 December 2011, the date to which the latest audited consolidated financial statements of the Group were made up.

D. FINANCIAL AND TRADING PROSPECTS

Following completion of the Offer, the Group will continue its business of property development and investments in Hong Kong, Japan and Thailand and asset management in Beijing, mainland China and the provision of property management services.

In Hong Kong, the Bel-Air project is coming to an end, as the Group only has three Villa Bel-Air houses remaining for sale. The Group will release them at appropriate time at suitable prices. With limited supply of high-end properties, the Company is optimistic that they will fetch good prices, especially when the market environment becomes more stable.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX IV

Overseas, the Group has been working on the design for the Hanazono all-season resort project in Hokkaido, Japan, following the relevant approval of its master layout plan by the Japanese authorities. The show house in Niseko is near completion. The master plan for the project in Phang-nga, Thailand, has also reached an advanced stage.

While the US and Europe will face more challenges in the coming year, Asia Pacific countries — particularly mainland China — are now playing a pivotal role in driving the world’s economic growth. The Company will take this opportunity to cautiously look for appropriate investment opportunities in Asia and worldwide in order to sustain the Company’s long-term growth and profitability.

— 176 —

APPENDIX V UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

1. Unaudited pro forma adjusted statements of assets and liabilities

The following unaudited pro forma adjusted statements of assets and liabilities of the Group is prepared based on the audited consolidated balance sheet of the Group as at 31 December 2011, as extracted from the Company’s annual report for the year ended 31 December 2011, and adjusted for the effect of the Offer and the signing of the Subscription Agreement as if they had been taken place on 31 December 2011. It has been prepared in accordance with Rule 4.29 of the Listing Rules for illustrative purposes only, to provide the shareholders with information about the impact of the Offer and the signing of the Subscription Agreement, and, because of its hypothetical nature, may not give a true picture of the consolidated financial position of the Group as at 31 December 2011 had the Offer been completed and the Subscription Agreement been signed on 31 December 2011 or any future date.

		Assuming only	the Elliott	the Elliott		Assuming all Shareholders	Assuming all Shareholders	Assuming all Shareholders
	Unadjusted	Entities and	ECALP		(other than the PCCW Group)
	statement of	accept the	Offer			accept the Offer
	assets and		Pro	forma			Pro forma
	liabilities of	Effect of the	adjusted			Effect of the	adjusted
	the Group at	Offer and the	statement of			Offer and the	statement of
	31 December	Subscription	assets and			Subscription	assets and
	2011	Agreement	liabilities			Agreement	liabilities
	HK$ million	HK$ million	_HK$ _	million		HK$ million	_HK$ _	million
	(Note 1)	(Note 2 & 4)				(Note 3 & 4)
Non-current assets	6,897	85		6,982		85		6,982
Current assets*	4,789	(1,067)		3,722		(1,738)		3,051
Current liabilities	(1,345)	—		(1,345)		—		(1,345)
Net current assets	3,444	(1,067)		2,377		(1,738)		1,706
Total assets less current
liabilities	10,341	(982)		9,359		(1,653)		8,688
Non-current liabilities	(3,174)	—		(3,174)		—		(3,174)
Net assets/equity attributable
to equity holders of the
Company	7,167	(982)		6,185		(1,653)		5,514
* Including:
Cash and cash equivalents	2,855	(1,067)		1,788		(1,738)		1,117

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APPENDIX V UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

		Assuming only	the Elliott	Assuming all Shareholders	Assuming all Shareholders
	Unadjusted	Entities and	ECALP	(other than the PCCW Group)
	statement of	accept the	Offer	accept the Offer
	assets and		Pro forma		Pro forma
	liabilities of	Effect of the	adjusted	Effect of the	adjusted
	the Group at	Offer and the	statement of	Offer and the	statement of
	31 December	Subscription	assets and	Subscription	assets and
	2011	Agreement	liabilities	Agreement	liabilities
	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million
	(Note 1)	(Note 2 & 4)		(Note 3 & 4)
Unaudited unadjusted net
assets per Share
immediately before
completion of the Offer	HK$2.98
(Note 5)	per Share
Unaudited pro forma adjusted
net assets per Share
immediately after
completion of the Offer			HK$3.35
(Note 6)			per Share
Unaudited pro forma adjusted
net assets per Share
immediately after
completion of the Offer					HK$3.72
(Note 7)					per Share

Notes:

The amounts are extracted from the audited consolidated balance sheet of the Group as at 31 December 2011 as included in the annual report of the Company for the year ended 31 December 2011.
The amount of cash to be paid for the Offer represents the maximum amount payable by the Group under the Offer of HK$1,042 million which is based on the repurchase of up to 563,129,500 Shares held by Elliott Entities and ECALP and the estimated expenses of approximately HK$25 million directly attributable to the Offer.
The amount of cash to be paid for the Offer represents the maximum amount payable by the Group under the Offer of HK$1,713 million which is based on the repurchase of up to 926,126,540 Shares held by all the Shareholders (other than the PCCW Group) and the estimated expenses of approximately HK$25 million directly attributable to the Offer.
The Subscription Agreement provides the Group an option to issue the 2019 Convertible Note. Such option is accounted for as a derivative and is initially recognised at fair value under HKFRS. For the purpose of this unaudited pro forma adjusted statements of assets and liabilities, the Company adopted the estimated fair value of the financial instrument on 2 March 2012 of approximately HK$85 million. The financial instrument is required to be marked to market at each balance sheet date and the difference in fair values between balance sheet dates would be recognised in the consolidated statement of comprehensive income. This would have continuing effect on the consolidated statement of comprehensive income of the Group during the term of the Subscription Agreement.

— 178 —

APPENDIX V UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

The unaudited unadjusted net assets per Share immediately before the completion of the Offer is calculated based on the audited consolidated net assets attributable to equity holders of the Company as at 31 December 2011 of HK$7,167 million and 2,407,459,873 Shares in issue as at the Latest Practicable Date, assuming the number of Shares in issue as at the Latest Practicable Date remains unchanged prior to and immediately before the completion of the Offer.
The unaudited pro forma adjusted net assets per share immediately after completion of the Offer is calculated based on the unaudited pro forma adjusted net assets of the Group as at 31 December 2011 of HK$6,185 million and 1,844,330,373 Shares in issue following the completion of the Offer, which is 2,407,459,873 Shares in issue immediately before the completion of the Offer as detailed above, reduced by 563,129,500 Shares repurchased assuming that there is full acceptance of the Offer up to the maximum number of Shares held by Elliott Entities and ECALP.
The unaudited pro forma adjusted net assets per share immediately after completion of the Offer is calculated based on the unaudited pro forma adjusted net assets of the Group as at 31 December 2011 of HK$5,514 million and 1,481,333,333 Shares in issue following the completion of the Offer, which is 2,407,459,873 Shares in issue immediately before the completion of the Offer as detailed above, reduced by 926,126,540 Shares repurchased assuming that there is full acceptance of the Offer up to the maximum number of Shares held by all the Shareholders (other than the PCCW Group).
No adjustment has been made to the unaudited pro forma adjusted net assets to reflect any trading results or other transactions of the Group entered into subsequent to 31 December 2011.

— 179 —

APPENDIX V UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

2. Unaudited pro forma adjusted earnings per Share

The following unaudited pro forma adjusted earnings per Share of the Group for the year ended 31 December 2011 is prepared based on the audited consolidated profit attributable to equity holders of the Company for the year ended 31 December 2011, as shown in the Company’s annual report for the year ended 31 December 2011, and adjusted for the effect of the Offer as if the completion of the Offer had taken place on 1 January 2011. It has been prepared in accordance with Rule 4.29 of the Listing Rules for illustrative purposes only, to provide the Shareholders with information about the impact of the Offer, and, because of its hypothetical nature, may not give a true picture of the results of the Group for the year ended 31 December 2011 had the Offer been completed on 1 January 2011 or any future periods.

For the year ended 31 December 2011 Assuming all Assuming only Shareholders the Elliott Entities (other than the and ECALP PCCW Group) accept the Offer accept the Offer Unadjusted Pro forma adjusted Pro forma adjusted (Note 1) (Note 2) (Note 3) Basic earnings per Share HK2.58 cents HK3.36 cents HK4.19 cents

Notes:

The audited basic earnings per Share amount for the year ended 31 December 2011 is calculated based on the audited consolidated profit attributable to equity holders of the Company for the year ended 31 December 2011 of HK$62 million and the weighted average number of 2,407,459,873 Shares in issue during the year ended 31 December 2011.
The unaudited pro forma adjusted basic earnings per Share amount for the year ended 31 December 2011 is calculated based on the audited consolidated profit attributable to equity holders of the Company for the year ended 31 December 2011 of HK$62 million and the adjusted weighted average number of 1,844,330,373 Shares in issue, which is the weighted average number of 2,407,459,873 Shares in issue during the year ended 31 December 2011, reduced by 563,129,500 Shares repurchased as if the completion of the Offer had taken place on 1 January 2011 and that there is full acceptance of the Offer up to the maximum number of Shares held by Elliott Entities and ECALP.
The unaudited pro forma adjusted basic earnings per Share amount for the year ended 31 December 2011 is calculated based on the audited consolidated profit attributable to equity holders of the Company for the year ended 31 December 2011 of HK$62 million and the adjusted weighted average number of 1,481,333,333 Shares in issue, which is the weighted average number of 2,407,459,873 Shares in issue during the year ended 31 December 2011, reduced by 926,126,540 Shares repurchased as if the completion of the Offer had taken place on 1 January 2011 and that there is full acceptance of the Offer up to the maximum number of Shares held by all the Shareholders (other than the PCCW Group).
The estimated expenses directly attributable to the Offer of approximately HK$25 million is accounted for as a deduction from equity in accordance with HKFRS.

— 180 —

APPENDIX V UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

No adjustment has been made to the unaudited pro forma adjusted earnings per Share to reflect any trading results or other transactions of the Group entered into subsequent to 31 December 2011, including the fair value change of the financial instrument in connection with the Subscription Agreement.

— 181 —

APPENDIX V UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

B. ACCOUNTANT’S REPORT ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following is the text of a report from PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this Circular.

ACCOUNTANT’S REPORT ON THE UNAUDITED PRO FORMA FINANICAL INFORMATION

TO THE DIRECTORS OF PACIFIC CENTURY PREMIUM DEVELOPMENTS LIMITED

We report on the unaudited pro forma financial information set out on pages 177 to 181 under the heading of “Unaudited Pro Forma Financial Information of the Group” (the “Unaudited Pro Forma Financial Information”) in Appendix V of the circular dated 5 April 2012 (the “Circular”) of Pacific Century Premium Developments Limited (the “Company”), in connection with the proposed conditional cash offer to repurchase shares of the Company and proposed subscription agreement to issue 2019 Convertible Note (the “Transaction”) by the Company. The Unaudited Pro Forma Financial Information has been prepared by the directors of the Company, for illustrative purposes only, to provide information about how the Transaction might have affected the relevant financial information of the Company and its subsidiaries (hereinafter collectively referred to as the “Group”). The basis of preparation of the Unaudited Pro Forma Financial Information is set out on pages 177 to 181 of the Circular.

Respective Responsibilities of Directors of the Company and the Reporting Accountant

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

It is our responsibility to form an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

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APPENDIX V UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

Basis of Opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted statement of assets and liabilities of the Group as at 31 December 2011 and unadjusted basic earnings per share as set out in the “Unaudited Pro forma Financial Information of the Group” section of the Circular with the audited consolidated balance sheet of the Group as at 31 December 2011 and the audited consolidated statement of comprehensive income of the Group for the year ended 31 December 2011 as set out in the 2011 annual report of the Company respectively, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of :

the financial position of the Group as at 31 December 2011 or any future date, or
the earnings per share of the Group for the year ended 31 December 2011 or any future periods.

Opinion

In our opinion:

a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
b) such basis is consistent with the accounting policies of the Group; and
c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

PricewaterhouseCoopers

Certified Public Accountants Hong Kong, 5 April 2012

— 183 —

PROPERTY VALUATION REPORT

APPENDIX VI

The texts of a letter, summary of values and valuation certificate prepared for the purpose of incorporation in this Circular, received from Savills Valuation and Professional Services Limited, an independent valuer, in connection with their valuations of the development rights and property interests of the Group as at 31 January 2012 are set out below.

==> picture [72 x 72] intentionally omitted <==

Savills Valuation and Professional Services Limited 23/F Two Exchange Square Central, Hong Kong

T: (852) 2801 6100 F: (852) 2530 0756

EA Licence: C-023750 savills.com

The Directors Pacific Century Premium Developments Limited 8th Floor Cyberport 2 100 Cyberport Road Hong Kong

5 April 2012

Dear Sirs

RE: VALUATION OF VARIOUS DEVELOPMENT RIGHTS AND PROPERTY INTERESTS IN HONG KONG, THE PEOPLE’S REPUBLIC OF CHINA (THE “PRC”), THE KINGDOM OF THAILAND (“THAILAND”) AND JAPAN

In accordance with your instructions for us to value the various development rights and property interests held by Pacific Century Premium Developments Limited (the “Company”) and its subsidiaries (hereinafter together referred to as the “Group”) located in Hong Kong, the PRC, Thailand and Japan, we confirm that we have carried out inspections, made relevant enquiries and searches and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the values of these development rights and property interests as at 31 January 2012 for the purpose of incorporation in the circular of the Company dated 5 April 2012.

Our valuation is prepared in accordance with The HKIS Valuation Standards on Properties (1st Edition 2005) published by The Hong Kong Institute of Surveyors and in compliance with the requirements of Chapter 5 and Practice Note 12 of Listing Rules published by The Stock Exchange of Hong Kong Limited and Rule 11 of the Codes on Takeovers and Mergers and Share Repurchases published by the Securities and Futures Commission.

— 184 —

APPENDIX VI

PROPERTY VALUATION REPORT

Our valuation of each of the development rights and property interests in Group I to V is our opinion of the market value which we would define as intended to mean “the estimated amount for which the development rights or property interest should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

The market value is the best price reasonably obtainable in the market by the seller and the most advantageous price reasonably obtainable in the market by the buyer. This estimate specifically excludes an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangements, joint ventures, management agreements, special considerations or concessions granted by anyone associated with the sale, or any element of special value. The market value is also estimated without regard to costs of sale and purchase, and without offset for any associated taxes.

In respect of the development rights in the project in Group I, we have valued the rights by assessing the surplus proceeds receivable by the Group by reference to sale evidence as available in the market together with the contracted sales proceeds of units therein. We have allowed for the estimated government sharing of the surplus proceeds in the project and outstanding sales and marketing cost.

We have valued the property interests in Group II and III by reference to sales evidence as available on the market and where appropriate on the basis of capitalization of the net income shown on schedules handed to us. We have allowed for outgoings and, in appropriate cases, made provisions for reversionary income potential.

We have valued the property interests in Group IV and V by reference to sales evidence as available on the market and taken into account the costs of the improvements spent on the land.

The property interest in Group VI is valued by the depreciated replacement cost approach and the assessed value is based on an estimate of the market value for the existing use of the land plus the cost of replacement of the improvements less deductions for physical deterioration and all relevant forms of obsolescence and optimisation. The assessed value is subject to adequate potential profitability of the business.

We have relied to a very considerable extent on information given by the Group and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, particulars of occupancy, lettings, income sharing of joint venture partners, site and floor areas and all other relevant matters. Dimensions, measurements and areas included in the valuation certificate are based on information contained in the documents provided to us and are therefore approximations. We have no reason to doubt the truth and accuracy of the information provided to us. We are also advised by the Group that no material facts have been omitted from the information provided.

We have also been provided with extracts of title documents relating to the development rights and property interests and we have caused searches to be made at the Land Registry for the concerned properties in Hong Kong. We have not, however, searched the original documents to verify ownership

— 185 —

PROPERTY VALUATION REPORT

APPENDIX VI

or to ascertain the existence of any amendment which does not appear on the copies handed to us. We do not accept a liability for any interpretation which we have placed on such information which is more properly the sphere of your legal advisers. We have relied on the advice given by the Group and its legal advisers, Dacheng Law Offices, on PRC laws, regarding the titles to the property interest in the PRC.

We have inspected the exterior of all the properties concerned and, where possible, we have also inspected the interior of the premises. However, no structural survey of the existing buildings has been made but, in the course of our inspection, we did not note any serious defects. We are not, however, able to report that the properties are free from rot, infestation or any other structural defect. No tests were carried out to any of the services.

We have not been able to carry out investigations on the development sites to determine the suitability of the ground conditions and services etc. for development. Our valuation is prepared on the assumption that these aspects are satisfactory and that no extraordinary expenses or delay will be incurred during construction periods.

No allowance has been made in our valuation for any charge, mortgage or amount owing on the development rights and property interests nor for any expense or taxation which may be incurred in effecting a sale. Unless otherwise stated in our report, the land search records, PRC legal opinion and our enquiries with the Company did not reveal any encumbrances, restrictions, and outgoings of an onerous nature which could materially affect the values of the development rights and property interests and our report is prepared on that basis.

According to the information prepared by the Group, the potential tax liabilities which would arise on the disposal of the development rights and property interests under Group I to VI in this report at the amounts as valued by us mainly comprise Hong Kong profits tax at 16.5%, PRC business tax at approximately 5% (plus other surcharge of approximately 0.6%), PRC land appreciation tax at progressive rates from 30% to 60%, PRC corporate income tax at 25%, PRC stamp duty at 0.05%, Thailand special business tax at 3.3%, Thailand value-added tax at 7%, Thailand corporate income tax at 23% per the Royal Decree published on 21 December 2011 for accounting periods beginning on or after 1 January 2012, Thailand stamp duty at 0.1%, Japan corporate income tax at approximately 42% and Japan stamp duty at approximately 0.03%. As advised by the Group, depending on the then sale status, there is a likelihood of such liabilities being crystallized.

The site inspections were carried out during the period from 29 February 2012 to 7 March 2012 by Bonnie Ho, James Woo, Pabhagorn Suvarnadhada and Takeshi Ichikawa who are qualified valuers in Hong Kong, the PRC, Thailand and Japan respectively.

This valuation is prepared in conjunction with qualified valuers in Thailand and Japan.

Unless otherwise stated, all money amounts stated in our valuation are in Hong Kong dollars. The exchange rates adopted in our valuation are HK$1 = RMB0.8123, HK$1 = THB4.0161 and HK$1

— 186 —

PROPERTY VALUATION REPORT

APPENDIX VI

= JPY9.8425 which were the approximate exchange rates prevailing as at the valuation date. There has been no significant fluctuation in the exchange rates between Chinese renminbi and Thai baht to Hong Kong dollar from that date to the date of this letter while the exchange rate between Japanese yen to Hong Kong dollar is approximately HK$1 = JPY10.5552 at the date of this letter.

We enclose herewith our summary of values and valuation certificate.

Yours faithfully For and on behalf of Savills Valuation and Professional Services Limited

Charles C K Chan

MSc FRICS FHKIS MCIArb RPS (GP) Managing Director

Note: Mr Charles C K Chan, chartered estate surveyor, MSc, FRICS, FHKIS, MCIArb, RPS(GP), has been a qualified valuer since June 1987 and has about 27 years of experience in the valuation of properties and development rights in Hong Kong, about 22 years experience in the valuation of properties in the PRC and extensive experience in the valuation of properties in the Asia-Pacific Region including Thailand and Japan.

— 187 —

PROPERTY VALUATION REPORT

APPENDIX VI

SUMMARY OF VALUES

No. Property

Market value in existing state as at 31 January 2012

Group I — Development Rights held by the Group in project for sale in Hong Kong

Development Rights in 6 houses of Villa Bel-Air, HK$390,000,000 Bel-Air On The Peak, Island South, Bel-Air Peak Rise, Pokfulam, Hong Kong

Group II — Property interest held by the Group for investment in Hong Kong

Telephone Exchange, One Pacific Heights, 1 Wo Fung Street, Sheung Wan, Hong Kong

HK$60,000,000

Group III — Property interest held by the Group for investment in the PRC

The portion of Pacific Century Place, HK$5,545,000,000 2A Gong Ti Bei Lu, Chaoyang District, Beijing, PRC, as held by 北京京威房地產開發有限公司 (Beijing Jing Wei House and Land Estate Development Co., Ltd.)

Group IV — Property interest held by the Group for development in Thailand

Parcels of land, HK$628,000,000 Thai Muang Subdistrict, Thai Muang District Phang-nga, Greater Phuket, Thailand

— 188 —

PROPERTY VALUATION REPORT

APPENDIX VI

No. Property

Market value in existing state as at 31 January 2012

Group V — Property interest held by the Group for development in Japan

Parcels of land, HK$414,000,000 Hanazono_Niseko Area, Kutchan-cho, Abuta-gun, Hokkaido, Japan
No. Property

Capital value in existing state as at 31 January 2012

Group VI — Property interest held by the Group for owner occupation in Japan

Parcels of land and buildings, HK$285,000,000 Hanazono_Niseko Area, Kutchan-cho, Abuta-gun, Hokkaido, Japan

— 189 —

PROPERTY VALUATION REPORT

APPENDIX VI

VALUATION CERTIFICATE

Group I - Development Rights held by the Group in project for sale in Hong Kong

Market value in Particulars of existing state as at Property Description and tenure occupancy 31 January 2012 1. Development Villa Bel-Air is situated within Bel-Air on the The property is HK$390,000,000 Rights in 6 houses Peak of a large scale residential development vacant. of Villa Bel-Air, known as Island South and comprises a total of Bel-Air On The 29 garden/terrace houses completed in 2007. Peak, Island South, Bel-Air Peak Rise, The development rights relates to 6 terrace Pokfulam, Hong houses therein with a total gross floor area of Kong approximately 3,243.68 sq m (34,915 sq ft). Situated within Inland Lot No. 8969 is held from the Section B of Inland Government under Conditions of Grant No. Lot No. 8969 UB12572 for a term of 50 years commencing on 22 May 2000 at an annual Government rent at 3% of the rateable value for the time being of the lot.

Notes:

(1) The development rights is held by Cyber-Port Limited, in which the Group has a 100% interest, under a Project Agreement (the “Agreement”) dated 17 May 2000 between Hong Kong Cyberport Development Holdings Limited, Hong Kong Cyberport Management Company Limited, Hong Kong Cyberport (Ancillary Development) Limited (together referred to as “FSI Holdings”), Pacific Century Cyberworks Limited and Cyber-Port Limited (the “Developer”).
(2) FSI Holdings are private and wholly-owned companies of the Hong Kong SAR Government (the “Government”).
(3) According to the Agreement and the information provided by the Group, the surplus proceeds from the sale of the houses will be shared between and according to the respective capital contributions of the Government (approximately 64.5 per cent) and the Developer (approximately 35.5 per cent) after deducting the relevant expenses due and payable and setting up reserve funds.
(4) According to the Agreement, the Developer shall not transfer or assign or otherwise dispose of as collateral or otherwise, the development rights or the benefit or obligations or other interest of the Developer in the Agreement to any other person without the prior consent of FSI Holdings.
(5) In view of the non-alienation provision in connection with the development rights, we have made an assumption that the required consent under such non-alienation provision has been obtained and the development rights can be freely transferred and disposed of in the market in order to arrive at the market value.
(6) The property concerned comprises House Nos.15, 17, 18, 19, 20 and 21 of Villa Bel-Air.
(7) House Nos. 18, 20 and 21 comprising a total gross floor area of 1,689.71 sq m (18,188 sq ft) are contracted to be sold at a total consideration of approximately HK$507,720,000. The other 3 houses are unsold.

— 190 —

PROPERTY VALUATION REPORT

APPENDIX VI

(8) In undertaking our valuation, we have assessed the surplus proceeds receivable by the Group from the completed development. We have allowed for the estimated government sharing of the surplus proceeds in the project and outstanding sales and marketing cost.
(9) We are advised that the outstanding sales and marketing cost of the project is estimated at approximately HK$45,000,000 as at the valuation date.
(10) We are advised that the surplus proceeds distributable to the Government is estimated at approximately HK$484,000,000 as at the valuation date.
(11) Our assessment of the market value of the 6 houses as at the valuation date taking into account the contracted sales is approximately HK$952,000,000.
(12) The property is zoned for “Other Specified Uses” under the approved Pok Fu Lam Outline Zoning Plan No. S/H10/15 dated 1 February 2005.

— 191 —

PROPERTY VALUATION REPORT

APPENDIX VI

VALUATION CERTIFICATE

Group II - Property interest held by the Group for investment in Hong Kong

Market value in Particulars of existing state as at Property Description and tenure occupancy 31 January 2012 2. Telephone One Pacific Heights is a residential The property is leased HK$60,000,000 Exchange, One development comprising a 40-storey for a term expiring on Pacific Heights, 1 (including a refuge floor) residential 24 June 2842 at a Wo Fung Street, tower erected over a 6-storey podium current monthly rent Sheung Wan, accommodating a telephone exchange and of HK$116,136 from Hong Kong a shop completed in 2009. 16 December 2010 up to 15 December 2013. 1,915/10,621 parts The property comprises the telephone or shares of and in exchange on portions of the Below The rent is reviewed Subsection 1 of Ground Floor, Ground Floor, Upper every 3 years at the Section C, Ground Floor, 1st Floor, 2nd Floor and then market rent. Subsections 2 and 3rd Floor of the development. 3 of Section F, The Remaining Portion The total gross floor area of the property of Sub-section 5 of is approximately 1,906.84 sq m (20,525 Section F and The sq ft). Remaining Portion Marine Lot No. 58 is held from the of Section F of Government under a Government Lease Marine Lot No. 58 for a term of 999 years commencing on 26 June 1843. The annual Government rent of the development is HK$368.

Notes:

(1) The registered owner of the property is Talent Master Investments Limited, in which the Group has a 100% interest.
(2) By a lease dated 10 May 2004, a supplemental lease dated 26 September 2005, a deed of variation dated 13 December 2007, a second supplemental lease dated 30 October 2009, a memorandum for increase of rent dated 17 February 2011 and a deed of assignment and novation dated 8 November 2011, the property is leased to Hong Kong Telecommunications (HKT) Limited for a term expiring on 24 June 2842.
(3) The property is zoned for “Residential (Group A) 7” uses under the draft Sai Ying Pun & Sheung Wan Outline Zoning Plan No. S/H3/26 dated 8 July 2011.

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PROPERTY VALUATION REPORT

APPENDIX VI

VALUATION CERTIFICATE

Group III - Property interest held by the Group for investment in the PRC

Market value in Particulars of existing state as at Property Description and tenure occupancy 31 January 2012 3. The portion of Pacific Century Place (the About 66% of the HK$5,545,000,000 Pacific Century “Development”) comprises (1) a property is leased out Place, 2A Gong Ti commercial/office/residential complex and subject to various Bei Lu, Chaoyang comprising a 5-storey building tenancies with the District, Beijing, (“Podium”) and the following towers latest one expiring on PRC, as held by 北 erected thereon: a 21-storey office tower 30 June 2025 at an 京京威房地產開發 (Tower A), an 11-storey office tower aggregate monthly 有限公司 (Beijing (Tower B), a 19-storey apartment tower rental of Jing Wei House (Tower C) and an 18-storey apartment approximately and Land Estate tower (Tower D); the Podium is used as a RMB15,000,000. Development Co., shopping mall; there are 2 levels of Ltd.) (“Jingwei”) basement underneath the Podium: the first level of basement is used as part of the shopping mall; and the second level of basement is mainly used for accommodating car parking spaces; and (2) a car park building of 3 storeys (with basements). The Development was completed in between 1998 and 2001.

The property comprises the portions held by Jingwei within the Development with a total gross floor area of approximately 169,915.73 sq m (1,828,973 sq ft) and car parking spaces of an area 26,191.82 sq m (281,929 sq ft). The breakdown of the area is listed as follows:

			Approximate
		Gross Floor Area
Tower		sq m	sq ft
A		41,717.25	449,044
B		20,103.93	216,399
C		21,718.13	233,774
D		10,945.80	117,821
Shopping	mall
(i.e. Podium	and first
level of basement
thereunder)		75,430.62	811,935
Total	169,915.73		1,828,973

The land use rights of the property were granted for various terms for commercial, office, residential and car parking uses respectively with details shown as below.

Notes:

(1) Pursuant to State-owned Land Use Certificate No. Jing Chao Guo Yong (2009 Chu) No. 0570 dated 20 November 2009 (and revised on 28 December 2009), State-owned Land Use Certificate No. Jing Chao Guo Yong (2009 Chu)

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PROPERTY VALUATION REPORT

No. 0571 dated 20 November 2009 and State-owned Land Use Certificate No. Jing Chao Guo Yong (2009 Chu) No. 0599 dated 15 December 2009 issued by State Land Resources and Housing Administration Bureau of Beijing, the land use rights of certain parts of the three parcels of land have been granted to Jingwei. The Group has a 100% interest in Jingwei. Details of the said certificates are summarized as follows:

Certificate	Site Area	Use	Expiry Date of Land Use Term	Expiry Date of Land Use Term
	(sq m)
0570	12,543.74	Commercial, Office and	Commercial:	3 January 2034
		Residential	Office:	3 January 2044
			Residential:	3 January 2064
0571	11,457.12	Commercial and Office	Commercial:	3 January 2034
			Office:	3 January 2044
0599	3,026.76	Car Park	Car Park:	15 June 2048

As advised by the Group, the property only comprises certain parts of the land parcels as stated in the State-owned Land Use Certificates mentioned above.

(2) Pursuant to Building Ownership Certificate No. Jing Fang Quan Zheng Chao Qi 10 Zi No. 003015 dated 6 February 2010, Building Ownership Certificate No. X Jing Fang Quan Zheng Chao Zi No. 804977 dated 5 February 2010 and Building Ownership Certificate No. X Jing Fang Quan Zheng Chao Zi No. 804988 dated 5 February 2010 issued by House Administration Bureau of Chaoyang District, Beijing, the ownership of certain portions of the buildings is vested in Jingwei.
(3) We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal adviser, which contains, inter-alia, the following information:
(i) Jingwei has obtained the land use rights and building ownership rights of the property and, subject to item (ii) below, is entitled to occupy, use, earn from and dispose of such land use rights and building ownership rights in respect of the property; and
(ii) the property is mortgaged to Standard Chartered Bank (China) Limited. During the period while the mortgage is outstanding, Jingwei is not allowed to transfer or re-mortgage any part of the property unless the prior written consent of Standard Chartered Bank (China) Limited has been obtained.

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APPENDIX VI

Group IV - Property interest held by the Group for development in Thailand

				Market value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 January 2012
4.	Parcels of land,	The property comprises parcels of land of	The property is	HK$628,000,000
	Thai Muang	various lots with a total site area of	vacant.
	Subdistrict, Thai	approximately 1,721,018 sq m (18,525,038 sq
	Muang District,	ft).
	Phang-nga, Greater
	Phuket, Thailand	The property is held under a lease for a term of
		30 years commencing from 24 October 2007 and
		renewable for three further terms each of which
		being 30 years or such longer term as permitted
		by law at the time of renewal.

Notes:

The holder of the property is City Champion Investments Limited, in which the Group has a 100% interest.
The property comprises various lots in Thai Muang District including Lot Nos. 1518, 2343 to 2347, 2360, 2520, 2869, 2879, 2913 to 2970, 2999, 3000, 3002, 3004, 3005, 3007, 3009, 3010, 3099 to 3101, 3106 to 3109, 6101, 6187, 7964, 9001 to 9106, 14407 to 14441 and 14593 to 14595.
The property falls within “Rural and Agricultural”, “Forestry” and “Residential” zones under the Thai Muang and Kok Kloy town planning zoning.

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APPENDIX VI

PROPERTY VALUATION REPORT

Group V - Property interest held by the Group for development in Japan

				Market value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 January 2012
5.	Parcels of land,	The property comprises parcels of land of	The property is	HK$414,000,000
	Hanazono_Niseko	various lots with a total site area of	valued on
	Area,	approximately 788,510 sq m (8,487,522 sq ft).	vacant
	Kutchan-cho,		possession
	Abuta-gun,	The property is held freehold.	basis.
	Hokkaido,
	Japan

Notes:

The registered owner of the property is Harmony TMK, in which the Group has a 100% interest.
The property comprises various lots in Hanazono_Niseko Area including Aza Asahi Lot Nos.390-8; Aza Iwaobetsu Lot Nos.328-1, 328-2, 328-22, 328-23, 328-25, 328-28,329, 329-2, 348-1, 348-12, 348-13, 348-14, 348-4, 348-5, 348-6, 348-7, 348-8, 351-10, 351-11, 351-12, 351-7, 351-9, 354-1, 354-2, 354-3, 354-4, 354-5, 354-6, 354-7, 355-10, 355-3, 355-4, 355-5, 355-6, 355-7, 355-8, 355-9, 357-3, 357-4, 357-5, 357-6, 357-7, 374-1, 374-4, 374-7, 374-9, 374-10, 374-11, 374-13, 374-14, 375-1, 378-1, 378-2, 378-3, 378-4, 378-5, 378-6, 378-10, 380-2, 380-3, 380-4, 381-1, 381-2, 381-3, 381-4, 381-5, 381-6 and 390-7.
The latest development permit was granted on 8 September 2011 for the property to develop 679,313 sq m (7,312,125 sq ft) of land for commercial and residential uses. The development is in early design stage.
The property falls within “Conservation Forest”, “Mountain Forest” and “Wild Land” under the government land categorization.

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PROPERTY VALUATION REPORT

Group VI - Property interest held by the Group for owner occupation in Japan

Capital value in Particulars of existing state as at Property Description and tenure occupancy 31 January 2012 6. Parcels of land The property is a ski field with ancillary The property is HK$285,000,000 and buildings, facilities and comprises parcels of land of operated by the Hanazono_Niseko various lots with a total site area of Group as a ski Area, approximately 1,692,607 sq m (18,219,222 sq ft) field. Kutchan-cho, and ancillary buildings of approximately 11,926 Abuta-gun, sq m (128,371 sq ft). Hokkaido, Japan The property is held freehold.

Notes:

The registered owners of the property are Nihon Harmony Resorts KK and Harmony TMK, in which the Group has a 100% interest.
The property comprises various lots in Hanazono_Niseko Area including Aza Asahi Lot Nos.303-2,303-4,303-6, 305-103, 349-1, 351-2, 356-1, 361-1, 445-1; Aza Hanazono Lot Nos.1-0, 119-1, 119-3, 120-0, 3-0, 30-0, 33-1, 36-3, 36-5, 38-2, 38-3, 39-1, 39-3, 4-0, 40-2, 40-6, 40-8, 5-1, 5-5, 67-5, 67-7, 67-9, 68-1, 68-3, 69-3; Aza Iwaobetsu Lot Nos. 328-20, 328-24, 328-27, 328-30, 328-6, 329-3, 330-2, 339, 339-2, 346-1, 347-0, 348-10, 348-3, 351-1, 351-2, 351-3, 351-4, 351-5, 355-1, 355-2, 357-2, 358, 358-2, 359, 361, 362, 369-2, 370-1, 372-2, 374-2, 374-3, 374-8, 375-2, 375-3, 376-0, 382-1, 384-0, 390-1, 390-2 and 390-5.
The property falls within “Conservation Forest”, “Mountain Forest”, “Miscellaneous Land” and “Wild Land” under the government land categorization.

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STATUTORY AND GENERAL INFORMATION

APPENDIX VII

1. RESPONSIBILITY STATEMENT

This Circular includes particulars given in compliance with the Listing Rules and the Codes for the purpose of giving information with regard to the Company. The Directors jointly and severally accept full responsibility for the accuracy of the information contained in this Circular and, having made all reasonable enquiries, confirm that (i) 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 (ii) 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 matters or facts not contained in this Circular, the omission of which would make any statement in this Circular misleading.

2. SHARE CAPITAL

The authorised share capital and issued share capital of the Company as at the Latest Practicable Date were, and upon completion of the Offer assuming the Offer is accepted in full will be, as follows:

	No. of Shares	HK$
Authorised:	10,000,000,000	1,000,000,000.00
Issued and fully paid up:	2,407,459,873	240,745,987.30
Proposed to be cancelled under the Offer:	926,126,540	92,612,654.00
Completion of the Offer and cancellation of the
Shares repurchased:	1,481,333,333	148,133,333.30

All of the Shares currently in issue rank pari passu in all respects with each other, including, in particular, as to dividends, voting rights and capital. No Shares were issued during the 2-year period immediately preceding the date of this Circular.

The Shares are listed on the Stock Exchange and none of the securities of the Company are listed or dealt in on any other stock exchange and no such listing or permission to deal is being or is proposed to be sought.

As at the Latest Practicable Date, apart from the 2,407,459,873 Shares in issue, the Company had i) 5,000,000 outstanding share options granted by the Company pursuant to the share option scheme adopted by the Company on 17 March 2003 (“Options”) to a director of an indirect wholly-owned subsidiary of the Company, who is also a director of a non wholly-owned subsidiary of PCCW entitling the holder thereof to subscribe for 5,000,000 Shares at the exercise price of HK$2.375 per Share, the Options were fully vested and will expire on 19 December 2014; and ii) the 2014 Convertible Note which is convertible into 672,222,222 new Shares at the prevailing conversion price of HK$3.60 per Share (subject to adjustment).

Save as disclosed above, the Company had no outstanding options, warrants or convertible or exchangeable securities carrying rights to subscribe for, convert or exchange into Shares as at the Latest Practicable Date.

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STATUTORY AND GENERAL INFORMATION

APPENDIX VII

As at the Latest Practicable Date, apart from the Options and the 2014 Convertible Note, there were no outstanding derivatives in respect of securities in the Company entered into by the Group.

There has been no re-organisation of capital of the Company during the two financial years immediately preceding the date of the Announcement.

The Company had recommended a special dividend of HK$3,178 million for the year ended 31 December 2009 and such dividend was paid on 17 May 2010. Save as disclosed above, the Company did not declare or pay out any dividend during the two-year period immediately preceding the date of this Circular.

Depending on the future results and financial position of the Group, the Board may declare dividends as and when they consider appropriate. The Board does not expect the Offer to have any adverse effect on the ability of the Company to pay dividends or on the dividend policy of the Company.

The Company did not repurchase any Shares during the 12-month period immediately preceding the date of this Circular.

The Company has not issued any Shares since 31 December 2011 (being the end of the last financial year of the Company).

3. MARKET PRICES

(a) The highest and lowest closing prices of the Shares as quoted on the Stock Exchange during the Relevant Period were HK$1.83 per Share on 21 March 2012 and HK$0.95 per Share on 4 October 2011, respectively.
(b) The table below sets out the closing prices of the Shares on the Stock Exchange on the last trading day of each of the calendar months during the Relevant Period:

Dates	Closing price
	(HK$)
30 March 2012	1.82
29 February 2012	suspended(Note)
31 January 2012	1.41
30 December 2011	1.12
30 November 2011	1.13
31 October 2011	1.19
30 September 2011	1.02

Note: Trading in the Shares was suspended from 1:30 p.m. on 31 January 2012 and resumed at 9:00 a.m. on 5 March 2012. The trading price of the Shares prior to the resumption of trading of the Shares on 5 March 2012 was HK$1.41.

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STATUTORY AND GENERAL INFORMATION

APPENDIX VII

(c) The closing price of the Shares on the Stock Exchange on the Last Trading Day was HK$1.37.
(d) The closing price of the Shares on the Stock Exchange on the Latest Practicable Date was HK$1.82.

4. DISCLOSURE OF INTERESTS

(a) Directors’ and chief executive’s interests and short positions in the Shares, underlying Shares and debentures of the Company and the Company’s associated corporation

As at the Latest Practicable Date, the Directors and the chief executive of the Company and their associates had the following interests and short positions in the Shares, underlying Shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO); or (b) were recorded in the register required to be kept under Section 352 of the SFO; or (c) were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers of the Listing Rules:

1. The Company

As at the Latest Practicable Date, the Company had not been notified of any interests or short positions in the Shares or underlying Shares or debentures of the Company held by the Directors or the chief executive of the Company or their associates.

2. Associated Corporation of the Company

A. Interests in PCCW

The table below sets out the aggregate long positions of the Directors and the chief executive of the Company in the shares and underlying shares of PCCW, the ultimate holding company of the Company and the debentures issued by PCCW-HKT Capital No.2 Limited, an associated corporation of PCCW, as at the Latest Practicable Date.

(i) Shares and Underlying Shares

					Number of
					underlying		Approximate
		Number of ordinary shares			shares held		percentage of
Name of Director/	Personal	Family	Corporate	Other	under equity		issued share
chief executive	interests	interests	interests	interests	derivatives	Total	capital
Li Tzar Kai, Richard	—	—	271,666,824	1,740,004,335	—	2,011,671,159	27.66%
			(Note I(a))	(Note I(b))
Lee Chi Hong, Robert	992,600	511	—	—	5,000,000	5,993,111	0.08%
	(Note III(a))	(Note III(b))			(Note II)
James Chan	—	—	—	—	210,000	210,000	0.003%
					(Note II)
Gan Kim See, Wendy	—	—	—	—	240,000	240,000	0.003%
					(Note II)

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APPENDIX VII

STATUTORY AND GENERAL INFORMATION

(ii) Debentures

			Number	of debentures
Name of Director/		Personal	Family	Corporate	Other
chief executive	Name of Company	interests	interests	interests	interests	Total
Li Tzar Kai, Richard	PineBridge Investments	—	—	US$10,000,000	—	US$10,000,000
	Asia Limited			6% guaranteed		6% guaranteed
				notes due 2013		notes due 2013
				(Note IV)

Notes:

I. (a) Of these shares of PCCW, Pacific Century Diversified Limited (“PCD”), a wholly-owned subsidiary of Chiltonlink Limited (“Chiltonlink”), held 237,919,824 shares and Eisner Investments Limited (“Eisner”) held 33,747,000 shares. Li Tzar Kai, Richard owned 100% of the issued share capital of Chiltonlink and Eisner.
(b) These interests represented:
- (i) a deemed interest in 36,726,857 shares of PCCW held by Yue Shun Limited (“Yue Shun”), a subsidiary of Hutchison Whampoa Limited (“HWL”). Cheung Kong (Holdings) Limited (“Cheung Kong”) through certain subsidiaries held more than one-third of the issued share capital of HWL. Li Tzar Kai, Richard was a discretionary beneficiary of certain discretionary trusts which held units in unit trusts which in turn held interests in certain shares of Cheung Kong and HWL. Li Tzar Kai, Richard was also interested in one-third of the issued share capital of two companies which owned all the shares in the trustee companies which acted as trustees of such discretionary trusts and unit trusts. Accordingly, Li Tzar Kai, Richard was deemed, under the SFO, to have an interest in 36,726,857 shares of PCCW held by Yue Shun;
- (ii) a deemed interest in 154,785,177 shares of PCCW held by Pacific Century Group Holdings Limited (“PCGH”). Li Tzar Kai, Richard was the founder of certain trusts which held 100% interests in PCGH. Accordingly, Li Tzar Kai, Richard was deemed, under the SFO, to have an interest in 154,785,177 shares of PCCW held by PCGH;
- (iii) a deemed interest in 1,548,211,301 shares of PCCW held by Pacific Century Regional Developments Limited (“PCRD”), a company in which PCGH had, through certain wholly-owned subsidiaries being Anglang Investments Limited, Pacific Century Group (Cayman Islands) Limited, Pacific Century International Limited and Borsington Limited, an aggregate of 75.74% interest. Li Tzar Kai, Richard was the founder of certain trusts which held 100% interests in PCGH. Li Tzar Kai, Richard was also deemed to be interested in 0.91% of the issued share capital of PCRD through Hopestar Holdings Limited, a company wholly-owned by Li Tzar Kai, Richard. Accordingly, Li Tzar Kai, Richard was deemed, under the SFO, to have an interest in 1,548,211,301 shares of PCCW held by PCRD; and
- (iv) a deemed interest in 281,000 shares of PCCW held by PineBridge Investments LLC (“PBI LLC”) in the capacity as investment manager. PBI LLC was an indirect subsidiary of Chiltonlink. Accordingly, Li Tzar Kai, Richard was deemed, under the SFO, to have an interest in 281,000 shares of PCCW held by PBI LLC.

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APPENDIX VII

STATUTORY AND GENERAL INFORMATION

II. These interests represented the interests in underlying shares in respect of share options granted by PCCW under the share option scheme adopted on 20 September 1994 (last amended and restated on 23 May 2002) to the Directors and the chief executive of the Company as beneficial owners as at the Latest Practicable Date, details of which are set out as follows (all dates are shown month/day/year):

					Number of
					options
					outstanding as
					at the Latest
Name of Director/			Exercisable	Exercise	Practicable
chief executive	Date of grant	Vesting period	period	price	Date
				HK$
Lee Chi Hong, Robert	07.25.2003	07.25.2004 to	07.25.2004 to	4.350	5,000,000
		07.25.2006	07.23.2013
James Chan	07.25.2003	07.25.2004 to	07.25.2004 to	4.350	210,000
		07.25.2006	07.23.2013
Gan Kim See, Wendy	07.25.2003	07.25.2004 to	07.25.2004 to	4.350	240,000
		07.25.2006	07.23.2013

III. (a) These shares were held jointly by Lee Chi Hong, Robert and his spouse.
(b) These shares were held by the spouse of Lee Chi Hong, Robert.
IV. PineBridge Investments Asia Limited (“PBIA”) in the capacity of investment manager held US$10,000,000 of 6% guaranteed notes due 2013 (“Notes”) issued by PCCW-HKT Capital No.2 Limited, an associated corporation of PCCW. PBIA was an indirect subsidiary of Chiltonlink. Accordingly, Li Tzar Kai, Richard was deemed, under the SFO, to have an interest in the amount of US$10,000,000 of the Notes held by PBIA.

B. Short Positions in PCCW

As at the Latest Practicable Date, the Company had not been notified of any short positions in the shares or underlying shares or debentures of PCCW held by the Directors or the chief executive of the Company or their associates.

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STATUTORY AND GENERAL INFORMATION

APPENDIX VII

C. Interests in the HKT Trust and HKT Limited

The table below sets out the aggregate interests in the share stapled units which were jointly issued by the HKT Trust and HKT Limited (“Share Stapled Units”)[(Note][I)] and the long positions therefor as held by the Directors and the chief executive of the Company as at Latest Practicable Date:

					Number of
					underlying
					Share Stapled		Approximate
	Number of Share Stapled Units				Units held		percentage of
Name of Director/	Personal	Family	Corporate	Other	under equity		issued Share
chief executive	interests	interests	interests	interests	derivatives	Total	Stapled Units
Li Tzar Kai,	—	—	219,573,506	125,358,732	—	344,932,238	5.38%
Richard			(Note II(a))	(Note II(b))
Lee Chi Hong,	43,156	22	—	—	—	43,178	0.0006%
Robert	(Note III(a))	(Note III(b))

Notes:

I. Each Share Stapled Unit confers an interest in:
(a) one voting ordinary share of HK$0.0005 in HKT Limited; and
(b) one voting preference share of HK$0.0005 in HKT Limited,

for the purpose of Part XV of the SFO, in addition to an interest in one unit in the HKT Trust.

Under the trust deed dated 7 November 2011 (constituting the HKT Trust, entered into between HKT Management Limited (in its capacity as the trustee-manager of the HKT Trust) and HKT Limited and as supplemented, amended or substituted from time to time; and the amended and restated articles of association of HKT Limited, the number of ordinary shares and preference shares of HKT Limited in issue must be the same at all times and must also, in each case, be equal to the number of units of the HKT Trust in issue; and each of them is equal to the number of Share Stapled Units in issue.

II. (a) Of these Share Stapled Units,
- (i) PCD held 11,969,877 Share Stapled Units and was interested in 5,172,169 Share Stapled Units which will be received on or around 22 May 2012 under the Second PCCW Distribution (as defined in the prospectus jointly issued by the HKT Trust and HKT Limited dated 16 November 2011); and
- (ii) Eisner held 201,697,830 Share Stapled Units and was interested in 733,630 Share Stapled Units which will be received on or around 22 May 2012 under the Second PCCW Distribution.
(b) These interests represented:
- (i) the deemed interests in 1,847,747 Share Stapled Units held by Yue Shun and the 798,409 Share Stapled Units which will be received by Yue Shun on or around 22 May 2012 under the Second PCCW Distribution. Accordingly, Mr. Li Tzar Kai, Richard was deemed, under the SFO, to have interests in 1,847,747 Share Stapled Units and 798,409 Share Stapled Units held or to be held by Yue Shun;

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APPENDIX VII

STATUTORY AND GENERAL INFORMATION

  - (ii) the deemed interests in 7,787,326 Share Stapled Units held by PCGH and the 3,364,894 Share Stapled Units which will be received by PCGH on or around 22 May 2012 under the Second PCCW Distribution. Accordingly, Mr. Li Tzar Kai, Richard was deemed, under the SFO, to have interests in 7,787,326 Share Stapled Units and 3,364,894 Share Stapled Units held or to be held by PCGH;

  - (iii) the deemed interests in 77,891,374 Share Stapled Units held by PCRD and the 33,656,766 Share Stapled Units which will be received by PCRD on or around 22 May 2012 under the Second PCCW Distribution. Accordingly, Mr. Li Tzar Kai, Richard was deemed, under the SFO, to have interests in 77,891,374 Share Stapled Units and 33,656,766 Share Stapled Units held or to be held by PCRD; and

  - (iv) the deemed interests in 6,108 Share Stapled Units held by PBI LLC and the 6,108 Share Stapled Units which will be received on or around 22 May 2012 under the Second PCCW Distribution. Accordingly, Mr. Li Tzar Kai, Richard was deemed, under the SFO, to have interests in 6,108 Share Stapled Units and 6,108 Share Stapled Units held or to be held by PBI LLC.

III. Of these Share Stapled Units,
(a) Lee Chi Hong, Robert and his spouse held 21,578 Share Stapled Units and were interested in 21,578 Share Stapled Units which will be received on or around 22 May 2012 under the Second PCCW Distribution; and
(b) the spouse of Lee Chi Hong, Robert held 11 Share Stapled Units and was interested in 11 Share Stapled Units which will be received on or around 22 May 2012 under the Second PCCW Distribution.

Mr. Li Tzar Kai, Richard, a Director, is deemed to have a material interest in the transactions contemplated under the Subscription Agreement due to his interest in PCCW as disclosed above. Mr. Li Tzar Kai, Richard and Mr. Lee Chi Hong, Robert, being directors of PCCW and the Company, have abstained from voting on the board resolution approving the Offer and the Subscription Agreement and the transactions contemplated thereunder. Save as disclosed above, no other Director has or is deemed to have a material interest in the transactions contemplated under the Subscription Agreement.

(b) Interests and short positions in the Shares of substantial shareholders

1. Interests in the Company

As at the Latest Practicable Date, the following persons (other than the Directors or the chief executive of the Company) had interests in the Shares and underlying Shares as recorded in the register required to be kept under Section 336 of the SFO (Note I):

		Number of	Approximate
		Shares/	percentage of
		underlying	issued Share
Name of shareholder	Capacity	Shares held	capital
PCCW	Beneficial owner	2,153,555,555	89.45%
		(Note II)
ECALP	Interest of controlled	555,292,500	23.06%
	corporations	(Note III)

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STATUTORY AND GENERAL INFORMATION

APPENDIX VII

Notes:

I. In addition to PCCW and ECALP, pursuant to the Corporate Substantial Shareholder Notice of Peter Cundill & Associates (Bermuda) Ltd. (“PCAB”) filed on 3 June 2006, it was also recorded in the register required to be kept under Section 336 of the SFO that PCAB was interested in 124,952,000 Shares as at the Latest Practicable Date (representing approximately 5.19% of the issued share capital of the Company as at the Latest Practicable Date). The Company received a letter dated 26 March 2012 from Associates (Bermuda) Ltd. informing the Company that PCAB had changed its name to Associates (Bermuda) Ltd. and neither it nor any of its affiliated companies had any interests in any Shares.
II. These interests represented (a) an interest in 1,481,333,333 Shares, representing approximately 61.53% of the issued share capital of the Company as at the Latest Practicable Date, held by Asian Motion Limited, a wholly-owned subsidiary of PCCW; and (b) an interest in respect of 672,222,222 underlying Shares held by the CN Holder, arising as a result of the holding of the 2014 Convertible Note.
III. ECALP has direct or indirect control over the Elliott Entities and is therefore deemed to control the exercise of the voting power of the 222,117,000 Shares held by The Liverpool Limited Partnership and the 333,175,500 Shares held by Elliott International, L.P. and these interests were based on ECALP’s latest Corporate Substantial Shareholder Notice filed on 16 July 2011. However, according to the shareholding information represented and warranted by ECALP and the Elliott Entities in their undertaking dated 2 March 2012, the total number of Shares in which ECALP was interested as at 2 March 2012 was 563,129,500 (representing approximately 23.39% of the issued share capital of the Company as at the Latest Practicable Date), of which 225,251,800 Shares were held by The Liverpool Limited Partnership and 337,877,700 Shares were held by Elliott International, L.P..

Save as disclosed above, so far as was known to the Directors, as at the Latest Practicable Date, there was no other person who held 10% or more of the voting rights at general meetings of the Company.

Short Positions in the Shares and underlying Shares

As at the Latest Practicable Date, the Company had not been notified of any other person who had short positions in the Shares or underlying Shares to be recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO.

5. DEALINGS IN THE SHARES AND OTHER ARRANGEMENTS

The Company had not repurchased or dealt in any Shares or any relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company since 2 September 2011 (being the date falling six months before the date on which the Board approved the proposal relating to the Offer) and up to the Latest Practicable Date, and will not conduct any on-market Share repurchase from the Latest Practicable Date up to and including the date on which the Offer closes, lapses or is withdrawn, as the case may be.

None of the Directors and any parties acting in concert with any of them had dealt for value in their relevant shareholdings (as defined in Note 1 to paragraph 5 of Schedule III to the Repurchase Code) of the Company since 2 September 2011 (being the date falling six months before the date on which the Board approved the proposal relating to the Offer) and up to the Latest Practicable Date.

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APPENDIX VII

PCCW has confirmed to the Company that, other than the Subscription Agreement, the PCCW Group had not dealt in the securities of the Company since 2 September 2011 (being the date falling six months before the date on which the Board approved the proposal relating to the Offer) and up to the Latest Practicable Date.

The Company has been informed that ECALP and the Elliott Entities had not dealt in the securities of the Company since 2 September 2011 (being the date falling six months before the date on which the Board approved the proposal relating to the Offer) and up to the Latest Practicable Date.

As at the Latest Practicable Date:

(i) save as disclosed on pages 204 to 205 of this Circular, none of the Directors and any parties acting in concert with any of them are interested in any Shares or any convertible securities, warrants, options or derivatives in respect of the Shares nor had they borrowed or lent any securities of the Company as aforementioned;
(ii) save for the Subscription Agreement in which the Directors’ interests (if any) are disclosed on page 204 of this Circular, there was no material contract entered into by the Company in which any Director had a material personal interest.

6. LITIGATION

As at the Latest Practicable Date, none of the members of the Group are engaged in any litigation or arbitration or claim of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened by or against any member of the Group.

7. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2011, the date to which the latest published audited consolidated financial statements of the Company have been made up.

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STATUTORY AND GENERAL INFORMATION

APPENDIX VII

8. DIRECTORS’ INTERESTS IN COMPETING BUSINESS

As at the Latest Practicable Date, Directors of the Company had the following interests in businesses which competed or were likely to compete, either directly or indirectly, with the Group’s business:

	Names of investee
Name of Director	companies	Nature of business	Nature of interests
Li Tzar Kai, Richard	Cheung Kong and its	Property development	Deemed interests in
	subsidiaries (“Cheung	and investment, hotel	Cheung Kong
	Kong Group”)	and serviced suite	(Note I)
		operation, property
		and project
		management and
		investment in
		securities
	HWL and its	Ports and related	Certain personal and
	subsidiaries	services, property and	deemed interests in
	(“Hutchison Group”)	hotels, retail, energy,	HWL (Note II)
		infrastructure,
		investments and
		others, and
		telecommunications

Notes:

I. Certain businesses of the Cheung Kong Group may compete with certain aspects of the business of the Group. Li Tzar Kai, Richard is one of the discretionary beneficiaries of certain discretionary trusts which hold units in unit trusts which in turn are interested in certain shares of Cheung Kong. Li Tzar Kai, Richard holds one-third of the issued share capital of two companies, which own all the shares in the trustee companies which act as trustees of such discretionary trusts and unit trusts. These trustee companies perform their functions as trustees independently without any reference to Li Tzar Kai, Richard. In view of the above, the Company considers that Li Tzar Kai, Richard is not able to exert control or influence over the Cheung Kong Group.
II. Li Tzar Kai, Richard was a director of HWL and certain of its subsidiaries until 16 August 2000, the day before the acquisition of Cable & Wireless HKT Limited (now known as PCCW-HKT Limited) became effective. Certain businesses of the Hutchison Group compete with certain aspects of the business of the Group. Li Tzar Kai, Richard has a personal interest in 110,000 shares in HWL, and is one of the discretionary beneficiaries of certain discretionary trusts which hold units in unit trusts which in turn are interested in certain shares of HWL. Li Tzar Kai, Richard holds one-third of the issued share capital of two companies, which own all the shares in the trustee companies which act as trustees of such discretionary trusts and unit trusts. These trustee companies perform their functions as trustees independently without any reference to Li Tzar Kai, Richard. In view of the above, the Company considers that Li Tzar Kai, Richard is not able to exert control or influence over the Hutchison Group.

In addition, Li Tzar Kai, Richard and Lee Chi Hong, Robert are directors of certain private companies (the “Private Companies”), which are engaged in property development and investment in Hong Kong and Japan.

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STATUTORY AND GENERAL INFORMATION

APPENDIX VII

Further, Li Tzar Kai, Richard was a director and the chairman of PCRD. PCRD is an investment holding company having interests in telecommunications and media (through PCCW), financial services, property and infrastructure in the Asia-Pacific region.

The business interests of the Private Companies in Hong Kong are not significant when compared with the business of the Group and it is unlikely that such business interests will compete with the business of the Group. The business interests in Japan, the Asia-Pacific region are also unlikely to compete with the existing business of the Group.

Li Tzar Kai, Richard has a controlling interest in some of the Private Companies. Further, he is or may be regarded as interested in PCRD and PCGH due to the interests as disclosed under the section headed “Directors’ and chief executive’s interests and short positions in Shares, underlying Shares and debentures of the Company and the Company’s associated corporation” in this appendix.

As PCRD and the Private Companies are involved in the development and, or investment of properties of different types and, or in different locations, the Group has been operating independently of, and at arm’s length from, the businesses of those companies.

Save as disclosed above, none of the Directors or their respective associates had an interest in a business, apart from the business of the Group, which competes or is likely to compete, either directly or indirectly, with the business of the Group as at the Latest Practicable Date.

9. DIRECTORS’ INTERESTS IN ASSETS OF THE GROUP

As at the Latest Practicable Date, none of the Directors had any interest in any assets which had been, since 31 December 2011 (the date to which the latest published audited accounts of the Company were made up) acquired or disposed of by or leased to any member of the Group, or which were proposed to be acquired or disposed of by or leased to any member of the Group.

10. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with the Company, or any of its subsidiaries or associated companies which:

(a) (including both continuous and fixed term contracts) had been entered into or amended during the Relevant Period; or
(b) was a continuous contract with a current notice period of 12 months or more; or
(c) was a fixed term contract with more than 12 months to run irrespective of the notice period other than Lee Chi Hong, Robert who has entered into an employment contract with PCPD Services Limited for a term of two years from 1 June 2011 to 31 May 2013 which is terminable by either party by giving to the other six months’ advance notice; or
(d) was not determinable by the Company within one year without payment of compensation (other than statutory compensation).

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STATUTORY AND GENERAL INFORMATION

APPENDIX VII

11. EXPERTS

The following are the qualifications of each of the experts who have been named in this Circular or given their opinion or advice which are contained in this Circular:

Name

Qualification

Anglo Chinese a licensed corporation under the SFO to carry on Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities

Rothschild

a licensed corporation under the SFO to carry on Type 1 (dealing in securities), Type 4 (advising on securities) and Type 6 (advising on corporate finance) regulated activities

PricewaterhouseCoopers (“ PwC ”)

Certified Public Accountants

Savills Valuation and Property valuer Professional Services Limited (“ Savills ”)

Dacheng Law Offices PRC legal advisers (“ Dacheng ”)

Anglo Chinese, Rothschild, PwC, Savills and Dacheng have given and have not withdrawn their respective written consents to the issue of this Circular with the inclusion herein of the text of their respective letters and references to their names in the form and context in which they are included.

As at the Latest Practicable Date, none of Anglo Chinese, Rothschild, PwC, Savills and Dacheng mentioned above had any shareholding in any member of the Group nor had any right or option (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for shares in any member of the Group.

As at the Latest Practicable Date, none of Anglo Chinese, Rothschild, PwC, Savills and Dacheng had any interest in any assets which had been, since 31 December 2011 (the date to which the latest published audited accounts of the Company were made up), acquired or disposed of by or leased to any member of the Group, or which were proposed to be acquired or disposed of by or leased to any member of the Group.

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STATUTORY AND GENERAL INFORMATION

APPENDIX VII

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection from 9:30 a.m. to 5:30 p.m., Monday to Friday at (i) 8th Floor, Cyberport 2, 100 Cyberport Road, Hong Kong; (ii) the website of the Company at http://www.pcpd.com; and (iii) the website of SFC at http://www.sfc.hk from the date of this Circular until 16 May 2012:

(a) the memorandum of association and bye-laws of the Company;
(b) the annual reports of the Company for the two years ended 31 December 2010 and 31 December 2011;
(c) the letter from the Board, the text of which is set out on pages 7 to 31 of this Circular;
(d) the letter of advice from Anglo Chinese, the text of which is set out on pages 32 to 39 of this Circular;
(e) the letter of recommendation from the Independent Board Committee, the text of which is set out on pages 40 to 41 of this Circular;
(f) the letter of advice from Rothschild, the text of which is set out on pages 42 to 72 of this Circular;
(g) the report on the unaudited pro forma financial information of the Group from PricewaterhouseCoopers, the text of which is set out in appendix V to this Circular;
(h) the letters of consent referred to in the paragraph headed “Experts” in this Appendix;
(i) the property valuation report issued by Savills, the text of which is set out on pages 184 to 197 of this Circular;
(j) the Subscription Agreement dated 2 March 2012 executed by the Company, the CN Issuer and the CN Holder;
(k) the undertaking dated 2 March 2012 executed by ECALP and the Elliott Entities;
(l) the undertaking dated 2 March 2012 executed by PCCW; and
(m) the letter of consent dated 2 March 2012 executed by the CN Holder.

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APPENDIX VII

13. MISCELLANEOUS

(a) PCCW is a company which was incorporated in Hong Kong on 24 April 1979 with limited liability, the shares of which are listed on the Stock Exchange (Stock Code:00008) and with securities in the form of American depositary receipts (“ADRs”) traded on the OTC Markets Group Inc. in the United States. Each ADR represents 10 ordinary shares of PCCW. The registered office of PCCW is at 38/F, Citibank Tower, Citibank Plaza, 3 Garden Road, Central, Hong Kong. The directors of PCCW are:

Executive Directors:

Li Tzar Kai, Richard (Chairman) Chan Ching Cheong, George (Group Managing Director) Hui Hon Hing, Susanna (Group Chief Financial Officer) Lee Chi Hong, Robert

Non-executive Directors: Sir David Ford, KBE, LVO Tse Sze Wing, Edmund, GBS Lu Yimin (Deputy Chairman) Li Fushen Li Gang

Note: Mr. Li Tzar Kai, Richard and Mr. Lee Chi Hong, Robert are also Directors.

Independent Non-executive Directors: Dr The Hon Sir David Li Kwok Po, GBM, GBS, OBE, JP Aman Mehta Wei Zhe, David Frances Waikwun Wong

(b) The Secretary of the Company is Cheng Wan Seung, Ella who is a certified public accountant in Hong Kong and a chartered accountant in Canada.
(c) The registered office of the Company is at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. The principal place of business of the Company in Hong Kong is at 8th Floor, Cyberport 2, 100 Cyberport Road, Hong Kong.
(d) The registered office of Anglo Chinese is at 40th Floor, Two Exchange Square, 8 Connaught Place, Central, Hong Kong.
(e) The registered office of Rothschild is at 16th Floor, Alexandra House, 18 Chater Road, Central, Hong Kong.
(f) The principal share registrar and transfer agent of the Company is Butterfield Fulcrum Group (Bermuda) Limited, Rosebank Centre, 11 Bermudiana Road, Pembroke HM 08, Bermuda.

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APPENDIX VII STATUTORY AND GENERAL INFORMATION

(g) The Hong Kong branch share registrar of the Company is Computershare Hong Kong Investor Services Limited, which is situated at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(h) The English texts of this Circular, the form of proxy for the SGM and the Form of Acceptance shall prevail over their respective Chinese texts.

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NOTICE OF SGM

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**PACIFIC CENTURY PREMIUM DEVELOPMENTS LIMITED 盈科大衍地產發展有限公司[*]**

(incorporated in Bermuda with limited liability)

(Stock Code: 00432)

NOTICE IS HEREBY GIVEN that a special general meeting (“ SGM ”) of Pacific Century Premium Developments Limited (the “ Company ”) will be held at Function Room 1-3, Core F, L3 IT Street, Cyberport 3, 100 Cyberport Road, Hong Kong on Wednesday, 2 May 2012 at 12:00 noon (or immediately thereafter the annual general meeting of the Company convened at the same place and on the same date at 11:00 a.m. shall have been concluded or adjourned) for the following purposes:

To consider and, if thought fit, pass the following resolutions, with or without modifications, as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

A. “ THAT the conditional cash offer (the “ Offer ”) by Anglo Chinese Corporate Finance, Limited on behalf of the Company to repurchase up to 926,126,540 shares of HK$0.10 each in the issued share capital of the Company (the “ Shares ”) held by the shareholders of the Company (the “ Shareholders ”) at a price of HK$1.85 per Share to be paid in cash, subject to the terms and conditions set out in the circular despatched to the Shareholders dated 5 April 2012 together with the accompanying form of acceptance (a copy of which marked “A” has been produced to the meeting and signed by the chairman of this meeting for the purpose of identification) be approved, without prejudice and in addition to the existing authority of the Company under the general mandate to repurchase Shares granted by the Shareholders at the annual general meeting of the Company held on 5 May 2011, and that any one of the directors of the Company be and is hereby authorised to execute all such documents with or without amendments and to do all such acts and things as he considers desirable, necessary or expedient in connection with or to give effect to any matters relating to or in connection with the Offer including, without limitation, completion of the repurchase of the Shares pursuant to the Offer.”
B. “ THAT :
(i) the conditional subscription agreement (the “ Subscription Agreement ”) dated 2 March 2012 entered into between PCPD Wealth Limited (the “ CN Issuer ”), a wholly-owned subsidiary of the Company, PCCW-HKT Partners Limited (the “ CN Holder ”) and the Company in relation to the convertible note to be issued to the CN Holder by the CN Issuer and to be guaranteed by the Company in the principal amount of HK$2,904,000,000 or the redemption amount of the

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NOTICE OF SGM

convertible note in the principal amount of HK$2,420,000,000 and due on 9 May 2014 issued by the CN Issuer and guaranteed by the Company (the “ 2014 Convertible Note ”) due at the maturity of the 2014 Convertible Note on the maturity date thereof which has not been repaid at or before such maturity on such maturity date (whichever is less) (the “ 2019 Convertible Note ”) upon and subject to the conditions therein contained (a copy of such subscription agreement is produced to this meeting marked “B” and signed by the chairman of this meeting for the purpose of identification) and all transactions contemplated thereunder and in connection therewith be and are hereby approved, confirmed and, or ratified;

(ii) the issue of the 2019 Convertible Note, the allotment and issue of the shares in the share capital of the Company to be issued on conversion of the 2019 Convertible Note (the “ Conversion Shares ”) pursuant to and upon the terms and subject to the conditions of the Subscription Agreement (including but not limited to the terms and conditions of the 2019 Convertible Note set out therein) and the performance by the Company of the transactions contemplated under the Subscription Agreement and the terms and conditions of the 2019 Convertible Note be and are hereby approved; and
(iii) the directors of the Company be and are hereby authorised, for and on behalf of the Company, to do all acts and things and to sign, seal and execute and deliver all documents and take all such steps which they may in their discretion consider necessary, desirable or expedient for the implementation of, giving effect to, and otherwise in connection with or incidental to any and all transactions contemplated under the Subscription Agreement and the 2019 Convertible Note (including but not limited to the allotment and issue of the Conversion Shares) and to agree to such variation, amendment or waiver to the Subscription Agreement as are, in the opinion of the directors of the Company, in the interests of the Company.”
C. “ THAT subject to and conditional upon the Offer (as defined in resolution numbered 1A set out in the notice of this meeting of which this resolution forms part) becoming or being declared unconditional in all respects, the authorised share capital of the Company be increased from HK$1,000,000,000 divided into 10,000,000,000 shares of HK$0.10 each to HK$2,000,000,000 divided into 20,000,000,000 shares of HK$0.10 each by the creation of 10,000,000,000 new shares of HK$0.10 each. ”
D. “ THAT conditional upon (i) the Offer (as defined in resolution numbered 1A set out in the notice of meeting of which this resolution forms part) becoming or being declared unconditional in all respects, (ii) the passing of the special resolution set out in the notice of meeting of which this resolution forms part; and (iii) the Listing Committee of The Stock Exchange of Hong Kong Limited granting or agreeing to grant and not having withdrawn or revoked the listing of and permission to deal in the Bonus Shares (as hereinafter defined) and the shares of HK$0.10 each in the capital

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NOTICE OF SGM

of the Company to be issued upon conversion of the Bonus Convertible Notes (as defined in the circular of the Company dated 5 April 2012 (the “ Circular ”), a copy of which marked “C” is produced to this meeting and signed by the chairman of this meeting for the purpose of identification):

(1) upon the recommendation of the directors of the Company (the “ Directors ”), the necessary sum be capitalised from the amount standing to the credit of any of the Company’s reserve or fund (including contributed surplus) or any sum standing to the credit of the profit and loss account or otherwise available for distribution and the Directors be and are hereby authorised and directed to apply such sum in paying up in full at par sufficient unissued shares of HK$0.10 each in the capital of the Company (the “ Bonus Shares ”), and that such Bonus Shares shall be issued, allotted and distributed, credited as fully paid, to and amongst the persons whose names appear on the register of members of the Company on the record date to be fixed by the Directors for ascertaining entitlements of the shareholders of the Company thereto (the “ Record Date ”) (other than those persons who shall have elected to receive the Bonus Convertible Notes in lieu of all or part of their entitlements to the Bonus Shares pursuant to the terms of such issue) as holders of shares of HK$0.10 each in the capital of the Company (the “ Shares ”) on a basis to be determined by the Directors which shall not exceed four Bonus Shares for every one issued Share held by such shareholders of the Company on the Record Date respectively;
(2) the Bonus Shares to be issued and allotted pursuant to this resolution shall be subject to the memorandum of association and bye-laws of the Company and shall rank pari passu in all respects with the Shares in issue on the Record Date, except that they will not rank for the Possible Bonus Issue (as defined in the Circular);
(3) the terms and conditions of the Deed Poll (as defined in the Circular and a copy of a draft of which marked “D” is produced to this meeting and signed by the chairman of this meeting for the purpose of identification) be and are hereby approved and the Directors be and are hereby authorised to make such variation or amendment thereto as are, in the opinion of the Directors, in the interests of the Company and the creation and issue of the Bonus Convertible Notes as constituted by the Deed Poll (with such variation or amendments as aforesaid) pursuant to the Possible Bonus Issue to holders of Shares on the Record Date who elect to receive the Bonus Convertible Notes in lieu of all or part of their entitlements to the Bonus Shares pursuant to terms of such issue be and are hereby also approved;
(4) the Directors be and are hereby authorised to allot and issue shares in the capital of the Company, credited as fully paid, upon conversion of the Bonus Convertible Notes (the “ Bonus Conversion Shares ”) or otherwise in accordance with the terms and conditions of the Bonus Convertible Notes and, or the Deed Poll (as defined below) by way of capitalisation of the necessary sum from the

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NOTICE OF SGM

amount standing to the credit of the Company’s reserve or fund (including contributed surplus) or any sum standing to the credit of the Company’s profit and loss account or otherwise available for distribution and that the Bonus Conversion Shares shall, when allotted and issued, rank pari passu in all respects with all other shares in the capital of the Company in issue on the date of such allotment and issue;

(5) the Directors be and are hereby authorised to allot and issue further new shares in the capital of the Company (the “ Further New Shares ”) falling to be issued upon conversion of any further new convertible notes which may be issued by the Company on the same terms and conditions as the Bonus Convertible Notes in accordance with the Deed Poll, credited as fully paid, by way of capitalization of necessary amount standing to the credit of the Company’s reserve or fund (including contributed surplus) or any sum standing to the credit of the Company’s profit and loss account or otherwise available for distribution; and
(6) the Directors be and are hereby authorised, for and on behalf of the Company, to take all steps and do all acts and things as they consider to be necessary, appropriate or expedient in connection with and to implement and, or give effect to the transactions contemplated by the Possible Bonus Issue, and the Bonus Convertible Notes, and without limitation to the generality of the foregoing, to determine the amount to be capitalised out of the Company’s reserve or fund (including contributed surplus) or any sum standing to the credit of the Company’s profit and loss account or otherwise available for distribution, the number of Bonus Shares to be issued, allotted and distributed in the manner referred to in paragraph (1) of this resolution and the number of Bonus Conversion Shares to be issued and allotted in the manner referred to in paragraph (4) of this resolution and the number of Further New Shares to be issued and allotted in the manner referred to in paragraph (5) of this resolution, executing all such other documents, instruments and agreements and doing all such acts or things deemed by them to be incidental to, ancillary to or in connection with the matters contemplated under the Possible Bonus Issue and the Bonus Convertible Notes.”
To consider and, if thought fit, pass the following resolution as a special resolution of the Company:

SPECIAL RESOLUTION

“ THAT subject to and conditional upon the Offer (as defined in resolution numbered 1A set out in the notice of meeting of which this resolution forms a part) becoming or being declared unconditional in all respects, the bye-laws of the Company be amended as follows:

(i) the existing bye-law 148 of the bye-laws of the Company be deleted in its entirety and substituted therefor with the following:
“148.(a) The Company may, upon the recommendation of the Board, at any time and from time to time pass an ordinary resolution to the effect that it is desirable to

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NOTICE OF SGM

     - capitalise all or any part of any amount for the time being standing to the credit of any reserve or fund (including the profit and loss account) whether or not the same is available for distribution and accordingly that such amount be set free for distribution among the Members or any class of Members who would be entitled thereto if it were distributed by way of dividend and in the same proportions, on the footing that the same is not paid in cash but is applied either in or towards paying up the amounts for the time being unpaid on any shares in the Company held by such Members respectively or in paying up in full unissued shares, debentures or other obligations of the Company, to be allotted and distributed credited as fully paid up among such Members, or partly in one way and partly in the other (in each case, a “ **Capitalisation** ”); Provided always that the Company shall be entitled to allow any Member to elect to receive, in lieu of any or all such shares, debentures or other securities to be paid up and issued upon any such Capitalisation, an instrument entitling such Member to be issued with shares, debentures or other securities (of an equivalent number subject to adjustment and otherwise on such terms as the Board considers fit) at a point of time subsequent to such Capitalisation (a “ **Convertible Instrument** ”), and the election of any such Member to receive a Convertible Instrument in lieu of shares, debentures or other securities shall not prejudice or invalidate such Capitalisation; and the Board shall give effect to such resolution provided that, for the purposes of this Bye-law and subject to Section 40(2A) of the Act, a share premium account and any reserve or fund representing unrealised profits, may be applied only in paying up in full unissued shares of the Company to be allotted to such Members credited as fully paid. In carrying sums to reserve and in applying the same the Board shall comply with the provisions of the Act.

  - (b) Without limiting the generality of Bye-law 148(a), any sum standing to the credit of any of the Company’s reserve or fund (including contributed surplus) or any sum standing to the credit of the profit and loss account or otherwise available for distribution, may be used and applied by the Company to pay up in full unissued shares, debentures or other securities of the Company to be allotted and issued credited as fully paid to (i) holder(s) of the Convertible Instrument (irrespective of whether such person is a Member) on the terms of the Convertible Instrument and, or (ii) any person upon the conversion of (x) any Convertible Instrument issued pursuant to Bye-law 148(a) (irrespective of whether such person being issued with such shares, debentures or other securities upon such conversion is a Member), and (y) any further or additional convertible instruments issued to any person by virtue or as a consequence of their rights as a holder of any Convertible Instrument issued pursuant to Bye-law 148(a).”; and

(ii) the existing bye-law 165 of the bye-laws of the Company be deleted in its entirety and substituted therefor with the following:
“165. If the Company shall be wound up (whether the liquidation is voluntary or by the court) the liquidator may, with the authority of a special resolution and any other sanction required by the Act, divide among the Members and holder(s) of the Convertible Instrument (as defined in Bye-law 148(a)) outstanding immediately prior to a winding-up of the Company (who shall for all purposes and intents be

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NOTICE OF SGM

entitled to the same amount as if he were a Member on an as converted basis with respect to the said outstanding Convertible Instrument in accordance with the terms thereof) in specie or kind the whole or any part of the assets of the Company and whether or not the assets shall consist of properties of one kind or shall consist of properties to be divided as aforesaid of different kinds, and may for such purpose set such value as he deems fair upon any one or more class or classes of property and may determine how such division shall be carried out as between the Members or different classes of Members. The liquidator may, with the like authority, vest any part of the assets in trustees upon such trusts for the benefit of the Members as the liquidator with the like authority shall think fit, and the liquidation of the Company may be closed and the Company dissolved, but so that no contributory shall be compelled to accept any shares or other property in respect of which there is a liability.” .”

By Order of the Board PACIFIC CENTURY PREMIUM DEVELOPMENTS LIMITED Cheng Wan Seung, Ella

Company Secretary

Hong Kong, 5 April 2012

Registered Office:

Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Principal place of business in Hong Kong:

8th Floor, Cyberport 2 100 Cyberport Road Hong Kong

Notes:

Any member entitled to attend and vote at the SGM (and any adjournment thereof) shall be entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at the SGM (and any adjournment thereof). A proxy need not be a member of the Company. In addition, a proxy or proxies representing either a member who is an individual or a member which is a corporation shall be entitled to exercise the same powers on behalf of the member which he or they represent as such member could exercise.
The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorised to sign the same.
The form of proxy and the power of attorney or other authority (if any) under which it is signed, or a certified copy of such power of attorney or authority, must be deposited with the Company’s branch share registrar, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event no later than forty-eight (48) hours before the time appointed for holding the SGM (and any adjournment thereof) at which the person named in the instrument proposes to vote, otherwise the form of proxy shall not be treated as valid.

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NOTICE OF SGM

Completion and return of the form of proxy does not preclude a member from attending and voting in person at the SGM (or any adjournment thereof), and in such event, the form of proxy shall be deemed to be revoked.
Where there are joint holders of any shares, any one of such joint holders may vote, either in person or by proxy, in respect of such shares as if he were solely entitled thereto; but if more than one of such joint holders are present at the SGM (and any adjournment thereof), the most senior will alone be entitled to vote, whether in person or by proxy. For this purpose, seniority will be determined by the order in which the names stand in the register of members of the Company in respect of the joint holding.

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AI assistant

Digital China Holdings Limited — Proxy Solicitation & Information Statement 2012

49520_rns_2012-04-04_d1259cd5-42f6-48b7-b01d-ea050b86b0ce.pdf

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

PACIFIC CENTURY PREMIUM DEVELOPMENTS LIMITED 盈科大衍地產發展有限公司[*]

CONTENTS

CONTENTS

EXPECTED TIMETABLE

Announcement of the results of the SGM and

Notes:

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

PACIFIC CENTURY PREMIUM DEVELOPMENTS LIMITED 盈科大衍地產發展有限公司[*]

To the Shareholders

INTRODUCTION

LETTER FROM THE BOARD

CONDITIONAL CASH OFFER TO REPURCHASE SHARES

LETTER FROM THE BOARD

THE SUBSCRIPTION AGREEMENT AND SPECIAL DEAL

Principal terms of the 2019 Convertible Note

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Listing of the 2019 Convertible Note and the Conversion Shares

LETTER FROM THE BOARD

Conditions of the Subscription Agreement

Long Stop Date for completion of the Subscription Agreement

Minimum Conversion Price

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SHAREHOLDING STRUCTURE OF THE COMPANY

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(ii) In relation to the Offer

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POSSIBLE BONUS ISSUE

Principal Terms of the Bonus Convertible Notes

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Conditions of the Possible Bonus Issue

PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

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PROPOSED AMENDMENTS TO BYE-LAWS

FINANCIAL EFFECTS OF THE OFFER AND THE SUBSCRIPTION AGREEMENT

(i) Basic earnings per Share

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(ii) Net asset value

Assuming only the Elliott Entities and ECALP accept the Offer

Assuming all Shareholders (other than the PCCW Group) accept the Offer

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(iii) Liabilities

Assuming only the Elliott Entities and ECALP accept the Offer

Assuming all Shareholders (other than the PCCW Group) accept the Offer

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(iv) Working capital

Assuming only the Elliott Entities and ECALP accept the Offer

Assuming all Shareholders (other than the PCCW Group) accept the Offer

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REASONS AND BENEFITS OF THE OFFER AND THE SUBSCRIPTION AGREEMENT

The Offer

The Subscription Agreement

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INTENTIONS OF THE GROUP REGARDING THE RESTORATION OF THE MINIMUM PUBLIC FLOAT

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LISTING RULES AND THE CODES

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INFORMATION ON THE GROUP

INFORMATION ON THE PCCW GROUP

SGM

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RECOMMENDATION

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WARNING

PACIFIC CENTURY PREMIUM DEVELOPMENTS LIMITED Lee Chi Hong, Robert

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ANGLO CHINESE CORPORATE FINANCE, LIMITED

AND

Digital China Holdings Limited Proxy Solicitation & Information Statement 2012

**PACIFIC CENTURY PREMIUM DEVELOPMENTS LIMITED 盈科大衍地產發展有限公司[*]**

**PACIFIC CENTURY PREMIUM DEVELOPMENTS LIMITED 盈科大衍地產發展有限公司[*]**

**PACIFIC CENTURY PREMIUM DEVELOPMENTS LIMITED 盈科大衍地產發展有限公司[*]**