Greenheart Group Limited - M&A Activity 2011

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares of Skyfame Realty (Holdings) Limited , you should at once hand this circular to the purchaser or the transferee or to the licensed securities dealer or registered institution in securities or other agent through whom the sale or the transfer was effected for transmission to the purchaser or the transferee.

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

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(incorporated in Bermuda with limited liability)

(Stock Code: 00059)

VERY SUBSTANTIAL ACQUISITION IN RELATION TO THE ACQUISITION OF LAND USE RIGHTS IN YONGZHOU CITY, HUNAN PROVINCE, THE PRC

* For identification purposes only

25 August 2011

	Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Appendix I – Financial information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Appendix II – Valuation report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	41
Appendix III – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	50

DEFINITIONS

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

“associate(s)”	has the meaning ascribed to it under the Listing Rules
“Acquisition”	the acquisition of the Yongzhou Land by the Company or
	Yongzhou Tian Yu pursuant to the terms of the Framework
	Agreement
“Board”	board of Directors
“City Government of Yongzhou”	永州市零陵區人民政府(Government of Lingling District,
	Yongzhou City*), a PRC Governmental Body (as defined in Rule
	19A.04 of the Listing Rules)
“CNTA”	中國國家旅遊局(National Tourism Administration of the
	People’s Republic of China), which is the issuing authority of
	National Tourist Spots with grades ranging from “5A” to “A”
“Commercial District”	the commercial district to be developed which will be located
	at east of the Nanjin Zhong Road and Nanjin Nan Road, north
	from Huanggushan Dong Road, south to Yanjiang Da Road, and
	the surrounding area and east of Worker’s Culture Palace and
	Gymnasium in Lingling District, Yongzhou City, Hunan Province,
	the PRC
“Company”	Skyfame Realty (Holdings) Limited, a company incorporated in
	Bermuda with limited liability, the issued Shares of which are
	listed on the Stock Exchange
“connected persons”	has the meaning ascribed to it under the Listing Rules
“Director(s)”	the director(s) of the Company
“DTZ Debenham”	DTZ Debenham Tie Leung Limited, an independent professional
	valuer

“Enlarged Group” the Group (including Yongzhou Tian Yu) “Framework Agreement” the cooperative principle agreement dated 30 June 2011 entered into between the Company and the City Government of Yongzhou which sets out the structure and principles of the Acquisition and the development of the Yongzhou Government Project

“Group” the Company and its subsidiaries from time to time “Hong Kong” the Hong Kong Special Administrative Region of the PRC “Independent Third Party” Independent third party not connected with the Company and its connected persons

* For identification purposes only

DEFINITIONS

“JV Partner”	永州澳亞旅遊有限公司(Yongzhou Aoya Tourism Company
	Limited*), being the joint venture partner holding 30% equity
	interest in Yongzhou Tian Yu
“Latest Practicable Date”	23 August 2011, being the latest practicable date prior to the
	printing of the circular for ascertaining certain information herein
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“PRC”	the People’s Republic of China, which, for the purpose of
	this circular, shall exclude Hong Kong, the Macau Special
	Administrative Region of the PRC and Taiwan
“Scenic Zone”	the scenic tourist district to be developed which will be extended
	from the east to Nanjin Nan Road, Baiwanzhuang Third Road,
	Baiwanzhuang First Road and Xujiajing Road, west to Zhongshan
	Road, south to Yangjiao Shan Road, north to Zhishan Road in
	Linling District of Yongzhou City, Hunan province, the PRC with
	an area of approximately one square kilometer
“SFO”	the Securities and Futures Ordinance (Cap.571 of the Laws of
	Hong Kong)
“Share(s)”	the existing ordinary share(s) of HK$0.01 each in the share capital
	of the Company
“Shareholder(s)”	holder(s) of the Share(s)
“Skyfame Yongzhou Project”	the residential and commercial property development project to be
	developed by Yongzhou Tian Yu on the Yongzhou Land
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Yongzhou Land”	certain plots of land with site area of an aggregate of 1,000 mu
	located in Lingling District, Yongzhou City, Hunan Province, the
	PRC
“Yongzhou Government	the development of the Scenic Zone and Commercial
Project”	District involving the remodeling of some scenic tourist spots,
	construction of certain public amenities and infrastructure
	facilities in the Scenic Zone and the Commercial District located
	in Lingling District of Yongzhou City, Hunan Province, the PRC

* For identification purposes only

DEFINITIONS

“Yongzhou Tian Yu”	永州天譽旅游發展有限公司(Yongzhou Tian Yu Tourism
	Development Co Limited*), the joint venture enterprise
	established in the PRC and held as to 70% by Yu Jun and 30% by
	the JV Partner and is accounted as a non-wholly owned subsidiary
	of the Company
“Yu Jun”	廣州譽浚諮詢服務有限公司(Guangzhou Yu Jun Consulting
	Service Company Limited*), an indirect wholly-owned subsidiary
	of the Company
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC
“%”	per cent.

For illustration purpose in this circular, amounts in RMB have been converted into HK$ at the rate of RMB1 = HK$1.2.

LETTER FROM THE BOARD

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(incorporated in Bermuda with limited liability) (Stock Code: 00059)

Executive Directors:

Mr. YU Pan (Chairman) Mr. LAU Yat Tung, Derrick (Deputy Chairman) Mr. WONG Lok

Independent non-executive Directors: Mr. CHOY Shu Kwan Mr. CHENG Wing Keung, Raymond Ms. CHUNG Lai Fong

Registered office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Principal office in Hong Kong: 2502B, Tower 1 Admiralty Centre 18 Harcourt Road Hong Kong

25 August 2011

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION IN RELATION TO THE ACQUISITION OF LAND USE RIGHTS IN YONGZHOU CITY, HUNAN PROVINCE, THE PRC

INTRODUCTION

The Company announced on 8 July 2011 that on 30 June 2011, the Company and the City Government of Yongzhou entered into the Framework Agreement in respect of the Acquisition and the management of the development of the Yongzhou Government Project. The parties have agreed under the Framework Agreement that Yongzhou Tian Yu, a joint venture enterprise which equity interest is held as to 70% indirectly by the Company and as to 30% by the JV Partner, will represent the Company in carrying out its obligations under the Framework Agreement. Under the Framework Agreement, the Company has agreed to acquire the Yongzhou Land through public biddings to be conducted by the City Government of Yongzhou by stages at an aggregate consideration of not less than RMB800 million (equivalent to approximately HK$960 million) and, effectively, not more than RMB1,040 million (equivalent to approximately HK$1,248 million).

* For identification purposes only

LETTER FROM THE BOARD

The Acquisition and the transactions contemplated under the Framework Agreement constitute a very substantial acquisition for the Company pursuant to Rule 14.06(5) of the Listing Rules. According to Rule 14.33A of the Listing Rules, the Acquisition is subject to the reporting and announcement requirements while the Shareholders’ approval requirement is exempted provided that all the conditions as referred to in Rule 14.33A of the Listing Rules are satisfied.

The purpose of this circular is to provide you with, among other things, (i) details of the Acquisition; (ii) financial information of the Group; and (iii) valuation of the Yongzhou Land.

THE FRAMEWORK AGREEMENT

Date

30 June 2011

Parties

(i) The Company;
(ii) City Government of Yongzhou, which, to the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, is a PRC Governmental Body (as defined in Rule 19A.04 of the Listing Rules) and an Independent Third Party.

The Framework Agreement is legally binding. The parties have agreed under the Framework Agreement that Yongzhou Tian Yu, a joint venture enterprise and a non-wholly owned subsidiary of the Company which equity interest is held as to 70% by Yu Jun, a wholly-owned subsidiary of the Company, and as to 30% by the JV Partner, will represent the Company in carrying out its obligations under the Framework Agreement.

Assets to be acquired

The land use rights over the Yongzhou Land, being certain plots of land with a total area of up to 1,000 mu (approximately 666,670 square meters) located in Lingling District, Yongzhou City, Hunan Province, the PRC. The actual size of the Yongzhou Land to be acquired by the Company will subject to the result of the public biddings.

According to the Framework Agreement, the Company has agreed to acquire the entire 1,000 mu Yongzhou Land subject to the results of the public biddings to be conducted by the City Government of Yongzhou in stages. Of the 1,000 mu Yongzhou Land, 395 mu of which will be located in the Scenic Zone and 405 mu of which will be located in the Commercial District, with the remaining 200 mu located in the eastern part of Yangming Road in Lingling District. The entire 1,000 mu Yongzhou Land (including those area located in the Scenic Zone and Commercial District) would be designated for the Skyfame Yongzhou Project.

LETTER FROM THE BOARD

Consideration

Pursuant to the terms of the Framework Agreement, the Company is obliged to bid for the plot of land being auctioned at a minimum price of RMB1 million (equivalent to approximately HK$1.2 million) per mu and the land premium shall be payable by the Company upon winning of the relevant bids. In respect of the remaining 200 mu Yongzhou Land, it has been agreed by the parties to the Framework Agreement that the Company or its subsidiary may apply the money from the Co-managed Account (as defined in the paragraph headed “Other terms of the Framework Agreement” below) in settling the land premium upon winning of the relevant bids. Given it is a term of the Framework Agreement that all payment of the land premium received by the City Government of Yongzhou from the public biddings will be deposited back into the Co-managed Account for the purpose of the development costs of the Yongzhou Government Project, the acquisition cost of the entire 1,000 mu Yongzhou Land to the Company would be its total payments upon the winning of the bids of the 800 mu land located in the Scenic Zone and Commercial District.

According to the Framework Agreement, the Company has agreed to participate in the auctions and submit a bid price of not less than RMB1 million (equivalent to approximately HK$1.2 million) per mu and up to RMB1.3 million (equivalent to approximately HK$1.56 million) per mu for any part of the 800 mu Yongzhou Land located in the Scenic Zone and the Commercial District in case there are other bidders. Accordingly, the minimum land cost for the entire 1,000 mu Yongzhou Land is RMB800 million (equivalent to approximately HK$960 million) (being 800 mu times RMB1 million (equivalent to approximately HK$1.2 million) per mu). In the event that there are other bidders participating in the public biddings to be conducted by the City Government of Yongzhou in offering any part of the Yongzhou Land, and the successful bid price offered by the Company exceeds RMB1.3 million (equivalent to approximately HK$1.56 million) per mu, such surplus amount will be reimbursed to the Company from the Co-managed Account (as defined in the paragraph headed “Other terms of the Framework Agreement” below) where all the sale proceeds of the Yongzhou Land are deposited which will be used for the Company’s development of the Skyfame Yongzhou Project. In view of the above mechanism as stated in the Framework Agreement, it is the current intention of the Company that it would submit a bid price of over RMB1.3 million (equivalent to approximately HK$1.56 million) per mu in case there are other bidders for the plot of land being auctioned. Accordingly, the effective maximum land cost for the entire 1,000 mu Yongzhou Land is RMB1,040 million (equivalent to approximately HK$1,248 million) (being 800 mu times RMB1.3 million (equivalent to approximately HK$1.56 million) per mu)).

The Company has sought legal advice from an independent PRC law firm, 廣東國鼎律師事務所 (Guangdong Guardian Law Firm*), and was confirmed that the abovementioned mechanism of the bidding as stipulated in the Framework Agreement is legal and in compliance with the laws in the conveyance of land on the mainland.

After taking into consideration of the location and the development potential of the Yongzhou Land, and the valuation of the entire 1,000 mu Yongzhou Land as at 30 June 2011 of RMB1,150 million (equivalent to approximately HK$1,380 million) as assessed by DTZ Debenham, an independent property valuer (based on the assumptions that Yongzhou Tian Yu has obtained valid State-owned Land Use Rights Certificate regarding the Yongzhou Land and the land premium and related fees for the grant of the certificate been fully settled), which valuation report of the Yongzhou Land is set out in Appendix II to this Circular, the Directors, including the independent non-executive Directors, consider the effective maximum consideration for the Yongzhou Land of RMB1,040 million (equivalent to approximately HK$1,248 million) is fair and reasonable.

* For identification purposes only

LETTER FROM THE BOARD

The Company intends to finance its share of the land cost by way of internal resources, bank borrowings and pre-sales proceeds to be received from the sales of properties developed in the Skyfame Yongzhou Project.

Completion of the acquisition of the Yongzhou Land

Pursuant to the Framework Agreement, the first 105 mu of the Yongzhou Land will be offered by the City Government of Yongzhou through public bidding within three months from the date of the Framework Agreement and the remaining 895 mu of the Yongzhou Land will be offered in stages by the City Government of Yongzhou within three years from the date of the Framework Agreement. As at the Latest Practicable Date, no part of the Yongzhou Land has been offered for public bidding by the City Government of Yongzhou.

Other terms of the Framework Agreement

Commitment to manage the development of the Yongzhou Government Project

Pursuant to the Framework Agreement, in consideration of the Yongzhou Land offered by the City Government of Yongzhou through public biddings, Yongzhou Tian Yu will be responsible for the management of the development of the Yongzhou Government Project which would comprise the Scenic Zone and the Commercial District. According to the Framework Agreement, the total estimated development cost for the Yongzhou Government Project would be not less than RMB800 million (equivalent to approximately HK$960 million) and not more than RMB1,040 million (equivalent to approximately HK$1,248 million), which would cover the costs for site clearance (including the expropriation expenses) and construction of infrastructure and remodeling of the Scenic Zone and the Commercial District. The Company, Yongzhou Tian Yu and the City Government of Yongzhou will set up a jointly-managed bank account in the name of the management committee of the Yongzhou Government Project (the “ Co-managed Account ”) for the purpose of the investment and development of the Scenic Zone and Commercial District of the Yongzhou Government Project. It is agreed under the Framework Agreement that after the receipt by the City Government of Yongzhou of the land premium from the public bidding of any part of the Yongzhou Land, the City Government of Yongzhou will, within 15 days of such receipt, deposit the land premium received into the Co-managed Account for the use as the development costs of the Scenic Zone and Commercial District of the Yongzhou Government Project. In the event that the cost incurred in expropriation of land in the Scenic Zone and the Commercial District exceeds the agreed amounts totaling RMB640 million (equivalent to approximately HK$768 million), the City Government of Yongzhou will finance the amount in excess.

The Yongzhou Government Project covers the development of (i) the Scenic Zone which involves the restoration of temples, antiques and relics, development of landscape, installation of water and electricity distribution system and plantation works in the Scenic Zone in order to restore the natural landscape to develop the Scenic Zone into a tourist attraction point of National 4A grade or above as approved by CNTA; and (ii) the Commercial District which involves infrastructural development such as modification of the high voltage electricity cable and extension of the 安康廣場(Ankang Square*) such that the Commercial District will comprise commercial, cultural, residential and leisure elements. Both of the Scenic Zone and the Commercial District shall demonstrate the ancient architectural style and features of Xiangnan, as well as the history and culture of Lingling District. The development of the Yongzhou Government Project shall be completed within a period of six years, commencing from the date of the transfer of a parcel of land of 105 mu for the development of Skyfame Yongzhou Project from the City Government of Yongzhou.

* For identification purposes only

LETTER FROM THE BOARD

The Company has submitted a preliminary design plan of the Scenic Zone and the Commercial District to the City Government of Yongzhou and such a preliminary design plan has been approved by the City Government of Yongzhou. According to the Framework Agreement, a detailed design and architectural plan for the Yongzhou Government Project shall be submitted within six months from the date of the Framework Agreement. As at the Latest Practicable Date, the detailed design and architectural plan of the Yongzhou Government Project is under preparation and will be submitted for approval by the City Government of Yongzhou, based on which the construction works will commence. Save for the final detailed design and architectural plan to be submitted to the City Government of Yongzhou, no further approval from the City Government of Yongzhou is required before commencement of the development of the Yongzhou Government Project.

Operating right of the Scenic Zone

The City Government of Yongzhou has agreed to grant the Company a 50-year operating rights of the Scenic Zone which will be leased to the Company in three terms, with the first two terms of 20 years each and the last term of 10 years. Save for the above, as at the Latest Practicable Date, no definitive and legally binding terms have been agreed between the Company and the City Government of Yongzhou. It is expected that the operating right will be granted to Yongzhou Tian Yu as the Company will nominate it to execute all rights and take up all obligations of the Company under the Framework Agreement. All lease payments will be reimbursed to the Company for the use of repair and maintenance, promotion and marketing, operating and remodeling of the Scenic Zone. The Company considers that, with the aforesaid lease reimbursement arrangement, the operating rights of the Scenic Zone, in substance, would be granted to the Company at nil consideration. Detailed terms of the lease of the operating rights will be determined by the relevant parties in a separate contract when it is close to the completion of construction of the Scenic Zone (which is expected to be in 2015).

The operation of the Scenic Zone will enable Yongzhou Tian Yu to receive income from ticketing and sub-leasing of operations in food and beverages and retailing businesses in the Scenic Zone. The operating right would be a secondary income earner of the Group apart from the earnings from the development of the Skyfame Yongzhou Project.

The development of the Scenic Zone is primarily focused on restoring ancient relics and natural landscape of the Lingling District as well as enhancing the tourism industry of the Yongzhou City, which is part of the Yongzhou Government’s development plan for the city. The Scenic Zone is aimed at being developed into a tourist attraction point of National 4A grade or above as approved by CNTA, therefore it is expected that this new landmark of Yongzhou City shall be able to attract reasonable number of tourists. As described above, the Company considers that in substance the operating right of the Scenic Zone would be granted to the Company at nil consideration and the operation of the Scenic Zone will enable Yongzhou Tian Yu to receive income from ticketing and sub-leasing of operations in food and beverages and retailing businesses in the Scenic Zone. Based on the aforesaid, the Board considers the 50-year operating right of the Scenic Zone is in the interests of the Company and the Shareholders as a whole.

LETTER FROM THE BOARD

Commitment to construct a five-star hotel and properties for resettlement

The Company has committed to the City Government of Yongzhou under the Framework Agreement that it will invest not less than RMB200 million (equivalent to approximately HK$240 million) for the construction of a five-star hotel on the Yongzhou Land and the exact location of which is yet to be decided. The development of the five-star hotel is in line with and form part of the principal business of the Group. The five-star hotel shall be in operation within three years from the date when the Company obtained the relevant approval to commence construction of the hotel. Besides, the Company has to build certain properties for the resettlement of existing occupants on the Scenic Zone and in the Commercial District for which the estimated construction cost is RMB90 million (equivalent to approximately HK$108 million). For the avoidance of doubt, the investment costs for the construction of the five-star hotel and resettlement is a commitment of the Company which do not form any part of the costs for the development of the Yongzhou Government Project as described in the paragraph headed “Commitment to manage the development of the Yongzhou Government Project” in this section.

It is intended that Yongzhou Tian Yu will own and operate the five-star hotel upon completion of the construction as the Company will nominate Yongzhou Tian Yu to execute all rights and take up all obligations of the Company under the Framework Agreement.

Application of the deposit paid

As at the Latest Practicable Date, the Company has made a refundable earnest money of RMB2 million (equivalent to approximately HK$2.4 million) to the City Government of Yongzhou and a further deposit of RMB100 million (equivalent to approximately HK$120 million) was placed in a bank account of Yongzhou Tian Yu. As agreed between the parties under the Framework Agreement, the Company is required to pay the City Government of Yongzhou RMB10 million (equivalent to approximately HK$12 million) as earnest money for the entering into of the Framework Agreement within three business days of the date of the Framework Agreement. The Company has paid the remaining RMB8 million (equivalent to approximately HK$9.6 million) to the City Government of Yongzhou on 5 July 2011. According to the terms of the Framework Agreement, the earnest money will be refunded by the City Government of Yongzhou to the Company as to RMB5 million (equivalent to approximately HK$6 million) after the Company has tendered bids for 800 mu of the Yongzhou Land and as to RMB5 million (equivalent to approximately HK$6 million) after the Scenic Zone has turned into a tourist attraction point of National 4A grade or above as approved by CNTA.

In respect of the RMB100 million (equivalent to approximately HK$120 million) placed in Yongzhou Tian Yu’s bank account, it was transferred to the Co-managed Account on 21 July 2011 and would be applied by the Company to participate in the land bidding and partially settle the consideration for the land premium upon winning of the relevant bids for any part of the Yongzhou Land and as temporary payment of a surety deposit of RMB30 million (equivalent to approximately HK$36 million) to secure the Company’s due performance of the construction of the hotel. If the balance in the Comanaged Account is not sufficient to cover the land bidding cost or settle the relevant land premium, the Company will have to make up for the short-fall. A RMB30 million will have to be paid to the Comanaged Account prior to the obtaining of the approval of the construction plan of the hotel to settle such surety deposit which will be reimbursed by the City Government of Yongzhou in three installments upon commencement of construction of the hotel, completion of major constructions, and commencement of operation of the hotel respectively.

LETTER FROM THE BOARD

Indemnities to the City Government of Yongzhou

Under the Framework Agreement, the Company has given certain indemnities to the City Government of Yongzhou including:

(a) if the Company fails to participate in the bidding for the Yongzhou Land nor is successful in turning the Scenic Zone with accreditation as a National 4A graded tourist attraction point as approved by CNTA, the Company will indemnify the City Government of Yongzhou for the breach with a compensation of RMB80 million (equivalent to approximately HK$96 million), and surrender the earnest money of RMB10 million (equivalent to approximately HK$12 million) and immovable assets on the Scenic Zone (other than properties developed in the Skyfame Yongzhou Project);
(b) if the Company cannot complete the construction of the five-star hotel within three years from the date of the governmental approval or the properties used for resettlement within the investment period of two years, the Company needs to pay for the land premium at market value for the land on which the hotel and/or the resettlement properties are erected (as the case may be), or else the properties on the relevant land will be surrendered to the City Government of Yongzhou; and
(c) if the Company fails to complete the development in the Yongzhou Land within the investment period (i.e. six years from the date of obtaining of the land use rights of the first 105 mu of the Yongzhou Land) and costs specified under the Framework Agreement (as described in the sub-paragraph headed “Registered capital” under the paragraph headed “Information on Yongzhou Tian Yu” below), the City Government of Yongzhou is entitled to confiscate the land acquired by the Company.

THE YONGZHOU LAND

Of the 1,000 mu Yongzhou Land, 395 mu will be located in the Scenic Zone and 405 mu will be located in the Commercial District. Other than the construction of a five-star hotel and a resettlement area for the occupants on the Scenic Zone and the Commercial District which is required by the City Government of Yongzhou to be built on the 1,000 mu Yongzhou Land, the Yongzhou Land is planned for the development of the Skyfame Yongzhou Project, which would be a residential and commercial property development project, by Yongzhou Tian Yu. Pursuant to the Framework Agreement, the Company is required to invest not less than RMB1,000 million (equivalent to approximately HK$1,200 million) for the development of the Skyfame Yongzhou Project in each of the Scenic Zone and the Commercial District respectively. At present the Company plans to develop the Skyfame Yongzhou Project into commercial and residential composite developments in four phases with a planned total gross floor area (“GFA”) of approximately 1.7 million square meters. Of the planned total GFA of approximately 1.7 million square meters, it is currently planned that approximately 40,020 square meters will be reserved for the construction of a five-star hotel, 80,000 square meters will be reserved for the construction of properties for resettlement, 24,666 square meters will be reserved for community facilities and the remaining balance of approximately 1.5 million square meters will be developed for residential and commercial properties for sale. The Directors, with the perception of the market demand, will consider the optimal mixture of residential and commercial properties that will maximise the profit potential of the project. The development will offer apartments and low density villas for residence and commercial complex for retailing and commercial uses. The total construction cost of the entire development is estimated at

LETTER FROM THE BOARD

RMB2,452 million (equivalent to approximately HK$2,942.4 million) which will be financed by capital contribution from the joint venture partners, bank borrowing and sale proceeds to be received from properties developed and put for pre-sale in phases.

According to the preliminary development plan available by the Company as at the Latest Practicable Date, the development of the first phase of the Skyfame Yongzhou Project will be commenced in the third quarter of 2011 whilst the last phase will be completed in late 2015. Construction of the hotel is expected to be completed in 2016, construction of properties for resettlement is expected to be completed in 2013, and the first phase of the development of the residential and commercial complex is expected to be launched for pre-sale in 2012. Shareholders should note that, due to the possible change in market circumstances, the actual pace of development of the Skyfame Yongzhou Project may be different from that of the current expected timetable.

INFORMATION ON YONGZHOU TIAN YU

Parties

The joint venture in Yongzhou Tian Yu was formed between Yu Jun and the JV Partner on 27 June 2011 for the purpose of managing the development of the Yongzhou Government Project and to acquire the Yongzhou Land for the development of the Skyfame Yongzhou Project. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, each of the JV Partner and its ultimate beneficial owners is Independent Third Party.

The JV Partner is a limited company established in the PRC and is principally engaged in tourism investment, development and consultancy services. The JV Partner is 90% owned in equity by 匡世剛 (Mr. KUANG Shi Gang) and 10% by 肖五虎 (Mr. XIAO Wu Hu), both are entrepreneurs. As advised by the JV Partner, Mr. KUANG is an experienced property developer and has commenced his property development business in China since late nineties. He has completed the development of a number of property projects in Guilin and Xingan, Guangxi Province, the PRC, including certain residential development properties with a total floor area of approximately 230,000 square meters, and remodeling of a historic shopping arcade near 靈渠 (Ling Qu), a historic canal and famous tourist spot in the Xingan County of Guilin, Guangxi Province, the PRC. Certain of the property development projects which Mr. KUANG has engaged in have received the best selling project awards and best landscaping design awards. In addition, Mr. KUANG was the deputy to the Guilin Municipal People’s Congress (桂林市人大代表) in 2001 and 2006 respectively. With his past working experience in the Congress, the Company understands that he has close interactions with the officials in the City Government of Yongzhou.

Registered capital

Yongzhou Tian Yu is held as to 70% by Yu Jun and as to 30% by the JV Partner and is accounted as a non-wholly owned subsidiary of the Company. Yongzhou Tian Yu has a registered capital of RMB100 million (equivalent to approximately HK$120 million), of which RMB70 million (equivalent to approximately HK$84 million) is contributed by Yu Jun and RMB30 million (equivalent to approximately HK$36 million) is contributed by the JV Partner. As at the Latest Practicable Date, the registered capital of Yongzhou Tian Yu has been fully paid-up by Yu Jun and the JV Partner accordingly. The parties to the Framework Agreement have agreed that Yongzhou Tian Yu will be

* For identification purposes only

LETTER FROM THE BOARD

appointed to carry out the responsibilities and obligations of the Company under the Framework Agreement, including its commitment in relation to (i) the acquisition of the Yongzhou Land at an effective maximum consideration of RMB1,040 million (equivalent to approximately HK$1,248 million); (ii) the investment of not less than RMB200 million (equivalent to approximately HK$240 million) for the development of a five-star hotel; (iii) the construction of properties for resettlement for which the development cost is estimated to be approximately RMB90 million (equivalent to approximately HK$108 million); (iv) the investment of not less than RMB1,000 million (equivalent to approximately HK$1,200 million) in developing the Skyfame Yongzhou Project in each of the Scenic Zone and Commercial District. The Company and the JV Partner will assume the commitment of Yongzhou Tian Yu in proportion to their equity interest in Yongzhou Tian Yu.

Save as disclosed above, Yongzhou Tian Yu has no other capital commitment in respect of the Yongzhou Government Project, Skyfame Yongzhou Project and operating rights of the Scenic Zone.

Terms of operation

Yongzhou Tian Yu has a term of operation of 50 years from the date of incorporation.

Board composition

The board of directors of Yongzhou Tian Yu shall comprise 5 members. Four members of the board of directors of Yongzhou Tian Yu have been appointed by Yu Jun and one member of the board of directors of Yongzhou Tian Yu has been appointed by the JV Partner.

Share of profits/losses

Yu Jun and the JV Partner shall share the profits or assume the losses of Yongzhou Tian Yu in proportion to their respective capital contribution in the registered capital of Yongzhou Tian Yu. Yongzhou Tian Yu will declare dividends and distribute to its holder in proportion to their respective capital contribution in the registered capital of Yongzhou Tian Yu at the time of dividend declaration.

Financial and capital commitment

If required, Yu Jun and the JV Partner will finance Yongzhou Tian Yu by way of shareholder’s loan or increased its capital interest in Yongzhou Tian Yu in proportion to their respective capital contribution in the registered capital of Yongzhou Tian Yu.

Restrictions on change of scope of business and entering into transactions

Yongzhou Tian Yu may not, without the unanimous consent of Yu Jun and the JV Partner, (i) change the nature or scope of its business, and if there are changes then they must still be consistent with the scope or purpose specified in the auction or tender document; or (ii) enter into any transactions which are not on an arm’s length basis.

LETTER FROM THE BOARD

REASONS FOR THE ACQUISITION AND THE FORMATION OF YONGZHOU TIAN YU

The Company is an investment holding company and the principal activities of its subsidiaries are property development, property investment, hotel operation and provision of related ancillary services in the PRC.

It has been the Company’s business strategy to seek for acquisition opportunities or investments with a view to enhancing the business prospect and profit potential of the Group. As stated in the annual report of the Company for the year ended 31 December 2010, the Company would remain a property developer which brings a high standard of performance to its customers. The Company is of the view that the Acquisition represents a unique investment opportunities and is in line with the Company’s business strategy.

Given the location of the Skyfame Yongzhou Project will be constructed in the neighbourhood of the Scenic Spot and Commercial District and the sizeable area of the site, the Directors consider the Skyfame Yongzhou Project will have great investment potential which represents a valuable opportunity for the Group to expand its property development project portfolio and increase its revenue and earnings base in the long run.

The primary purpose of establishing Yongzhou Tian Yu is to participate in the management of the development of the Yongzhou Government Project and to develop the Skyfame Yongzhou Project. Taking into consideration that Mr. KUANG is a reputable property developer in Guangxi Province and has good social connection with the officials in the relevant authorities in Yongzhou City and is experienced in remodeling of scenic spots and property development in the PRC as described in the sub-paragraph headed “Parties” under the paragraph headed “Information on Yongzhou Tian Yu” above, the Company considers Mr. KUANG possesses the relevant experience in projects similar to the Yongzhou Government Project and expertise in property development and it is in the interest of the Group to cooperate by way of formation of Yongzhou Tian Yu with the JV Partner in the development of the Skyfame Yongzhou Project and the management of the development of the Yongzhou Government Project.

Based on the above, the Board confirmed that the Acquisition is conducted in the Company’s ordinary and usual course of business, and that the Acquisition and the establishment of Yongzhou Tian Yu, including its financing and profit contribution arrangements, are on normal commercial terms, fair and reasonable and in the interests of the Company and its Shareholders as a whole.

FINANCIAL EFFECTS OF THE ACQUISITION ON THE COMPANY

Based on the Framework Agreement, the aggregate consideration of the 1,000 mu Yongzhou Land would be in the range of not less than RMB800 million (equivalent to approximately HK$960 million) and effectively, not more than RMB1,040 million (equivalent to approximately HK$1,248 million). As Yongzhou Tian Yu is held as to 70% indirectly by the Company, the Company’s share of the aggregate land cost for the 1,000 mu Yongzhou Land would be a minimum of RMB560 million (equivalent to approximately HK$672 million) and a maximum of RMB728 million (equivalent to approximately HK$874 million). The Group intends to finance such land costs by way of internal resources, bank borrowings and pre-sale proceeds to be received from the sales of properties developed in the Skyfame Yongzhou Project.

LETTER FROM THE BOARD

The Company expects that the Acquisition will not have material effect on the profits and losses of the Group. To the extent that the land cost is to be financed by bank borrowings, interest expenses will be incurred by the Group and charged to income statement of the Group before the land use rights relating to the Yongzhou Land are obtained. The Directors expect the interest expense should not have material impact on the profits and losses of the Company. After the said land use rights are obtained, any interest expenses incurred on the Yongzhou Land will be capitalised during the course of development.

Upon completion of the acquisition of the Yongzhou Land, subject to confirmation by the Company’s auditor, the Group’s total assets is expected to be increased by the land premium of the Yongzhou Land, and decreased by the amount of the cash and bank balances applied to settle the land cost of the portion of Yongzhou Land should the Company finance the Acquisition by way of internal resources. If the Company is to finance the Acquisition partially by bank borrowings, there will be a corresponding increase in the liabilities of the Group to the extent of the bank borrowings used by the Group to finance its share of the land cost of the portion of Yongzhou Land.

LISTING RULES IMPLICATIONS

ADDITIONAL INFORMATION

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

By Order of the Board Skyfame Realty (Holdings) Limited YU Pan Chairman

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY

Set out below are the audited consolidated financial information of the Group for each of the three years ended 31 December 2008, 31 December 2009 and 31 December 2010 (as extracted from the 2010 annual reports of the Company) and unaudited consolidated financial information of the Group for the six months ended 30 June 2010 and 30 June 2011 (as extracted from the interim report of the Company for the six months ended 30 June 2011). The audited consolidated financial statements of the Group (i) for the year ended 31 December 2008 is disclosed in the 2008 annual report of the Company published on 29 April 2009 (pages 32-107); (ii) for the year ended 31 December 2009 is disclosed in the 2009 annual report of the Company published on 4 May 2010 (pages 32-109); and (iii) for the year ended 31 December 2010 is disclosed in the 2010 annual report of the Company published on 12 April 2011 (pages 28-104); and unaudited consolidated financial statements of the Group (iv) for the period ended 30 June 2010 is disclosed in the 2010 interim report published on 5 August 2010 (pages 10-34); and (v) for the period ended 30 June 2011 is disclosed in the 2011 interim report published on 16 August 2011 (pages 10-31) all of which have been published on the website of the Stock Exchange (www.hkex.com.hk) and the website of the Company (http://www.sfr59.com).

The Company’s independent auditors, BDO Limited, have issued disclaimer of opinion on the Group’s consolidated financial statements for the two years ended 31 December 2008 and 2009. For details of the qualifications, please refer to the 2008 and 2009 annual reports of the Company.

Summary of the consolidated financial information of the Group is as follows:

Revenue
Profit (loss) before income tax
Profit (loss) for the year/period
Attributable to
– Owners of the Company
– Non-controlling interests
Total assets
Total liabilities
Net assets
Non-controlling interests
Total equity attributable to owners
of the Company

For the six months ended
For the year ended 31 December
30 June
2008
2009
2010
2010
2011
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(audited
(audited
(audited)
(unaudited (unaudited)
and
and
and
restated)
restated)
restated)
564,650
304,780
422,812
8,645
18,914
648,560
(1,555,871)
1,052,704
908,258
(19,612)
695,733
(1,555,407)
998,734
908,258
(19,702)
696,513
(1,548,450)
987,522
910,369
(13,800)
(780)
(6,957)
11,212
(2,111)
(5,902)
At 31 December
As at 30 June
2008
2009
2010
2011
HK$’000
HK$’000
HK$’000
HK$’000
(audited
(audited)
(audited)
(unaudited)
and
restated)
5,273,453
4,352,780
4,762,289
4,973,487
(2,716,945)
(3,504,321)
(2,806,612)
(2,944,196)
2,556,508
848,459
1,955,677
2,029,291
(24,734)
(17,808)
(37,176)
(67,972)
2,531,774
830,651
1,918,501
1,961,319

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

FOR THE YEAR ENDED 31 DECEMBER 2008

Business Review and Outlook

Business Review

During the financial year ended 31 December 2008, the Group recorded a total turnover of HK$565 million, representing a 4.5 times of that in the year before. The increase in turnover was contributed by revenue from hotel operation of HK$255 million which represents operating result for the first full calendar year since the grand opening of the Westin Hotel Guangzhou in October 2007, and the sales of approximately 9,000 square meters of the floor area of office spaces in Skyfame Tower which was completed in late 2007, giving rise to sale revenue of HK$257 million.

The operation turned to be profitable in the year as a result of the growing turnover and the operating costs which became stabilised. The segment results after deduction of corporate operating expenses was a profit of HK$29 million after depreciation and amortisation of lease premium of HK$85 million charged mainly for the hotel operation.

Finance costs, consisting of effective interests amortised on convertible notes (the “Notes”), interests paid to banks and financial institutions on borrowings, so far not capitalised as development costs, amount to HK$190 million. Due to adjustment in property prices in the year led by the PRC central government’s austerity measures, the Group records revaluation losses of HK$119 million, with associated income tax credit of HK$30 million, and write down of goodwill of HK$67 million. However, the decrease in fair value of financial derivative embedded in the Notes as induced by the sharp declines in the prices of the Company’s shares during the year against which the valuation was benchmarked leads to an exceptional gain of HK$977 million for the year. The outstanding face value of the Notes is US$192 million (equivalent to approximately HK$1,500 million) whilst the carrying value of the Notes, in aggregate of the liability and financial derivative components, is HK$399 million as shown on the consolidated balance sheet. All these factors combine to a profit attributable to shareholders of HK$697 million for the year.

Since the completion of various acquisitions in 2007, the Group has completely reformed to a property developer in the mainland China. The Group’s revenue now comprises primarily revenue from hotel operation and rental income from leasing of investment properties and sale of developed properties. The operations in these segments are as follows:

Hotel Operation

The Group gained encouraging operating results from the operation of its signature property, the Westin Guangzhou. Being the best performer in the hotel industry in Guangzhou City in both the room rates and occupancy in 2008 due to its prominent location, it is expected that the property continues to contribute stable and promising profits to the Group.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Investment and sale of completed properties

Completed in late 2007, Skyfame Tower, an office tower annexed to the hotel tower where the Westin Guangzhou situates, adds unsold above-the-ground area of approximately 32,000 square meters for offices and 9,000 square meters for commercial podium to the Group’s property portfolio available for sale or leasing. The office tower was approximately 78% tenanted with mostly multinational corporations with tenancies at an average monthly rental of RMB164 per square meters and with common lease period of 3 years. The Group also received stable rental income from the leasing of approximately 20,000 square meters commercial podium at Tianyu Garden Phase 2, which is located adjacent to Skyfame Tower. The property was 63% occupied at 17 April 2009, tenanted with renowned corporations and the US consulate with lease periods ranging from 1 to 10 years.

Properties Held for/under Development

Guiyang Project

The Group acquired the land interest in January 2008, through a subsidiary of which the Group holds a 55% stake, in a public tender which is being developed into a residential development in the edge of the centre district of Guiyang, the provincial capital of Guizhou Province. The development, consisting of high-end residential apartments of a total GFA of approximately 480,000 square meters and full range of one-stop comprehensive community facilities, offers beautiful hill view and natural beauty near the municipal forest park and reservoir. The first phase of the development for GFA of approximately 90,000 square meters has been put onto the market in the second quarter of 2009. Pre-marketing activities for pre-sale recently launched receive positive market feedbacks.

Zhoutouzui Project

The management has obtained during the year the approval from the Planning Authority in Guangzhou on the revised parameters of the development based on the new delineation of site boundary of the land. During the year 2008 the Group was going through administrative procedures in connection with the transfer of the land use right certificate to the project company whilst at the same time in preparatory procedures for other permits leading to the commencement of construction that is planned to take place in 2011.

Tianhe Project

The project is a mixed development of office and serviced apartments with a GFA of approximately 84,000 square meters situated in the business hub at Tianhe, Guangzhou. The Group is committed to repay the lenders from a term loan of HK$220 million (“Sky Honest Loan”) and accrued interests which had fallend due in January 2009. The Directors anticipate to apply a portion of the sale proceed of disposal of Westin Project to repay the Sky Honest Loan in full. Negotiations with the Noteholders and Sky Honest Loan lenders about the settlement are in progress and subject to the outcome of the negotiations, the directors would retain Tianhe Project for development or dispose it in the event that the net proceed from the disposal of Westin Project cannot be used to repay, partially or entirely, the Sky Honest Loan.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Going Concern

The Group is exposed to two non-compliances with the terms in a trust deed entered into between the convertible note holders (the “Noteholders”) and the Company caused by a subsidiary not yet been able to obtain the land use right certificate and other permits in respect of the Zhoutouzui Project by 31 March 2009, and a loan agreement entered into between the lenders and a subsidiary of the Company for the Sky Honest Loan which was already due to be repaid on 29 January 2009.

The Company has reached an agreement with the Noteholders for an extension to meet with the timeline to 31 May 2009 in obtaining the title deeds and permits in relation to the Zhoutouzui project, failing which, the Noteholders are entitled to an early redemption of the Notes of US$75 million in principal and accrued interests (the “Automatic Redemption”).

The lenders of the Sky Honest Loan and the Noteholders have given consents to certain standstill arrangements to refrain from taking legal actions against the Company and its subsidiaries before the expiry of the standstill periods subject to respectively the completion of the disposal of the Tianhe Project and the reaching of some restructured terms of the Notes which, the Directors expect, will lead to relaxation of certain conditions on the timelines of redemption terms and conditions of the Notes on or before 31 May 2009. On 17 April 2009, the Company is in negotiations with the Noteholders about the restructuring of the Notes and no concrete terms have been reached.

Outlook

In the midst of the financial crisis spread out in 2008, the global economy has not been bottomed out and shows no sign of turning up. In the gloomy winter when recovery is yet to be expected, the property market in the PRC is in downturn, both in prices and trade volumes. The management anticipated some further setbacks in the mainland market in a short run, whilst in the longer run, the strong basic demand for domestic housing will still be a key driver to push for a quick recovery in the dawn. Whilst maintaining a positive attitude towards the prospect, the Group remains conservative in its development plans and will closely manage its existing projects to keep a progressive pace in the challenging and dynamic environment.

Liquidity and Financial Resources

Capital Structure and Liquidity

To provide for financing in the acquisitions of development projects in 2007, the Company raised funds by an issue of US$200 million Notes to several financial institutions. The Notes, bearing a coupon interest rate of 4% per annum and maturing at an annualised yield of 15% in 2013, are convertible for ordinary shares of the Company at a reset conversion price of HK$1 per share. The principal value of the Notes outstanding at 31 December 2008 was approximately HK$1,500 million (US$192 million). As a reflection of the drop in share prices of the Company in the year, the financial derivative embedded in the Notes was revalued at HK$93 million and the Notes liabilities were amortised at carrying cost of HK$306 million at 31 December 2008. In addition to the Notes, the Group is indebted to two financial institutions for HK$220 million of the Sky Honest Loan for financing the acquisition of a 51% interest in the Tianhe Project in 2007.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

As at 31 December 2008, the Group’s total liabilities, consisting mainly of the Notes, mortgage loans from commercial banks, the Sky Honest Loan, liabilities associated with assets classified as held for sale, advance from a non-controlling shareholder of a subsidiary, deferred tax liabilities and development costs payable, amounted to HK$2,714 million. The decrease as compared with the previous year was due to the decline in fair value of the Notes. Notwithstanding this and other than an additional mortgage loan of RMB100 million from a commercial bank in the PRC, there has not been material change in borrowing since last year.

Led by the financial crisis, there had been unexpected drastic changes in the fundamentals in the global capital markets which freeze the liquidity in the markets. On requests for early redemption of the Notes raised by certain Noteholders and considering the possible discount on redemption enjoyed by early redemption, the management has been in discussions with the Noteholders about debt restructuring plans to facilitate early redemption of the Notes, partially or in full, that may involve realisation of certain assets of the Group. On 17 April 2009, except for the negotiation about the sale of the Tianhe Project, no other concrete plans of asset realisation have come up nor has there been any redemption of the Notes. Had there been an agreement reached amongst the Noteholders for, assuming, full redemption at the outstanding principal value of the Notes on 31 December 2008, the financial derivatives embedded in the Notes together with its liability component will be stated as the principal value of HK$1,500 million (US$192 million) and thus the Group’s total liabilities will be accordingly restated at HK$3,814 million.

The gearing ratios, based on the net debt (represented by bank and other borrowings, the Sky Honest Loan, the Notes and financial derivative liabilities, loan from non-controlling shareholder and long-term other payable net of cash and bank balances) to the equity attributable to equity holders plus net debt at 31 December 2008 was 44%. The reduced gearing ratio is explained by the devaluation in the fair value of the financial derivative liabilities. Assuming a restatement of the note payable to the principal value in the light of an outcome of the discussion with the Noteholders on a debt rescheduling plan, the gearing ratio at 31 December 2008 will become 55%. To improve the potential surged gearing, the Group has been working on feasible plans to realise assets to reduce the gearing level.

The acquisition of the Guiyang Project has utilised some US$30 million cash in the account escrowed by the Noteholders, cash balance of the Group decreased but due to the reclassification from non-current assets and non-current liabilities attributable to Tianhe Project, which is determined to be disposed of, to current assets and liabilities, as a result, the current ratio was slightly improved to 3.1. Current assets and current liabilities of the Group were HK$2,043 million and HK$661 million respectively on 31 December 2008.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Borrowings and pledge of assets

Cash in accounts totaling HK$68 million was restricted for the payment of interests to Noteholders and lenders of the Sky Honest Loan. Apart from the escrowed money, shares of certain intermediate holding companies of the property developing subsidiaries of the Group were charged in favor of a security trustee acting for the Noteholders and the lenders of the Sky Honest Loan. To secure for banking facilities in the total of RMB1,011 million granted to some operating subsidiaries for working capital by two commercial banks in the mainland China, mortgages of property interests in The Westin Guangzhou, Skyfame Tower and Tianyu Garden Phase 2 were made in favour of the banks. On 31 December 2008, other than the Notes, bank and other borrowings in an aggregate amount of HK$1,323 million were outstanding of which HK$280 million, including the Sky Honest Loan, are due within one year.

Foreign Currency Management

Due to the appreciation of RMB against HK and US dollars during the year, a foreign exchange reserve surplus of HK$187 million arises from the consolidation of the assets and liabilities of the PRC subsidiaries. The surplus adds to the equity attributable to shareholders of the Company. Since both of the US and HK dollars are pegged whilst RMB moves within narrow extents with the US and HK dollars, the Group foresees no significant foreign currency exposure in the near future. Further, the Group foresees rises in the exchange rates of RMB against HK dollars in the foreseeable future, such fluctuations will not have unfavourable effect on the financial position of the Group. For these reasons, the Group does not hedge against its foreign currency risk. However, any permanent or significant changes in the exchange rates in RMB for HK and US dollars and in the peg system of US dollars with HK dollars may have possible impact on the Group’s results and financial position.

Contingent Liabilities

The Group had no material contingent liabilities as at 31 December 2008.

Material Acquisition during the year

In January 2008, the Group formed a subsidiary with a third party, 貴州協輝房地產開發有限公司(Guizhou Xiehui Real Estate Development Company Limited*) in which 55% equity interest was held by the Group, which acquired a piece of land located in Guiyang City, Guizhou Province, the PRC through an open tender on 11 January 2008. The total cost of the land is approximately HK$629 million (RMB555 million). The contribution into the subsidiary was partly financed by cash of US$30 million released from an escrow account and a short term advance from a third party for the remaining which was paid down to HK$32 million at 31 December 2008.

For identification purposes only

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Employees

To keep pace with the growth of the Group after the acquisitions of projects, the Group recruits suitable staff in capable caliber. As at 31 December 2008, other than the executive Directors, the Group employed 700 staff of which 569 were for hotel operation and 131 for property development and central management. During the year, total staff costs were HK$78 million, which is a 50% rise from last year as a result of the increased headcount and new remuneration policies in the PRC subsidiaries revamping the pay scales that commensurate with skills and talents of staff. Of the total staff costs, HK$6 million was capitalised as property development costs. Employees are remunerated according to qualifications and experience, job nature and performance. Remuneration packages are aligned with job markets in the business territories.

FOR THE YEAR ENDED 31 DECEMBER 2009

Business Review and Outlook

Business Review

During the financial year ended 31 December 2009, the Group recorded a total turnover of approximately HK$305 million, a 46% decrease from the previous year. The decrease in turnover is mainly due to the adoption of different accounting treatment in respect of the sales of Skyfame Tower during the year which is recorded as gain on disposal of a subsidiary, whilst this was presented as revenue from property development in the preceding year. Further, the hotel operation reflected a moderate adverse impact affected by the economic crisis spread in the last quarter of 2008. Hotel revenue, as the income earner, contributes to revenue of approximately HK$244 million, a downward adjustment of 5%. Rental income from the leasing of investment properties, however, brought an improved revenue of approximately HK$61 million to the Group as a result of the increased occupancy in Skyfame Tower.

Due to the slow down in turnover coupled with substantial legal and professional expenses of HK$8 million resulted from the Noteholders and creditors taking receivership actions, the operating results present a decreased EBITDA (earnings before interest, tax, depreciation and amortisation) of approximately HK$69 million before depreciation and amortisation of prepaid lease payment of approximately HK$64 million charged mainly for the hotel operation.

Finance costs, consisting of effective interests amortised on the Notes, interests paid to banks and financial institutions on borrowings, so far are not capitalised as development costs, amounted to approximately HK$1,883 million for the year ended 31 December 2009. The substantial increase is explained by the acceleration of liabilities payable to the Noteholders to its entire outstanding principal value and interest as referred in the following sentences, and the compounded effective interest expense of approximately HK$194 million accrued to the Notes. On 2 November 2009, the Company received an acceleration notice from the trustee of the Notes demanding the repayment in full of the entire outstanding amount of US$192 million (approximately HK$1,500 million) of the Notes and interest accrued in full due to breach of the term of the Notes. Accordingly, the outstanding principal value of US$192 million plus accrued interest in an aggregate of approximately HK$2,057 million is reflected on 31 December 2009 on the financial position of the Group as a current liability whilst the financial derivative component embedded in the Notes extinguishes. The acceleration has taken effect in profit or loss account for the year as finance cost of approximately HK$1,542 million.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

To cope with the financial pressure, the Group disposed of its entire interest in the Westin Project to a third party at a gross consideration of RMB2,200 million (equivalent to approximately HK$2,499 million). The transaction was completed on 28 December 2009 and as a result, net proceeds of approximately HK$1,063 million, after netting off liabilities assumed by the purchaser from the gross consideration, was/will be received in full in 2009 and 2010 and be applied to redeem the Notes. The disposal transaction records an exceptional gain on disposal of approximately HK$284 million, net of recognised exchange reserve and transaction expenses.

The economic recovery in the mainland China has led to rebound in prices and volumes of the property market, the value of the asset portfolio of the Group is on a rising trend. Consequently, there is no adverse adjustment in the valuation of investment properties or other assets held by the Group but an impairment loss of approximately HK$71 million was booked to write down the carrying value of Guiyang Project due to the substantial interests capitalised as development costs of the project.

After taking into account of the aforesaid exceptional items, the current year results present a loss for the year attributable to shareholders of approximately HK$1,548 million.

Hotel Operation

Due to the lower passage of business travelers to Guangzhou since the break out of the global financial crisis, the performance of the Westin hotel was affected in both revenue and bottom line. The revenue derived by the operation of approximately HK$244 million was down by 5%, and EBITDA was approximately HK$82 million, down by 8% as compared with last year. The transaction to dispose of The Westin Guangzhou and the Skyfame Tower was completed in December 2009 pursuant to which most of the net sale proceeds, amounting to approximately HK$1,070 million has been received as at 30 April 2010 and the balance will be collected in 2011.

Investment Properties and Properties for Sale

The improved occupancy rate of the Skyfame Tower, consisting of 32,000 square meters for grade-A offices and 9,000 square meters. for commercial podium, has brought stable revenue and earning to the Group prior to being disposed of in late December 2009.

The Group also receives stable rental income from the leasing of about 20,000 square meters commercial podium at Tianyu Garden Phase 2 located next to Skyfame Tower. The property was 63% occupied at 30 April 2010, tenanted with renowned corporations and the US consulate.

To avoid the Tianhe Project from being treated as idle land and repossessed by the Government of the Guangzhou Municipal Government, in February 2010, 廣州寰城實業發展有限公司 (Guangzhou Huan Cheng Real Estate Development Company Limited) (“Huan Cheng”), a PRC-incorporated subsidiary engaged in the development of the Tianhe Project, entered into an agreement with 廣西廣利貿易有限責任公司 (Guangxi Guang Li Trading Limited) (“Guang Li”), a state-owned enterprise and an independent third party, pursuant to which Guang Li would negotiate with and seek concession for an extension of the construction timeline from the relevant government authorities and participate in the investment for the development of the project, and in exchange, Guang Li would share 50% of the future after-tax profit or loss with Huan Cheng during the development of the Tianhe Project.

* For identification purposes only

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Properties Development

Guiyang Project

The development, which the Group holds a 55% stake, consists of high-end residential apartments with a total GFA of approximately 480,000 square meters and community facilities. The first phase of the development with GFA of about 91,000 square meters was launched for presale in the second quarter of 2009 and was delivered for occupation in 2010. As at 30 April 2010, approximately 82,000 square meters GFA were pre-sold with satisfactory results.

Zhoutouzui Project

The management is going through the procedures in connection with the approval of the design plan. The transfer of the land use right certificate to the project company from the original user was completed in November 2010. All the licensing procedures are expected to be completed in late 2011.

Tianhe Project

The building of the new fire station is undergoing and relocation of the fire station will be followed afterwards. Achievements have been made in the negotiations with the governmental authorities for the concession in extending the construction period by Guang Li, the Directors believe that Huan Cheng will continue to own the land use right and hence its carrying investment value of the land could be crystalised. The relocation of the fire station was completed in February 2011 and construction of Tianhe Project commenced in 2010.

Going Concern

Due to the Group’s non-compliance with the trust deed in relation to the 4% secured convertible notes due 2013 with principal amount of US$200 million on the grounds that a subsidiary of the Company cannot obtain the land use right certificate and other permits in respect of the Zhoutouzui Project by the extended deadline of 31 May 2009, it constitutes a breach of the term of the Notes as a subsidiary’s failure to repay the Sky Honest Loan of HK$220 million which was due on 29 January 2009, the trustee of the Notes and the lenders of the Sky Honest Loan appointed receivers to replace the existing directors in the boards of certain subsidiaries of the Group which shares are pledged in favour of the Noteholders and the lenders. Since the receiverships, the Company have been discussing with the creditors about a feasible debt restructuring proposal.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

In light of the forthcoming settlement with the Noteholders and the Sky Honest Loan lenders as detailed in the “Outlook” section below and a debt restructuring plan moving forward, the financial statements are prepared on a going concern basis. The Directors considered that the business of the Group is a going concern after having considered the assumptions and qualifications that may have material effects on the foreseeable period covering the next twelve months since 31 December 2009. Key assumptions and qualifications are: (i) the fulfillment of the obligations of the Company and other obligors; (ii) the successful implementation of the terms as laid down in the settlement agreement and the restructuring agreement to be entered into with the Noteholders and Sky Honest Loan lenders respectively; (iii) the general economic performance in the PRC and the specific industrial parameters affecting the real estate sectors continue to be stable; and (iv) additional and new banking facilities will be available to the Group from financial institutions to finance the construction work in progress of the Tianhe, Zhoutouzui and Guiyang Projects in accordance with respective construction timetables.

Outlook

On 14 April 2010, the Company and the Noteholders signed a second term sheet (the “Second Term Sheet”) to restructure the Notes stipulating a full settlement of the entire outstanding principal amount of US$192 million of the Notes together with accrued interests on conditions of the Company’s repaying US$100 million by 16 June 2010, with two months extension due on 17 August 2010, and the remaining US$53.6 million due on 17 August 2010 but with a three-month extension up to 30 November 2010 subject to some penalty charges if payment of the two payments are paid in the extended months. The Directors intend to use the proceeds from the disposal of the Westin Project to repay the Noteholders and it is seeking additional financial resources from potential financiers or investors to meet with the remaining balance. To comply with the terms in the settlement agreement, the Company will compromise with the petitioner in relation to the winding up petition for the dismissal of the winding up proceeding and discharge of Messrs. Stephen Liu Yiu Keung and David Yen Ching Wai (the joint and several provisional liquidators of the Company (the “Provisional Liquidators”) pending court approval in the next court hearing. Upon the dismissal of the Provisional Liquidators, the receivers appointed by the trustee will be discharged. A formal binding settlement agreement with similar terms as on the Second Term Sheet is expected to be executed amongst the parties soon after 30 April 2010.

The Company is negotiating with the lenders of the Sky Honest Loan about the terms of settlement of the outstanding principal amount of HK$220 million and accrued interest owed to the lenders. Discussions are at a very mature stage however, the Directors expect an agreement to facilitate a full settlement of the claims will be entered into imminently. Upon the execution of this restructuring agreement and the fulfillment of certain terms and conditions, the receiver appointed by the lenders will be discharged.

The Directors envisage the aforesaid settlement agreement and restructuring agreement as important steps to restore the control of the Group and business standing and will serve the best interest of its stakeholders.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The global economy has been at its early stage of recovery, given that the super-loose monetary policy and the unprecedented stimulus measures have boosted investments in the mainland’s real estate industry to a record high in 2009. Though the Directors predict the stimulus will slow down this year and the tightening lending and other austerity measures may stabilise prices, given the implementation of debt restructuring of the Notes and Sky Honest Loan that enable a substantial reduction in debt obligations, the Group will revive from the financial struggle with its creditors and has staged itself for a more financially stable and better business prospect.

Liquidity and Financial Resources

Capital Structure and Liquidity

The Notes have an outstanding face value of US$192 million as at 30 April 2010 (equivalent to approximately HK$1,500 million) and interest accrued for yield calculated at 15% per annum less coupon interest paid amounting to approximately HK$557 million at 31 December 2009. Upon receipt of an acceleration notice from the trustee calling for immediate repayment of the entire outstanding principal and interests accrued up to 31 December 2009, the Notes are treated as a current liability of approximately HK$2,057 million whilst the financial derivative component embedded to the Notes as presented in the corresponding previous period at approximately HK$93 million extinguishes.

Excluding the Notes and Sky Honest Loan, the Group is indebted to commercial banks for mortgage loans, advance from a non-controlling shareholder of a subsidiary, deferred tax liabilities, advanced payments received from pre-sale and trade payable, totaling approximately HK$1,227 million. The decrease was caused by the drop in bank borrowing as a result of the bank loan associated with the Westin Project being acquired by the purchaser upon the disposal.

The gearing ratios, based on the net debt (represented by bank and other borrowings, the Sky Honest Loan, the Notes, loan from non-controlling shareholder and other payable net of cash and bank balances) to the equity attributable to equity holders plus net debt as at 31 December 2009 are 76%. The rise in gearing ratio is explained by the restatement of the Notes payable to its full principal value. Assuming the debt restructuring as a result of successful implementation of the settlement agreement and restructuring agreement has been effected on 31 December 2009, the gearing level will be substantially reduced.

The current assets increased to approximately HK$1,725 million as a result of the proceeds received from the purchaser of the Westin Project which, according to the debt restructuring, will be used to redeem the Notes and to fund the working capital of the Group. The current ratio was 0.6. Current assets and current liabilities of the Group were approximately HK$1,725 million and approximately HK$2,873 million respectively at 31 December 2009. Comparing with the previous year-end date, the current liabilities were increased by approximately HK$2,212 million caused by the recognition of the full outstanding principal value and the accrued interests of the Notes.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Borrowings and Pledge of Assets

Other than the deposit of approximately HK$22 million restricted for construction costs of work-in-progress, cash in accounts totaling approximately HK$17 million as at 31 December 2009 was restricted for the redemption of the Notes and payment of interests to the Noteholders and lenders of the Sky Honest Loan. Apart from the escrowed money, shares of certain intermediate holding companies of the property developing subsidiaries of the Group were charged in favor of a security trustee acting for the Noteholders and the lenders of the Sky Honest Loan. To secure for banking facilities with loans credit lines of RMB221 million granted to operating subsidiaries for working capital and construction costs by two commercial banks in the mainland China, mortgages of property interests in Tianyu Garden Phase 2 and works in progress and land of the Guiyang Project were charged in favour of the banks. At 31 December 2009, other than the convertible notes, secured bank and other borrowings (including the Sky Honest Loan) in an aggregate amount of approximately HK$517 million were outstanding, of which approximately HK$278 million, including Sky Honest Loan, are due within one year.

Foreign Currency Management

Due to the slight appreciation of RMB against HK and US dollars during the year, a foreign exchange gain of approximately HK$5 million arises on consolidation of the assets and liabilities of the PRC subsidiaries. The foreign exchange reserve of approximately HK$223 million, decreased due to the recognition upon the disposal of the Westin Project, as at 31 December 2009 adds to the equity attributable to shareholders of the Company. Since the US and HK dollars are pegged whilst RMB moves with a small band, the Group foresees no significant foreign currency exposure in the foreseeable future but possible appreciation in the exchange rates of RMB against HK dollars, such fluctuations will not have significant effect on the financial position of the Group. For these reasons, the Group does not hedge against its foreign currency risk. However, any permanent or significant changes in the exchange rates in RMB for HK and US dollars and the peg system of US dollars with HK dollars may have possible impact on the Group’s results and financial position.

Contingent Liabilities

The Group had no material contingent liabilities as at 31 December 2009.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Employees

To keep pace with the growth of the Group after the acquisitions of projects, the Group recruits suitable staff in capable caliber. As at 31 December 2009, other than the Executive Directors and as a result of the disposal of the Westin Project, the Group’s staff force reduced to 138 which is maintained for the property development and central management business. During the year 2009, total staff costs, excluding that for the hotel operation, were approximately HK$30 million, which is comparable to the preceding year. Of the total staff costs, approximately HK$8 million was capitalised as property development costs. Employees are remunerated according to qualifications and experience, job nature and performance. Remuneration packages are aligned with job markets in the business territories.

FOR THE YEAR ENDED 31 DECEMBER 2010

Business Review and Outlook

Business review

During the financial year ended 31 December 2010, the Group recorded a total turnover of HK$423 million, representing a 39% growth when compared with last year thanks to the completion of the property units in Guiyang Project that were sold and recorded as property sales of HK$405 million in the second half of the year. This stream of income compensates the loss of revenue generated from the hotel operation and the declined leasing income caused by the disposal of the Group’s main revenue generating asset, a hotel tower at The Westin Guangzhou and office building at the Skyfame Tower, in December 2009. Nonetheless, the Group maintains a stable leasing income from the Tianyu Garden Phase II which generated leasing income of HK$18 million for the year.

The revenue from the properties sold in Guiyang during the year represents 96% of the total 856 residential units completed in the first phase of the development. As an effort to boost sales so as to promote market awareness and generate cash flow at the difficult times of the Group during the year, sales were contracted at attractive and affordable prices averaged at approximately HK$4,600 (RMB4,000) per square meter, leading to a gross profit of HK$54 million but a relatively low profit margin of 13%.

Due to the concentration on property development in the current year instead of being a hotel owner as in previous years, there have been changes in the mode of operation where one can notice from the Group’s operating expenses. The hotel operation did not contribute much to the bottom line in the profit and loss account in 2009 due to the substantial depreciation charge and overheads incurred. For the current year, operating expenses decreased by 58% to HK$75 million. Notwithstanding the foregoing and the fact that operating expenses for the year were exceptionally burdened by legal and professional fees of HK$14 million incurred in the debt restructuring and application for resumption of trading of shares, the business operation of the Group achieved an operating profit of HK$10 million.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Nonetheless, the Group recorded a profit attributable to the owners of HK$999 million which is a combined effect of the following factors: (1) the successfully implemented debt restructuring program pursuant to which the Notes in the principal amount of US$192 million and Sky Honest Loan of HK$220 million in principal value have been compromised at a reduced amount equivalent to 80% of the outstanding principal with all accrued interests waived. The restructuring program has resulted in a gain represented by the reduction in liabilities embedded by the Notes and the Sky Honest Loan of HK$1,078 million; (2) a substantial drop in finance costs to HK$165 million (as compared with HK$1,883 million in the corresponding last year) which was impacted mainly by the recognition of the Notes as liability and all accrued interests booked in full as a result of the accelerated repayment demand lodged by the Noteholders in late 2009 that brought a charge of HK$1,542 million in last year, a reduction in interests incurred which were previously charged on the disposed Westin Project and the reduced interest charged on the Sky Honest Loan as a result of the debt restructuring, and (3) the revaluation surplus of HK$134 million arising on the revaluation of the Group’s commercial podium at the Tianyu Garden Phase II.

To raise fund to repay the Noteholders and Sky Honest Loan lenders, besides the disposal of the Westin Project in 2009, in July 2010, the Company entered into an agreement with a third party to dispose of the entire equity interest in the subsidiary Huan Cheng, which has been engaged in the development of the Tianhe Project, at a gross consideration of approximately HK$1,270 million (RMB1,090 million) plus adjustments for other assets of the project company disposed of, and finance costs and development costs to be borne by the Company. The transaction was completed in September 2010 and the first instalment payment of the consideration received from the purchaser was largely used for the full settlement of the Notes and Sky Honest Loan in October 2010. Instalment payments totalling approximately HK$911 million (RMB770 million), inclusive of the partial early instalment payment of approximately HK$201 million (RMB170 million), have been received from the purchaser of Tianhe Project up to 15 March 2011. Despite the completion of the disposal transaction, the criteria for recognition of revenue set out in HKAS 18 “Revenue” have not been met due to the fact that the due performance of the Company’s obligations under the agreement as to the timing of the completion of the construction and the overruns in construction costs is uncertain at the moment. The associated costs cannot be ascertained reliably and hence the revenue arising from the disposal is not recognised in the current year and deferred to a time when substantial part of the associated costs can be ascertained reliably. Given the normal timeframe for the construction of properties as planned, the Directors expect that the revenue from and gain on the disposal will be fully recognised by the end of 2013 when the properties are expected to be completed.

The Group is currently holding an investment property and two pieces of land for real estate development, with details as follows:

Investment property

A 20,000 square meters commercial podium at Tianyu Garden Phase II in Tianhe District, Guangzhou. The property was 70% occupied at 15 March 2011, tenanted with renowned corporations and the US consulate.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Properties development

Guiyang Project

The development, which the Group holds a 55% stake, consists of high-end residential apartments of a total GFA of approximately 449,000 square meters for residential apartments and GFA of approximately 142,000 square meters for commercial complex, community facilities and carparking spaces. The first phase of the development, comprising three blocks of residential apartments, club house, carparks and common facilities with GFA of 133,000 square meters were completed of which 96% of the units were delivered to buyers since July 2010 and sale proceeds were recorded as revenue for the year. The remaining areas will be constructed in two phases, consisting of nine blocks of residential and commercial buildings, common utilities and carparking spaces with GFA of 458,000 square meters. The second phase of four blocks of residential buildings with GFA of 161,000 square meters is under construction and starting from September 2010, all of the second phase development were launched for pre-sale with satisfactory performance. GFA of approximately 72,000 square meters have been contracted at sale prices ranging from approximately HK$4,600 (RMB3,900) to HK$6,100 (RMB5,200) per square meters so far. The management expects the second phase development will be delivered to the buyers in late 2011 and 2012.

The third phase of the development, consisting of five residential buildings with common facilities and carparking spaces of GFA of 245,000 square meters will be completed in late 2013.

Zhoutouzui Project

The project is held by a sino-foreign cooperative joint venture enterprise which is jointly controlled by the Company and two other independent third parties, namely 廣州越秀企業（集團）公司 (Guangzhou Yuexiu Enterprise Group Limited) and 廣州港集團有限公司 (Guangzhou Port Group Co. Limited), the former being the original land use right holder with no vested interest in the project and the latter an original user of the land who is entitled to share 28% in GFA of the completed properties. Under the joint venture agreement, the Group has to finance all construction costs of the entire development.

Properties that are planned to be developed on the site of 43,609 square meters in size are a total of 7 towers consisting of residential apartments, offices, service apartments, car parking facilities and a commercial complex in GFA of approximately 146,000 square meters, 28,000 square meters, 13,000 square meters, 98,000 square meters, and 5,000 square meters respectively. The site, opposite to the renounced White Swan Hotel, offers a full waterfront view of the Pearl River. The project company has obtained the land use right certificate in November 2010 and plans to commence construction in the second quarter of 2011, pending the issue of the construction permit which is subject to the completion of governmental review of the detailed construction plans.

For identification purposes only

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Going concern

The completion of the debt restructuring program mentioned in the aforesaid paragraphs brought the Group with a stable financial position. The liabilities of the Group have been substantially reduced as a result of the full discharge of the Notes and Sky Honest Loan. In addition, the cash inflows from the pre-sale of properties under construction in Guiyang Project enable the project financially self-sufficient. The instalments received and to be received from the purchaser of Tianhe Project also adds onto the working capital of the Group that facilitates the commencement of construction of the Zhoutouzui Project without financial constraints and reliance on bank borrowing. Based on the marked improvements in the liquidity and gearing positions, the financial statements of the Group for the year are prepared on a going concern basis.

Outlook

Subsequent to the settlement of the claims of the Noteholders and Sky Honest Loan lenders, the Group’s operations have resumed normal and its assets are secured free from turbulence. The Group’s free cash at 31 December 2010 will further increase when the second instalment of approximately HK$414 million (RMB350 million) is received in full from the purchaser of Tianhe Project in the second quarter of 2011 of which approximately HK$201 million (RMB170 million) has been received up to 15 March 2011. With all these resources in hand, the Group is in a strong position to sustain a stable growth through its existing development projects as well as by seeking other acquisition opportunities.

Though we see a steady recovery in the global economy since the aftermath of the financial tsunami broken out in 2008, the economies in the emerging markets, the PRC in particular, are heated with rising prices of commodities and properties. The central government of the mainland China has continued in imposing austerity measures to cool down the uprising prices and such curtailing strategies are expected to continue in the coming years. We foresee that more stringent control measures are on the pipeline that will put forward severe threats to players in the field. The Group is fortunate enough to have survived from the year-long financial crisis and the debt restructuring has paved a strong foundation for the Group to sustain a strong presence in the industry.

Liquidity and Financial Resources

Capital structure and liquidity

As at 31 December 2010, the Group’s indebtedness comprised a mortgage loan and construction loan totaling approximately HK$244 million (RMB206 million), a money market loan of approximately HK$526 million (US$67.7 million) maturing in one year and secured by a short-term bank deposit of approximately HK$568 million (RMB480 million), other unsecured borrowings due to two third parties totaling HK$122 million and advances from a non-controlling shareholder of a subsidiary totaling HK$221 million. The total indebtedness, exclusive of the money market loan that is backed by a bank deposit, amounting to HK$587 million, represents a decrease of HK$2,222 million when compared with the corresponding balance in last year. The decrease is explained by the extinguishment of the Notes and Sky Honest Loan upon the full implementation of the debt restructuring program in October 2010.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The gearing ratio of the Group as at 31 December 2010 was 21%, based on the net debt of HK$516 million (represented by indebtedness comprising bank and other borrowings (including money market loan), loan from non-controlling shareholder of a subsidiary, net of cash and bank balances and bank deposit backing up the money market loan) to the equity attributable to owners of HK$1,919 million plus net debt of HK$516 million as at 31 December 2010. The ratio dropped substantially as a reflection of the reduction in liabilities level and the enlarged equity as at the year-end date.

For the purpose of our assessment of the gearing position of the Group, indebtedness excludes deferred income of HK$1,107 million that is the estimated net consideration for the disposal of Tianhe Project for which the gain and revenue will be recognised at the time when the associated costs relating to the performance of the obligations of the Company can be ascertained.

The current assets totaling HK$1,828 million as at 31 December 2010 show an increase of HK$104 million. The current assets comprise the current portion of the consideration receivable for the disposal of Tianhe Project and the balance instalment for the disposal of Westin Project totaling HK$654 million, bank deposits of HK$630 million (represented by a restricted deposit of HK$568 million used to back up for guarantee extended for the money market loan facility and presale proceeds received from buyers of HK$62 million that will be used for payment of construction costs incurred in the Guiyang Project) and completed unsold properties and properties under development in the Guiyang Project costing HK$133 million and HK$362 million respectively.

Together with the increased current asset level, the liquidity position of the Group is improved in the sense that the net current liabilities of HK$1,149 million in last year turned into a position of net current assets of HK$585 million as at 31 December 2010. The improvement is due to the extinguishment of liabilities as a result of the debt restructuring implemented in the year that caused a substantial reduction in short-term liabilities to HK$1,242 million as at 31 December 2010 from HK$2,873 million as at 31 December 2009. The improvement in liquidity relieves the Group’s financial pressure in meeting with its short-term creditors.

Borrowings and pledge of assets

To secure for banking facilities granted to operating subsidiaries for working capital and construction costs by a commercial bank in the mainland China, mortgages of property interests in Tianyu Garden Phase II and works in progress and the land of the Guiyang Project were mortgaged in favour of the lending bank. In addition, bank deposits, being cash received from property buyers, of approximately HK$62 million as at 31 December 2010 were restricted for construction costs of properties under construction. To secure a back-to-back guarantee given by a local bank in the mainland China to a Hong Kong-based bank for a money market loan facility of US$67.7 million, a bank deposit of approximately HK$568 million was placed in a bank account in the mainland China. Since the completion of the debt restructuring program, the shares of certain intermediate holding companies of the property developing subsidiaries of the Group previously charged in respect of the Notes and Sky Honest Loan were released.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Foreign Currency Management

Due to the steady appreciation of RMB against HK and US dollars during the year, a foreign exchange gain arises on consolidation of the assets and liabilities of the PRC subsidiaries, resulting an exchange reserve of HK$315 million as at 31 December 2010 that is added to the equity of the Group. Since the US and HK dollars are pegged whilst RMB moves in gradual and upward trend against the US and HK dollars, the Group foresees no significant possible foreign currency adverse exposure in the foreseeable future but appreciations in the exchange rates of RMB against HK and US dollars. Such fluctuations will not have unfavourable effect on the financial position of the Group. For these reasons, the Group does not hedge against its foreign currency risk. However, any permanent or significant changes in the exchange rates in RMB for HK and US dollars and in the peg system of US dollars with HK dollars may have possible impact on the Group’s results and financial position.

Contingent Liabilities

The Group provides guarantees to the extent of HK$218 million as at 31 December 2010 in respect of mortgage facilities granted by certain banks relating to the mortgage loans arranged for certain purchasers of the Group’s properties. Pursuant to the terms of the guarantees, upon default in mortgage payments by these purchasers, the Group is responsible for repaying the outstanding mortgage principals together with accrued interest and penalty owed by the defaulted purchasers to the banks and the Group is entitled to take over the legal title and possession of the related properties. Such guarantees shall terminate upon issuance of the relevant property ownership certificates.

Employees

To keep pace with the growth of the Group after the acquisitions of projects, the Group recruits suitable staff in capable caliber. As at 31 December 2010, other than the Executive Directors, the Group employed 142 staff for property development and central management. Employees are remunerated according to qualifications and experience, job nature and performance. Remuneration packages are aligned with job markets in the business territories.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

FOR THE SIX MONTHS ENDED 30 JUNE 2011

Business Review and Outlook

Business Review

Results

During the six months ended 30 June 2011, the Group recorded a turnover of HK$19 million, mainly comprising rental income from the leasing of Tianyu Garden Phase II for HK$9 million and sales of properties in phase one of Guiyang Project for HK$9 million which were completed in the second half of the year 2010.

The current period was a time when the profit and loss account reflected normal operating expenses incurred by a developer except for a reversal of an over provision of land appreciation tax provided for the disposed Westin Project that was recorded as other income of HK$25 million for the period. Operating expenses, mainly staff costs, totaling HK$41 million, representing an 19% increase from the past period, had a rising trend due to the increasing activities in the property development operations.

Finance costs for the period was HK$25 million that included interest paid to banks and financial institutions on borrowings for the Group’s working capital needs and development of Guiyang Project. Interests capitalised for the period was HK$4 million.

Loss for the period amounted to HK$20 million of which HK$14 million was attributable to shareholders of the Company. The tremendous difference in the bottom line for the two periods was explained by the gain of HK$1,078 million (as restated) for the last corresponding period arising from the debts waived by convertible noteholders upon the implementation of a debt restructuring program in 2010.

Investment Properties

Tianyu Garden Phase 2

The property is a 20,000 square meters commercial podium in Tianhe District, Guangzhou and is now 80% occupied, tenanted with renounced corporations and the US consulate.

Properties Development

Guiyang Project

The development, which the Group holds a 55% stake, consists of high-end residential apartments of GFA of approximately 449,000 square meters for residential apartments and GFA of approximately 142,000 square meters for commercial complex, community facilities and carparking spaces. The first phase with GFA of 133,000 square meters was completed in 2010 of which 94% and 2% residential apartments were sold in the second half of the year 2010 and in the current period respectively.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The second phase comprises four blocks of residential building with GFA of approximately 162,000 square meters. Since the pre-sale of the second phase launched in September 2010, the Group has contracted sales amounting to approximately RMB405 million (approximately HK$488 million) and up to 56% in GFA available for pre-sale. The average selling price of the second phase was achieved at approximately RMB4,500 per square meter. The management expects the second phase will be delivered to buyers and sales recorded as revenue in 2012.

The construction of the third phase of the development, consisting of five residential buildings with common facilities and car parking spaces of GFA of 245,000 sq.m., is expected to commence in late 2011.

Zhoutouzui Project

Properties that are planned to be developed on the site of 86,557 square meters are a total of seven towers consisting of residential apartments, offices, service apartments, car parking facilities and a commercial complex in GFA of totaling approximately 316,000 square meters The site, opposite to the renounced White Swan Hotel, offers a wide waterfront view of the Pearl River. Pending the issue of the necessary governmental approvals on the design plan and detailed construction plan which are now under final vetting and are expected to be obtained soon, the construction works will commence in the fourth quarter of 2011. The management expects to put the project for pre-sale in 2013.

Yongzhou Project

On 30 June 2011, the Company entered into a framework agreement to cooperate with the City Government of Yongzhou, Hunan Province about an engagement with the Company to manage the project in remodeling of some old scenic spots and construction of infrastructure in a scenic zone and a commercial district in the central city of Yongzhou. Under the framework agreement, the Company is also committed to the construction of a five-star hotel and properties for resettlement of the land occupants. In return, the Company will be given the right to develop a real estate project on some parcels of 1,000 mu land located in Lingling District in Yongzhou, subject to the undergoing of the bidding process for the transferring of the land use rights in public auctions. The project will be undertaken by a joint venture which is held as to 70% by the Group and as to 30% by a joint venture partner who is a local developer with relevant experience in remodeling of scenic zone.

* For identification purposes only

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Company plans to turn the Yongzhou Project into commercial and residential developments in four phases with a planned total gross floor area of approximately 1.7 million square meters. The development will offer low rise apartments and low density villas for residence and commercial complex for retailing and commercial uses. The total construction cost of the entire development is estimated at approximately RMB2,500 million which will be financed by capital contribution from the joint venture partners, bank borrowings and sale proceeds to be received from properties developed and put for pre-sale in phases.

The development of the first phase of the Yongzhou Project will be commenced in the third quarter of 2011 whilst it is planned that the last phase will be completed in late 2015. Other than the hotel for operation which construction will be completed in 2016 and an estimated area of 80,000 square meters reserved for the construction of properties for resettlement, the remaining gross floor area that will be developed for sales is approximately 1.5 million square meters and the first phase of the development will be launched for pre-sale commencing in the year 2012.

Subsequent Events

On 1 July 2011, Yaubond Limited (“Yaubond”), a wholly subsidiary of the Company, entered into a supplemental agreement with, among others, 海航酒店控股集團有限公司 (HNA Hotel Holdings Group Co. Limited*) (“HNA Hotel”) pursuant to which if HNA Hotel fails to settle the outstanding second instalment of the consideration for the disposal of Tianhe Project of approximately RMB130 million within 90 days from the date of the agreement in cash, will transfer the property interests of the 32nd and 33rd floors of HNA Tower owned by HNA Hotel, which are being used by the Group as the head office in Guangzhou, to a subsidiary of the Company as full and final settlement of the outstanding consideration payable by HNA Hotel of approximately RMB130 million (approximately HK$157 million).

On 2 August 2011, Fine Luck Group Limited, a wholly owned subsidiary of the Company, entered into a non-legally binding memorandum of understanding (“MOU”) with 海航商業控股有限公司 (HNA Commercial Holdings Limited*) (“HNA Commercial”). Pursuant to the MOU, HNA Commercial proposes to acquire 50% equity interest of Fortunate Start Investments Limited which indirectly holds the entire equity interest of Zhoutouzui Project at a consideration of RMB1,300 million (approximately HK$1,565 million). The parties target to enter into a formal agreement on or before 31 October 2011.

Outlook

In the midst of the continuing austerity measures taken by the mainland government that continue to pressurize property developers on the mainland in getting finance and the gloomy capital markets which are adversely affected the uncertainties over the European and the American sovereign debts crisis, the Company is, however, comparatively less affected as the Group has been in a low gearing position since the debt restructuring in 2010 and it now has low financial pressure in meeting with its commitments.

* For identification purposes only

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

In light of the banking facilities that are made and will be made available to the Group, the Group has sufficient working capital in the coming months under review to meet with its daily operation in its projects under development, including the Zhoutouzui Project and the first phase of the development of the Yongzhou Project. In addition, the management foresees that the projects currently under development will generate sufficient proceeds from pre-sales to finance their respective ongoing stages of development. Notwithstanding the foregoing, financial resources are still the pre-requisite requirement in the Group’s plan to increase its land reserves for future expansion. The management is currently in close discussions with HNA Commercial on the contemplated joint venture partnership in Zhoutouzui Project aiming to raise additional financial resources and realisation of land portfolio on hand to their market values. We are confident that, when such transaction crystallizes, the Group’s strategy to further expand can be worked out.

The directors are confident that the property market, whilst currently dampened by the austerity measures imposing restrictions on buyers and bank financing available to developers, in the long run is supported by strong demand driven by the hasty urbanisation and expectation for improved living standard of the mainland population. Such demand is particularly seen in markets in the second and third tiers. Our move to those cities in Guiyang and Yongzhou is a step taken in the right time. The directors believe that the trading prospect of the property market is still positive in the longer run and the Group is prepared to reap a satisfactory return for its shareholders in the years to come.

Liquidity and Financial Resources

Capital structure and liquidity

As at 30 June 2011, the Group’s indebtedness, exclusive of the money market loans of HK$526 million that are secured by bank deposits, totaled HK$484 million and was comprised of (i) a mortgage loan and construction loan due to commercial banks totaling HK$227 million (ii) other unsecured borrowing due to a third party of HK$36 million and (iii) advances of HK$221 million from a non-controlling shareholder of a subsidiary for the financing of the operation of the subsidiary.

The money market loans of approximately HK$526 million (US$67.7 million) referred to above was denominated in US dollar and matures in one year and secured by bank deposits denominated in RMB. The arrangement demonstrates the Company’s strategy in treasury management to take advantage of the foreseeable appreciation of RMB against US dollar.

The gearing ratio of the Group as at 30 June 2011 was 6.3%, based on the net debt of HK$132 million (represented by indebtedness comprising bank and other borrowings, advances from a non-controlling shareholder of a subsidiary, net of cash and bank balances and bank deposits) to the equity attributable to owners of HK$1,961 million plus the net debt of HK$132 million as at 30 June 2011. The decrease in the ratio from 21% to 6.3% was mainly due to increase in cash balance contributed by the receipt of the instalment payments of the consideration from disposal of Tianhe Project and the pre-sale proceeds of Guiyang Project during the period. For the purpose of our assessment of the gearing position of the Group, indebtedness excludes deferred income of HK$1,109 million that is the estimated net consideration for the disposal of Tianhe Project for

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

which the gain and revenue will be recognised at the time when the associated costs relating to the performance of the obligations of the Company can be ascertained. The estimated timing of completion is in late 2013.

The current assets totaling HK$1,878 million show a slight increase of HK$50 million. They mainly comprise (i) the current portion of the consideration receivable for the disposal of Tianhe Project of HK$150 million, (ii) bank deposits and cash balance totaling HK$1,061 million (inclusive of restricted deposits of HK$585 million to secure for guarantee extended for the money market loan facility). The current ratio is 1.39 to 1 which is relatively constant with the ratio of 1.47 to 1 as at 31 December 2010.

Borrowings and pledge of assets

To secure for banking facilities granted to operating subsidiaries for the financing of working capital and construction costs by a commercial bank in the mainland China, property interests in Tianyu Garden Phase II and interests in the works in progress and land of the Guiyang Project with an aggregate carrying value of HK$1,007 million were mortgaged in favour of the lending bank. In addition, bank deposits, being cash received from property buyers, of approximately HK$183 million as at 30 June 2011 were restricted for construction costs of properties under construction. To secure the back-to-back guarantees given by two mainland banks to a Hong Kong-based bank for the money market loan facility of US$67.7 million, bank deposits of approximately HK$585 million were placed in two bank accounts in mainland China.

Risk Management

Foreign Currency Risk

The Group is principally engaged in property development activities which are all conducted in the PRC and denominated in RMB, the functional currency of the Company’s principal subsidiaries. At the same time, certain financing activities of the Group are denominated in other currencies, such as the money market loan in US dollars. Due to the steady appreciation of RMB against HK and US dollars during the period, a foreign exchange gain arises on consolidation of the assets and liabilities of the PRC subsidiaries, resulting in an exchange reserve of HK$372 million as at 30 June 2011 that is added to the equity of the Group. Since the US and HK dollars are pegged with each other whilst RMB moves in gradual and upward trend against the US and HK dollars, the Group foresees no significant possible adverse exposure in foreign currency in the foreseeable future but appreciations in the exchange rates of RMB against HK and US dollars. Such fluctuations will not have unfavourable effect on the financial position of the Group. For these reasons, the Group does not hedge against its foreign currency risk. However, any permanent or significant changes in the exchange rates in RMB for HK and US dollars and in the peg system of US dollars with HK dollars may have possible impact on the Group’s results and financial position.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Interest Rate Risk

The Group’s exposure to interest rate risk primarily relates to the Group’s restricted and pledged deposits, cash at bank included in cash and cash equivalents and bank and other borrowings with interests charged at floating rates. During the period ended 30 June 2011, given management’s expectation of the increasing trend of interest rates, the Group by entering into an interest rate swap contract with a bank, fixed the base interest rate of the bank borrowings of US$67.7 million (approximately HK$526 million) at 0.75% per annum in order to hedge against the Group’s future exposure to interest rate risk.

Contingent Liabilities

A subsidiary of the Group provides guarantees to the extent of approximately HK$383 million as at 30 June 2011 in respect of mortgage facilities granted by certain banks relating to the mortgage loans arranged for purchasers of the Group’s properties. Pursuant to the terms of the guarantees, upon default in mortgage payments by these purchasers, the subsidiary is responsible for repaying the outstanding mortgage principals together with accrued interest and penalty owed by the defaulted purchasers to the banks and the subsidiary is entitled to take over the legal title and possession of the related properties. Such guarantees shall terminate upon issuance of the relevant property ownership certificates.

Employees

To keep pace with the growth of the Group, the Group recruits more suitable staff in capable caliber to carry out the increasing tasks resulting from the expansion. As at 30 June 2011, other than the Executive Directors, the Group employed 166 staff for property development and central management. Employees are remunerated according to qualifications and experience, job nature and performance. Remuneration packages are aligned with job markets in the business territories.

3. WORKING CAPITAL STATEMENT

In the absence of unforeseen circumstances and taking into account the financial resources available to the Enlarged Group, including the existing credit facilities and internal resources, after due and careful inquiry with the management team, the Directors are in the opinion that the Enlarged Group has sufficient working capital for its present requirement to operate its existing businesses, that is for at least twelve months from the date of this circular.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. INDEBTEDNESS STATEMENT

At the close of business on 30 June 2011, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, the Enlarged Group had an aggregate outstanding face value of borrowings of approximately HK$1,020,468,000, comprising secured bank borrowings of approximately HK$752,397,000, unsecured other borrowing of approximately HK$36,118,000 and unsecured loan from a non-controlling shareholder of a subsidiary of approximately HK$231,953,000.

As at 30 June 2011, to provide for security to banks for bank borrowings, the Enlarged Group has pledged bank deposits of approximately HK$584,668,000 and mortgages of ownership titles of: (i) properties held for/under development; (ii) properties held for sale and (iii) investment properties with an aggregate carrying amount of approximately HK$1,006,789,000.

A subsidiary of the Enlarged Group provides guarantees to the extent of approximately HK$383,164,000 million as at 30 June 2011 in respect of mortgage facilities granted by certain banks relating to the mortgage loans arranged for purchasers of the Enlarged Group’s properties. Pursuant to the terms of the guarantees, upon default in mortgage payments by these purchasers, the subsidiary is responsible for repaying the outstanding mortgage principals together with accrued interest and penalty owed by the defaulted purchasers to the banks and the subsidiary is entitled to take over the legal title and possession of the related properties. Such guarantees shall terminate upon issuance of the relevant property ownership certificates.

In addition, as at 30 June 2011, the Enlarged Group had capital commitments contracted but not provided for in respect of the property development costs of approximately HK$238,958,000, and capital commitments authorised but not contracted for in respect of property development costs of approximately HK$2,741,199,000 and acquisition of land use rights of approximately HK$1,252,107,000.

Save as aforesaid or as otherwise disclosed herein and apart from intra-group liabilities and normal trade and other payables in the ordinary course of business, at the close of business on 30 June 2011, the Enlarged Group did not have any loan capital outstanding, issued or agreed to be issued, bank overdrafts, loans, or other similar indebtedness, liabilities under acceptances or acceptances credits, debentures, mortgages, charges, finance lease or hire purchase commitments, guarantees or other material contingent liabilities.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. FINANCIAL AND TRADING PROSPECT

In the midst of the continuing austerity measures taken by the mainland government and the capital markets which are adversely affected by the unresolved European sovereign debts problem that continue to pressurize property developers on the mainland in getting finance, the Company is comparatively less affected as the Group has been in a low gearing position since the debt restructuring in 2010 when it has had low financial pressure in meeting with its commitments.

In light of the banking facilities that are made and will be made available to the Enlarged Group, the Board considers that it would have sufficient working capital for its present requirements for the next twelve months from the date of this circular for the Enlarged Group’s daily operation including the first phase of the development of the Skyfame Yongzhou Project. In addition, the Company intends to finance the ongoing stages of development of the Skyfame Yongzhou Project by the proceeds generated from the pre-sale of the properties developed in the Skyfame Yongzhou Project. As part of its development plan, the Enlarged Group has been seeking new acquisition opportunities to increase its land reserves for future expansion would suitable opportunities arise and on the basis that the Enlarged Group would be able to secure the required financial resources. In this connection, the Company is currently in discussion with one of its existing business partner with a view to raising additional financial resources which may involve an establishment of a joint venture partnership in a development project with equity stake currently wholly owned by the Enlarged Group. The Board wishes to state that the Company is in preliminary negotiations regarding the aforementioned plan, no formal agreement has been entered into as at the Latest Practicable Date. Further announcement will be made by the Company in accordance with the Listing Rules should such plan materialise and constitute a notifiable transaction for the Company under Chapter 14 of the Listing Rules.

The Directors are confident that the property market, whilst currently dampened by the austerity measures imposed to restrict the demand of buyers and bank financing available to developers, in the long run is supported by strong demand driven by the hasty urbanization and expectation for improved living standard of the mainland population. Such demand is particularly seen in markets in the second and third tiers. Our move to the cities in Guiyang and Yongzhou is a step taken in the right time. The Directors believe that the trading prospect of the property market is still positive in the longer run and the Enlarged Group is prepared to ripe a satisfactory return to its shareholders in the years to come.

6. 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 2010, the date to which the latest audited consolidated financial statements of the Group were made up.

VALUATION REPORT

APPENDIX II

The following is the text of a letter and valuation certificate prepared for the purpose of incorporation in this circular received from DTZ Debenham, an independent property valuer, in connection with its opinion of market value of the Property situated in the PRC as at 30 June 2011.

==> picture [71 x 66] intentionally omitted <==

16th Floor Jardine House 1 Connaught Place Central Hong Kong 25 August 2011

The Directors Skyfame Realty (Holdings) Limited 2502B Tower 1, Admiralty Centre 18 Harcourt Road Hong Kong

Dear Sirs,

RE: “YONGZHOU LAND”-CERTAIN PLOTS OF LAND WITH SITE AREA OF AN AGGREGATE OF 1,000 MU LOCATED IN LINGLING DISTRICT, YONGZHOU CITY, HUNAN PROVINCE, THE PRC

INSTRUCTIONS, PURPOSE & DATE OF VALUATION

In accordance with your instruction for us to carry out valuation of the market value of the property (“Property”) which is contracted to be held for future development by Skyfame Realty (Holdings) Limited (referred to as the “Company”) or its subsidiaries (hereinafter together referred to as the “Group”) in the People’s Republic of China (the “PRC”), we confirm that we have carried out inspection, made relevant enquiries and obtained such further information as we considered necessary for the purpose of providing the Company with our opinion of the market value of the Property in existing state as at 30 June 2011 (the “date of valuation”).

DEFINITION OF MARKET VALUE

Our valuation of the Property represents its market value which in accordance with The HKIS Valuation Standards on Properties (First Edition 2005) published by the Hong Kong Institute of Surveyors is defined as “the estimated amount for which a property 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.”

VALUATION REPORT

APPENDIX II

VALUATION BASIS AND ASSUMPTION

Our valuation of the Property exclude an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangement, special considerations or concessions granted by anyone associated with the sale, or any element of special value.

In the course of our valuation of the Property situated in the PRC, we have assumed that transferable land use rights in respect of the Property for its specific term at nominal annual land use fee have been granted and that any premium payable has already been fully paid. We have relied on the information and advice given by the Company and the PRC legal opinion of the legal adviser, 廣東國鼎律師事務所(Guangdong Guardian Law Firm), regarding the title to the Property and the interest in the Property. In valuing the Property, we have assumed that the owner has enforceable title to the Property and have free and uninterrupted rights to use, occupy or assign the Property for the whole of the unexpired terms as granted.

No allowance has been made in our valuation for any charges, pledges or amounts owing on the Property nor any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is valued on the basis that the Property is free from encumbrances, restrictions and outgoings of any onerous nature which could affect its value.

We have valued the whole interest in the Property.

METHOD OF VALUATION

In valuing the Property, which is contracted to be acquired for future development by the Group in the PRC, we have valued on the basis that the Property will be developed and completed in accordance with the Company’s latest development proposals provided to us. We have assumed that all consents, approvals and licences from relevant government authorities for the development proposals will be obtained without onerous conditions or delays. We have also assumed that the design and construction of the development will be in compliance with the local planning regulations and have been approved by the relevant authorities. In arriving at our opinion of value, we have adopted the Direct Comparison Approach by making reference to comparable sales evidence as available in the relevant market and have also taken into account the estimated construction costs that will be expended to construct the resettlement housing for in-situ resettlement of existing residents.

In valuing the Property, we have complied with the requirements set out in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and The HKIS Valuation Standards on Properties (First Edition 2005) published by the Hong Kong Institutes of Surveyors.

VALUATION REPORT

APPENDIX II

SOURCE OF INFORMATION

We have relied to a very considerable extent on the information given by the Group and the opinion of the PRC legal adviser of the Company as to the PRC laws. We have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, identification of Property, particulars of occupancy, development scheme, construction cost, site and floor areas and all other relevant matters.

Dimension, measurements and areas included in this valuation report are based on the information provided to us and are therefore only approximation. We have no reason to doubt the truth and accuracy of the information provided to us by the Group which is material to the valuation. We were also advised that no material facts have been omitted from the information supplied.

We would point out that the copies of documents provided to us are mainly compiled in Chinese characters and the transliteration into English represents our understanding of the contents. We would therefore advise the Company to make reference to the original Chinese edition of the documents and consult your legal adviser regarding the legality and interpretation of these documents.

TITLE INVESTIGATION

We have been provided by the Group with copies or extracts of documents. However, we have not searched the original documents to verify ownership or to ascertain any amendments. All documents have been used for reference only and all dimensions, measurements and areas are approximate.

SITE INSPECTION

We have inspected the exterior, and wherever possible, the interior of the Property. However, no tests were carried out to any of the services. Moreover, we have not carried out any soil investigations to determine the suitability of the soil conditions and the services etc. for any future development. Our valuation is prepared on the assumption that these aspects are satisfactory and that no extraordinary expenses or delays will be incurred during the construction period.

We have not been able to carry out detailed on-site measurements to verify the site and floor areas of the Property and we have assumed that the areas shown on the copies of documents handed to us are correct.

VALUATION REPORT

APPENDIX II

CURRENCY

Unless otherwise stated, all sums stated in our valuation are in Renminbi, the official currency of the PRC.

We attach herewith our valuation certificate.

Yours faithfully, for and on behalf of

DTZ Debenham Tie Leung Limited Philip C Y Tsang Registered Professional Surveyor (GP) Registered China Real Estate Appraiser MSc, MRICS, MHKIS

Director

Note: Mr. Philip C Y Tsang is Registered Professional Surveyor who has over 18 years’ experience in the valuation of properties in the PRC.

Contributing PRC valuers of GZ DTZ PRC Offices with professional qualifications include, but not limited to, China Real Estate Appraiser and China Land Valuer.

VALUATION REPORT

APPENDIX II

VALUATION CERTIFICATE

Property contracted to be acquired for future development by the Group in the PRC

Property

Description and tenure

Particulars of occupancy

Market value in existing state as at 30 June 2011

“Yongzhou Land”certain plots of land with site area of an aggregate of 1,000 mu located in Lingling District, Yongzhou City, Hunan Province, the PRC

“Yongzhou Government Project” is the development of the Scenic Zone and Commercial District involving the remodelling of some scenic tourist spots in the Scenic Zone, and the construction of certain public amenities and infrastructure facilities in the Scenic Zone and the Commercial District located in Lingling District of Yongzhou City, Hunan Province, the PRC (the “Yongzhou Government Project”).

As at the date of valuation, portion of the Property is currently vacant and there are some buildings erected on the remaining portion of the Property and pending for demolish. The local government is responsible for the clearance and resettlement of the occupants.

RMB1,150,000,000

(We have assumed that Certificate for the Use of State-owned Land will be issued in due course and the land premium has been fully settled.)

The Framework Agreement (Note 1 below), dated 30 June 2011 entered into between the Company and the City Government of Yongzhou, sets out the structure and principles of the acquisition and the development of the Yongzhou Government Project.

The Company will be responsible for the management of the development of the Yongzhou Government Project; which should be completed within a period of six years, commencing from the date of the transfer of the first parcel of land of 105 mu of the Yongzhou Land for the residential and commercial development.

The City Government of Yongzhou has agreed to grant the Company 50-year operation rights of the Scenic Zone which the Company for conservative reason, consider is at nil consideration in substance through the City Government of Yongzhou agrees to subsidy the operating cost of the Scenic Zone by all the lease payments received from the Company. In the course of our valuation, we have not valued the said 50-year operation rights of the Scenic Zone.

VALUATION REPORT

APPENDIX II

Description and tenure

Property

Cont’d The City Government of Yongzhou will also provide the Company through public biddings the land use rights over the Yongzhou Land, being certain plots of land with a total area of up to 1,000 mu (approximately 666,670 sq.m.); which is the Property that we valued.

Market value in existing state as at 30 June 2011

Particulars of occupancy

– –

According to the information provided by the Company, the Property will be developed into 4 phases of commercial and residential composite development with a planned total gross floor area of approximately 1,700,000 sq.m. (of which the architectural plans are yet to be approved) scheduled to be completed in phases by 2015 the latest.

The planned uses are as below:

Use Commercial Residential 5-Star Hotel In-situ Resettlement Other Community Facilities	Approximate gross floor area sq.m. 252,099 1,276,551 40,020 80,000 24,666
	1,673,336

The Project Company, 永州天譽旅游發展有限公司 (Yongzhou Tian Yu Tourism Development Co Limited), a joint venture enterprise which equity interest is held as to 70% by the Company and as to 30% by the JV Partner, will represent the Company in carrying out its obligations under the Framework Agreement.

VALUATION REPORT

APPENDIX II

Property

Description and tenure

Market value in existing state as at Particulars of occupancy 30 June 2011

Cont’d

The land use rights of the Property is yet to be obtained through public bidding. We have assumed that the land use rights will be granted for respective terms of 40 years for commercial use and 70 years for residential use.

– –

Notes:

(1) According to Framework Agreement entered into between 永州市零陵區人民政府 (the City Government of Yongzhou) (Party A) and 天譽置業（控股）有限公司 (Skyfame Realty (Holdings) Limited) (Party B) dated 30 June 2011 and the Announcement issued by Party B dated 8 July 2011, the structure and principles of the acquisition and the development of the Skyfame Yongzhou Project are as below:
(i) Party B has agreed to acquire the entire 1,000 mu Yongzhou Land subject to the results of the public biddings to be conducted by Party A in stages. Of the 1,000 mu Yongzhou Land, 395 mu of which will be located in the Dongshan Scenic Zone and 405 mu of which will be located in the Commercial District, with the remaining 200 mu, being land compensated by Party A to Party B for Party B’s undertaking to develop a 5-star hotel and construct properties for resettlement, located in the eastern part of Yangming Road in Lingling District;

		Approximate
	Location of the certain plot of	site area
Districts	Yongzhou Land	mu
Scenic Zone
(East to Nanjin Nan Road,	West of Dongshan Wenhua Square	20
Baiwanzhuang Third Road,	Newspaper Printshop, Pharmaceutical	85
Baiwanzhuang First Road and	Factory and Nurses’ School
Xujiajing Road;	Chuniuping Peninsula	80
west to Zhongshan Road;	North of Zhangfeiling	150
south to Yangjiao Shan Road;	Intersection of Dongshan Road and	60
and north to Zhishan Road;	Yangjiaoshan Road
with total planning site area
of 1.9 sq km)
Commercial District
(East of Nanjin Zhong Road and	Commercial District	405
Nanjin Nan Road, north from
Huanggushan Dong Road,
south to Yanjiang Da Road,
and the surrounding area and
east of Worker’s Culture Palace
and Gymnasium)

APPENDIX II

VALUATION REPORT

			Approximate	Approximate
	Location of the certain plot of			site area
Districts	Yongzhou Land			mu
Other area
(East of Yangming Road)	Development site compensated			100
	the development of a 5-star hotel
	Development site compensated			100
	for the construction of properties
	for resettlement
		Total		1,000

			Approximate
				site area
Land uses	Plot ratio			mu
Dongshan Scenic Zone	≦2			395
Commercial/residential land
Commercial District	≦3.0			405
5-Star Hotel/multi development	≦3.5			100
In-situ Resettlement	≦3.5			100
		Total		1,000

(ii) Party B is obliged to bid for the 1,000 mu land being auctioned at a minimum price of RMB1 million per mu and the land premium shall be payable by Party B upon winning of the relevant bids. In respect of the remaining 200 mu Yongzhou Land, being land compensated by Party A to Party B for Party B’s undertaking to develop a 5-star hotel and construct properties for resettlement, it has been agreed that Party B or its subsidiary may apply the money from the Co-managed Account in settling the land premium upon winning of the relevant bids. Given it is a term that all payment of the land premium received by Party A from the public biddings will be deposited back into the Comanaged Account for the purpose of the development costs of the Yongzhou Government Project, the acquisition cost of the entire 1,000 mu Yongzhou Land to Party B would be its total payments upon the winning of the bids of the 800 mu land located in the Scenic Zone and Commercial District;
(iii) Party B is obliged to participate in the auctions and submit bid price of not less than RMB1 million per mu and up to RMB1.3 million per mu for any part of the 800 mu Yongzhou Land located in the Scenic Zone and the Commercial District in case there are other bidders. Accordingly, the minimum land cost for the entire 1,000 mu Yongzhou Land is RMB800 million (being 800 mu times RMB1 million per mu). In the event that there are other bidders participating in the public biddings to be conducted by Party A in offering any part of the Yongzhou Land, and the successful bid price offered by Party B exceeds RMB1.3 million per mu, such surplus amount will be reimbursed to Party B to finance the development of the Yongzhou Land from the Co-managed Account where all the sale proceeds of the Yongzhou Land are deposited. Party B intends to submit a bid price of over RMB1.3 million per mu in case there are other bidders for the plot of land being auctioned. Accordingly, the effective maximum land cost for the entire 1,000 mu Yongzhou Land is RMB1,040 million (being 800 mu times RMB1.3 million);
(iv) In consideration of the Yongzhou Land offered by Party A through public biddings, Party B or its subsidiary will be responsible for the management of the development of the Yongzhou Government Project which would comprise the Scenic Zone and the Commercial District; Party A has agreed to grant Party B a 50-year operating rights of the Scenic Zone which the Company consider is at nil consideration in substance. (In the course of our valuation, we have not valued the said 50-year operating rights of the Scenic Zone);

APPENDIX II

VALUATION REPORT

(v) Party B has committed to Party A that it will invest not less than RMB200 million for the construction of a fivestar hotel on the Yongzhou Land and the exact location of which is yet to be decided. The five-star hotel shall be in operation within three years from the date when Party B obtained the relevant approval to commence construction of the hotel. Besides, Party B has to build certain properties for the resettlement of existing occupants on the Scenic Zone and in the Commercial District for which the estimated construction cost is RMB90 million. Party B will hold the legal rights to operate and legal title of the hotel. The investment costs for the construction of the five-star hotel and resettlement is a commitment of the Company which do not form any part of the costs for the development of the Yongzhou Government Project; and
(vi) Party B has made a refundable earnest money of RMB10 million to Party A for the entering into of the Framework Agreement.
(2) According to Business Licence No. 431100000020935, 永州天譽旅游發展有限公司 (Yongzhou Tian Yu Tourism Development Co Limited) was established as a limited liability company with a registered capital of RMB100,000,000 for a valid operation period from 20 May 2011 to 19 May 2061.
(3) According to the information provided by the Company, the Company has to construct approximately 80,000 sq.m. housing for in-situ resettlement of the existing residents, the estimated construction cost is about RMB90,000,000. In the course of our valuation, we have deducted the said construction cost from our valuation.
(4) We have been provided with a legal opinion issued by the Company’s PRC legal adviser, which contains, inter alia, the following information:
(i) 永州天譽旅游發展有限公司 (Yongzhou Tian Yu Tourism Development Co Limited) has obtained valid business licence to operate in the PRC and is legally established under the PRC law; 永州天譽旅游發展有限公司 (Yongzhou Tian Yu Tourism Development Co Limited) is the joint venture enterprise established in the PRC and held as to 70% equity interest indirectly by the Company and 30% equity interest by 永州澳亞旅遊有限公司 (Yongzhou Aoya Tourism Company Limited), the profit sharing ratio is 70% and 30% respectively;
(ii) The terms in the Framework Agreement are valid, legal and enforceable under the PRC Laws;
(iii) 永州市零陵區人民政府(the City Government of Yongzhou) is a PRC local government immediately under the PRC provincial-level government with legal rights to grant the land use rights of the Property to successful bidders;
(iv) The mechanism of the bidding is legal and in compliance with the laws in the conveyance of land on the mainland; and
(v) 永州天譽旅游發展有限公司 (Yongzhou Tian Yu Tourism Development Co Limited) will obtain the land use rights of the Property through official public auction under the PRC law, and it has the legal rights to develop the Property upon obtaining Certificate for the Use of State-owned Land.
(5) The status of the title and grant of major approvals and licence in accordance with the information provided by the Company and the opinion of the PRC legal adviser:

Certificate for the Use of State-owned Land

Not yet available, pending the completion of the bidding

Contract for Grant of State-owned Land use Rights

Not yet available, pending the completion of the bidding

Framework Agreement

Yes

Business Licence Yes

GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

(i) Interests of the Directors and the chief executive of the Company and its associated Corporation

As at the Latest Practicable Date, the interests of the Directors and chief executive of the Company in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), which 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 were deemed to have under such provisions of the SFO) or which were required pursuant to section 352 of the SFO, to be entered in the register referred to therein or which were required pursuant to the Model Code for Securities Transactions by Directors of Listed Companies as contained in Appendix 10 to the Listing Rules were as follows:

(a) Interests in the Shares or underlying Shares

				Approximate
				percentage of
				the issued
				share capital
Name of		Number of		of the
Director	Capacity	Shares held	Position	Company
				(Note 2)
Mr. YU Pan	Interest of	1,058,112,271	Long	71.61%
	controlled	(Note 1)
	corporation and/or
	beneficial owner

Notes:

These Shares comprised (i) 94,336,000 existing Shares; and (ii) 963,776,271 existing Shares held directly by Grand Cosmos Holdings Limited (“Grand Cosmos”). The entire issued share capital of Grand Cosmos was held by Sharp Bright International Limited (“Sharp Bright”), the entire issued share capital of which was held by Mr. YU Pan.
For the purpose of this section, the shareholding percentage in the Company was calculated on the basis of 1,477,687,450 Shares in issue as of the Latest Practicable Date.

APPENDIX III

GENERAL INFORMATION

(b) Interests in underlying Shares arising from share options

As at the Latest Practicable Date, the following Directors had interests as beneficial owner in options to subscribe for Shares granted under the share option scheme adopted by the Company on 4 August 2005:

			Number of
			underlying
			Shares
			(under share	Approximate
	Exercise		options of the	shareholding
Name of Director	Price	Exercise Period	Company)	percentage
	(HK$)			(Note)
Mr. LAU Yat Tung,	1.31	13 March 2007 to	3,000,000	0.20%
Derrick		31 July 2015
Mr. CHOY Shu Kwan	1.31	13 March 2007 to	600,000	0.04%
		31 July 2015
Mr. CHENG Wing Keung,	1.31	13 March 2007 to	600,000	0.04%
Raymond		31 July 2015
Ms. CHUNG Lai Fong	1.31	13 March 2007 to	600,000	0.04%
		31 July 2015

Note: For the purpose of this section, the shareholding percentage in the Company is calculated on the basis of 1,477,687,450 Shares in issue as at the Latest Practicable Date.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executives of the Company had any beneficial or deemed interests or short positions in the Shares, underlying Shares or debentures of the Company or any of its associated corporation(s) (within the meaning of Part XV of the SFO) which were required (a) 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 were taken or deemed to have under such provisions of the SFO); or (b) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies as contained in Appendix 10 to the Listing Rules.

GENERAL INFORMATION

APPENDIX III

(ii) Substantial Shareholders’ interests

Save as disclosed below, the Directors and the chief executive of the Company were not aware that there was any person who, as at the Latest Practicable Date, had an interest or short position in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which would fall to be disclosed under provisions of Division 2 and 3 of Part XV of the SFO or, who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group:

(a) Interests in Shares or underlying Shares

				Approximate
				percentage of
				the issued share
		Number of		capital of the
Name of Shareholder	Capacity	Shares held	Position	Company
				(Note 2)
Sharp Bright	Interest of controlled	963,776,271	Long	65.22%
	corporation	(Note 1)
Grand Cosmos	Beneficial owner	963,776,271	Long	65.22%
		(Note 1)

Notes:

963,776,271 existing Shares were held directly by Grand Cosmos. As the entire issued share capital of Grand Cosmos was held by Sharp Bright, Sharp Bright was deemed to be interested in the Shares in which Grand Cosmos was interested by virtue of the SFO. As the entire issued share capital of Sharp Bright was held by Mr. YU Pan, Mr. YU Pan was deemed to be interested in the shares in which Sharp Bright was interested by virtue of SFO.
For the purpose of this section, the shareholding percentage in the Company was calculated on the basis of 1,477,687,450 Shares in issue as at the Latest Practicable Date.

GENERAL INFORMATION

APPENDIX III

(b) Interests in the shares in a non-wholly owned subsidiary of the Company

Name of non-controlling shareholder	Name of non-wholly owned	Shareholding
of a subsidiary of the Company	subsidiary of the Company	percentage
貴州協輝房地產開發有限公司	貴州譽浚房地產開發有限公司	45%
(Guizhou Xiehui Real Estate	(Guizhou Yu Jun Real Estate
Development Company Limited*)	Development Company Limited*)
永州澳亞旅遊有限公司	Yongzhou Tian Yu	30%
(Yongzhou Aoya Tourism
Company Limited*)

Save that Mr. YU Pan was the sole director of Sharp Bright and Grand Cosmos and also the sole shareholder of Sharp Bright which in turn was the sole shareholder of Grand Cosmos as at the Latest Practicable Date, none of the Directors held any directorship or employment in a company which has an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

3. COMPETING BUSINESS

Directors’ interests in Competing Businesses

As at the Latest Practicable Date, Mr. YU Pan, the Chairman of the Company, is also a director and substantial shareholder of a company listed on the Shenzhen Stock Exchange, namely 綠景地產股份有限公司 (Lujing Real Estate Co., Limited*) (“LJR”) which is engaged in the residential real estate development business in the mass market in the PRC. Save as the aforesaid, none of the Directors and his/her respective associates had any interests in any business, which competes or is likely to compete, either directly or indirectly, with the Company’s business (as would be required to be disclosed under Rule 8.10 of the Listing Rules if each of them were a controlling shareholder of the Company).

Mr. YU has undertaken to the Company that for so long as he remains as a Director or a controlling shareholder of the Company, all enquiries and actual or potential business opportunities received by him (and/or his associates) in relation to property development project management and property investment in the PRC (the “Business Opportunities”) shall be referred by Mr. YU to the Company on a timely basis and the Business Opportunities must be first offered or made available to the Group.

4. DIRECTORS’ SERVICE CONTRACT

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)).

* For identification purposes only

GENERAL INFORMATION

APPENDIX III

5. DIRECTORS’ INTERESTS IN CONTRACTS AND ASSETS

As at the Latest Practicable Date,

(i) none of the Directors had any direct or indirect interests in any assets which had been, since 31 December 2010, being the date to which the latest published audited consolidated accounts of the Group were made up, acquired or disposed of by, or leased to the Company or any member of the Group (including any company which will become a subsidiary of the Company by reason of an acquisition which has been agreed or proposed since 31 December 2010, being the date to which the latest audited consolidated accounts of the Group were made up), or were proposed to be acquired or disposed of by, or leased to, the Company or any member of the Group (including any company which will become a subsidiary of the Company by reason of an acquisition which has been agreed or proposed since 31 December 2010, being the date to which the latest audited consolidated accounts of the Group were made up); and
(ii) none of the Directors was materially interested in any contract or arrangement entered into by the Company or any member of the Group (including any company which will become a subsidiary of the Company by reason of an acquisition which has been agreed or proposed since 31 December 2010, being the date to which the latest audited consolidated accounts of the Group were made up) which contract or arrangement was subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group (including any company which will become subsidiary of the Company by reason of an acquisition which has been agreed or proposed since 31 December 2010, being the date to which the latest audited consolidated accounts of the Group were made up).

6. LITIGATION

As at the Latest Practicable Date, so far as the Directors were aware, no member of the Enlarged Group was engaged in any litigation or claims of material importance and no litigation or claims of material importance was known to the Directors to be pending or threatened by or against any member of the Enlarged Group.

7. MATERIAL CONTRACTS

The following material contracts, not being contracts entered into in the ordinary course of business of the Enlarged Group, have been entered into by members of the Enlarged Group within two years immediately preceding the Latest Practicable Date and is or may be material:

(a) a termination agreement dated 22 July 2009 entered into between Happy Genius Management Limited, General Fortune Investment Limited, Sky Honest Investments Corp. (“Sky Honest”), Nicco Limited and the Company in relation to the termination of the sale and purchase agreement dated 20 May 2009 entered into between these parties relating to the sale and purchase of 80% of the issued share capital of and shareholders’ loan due by Yaubond, a wholly-owned subsidiary of the Company for a total consideration of the sum of HK$352,098,086 and RMB58,000,000;

APPENDIX III

GENERAL INFORMATION

(b) an agreement dated 14 September 2009 and two supplemental agreements dated 13 and 28 October 2009 entered into between Yue Tian Development Limited (“Yue Tian”) and HNA Hotel in relation to the disposal of the entire equity interest in 廣州市城建天譽房地產開發有限公司 (“CJTY”) (Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited*) for a consideration of RMB1,025,428,776.94 and the assignment of shareholder loan due by CJTY to Yue Tian;
(c) an escrow agreement dated 19 September 2009 entered into between Yu Jun, HNA Hotel and Tianhe Sub-branch of Industrial and Commerce Bank of China in relation to the custody of the earnest money;
(d) a supplemental agreement dated 28 October 2009 entered into between Pioneer Express Holdings Limited (“Pioneer Express”) and Smartford Limited (“Smartford”) to confirm the outstanding consideration of approximately HK$49.6 million due by Smartford to Pioneer Express and its repayment term in respect of the acquisition of 51% shareholding interest in Loyal Way (China) Group Limited;
(e) a corporate guarantee dated 28 October 2009 executed by the Company in favour of Pioneer Express guaranteeing the due performance of Smartford, as the debtor in respect of an indebtedness in outstanding principal of approximately HK$49.6 million plus accrued interests due to Pioneer Express as referred to in paragraph (d);
(f) a share transfer agreement for the purpose of registration of transfer of shares of CJTY in PRC dated 8 December 2009 entered into between Yue Tian and HNA Hotel in relation to the agreement referred to in paragraph (b);
(g) a settlement agreement dated 27 January 2010 entered into between the Company and Pioneer Express pursuant to which Pioneer Express conditionally agreed to withdraw the petition for the winding up of the Company;
(h) an agreement entered into between Huan Cheng and Guang Li in relation to the resolving the idle land issue and future development of the Tianhe land dated 4 February 2010 (the “First Agreement”);
(i) the agreement dated 21 February 2010 entered into between Huan Cheng and Guang Li which supersede the First Agreement as referred to in paragraph (h);
(j) the agreement dated 7 June 2010 entered into between Yue Tian, the Company (acted by the Board and the Provisional Liquidators), The Hongkong and Shanghai Banking Corporation Limited as trustee and security trustee (“Security Trustee”) and for and on behalf of the Noteholders, Mr. YU Pan, the participating Noteholders, the Provisional Liquidators, both of Ernst & Young Transactions Limited acting without personal liability, whom were appointed by a court order dated 6 November 2009 and recently discharged on 9 July 2010) in relation to settlement of the debt obligations of the Company under the Notes;

* For identification purposes only

GENERAL INFORMATION

APPENDIX III

(k) a deed of warranty, undertaking and indemnity dated 7 June 2010 executed by the Company in favour of the Provisional Liquidators to indemnify the loss and liabilities for Provisional Liquidators arising from and in connection with the entering into the agreements as referred to in paragraphs (j) and (l);
(l) the agreement dated 9 June 2010 entered into among Sky Honest, Chain Up Limited, the Company (acted by both the Board and Provisional Liquidators), Yaubond and Lehman Brothers Commercial Corporation Asia Limited (In Liquidation) in relation to the settling the Sky Honest Loan;
(m) 19 security restoration agreements all dated 16 July 2010 entered into between the Company or its certain subsidiaries and the Security Trustee to restore the Security Trustee’s interest under the security documents created by the Company or its certain subsidiaries in favour of the Security Trustee in 2007 and discharge the receivers;
(n) an agreement dated 28 July 2010 entered into between Pioneer Express and the Company to extend the date of repayment of the loan due by Smartford as referred to in paragraph (d) to 31 December 2010;
(o) an agreement dated 30 July 2010 entered into between Huan Cheng and Guang Li to terminate the agreements as referred to in paragraphs (h) and (i);
(p) an agreement dated 26 July 2010 entered into between the Company, HNA Hotel, Yaubond and Huan Cheng in relation to the disposal of the entire equity interest in Huan Cheng for a gross consideration of RMB1,090 million, before certain adjustments;
(q) 22 deeds of release all dated 28 October 2010 made by the Security Trustee in favour of the Company or its certain subsidiaries to release the security charged in favour of Security Trustee under various security documents;
(r) a supplemental agreement dated 30 December 2010 entered into between Pioneer Express and Smartford to extend the date of repayment of the loan due by Smartford as referred to in paragraphs (d) and (n) to 28 February 2011 which was further extended to 30 April 2011 by another supplemental agreement entered into between the same parties on 8 March 2011;
(s) a co-operation agreement dated 7 April 2011 entered into between Yu Jun and Mr. KUANG Shi Gang, one of owners of the JV Partner to jointly develop the Skyfame Yongzhou Project and manage the development of Yongzhou Government Project by formation of Yongzhou Tian Yu;
(t) the Framework Agreement; and

GENERAL INFORMATION

APPENDIX III

(u) a second supplemental agreement dated 1 July 2011 entered into, among the others, between the Company, Yaubond and HNA Hotel pursuant to which if HNA Hotel fails to settle the outstanding second instalment of the consideration for the disposal of Tianhe Project of approximately RMB130 million within 90 days from the date of the agreement in cash, will transfer the property interests of the 32nd and 33rd floor of HNA Tower owned by HNA Hotel to a subsidiary of the Company as full and final settlement of the outstanding consideration payable of approximately RMB130 million.

8. EXPERT AND CONSENT

The following is the name and qualification of the expert who has given opinion or advise, which are contained or referred to in this circular:

Name	Qualification
DTZ Debenham	Independent Valuer
廣東國鼎律師事務所	Legal adviser as to PRC law
(Guangdong Guardian Law
Firm*) (“Guangdong Guardian”)

Each of DTZ Debenham and Guangdong Guardian has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and report and references to its name in the form and context in which they appear.

As at the Latest Practicable Date, each of DTZ Debenham and Guangdong Guardian did not have any direct or indirect shareholding in any member of the Group or any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for any securities in any member of the Group.

As at the Latest Practicable Date, each of DTZ Debenham and Guangdong Guardian did not have any direct or indirect interest in any assets which had been, since 31 December 2010 (the date to which the latest published audited consolidated accounts of the Group were made up), acquired or disposed of by, or leased to, or are proposed to be acquired or disposed of by, or leased to, any member of the Group (including any company which will become a subsidiary of the Company by reason of an acquisition which has been agreed or proposed since 31 December 2010 being the date to which the latest audited consolidated accounts of the Group were made up).

* For identification purposes only

GENERAL INFORMATION

APPENDIX III

9. GENERAL INFORMATION

(a) The registered office of the Company is at Clarendon House, 2 Church Street, Hamilton HM 11 , Bermuda.
(b) The head office and principal place of business of the Company in the PRC is 32nd to 33rd Floors of HNA Tower, 8 Linhe Zhong Road, Tianhe District, Guangzhou, Guangdong Province, the PRC.
(c) The principal place of business of the Company in Hong Kong is at 2502B, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong.
(d) The company secretary of the Company is Ms. CHEUNG Lin Shun, who is a fellow member of the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants.
(e) The Hong Kong branch share registrars and transfer office of the Company is Tricor Abacus Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(f) The English text of this circular shall prevail over the Chinese text, save as the PRC legal opinion on the Yongzhou Land.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the principal office of the Company in Hong Kong at 2502B, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong up to and including 9 September 2011:

(a) the Framework Agreement;
(b) the annual reports of the Company for the years ended 31 December 2008, 2009 and 2010 and the interim reports of the Company for the six months ended 30 June 2010 and 2011;
(c) the memorandum of association and bye-laws of the Company;
(d) the valuation report on the Yongzhou Land prepared by DTZ Debenham as set out in appendix II to this circular;
(e) the PRC legal opinion on the Yongzhou Land;
(f) the respective letter issued by DTZ Debenham and Guangdong Guardian referred to in the paragraph headed “Expert and Consent” in this appendix; and
(g) the material contracts referred to in the paragraph headed “Material Contracts” in this appendix.

AI assistant

Greenheart Group Limited — M&A Activity 2011

48939_rns_2011-08-24_0f3e3cae-6da5-4de0-a84e-31a07d847c7b.pdf

VERY SUBSTANTIAL ACQUISITION IN RELATION TO THE ACQUISITION OF LAND USE RIGHTS IN YONGZHOU CITY, HUNAN PROVINCE, THE PRC

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

VERY SUBSTANTIAL ACQUISITION IN RELATION TO THE ACQUISITION OF LAND USE RIGHTS IN YONGZHOU CITY, HUNAN PROVINCE, THE PRC

INTRODUCTION

LETTER FROM THE BOARD

THE FRAMEWORK AGREEMENT

Date

Parties

Assets to be acquired

LETTER FROM THE BOARD

Consideration

LETTER FROM THE BOARD

Completion of the acquisition of the Yongzhou Land

Other terms of the Framework Agreement

Commitment to manage the development of the Yongzhou Government Project

LETTER FROM THE BOARD

Operating right of the Scenic Zone

LETTER FROM THE BOARD

Commitment to construct a five-star hotel and properties for resettlement

Application of the deposit paid

LETTER FROM THE BOARD

Indemnities to the City Government of Yongzhou

THE YONGZHOU LAND

LETTER FROM THE BOARD

INFORMATION ON YONGZHOU TIAN YU

Parties

Registered capital

LETTER FROM THE BOARD

Terms of operation

Board composition

Share of profits/losses

Financial and capital commitment

Restrictions on change of scope of business and entering into transactions

LETTER FROM THE BOARD

REASONS FOR THE ACQUISITION AND THE FORMATION OF YONGZHOU TIAN YU

FINANCIAL EFFECTS OF THE ACQUISITION ON THE COMPANY

LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

ADDITIONAL INFORMATION

1. FINANCIAL SUMMARY

2. MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

FOR THE YEAR ENDED 31 DECEMBER 2008

Business Review and Outlook

Business Review

Hotel Operation

APPENDIX I

Investment and sale of completed properties

Properties Held for/under Development

Guiyang Project

Zhoutouzui Project

Tianhe Project

APPENDIX I

Going Concern

Outlook

Liquidity and Financial Resources

Capital Structure and Liquidity

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Borrowings and pledge of assets

Foreign Currency Management

Contingent Liabilities

Material Acquisition during the year

Employees

FOR THE YEAR ENDED 31 DECEMBER 2009

Business Review and Outlook

Business Review

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Hotel Operation

Investment Properties and Properties for Sale

Properties Development

Guiyang Project

Zhoutouzui Project

Greenheart Group Limited M&A Activity 2011