Greenheart Group Limited - Proxy Solicitation & Information Statement 2009

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

==> picture [250 x 36] intentionally omitted <==

==> picture [155 x 18] intentionally omitted <==

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

(incorporated in Bermuda with limited liability)
(Stock Code: 00059)
----- End of picture text -----

VERY SUBSTANTIAL DISPOSAL

A notice convening the special general meeting of Skyfame Realty (Holdings) Limited to be held at Empire Room 1, M/Floor, Empire Hotel Hong Kong Wanchai, 33 Hennessy Road, Wanchai, Hong Kong on Tuesday, 3 November 2009 at 11:00 a.m. is set out on pages 148 to 149 of this circular. Whether or not you intend to attend such meeting, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon and return it to the branch share registrars of the Company in Hong Kong, Tricor Abacus Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding such meeting. Completion and return of the form of proxy will not preclude you from attending and voting at the meeting or any adjourned meeting if you so wish.

* For identification purposes only

16 October 2009

	Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Appendix I – Financial information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Appendix II – Pro forma financial information of the Remaining Group. . . . . . . . . . . . . . . .	121
Appendix III – Property valuation on the Target Properties. . . . . . . . . . . . . . . . . . . . . . . . . . .	132
Appendix IV – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	137
Notice of SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	148

DEFINITIONS

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

“Agreement” the agreement entered into between Yue Tian and HNA Hotel dated 14 September 2009 in relation to the Disposal (as supplemented by the Supplemental Agreement)

“associate(s)” has the meaning ascribed to it under the Listing Rules
“Board” board of Directors “Business Day(s)” a day (not a Saturday, Sunday or public holiday in the PRC) on which licensed banks in the PRC are generally open for business during their normal business hours
“BVI” the British Virgin Islands “CJTY” 廣州市城建天譽房地產開發有限公司 (Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited*), a company incorporated in PRC with limited liability and an indirect whollyowned subsidiary of the Company
“Co-management Account” the RMB bank account opened by HNA Hotel in respect of the first payment of the Consideration of RMB641,138,968.79 comanaged by Yue Tian, HNA Hotel and the bank where the account is opened
“Company” Skyfame Realty (Holdings) Limited, a company incorporated in Bermuda with limited liability, the issued Shares of which are listed on the Stock Exchange
“Completion” completion of the Disposal pursuant to the terms of the Agreement
“Completion Account” the audited financial statements of CJTY as at Completion Date
“Completion Date” the date on which the new business licence of CJTY is obtained showing HNA Hotel has become the owner of the entire equity interest in CJTY
“connected persons” has the meaning ascribed to it under the Listing Rules
“Consideration” the consideration of the Disposal
“Director(s)” the director(s) of the Company

* For identification purposes only

DEFINITIONS

“Disposal”	the disposal of the entire equity interest in CJTY and the
	assignment of Shareholder Loan by Yue Tian to HNA Hotel
“Earnest Money”	the earnest money in the amount of RMB20 million paid by
	HNA Hotel and kept in a PRC currency co-management account
	at a bank approved by HNA Hotel pursuant to the terms of the
	Agreement
“Group”	the Company and its subsidiaries
“HNA Hotel”	HNA Hotel Holdings Ltd., a company incorporated in PRC with
	limited liability
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Latest Practicable Date”	14 October 2009, being the latest practicable date prior to printing
	of this circular for ascertaining certain information contained in
	this circular
“LBCCA”	Lehman Brothers Commercial Corporation Asia Limited
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Loan Agreement”	the loan agreement entered into between, among others, Sky
	Honest and LBCCA dated 27 July 2007, and as amended and
	supplemented by the agreement entered into by the same parties
	dated 28 April 2008
“Mr. Yu”	Mr. Yu Pan, an executive Director, the Chairman and controlling
	shareholder of the Company
“Notes”	the US$200 million 4% secured convertible notes due 2013 issued
	by the Company, which has an aggregate outstanding principal of
	US$192,000,000 as at the Latest Practicable Date
“Noteholders”	holders of the Notes
“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
“Previous Announcements”	the announcements of the Company dated 17 December 2008, 7,
	9, and 23 of January 2009, 19, 24, and 27 of February 2009, 11
	March 2009 and 2, 9 and 17 of April 2009
“Remaining Group”	the Group other than CJTY

DEFINITIONS

“SFC”	Securities and Futures Commission
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
“SGM”	the special general meeting of the Company to be convened and
	held to approve the Agreement and the transactions contemplated
	thereunder
“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)
“Shareholder Loan”	the amount due by CJTY to Yue Tian on the Completion Date
“Skyfame Tower”	Skyfame Tower located at 8 Linhe Zhong Road, Tianhe District,
	Guangzhou, Guangdong Province, the PRC
“Sky Honest”	Sky Honest Investment Corp., a company incorporated in the BVI
	and an indirect wholly-owned subsidiary of the Company
“Sky Honest Loan” or “Term Loan”	the loan arranged by LBCCA of a principal amount of HK$220
	million under the Loan Agreement
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Supplemental Agreement”	the supplemental agreement dated 13 October 2009 entered into
	between Yue Tian and HNA Hotel in relation to the Disposal
“Target Properties”	Skyfame Tower (except for the office premises from 17th floor to
	22nd floor of Skyfame Tower which have been sold) and Westin
	Guangzhou
“Trust Deed”	a trust deed dated 4 May 2007 (as amended and supplemented
	from time to time) constituting the Notes entered into by and
	among, inter alia, the Company, The Hongkong and Shanghai
	Banking Corporation Limited as the trustee and the security
	trustee
“Trustee”	The Hongkong and Shanghai Banking Corporation Limited, being
	the trustee and security trustee under the Trust Deed

DEFINITIONS

“Undisclosed Liabilities”	(i) the amount of liabilities and/or commitments of CJTY
	appearing on the Completion Account which are not disclosed in
	the management accounts of CJTY made up to 30 June 2009 and
	(ii) any liabilities or commitments of CJTY arising from non-
	operating activities since 30 June 2009 to the Completion Date
“Westin Guangzhou”	The Westin Guangzhou located at 6 Linhe Zhong Road, Tianhe
	District, Guangzhou, Guangdong Province, the PRC
“Yue Tian”	Yue Tian Development Limited, a limited liability company
	incorporated in Hong Kong on 2 March 1993 and indirect wholly-
	owned subsidiary of the Company
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC
“US$”	United States dollars, the lawful currency of the United States of
	America
“m2”	meter square
“%”	per cent.

If there is any inconsistency between the Chinese names of the PRC entities, departments or facilities mentioned in this circular and their respective English translations, the Chinese version shall prevail.

Unless otherwise specified in this circular, translations of RMB into HK$ and US$ into HK$ are made in this circular, for illustration only, at the rate of RMB0.8815 to HK$1 and US$1 to HK$7.8119 respectively. No representation is made that any amount in RMB or US$ could have been or could be converted at those rates or any other rates.

LETTER FROM THE BOARD

==> picture [249 x 36] intentionally omitted <==

(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 Mr. Jerry WU

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

Principal place of business in Hong Kong: 2502B, Tower 1 Admiralty Centre 18 Harcourt Road Hong Kong

16 October 2009

To the Shareholders and, for information only, the Noteholders

Dear Sir or Madam,

VERY SUBSTANTIAL DISPOSAL

INTRODUCTION

On 18 September 2009, the Board announced that on 14 September 2009 Yue Tian and HNA Hotel entered into the Agreement, and on 13 October 2009, the Board announced that on 13 October 2009 the same parties entered into the Supplemental Agreement. Pursuant to the Agreement and the Supplemental Agreement, Yue Tian has conditionally agreed to dispose of its entire equity interest in CJTY and assign the Shareholder Loan and HNA Hotel has conditionally agreed to acquire the same from Yue Tian. The entire equity interest in CJTY will be transferred at a consideration of RMB1,025,428,776.94 (equivalent to approximately HK$1,163 million) and the Shareholder Loan will be assigned at its face value on Completion Date on a dollar for dollar basis in cash.

As at the Latest Practicable Date, CJTY’s major assets are the Target Properties comprising Westin Guangzhou and Skyfame Tower (except for the office premises from 17th floor to 22nd floor of Skyfame Tower which have been sold).

The Disposal constitutes a very substantial disposal of the Company under the Listing Rules. The purpose of this circular is to give you, among other things, (i) details of the Disposal; (ii) financial information of the Group; (iii) pro forma financial information of the Remaining Group; (iv) valuation report on the Target Properties; and (v) notice of the SGM.

For identification purposes only

LETTER FROM THE BOARD

AGREEMENT

Date

14 September 2009 (as supplemented by the Supplemental Agreement)

Parties

(1) Vendor: Yue Tian, being an indirect wholly-owned subsidiary of the Company. As at the Latest Practicable Date, Yue Tian beneficially held the entire equity interest in CJTY.
(2) Purchaser: HNA Hotel, an investment holding company which subsidiaries are principally engaged in the investment in and management of hotels and golf clubs. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, HNA Hotel and its ultimate beneficial owner are third parties independent of the Group and its connected persons.

Assets to be disposed of

The entire equity interest in CJTY and the Shareholder Loan beneficially held by Yue Tian. As at 30 June 2009, the Shareholder Loan amounted to RMB187,136,010.94 (equivalent to approximately HK$212 million).

Consideration

The consideration for the equity interest of CJTY is RMB1,025,428,776.94 (equivalent to approximately HK$1,163 million) and the consideration for the Shareholder Loan will be equal to the face value of the Shareholder Loan on Completion Date. Assuming there being no change to the balance of the Shareholder Loan from 30 June 2009 to the Completion Date, the total consideration to be received by Yue Tian for the Disposal would be RMB1,212,564,787.88 (equivalent to approximately HK$1,376 million), which will be settled by HNA Hotel in stage payments as described below.

An earnest money in the amount of RMB20 million was paid by HNA Hotel on 23 September 2009, which money is kept in a PRC currency co-management account at a bank approved by HNA Hotel.

Payment of the Consideration by HNA Hotel shall be subject to the satisfaction of the following conditions:

a. the outstanding current account balances between CJTY and the Company and/or its associates (including but not limited to Yue Tian) having been settled and there is no outstanding balances between CJTY and the abovementioned parties;
b. the Yang Cheng branch of the Agricultural Bank of China, being a lender of CJTY, having confirmed in writing to CJTY its consent to the change of shareholders of CJTY pursuant to the Agreement;

LETTER FROM THE BOARD

c. the management company of the Westin Guangzhou, Westin Hotel Management L.P., having confirmed in writing to CJTY its consent to the change of shareholders of CJTY pursuant to the Agreement;
d. save as disclosed, the licences of CJTY and its branch, except for the 房地產開發企業資質証書 (Qualification Certificate for Real Estate Development Enterprise), being valid;
e. CJTY having repaid the entire amount of the RMB130,000,000 loan to Yue Shou Branch of the Bank of China, such that the charge over the Target Properties to the bank having been released and such release having been registered with the relevant 房地產交易中心 (Real Estate Trading Centre); and
f. a written confirmation in relation to the satisfaction of the conditions precedent (a) to (e) having been issued by Yue Tian and CJTY to HNA Hotel.

The above conditions (except for condition (a) which would be no longer required to be complied by Yue Tian as a result of the entering into of the Supplemental Agreement, pursuant to which the Shareholder Loan will be assigned to HNA Hotel) shall be fulfilled by Yue Tian within 30 Business Days from the date of the obtaining of the Shareholders’ approval in respect of the Disposal at the SGM, failing which HNA Hotel shall extend the time for another 30 days (the “Long Stop Date”). If the above conditions still have not been fulfilled by the Long Stop Date, Yue Tian shall pay HNA Hotel an overdue fee equal to 0.04% of the Earnest Money for every day of delay.

Subject to fulfillment of the above conditions:

(1) HNA Hotel shall pay a sum of RMB641,138,968.79 (equivalent to approximately HK$727 million) as part of the Consideration to the Co-management Account within 7 Business Days of CJTY obtaining the written approval of the transfer of its equity interest to HNA Hotel by the relevant PRC government authority, which, together with the Earnest Money and a sum of RMB110,666,506.56 (equivalent to approximately HK$126 million) will be released to Yue Tian upon the issue of the new business licence of CJTY showing HNA Hotel has become the holder of the entire equity interest in CJTY;
(2) part of the Consideration in the amount of RMB330,569,484.40 (equivalent to approximately HK$375 million), shall be payable by HNA Hotel within 3 months from the Completion Date; and
(3) the remaining balance of the Consideration (provided that if the amount of the Undisclosed Liabilities is in excess of RMB5,000,000, the Consideration shall be reduced by the amount of such excess or provided that if (i) the amount payable in relation to the construction works of the Target Properties and other payables, and (ii) outstanding bank borrowing together with the accrued interests and related expenses in relation thereto as shown in the Completion Account differ from RMB46,542,468.68 (equivalent to approximately HK$53 million) and RMB1,051,559,250.00 (equivalent to approximately HK$1,193 million) respectively, the Consideration shall be reduced by the amount of such excess or increased by the amount of such shortfall accordingly) shall be payable within one year from the Completion Date.

LETTER FROM THE BOARD

When the final Consideration is determined upon the completion of the Completion Account, a further announcement will be made by the Company.

Based on the aforesaid payment schedule, the entire Consideration (except for the Earnest Money which has been received) will only be received by Yue Tian subsequent to the completion of transfer of the entire equity interest in CJTY to HNA Hotel.

In the event HNA Hotel fails to settle the Consideration without valid reason, Yue Tian has the right to require HNA Hotel to pay an overdue fee equal to 0.04% of the overdue portion for every day of overdue. If any portion of the Consideration is overdue for more than 30 Business Days, Yue Tian has the right to terminate the Agreement, cancel any transfer agreement signed and claim for damages from HNA Hotel.

The Consideration was determined after arm’s length negotiations between Yue Tian and HNA Hotel based on the property value of the Target Properties of RMB2,200 million (equivalent to approximately HK$2,496 million) as agreed between the parties and other major liabilities of CJTY as at 30 June 2009 including the amount payable in relation to the construction works of the Target Properties and other payables of RMB46,542,468.68 (equivalent to approximately HK$53 million) and outstanding bank borrowing together with the accrued interests and related expenses in relation thereto of RMB1,051,559,250.00 (equivalent to approximately HK$1,193 million) as at 30 June 2009, the face value of the Shareholder Loan as at 30 June 2009 and after taking into consideration the financial pressure currently faced by the Group as described in the paragraph headed “Reasons for the Disposal and use of proceeds” below. The agreed property value of the Target Properties was made with reference to the estimated valuation of the Target Properties as preliminarily assessed by DTZ Debenham Tie Leung Limited, an independent professional valuer, of approximately RMB2,400 million (equivalent to approximately HK$2,723 million).

Condition precedent to the Disposal

Completion of the Disposal is subject to the approval by the Shareholders of the Agreement and the transactions contemplated thereunder at the SGM by way of poll (wherein Yue Tian has undertaken to HNA Hotel under the Agreement to ensure the controlling Shareholder will vote in favour of the relevant resolution so long as it is not required to abstain from voting or to only vote against the resolution).

In the event that Shareholders’ approval of the Agreement and the transactions contemplated thereunder cannot be obtained within 40 days from the date of the Agreement (or no later than 60 Business Days from the date of the Agreement if there is delay due to Stock Exchange and/or the SFC require any supplemental information), the Agreement shall lapse and no party to the Agreement shall have any claim against or liability to the other party, and the Earnest Money shall be refunded to HNA Hotel within two Business Days from the lapse of the Agreement.

Completion

Completion shall take place within 40 Business Days from the date of obtaining the Shareholders’ approval on the Disposal. Upon Completion, CJTY will cease to be a subsidiary of the Company. The assets, liabilities and results of CJTY will be deconsolidated from the Company’s consolidated financial statements.

LETTER FROM THE BOARD

INFORMATION ON CJTY

CJTY is engaged in property development and hotel operation in the PRC and has a registered capital of US$45 million which has been fully paid up. As at the Latest Practicable Date, CJTY’s major assets are the Target Properties comprising Westin Guangzhou and Skyfame Tower (except for the office premises from 17th floor to 22nd floor of Skyfame Tower which have been sold).

Westin Guangzhou is located at 6 Linhe Zhong Road, Tianhe District, Guangzhou, Guangdong Province, the PRC and is wholly owned by CJTY with operation licence commencing from 27 November 2007 to 24 September 2018.

Skyfame Tower is located at 8 Linhe Zhong Road, Tianhe District, Guangzhou, Guangdong Province, the PRC and, except for 17th floor to 22nd floor, is wholly owned by CJTY. As assessed by DTZ Debenham Tie Leung Limited, an independent professional valuer, the market values of the Target Properties as at 31 August 2009 were in aggregate of RMB2,400 million.

The audited net assets value of CJTY attributable to the Group as at 30 June 2009 (before shareholder’s loan) amounted to approximately HK$987 million. Among the total liabilities as at 30 June 2009, CJTY had an amount payable in relation to the construction works of the Target Properties and other payables of approximately RMB46.5 million (equivalent to approximately HK$53 million) and outstanding bank borrowing together with the accrued interests and related expenses in relation thereto of approximately RMB1,051.6 million (equivalent to approximately HK$1,193 million). The audited net loss before taxation and net loss after taxation of CJTY attributable to the Group for the year ended 31 December 2008 amounted to approximately HK$29 million and HK$35 million respectively, and the audited net loss before taxation and net loss after taxation of CJTY attributable to the Group for the year ended 31 December 2007 amounted to approximately HK$79 million and HK$78 million respectively.

The audited financial information of CJTY was prepared in accordance with the Hong Kong Financial Reporting Standards.

REASONS FOR THE DISPOSAL AND USE OF PROCEEDS

As stated in the Company’s announcement dated 1 April 2009, the Company is in non-compliance with the Trust Deed in relation to its failure to obtain the title deed and permits for the development of the Zhoutouzui Project by 31 May 2009, the Noteholders are, as a result of the breach, entitled to an automatic redemption of US$75 million (approximately HK$586 million) and associated interest accrued up to the date of redemption (“Automatic Redemption”). As at the Latest Practicable Date, the interest accrued on US$75 million amounted to approximately HK$193 million. The Special Committee of the Noteholders have given a verbal consent to refrain from exercising the Automatic Redemption pending negotiations on the terms of restructuring of the Notes. In addition, as stated in the Company’s announcement dated 17 December 2008, Sky Honest entered into the Loan Agreement with LBCCA (now in liquidation) in respect of the Sky Honest Loan of HK$220 million arranged by it. The Sky Honest Loan was originally due on 27 April 2008 and has been further extended to 29 January 2009 and the lenders consent to standstill and refrained from taking any legal action against the borrower and guarantor several times as detailed in the Previous Announcements. Further to the circular published by the Company on 22 June 2009 about the disposal of a 80% interests in Tianhe Project to a third party, the proposed transaction was put for Shareholders’ voting in the Company’s special general meeting held on

LETTER FROM THE BOARD

10 July 2009 but was voted down and the transaction terminated. No further standstill is extended by the Term Loan lenders since then and that constitutes an event of default under the terms of the Notes and the Trustee may at its sole discretion give an acceleration notice to declare that the whole of outstanding Notes be immediately due and repayable at the early redemption amount plus accrued interest. In the light of these circumstances, the Company’s auditors has issued a disclaimer opinion on the Group’s financial statements for the year ended 31 December 2008 and the six months ended 30 June 2009 due to the significance of the material uncertainty relating to the going concern basis in preparing the Group’s and the Company’s financial statements. However, the Directors are of the opinion that the Company and the Group will be able to continue as a going concern and to meet their obligations as and when they fall due as the Group had taken active steps, among other things, to realise assets to provide additional funding as necessary to remedy the defaults under the Trust Deed and the Loan Agreement and to meet other obligations.

The Company has been continuously searching for and negotiated with potential buyers for certain of the Group’s assets. The Company identified the Disposal as a good opportunity for the Company to realise certain of its assets under the prevailing market condition after considering the financial pressure currently faced by the Group as stated above. It is estimated that net proceeds of approximately HK$1,086 million, being the Consideration, net of transaction costs and taxes, will be received by the Company after deduction of professional expenses and resulting taxes which will be incurred in connection with the Disposal.

Under the Trust Deed, the Company is required to obtain the approval from the Special Committee of Noteholders (failing which through want of quorum, the Noteholders) on sale of the Target Properties and/or CJTY. In a meeting of the Special Committee of Noteholders held on 27 August 2009, approval was given for disposing the Target Properties at a threshold price of not less than HK$2,300 million and the net proceed being kept in a separate account, the release of which being subject to further negotiations with the Noteholders on the restructuring of the Notes. Accordingly, the net proceeds will be paid to a separate account subject to further agreement with the Noteholders as to the application thereof and pending negotiations with the Noteholders on possible restructuring of the Notes. If there is any excess, the Board intends to use it to repay the outstanding amount under the Loan Agreement and as working capital for the Group. The Company has started the discussions with the members of the Special Committee of Noteholders about the details of the transaction and restructuring of the Notes, but there is no specific progress in relation thereto up to the Latest Practicable Date.

As at the Latest Practicable Date, the outstanding principal amount of the Notes and Sky Honest Loan are US$192 million and HK$220 million respectively. The Company also plans to negotiate with the Sky Honest Loan lenders about the restructuring and settlement of Sky Honest Loan upon having received the Shareholders’ approval in the SGM that may lead to relaxation of terms including a reduction or waiver of interests and principal amount payable.

Up to the Latest Practicable Date, no concrete conclusions of the negotiations, including the amount of the net proceeds of the Disposal to be applied in payment of outstanding amount under the Notes and/ or the Sky Honest Loan, have been reached yet. Should the Disposal be completed and subject to the outcome of the negotiations with the Noteholders and Sky Honest Loan lenders, the Company plans to apply a majority portion of the net proceeds received from the Disposal of approximately HK$1,086 million to discharge all the outstanding Notes and Sky Honest Loan.

LETTER FROM THE BOARD

As the Disposal could provide cash to facilitate the restructuring of the Notes and, possibly, the repayment of amount outstanding under the Loan Agreement which has been overdue and generate cash for the Group’s working capital use, the Directors are of the view that the terms of the Disposal are fair and reasonable so far as the Company and the Shareholders are concern and is in the interest of the Company and the Shareholders as a whole.

FINANCIAL EFFECT OF THE DISPOSAL

As a result of the Disposal, the Group expects to realise a gain on disposal of approximately HK$262 million, which is calculated based on net proceeds of approximately HK$1,086 million, (after netting of the estimated transaction costs and resulting taxes of approximately HK$289 million), and the net assets value of CJTY before shareholder’s loan of HK$987 million (comprising the total assets and liabilities of approximately HK$2,405 million and approximately HK$1,418 million respectively), and realisation of foreign exchange reserve and other reserve upon the Disposal of approximately HK$163 million.

The liabilities of the Group as at 30 June 2009, the latest reporting date of the financial position according to its interim report, amounted to approximately HK$4,184 million that include the Notes being restated to its principal value of US$192 million (equivalent to approximately HK$1,500 million). There have been no material change in the Group’s indebtedness since then up to the Latest Practicable Date. Subject to the consensus with the Noteholders on the amount of Notes to be redeemed and, if there is any excess, the Board intends to use it to repay the outstanding amount under the Loan Agreement and as working capital for the Group for the development of the remaining projects. As the amount of outstanding principals and interests to be waived (if any) and the amount of working capital reserved are yet to be worked out with the Noteholders and Sky Honest Loan lenders, the overall liabilities of the Group will be impacted by the outcome of the negotiations. Assuming that the entire net proceeds are used for the redemption of the Notes and the repayment of the Sky Honest Loan in full, the liabilities of the Group will be reduced from approximately HK$4,184 million to approximately HK$1,680 million and the assets of the Group will be reduced from approximately HK$5,572 million to approximately HK$3,116 million after the Disposal and as a result of the deconsolidation of CJTY from the consolidated financial statements of the Company.

IMPLICATIONS OF THE LISTING RULES

The Disposal constitutes a very substantial disposal of the Company under Chapter 14 of the Listing Rules and is subject to the reporting, announcement and Shareholders’ approval requirement under the Listing Rules.

GENERAL

The Company is an investment holding company and its principal subsidiaries are engaged in investment holding, property development and related services in the PRC. After the Disposal, the Group still have principal assets held for its development projects, being the three projects at Zhoutouzui and Tianhe District in Guangzhou and Guiyang in Guizhou Province, and the Group will focus on the property development businesses. The Group held property interests at aggregate carrying values of approximately HK$2,547 million on 30 June 2009 for development. Currently, the Group’s residential development

LETTER FROM THE BOARD

project in Guiyang is under construction and pre-sale activities have commenced. For the Zhoutouzui Project, the Group is going through standard procedures in connection with the approval of the design plan and transfer of the land use right certificate to the project company. As for the relocation of the existing structure at the site of the Tianhe Project, the management of the Company is in active discussions with the Fire Bureau of Guangzhou about the detailed contractual terms of the construction of the new fire station. Nonetheless, construction work of the new fire station is in progress in the meanwhile. The three projects will offer a total gross floor area including basements of approximately 990,000 m[2] that is expected to be completed and delivered for occupation in the years 2010 to late 2013. In view of these substantial property interests held by the Remaining Group and their expected revenue generated in the coming years, the Directors consider that the financial position of the Remaining Group enables a sufficient operation in its property development business after the Disposal.

Sharp Bright International Limited, a company wholly-owned by Mr. Yu, has given a first priority fixed charge over its 100% interest in Grand Cosmos Holdings Limited, a company indirectly whollyowned by Mr. Yu and holding 65.22% shareholding of the Company as at the Latest Practicable Date, and a first priority floating charge in respect of its undertaking in favour of the Trustee as part of security for the Notes (the “Grand Cosmos Share Charge”). Grand Cosmos Holdings Limited has given a first priority fixed charge in favour of the Trustee over, among other things, all its shareholding interest in the Company as further security for the Notes (the “Skyfame Share Charge”). In addition, the Company has given certain share charges over its interest in certain of its subsidiaries in favour of the Trustee also as security for the Notes. For details of the Grand Cosmos Share Charge and the Skyfame Share Charge and other securities for the Notes, please refer to the Company’s circular dated 4 April 2007.

THE SGM

Set out on pages 148 to 149 of this circular is a notice convening the SGM to be held at Empire Room 1, M/Floor, Empire Hotel Hong Kong Wanchai, 33 Hennessy Road, Wanchai, Hong Kong on Tuesday, 3 November 2009 at 11:00 a.m. at which resolution(s) will be proposed to the Shareholders to consider and, if thought fit, approve the Agreement and the transactions contemplated thereunder, which shall be voted by way of poll. Given that the shares charged under the Grand Cosmos Share Charge and the Skyfame Share Charge respectively shall be reduced upon redemption of each US$40 million principal amount of the Notes and whether or not any of the said share charges will be released as a result of the transactions contemplated by the Disposal, depending on the amount of redemption of the Notes, the amount secured by the said share charges will still be reduced with a reduction in the amount due under the Notes, together with the fact that Mr. Yu is involved in the negotiation of the Disposal, Mr. Yu, Grand Cosmos Holdings Limited and Sharp Bright International Limited are considered to have an interest in the Disposal which is different from other Shareholders.

Accordingly, Shareholders who have material interest in the Disposal, including (i) Mr. Yu, Grand Cosmos Holdings Limited and Sharp Bright International Limited which together held 1,058,112,271 Shares; (ii) lenders of the Sky Honest Loan which together held 7,699,184 Shares or such other number of Shares as may be the case; and (iii) other Noteholders which together held 8,413,185 Shares, or such other number of Shares as may be the case, as at the Latest Practicable Date shall abstain from voting to approve the Agreement and the transactions contemplated thereunder at the SGM.

A form of proxy for use at the SGM is also enclosed with this circular. Whether or not you are able to attend the SGM, you are requested to complete the enclosed form of proxy in accordance with the

LETTER FROM THE BOARD

instructions printed thereon and return the same to the Company’s branch share registrars in Hong Kong, Tricor Abacus Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding of the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof should you so wish.

RECOMMENDATION

The Directors consider the terms of the Agreement and the transactions contemplated thereunder are fair and reasonable and are in the interest of the Group and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favor of the ordinary resolution to be proposed in the SGM to approve the Agreement and the transactions contemplated thereunder.

GENERAL

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

Yours faithfully, For and on behalf of the Board

Skyfame Realty (Holdings) Limited

YU Pan Chairman

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. ACCOUNTANTS’ REPORT OF THE GROUP

The following is the text of a report, prepared for the purpose of inclusion in this circular, received from the independent reporting accountants, BDO Limited, Certified Public Accountants, Hong Kong.

==> picture [188 x 45] intentionally omitted <==

16 October 2009

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

Dear Sirs,

We set out below our report on the financial information of Skyfame Realty (Holdings) Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) (the “Financial Information”) for the three years ended 31 December 2006, 2007 and 2008 and the six months ended 30 June 2009 (the “Relevant Periods”) and the six months ended 30 June 2008 (the “30 June 2008 Financial Information”), prepared on the basis set out in note 3 of Section (II) below, for inclusion in the circular of the Company dated 16 October 2009 (the “Circular”) in connection with the proposed disposal of the entire interest in and the assignment of the shareholder’s loan due by 廣州市城建天譽房地產開發有限公司 (Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited) (“CJTY”), an indirect wholly-owned subsidiary of the Company which holds interest in a hotel building and office tower in Guangzhou, People’s Republic of China (“PRC”) (the “Disposal”).

The Company was incorporated in Bermuda as an exempted company with limited liability on 19 October 1993. Its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The Company is engaged in investment holding. The principal activities of its subsidiaries are property development, property investment, hotel operation and the provision of related ancillary services, and the provision of property development project management and interior decoration services.

As at the date of this report, the Company had direct and indirect interests in the subsidiaries as set out in note 38 of Section (II) below.

We have acted as auditor of the Group for the Relevant Periods. The consolidated financial statements for each of the three years ended 31 December 2006, 2007 and 2008 have been audited by us in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Respective responsibilities of directors and reporting accountants

The Financial Information for the Relevant Periods and the 30 June 2008 Financial Information have been prepared based on the audited consolidated financial statements or where appropriate, unaudited consolidated financial statements of the Group which are prepared in accordance with Hong Kong Financial Reporting Standards issued by the HKICPA, without making any adjustments, so as for the purpose of inclusion in the Circular.

The directors of the Company (the “Directors”) are responsible for the preparation of the Financial Information. The Directors are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report.

For the Financial Information for the Relevant Periods, it is our responsibility to form an independent opinion, based on our examination, on the financial information and to report our opinion to you.

For the 30 June 2008 Financial Information, it is our responsibility to form an independent conclusion, based on our review, on the financial information and to report our conclusion to you.

Basis for disclaimer of opinion and inability to reach a review conclusion

For the purpose of this report, we have examined the Financial Information for the Relevant Periods and have carried out such additional procedures as we considered necessary in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

For the purpose of this report, we have performed a review and carried out procedures as we considered necessary on the 30 June 2008 Financial Information, in accordance with Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA. A review of the 30 June 2008 Financial Information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

As described in notes 32(b) and 33 of Section (II) below, the Group has failed to repay other borrowings of HK$220,000,000 on the due date of 29 January 2009 and, after 31 December 2008, the following terms stipulated in the trust deed dated 4 May 2007 (the “Trust Deed”) in relation to the convertible notes with outstanding principal value of United States dollars (“US$”) 192,000,000 (approximately Hong Kong dollars (“HK$”) 1,499,885,000) (the “Notes”) at 30 June 2009 have not been complied with:

(1) the Group has not yet been able to obtain the land use right certificate and other permits for one of the property development projects within the agreed timeframe with the holders of the Notes;

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(2) as a result of (1) above, there can be an early redemption of the Notes to the extent of the principal amount of US$75,000,000 (approximately HK$585,893,000) and payment of interests accrued up to the date of redemption, which amounted to approximately HK$151,802,000 as at 30 June 2009; and
(3) the non-payment of the borrowings of HK$220,000,000 mentioned above on the due date has constituted an event of default under the terms of the Notes and as a consequence, the Group can be demanded to repay immediately the whole amount of the outstanding Notes of US$192,000,000 (approximately HK$1,499,885,000) in principal and accrued interest of approximately HK$388,613,000 up to 30 June 2009.

In forming our opinion and review conclusion, we have considered the adequacy of the disclosures made in note 3(c) of Section (II) below concerning the adoption of the going concern basis on which the Financial Information has been prepared. The Group is currently undertaking a number of measures to remedy the non-compliances. The appropriateness of preparing the Financial Information on the going concern basis depends on the outcomes of (i) further agreements that can be reached between the Group and these lenders of borrowings; (ii) the arrangement of a debt rescheduling plan to relax the terms and conditions of the Notes; (iii) obtaining new banking facilities to finance certain property development projects; and (iv) realisation of certain assets to provide additional funding as necessary. We consider that appropriate disclosures have been made; however, we consider that this material uncertainty is so extreme that we disclaim our opinion for the Financial Information for the Relevant Periods and are unable to reach a review conclusion for the 30 June 2008 Financial Information in respect of the appropriateness of the going concern basis. The Financial Information does not include any adjustments that would be necessary if the Group failed to operate as a going concern. Had the going concern basis not been used, adjustments would have to be made to reduce the carrying value of the Group’s assets to their recoverable amounts, to provide further liabilities which might arise, and to reclassify non-current assets and noncurrent liabilities as current assets and current liabilities respectively. Such adjustments may have a significant consequential effect on the Group’s net assets as at 31 December 2006, 2007 and 2008 and 30 June 2009 and the Group’s results for the Relevant Periods and the six months ended 30 June 2008.

Disclaimer of opinion in respect of the Financial Information for the Relevant Periods

Because of the significance of the material uncertainty relating to the going concern basis, we do not express an opinion on the Financial Information for the Relevant Periods as to whether it gives a true and fair view of the state of affairs of the Group as at 31 December 2006, 2007 and 2008 and 30 June 2009, and of the consolidated results and cash flows of the Group for each of the three years ended 31 December 2006, 2007 and 2008 and the six months ended 30 June 2009.

Had we not disclaimed our opinion in respect of the Financial Information for the six months ended 30 June 2009, we would have qualified our audit opinion on the Financial Information in respect of the carrying amounts of the Notes comprising the convertible notes and the financial derivative liabilities as at 30 June 2009 as they have not been stated to the amount that could be demanded for repayment according to the terms in the Trust Deed as a result of the breach of contract as detailed in note 3(a) of Section (II) below.

Inability to reach a review conclusion in respect of the 30 June 2008 Financial Information

Because of the significance of the material uncertainty relating to the going concern basis, we are unable to reach a review conclusion as to whether material modifications should be made to the 30 June 2008 Financial Information.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(I) FINANCIAL INFORMATION

Consolidated Statements of Comprehensive Income

The following is the consolidated results of the Group for the Relevant Periods and the six months ended 30 June 2008 prepared on the basis set out in Section (II) below:

Notes Revenue 7 Cost of sales and services Gross profit Other income Sales and marketing expenses Administrative expenses Fair value changes in investment properties Impairment loss on goodwill Fair value changes in financial derivative liabilities – convertible notes – convertible preference shares Discount on business combinations Share of (loss) profit of associate, net of tax Finance costs 8 Finance income 8 Profit (loss) before income tax 9 Income tax (expense) credit 13 PROFIT (LOSS) FOR THE YEAR/PERIOD	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 50,329 125,631 564,650 (19,974) (65,804) (335,813) 30,355 59,827 228,837 349 493 4,066 (128) (9,091) (22,569) (43,953) (134,917) (179,831) 95,634 (22,926) (119,263) – – (66,511) – 267,789 976,924 – (11,507) – – 67,965 – (112) 8,251 – (8,214) (79,877) (189,957) 4,090 14,089 2,982 78,021 160,096 634,678 (33,152) 61,239 49,670 44,869 221,335 684,348	Six months ended 30 June 2008 2009 HK$’000 HK$’000 (Unaudited) 148,958 142,077 (62,297) (54,906) 86,661 87,171 708 691 (10,124) (15,682) (89,244) (85,659) – – – – 514,691 (263,951) – – – – – – (81,709) (120,950) 2,189 316 423,172 (398,064) 2,581 1,788 425,753 (396,276)	Six months ended 30 June 2008 2009 HK$’000 HK$’000 (Unaudited) 148,958 142,077 (62,297) (54,906) 86,661 87,171 708 691 (10,124) (15,682) (89,244) (85,659) – – – – 514,691 (263,951) – – – – – – (81,709) (120,950) 2,189 316 423,172 (398,064) 2,581 1,788 425,753 (396,276)
			87,171 691 (15,682) (85,659) – – (263,951) – – – (120,950) 316
			(398,064) 1,788
			(396,276)

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes Other comprehensive income: Exchange differences arising on consolidation of foreign operations Share of other comprehensive income of associate Surplus arising from revaluation upon acquisition of subsidiaries Impairment loss on properties held for development charged to property revaluation reserve Deferred tax credit in respect of impairment loss on properties held for development TOTAL COMPREHENSIVE INCOME FOR THE YEAR/PERIOD Profit (loss) for the year/period attributable to: – Equity holders of the Company – Minority interests Total comprehensive income for the year/period attributable to: – Equity holders of the Company – Minority interests Earnings (loss) per share 15 – Basic – Diluted	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 17,791 174,763 186,825 – 4,274 – – 84,842 – – – (71,151) – – 17,788 17,791 263,879 133,462 62,660 485,214 817,810 46,621 209,078 685,128 (1,752) 12,257 (780) 44,869 221,335 684,348 61,556 464,021 818,528 1,104 21,193 (718) 62,660 485,214 817,810 HK4.872 cents HK17.398 cents HK46.337 cents HK4.162 cents (HK1.750 cents) (HK13.484 cents)	Six months ended 30 June 2008 2009 HK$’000 HK$’000 (Unaudited) 193,146 (365) – – – – – – – – 193,146 (365) 618,899 (396,641) 426,094 (391,905) (341) (4,371) 425,753 (396,276) 619,014 (392,268) (115) (4,373) 618,899 (396,641) HK28.853 cents (HK26.522 cents) (HK3.137 cents) (HK26.522 cents)	Six months ended 30 June 2008 2009 HK$’000 HK$’000 (Unaudited) 193,146 (365) – – – – – – – – 193,146 (365) 618,899 (396,641) 426,094 (391,905) (341) (4,371) 425,753 (396,276) 619,014 (392,268) (115) (4,373) 618,899 (396,641) HK28.853 cents (HK26.522 cents) (HK3.137 cents) (HK26.522 cents)
			(365)
			(396,641)

			(391,905) (4,371)
			(396,276)

			(392,268) (4,373)
			(396,641)

			(HK26.522 cents)

			(HK26.522 cents)

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statements of Financial Position

The following is the consolidated statements of financial position of the Group as at the end of each of the Relevant Periods prepared on the basis set out in Section (II) below:

Notes Non-current assets Property, plant and equipment 16 Prepaid lease payments – non-current portion 17 Investment properties 18 Properties held for development 19 Goodwill 20 Interest in an associate 21 Deposits for acquisition of land use right 22 Loan receivable – non-current portion 27 Current assets Properties held for sale 24 Prepaid lease payments – current portion 17 Properties under development 19 Inventories 26 Trade and other receivables 27 Financial asset at fair value through profit or loss Restricted and pledged deposits 28 Cash and cash equivalents 29 Assets classified as held for sale 30	As at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 1,723 1,017,087 1,046,987 165 223,808 736,550 475,248 492,325 401,543 698,945 1,529,339 962,867 49,655 118,088 68,316 155,203 – – – 32,408 – 7,963 – – 1,388,902 3,413,055 3,216,263 676 603,427 573,808 3 445,191 494,718 – – 86,268 – 31,790 19,542 19,944 31,016 33,900 630 – – – 358,711 67,737 47,993 63,338 53,720 69,246 1,533,473 1,329,693 – – 713,399 69,246 1,533,473 2,043,092	As at 30 June 2009 HK$’000 961,291 692,554 401,497 1,014,446 68,308 – – –
		3,138,096
		620,364 524,922 183,042 13,519 43,125 – 25,139 290,584
		1,700,695 733,016
		2,433,711

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes Current liabilities Trade and other payables 31 Bank and other borrowings – current portion 32 Convertible notes – current portion 33 Deferred income Income tax payable Liabilities associated with assets classified as held for sale 30 Net current assets Total assets less current liabilities Non-current liabilities Other payable 31 Bank and other borrowings – non-current portion 32 Convertible notes – non-current portion 33 Financial derivative liabilities 33 Loan from minority shareholder of a subsidiary 34 Deferred tax liabilities 35 Net assets Capital and reserves Share capital 36 Reserves 37 Equity attributable to equity holders of the Company Minority interests Total equity	As at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 24,612 241,904 219,761 17,991 242,790 280,228 – – – – – 3,779 20,627 24,161 48,080 63,230 508,855 551,848 – – 108,884 63,230 508,855 660,732 6,016 1,024,618 1,382,360 1,394,918 4,437,673 4,598,623 63,573 63,573 63,573 82,327 940,339 1,042,480 – 211,946 306,337 21,395 1,081,572 93,162 244,936 – 273,968 215,822 453,561 273,674 628,053 2,750,991 2,053,194 766,865 1,686,682 2,545,429 12,354 14,659 14,777 709,166 1,672,023 2,505,918 721,520 1,686,682 2,520,695 45,345 – 24,734 766,865 1,686,682 2,545,429	As at 30 June 2009 HK$’000 288,991 280,595 119,230 3,077 40,439
		732,332 108,217
		840,549
		1,593,162
		4,731,258
		6,305 1,407,311 262,306 357,113 277,339 271,856
		2,582,230
		2,149,028

		14,777 2,113,890
		2,128,667 20,361
		2,149,028

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statements of Changes in Equity

The following is the consolidated statements of changes in equity of the Group for the Relevant Periods and the six months ended 30 June 2008 prepared on the basis set out in Section (II) below:

Notes Year ended 31 December 2006 At 1 January 2006 Total comprehensive income for the year Contribution from minority shareholder of a subsidiary 34 Conversion of convertible notes 36(a)(iii) Issue of shares: – Open offer 36(a)(iv) – Exercise of bonus warrants 36(a)(v) Expenses incurred on issue of shares Recognition of equity-settled share-based payment expenses Elimination of share capital of a subsidiary under common control combination Acquisition of subsidiaries 40(b) At 31 December 2006			Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company				Minority interests HK$’000 – 1,104 25,425 – – – – – – 18,816 45,345	Total HK$’000 365,210 62,660 25,425 56,107 240,593 11 (5,531) 3,584 (10) 18,816
	Share capital HK$’000 7,862 – – 1,818 2,674 – – – – – 12,354	Contributed Share surplus premium reserve HK$’000 HK$’000 433,823 15,497 – – – – 58,496 – 237,919 – 11 – (5,531) – – – – – – – 724,718 15,497	Share- Convertible based notes payment equity reserve reserve HK$’000 HK$’000 – 4,207 – – – – – (4,207) – – – – – – 3,584 – – – – – 3,584 –	Merger reserve HK$’000 (301,652) – – – – – – – (10) – (301,662)	Statutory reserves HK$’000 6,108 – – – – – – – – – 6,108	Foreign exchange reserve HK$’000 4,329 14,935 – – – – – – – – 19,264	Retained profits HK$’000 195,036 46,621 – – – – – – – – 241,657	Sub-total HK$’000 365,210 61,556 – 56,107 240,593 11 (5,531) 3,584 (10) – 721,520
										766,865

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Share capital Notes HK$’000 Year ended 31 December 2007 At 1 January 2007 12,354 Total comprehensive income for the year – Conversion of convertible notes 36(a)(viii) 347 Conversion of convertible preference shares 36(a)(vii) – Issue of shares: – Convertible preference shares 36(a)(vi) 1,905 – Exercise of bonus warrants 36(a)(v) 53 Expenses incurred on issue of shares – Transfer among reserves – Recognition of equity- settled share-based payment expenses – Acquisition of minority interests in a subsidiary 40(b) – At 31 December 2007 14,659				Attrib	utable to equity holders of	utable to equity holders of	the Company	the Company			Sub-total HK$’000 721,520 464,021 42,543 59,757 380,492 5,800 (13) – 12,562 – 1,686,682	Minority interests HK$’000 45,345 21,193 – – – – – – – (66,538) –	Total HK$’000 766,865 485,214 42,543 59,757 380,492 5,800 (13) – 12,562 (66,538)
		Share premium HK$’000 724,718 – 42,196 59,757 378,587 5,747 (13) – – – 1,210,992	Contributed surplus reserve HK$’000 15,497 – – – – – – – – – 15,497	Share- based payment reserve HK$’000 3,584 – – – – – – – 12,562 – 16,146	Property revaluation reserve HK$’000 – 84,842 – – – – – – – – 84,842	Merger reserve HK$’000 (301,662) – – – – – – – – – (301,662)	Statutory reserves HK$’000 6,108 – – – – – – – – – 6,108	Other reserves HK$’000 – – – – – – – 2,049 – – 2,049	Foreign exchange reserve HK$’000 19,264 170,101 – – – – – – – – 189,365	Retained profits HK$’000 241,657 209,078 – – – – – (2,049) – – 448,686
													1,686,682

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Share capital Notes HK$’000 Year ended 31 December 2008 At 1 January 2008 14,659 Total comprehensive income for the year – Contribution from minority shareholder of a subsidiary – Conversion of convertible notes 36(a)(viii) 116 Reallocation of lapsed options from share-based payment reserve to retained profits – Issue of shares: – Exercise of bonus warrants 36(a)(v) – – Exercise of share options 36(a)(ix) 2 Expenses incurred on issue of shares – Transfer among reserves – Recognition of equity- settled share-based payment expenses – At 31 December 2008 14,777				Attrib	utable to equity holders of	utable to equity holders of	the Company	the Company			Sub-total HK$’000 1,686,682 818,528 – 13,671 – 8 340 (12) – 1,478 2,520,695	Minority interests HK$’000 – (718) 25,452 – – – – – – – 24,734	Total HK$’000 1,686,682 817,810 25,452 13,671 – 8 340 (12) – 1,478
		Share premium HK$’000 1,210,992 – – 13,555 – 8 411 (12) – – 1,224,954	Contributed surplus reserve HK$’000 15,497 – – – – – – – – – 15,497	Share- based payment reserve HK$’000 16,146 – – – (4,838) – (73) – – 1,478 12,713	Property revaluation reserve HK$’000 84,842 (53,363) – – – – – – – – 31,479	Merger reserve HK$’000 (301,662) – – – – – – – – – (301,662)	Statutory reserves HK$’000 6,108 – – – – – – – – – 6,108	Other reserves HK$’000 2,049 – – – – – – – 4,109 – 6,158	Foreign exchange reserve HK$’000 189,365 186,763 – – – – – – – – 376,128	Retained profits HK$’000 448,686 685,128 – – 4,838 – – – (4,109) – 1,134,543
													2,545,429

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

			Attrib	utable to equity holders of	utable to equity holders of	the Company	the Company			Total HK$’000 1,686,682 618,899 4,881 13,671 – 7 340 (9) – 925
Share capital HK$’000 14,659 – – 116 – – 2 – – – 14,777 14,777 – – – 14,777	Share premium HK$’000 1,210,992 – – 13,555 – 7 411 (9) – – 1,224,956 1,224,954 – – – 1,224,954	Contributed surplus reserve HK$’000 15,497 – – – – – – – – – 15,497 15,497 – – – 15,497	Share- based payment reserve HK$’000 16,146 – – – (527) – (73) – – 925 16,471 12,713 – – 240 12,953	Property revaluation reserve HK$’000 84,842 – – – – – – – – – 84,842 31,479 – – – 31,479	Merger reserve HK$’000 (301,662) – – – – – – – – – (301,662) (301,662) – – – (301,662)	Statutory reserves HK$’000 6,108 – – – – – – – – – 6,108 6,108 – – – 6,108	Other reserves HK$’000 2,049 – – – – – – – 1,582 – 3,631 6,158 – 1,750 – 7,908	Foreign exchange reserve HK$’000 189,365 192,920 – – – – – – – – 382,285 376,128 (363) – – 375,765	Retained profits HK$’000 448,686 426,094 – – 527 – – – (1,582) – 873,725 1,134,543 (391,905) (1,750) – 740,888
										2,325,396

										2,545,429 (396,641) – 240
										2,149,028

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statements of Cash Flows

The following is the consolidated statements of cash flows of the Group for the Relevant Periods and the six months ended 30 June 2008 prepared on the basis set out in Section (II) below:

Notes
Net cash (used in) generated from
operating activities
40(a)
Investing activities
Interest received
Acquisitions of subsidiaries
(Payments for acquisition) sale proceeds
from disposal of financial asset at fair
value through profit or loss
Repayment of loan to an associate
Capital contributions to an associate
Additions to properties held for/under
development
Additions to prepaid lease payments
Additions to hotel properties
Payment of construction costs of
completed properties in prior year
Purchases of property, plant and equipment
Proceeds from sale of property,
plant and equipment
Net cash used in investing activities

Six months
Year ended 31 December
ended 30 June
2006
2007
2008
2008
2009
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(Unaudited)
(5,338)
(158,933)
137,662
112,382
(13,225)
2,800
2,801
4,149
353
316
(288,234) (1,195,082)
–
–
–
(495)
674
–
–
–
14,652
–
–
–
–
–
(2,303)
–
–
–
(1,911)
(7,623)
(95,525)
(46,529)
(79,233)
–
–
(597,558)
(595,226)
–
–
(135,540)
–
–
–
–
–
(82,817)
(61,148)
(18,149)
(1,748)
(34,585)
(48,808)
(44,565)
(413)
–
–
4
–
114
(274,936) (1,371,658)
(820,555)
(747,115)
(97,365)

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes
Financing activities
Proceeds from issuance of ordinary shares
Exercise of bonus warrants
Proceeds from shares issued under
share option scheme
Expenses incurred on issue of shares
Proceeds from issue of convertible notes
Payment of issuing cost for convertible notes
Repayment of cash advances from a
related company
(Increase) decrease in restricted and
pledged deposits
Proceeds from bank and other borrowings
Repayment of bank and other borrowings
Advance from minority shareholder
of a subsidiary
Capital contributions from minority
shareholder of a subsidiary
Net cash from financing activities
Net (decrease) increase in cash and
cash equivalents
Effect of foreign exchange rate changes
Cash and cash equivalents at
beginning of year/period
Less: Balance classified as assets held
for sale
Cash and cash equivalents at end
of year/period
29

Six months
Year ended 31 December
ended 30 June
2006
2007
2008
2008
2009
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(Unaudited)
240,593
–
–
–
–
11
5,800
8
7
–
–
–
340
340
–
(5,531)
(13)
(12)
(9)
–
–
1,562,380
–
–
–
–
(13,472)
–
–
–
–
(33,709)
–
–
–
–
(358,711)
290,268
260,946
42,598
62,745
401,206
254,037
108,480
487,293
(62,627)
(21,306)
(170,985)
(21,326)
(185,429)
–
–
271,321
275,128
3,404
–
–
25,452
4,881
–
235,191
1,542,175
670,429
628,447
347,866
(45,083)
11,584
(12,464)
(6,286)
237,276
966
3,761
3,712
12,755
(412)
92,110
47,993
63,338
63,338
53,720
47,993
63,338
54,586
69,807
290,584
–
–
(866)
–
–
47,993
63,338
53,720
69,807
290,584

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(II) NOTES TO THE FINANCIAL INFORMATION

1. GENERAL INFORMATION

The Company is incorporated in Bermuda as an exempted company with limited liability and its shares are listed on the Stock Exchange. Its registered office, head office and principal place in the PRC, and principal place of business in Hong Kong are at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda, 32nd to 33rd floors of Skyfame Tower, 8 Linhe Zhong Road, Tianhe District, Guangzhou, Guangdong Province, PRC, and 2502B, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong respectively.

The Company’s parent is Grand Cosmos Holdings Limited (“Grand Cosmos”) and ultimate holding company is Sharp Bright International Limited (“Sharp Bright”). Grand Cosmos and Sharp Bright are both incorporated in the British Virgin Islands (the “BVI”).

On 28 May 2007, a sale and purchase agreement was entered into between Fine Luck Group Limited (“Fine Luck”), which is a subsidiary of the Company, and Full Ocean Development Inc. (“Full Ocean”), which is wholly owned by Mr. Yu Pan. Full Ocean agreed to sell its interest in the entire issued share capital of Long World Trading Limited (“Long World”) to Fine Luck at a consideration of approximately HK$303,654,000, including transaction costs of HK$1,992,000. It was settled by way of issuing 145,537,077 convertible preference shares of HK$0.01 each of the Company, with a fair value of approximately HK$301,662,000 at initial recognition. The transfer of controlling interests in Long World was completed on 19 July 2007.

Since the Company and Full Ocean were ultimately controlled by Mr. Yu Pan, the transfer of the controlling interests in Long World as mentioned above is regarded as a common control combination. Accordingly, the Financial Information of the Group for the Relevant Periods has been prepared based on the principle of Accounting Guideline 5 “Merger Accounting for Common Control Combinations” issued by the HKICPA as if the transfer of the controlling interests in Long World had been completed as at 1 January 2006.

The principal activity of the Company is investment holding. The principal activities of its subsidiaries are property development, property investment, hotel operation and the provision of related ancillary services, and the provision of property development project management and interior decoration services.

2. ADOPTION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

The Group has adopted all of new and revised standards and interpretations issued by HKICPA that are relevant to its operations and effective for the Relevant Periods in the preparation of the Financial Information throughout the Relevant Periods.

The following new standards, amendments and interpretations to the existing standards are not yet effective and have not been early adopted by the Group:

HKFRSs Amendments Improvements to HKFRSs (issued April 2009)[1] Improvements to HKFRS 5 as part of Improvements to HKFRSs (issued May 2008)[2] HKAS 27 (Revised) Consolidated and Separate Financial Statements[2] HKAS 39 Amendment Eligible Hedged Items[2] HKFRS 1 (Revised) First-time Adoption of Hong Kong Financial Reporting Standards[2] Amendments to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards – Additional Exemptions for First-time Adopters[3] HKFRS 2 (Amendments) Share-based Payment – Group Cash-settled Share-based Payment Transaction[3] HKFRS 3 (Revised) Business Combinations[2] HK(IFRIC) – Interpretation 17 Distributions of Non-cash Assets to Owners[2] HK(IFRIC) – Interpretation 18 Transfers of Assets from Customers[4]

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

1 Effective for annual periods beginning on or after 1 July 2009 and 1 January 2010, as appropriate. 2 Effective for annual periods beginning on or after 1 July 2009. 3 Effective for annual periods beginning on or after 1 January 2010. 4 Effective for transfers of assets from customers received on or after 1 July 2009.

The adoption of HKFRS 3 (Revised) may affect the accounting policy on business combination for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. The adoption of HKAS 27 (Revised) may affect the accounting treatment for changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control, which will be accounted for as equity transactions.

Except for these, the Directors anticipate that the application of the other HKFRSs will have no material impact on the results and the financial position of the Group.

3. BASIS OF PREPARATION

(a) Statement of compliance

The Financial Information has been prepared in accordance with all applicable HKFRSs issued by the HKICPA, except for the non-compliance with Hong Kong Accounting Standard 39 “Financial Instruments: Recognition and Measurement” issued by the HKICPA which require that the Notes, which have become due on demand as at 30 June 2009 arising from the default as set out in notes 3(c)(iii) and 33, should be carried at the value not less than the amount payable on demand and wholly classified as current liabilities, representing additional liabilities of approximately HK$1,506,962,000. The fair value of the financial derivative liabilities as at 30 June 2009 should be measured on the basis that the entire Notes have become repayable on demand. However, the Directors consider that whilst the Company is negotiating about the restructuring of the Notes which will involve the redemption of the Notes, in its entirety or partially, with the net proceed from the Disposal, the Directors believe that the Noteholders will refrain from taking any action to demand for repayment of any convertible notes until the outcome of the negotiations are reached at.

In addition, the Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and by the Hong Kong Companies Ordinance.

(b) Basis of measurement

The Financial Information has been prepared under the historical cost basis, except that the following assets and liabilities are stated at their revalued amounts or fair values as explained in the accounting policies set out in note 4:

investment properties;
derivative financial instruments; and
financial asset at fair value through profit or loss.

Assets and liabilities classified as held for sale are stated at the lower of their carrying amount and fair value less costs to sell.

(c) Going concern

As disclosed in notes 32(b) and 33, notwithstanding

(i) the non-payment of a term loan of HK$220,000,000 (the “Term Loan”) which was due on 29 January 2009;
(ii) that the Group is not in compliance with the Trust Deed in relation to the US$200,000,000 (with current outstanding principal of US$192,000,000) convertible notes due 2013, on grounds that a subsidiary of the Company cannot obtain the land use right certificate and other permits in respect of the Zhoutouzui Project by 31 May 2009; and

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iii) that the default of the terms of the Trust Deed has been triggered by the standstill for non-payment of the Term Loan not being extended by the Term Loan lenders, as mentioned in note (i) above,

the Financial Information has been prepared using the going concern basis, a fundamental accounting concept adopted in the presentation of the Financial Information. In consequence of the breaches under the Trust Deed, should no restructuring plan be reached with the holders of the Notes (“Noteholders”), the whole amount of the outstanding notes of US$192,000,000 (approximately HK$1,499,885,000) in principal and accrued interests of the Notes (which amounted to approximately HK$388,613,000 as at 30 June 2009) will become repayable immediately (the “Early Redemption”). The Directors considered carefully that the business of the Group is a going concern after having considered the assumptions and qualifications that have material effects on the Group’s results and financial position for the foreseeable period covering the next twelve months since the end of the reporting period. Key assumptions are as follows:

(1) The general economic performance in the PRC and the specific industrial parameters affecting the hotel and real estate sectors are becoming stable;
(2) The contractual terms offered from suppliers and creditors are not affected by the abovementioned non-compliances;
(3) No acceleration of the bank loan amortisation in the light of the potential claims nor there will be any claims for consequential losses or damages;
(4) The Group’s transaction to dispose of its 100% interest in CJTY as described in Section (III) would be completed, and other assets can be realised to provide sufficient funding to meet with the claims from lenders of the Term Loan and Early Redemption;
(5) New banking facilities have been and will be available to the Group from financial institutions to finance work in progress of the Zhoutouzui and Guiyang Projects in accordance with respective construction timetables; and
(6) The Directors believe that the Noteholders and the Company can reach an agreement to restructure the existing terms of the Notes which take the effect to relax certain conditions of the Notes such as by waiving all the unpaid interests accrued up to the date of Early Redemption or/and extending their rights of the put options which are exercisable from 4 May 2010 onwards.

The Directors believe that the Group will have sufficient cash resources to satisfy its future working capital and other financing requirements. Accordingly, the Financial Information has been prepared on a going concern basis and does not include any adjustments that would be required should the Group fail to continue as a going concern.

(d) Use of estimates and judgements

The preparation of Financial Information in conformity with HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity or areas where assumptions and estimates are significant to the Financial Information are disclosed in note 5.

(e) Functional and presentation currency

Due to the continuing expansion of the Group’s business operations in the PRC, the Directors assessed that the functional currency of the Company and the principal subsidiaries of the Company to be Renminbi (“RMB”).

The Financial Information is presented in HK$ as management of the Company controls and monitors the performance and financial position of the Group by using HK$.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. PRINCIPAL ACCOUNTING POLICIES

(a) Basis of consolidation

The Financial Information comprises the financial statements of the Company and of its subsidiaries. Inter-company transactions and balances between group companies are eliminated in full in preparing the Financial Information.

On acquisition, the assets and liabilities of the relevant subsidiaries are measured at their fair values at the date of acquisition. The interest of minority shareholders is stated at the minority’s proportion of the fair values of the assets and liabilities recognised.

The results of subsidiaries acquired or disposed of during the Relevant Periods are included in the consolidated statement of comprehensive income from the effective dates of acquisition or up to the effective dates of disposal, as appropriate.

Minority interests represent the portion of the net assets of subsidiaries attributable to interests that are not owned by the Company, whether directly or indirectly through subsidiaries, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. Minority interests are presented in the consolidated statement of financial position within equity, separately from equity attributable to the equity shareholders of the Company. Minority interests in the results of the Group are presented on the face of the consolidated statement of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the Relevant Periods between minority interests and the equity shareholders of the Company.

Where losses applicable to the minority exceed the minority’s interest in the equity of a subsidiary, the excess, and any further losses applicable to the minority, are charged against the Group’s interest except to the extent that the minority has a binding obligation to, and is able to, make additional investment to cover the losses. If the subsidiary subsequently reports profits, the Group’s interest is allocated all such profits until the minority’s share of losses previously absorbed by the Group has been recovered.

(b) Subsidiaries

A subsidiary is an entity over which the Company is able to exercise control. Control is achieved where the Company, directly or indirectly, has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.

(c) Associates

Where the Group has the power to participate in (but not control nor joint control) the financial and operating policy decisions of another entity, that another entity is classified as an associate. Associates are accounted for using the equity method whereby they are initially recognised at cost and thereafter, their carrying values are adjusted for the Group’s share of the post-acquisition change in the associates’ net assets-except that losses in excess of the Group’s interest in the associate are not recognised unless there is an obligation to make good those losses.

Profits and losses arising on transactions between the Group and its associates are recognised only to the extent of unrelated investors’ interests in the associate. The investor’s share in the associate’s profits and losses resulting from these transactions is eliminated against the carrying value of the associate.

Any premium paid for an associate above the fair value of the Group’s share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the associate and the entire carrying amount of the investment is subject to impairment test in accordance with HKAS 36, by comparing its carrying amount with its recoverable amount, which is higher of value in use and fair value less costs to sell.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(d) Jointly controlled entities

A jointly controlled entity is a joint venture under contractual arrangement whereby the Group and other parties undertake an economic activity which is subject to joint control and none of the participating parties has unilateral control over the economic activity.

Interest in jointly controlled entity is included in the Financial Information using proportionate consolidation. The Group’s share of the jointly controlled entity’s assets, liabilities, income and expenses are combined line-by-line with similar items of the Group. Any premium paid for an interest in jointly controlled entity above the fair value of the Group’s share of identifiable assets, liabilities and contingent liabilities is dealt with under the goodwill policy as set out in note 4(e).

Profits and losses arising on transactions between the Group and jointly controlled entity are recognised only to the extent of unrelated investors’ interests in the entity. The investor’s share in the jointly controlled entity’s profits and losses resulting from these transactions is eliminated against the asset or liability of the jointly controlled entity arising on the transaction.

(e)

Goodwill

Goodwill represents the excess of the cost of a business combination over the interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired. Cost comprises the fair values of assets given, liabilities assumed and equity instruments issued, plus any direct costs of acquisition.

Goodwill is capitalised as a separate asset with any impairment in carrying value being charged to the profit or loss.

Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid (“discount on business combination”), after reassessment the excess is recognised in profit or loss on the date of acquisition.

For the purpose of impairment testing, goodwill arising from an acquisition is allocated to each of the relevant cash-generating units (“CGUs”) that are expected to benefit from the synergies of the acquisition. A CGU to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the unit may be impaired.

For goodwill arising on an acquisition in a financial year, the CGU to which goodwill has been allocated is tested for impairment before the end of that financial year. When the recoverable amount of the CGU is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill to the unit first, and then to the other assets of the unit pro rata on the basis of the carrying amount to each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss and is not reversed in subsequent periods.

(f) Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.

The cost of property, plant and equipment includes its purchase price and the costs directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are recognised in profit or loss during the financial period in which they are incurred.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Property, plant and equipment are depreciated so as to write off their cost net of expected residual value over their estimated useful lives on a straight-line basis. The useful lives, residual value and depreciation method are reviewed, and adjusted if appropriate, at the end of each reporting period. The useful lives are as follows:

Hotel properties and leasehold improvements	10 to 30 years
Office building and leasehold improvements	10 to 30 years
Furniture, fixtures and equipment	2 to 5 years
Motor vehicles	4 to 5 years

An asset is written down immediately to its recoverable amount if its carrying amount is higher than the asset’s estimated recoverable amount.

The gain or loss on disposal of an item of property, plant and equipment is the difference between the net sale proceeds and its carrying amount, and is recognised in profit or loss on disposal.

(g)

Investment properties

Investment properties are properties held to earn rentals or for capital appreciation and not occupied by the Group or held for sale in the ordinary course of business. Investment properties are measured at cost on initial recognition. Subsequent to initial recognition, investment properties are measured at their fair values using the fair value model. Changes in fair value are recognised in profit or loss for the period in which they arise.

(h) Prepaid lease payments

Prepaid lease payments represent up-front payments to acquire long-term interests in lessee occupied properties. These payments are stated at cost less any impairment and are amortised over the period of the lease on a straight-line basis as an expense.

(i) Properties held for sale

Properties held for sale are stated at the lower of cost and net realisable value. Net realisable value represents the estimated selling price of properties sold in the ordinary course of business less estimated costs to be incurred in selling the properties.

(j) Properties held for/under development

Properties held for/under development are stated at cost, less any identified impairment loss. The cost of properties comprises development expenditure, professional fees and borrowing costs capitalised. During the construction period, the amortisation of prepaid lease payments in respect of land use rights is included as part of the cost of properties held for/under development.

(k) Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to lessee. All other leases are classified as operating leases.

The Group as lessor

Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group as lessee

Lease incentives received are recognised as an integrated part of the total rental expenses, over the term of the lease. The total rentals payable under the lease are recognised in profit or loss on a straight-line basis over the lease term.

The land and buildings elements of property leases are considered separately for the purposes of lease classification.

(l) Financial instruments

(i) Financial assets

The Group classifies its financial assets into one of the following two categories, depending on the purpose for which the asset was acquired. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned. The Group’s accounting policy for each category is as follows:

Financial assets at fair value through profit or loss: These assets include financial assets held for trading. Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. Net gains or losses on investments held for trading are recognised in profit or loss.

At the end of each reporting period subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value, with changes in fair value recognised directly in profit or loss in the period in which they arise.

Loans and receivables: These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (trade debtors), but also incorporate other types of contractual monetary asset. Loans and receivables are initially measured at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets. At the end of each reporting period subsequent to initial recognition, they are carried at amortised cost using the effective interest method, less any identified impairment losses.

(ii) Impairment loss on financial assets

Objective evidence that the asset is impaired includes observable data that comes to the attention of the Group includes the following loss events:

significant financial difficulty of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
granting concession to a debtor because of debtors’ financial difficulty; and
it becoming probable that the debtor will enter bankruptcy or other financial reorganisation.

An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. The carrying amount of financial asset is reduced through the use of an allowance account. When any part of financial asset is determined as uncollectible, it is written off against the allowance account for the relevant financial asset.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

(iii) Financial liabilities

The Group classifies its financial liabilities into one of the two categories, depending on the purpose for which the liabilities were incurred. The Group’s accounting policy for each category is as follows:

Financial liabilities at fair value through profit or loss: Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of sale in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognised in profit or loss.

Where a contract contains one or more embedded derivatives, the entire hybrid contract may be designated as a financial liability at fair value through profit or loss, except where the embedded derivative does not significantly modify the cash flows or it is clear that separation of the embedded derivative is prohibited.

At the end of each reporting period subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, with changes in fair value recognised in profit or loss in the period in which they arise.

Financial liabilities at amortised cost: Financial liabilities at amortised cost, including trade and other payables, borrowings and the liability component of convertible notes issued by the Group, are initially recognised at fair value, net of directly attributable transaction costs incurred, and are subsequently measured at amortised cost, using effective interest method. The related interest expense is recognised within “finance costs” in profit or loss.

Gains or losses are recognised in profit or loss when the liabilities are derecognised as well as through the amortisation process.

(iv) Convertible debts

Convertible notes issued in 2005 that contain liability and equity components

Convertible notes issued by the Group that contain both the liability and conversion option components are classified separately into their respective items on initial recognition. Conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company’s own equity instruments is classified as an equity instrument.

On initial recognition, the fair value of the liability component is determined using the prevailing market interest of similar non-convertible debts. The difference between the proceeds of the issue of the convertible notes and the fair value assigned to the liability component, representing the conversion option for the holder to convert the convertible notes into equity, is included in equity (convertible notes equity reserve).

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In subsequent periods, the liability component of the convertible notes is carried at amortised cost using the effective interest method. The equity component, represented by the option to convert the liability component into ordinary shares of the Company, will remain in convertible notes equity reserve until the embedded option is exercised, in which case the balance stated in convertible notes equity reserve will be transferred to share premium. Where the option remains unexercised at the expiry dates, the balance stated in convertible notes equity reserve will be released to the retained profits. No gain or loss is recognised upon conversion or expiration of the option.

Convertible notes issued in 2007 that contain liability component and conversion option derivative

Convertible notes issued by the Group that contain both liability and conversion option components are classified separately into their respective items on initial recognition. Conversion option that will be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company’s own equity instruments is a conversion option derivative. At the date of issue, both the liability and conversion option components are recognised at fair value.

In subsequent periods, the liability component of the convertible notes is carried at amortised cost using the effective interest method. The conversion option derivative is measured at fair value with changes in fair value recognised in profit or loss, in accordance with note 4(l)(iii).

Transaction costs that relate to the issue of the convertible notes are allocated to the liability and conversion option components in proportion to the allocation of the proceeds. Transaction costs related to the conversion option derivative is recognised in profit or loss immediately. Transaction costs relating to the liability component are included in the carrying amount of the liability portion and amortised over the period of the convertible notes using the effective interest method.

(v) Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

(vi) Derecognition

The Group derecognises a financial asset where the contractual rights to the future cash flows in relation to the financial asset expire or where the financial asset has been transferred and the transfer meets the criteria for derecognition in accordance with HKAS 39.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires.

(m) Inventories

Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(n) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable from goods sold or services provided as follows:

(i) Revenue from sale of properties is recognised when the risks and rewards of ownership of the properties are transferred to the purchasers, which is when the construction of relevant properties has been completed, the properties have been delivered to the purchasers pursuant to the sales agreement and collectability of related receivables is reasonably assured. Deposits and instalments received on properties sold prior to the date of revenue recognition are included as trade and other payables under current liabilities in the statement of financial position.
(ii) Rental income under operating leases is recognised on a straight-line basis over the terms of the relevant leases.
(iii) Revenue from hotel operation and from the provision of related ancillary services is recognised when the relevant services are provided.
(iv) Income from the provision of property development project management and interior decoration services are recognised when project management services are provided.
(v) Interest income is accrued on a time basis on the principal outstanding at the applicable interest rates.

(o) Income taxes

Income taxes for the Relevant Periods comprise current tax and deferred tax.

Current tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowable for income tax purposes and is calculated using tax rates that have been enacted or substantively enacted at the end of each reporting period.

Deferred tax arises from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for tax purposes, and is accounted for using the balance sheet liability method. Except for temporary differences arising from goodwill or from the initial recognition (other than in a business combination) of recognised assets and liabilities that affect neither accounting nor taxable profits, deferred tax liabilities are recognised for all temporary differences. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

Deferred tax liabilities are recognised for taxable temporary differences arising on investment in subsidiaries, associate and jointly controlled entity, except where the Group is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax is measured at the tax rates expected to apply in the period when the liability is settled or the asset is realised based on tax rates that have been enacted or substantively enacted at the end of each reporting period. Income taxes are recognised in profit or loss except when they relate to items directly recognised in other comprehensive income in which case the taxes are also recognised in other comprehensive income.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(p) Foreign currency

Transactions entered into by each of the entities in the Group in currencies other than the currency of the primary economic environment in which it operates (the “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the end of each reporting period. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised in other comprehensive income, in which case, the exchange differences are also recognised in other comprehensive income.

On consolidation, the results of foreign operations are translated into the presentation currency of the Group (i.e. Hong Kong dollars) at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the rates approximating to those ruling when the transactions took place are used. All assets and liabilities of overseas operations are translated at the rate ruling at the end of each reporting period. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income (the “foreign exchange reserve”). Exchange differences recognised in profit or loss of the group entities’ separate financial statements on the translation of long-term monetary items forming part of the Group’s net investment in the foreign operation concerned are reclassified to the foreign exchange reserve.

On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to profit or loss as part of the profit or loss on disposal.

Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of a foreign operation on or after 1 January 2005 are treated as assets and liabilities of that foreign operation and translated at the rate of exchange prevailing at the end of each reporting period. Exchange differences arising are recognised in the foreign exchange reserve.

(q) Employee benefits

(i) Defined contribution pension plan

Contributions to defined contribution retirement plan are recognised as an expense in profit or loss when the services are rendered by the employees.

(ii) Termination benefits

Termination benefits are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(r) Share-based payments

Where share options are awarded to employees, the fair value of the options at the date of grant is recognised in profit or loss over the vesting period with a corresponding increase in the share-based payment reserve within equity. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at the end of each reporting period so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition.

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also recognised in profit or loss over the remaining vesting period.

Where equity instruments are granted to persons other than employees, the fair value of goods or services received is recognised in profit or loss unless the goods or services qualify for recognition as assets. A corresponding increase in the share-based payment reserve within equity is recognised. For cash-settled share based payments, a liability is recognised at the fair value of the goods or services received.

(s) Impairment of non-financial assets other than goodwill

At the end of each reporting period, the Group reviews the carrying amounts of property, plant and equipment, prepaid lease payments, properties held for/under development and interest in an associate to determine whether there is any indication that those assets have suffered an impairment loss or an impairment loss previously recognised no longer exists or may have decreased.

If the recoverable amount (i.e. the greater of the fair value less costs to sell and value in use) of a nonfinancial asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

(t) Borrowing costs

Borrowing costs attributable directly to the acquisition, construction or production of assets which require a substantial period of time to be ready for their intended use or sale, are capitalised as part of the cost of those assets. Income earned on temporary investments of specific borrowings pending their expenditure on those assets is deducted from borrowing costs capitalised.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

(u)

Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, which will probably result in an outflow of economic benefits that can be reasonably estimated.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

(v) Business combinations under common control

Business combinations under common control are accounted for in accordance with the Accounting Guideline 5 “Merger Accounting for Common Control Combinations” issued by the HKICPA. The Financial Information incorporates the financial statement items of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or businesses first came under the control of the controlling party.

The net assets of the combining entities or businesses are combined using the existing book values from the controlling party’s perspective. No amount is recognised in respect of goodwill or excess of acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party’s interest.

The consolidated statement of comprehensive income includes the results of each of the combining entities or businesses from the earliest date presented or since the date when the combining entities or businesses first came under the common control, where this is a shorter period, regardless of the date of the common control combination.

All intra-group transactions and balances have been eliminated on combination.

(w) Non-current assets held for sale and disposal groups

Non-current assets and disposal groups are classified as held for sale when:

they are available for immediate sale;
management is committed to a plan to sell;
it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn;
– an active programme to locate a buyer has been invited;
the asset or disposal group is being marketed at a reasonable price in relation to its fair value; and
– a sale is expected to complete within 12 months from the date of classification.

Non-current assets and disposal groups classified as held for sale are measured at the lower of:

(i) their carrying amount immediately prior to being classified as held for sale in accordance with the Group’s accounting policy; and
(ii) fair value less costs to sell.

Following their classification as held for sale, non-current assets (including those in a disposal group) are not amortised or depreciated. The results of operations disposed of during the year are included in the consolidated statement of comprehensive income up to the date of disposal.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. KEY SOURCES OF ESTIMATION UNCERTAINTY

The preparation of this Financial Information requires management to make judgements, estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Key sources of estimation uncertainty are as follows:

Impairment of non-financial assets other than goodwill

If a triggering event occurs indicating that the carrying amount of an asset may not be recoverable, an assessment of the carrying amount of that asset will be performed. Triggering events include significant adverse changes in the market value of an asset, changes in the business or regulatory environment, or certain legal events. The interpretation of such events requires judgement from management with respect to whether such an event has occurred.

Upon the occurrence of triggering events, the carrying amounts of non-financial assets are reviewed to assess whether their recoverable amounts have declined below their carrying amounts. The recoverable amount is the present value of estimated net future cash flows which the Group expects to generate from the future use of the asset, plus residual value of the asset on disposal. Where the recoverable amount of non-financial assets is less than its carrying value, an impairment loss is recognised to write the assets down to its recoverable amount.

The impairment assessment is performed based on the discounted cash flow analysis. This analysis relies on factors such as forecast of future performance and long-term growth rates and the selection of discount rates. If these forecast and assumptions prove to be inaccurate or circumstances change, further write-down or reversal of the write-down of the carrying value of the non-financial assets may be required.

Income taxes and deferred taxes

The Group is subject to taxation in the PRC and Hong Kong. Significant judgement is required in determining the amount of the provision for taxation and the timing of the related payments. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such difference will have impact on the income tax and/or deferred tax provisions in the period in which such determination is made.

Land appreciation taxes

PRC land appreciation tax (“LAT”) is levied at progressive rates ranging from 30% to 60% on the appreciation of land value, being the proceeds of sale of properties less deductible expenditures including amortisation of land use rights, borrowing costs and all property development expenditures.

Those subsidiaries of the Company which are engaged in property development business in the PRC are subject to land appreciation taxes, which have been included in income tax expense in profit or loss. However, the implementation of these taxes varies amongst various PRC cities and the Group has not finalised its LAT returns with various tax authorities. Accordingly, significant judgement is required in determining the amount of land appreciation and its related taxes. The ultimate tax determination is uncertain during the ordinary course of business. The Group recognises these liabilities based on management’s best estimates. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax expense and provision for land appreciation taxes in the period in which such determination is made.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Convertible notes

As described in note 33, the Company’s convertible notes that were issued in 2007 contain a number of embedded derivatives that are remeasured to fair value through profit or loss at subsequent reporting dates. The Company engaged an independent appraiser to assist it in determining the fair value of these embedded derivatives. The determination of fair value was made after consideration of a number of factors, including:

the Group’s financial and operating results;
the global economic outlook in general and the specific economic and competitive factors affecting the Group’s business;
the nature and prospects of the PRC property market;
the Group’s business plan and prospects;
business risks the Group faces; and
market yields and return volatility of comparable corporate bonds.

This conclusion of value was based on generally accepted valuation procedures and practices that rely extensively on the use of numerous assumptions and the consideration of many uncertainties, not all of which can be easily quantified or ascertained.

6. SEGMENT REPORTING

On adoption of HKFRS 8 “Operating segments” and in a manner consistent with the way in which information is reported internally for the purposes of resource allocation and performance assessment, the Group is currently organised into four operating divisions – property development, property investment and hotel operation and related ancillary services (“hotel operation”) and property project management and interior decoration services (“project management”). As management of the Group considers that all consolidated revenue are attributable to the markets in the PRC and consolidated non-current assets are substantially located inside the PRC, no geographical information is presented.

The Group’s reportable segments under HKFRS 8 are as follows:

Property development	–	Property development and sale of properties
Property investment	–	Property leasing
Hotel operation	–	Hotel operation and provision of related ancillary services
Project management	–	Provision of property development project
		management and interior decoration services

The Group’s senior executive management monitors the results attributable to each reportable segment on the basis that revenue and expenses are allocated to the reportable segments with reference to revenue generated by those segments, the expenses directly incurred by those segments and the depreciation or amortisation charges of assets attributable to those segments. Corporate expenses, finance costs and income, results of associates and any nonoperating items which cannot be directly associated with the reportable segments are not allocated to the respective segments.

The measure used for reporting segment results is operating earning (loss) before interest (finance costs and income), income tax, depreciation and amortisation (“adjusted EBITDA”). In addition to information concerning adjusted EBITDA, the management also provides other segment information concerning depreciation and amortisation and fair value changes in investment properties.

Segment assets/liabilities include all assets/liabilities attributable to those segments with the exception of interest in an associate, financial instruments as derivative or for trading purposes, cash and bank balances, unallocated bank and other borrowings, convertible notes and taxes.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Information regarding the Group’s reportable segments as provided to the Group’s most senior executive management for the purposes of resource allocation and assessment of segment performance in the Financial Information is set out below:

(a) Segment results, assets and liabilities

Property development HK$’000 *Year ended 31 December 2006* External revenue 11,920 Inter-segment revenue – Reportable segment revenue 11,920 Operating results (2,785) Add: Depreciation and amortisation 3 Reportable segment results before interest, income tax, depreciation and amortisation (adjusted EBITDA) (2,782) Fair value changes in investment properties – Capital expenditure incurred during the year 1,916 *As at 31 December 2006* Assets Reportable segment assets 752,658 Liabilities Reportable segment liabilities 326,387 *Year ended 31 December 2007* External revenue 2,420 Inter-segment revenue – Reportable segment revenue 2,420 Operating results (13,190) Add: Depreciation and amortisation 2,071 Reportable segment results before interest, income tax, depreciation and amortisation (adjusted EBITDA) (11,119) Fair value changes in investment properties – Discount on business combinations 67,965 Capital expenditure incurred during the year 187,669 *As at 31 December 2007* Assets Reportable segment assets 2,703,455 Liabilities Reportable segment liabilities 372,394	Property investment HK$’000 14,953 483 15,436 11,901 – 11,901 95,634 – 491,794 3,067 18,547 424 18,971 10,404 25 10,429 (22,926) – – 504,727 16,701	Hotel Project operation management HK$’000 HK$’000 – 23,456 – – – 23,456 – 12,519 – 18 – 12,537 – – – 15 – 7,275 – 479 102,190 2,474 – – 102,190 2,474 (35,533) (1,813) 45,997 22 10,464 (1,791) – – – – 210,158 45 1,200,016 277 124,886 155	Total HK$’000 50,329 483 50,812 21,635 21 21,656 95,634 1,931 1,251,727 329,933 125,631 424 126,055 (40,132) 48,115 7,983 (22,926) 67,965 397,872 4,408,475 514,136

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Property development HK$’000 *Year ended 31 December 2008* Reportable segment revenue – external 289,886 Operating results 32,142 Add: Depreciation and amortisation 13,910 Reportable segment results before interest, income tax, depreciation and amortisation (adjusted EBITDA) 46,052 Fair value changes in investment properties – Impairment loss on goodwill (66,511) Capital expenditure incurred during the year 761,128 *As at 31 December 2008* Assets Reportable segment assets 3,385,042 Liabilities Reportable segment liabilities 594,419 *Six months ended 30 June 2008 (Unaudited)* Reportable segment revenue – external 12,245 Operating results (7,376) Add: Depreciation and amortisation 6,773 Reportable segment results before interest, income tax, depreciation and amortisation (adjusted EBITDA) (603) Capital expenditure incurred during the period 718,352 *Six months ended 30 June 2009* Reportable segment revenue – external 21,798 Operating results (1,137) Add: Depreciation and amortisation 5,598 Reportable segment results before interest, income tax, depreciation and amortisation (adjusted EBITDA) 4,461 Capital expenditure incurred during the period 79,394 *As at 30 June 2009* Assets Reportable segment assets 3,638,643 Liabilities Reportable segment liabilities 665,023	Property investment HK$’000 19,345 14,420 10 14,430 (119,263) – – 403,731 21,995 11,429 6,791 5 6,796 – 8,041 4,966 5 4,971 – 403,701 18,499	Hotel operation Miscellaneous HK$’000 HK$’000 255,419 – 10,363 517 78,196 – 88,559 517 – – – – 38,083 – 1,242,211 – 69,893 – 125,284 – 1,787 511 37,861 – 39,648 511 40,278 – 112,238 – (2,869) – 39,130 – 36,261 – 242 – 1,197,588 – 55,098 –	Total HK$’000 564,650

			57,442 92,116
			149,558

			(119,263) (66,511) 799,211

			5,030,984

			686,307

			148,958

			1,713 44,639
			46,352

			758,630

			142,077

			960 44,733
			45,693

			79,636

			5,239,932

			738,620

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(b) Reconciliations of reportable segment revenue, results, and assets and liabilities

Revenue Reportable segment revenue Elimination of inter-segment revenue Consolidated revenue Results Reportable segment results before interest, income tax, depreciation and amortisation (adjusted EBITDA) Unallocated corporate expenses before depreciation and amortisation Depreciation and amortisation – Reportable segment – Unallocated Fair value changes in investment properties Impairment loss on goodwill Fair value changes in financial derivative liabilities – convertible notes – convertible preference shares Discount on business combinations Share of (loss) profit of associate, net of tax Finance costs Finance income Consolidated profit (loss) before income tax Capital expenditure incurred during the year/period – Reportable segment – Unallocated	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 50,812 126,055 564,650 (483) (424) – 50,329 125,631 564,650 21,656 7,983 149,558 (34,665) (41,545) (20,299) (13,009) (33,562) 129,259 (21) (48,115) (92,116) (347) (2,011) (6,640) (13,377) (83,688) 30,503 95,634 (22,926) (119,263) – – (66,511) – 267,789 976,924 – (11,507) – – 67,965 – (112) 8,251 – (8,214) (79,877) (189,957) 4,090 14,089 2,982 78,021 160,096 634,678 1,931 397,872 799,211 1,728 8,964 13,963 3,659 406,836 813,174	Six months ended 30 June 2008 2009 HK$’000 HK$’000 (Unaudited) 148,958 142,077 – – 148,958 142,077 46,352 45,693 (11,081) (11,447) 35,271 34,246 (44,639) (44,733) (2,631) (2,992) (11,999) (13,479) – – – – 514,691 (263,951) – – – – – – (81,709) (120,950) 2,189 316 423,172 (398,064) 758,630 79,636 12,624 10 771,254 79,646	Six months ended 30 June 2008 2009 HK$’000 HK$’000 (Unaudited) 148,958 142,077 – – 148,958 142,077 46,352 45,693 (11,081) (11,447) 35,271 34,246 (44,639) (44,733) (2,631) (2,992) (11,999) (13,479) – – – – 514,691 (263,951) – – – – – – (81,709) (120,950) 2,189 316 423,172 (398,064) 758,630 79,636 12,624 10 771,254 79,646
			142,077

			45,693 (11,447)
			34,246 (44,733) (2,992)
			(13,479) – – (263,951) – – – (120,950) 316
			(398,064)

			79,636 10
			79,646

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Assets Reportable segment assets Interest in an associate Financial asset at fair value through profit or loss Restricted and pledged deposits Cash and cash equivalents Unallocated corporate assets Consolidated total assets Liabilities Reportable segment liabilities Income tax payable Deferred tax liabilities Financial derivative liabilities Convertible notes Unallocated bank and other borrowings Unallocated corporate liabilities Consolidated total liabilities	2006 HK$’000 1,251,727 155,203 630 – 47,993 2,595 1,458,148 329,933 20,627 215,822 21,395 – 100,318 3,188 691,283	As at 31 December As at 30 June 2007 2008 2009 HK$’000 HK$’000 HK$’000 4,408,475 5,030,984 5,239,932 – – – – – – 358,711 67,737 25,139 63,338 53,720 290,584 116,004 106,914 16,152 4,946,528 5,259,355 5,571,807 514,136 686,307 738,620 24,161 48,080 40,439 453,561 273,674 271,856 1,081,572 93,162 357,113 211,946 306,337 381,536 963,129 1,290,440 1,624,333 11,341 15,926 8,882 3,259,846 2,713,926 3,422,779	As at 31 December As at 30 June 2007 2008 2009 HK$’000 HK$’000 HK$’000 4,408,475 5,030,984 5,239,932 – – – – – – 358,711 67,737 25,139 63,338 53,720 290,584 116,004 106,914 16,152 4,946,528 5,259,355 5,571,807 514,136 686,307 738,620 24,161 48,080 40,439 453,561 273,674 271,856 1,081,572 93,162 357,113 211,946 306,337 381,536 963,129 1,290,440 1,624,333 11,341 15,926 8,882 3,259,846 2,713,926 3,422,779
			5,571,807

			738,620 40,439 271,856 357,113 381,536 1,624,333 8,882
			3,422,779

7. REVENUE

Revenue represents the net invoiced amounts received and receivable from property development, property investment, hotel operation and the provision of related ancillary services, and provision of property development project management and interior decoration services. The amounts of each significant category of revenue recognised during the Relevant Periods and the six months ended 30 June 2008 are as follows:

Sale of properties Rental income Hotel operation Property development project management and interior decoration service fees	Six months ended Year ended 31 December 30 June 2006 2007 2008 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 11,920 505 257,399 – – 14,953 20,462 51,832 23,674 29,839 – 102,190 255,419 125,284 112,238 23,456 2,474 – – – 50,329 125,631 564,650 148,958 142,077	Six months ended Year ended 31 December 30 June 2006 2007 2008 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 11,920 505 257,399 – – 14,953 20,462 51,832 23,674 29,839 – 102,190 255,419 125,284 112,238 23,456 2,474 – – – 50,329 125,631 564,650 148,958 142,077
		142,077

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

8. FINANCE COSTS AND INCOME

Notes Finance costs: Interest on convertible notes – wholly repayable within five years 33 – wholly repayable after five years 33 Interest on bank and other borrowings – wholly repayable within five years – wholly repayable after five years Imputed interest on loan from minority shareholder of a subsidiary Interest on short-term loan from a director _Less:_Amount capitalised as properties held for/under development Interest on convertible notes – wholly repayable within five years – wholly repayable after five years Interest on bank and other borrowings – wholly repayable within five years – wholly repayable after five years Imputed interest on loan from minority shareholder of a subsidiary 19 Issue cost on derivative components of convertible notes Other borrowing costs _Less:_Amount capitalised as properties held for/under development 19 Finance costs charged to profit or loss Finance income: Bank interest income Other interest income	Year ended 31 December Six months ended 30 June 2006 2007 2008 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 595 – 156,571 71,027 105,196 – 78,348 – – – – 12,125 36,821 15,445 29,587 5,867 47,884 74,742 36,942 36,092 – 6,020 – – – – – – – 97 6,462 144,377 268,134 123,414 170,972 – – (65,760) (29,831) (44,182) – (44,988) – – – – (12,125) (14,807) (14,264) (9,357) – (9,568) – – – – (6,020) – – – – (72,701) (80,567) (44,095) (53,539) 6,462 71,676 187,567 79,319 117,433 – 6,905 – – –	Year ended 31 December Six months ended 30 June 2006 2007 2008 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 595 – 156,571 71,027 105,196 – 78,348 – – – – 12,125 36,821 15,445 29,587 5,867 47,884 74,742 36,942 36,092 – 6,020 – – – – – – – 97 6,462 144,377 268,134 123,414 170,972 – – (65,760) (29,831) (44,182) – (44,988) – – – – (12,125) (14,807) (14,264) (9,357) – (9,568) – – – – (6,020) – – – – (72,701) (80,567) (44,095) (53,539) 6,462 71,676 187,567 79,319 117,433 – 6,905 – – –	Year ended 31 December Six months ended 30 June 2006 2007 2008 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 595 – 156,571 71,027 105,196 – 78,348 – – – – 12,125 36,821 15,445 29,587 5,867 47,884 74,742 36,942 36,092 – 6,020 – – – – – – – 97 6,462 144,377 268,134 123,414 170,972 – – (65,760) (29,831) (44,182) – (44,988) – – – – (12,125) (14,807) (14,264) (9,357) – (9,568) – – – – (6,020) – – – – (72,701) (80,567) (44,095) (53,539) 6,462 71,676 187,567 79,319 117,433 – 6,905 – – –	Year ended 31 December Six months ended 30 June 2006 2007 2008 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 595 – 156,571 71,027 105,196 – 78,348 – – – – 12,125 36,821 15,445 29,587 5,867 47,884 74,742 36,942 36,092 – 6,020 – – – – – – – 97 6,462 144,377 268,134 123,414 170,972 – – (65,760) (29,831) (44,182) – (44,988) – – – – (12,125) (14,807) (14,264) (9,357) – (9,568) – – – – (6,020) – – – – (72,701) (80,567) (44,095) (53,539) 6,462 71,676 187,567 79,319 117,433 – 6,905 – – –	Year ended 31 December Six months ended 30 June 2006 2007 2008 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 595 – 156,571 71,027 105,196 – 78,348 – – – – 12,125 36,821 15,445 29,587 5,867 47,884 74,742 36,942 36,092 – 6,020 – – – – – – – 97 6,462 144,377 268,134 123,414 170,972 – – (65,760) (29,831) (44,182) – (44,988) – – – – (12,125) (14,807) (14,264) (9,357) – (9,568) – – – – (6,020) – – – – (72,701) (80,567) (44,095) (53,539) 6,462 71,676 187,567 79,319 117,433 – 6,905 – – –
	1,752 –	4,215 (2,919)	4,781 (2,391)	4,781 (2,391)	14,727 (11,210)
	1,752 8,214 2,736 1,354 4,090	1,296 79,877 12,076 2,013 14,089	2,390 189,957 2,669 313 2,982	2,390 81,709 1,881 308 2,189	3,517 120,950 316 – 316

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. PROFIT (LOSS) BEFORE INCOME TAX

Profit (loss) before income tax for the Relevant Periods and the six months ended 30 June 2008 has been arrived at after charging (crediting):

		Year	ended 31 December	ended 31 December	Six months ended 30 June	Six months ended 30 June
		2006	2007	2008	2008	2009
	Notes	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
					(Unaudited)
Cost of materials sold		1,841	13,031	25,002	12,549	10,795
Cost of properties sold		10,109	695	109,805	–	–
Prepaid lease payments recognised as
cost of sales		2,776	174	90,495	–	–
Staff costs, including directors’ emoluments	10	11,304	46,622	71,325	34,025	32,755
Equity-settled share-based payment
expenses incurred for non-employees		2,198	8,794	–	–	–
Auditors’ remuneration		800	1,380	1,160	780	672
Depreciation of property, plant and equipment	16	369	43,821	77,992	36,948	38,575
_Less:_Amount capitalised as properties held
for/under development	19	(4)	(18)	(6)	–	(12)
Total depreciation charged to profit or loss		365	43,803	77,986	36,948	38,563
Amortisation of prepaid lease payments		3	12,764	28,931	13,971	13,658
_Less:_Amount capitalised as properties held
for/under development	19	–	(6,441)	(8,161)	(3,649)	(4,496)
Total amortisation charged to profit or loss	17	3	6,323	20,770	10,322	9,162
Loss (gain) on disposal of property,
plant and equipment		–	–	2	–	(26)
Minimum lease payments under
operating lease in respect of:
– subleasing of properties recognised
as cost of services		2,816	2,784	1,280	1,280	–
– rented office premises		–	1,526	1,472	845	594
– rented other premises		–	2,094	3,038	1,354	1,766
Exchange loss (gain), net		4	524	822	672	(284)
Waiver of amount due from a director
arising from business combination
under common control		22,136	12,853	–	–	–
Share of loss before tax of associate		112	31	–	–	–
Share of tax credit of associate		–	(8,282)	–	–	–
Impairment losses on trade and
otherreceivables	27(c)	188	–	–	–	396
Write-off of hotel pre-operating expenses		–	9,925	–	–	–
Direct operating expenses incurred for
rental income		2,919	4,388	4,435	3,209	3,117

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. STAFF COSTS

Staff costs (including directors’ emoluments) comprise: Basic salaries and other benefits Bonuses Equity-settled share-based payment expenses Contributions to defined contribution pension plans _Less:_Amount capitalised as properties held for/under development Staff costs charged to profit or loss	Six months ended Year ended 31 December 30 June 2006 2007 2008 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 8,993 39,273 67,694 31,357 33,152 941 7,144 5,704 2,840 1,412 1,386 3,768 1,478 925 240 505 1,388 2,700 1,214 1,256 11,825 51,573 77,576 36,336 36,060 (521) (4,951) (6,251) (2,311) (3,305) 11,304 46,622 71,325 34,025 32,755	Six months ended Year ended 31 December 30 June 2006 2007 2008 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 8,993 39,273 67,694 31,357 33,152 941 7,144 5,704 2,840 1,412 1,386 3,768 1,478 925 240 505 1,388 2,700 1,214 1,256 11,825 51,573 77,576 36,336 36,060 (521) (4,951) (6,251) (2,311) (3,305) 11,304 46,622 71,325 34,025 32,755
		36,060 (3,305)
		32,755

11. DIRECTORS’ EMOLUMENTS

The aggregate amounts of the directors’ emoluments, disclosed pursuant to Section 161 of the Hong Kong Companies Ordinance, are as follows:

Year ended 31 December 2006 Executive directors Yu Pan Lau Yat Tung, Derrick Wen Xiao Bing (appointed on 30 June 2006) Wong Lok Zheng Jian Wei (appointed on 11 January 2006 and resigned on 30 June 2006) Independent non-executive directors Choy Shu Kwan Cheng Wing Keung, Raymond Chung Lai Fong	Salaries and other benefits Fees (note (i)) HK$’000 HK$’000 – 1,718 – 576 – 210 – 260 – 183 100 – 100 – 100 – 300 2,947	Equity-settled Contributions share-based to defined Bonuses payment contribution (note (ii)) expenses pension plans HK$’000 HK$’000 HK$’000 350 – 37 82 168 12 179 281 – – – 12 – – – – 34 – – 34 – – 34 – 611 551 61	Total HK$’000 2,105 838 670 272 183 134 134 134
			4,470

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Year ended 31 December 2007 Executive directors Yu Pan Lau Yat Tung, Derrick Wen Xiao Bing Wong Lok Non-executive director Jerry Wu (appointed on 6 September 2007) Independent non-executive directors Choy Shu Kwan Cheng Wing Keung, Raymond Chung Lai Fong Year ended 31 December 2008 Executive directors Yu Pan Lau Yat Tung, Derrick Wen Xiao Bing (resigned on 23 December 2008) Wong Lok Non-executive director Jerry Wu Independent non-executive directors Choy Shu Kwan Cheng Wing Keung, Raymond Chung Lai Fong	Salaries and other benefits Fees (note (i)) HK$’000 HK$’000 – 2,246 – 780 100 605 – 260 64 – 150 – 150 – 150 – 614 3,891 – 2,291 – 819 120 999 – 260 200 – 200 – 200 – 200 – 920 4,369	Equity-settled Contributions share-based to defined Bonuses payment contribution (note (ii)) expenses pension plans HK$’000 HK$’000 HK$’000 580 – 12 278 458 12 443 763 18 – – 12 – – – – 92 – – 92 – – 91 – 1,301 1,496 54 – – 12 – 187 12 – 313 19 – – 12 – – – – 37 – – 37 – – 37 – – 611 55	Total HK$’000 2,838 1,528 1,929 272 64 242 242 241
			7,356

			2,303 1,018 1,451 272 200 237 237 237
			5,955

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Six months ended 30 June 2008 (Unaudited) Executive directors Yu Pan Lau Yat Tung, Derrick Wen Xiao Bing Wong Lok Non-executive director Jerry Wu Independent non-executive directors Choy Shu Kwan Cheng Wing Keung, Raymond Chung Lai Fong Six months ended 30 June 2009 Executive directors Yu Pan Lau Yat Tung, Derrick Wong Lok Independent non-executive directors Jerry Wu Choy Shu Kwan Cheng Wing Keung, Raymond Chung Lai Fong	Fees HK$’000 – – 60 – 100 100 100 100 460 – – – 97 97 97 97 388	Salaries Equity-settled Contributions and other share-based to defined benefits payment contribution (note (i)) expenses pension plans HK$’000 HK$’000 HK$’000 1,191 – 6 409 113 6 464 187 9 130 – 6 – – – – 22 – – 22 – – 22 – 2,194 366 27 1,085 – 6 409 29 6 130 – 6 – – – – 6 – – 6 – – 5 – 1,624 46 18	Total HK$’000 1,197 528 720 136 100 122 122 122
			3,047

			1,091 444 136 97 103 103 102
			2,076

Notes:

(i) Salaries and other benefits included basic salaries, housing and other allowances and benefits-in-kind.

(ii) Bonuses were not contractual but were discretionarily provided based on the Directors’ performance. The amounts of entitlement were subject to approval by the Remuneration Committee of the Company.

There was no arrangement under which a Director has waived or agreed to waive any emoluments during the Relevant Periods and the six months ended 30 June 2008.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. FIVE HIGHEST PAID INDIVIDUALS

The five individuals with the highest emoluments in the Group were as follows:

				Six months ended	Six months ended
	Year	ended 31 December		30	June
	2006	2007	2008	2008	2009
	Number of	Number of	Number of	Number of	Number of
	individuals	individuals	individuals	individuals	individuals
				(Unaudited)
Directors of the Company	3	3	2	2	1
Non-directors of the Company	2	2	3	3	4

The emoluments of the directors of the Company are included in note 11 above for each of the Relevant Periods and the six months ended 30 June 2008. The emoluments of the remaining individuals for each of the Relevant Periods and the six months ended 30 June 2008 were as follows:

Basic salaries and other benefits Bonuses Equity-settled share-based payment expenses Contributions to defined contribution pension plans	Six months ended Year ended 31 December 30 June 2006 2007 2008 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 1,625 2,885 3,440 1,754 2,230 210 551 205 109 58 337 610 233 150 88 24 12 12 6 16 2,196 4,058 3,890 2,019 2,392	Six months ended Year ended 31 December 30 June 2006 2007 2008 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 1,625 2,885 3,440 1,754 2,230 210 551 205 109 58 337 610 233 150 88 24 12 12 6 16 2,196 4,058 3,890 2,019 2,392
		2,392

Their emoluments were within the following bands:

					Six months ended	Six months ended
		Year	ended 31	December	30	June
		2006	2007	2008	2008	2009
	Number of		Number of	Number of	Number of	Number of
	employees		employees	employees	employees	employees
					(Unaudited)
HK$Nil to HK$1,000,000		1	–	–	3	4
HK$1,000,001 to HK$1,500,000		1	–	3	–	–
HK$1,500,001 to HK$2,000,000		–	1	–	–	–
HK$2,000,001 to HK$2,500,000		–	1	–	–	–

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. INCOME TAX (EXPENSE) CREDIT

Current tax Hong Kong profits tax – under provision in respect of prior years Overseas corporate tax – current year – (under) over provision in respect of prior years PRC land appreciation tax – current year – over provision in respect of prior years Deferred tax (Note 35) – current year – over provision in respect of prior years – attributable to decrease in tax rate Total income tax (expense) credit	Six months ended Year ended 31 December 30 June 2006 2007 2008 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) – (620) – – – (1,639) (5,740) (9,010) – – – (43) 1,282 541 – (58) – (22,917) – – – 2,631 – – – (1,697) (3,772) (30,645) 541 – (31,455) 6,522 53,982 2,040 1,788 – – 26,333 – – – 58,489 – – – (31,455) 65,011 80,315 2,040 1,788 (33,152) 61,239 49,670 2,581 1,788	Six months ended Year ended 31 December 30 June 2006 2007 2008 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) – (620) – – – (1,639) (5,740) (9,010) – – – (43) 1,282 541 – (58) – (22,917) – – – 2,631 – – – (1,697) (3,772) (30,645) 541 – (31,455) 6,522 53,982 2,040 1,788 – – 26,333 – – – 58,489 – – – (31,455) 65,011 80,315 2,040 1,788 (33,152) 61,239 49,670 2,581 1,788
		–
		1,788 – –
		1,788
		1,788

No provision for Hong Kong profits tax has been made for the Relevant Periods and the six months ended 30 June 2008 as the Group has no estimated assessable profits in respect of operation in Hong Kong. The applicable Hong Kong profits tax rate is 17.5% for each of the years ended 31 December 2006 and 2007 and 16.5% for the year ended 31 December 2008 and each of the six months ended 30 June 2008 and 2009.

Enterprise income tax arising from other regions of the PRC is calculated at 33% of the estimated assessable profits for each of the years ended 31 December 2006 and 2007 and 25% of the estimated assessable profits for the year ended 31 December 2008 and each of the six months ended 30 June 2008 and 2009. Taxation for the Group’s operations outside Hong Kong is provided at the applicable current rates of taxation on the estimated assessable profits in the relevant jurisdiction during the Relevant Periods.

The provision of PRC LAT is estimated according to the requirements set forth in the relevant PRC tax laws and regulations. LAT has been provided, as appropriate, at ranges of progressive rates from 30% to 60% on the appreciation value, with certain allowable deductions including land costs, borrowing costs and the relevant property development expenditure.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The income tax (expense) credit for the Relevant Periods and the six months ended 30 June 2008 can be reconciled to the profit (loss) before income tax per the consolidated statements of comprehensive income as follows:

Profit (loss) before income tax
Tax calculated at the applicable income tax rate
Effect of different tax rates of entities operating
in other jurisdictions
Tax effect of expenses not deductible for tax
purposes
Tax effect of revenue not subject to tax
Tax effect of tax losses not recognised during
the year
Tax effect of recognition of unrecognised tax
losses in prior years
Effect of change in tax rate under the PRC’s
new tax law on deferred tax assets/liabilities
Over-provision in respect of prior years
Tax effect of other temporary difference
not recognised
Others
Income tax (expense) credit

Six months ended
Year ended 31 December
30 June
2006
2007
2008
2008
2009
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(Unaudited)
78,021
160,096
634,678
423,172
(398,064)
(25,747)
(52,832)
(158,670)
(105,793)
99,516
(1,062)
34,171
82,749
39,566
(28,259)
(8,488)
(42,734)
(59,998)
(7,737)
(58,601)
2,362
74,127
161,359
85,199
95
(1,331)
(16,541)
–
(6,782)
(7,595)
–
–
2,119
–
–
–
58,489
–
–
–
–
1,968
27,615
541
–
–
4,658
(8,102)
(3,230)
(3,764)
1,114
(67)
2,598
817
396
(33,152)
61,239
49,670
2,581
1,788

14. DIVIDENDS

The Directors do not recommend payment of any dividend for the Relevant Periods and the six months ended 30 June 2008.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE COMPANY

The calculation of basic and diluted earnings (loss) per share is based on the profit (loss) attributable to ordinary equity holders of the Company and the following data:

Profit (Loss) for the purposes of basic earnings (loss) per share Effect of dilutive potential ordinary shares: Fair value changes in financial derivative liabilities in relation to convertible notes Finance costs on convertible notes (excluding capitalised interest) Profit (loss) for the purposes of diluted earnings (loss) per share Weighted average number of ordinary shares for the purposes of basic earnings (loss) per share Effect of dilutive potential ordinary shares: – Bonus warrants – Convertible notes – Convertible preference shares – Share options Weighted average number of ordinary shares for the purposes of diluted earnings (loss) per share	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 46,621 209,078 685,128 – (267,789) (976,924) – 33,360 90,811 46,621 (25,351) (200,985) Number of shares Year ended 31 December 2006 2007 2008 ’000 ’000 ’000 957,052 1,201,764 1,477,291 16,558 61,639 13,256 – 173,518 – 145,537 – – 1,116 12,074 – 1,120,263 1,448,995 1,490,547	Six months ended 30 June 2008 2009 HK$’000 HK$’000 (Unaudited) 426,094 (391,905) (514,691) – 41,196 – (47,401) (391,905) Six months ended 30 June 2008 2009 ’000 ’000 (Unaudited) 1,476,780 1,477,687 33,505 – – – – – 524 – 1,510,809 1,477,687	Six months ended 30 June 2008 2009 HK$’000 HK$’000 (Unaudited) 426,094 (391,905) (514,691) – 41,196 – (47,401) (391,905) Six months ended 30 June 2008 2009 ’000 ’000 (Unaudited) 1,476,780 1,477,687 33,505 – – – – – 524 – 1,510,809 1,477,687
			1,477,687

For the six months ended 30 June 2009, basic loss per share is same as diluted loss per share as the effect was antidilutive.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

16. PROPERTY, PLANT AND EQUIPMENT

Hotel Office properties building and and leasehold leasehold improvements improvements HK$’000 HK$’000 Cost At 1 January 2006 – – Additions – – Acquired through acquisition of subsidiaries – – Exchange differences – – At 31 December 2006 and at 1 January 2007 – – Additions – – Transfer from properties under development_(Note 19)_ 913,410 42,134 Acquired through acquisition of subsidiaries – – Exchange differences 66,013 1,342 At 31 December 2007 and at 1 January 2008 979,423 43,476 Additions 23,932 4,564 Disposals – – Exchange differences 56,892 2,510 At 31 December 2008 and at 1 January 2009 1,060,247 50,550 Additions 283 11 Disposals – – Reclassified from office building and leasehold improvements to properties held for sale – (50,555) Exchange differences (120) (6) At 30 June 2009 1,060,410 –	Furniture, fixtures and equipment HK$’000 537 201 76 14 828 33,421 – 619 1,091 35,959 19,383 (13) 2,518 57,847 119 (225) – (6) 57,735	Motor vehicles HK$’000 – 1,547 – – 1,547 1,164 – 1,250 132 4,093 1,315 – 192 5,600 – – – – 5,600	Total HK$’000 537 1,748 76 14 2,375 34,585 955,544 1,869 68,578 1,062,951 49,194 (13) 62,112 1,174,244 413 (225) (50,555) (132) 1,123,745

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Hotel Office properties building and and leasehold leasehold improvements improvements HK$’000 HK$’000 Accumulated depreciation At 1 January 2006 – – Depreciation for the year – – Exchange differences – – At 31 December 2006 and at 1 January 2007 – – Depreciation for the year 36,139 305 Exchange differences 1,078 9 At 31 December 2007 and at 1 January 2008 37,217 314 Depreciation for the year 59,815 2,147 Disposals – – Exchange differences 2,736 39 At 31 December 2008 and at 1 January 2009 99,768 2,500 Depreciation for the period 29,958 715 Disposals – – Reclassified from office building and leasehold improvements to properties held for sale – (3,215) Exchange differences (22) – At 30 June 2009 129,704 – Net book value At 31 December 2006 – – At 31 December 2007 942,206 43,162 At 31 December 2008 960,479 48,050 At 30 June 2009 930,706 –	Furniture, fixtures and equipment HK$’000 275 111 8 394 6,477 228 7,099 14,689 (7) 544 22,325 7,352 (137) – (4) 29,536 434 28,860 35,522 28,199	Motor vehicles HK$’000 – 258 – 258 900 76 1,234 1,341 – 89 2,664 550 – – – 3,214 1,289 2,859 2,936 2,386	Total HK$’000 275 369 8 652 43,821 1,391 45,864 77,992 (7) 3,408 127,257 38,575 (137) (3,215) (26) 162,454 1,723 1,017,087 1,046,987 961,291

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. PREPAID LEASE PAYMENTS

Cost At beginning of year/period Acquired through acquisition of subsidiaries Additions Recognised as cost of properties sold Exchange differences At end of year/period Accumulated amortisation At beginning of year/period Amortisation for the year/period – Capitalised as properties held for/under development – Charged to profit or loss Eliminated upon sale of properties Exchange differences At end of year/period Net book value At end of year/period The prepaid lease payments are analysed for reporting purposes as follows: Non-current assets Current assets The Group’s prepaid lease payments represent: Long-term leases in the PRC Medium-term leases in the PRC	As at 31 December 2006 2007 HK$’000 HK$’000 3,103 182 – 632,987 – – (2,955) (191) 34 48,972 182 681,950 188 14 – 6,441 3 6,323 (179) (17) 2 190 14 12,951 168 668,999 165 223,808 3 445,191 168 668,999 168 – – 668,999 168 668,999	As at 30 June 2008 2009 HK$’000 HK$’000 681,950 1,270,371 – – 637,936 – (94,269) – 44,754 (144) 1,270,371 1,270,227 12,951 39,103 8,161 4.496 20,770 9,162 (3,774) – 995 (10) 39,103 52,751 1,231,268 1,217,476 736,550 692,554 494,718 524,922 1,231,268 1,217,476 621,005 616,441 610,263 601,035 1,231,268 1,217,476

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

18. INVESTMENT PROPERTIES

At beginning of year/period Change in fair value Exchange differences At end of year/period	As at 31 December 2006 2007 HK$’000 HK$’000 368,663 475,248 95,634 (22,926) 10,951 40,003 475,248 492,325	As at 30 June 2008 2009 HK$’000 HK$’000 492,325 401,543 (119,263) – 28,481 (46) 401,543 401,497

Details of assessment of the fair value are set out in note 25.

19. PROPERTIES HELD FOR/UNDER DEVELOPMENT

Properties held for/under development in the PRC are as follows:

Land use right Premium paid for the acquisition of the interest of the land, demolition and settlement costs Construction cost Others Less:_Accumulated impairment loss (including exchange differences) _Less:_Assets classified as held for sale(Note 30)_ Representing: Properties held for development Properties under development	As at 31 December 2006 2007 HK$’000 HK$’000 57,088 125,943 631,416 1,313,200 5,967 16,443 4,474 73,753 698,945 1,529,339 – – 698,945 1,529,339 – – 698,945 1,529,339 698,945 1,529,339 – – 698,945 1,529,339	As at 30 June 2008 2009 HK$’000 HK$’000 151,225 151,208 1,400,227 1,417,081 101,711 179,928 179,466 252,860 1,832,629 2,001,077 (71,151) (71,141) 1,761,478 1,929,936 (712,343) (732,448) 1,049,135 1,197,488 962,867 1,014,446 86,268 183,042 1,049,135 1,197,488

Land use right comprises cost of acquiring rights to using certain pieces of land, which are all located in the PRC, for property development over fixed periods of time which are to be defined within the range between 40 and 70 years. The land use right certificate in respect of one of the development projects with carrying amount of HK$57,088,000, HK$62,888,000, HK$88,840,000 and HK$88,830,000 as at 31 December 2006, 2007 and 2008 and 30 June 2009 respectively has not been obtained at the end of the reporting periods. As at 30 June 2009, the holders of the Notes have the right to redeem part of the Notes since this land use right certificate and other permits have not been obtained on or before 31 May 2009, as disclosed in note 33.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The following table reconciles the movement of the carrying amount of properties held for/under development:

At beginning of year/period Additions – Capitalisation of prepaid lease payments – Capitalisation of depreciation of property, plant and equipment – Capitalisation of finance costs – Other additions Acquired through acquisition of subsidiaries Transfer to properties held for sale Transfer to property, plant and equipment_(Note 16) Impairment loss charged against property revaluation reserve Reclassified as assets held for sale(Note 30) Exchange differences At end of year/period 20. GOODWILL Cost At beginning of year/period Reclassification upon associate becoming a subsidiary(Note 21)_ Acquired through acquisition of subsidiaries Exchange differences At end of year/period Accumulated impairment loss At beginning of year/period Impairment loss recognised during the year/period Exchange differences At end of year/period Net book value At end of year/period	As at 31 December 2006 2007 HK$’000 HK$’000 – 698,945 – 6,441 4 18 – 75,620 1,911 259,815 690,196 1,915,138 – (590,417) – (955,544) – – – – 6,834 119,323 698,945 1,529,339 As at 31 December 2006 2007 HK$’000 HK$’000 – 49,655 – 3,692 49,655 64,741 – – 49,655 118,088 – – – – – – – – 49,655 118,088	As at 30 June 2008 2009 HK$’000 HK$’000 1,529,339 1,049,135 8,161 4,496 6 12 82,958 64,749 124,936 79,233 – – – – – – (71,151) – (712,343) – 87,229 (137) 1,049,135 1,197,488 As at 30 June 2008 2009 HK$’000 HK$’000 118,088 134,827 – – – – 16,739 (15) 134,827 134,812 – 66,511 66,511 – – (7) 66,511 66,504 68,316 68,308

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Goodwill acquired through business combinations has been allocated to the following CGUs, namely hotel operation and property development, for impairment testing:

						As at
			As	at 31 December		30 June
Project	Attributable CGU		2006	2007	2008	2009
		Notes	HK$’000	HK$’000	HK$’000	HK$’000
Westin Project – hotel	Hotel operation	(a)	–	27,918	31,667	31,663
Westin Project – office	Property
sales	development	(a)	–	18,612	21,111	21,109
Zhoutouzui Project	Property
	development	(b)	49,655	67,866	15,538	15,536
Tianhe Project	Property
	development	(c)	–	3,692	–	–
			49,655	90,170	36,649	36,645
			49,655	118,088	68,316	68,308

Notes:

(a) Westin Project refers to the operation of a hotel tower, The Westin Guangzhou, and property sale of office units in a commercial building, the Skyfame Tower which is annexed to The Westin Guangzhou, located at the central business district of Guangzhou, the PRC. The acquisition of the Westin Project was completed on 4 May 2007. The carrying amounts of the property costs representing The Westin Guangzhou and the Skyfame Tower are included in property, plant and equipment and properties held for sale in notes 16 and 24 respectively.
(b) Zhoutouzui Project refers to the development project located at Zhoutouzui, Haizhu District, Guangzhou, the PRC. The Group acquired 51% interest in the Zhoutouzui Project in 2006 and further increased its interest to 100% through a step-up acquisition which was completed on 4 June 2007. The project has not yet commenced construction as the land use right certificate and necessary permits in respect of the development area have not yet been obtained. The project may only generate cash in the years beyond the expected time horizon. Taking into these circumstances, the Directors take prudent view to write off substantial amount of the associated goodwill in 2008. The carrying amount of property development costs in relation to the Zhoutouzui Project is included in properties held for/under development in note 19.
(c) Tianhe Project refers to the development project located at Tianhe North Road, Tianhe District, Guangzhou, the PRC. The Group acquired 49% interest in the Tianhe Project in 2005 and further acquired the remaining 51% interest on 27 July 2007. As at 31 December 2008, the Group was in the process of negotiation with interested purchasers. On 24 February 2009, the Group entered into a framework agreement to dispose of its 80% equity interest in the project (which was subsequently cancelled, as mentioned in Section (III) below). In view of the planned disposal, the associated goodwill is fully written off in 2008. The carrying amount of property development costs in relation to the Tianhe Project is included in assets classified as held for sale in note 30.

Impairment test for goodwill

The goodwill relates to a number of CGUs within the operational segments of hotel operation and property development. The recoverable amounts of the CGUs are determined using value-in-use calculations. These calculations use cash flow projections based on financial budgets of these CGUs which were approved by management covering a five-year period with key assumptions including revenue, direct costs and other operating expenses being referenced to past performance and management’s reasonable expectations on the business outlook of these CGUs.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Key assumptions are as follows:

			Growth rate
			after the fifth
			year from the
		Operating	start of
CGU	Discount rate	margin	projection
As at 31 December 2006
Property development	10.21%	57%-60%	5%
As at 31 December 2007
Hotel operation	10.21%	38%-40%	5%
Property development	10.21%	22%-53%	5%
As at 31 December 2008
Hotel operation	8.00%	32%-36%	4%
Property development	8.00%	18%-48%	4%-5%
As at 30 June 2009
Hotel operation	8.00%	31%-37%	4%
Property development	8.00%	20%-49%	4%-5%

Discount rates are based on the Group’s beta adjusted to reflect management’s assessment of specific risks related to each of the CGUs. Operating margins are based on past experience. Growth rates beyond the fifth year from the start of the projection are based on economic data pertaining to the region concerned.

For the year ended 31 December 2008, impairment loss on goodwill of approximately HK$66,511,000 was provided. The Directors performed an impairment test for the goodwill and concluded that the recoverable amounts of the Zhoutouzui and Tianhe Projects under the CGU of property development was substantially lower than its carrying amount. Therefore a provision has been made for the goodwill. Other than this impairment loss, where the CGUs demonstrate sufficient cashflow projection that justify the carrying value of the goodwill, management did not consider impairment of goodwill necessary.

21. INTEREST IN AN ASSOCIATE

Share of net assets other than goodwill Decrease in PRC corporate tax rates, transfer to deferred tax liabilities_(Note 35) Goodwill Loan to associate Reclassification of goodwill upon becoming a subsidiary(Notes 20 and (a)) Transfer upon becoming a subsidiary (Notes (a) and 40(b))_	As at 31 December 2006 2007 HK$’000 HK$’000 151,177 166,135 – 4,317 3,692 3,692 334 2,636 – (3,692) – (173,088) 155,203 –	As at 30 June 2008 2009 HK$’000 HK$’000 – – – – – – – – – – – – – –	As at 30 June 2008 2009 HK$’000 HK$’000 – – – – – – – – – – – – – –
			–

Notes:

(a) On 16 December 2005, Nicco Limited, an indirect wholly-owned subsidiary of the Company, acquired 49% interest in Yaubond Limited (“Yaubond”). During the year ended 31 December 2007, the Group further increased its equity stake in the associate to 100%. On 27 July 2007, Yaubond became a wholly-owned subsidiary of the Company.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(b) Financial information of the associate is as follows:

	As at 31
	December 2006
	HK$’000
Total assets	320,150
Total liabilities	(72,280)
Net assets	247,870
Fair value adjustment at acquisition	68,814
Carrying amount of net assets	316,684
The Group’s share of net assets of associate	155,175
Elimination for capitalisation of project management fee paid to the Group	(3,998)
	151,177
	Year ended
	31 December 2006
	HK$’000
Revenue	–
Net expenses	(228)
Loss before income tax	(228)
Income tax	–
Loss after income tax	(228)
The Group’s share of loss of associate, net of tax	(112)

22. DEPOSITS FOR ACQUISITION OF LAND USE RIGHT

As part of the conditions of the acquisition of land use right in the PRC which was completed during the year ended 31 December 2008, the deposit was paid in 2007 in connection with demolition and resettlement cost for property development purpose.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

23. INTERESTS IN JOINTLY CONTROLLED ENTITY

The Company holds indirectly certain interest in a jointly controlled entity, 廣州市譽城房地產開發有限公司 (Guangzhou Yucheng Real Estate Development Limited) (“Yucheng”), which is accounted for in the Financial Information by proportionate consolidation as detailed in note 4(d). Yucheng is a sino-foreign co-operative joint venture company established in the PRC for a renewal term of 15 years commencing on 5 March 2003. Details of the Group’s interests in the jointly controlled entity are as follows:

				Attributable equity interest	Attributable equity interest	Attributable equity interest
			indirectly held by the Company
					(Note)
Place and						As at
date of	Registered			As at 31 December		30 June
establishment	capital	Paid-up capital	2006	2007	2008	2009	Principal activity
PRC, 31 March 2003	US$50,000,000	31 December 2006	51%	100%	100%	100%	Property development
		and 2007:					in the PRC
		US$12,000,000;
		31 December 2008
		and 30 June 2009:
		US$22,000,000

Note: Under the terms of the sino-foreign co-operative joint venture agreement entered into by the parties, (i) Guangzhou Zhoutouzui Development Limited (“GZ ZTZ”), a subsidiary of the Company, is obligated for 100% of the capital of and investment in Yucheng; (ii) GZ ZTZ paid RMB10 million to 廣州越秀企業（集團）公司(Guangzhou Yuexiu Enterprise (Group) Company Limited) (“Yuexiu”) as cash compensation in 2005, which has been included in properties held for development, and Yuexiu is then no longer entitled to any profit or loss generated by Yucheng; (iii) 廣州港集團有限公司(Guangzhou Port Group Co., Limited) (“GZ Port”) will be entitled to 28% of the total gross floor area of the residential units of the project upon completion of the proposed development and after which, GZ Port will no longer be entitled to any profit or loss generated by Yucheng; and (iv) GZ ZTZ will be entitled to 72% of the total gross floor area of the residential units of the project upon completion of the proposed development and the entire profit or loss to be generated by Yucheng.

The following amounts have been recognised in the Group’s Financial Information relating to Yucheng:

Non-current assets Current assets Current liabilities Net assets	As at 31 December 2006 2007 HK$’000 HK$’000 395,621 436,362 281 659 (299,716) (4,517) 96,186 432,504	As at 30 June 2008 2009 HK$’000 HK$’000 512,806 516,283 670 481 (28,910) (28,612) 484,566 488,152	As at 30 June 2008 2009 HK$’000 HK$’000 512,806 516,283 670 481 (28,910) (28,612) 484,566 488,152
			488,152

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Revenue Net expenses Loss before income tax Income tax Loss after income tax	Period from 13 October 2006 (date of acquisition) to 31 December 2006 HK$’000 – – – – –	Year ended 31 December 2007 2008 HK$’000 HK$’000 – 86 – (4,275) – (4,189) – – – (4,189)	Six months ended 30 June 2008 2009 HK$’000 HK$’000 (Unaudited) – 20 (2,538) (1,103) (2,538) (1,083) – – (2,538) (1,083)	Six months ended 30 June 2008 2009 HK$’000 HK$’000 (Unaudited) – 20 (2,538) (1,103) (2,538) (1,083) – – (2,538) (1,083)
				(1,083) –
				(1,083)

24. PROPERTIES HELD FOR SALE

		31 December		As at 30 June
	2006	2007	2008	2009
	HK$’000	HK$’000	HK$’000	HK$’000
Completed properties held for sale	676	603,427	573,808	620,364

All completed properties held for sale are located in the PRC.

25. ANALYSIS OF PROPERTIES

(a) The analysis of the net book value of completed properties is as follows:

Medium-term land lease in the PRC – Hotel properties, including leasehold improvements – Office building, including leasehold improvements – Investment properties – Properties held for sale Long-term land lease in the PRC – Properties held for sale	As at 31 December 2006 2007 HK$’000 HK$’000 – 942,206 – 43,162 475,248 492,325 – 603,427 475,248 2,081,120 676 –	As at 30 June 2008 2009 HK$’000 HK$’000 960,479 930,706 48,050 – 401,543 401,497 573,808 620,364 1,983,880 1,952,567 – –	As at 30 June 2008 2009 HK$’000 HK$’000 960,479 930,706 48,050 – 401,543 401,497 573,808 620,364 1,983,880 1,952,567 – –
			1,952,567

			–

(b) The investment properties were revalued on an open market value basis by independent firms of professional valuers, DTZ Debenham Tie Leung Limited, Chartered Surveyors, as at 31 December 2006 and 2008, DTZ Debenham Tie Leung Limited and CB Richard Ellis, Chartered Surveyors, as at 31 December 2007, and DTZ Debenham Tie Leung Limited and Asset Appraisal Limited, Chartered Surveyors, as at 30 June 2009.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(c) The Group’s hotel properties, office building, investment properties and properties held for sale with an aggregate carrying amount as shown above are pledged to secure bank borrowings of the Group, as disclosed in note 32, as at 31 December 2006, 2007 and 2008 and 30 June 2009.
(d) Gross rental income from investment properties amounted to HK$14,953,000, HK$18,547,000, HK$19,345,000 and HK$8,041,000 respectively during the Relevant Periods.
(e) Gross rental income from properties held for sale amounted to HK$1,915,000, HK$32,487,000 and HK$21,798,000 respectively during the years ended 31 December 2007 and 2008, and the six months ended 30 June 2009.

26. INVENTORIES

Food and beverages Hotel consumable goods and supplies	As at 31 December 2006 2007 HK$’000 HK$’000 – 2,439 – 29,351 – 31,790	As at 30 June 2008 2009 HK$’000 HK$’000 2,513 2,333 17,029 11,186 19,542 13,519	As at 30 June 2008 2009 HK$’000 HK$’000 2,513 2,333 17,029 11,186 19,542 13,519
			13,519

27. TRADE AND OTHER RECEIVABLES

Notes Current or less than 1 month 1 to 3 months More than 3 months but less than 12 months More than 1 year Total trade receivables, net of impairment_(a), (c) Loan receivable – within one year (b) – from one to two years (b) Deposits, prepayments and other receivables (a) (c)_ Amounts due within one year included in current assets Amount due after one year	As at 31 December As at 30 June 2006 2007 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 1,601 3,988 4,191 6,371 1,360 1,892 1,000 807 2,769 1,154 122 234 961 603 575 533 6,691 7,637 5,888 7,945 8,487 9,192 – – 7,963 – – – 4,766 14,187 28,012 35,180 27,907 31,016 33,900 43,125 (19,944) (31,016) (33,900) (43,125) 7,963 – – –	As at 31 December As at 30 June 2006 2007 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 1,601 3,988 4,191 6,371 1,360 1,892 1,000 807 2,769 1,154 122 234 961 603 575 533 6,691 7,637 5,888 7,945 8,487 9,192 – – 7,963 – – – 4,766 14,187 28,012 35,180 27,907 31,016 33,900 43,125 (19,944) (31,016) (33,900) (43,125) 7,963 – – –
		7,945 – – 35,180
		43,125 (43,125)
		–

Notes:

(a) Total trade and other receivables include amounts due from related companies, which are controlled by Mr. Yu Pan, controlling shareholder of the Company, of HK$1,204,000 and HK$575,000 at 31 December 2008 and 30 June 2009 respectively. The maximum balance of these amounts due from related companies during the years ended 31 December 2006, 2007 and 2008 and the six months ended 2009 amounted to HK$136,072,000, HK$49,242,000, HK$1,204,000 and HK$1,204,000 respectively. The Group has a policy of allowing an average credit period of 8 to 30 days to its trade customers. The Group’s formal credit policy in place is to monitor the Group’s exposure to credit risk through regular reviews of receivables and followup enquires on overdue accounts. Credit evaluations are performed on all customers requiring credit over a certain amount.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(b) The loan receivable is unsecured, charges interest at a rate of 6.58% per annum and was fully repaid in January 2008.

The analysis of trade receivables which are past due but not impaired is as follows:

1 to 3 months past due More than 3 months but less than 12 months past due More than 1 year past due	As at 31 December 2006 2007 HK$’000 HK$’000 862 1,535 2,769 917 961 603 4,592 3,055	As at 30 June 2008 2009 HK$’000 HK$’000 466 807 9 234 575 533 1,050 1,574	As at 30 June 2008 2009 HK$’000 HK$’000 466 807 9 234 575 533 1,050 1,574
			1,574

The balances that are past due but not impaired related to a number of customers who have a good track record with the Group. Based on past experience, management estimates that the carrying amounts could be fully recovered.

The balances of other classes within trade and other receivables of the Group are neither past due nor impaired.

The movements of impairment loss on trade and other receivables are as follows:

At beginning of year/period Impairment loss recognised Write-off during the year/period At end of year/period	As at 31 December 2006 2007 HK$’000 HK$’000 – – 188 – (188) – – –	As at 30 June 2008 2009 HK$’000 HK$’000 – – – 396 – – – 396	As at 30 June 2008 2009 HK$’000 HK$’000 – – – 396 – – – 396
			396

28. RESTRICTED AND PLEDGED DEPOSITS

As at 31 December 2007 and 2008 and 30 June 2009, to secure for the repayment of interests accrued in the convertible notes (as disclosed in note 33) and the Term Loan payable to two financial institutions (as disclosed in note 32), bank deposits totalling approximately 358,711,000, HK$67,737,000 and HK$16,889,000 respectively, have been charged in favour of the security trustees acting for the convertible noteholders and two financial institutions.

As at 30 June 2009, the balance also included other restricted bank deposits of approximately HK$8,250,000 representing guaranteed deposits from pre-sale proceeds of properties. These guaranteed deposits shall be released only to pay for construction costs incurred for development projects in accordance with the governmental requirements.

29. CASH AND CASH EQUIVALENTS

Short-term bank deposits Cash at bank and in hand Less:_Restricted and pledged deposits(Note 28)_	As at 31 December 2006 2007 HK$’000 HK$’000 23,604 346,727 24,389 75,322 47,993 422,049 – (358,711) 47,993 63,338	As at 30 June 2008 2009 HK$’000 HK$’000 46,311 80,378 75,146 235,345 121,457 315,723 (67,737) (25,139) 53,720 290,584	As at 30 June 2008 2009 HK$’000 HK$’000 46,311 80,378 75,146 235,345 121,457 315,723 (67,737) (25,139) 53,720 290,584
			315,723 (25,139)
			290,584

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

30. ASSETS AND LIABILITIES OF DISPOSAL GROUP HELD FOR SALE

The assets and liabilities attributable to the Tianhe Project, which are determined to be disposed of in 2008, have been included in the consolidated statement of financial position as assets classified as held for sale and liabilities associated with assets classified as held for sale respectively. The proposed disposal will not lead to discontinued operation since the scale of property development business of the Group will not be significantly curtailed. The carrying amounts of the major assets and liabilities in this disposal group as at 31 December 2008 and 30 June 2009 are as follows:

Assets classified as held for sale Properties held for development_(Note 19)_ Other assets Liabilities associated with assets classified as held for sale Deferred tax liabilities Other liabilities Net assets classified as held for sale	As at 31 December 2008 HK$’000 712,343 1,056 713,399 107,787 1,097 108,884 604,515	As at 30 June 2009 HK$’000 732,448 568
		733,016
		107,775 442
		108,217
		624,799

31. TRADE AND OTHER PAYABLES

Notes
Current or less than 1 month
1 to 3 months
More than 3 months but less than
12 months
More than 12 months
Total trade payables
Retention money payable for
construction costs
(a)
Construction costs payable
Balance of consideration payable for
acquisition of a subsidiary
(b)
Advanced payments received from
customers
– Pre-sale deposits received from buyers
– Receipts in advance, rental and other
deposits from customers and/or tenants_(c)_
Accruals and other payables
Amounts due within one year included
in current liabilities
Amount due after one year

As at 31 December
As at 30 June
2006
2007
2008
2009
HK$’000
HK$’000
HK$’000
HK$’000
–
8,462
35,678
51,024
3
3,467
2,761
4,016
40
1,583
986
266
4,379
4,743
5,761
4,403
4,422
18,255
45,186
59,709
–
25,649
3,888
3,675
–
128,944
62,688
44,957
63,573
63,573
63,573
–
–
–
–
77,449
–
8,196
22,140
19,338
20,190
60,860
85,859
90,168
88,185
305,477
283,334
295,296
(24,612)
(241,904)
(219,761)
(288,991)
63,573
63,573
63,573
6,305

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

(a) For retention money payable in respect of construction contracts, the due dates are usually one year after the completion of the construction work but are within the normal operating cycle of the property development business of the Group.
(b) This represents the balance of consideration payable to the vendor for acquisition of a subsidiary in 2006. The amount is expected to be settled in the form of a two-year promissory note which will be issued upon obtaining the land use right certificate attributable to one of the property development projects, bearing an interest rate of 8% per annum from the date of issue.

By virtue of a supplemental agreement dated 20 October 2008 entered into with the creditor, commencing 1 January 2009, the terms of the amount payable were changed to interest-bearing at a rate of 20% per annum, unsecured, and the principal together with accrued interest being repayable on or before 31 December 2010. The amount is reclassified as other borrowings since 1 January 2009.

(c) The balance includes amounts due to related companies, which are controlled by Mr. Yu Pan, controlling shareholder of the Company, of HK$262,000, HK$1,737,000 and HK$1,147,000 as at 31 December 2007 and 2008 and 30 June 2009 respectively.

32. BANK AND OTHER BORROWINGS

Notes Interest-bearing, secured – bank borrowings (a) – other borrowings (b) Interest-bearing, unsecured – other borrowings (c)	As at 31 December As at 30 June 2006 2007 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 100,318 963,129 1,070,441 1,404,333 – 220,000 220,000 220,000 – – 32,267 63,573 100,318 1,183,129 1,322,708 1,687,906	As at 31 December As at 30 June 2006 2007 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 100,318 963,129 1,070,441 1,404,333 – 220,000 220,000 220,000 – – 32,267 63,573 100,318 1,183,129 1,322,708 1,687,906
		1,687,906

Notes:

(a) The bank borrowings are secured by mortgages of ownership titles of (i) properties held for sale excluding those contracted to be sold; (ii) prepaid lease payments; (iii) hotel properties and office building included in property, plant and equipment; (iv) investment properties; and (v) properties under development with an aggregate carrying amount of approximately HK$475,248,000, HK$2,750,119,000, HK$2,522,345,000 and HK$3,384,300,000 as at 31 December 2006, 2007 and 2008 and 30 June 2009 respectively. The bank loans as at 31 December 2006, 2007 and 2008 and 30 June 2009 carry interest at variable market rates ranging from 4.80% to 7.24% per annum, 6.50% to 8.22% per annum, 6.73% to 7.44% per annum and 5.54% to 6.57% per annum respectively. The amounts are to be fully repaid during the years in 2012, 2013 and 2019.
(b) As at 31 December 2007 and 2008 and 30 June 2009, the Term Loan advanced from two financial institutions is secured by a time deposit of approximately HK$21,183,000, HK$21,426,000 and HK$25,000 respectively, mortgage of shares in certain subsidiaries, assignment of interest and benefits in the shareholder’s loans to subsidiaries, and fixed and floating charges of assets in certain subsidiaries of the Company which are engaged in property development, and is due for repayment on 29 January 2009. The Term Loan as at 31 December 2007 and 2008 and 30 June 2009 carries variable interest at the rate of HIBOR plus 8.25%, HIBOR plus 10.25% per annum, and HIBOR plus 15.25% per annum (including penalty interest) respectively.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Term Loan has become overdue and remains outstanding. The Term Loan lenders have made certain standstill arrangements and according to the latest, the lenders have issued consents to Sky Honest Investments Corp. (“Sky Honest”), the borrower and a subsidiary of the Company, to refrain from taking action against Sky Honest up to the completion of the contemplated transaction in the disposal of 80% interest in the Tianhe Project. Under the framework agreement dated 24 February 2009 in relation to the proposed disposal, the Group intended to partially settle the Term Loan with the sale proceeds. The proposed transaction was put for shareholders’ voting in the Company’s special general meeting held on 10 July 2009 but was voted down and the transaction terminated, as disclosed in Section (III) below.

The Company has continued to discuss with the lenders of the Term Loan about the settlement of the Term Loan despite the fact that the lenders have not expressed an intention to further standstill to refrain from taking legal actions against the subsidiaries of the Company. Up to the date of this report, there has been no agreement of final settlement.

(c) The balance as at 31 December 2008 carried interest at the rate of 20% per annum and was fully repaid in June 2009. The balance as at 30 June 2009 has been reclassified from other payables since 1 January 2009, the details of which have been set out in note 31(b).

At the end of the reporting periods, the bank and other borrowings were repayable as follows:

On demand or within one year More than one year, but not exceeding two years More than two years, but not exceeding five years After five years Amounts due within one year included in current liabilities Amounts due after one year	As at 31 December 2006 2007 HK$’000 HK$’000 17,991 242,790 18,634 23,643 45,624 46,441 18,069 870,255 100,318 1,183,129 (17,991) (242,790) 82,327 940,339	As at 30 June 2008 2009 HK$’000 HK$’000 280,228 280,595 27,961 175,867 83,825 522,056 930,694 709,388 1,322,708 1,687,906 (280,228) (280,595) 1,042,480 1,407,311

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

33. CONVERTIBLE NOTES AND FINANCIAL DERIVATIVE LIABILITIES

On 16 December 2005, the Company issued a 3% convertible note with a face value of HK$60,000,000 to a third party. The convertible note matures in 2 years from the issue date at its face value of HK$60,000,000 or can be converted into shares in the Company at the holder’s option between the fifteenth day after the issue date and fifteen days prior to the maturity date at HK$0.33 per share.

The fair value of the liability component at initial recognition was calculated using a market interest rate for an equivalent non-convertible note. The residual amount, representing the value of the equity conversion component, is included in shareholders’ equity net of deferred taxes.

In February 2006, Grand Cosmos acquired the convertible note from the third party and exercised all the conversion right attached to the convertible note with a face value of HK$60,000,000 to convert the note into 181,818,181 ordinary shares of HK$0.01 each in the Company.

The convertible notes in the aggregate principal amount of US$200,000,000 (equivalent to approximately HK$1,562,380,000) were issued on 4 May 2007 details of which are set out in the circular of the Company dated 4 April 2007. The Notes bear a coupon of 4% per annum payable semi-annually in arrear, maturity terms of 6 years and an annual yield-to-maturity of 15%. The Notes are convertible for ordinary shares of the Company at the adjusted price of HK$1.00 per share under the stipulated reset mechanism on 4 August 2008 (the initial conversion price being HK$1.35 per share). Unless previously redeemed, converted or repurchased and cancelled, the Company will redeem the Notes at 201.33% of its principal amount on the maturity date of 3 May 2013.

On issue, part of the proceeds of the Notes was recognised as derivative instrument. The remaining amount is recognised as a loan and is carried at amortised cost. The effective interest rate is 60.58% per annum. The fair values of the loan and derivative elements of the Notes at initial recognition were approximately HK$175,545,000 and HK$1,386,835,000 respectively.

Each convertible noteholder shall have the right to exercise the put options at three stages, (i) redeeming not exceeding 30% of the principal value of the Notes at the date of issue plus accrued interests on 4 May 2010; (ii) redeeming not exceeding 20% of the principal value of the Notes at the date of issue plus accrued interests on 4 November 2010; and (iii) redeeming all remaining outstanding principal plus accrued interests on 4 May 2011.

The derivative components embedded in the Notes are presented as financial derivative liabilities which are revalued on the end of the reporting period at fair values.

In connection with the acquisition of the 29% interest in the Westin Project that was held by the Company’s director and controlling shareholder, Mr. Yu Pan, convertible preference shares of approximately HK$257,000,000 (“CPS”) were issued to his associate. The CPS is non-interest bearing, non-redeemable and convertible into ordinary shares of the Company subject to the same initial conversion price and reset mechanism as the Notes. The CPS were converted into 335,984,286 ordinary shares of the Company during the year ended 31 December 2007.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The movements of equity, liabilities and financial derivative liabilities components of the convertible notes and CPS are as follows:

		Carrying amount	Carrying amount
Nominal value HK$’000 60,000 – (60,000) – – 1,562,380 – – – (46,871) – 1,515,509 – – (15,624) – 1,499,885 – – – 1,499,885	Equity component HK$’000 5,100 – (5,100) – – – – – – – – – – – – – – – – – –	Liability component HK$’000 55,087 595 (55,352) (330) – 175,545 (6,567) 78,348 (30,311) (5,069) – 211,946 156,571 (59,995) (2,185) – 306,337 105,196 (29,997) – 381,536	Financial derivative components HK$’000 – – – – – 1,386,835 – – – (37,474) (267,789) 1,081,572 – – (11,486) (976,924) 93,162 – – 263,951 357,113 21,395 26,855 11,507 (59,757) – 21,395 1,081,572 93,162 357,113	Total HK$’000 60,187 595 (60,452) (330)
				– 1,562,380 (6,567) 78,348 (30,311) (42,543) (267,789)
				1,293,518 156,571 (59,995) (13,671) (976,924)
				399,499 105,196 (29,997) 263,951
				738,649

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Liability component of the convertible notes are presented as:

Current liabilities Non-current liabilities	As at 31 December 2006 2007 HK$’000 HK$’000 – – – 211,946 – 211,946	As at 30 June 2008 2009 HK$’000 HK$’000 – 119,230 306,337 262,306 306,337 381,536	As at 30 June 2008 2009 HK$’000 HK$’000 – 119,230 306,337 262,306 306,337 381,536
			381,536

Interest expense on the convertible notes is calculated using the effective interest method by applying the effective interest rates of 7.75% for the year ended 31 December 2006 and 60.58% for the years ended 31 December 2007 and 2008 and the six months ended 30 June 2009 to the liability component.

As at 31 December 2007, the face value of the outstanding convertible notes are US$194,000,000 (approximately HK$1,515,509,000). As at 31 December 2008 and 30 June 2009, the face value of the outstanding convertible notes are US$192,000,000 (approximately HK$1,499,885,000).

As at 31 December 2007 and 2008 and 30 June 2009, the Group’s obligations under convertible notes to the Noteholders are secured by (i) restricted and pledged deposits of approximately HK$337,528,000, HK$46,311,000 and HK$16,864,000 respectively (as disclosed in note 28); (ii) shares of certain subsidiaries of the Company which hold equity interest in other subsidiaries engaged in property development; and (iii) shares of the Company beneficially held by Mr. Yu Pan, the controlling shareholder of the Company, as disclosed in note 46(b).

Pursuant to the Trust Deed, a supplemental deed dated 22 January 2008, a standstill letter given by the special committee of the Noteholders dated 31 March 2009 and a special committee meeting of the Noteholders held on 10 June 2008, the Noteholders have the automatic redemption right to redeem the Notes in principal amount of US$75,000,000 (approximately HK$585,893,000) and accrued interest (which amounted to approximately HK$151,802,000 as at 30 June 2009) (“Automatic Redemption”) if the project company of the Zhoutouzui Project cannot obtain the land use right certificate and other permits for the project on or before 31 May 2009. The project company cannot meet the deadline and on 29 May 2009, the Special Committee of the Noteholders has given the Company verbal consent to refrain from exercising the Noteholders’ right of the Automatic Redemption until a concrete plan for a restructuring of the terms and conditions of the Notes has been agreed between the Company and the Noteholders.

In addition, the default in repayment of the Term Loan (note 32(b)) and the lenders not extending the grace period constitutes an event of default under the terms of the Notes and the trustee acting for the Noteholders may at its sole discretion give an acceleration notice to declare that the whole of outstanding Notes in principal amount of US$192,000,000 (approximately HK$1,499,885,000) be immediately due and repayable at the Early Redemption amount plus accrued interest (which amounted to approximately HK$388,613,000 as at 30 June 2009). Under the current situation that the Company has been negotiating with the Noteholders about the restructuring of the Notes which include partial or possibly full redemption of the Notes with the proceed from the Disposal and relaxation of certain terms of the existing Notes, the Directors perceive that the Noteholders will not initiate any legal action against the Company for the Early Redemption.

Negotiations in relation to the restructuring of the Notes with the Noteholders are in progress though no resolutions have been reached so far up to the date of this report. The claim for the Automatic Redemption is in standstill. The Directors believe that the restructured terms of the Notes may be reached in the coming months that will relax certain terms and conditions of redemption of the Notes that are in the interest of the Company. Had legal actions been taken by the Noteholders for the Early Redemption, the Notes to the extent of approximately HK$1,499,885,000 in principal and approximately HK$388,613,000 in interests accrued up to 30 June 2009 representing additional liabilities of approximately HK$1,506,962,000 would have become due immediately as at 30 June 2009.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

34. LOAN FROM MINORITY SHAREHOLDER OF A SUBSIDIARY

The fair value of the loan at initial recognition has been determined based on the present value of the estimated future cash flows discounted using the then prevailing market interest rate. The movements of the loan from minority shareholder of a subsidiary were as follows:

At beginning of year/period Acquired through acquisition of additional interest in a subsidiary Advance from minority shareholder of a subsidiary Contributions from minority shareholder of a subsidiary Imputed interest expense Exchange differences Others At end of year/period	Carrying amount As at 31 December As at 30 June 2006 2007 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 – 244,936 – 273,968 268,609 (250,956) – – – – 271,321 3,404 (25,425) – – – – 6,020 – – – – 2,647 (33) 1,752 – – – 244,936 – 273,968 277,339
	As at 31 December 2006 2007 HK$’000 HK$’000 – 244,936 268,609 (250,956) – – (25,425) – – 6,020 – – 1,752 – 244,936 –

Interest expenses on loan from minority shareholder of a subsidiary as at 31 December 2006 and 2007 are calculated using the effective interest method by applying the effective interest rate of 6% per annum to the carrying amount.

The balance as at 31 December 2008 and 30 June 2009 is unsecured, interest-free and has no fixed terms of repayment but is agreed not to be repayable within the eighteen months from the end of the reporting period.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

35. DEFERRED TAX LIABILITIES

Movements of the deferred tax liabilities are as follows:

At 1 January 2006 Conversion of convertible note Acquired through acquisition of subsidiaries (Credit) charges to profit or loss Exchange differences At 31 December 2006 and at 1 January 2007 Reclassification upon associate becoming a subsidiary Credit to profit or loss Acquired through acquisition of subsidiaries Exchange differences At 31 December 2007 and at 1 January 2008 Credit to profit or loss Credit to property revaluation reserve Reclassified as liabilities associated with assets held for sale_(Note 30)_ Exchange differences At 31 December 2008 and at 1 January 2009 Credit to profit or loss Exchange differences At 30 June 2009	Convertible notes HK$’000 860 (756) – (104) – – – – – – – – – – – – – – –	Revaluation of properties Prepaid Properties lease Investment held for payments properties development HK$’000 HK$’000 HK$’000 – 81,713 – – – – – – 99,140 – 31,559 – – 2,428 982 – 115,700 100,122 – – 4,317 (1,179) (34,500) (29,332) 128,618 – 138,064 9,260 9,917 12,574 136,699 91,117 225,745 (24,166) (29,816) (26,333) – – (17,788) – – (107,787) 7,673 5,271 13,059 120,206 66,572 86,896 (1,788) – – (13) (7) (10) 118,405 66,565 86,886	Total HK$’000 82,573 (756) 99,140 31,455 3,410
			215,822 4,317 (65,011) 266,682 31,751
			453,561 (80,315) (17,788) (107,787) 26,003
			273,674 (1,788) (30)
			271,856

As at 31 December 2006, 2007 and 2008 and 30 June 2009, the Group has estimated unutilised tax losses of approximately HK$32,903,000, HK$70,326,000, HK$62,127,000 and HK$105,496,000 respectively for offsetting against future assessable profits. The unrecognised tax losses may be carried forward indefinitely or up to five years from the year in which the loss was originated.

No deferred tax asset has been recognised in respect of these balances due to the unpredictability of future profit streams.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

36. SHARE CAPITAL

(a) Authorised and issued share capital

Number of shares Convertible Ordinary preference share of share of HK$0.01 each HK$0.01 each Notes ’000 ’000 Authorised: At 1 January 2006, 31 December 2006 and 1 January 2007 30,000,000 — Change in authorised capital (i) (1,000,000) 1,000,000 At 31 December 2007 and 2008 and at 30 June 2009 29,000,000 1,000,000 Issued and fully paid: At 1 January 2006 (ii) 640,719 145,537 Issue of shares: — Conversion of convertible note (iii) 181,818 — — Open offer (iv) 267,324 — — Exercise of bonus warrants (v) 10 — At 31 December 2006 and at 1 January 2007 1,089,871 145,537 Issue of shares: — Convertible preference shares (vi) — 190,447 — Conversion of convertible preference shares (vii) 335,984 (335,984) — Conversion of convertible notes (viii) 34,720 — — Exercise of bonus warrants (v) 5,272 — At 31 December 2007 and at 1 January 2008 1,465,847 — Issue of shares: — Conversion of convertible notes (viii) 11,573 — — Exercise of bonus warrants (v) 7 — — Exercise of share options (ix) 260 — At 31 December 2008, 1 January 2009 and at 30 June 2009 1,477,687 —	Number of shares	Total ’000 30,000,000 — 30,000,000 786,256 181,818 267,324 10 1,235,408 190,447 — 34,720 5,272 1,465,847 11,573 7 260 1,477,687	Nominal value
			Ordinary Convertible share preference capital share capital HK$’000 HK$’000 300,000 — (10,000) 10,000 290,000 10,000 6,407 1,455 1,818 — 2,674 — — — 10,899 1,455 — 1,905 3,360 (3,360) 347 — 53 — 14,659 — 116 — — — 2 — 14,777 —	Total HK$’000 300,000 —
				300,000

				7,862 1,818 2,674 —
				12,354 1,905 — 347 53
				14,659 116 — 2
				14,777

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

(i) Pursuant to a special resolution on 26 April 2007, it was resolved to reduce the authorised share capital of the Company by 1,000,000,000 ordinary shares of HK$0.01 each and create 1,000,000,000 preference shares of HK$0.01 each in the authorised share capital of the Company in relation to the acquisition of the entire interest in the Tianyu Garden Phase 2 Project[1] to be mentioned in note (ii) below. In accordance with note 1, this acquisition is regarded as a common control combination and accounted for in accordance with the Accounting Guideline 5 “Merger Accounting for Common Control Combinations”. Accordingly, the reduction and creation of respective authorised share capital is accounted for as if it had been effected as at 1 January 2006.
(ii) On 19 July 2007, the Company issued 145,537,077 CPS to Grand Cosmos as the purchase consideration at a fair value of approximately HK$302 million for the acquisition of the entire interest in the Tianyu Garden Phase 2 Project. In accordance with note 1, this acquisition is regarded as a common control combination and accounted for in accordance with the Accounting Guideline 5 “Merger Accounting for Common Control Combinations”. Accordingly, the issue of the aforesaid CPS is accounted for as if it had been issued as at 1 January 2006.
(iii) On 16 February 2006, Grand Cosmos, a company wholly owned by the Group’s chairman, Mr. Yu Pan, acquired the convertible note with a face value of HK$60 million from the note holder and on 20 February 2006 exercised the conversion right in full to convert the note into 181,818,181 ordinary shares of HK$0.01 each in the Company at the conversion price of HK$0.33 per share.
(iv) On 3 August 2006, the Company completed an open offer of 267,324,486 ordinary shares of HK$0.01 each in the Company at HK$0.90 per share in the proportion of 13 offer shares for every 40 existing shares held with 10 bonus warrants for every 13 offer shares taken up (“Open Offer”) and has raised a net proceed of approximately HK$234.5 million, which was mainly used for the acquisition of 51% equity interest in a subsidiary. In connection with the Open Offer, a bonus issue of 205,634,220 warrants were issued which are exercisable at an initial subscription price of HK$1.10 per share at any time during a two-year period ending 2 August 2008. The Company will receive net proceeds of approximately HK$225 million upon the warrants being exercised in full.
(v) During the years ended 31 December 2006, 2007 and 2008, some bonus warrant holders exercised their subscription rights to subscribe 9,901, 5,272,108 and 7,031 ordinary shares of HK$0.01 each in the Company, respectively, at the initial subscription price of HK$1.10 per share. All the remaining unexercised warrants which were issued in the Open Offer in 2006 expired on 1 August 2008.
(vi) On 4 May 2007, the Company issued 190,447,209 CPS to Grand Cosmos, as part of the purchase consideration for the acquisition of the entire interest in the Westin Project as mentioned in note 20(a). The total purchase consideration of this project comprised HK$630 million in cash and the issue of 190,447,209 CPS at a fair value of HK$407 million.
(vii) During the year ended 31 December 2007, all the CPS issued in relation to notes (ii) and (vi) above were converted into 335,984,286 ordinary shares of HK$0.01 each at a conversion price of HK$1.35 per share.
(viii) During the years ended 31 December 2007 and 2008, a total of convertible notes in the principal value of US$6,000,000 and US$2,000,000, respectively, were converted into ordinary shares of the Company at a conversion price of HK$1.35 per share, resulting in a total number of 34,719,555 and 11,573,184 ordinary shares of the Company issued. As at 31 December 2007, the face value of the outstanding convertible notes are US$194,000,000 (approximately HK$1,515,509,000). As at 31 December 2008 and 30 June 2009, the face value of the outstanding convertible notes are US$192,000,000 (approximately HK$1,499,885,000).
(ix) During the year ended 31 December 2008, 260,000 share options previously granted under the existing share option scheme were exercised as mentioned in note 39.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

All new shares issued as a result of conversions of convertible preference shares, convertible notes, and bonus warrants rank pari passu with the existing shares in the Company in all respects.

1 Tianyu Garden Phase 2 Project refers to the business of leasing properties comprising commercial units located at Lin He Zhong Road, Tianhe District, Guangzhou, the PRC. The Group acquired 100% interest in the Tianyu Garden Phase 2 Project in 2007 and the acquisition was completed on 19 July 2007. The details of the acquisitions have been disclosed in notes 1 and 40(c). The carrying amounts of the properties for leasing in relation to the Tianyu Garden Phase 2 Project have been included in the investment properties in note 18.

(b) Capital management policy

The primary objective of the Company’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholders’ value.

The Company manages its capital structure and makes adjustments to it by adjusting applicable policies on dividend pay-out, return to shareholders and debt and equity raising or redemption, in the light of changes in economic conditions. There have been no material changes in these objectives and policies or processes during the Relevant Periods.

The Company monitors capital using gearing ratio, which is calculated as net debt to the summation of capital and net debt. Net debt includes bank and other borrowings, convertible notes, financial derivative liabilities, loan from minority shareholder of a subsidiary and other payable classified as non-current liabilities less cash and cash equivalents. Capital represents equity attributable to equity holders of the Company.

The gearing ratios as at the end of the reporting periods are as follows:

Total debt _Less:_Cash and cash equivalents Net debt Equity attributable to equity holders Capital and net debt Gearing ratio	As at 31 December 2006 2007 HK$’000 HK$’000 430,222 2,540,220 (47,993) (63,338) 382,229 2,476,882 721,520 1,686,682 1,103,749 4,163,564 34.6% 59.5%	As at 30 June 2008 2009 HK$’000 HK$’000 2,059,748 2,703,894 (53,720) (290,584) 2,006,028 2,413,310 2,520,695 2,128,667 4,526,723 4,541,977 44.3% 53.1%

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

37. RESERVES

The following describes the nature and purpose of each reserve within owners’ equity:

Share premium

The amount relates to subscription for share capital in excess of nominal value. The application of the share premium account is governed by clause 150 of the Company’s bye-laws and the Companies Act 1981 of Bermuda.

Contributed surplus reserve

The amount arose from the capital reduction, cancellation of share premium and part of which has been set-off against the accumulated losses of the Company as at 31 December 2004 pursuant to the capital re-organisation.

Under the Companies Act 1981 of Bermuda, the Company may make distributions to its equity holders out of the contributed surplus reserve under certain circumstances.

Share-based payment reserve

The capital reserve comprises the fair value of the actual or estimated number of unexercised share options granted to employees and non-employees of the Group recognised in accordance with the accounting policy adopted for share based payments in note 4(r).
Convertible notes equity The amount represents the value of the unexercised equity component of the reserve convertible notes issued by the Company recognised in accordance with the accounting policy adopted in note 4(l)(iv).

Merger reserve

The amount represents the difference between the fair value of combined capital of the Company and the carrying value of the assets and liabilities of the subsidiaries transferred to the Group pursuant to the acquisition of 100% interests in Long World.

Statutory reserves In accordance with relevant rules and regulations concerning foreign investment enterprise established in the PRC and the articles of association, PRC subsidiaries of the Company were required to make appropriations from net profit to the reserve fund, staff and workers’ bonus and welfare fund and enterprise expansion fund, after offsetting accumulated losses from prior years, and before profit distributions are made to investors. The percentage of profits to be appropriated to the above three funds are solely determined by the board of directors, except that being a wholly foreign-owned enterprise, transfer of 10% of the net profit for each year to the statutory reserves is mandatory until the accumulated total of the fund reaches 50% of its registered capital. During the Relevant Periods, the Group has not made any appropriations to the staff and workers’ bonus and welfare fund and enterprise expansion fund.

Other reserves

The amount represents the capital reserve fund contribution.

Foreign exchange reserve

The amount represents gains/losses arising from the translation of the Financial Information of foreign operations. The reserve is dealt with in accordance with the accounting policy set out in note 4(p).

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

38. PRINCIPAL SUBSIDIARIES OF THE COMPANY

Details of the Company’s principal subsidiaries as at the end of the reporting periods and at the date of this report are as follows:

		Particulars
		of issued
	Place of	ordinary
	incorporation/	shares/	Percentage of equity interest
Name of subsidiaries	establishment	paid-up capital	attributable to the Company					Principal activities
							As at
			As at 31 December			30	June
			2006	2007	2008		2009
Directly held by the Company
Chain Up Limited	BVI	US$1	100%	100%	100%	100%		Investment holding
Fine Luck	BVI	US$1	100%	100%	100%	100%		Investment holding
Skyfame Management	Hong Kong	HK$1	100%	100%	100%	100%		Provision of management
Services Limited								services to group entities
United Prime Limited	BVI	US$1	100%	100%	–		–	Provision of property
(Dissolved in 2008)								development project
								management services
								and acting as the
								project manager
								to supervise the
								construction of
								properties in the PRC
Winprofit Investments	BVI	US$100	–	100%	100%	100%		Investment holding
Limited (“Winprofit”)
Indirectly held by the Company
Great Elegant	BVI	US$100	100%	100%	100%	100%		Investment holding
Investment Limited
CJTY	PRC	US$45,000,000	—	100%	100%	100%		Property development
								and hotel operation
								in the PRC
廣州市創譽房地產開發	PRC	US$6,000,000	100%	100%	100%	100%		Property investment
有限公司(Guangzhou								in the PRC
Chuangyu Real Estate
Development
Company Limited)
(“Chuangyu”)
廣州寰城實業發展	PRC	RMB220,000,000	–	100%	100%	100%		Property development
有限公司(Guangzhou								in the PRC
Huan Cheng Real Estate
Development
Company Limited)
(“Guangzhou Huan Cheng”)

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

		Particulars
		of issued
	Place of	ordinary
	incorporation/	shares/	Percentage of equity interest
Name of subsidiaries	establishment	paid-up capital	attributable to the Company					Principal activities
						As at
			As at 31 December			30	June
			2006	2007	2008		2009
廣州譽浚咨詢服務	PRC	HK$5,000,000	100%	100%	100%	100%		Investment holding and
有限公司(Guangzhou Yu								provision of property
Jun Consulting Service								development project
Company Limited)								management services
(“Yu Jun”)								in the PRC
GZ ZTZ	Hong Kong	HK$100	51%	100%	100%	100%		Investment holding
貴州譽浚房地產開發	PRC	RMB50,000,000	–	–	55%		55%	Property development
有限公司(Guizhou Yu								in the PRC
Jun Real Estate Development
Company Limited)
Long World	BVI	US$1	100%	100%	100%	100%		Investment holding
Nicco Limited	BVI	US$100	100%	100%	100%	100%		Investment holding
Smartford Limited	BVI	US$100	100%	100%	100%	100%		Investment holding
Sky Honest	BVI	US$1	–	100%	100%	100%		Investment holding
Yaubond	BVI	US$18,813,500	–	100%	100%	100%		Investment holding
Yue Tian Development	Hong Kong	HK$72,000	–	100%	100%	100%		Investment holding
Limited (“Yue Tian”)
Winprofit	BVI	US$100	100%	–	–		–	Investment holding

The above table lists the subsidiaries of the Company which, in the opinion of the Directors, principally affects the results or assets of the Group.

CJTY, Chuangyu, Guangzhou Huan Cheng and Yu Jun are wholly foreign-owned enterprises established with limited liability in the PRC.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

39. EQUITY-SETTLED SHARE-BASED PAYMENT TRANSACTIONS

Pursuant to a resolution passed on 4 August 2005, a share option scheme was adopted (the “2005 Scheme”). The Company operates the 2005 Scheme for the purposes of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Eligible participants of the 2005 Scheme include the Directors and other employees of the Group. The 2005 Scheme became effective on 5 August 2006 and, unless otherwise cancelled or amended, will remain in force for 10 years from that date. Under the 2005 Scheme, the Directors are authorised, at their absolute discretion, to invite any employee (including the executive and nonexecutive Directors), executive or officer of any member of the Group or of any entity in which the Group holds equity interest and any supplier, consultant, adviser or customer of the Group or of any entity in which the Group holds equity interest who is eligible to participate in the 2005 Scheme, to take up options to subscribe for shares in the Company.

The maximum number of shares which may be issued upon exercise of all options to be granted under the 2005 Scheme and any other share option schemes of the Company shall not in aggregate exceed 10 per cent. of the total number of shares of the Company in issue as at the date of adoption of the 2005 Scheme.

The Company may seek approval of the shareholders in general meeting for refreshing the 10 per cent. limit under the 2005 Scheme save that the total number of shares which may be issued upon exercise of all options to be granted under the 2005 Scheme and any other share option schemes of the Company under the limit as “refreshed” shall not exceed 10 per cent. of the total number of shares in issue as at the date of approval of the limit. Options previously granted under the 2005 Scheme and any other share option schemes of the Company (including those outstanding, cancelled, lapsed in accordance with the other scheme(s) or exercised options) will not be counted for the purpose of calculating the limit as “refreshed”.

Notwithstanding aforesaid in this paragraph, the maximum number of shares of the Company which may be issued upon exercise of all outstanding options granted and yet to be exercised under the 2005 Scheme and any other share option schemes of the Company must not exceed 30 per cent. of the total number of shares in issue from time to time.

The total number of Company’s shares issued and to be issued upon exercise of the options granted to each participant (including exercised, cancelled and outstanding options) in any 12-month period shall not exceed 1 per cent. of the total number of shares in issue at the offer date (the “Individual Limit”). Any further grant of options in excess of the Individual Limit must be subject to the shareholders’ approval in general meeting with such participant and his, her or its associates abstaining from voting.

The exercise price in respect of any particular option shall be such price as determined by the board of Directors (the “Board”) in its absolute discretion at the time of the making of the offer but in any case the exercise price shall not be less than the highest of (i) the closing price of the shares as stated in the daily quotation sheets of the Stock Exchange on the offer date; (ii) the average of the closing prices of the shares as stated in the daily quotation sheets of the Stock Exchange for the five trading days immediately preceding the offer date; and (iii) the nominal value of the shares in the Company.

The offer of a grant of share options must be accepted not later than 21 days after the date of the offer, upon payment of a consideration of HK$1.00 by the grantee. The exercise period of the share options granted is determined by the Board, save that such period shall not be more than a period of ten years from the date upon which the share options are granted or deemed to be granted and accepted.

The options are exercisable six months (or a later date as determined by the Directors) after the date on which the options are granted for a period up to ten years or 31 July 2015, whichever is earlier. Each option gives the holder the right to subscribe for one ordinary share in the Company.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The following table discloses the details of the Company’s options under the 2005 Scheme held by employees (including Directors) and non-employees, and the movement of these holdings during the Relevant Periods:

Exercise Date of grant Exercise period Vesting period price 12 September 2006 13 March 2007 Six months HK$1.31 to 31 July 2015 from the date of grant 12 September 2006 13 March 2008 One and a half HK$1.31 to 31 July 2015 years from the date of grant 12 September 2006 13 March 2009 Two and a half HK$1.31 to 31 July 2015 years from the date of grant Analysis of category: Directors Other employees Non-employees	Number of options granted at 12 September 2006 and outstanding at 31 December 2006 and 2007 21,268,000 21,268,000 21,314,000	Options exercised for the year ended 31 December 2008 (260,000) — — (260,000) — (260,000) — (260,000)	Transfer for the year ended 31 December 2008 — — — — (5,000,000) 5,000,000 — —	Options lapsed for the year ended 31 December 2008 (5,668,000) (5,928,000) (5,944,000) (17,540,000) — (2,540,000) (15,000,000) (17,540,000)	Number of options outstanding at 31 December 2008 and 30 June 2009 15,340,000 15,340,000 15,370,000
	63,850,000				46,050,000

	9,800,000 14,900,000 39,150,000				4,800,000 17,100,000 24,150,000
	63,850,000				46,050,000

During the years ended 31 December 2007 and 2008 and the six months ended 30 June 2008 and 2009, no share option was granted under the 2005 Scheme.

The Group recognised HK$3,584,000, HK$12,562,000, HK$1,478,000, HK$925,000 and HK$240,000 as equitysettled share-based payment expenses for each of the years ended 31 December 2006, 2007 and 2008 and the six months ended 30 June 2008 and 2009, respectively, in relation to share options granted by the Company.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The fair value of services received in return for share options granted is measured by reference to the fair value of share options granted as the fair value of the services received could not be estimated reliably. The estimate of the fair value of the share options granted is measured based on Black-Scholes Option Pricing Model (“BSOP Model”). The contractual life of the share option is used as an input into this model.

Fair value of share options and assumptions

Fair value at measurement date	HK$0.28
Closing share price at date of grant	HK$1.30
Exercise price	HK$1.31
Expected volatility (expressed as weighted average volatility used in the
modelling under BSOP Model)	35.06%
Option life (expressed as weighted average life used in the modeling under
BSOP Model)	1.92 years
Expected dividend yield	Nil
Risk-free interest rate (based on Exchange Fund Notes)	3.66% to 3.92%

The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the share options), adjusted for any expected changes to future volatility based on public available information. Expected dividends are based on historical dividends. Changes in the subjective input assumptions could materially affect the fair value estimate.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

40. NOTES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS

(a) Reconciliation of profit (loss) before income tax to net cash (used in) generated from operating activities

Profit (loss) before income tax Adjustments for: Finance costs Finance income Equity-settled share-based payment expenses Depreciation of property, plant and equipment Amortisation of prepaid lease payments Prepaid lease payments recognised as cost of sales Impairment losses on trade and other receivables Increase in fair value of financial asset at fair value through profit or loss Fair value changes in financial derivative liabilities – convertible notes – convertible preference shares Share of profit (loss) of associate, net of tax Discount on business combinations Loss (gain) on disposal of property, plant and equipment Fair value changes in investment properties Impairment loss on goodwill Waiver of amount due from a director arising from business combination under common control Operating profit (loss) before working capital changes Decrease (increase) in properties held for sale (Increase) decrease in inventories Decrease (increase) in trade and other receivables (Decrease) increase in trade and other payables Increase (decrease) in deferred income Cash generated from (used in) operations Income tax paid Other borrowing costs paid Interest paid Net cash (used in) generated from operating activities	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 78,021 160,096 634,678 8,214 79,877 189,957 (4,090) (14,089) (2,982) 3,584 12,562 1,478 365 43,803 77,986 3 6,323 20,770 2,776 174 90,495 188 – – (132) (29) – – (267,789) (976,924) – 11,507 – 112 (8,251) – – (67,965) – – – 2 (95,634) 22,926 119,263 – – 66,511 22,136 12,853 – 15,543 (8,002) 221,234 11,008 (77,510) 63,280 – (30,863) 13,951 95,780 (9,090) (1,442) (119,467) 61,318 14,012 – – 3,779 2,864 (64,147) 314,814 (2,004) (252) (8,320) – (1,296) (4,781) (6,198) (93,238) (164,051) (5,338) (158,933) 137,662	Six months ended 30 June 2008 2009 HK$’000 HK$’000 (Unaudited) 423,172 (398,064) 81,709 120,950 (2,189) (316) 925 240 36,948 38,563 10,322 9,162 – – – 396 – – (514,691) 263,951 – – – – – – – (26) – – – – – – 36,196 34,856 (19,729) 722 5,407 6,023 (6,217) (7,664) 188,001 70,628 – (701) 203,658 103,864 (1,720) (9,609) (4,781) (14,727) (84,775) (92,753) 112,382 (13,225)	Six months ended 30 June 2008 2009 HK$’000 HK$’000 (Unaudited) 423,172 (398,064) 81,709 120,950 (2,189) (316) 925 240 36,948 38,563 10,322 9,162 – – – 396 – – (514,691) 263,951 – – – – – – – (26) – – – – – – 36,196 34,856 (19,729) 722 5,407 6,023 (6,217) (7,664) 188,001 70,628 – (701) 203,658 103,864 (1,720) (9,609) (4,781) (14,727) (84,775) (92,753) 112,382 (13,225)
			34,856 722 6,023 (7,664) 70,628 (701)
			103,864 (9,609) (14,727) (92,753)
			(13,225)

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(b) Acquisition of subsidiaries

(1) On 13 October 2006, the Group completed a transaction to acquire from the vendor, Mr. Luo Dong Liang, 51 shares of US$1 each in the issued share capital of Loyal Way (China) Group Limited (“Loyal Way”), which indirectly held 100% interest in Yucheng as disclosed in note 23, representing 51% of the issued share capital of Loyal Way, and assigned the total loans of HK$282,568,000 extended by the then shareholder at an aggregate consideration of approximately HK$351,807,000.

Details of the fair value of identifiable assets and liabilities acquired are as follows:

Notes Net assets acquired: Property, plant and equipment 16 Properties held for development Trade and other receivables Cash and cash equivalents Trade and other payables Deferred tax liabilities 35 Amounts due to the then shareholders Loan from minority shareholder of a subsidiary 34 Net assets Minority interests Goodwill arising on acquisition 20 Satisfied by: Cash consideration paid Consideration payable 31 Total consideration Shareholder’s loan acquired Net cash outflow arising from the acquisition of subsidiaries: Cash consideration paid Direct costs relating to the acquisition Cash and cash equivalents acquired	Carrying amount before acquisition HK$’000 76 548,279 146 2,467 (4,168) (52,308) (282,568) (268,609) (56,685)	Fair value adjustments HK$’000 – 141,917 – – – (46,832) – – 95,085	2006 – Fair value HK$’000 76 690,196 146 2,467 (4,168) (99,140) (282,568) (268,609) 38,400 (18,816) 19,584 49,655 69,239 288,234 63,573 351,807 (282,568) 69,239 286,995 1,239 288,234 (2,467) 285,767

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(2) During the year ended 31 December 2007, the Group completed the acquisitions of certain subsidiaries, details of which are as follows:
(i) On 4 May 2007, the Group entered into two separate agreements with (a) a subsidiary of Poly (Hong Kong) Investments Limited (“Poly HK”) and an independent third party, and (b) Wise Gain Investment Limited, a company wholly-owned by Mr. Yu Pan, who is the chairman of the Company. Both agreements were for the acquisition of and together comprise the entire equity interest in and shareholders’ loans of Yue Tian and its whollyowned subsidiary incorporated in the PRC (the “Yue Tian Group”). The total consideration of the two agreements amounted to approximately HK$887 million. The principal activity of the Yue Tian Group is the development of the Westin Project. The acquisition was completed on 4 May 2007.

The acquisition of the Westin Project was satisfied by approximately HK$629 million in cash, which was financed by the proceeds of the Notes, and the issue of 190,447,209 CPS to Mr. Yu’s associate at a fair value of approximately HK$407 million.

(ii) On 24 April 2007, the Group entered into an agreement to acquire from the vendor, a subsidiary of Poly HK, an entire interest in Bright Able Developments Limited (“Bright Able”) at an aggregate consideration of approximately HK$321 million. Bright Able is an investment company holding 49% equity interest in Zhoutouzui Project.

The acquisition was completed on 4 June 2007. The acquisition of the Zhoutouzui Project was satisfied by approximately HK$321 million in cash which was financed by the proceeds of the Notes.

(iii) On 21 June 2007, Sky Honest, a subsidiary of the Company, entered into an agreement to acquire the remaining 51% equity interest in the Group’s 49%-held associate, Yaubond, at a cash consideration of approximately HK$204 million. The transaction was completed on 27 July 2007. The acquisition cost was financed entirely by borrowing from an institutional lender, which is secured by mortgages constituted by two deeds entered into respectively by Sky Honest and its holding company, Chain Up Limited.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:

			Carrying amount before acquisition	Carrying amount before acquisition	Carrying amount before acquisition	Carrying amount before acquisition	Carrying amount before acquisition	Carrying amount before acquisition
						Remaining
				Remaining		51% equity
		100% equity		49% equity			interest
		interest in		interest in		in Tian He		Total
			Westin	Zhoutouzui			North	carrying	Fair value	2007
			Project		Project		Project	amount	adjustments – Fair value
	Notes		HK$’000		HK$’000		HK$’000	HK$’000	HK$’000	HK$’000
Net assets acquired:
Property, plant and equipment	16		1,869		–		–	1,869	–	1,869
Prepaid lease payments	17		118,515		–		–	118,515	514,472	632,987
Properties under/held for
development			1,247,013		–		327,143	1,574,156	340,982	1,915,138
Interest in an associate	21		–		–		(173,088)	(173,088)	–	(173,088)
Trade and other receivables			24,558		–		94	24,652	–	24,652
Cash and cash equivalents			10,190		–		482	10,672	–	10,672
Trade and other payables			(93,683)		–		(327)	(94,010)	–	(94,010)
Amount due to related company			(31,437)		–		–	(31,437)	–	(31,437)
Deferred tax liabilities	35		–		–		(52,818)	(52,818)	(213,864)	(266,682)
Bank borrowings			(647,100)		–		–	(647,100)	–	(647,100)
Amounts due to the
then shareholders			(610,022)		(268,654)		(2,505)	(881,181)	–	(881,181)
Loan from minority
shareholder of a subsidiary	34		–		250,956		–	250,956	–	250,956
Net assets (liabilities)			19,903		(17,698)		98,981	101,186	641,590	742,776
Fair value adjustments			385,854		–		255,736	641,590	(641,590)	–
Minority interests			–		66,538		–	66,538	–	66,538
Revaluation reserve			–		–		(84,842)	(84,842)	–	(84,842)
Attributable to the Group			405,757		48,840		269,875	724,472	–	724,472
Goodwill arising on acquisition	20		46,530		18,211		–	64,741		64,741
Discount on business combinations			–		–		(67,965)	(67,965)		(67,965)
			452,287		67,051		201,910	721,248		721,248

Satisfied by:
Face value of CPS issued			257,104		–		–			257,104
Fair value of CPS issued
– Share consideration			123,388		–		–			123,388
– Financial derivative liabilities			26,855		–		–			26,855
Share consideration paid			407,347		–		–			407,347
Cash consideration paid			654,962		335,705		204,415			1,195,082
Total consideration			1,062,309		335,705		204,415			1,602,429
Shareholder’s loan acquired			(610,022)		(268,654)		(2,505)			(881,181)
			452,287		67,051		201,910			721,248

Net cash outflow arising from the
acquisition of subsidiaries:
Cash consideration paid			629,449		321,251		204,116			1,154,816
Direct costs relating
to the acquisition			25,513		14,454		299			40,266
			654,962		335,705		204,415			1,195,082
Cash and cash equivalents acquired			(10,190)		–		(482)			(10,672)
			644,772		335,705		203,933			1,184,410

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

These subsidiaries acquired contributed to the Group’s revenue of HK$104 million and contributed to the Group’s loss of HK$50 million for the year ended 31 December 2007. If these acquisitions had been completed on 1 January 2007, the contribution of these subsidiaries acquired to the Group’s revenue and profit would be same as those for the year ended 31 December 2007.

Goodwill arose in the business combination because the cost of the combination included a control premium paid to acquire these subsidiaries. In addition, the consideration paid for the combination effectively included amounts in relation to the benefit of expected synergies, revenue growth and future market development of these subsidiaries. These benefits are not recognised separately from goodwill as the future economic benefits arising from them cannot be reliably measured.

(c) Major non-cash transactions

During the year ended 31 December 2006, Grand Cosmos exercised the conversion right attached to the convertible note with a face value of HK$60 million to convert the note into 181,818,181 ordinary shares of HK$0.01 each in the Company at the conversion price of HK$0.33 per share, which is set out in note 33.

During the year ended 31 December 2006, HK$71,905,000 of the loan advance to an associate was capitalised as share capital of the associate.

On 4 May 2007 and 19 July 2007, the Company issued 190,447,209 and 145,537,077 convertible preference shares of HK$0.01 each to Grand Cosmos, as part of the purchase consideration for the acquisition of subsidiaries at fair value of approximately HK$407 million and HK$302 million respectively.

During the years ended 31 December 2006 and 2007, the outstanding balance of an amount due from director, which amounted to HK$22,136,000 and HK$12,853,000 respectively, was waived for settlement by the Group.

As at 31 December 2006, 2007 and 2008, a balance of consideration with the amount of approximately HK$63,573,000 was payable to the vendor for acquisition of a subsidiary in 2006. The amount is expected to be settled in the form of a two-year promissory note which will be issued upon obtaining the land use right certificate attributable to one of the property development projects, bearing an interest rate of 8% per annum from the date of issue.

41. EMPLOYEE RETIREMENT BENEFITS

Defined contribution pension plans

As stipulated by the labour regulations of the PRC, the Group participates in a defined contribution pension plan organised by the municipal and provincial governments for its employees. The Group is required to make contributions to the plan at ranges of specified percentages of the eligible employees’ salaries.

The Group also participates in the Mandatory Provident Fund Scheme (the “MPF Scheme”) under the Hong Kong Mandatory Provident Fund Schemes Ordinance for employees employed under the jurisdiction of the Hong Kong Employment Ordinance and not previously participating in the defined contribution retirement plan as mentioned above. The MPF Scheme is a defined contribution pension scheme administered by independent trustees. Under the MPF Scheme, the Group and its employees are each required to make contributions to the MPF Scheme at the rate of 5% of the employees’ relevant income, subject to a cap of monthly relevant income of HK$20,000. The Group’s contributions vest fully in the employees when contributed into the MPF Scheme.

Under both plans, the Group has no other obligation for the payment of its employees’ retirement and other postretirement benefits other than contributions described above.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

42. OPERATING LEASE COMMITMENTS

Lessee

At the end of the reporting periods, the Group had commitments for future minimum lease payments under noncancellable operating leases in respect of office premises and staff quarters which fall due as follows:

Within one year Later than one year but within five years	As 2006 HK$’000 3,375 12,358 15,733	at 31 December As at 30 June 2007 2008 2009 HK$’000 HK$’000 HK$’000 5,336 2,078 679 10,532 45 10 15,868 2,123 689	at 31 December As at 30 June 2007 2008 2009 HK$’000 HK$’000 HK$’000 5,336 2,078 679 10,532 45 10 15,868 2,123 689
			689

Lessor

At the end of the reporting periods, the Group had commitments for future minimum rental receivable under noncancellable operating leases in respect of retail and office units which fall due as follows:

Within one year Later than one year but within five years Later than five years	As 2006 HK$’000 16,960 39,048 7,261 63,269	at 31 December As at 30 June 2007 2008 2009 HK$’000 HK$’000 HK$’000 30,759 53,706 49,188 87,788 135,447 116,385 11,705 4,099 2,142 130,252 193,252 167,715	at 31 December As at 30 June 2007 2008 2009 HK$’000 HK$’000 HK$’000 30,759 53,706 49,188 87,788 135,447 116,385 11,705 4,099 2,142 130,252 193,252 167,715
			167,715

43. CAPITAL COMMITMENTS

Capital expenditure contracted but not provided for in the Financial Information in respect of: – Property construction and development costs – Acquisition of land use right and payment for demolition costs	As 2006 HK$’000 833,365 – 833,365	at 31 December As at 30 June 2007 2008 2009 HK$’000 HK$’000 HK$’000 915,973 1,167,158 1,148,506 286,296 – – 1,202,269 1,167,158 1,148,506	at 31 December As at 30 June 2007 2008 2009 HK$’000 HK$’000 HK$’000 915,973 1,167,158 1,148,506 286,296 – – 1,202,269 1,167,158 1,148,506
			1,148,506

44. CONTINGENT LIABILITIES

At 31 December 2006, the Group has given guarantees to certain banks in respect of credit facilities granted to certain related companies. The aggregate amount of guarantees was HK$31,911,000. These guarantees have been released during the year ended 31 December 2007.

As at 31 December 2007 and 2008, and 30 June 2009, the Group had no material contingent liabilities.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

45. PLEDGE OF ASSETS

At the end of the reporting periods, the carrying amounts of the Group’s assets included in the following categories in the consolidated statements of financial position were pledged to secure credit facilities granted to the Group as disclosed in notes 32 and 33:

Property, plant and equipment Prepaid lease payments Properties held for/under development Investment properties Properties held for sale Restricted and pledged deposits	As 2006 HK$’000 – – – 475,248 – – 475,248	at 31 December As at 30 June 2007 2008 2009 HK$’000 HK$’000 HK$’000 985,368 1,008,529 930,706 668,999 610,263 1,217,476 – – 214,257 492,325 401,543 401,497 603,427 502,010 620,364 358,711 67,737 16,889 3,108,830 2,590,082 3,401,189	at 31 December As at 30 June 2007 2008 2009 HK$’000 HK$’000 HK$’000 985,368 1,008,529 930,706 668,999 610,263 1,217,476 – – 214,257 492,325 401,543 401,497 603,427 502,010 620,364 358,711 67,737 16,889 3,108,830 2,590,082 3,401,189
			3,401,189

46. RELATED PARTY TRANSACTIONS

During the Relevant Periods, the Group entered into the following material transactions with related parties:

(a) Material transactions with related parties

						Six months ended	Six months ended
Related party			Year	ended 31 December		30 June
relationship	Type	of transaction	2006	2007	2008	2008	2009
			HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
						(Unaudited)
Mr. Yu Pan,	Waiver of amount due from a		22,136	12,853	–	–	–
controlling	director arising from business
shareholder of the	combination under common control
Company
Grand Cosmos,	(a)	Fair value of consideration paid	–	407,346	–	–	–
immediate		for acquisition of 29% equity
holding company		interest in a subsidiary
of the Company
	(b)	Fair value of consideration paid	–	301,662	–	–	–
		for acquisition of 100% equity
		interest in a subsidiary
Companies	(a)	Guarantee given to bank in	61,614	32,714	–	–	–
beneficially		respect of credit facilities granted
owned by		to related companies
Mr. Yu Pan
	(b)	Entertainment expenses	220	834	1,077	608	500
Companies	(a)	Rental income from office leasing	–	1,588	8,784	3,163	3,382
controlled by
Mr. Yu Pan	(b)	Revenue from hotel operation	–	246	994	830	–

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Six months ended Related party Year ended 31 December 30 June relationship Type of transaction 2006 2007 2008 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) Employees and Equity-settled share-based payment 2,198 8,794 – – – consultants expenses of companies beneficially owned by Mr. Yu Pan 歐陽嘉女士(Ms. Sale of properties 877 – – – – Au Yeung Ka), spouse of the director of the company, Mr Yu Pan Yaubond and its Services income for project development 4,162 – – – – subsidiary, project management which is an associate of the Group (Before acquisition of a subsidiary) Other shareholders (a) Fair value of consideration paid – 977,515 – – – of subsidiaries for acquisition of equity interest in subsidiaries (b) Imputed interest on loan from – 6,020 – – – minority shareholder of a subsidiary

Details of the Group’s outstanding balances with related parties and the maximum balance of amounts due from related parties disclosed pursuant to Section 161B of the Hong Kong Companies Ordinance have been set out in notes 27(a) and 31(c). The balances are unsecured, interest-free and repayable on demand. The Group has not made any provision for impairment loss in respect of related party debtors.

(b) Pledge of shares by controlling shareholder

To secure for the convertible notes with a principal value of US$192,000,000 issued by the Company as disclosed in note 33, Sharp Bright and Grand Cosmos, companies wholly owned by Mr. Yu Pan, pledged their assets in favour of the trustee of the noteholders as follows:

(i) 963,776,271 ordinary shares of the Company; and
(ii) first fixed charge and first floating charge over the assets of Sharp Bright and Grand Cosmos.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Compensation of key management personnel

The remuneration of members of key management, including directors’ emoluments as disclosed in note 11, incurred during the Relevant Periods is as follows:

Short-term benefits Other long-term benefits Equity-settled share-based payment expenses	Six months ended Year ended 31 December 30 June 2006 2007 2008 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 5,418 14,938 14,449 7,214 7,797 60 141 187 90 134 786 2,382 806 524 117 6,264 17,461 15,442 7,828 8,048	Six months ended Year ended 31 December 30 June 2006 2007 2008 2008 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 5,418 14,938 14,449 7,214 7,797 60 141 187 90 134 786 2,382 806 524 117 6,264 17,461 15,442 7,828 8,048
		8,048

Members of key management are those persons who have authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including Directors and executive officers.

47. FINANCIAL INSTRUMENTS – RISK MANAGEMENT

Financial assets of the Group mainly include cash and cash equivalents, restricted and pledged deposits, and trade and other receivables. Financial liabilities of the Group include convertible notes, financial derivative liabilities, trade and other payables, bank and other borrowings and loan from minority shareholder of a subsidiary. The Group has not issued and does not hold any financial instruments for trading purposes at the end of the reporting periods, except for the financial asset at fair value through profit or loss as at 31 December 2006.

The main financial risks faced by the Group are foreign currency risk, interest rate risk, equity price risk, credit risk and liquidity risk.

The Group’s financial risk management policy seeks to ensure that adequate resources are available to manage the above risks and to create value for its shareholders.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(a) Foreign currency risk

The Group has transactional currency exposures. Such exposures arise from financing and operating activities of the group entities conducted in currencies other than the functional currency.

The carrying amounts of the Group’s monetary assets and liabilities which are denominated in currencies other than the functional currencies of the respective group entities at the end of the reporting periods are as follows:

		As at 31 December		As at 30 June
	2006	2007	2008	2009
	HK$’000	HK$’000	HK$’000	HK$’000
Restricted and pledged deposits
– US$	–	337,528	46,311	16,864
Cash and cash equivalents
– US$	–	24	7	11
Financial derivative liabilities
– US$	–	1,081,572	93,162	357,113
Convertible notes
– US$	–	211,946	306,337	381,536

The following table demonstrates the effect of sensitivity to reasonably possible changes in the United States dollars exchange rate, with all other variables held constant, on the Group’s profit (loss) after income tax (due to changes in the carrying amounts of monetary assets and liabilities) in the next accounting period:

			Year ended 31 December	Year ended 31 December			Six months ended 30 June	Six months ended 30 June
	2006		2007		2008		2009
		(Decrease)		Increase		Increase		(Decrease)
	Change in	increase in	Change in (decrease) in		Change in (decrease) in		Change in	increase in
	exchange	profit after	exchange	profit after	exchange	profit after	exchange	loss after
	rate	income tax	rate	income tax	rate	income tax	rate	income tax
	%	HK$’000	%	HK$’000	%	HK$’000	%	HK$’000
If United States dollar weakens
against Renminbi	–	–	3%	26,873	5%	17,710	2.5%	(8,854)
If United States dollar
strengthens against Renminbi	–	–	3%	(26,873)	5%	(17,710)	2.5%	8,854
If Hong Kong dollar weakens
against Renminbi	3%	(1,314)	3%	5,302	5%	9,868	2.5%	(4,934)
If Hong Kong dollar strengthens
against Renminbi	3%	1,314	3%	(5,302)	5%	(9,868)	2.5%	4,934

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Interest rate risk

The following table details the interest rate profile of the Group’s financial assets and liabilities as at the end of the reporting periods based upon which the Company’s management evaluates the interest rate risk:

Financial assets Fixed rate receivables – Loan receivable – Restricted and pledged deposits – Short-term bank deposits Floating rate receivables – Restricted and pledged deposits – Other cash at bank Financial liabilities Non-interest bearing borrowings – Loan from minority shareholder of a subsidiary Fixed rate borrowings – Other borrowings – Convertible notes Floating rate borrowings – Bank borrowings – Other borrowings	2006 Effective interest rate Amount (% per annum) HK$’000 6.58% 16,450 – – 3.10% to 4.05% 23,604 – – 0.00% to 0.72% 3,409 6.00% 244,936 – – – – 4.80% to 7.24% 100,318 – –	As at 31 December 2007 Effective interest rate Amount (% per annum) HK$’000 6.58% 9,192 3.40% to 4.01% 337,528 2.75% to 3.05% 9,199 2.15% 21,183 0.00% to 0.72% 52,356 – – – – 60.58% 211,946 6.5% to 8.22% 963,129 12.75% 220,000	Effective interest rate (% per annum) – 1.21% to 2.95% – 0.01% 0.00% to 0.36% – 20.00% 60.58% 6.73% to 7.44% 12.69%	2008 Amount HK$’000 – 46,311 – 21,426 52,253 273,968 32,267 306,337 1,070,441 220,000	As at 30 June 2009 Effective interest rate Amount (% per annum) HK$’000 – – 0.08% to 1.21% 16,864 1.35% to 1.37% 63,514 0.01% 8,275 0.00% to 0.36% 226,797 – 277,339 20.00% 63,573 60.58% 381,536 5.54% to 6.57% 1,404,333 16.75% 220,000	As at 30 June 2009 Effective interest rate Amount (% per annum) HK$’000 – – 0.08% to 1.21% 16,864 1.35% to 1.37% 63,514 0.01% 8,275 0.00% to 0.36% 226,797 – 277,339 20.00% 63,573 60.58% 381,536 5.54% to 6.57% 1,404,333 16.75% 220,000

						277,339 63,573 381,536 1,404,333 220,000

The Group’s exposure to interest rate risk for changes in interest rates primarily relates to the Group’s restricted and pledged deposits, cash at bank included in cash and cash equivalents and floating rate bank and other borrowings. The Group does not use derivative financial instruments to hedge its cash flow interest rate risk.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following table demonstrates the effect of sensitivity to reasonably possible changes in interest rates, with all other variables held constant, on the Group’s profit (loss) after income tax in the next accounting period:

Floating rate financial assets Increase in floating rate Decrease in floating rate Floating rate financial liabilities Increase in floating rate Decrease in floating rate	2006 Increase Increase (decrease) (decrease) in in basis profit after points income tax HK$’000 100 364 (100) (364) – – – –	Year ended 31 December 2007 Increase Increase (decrease) (decrease) in in basis profit after points income tax HK$’000 100 3,482 (100) (3,482) 100 (9,761) (100) 9,761	Six months ended 30 June 2008 2009 Increase Increase Increase (Decrease) (decrease) (decrease) in (decrease) increase in in basis profit after in basis loss after points income tax points income tax HK$’000 HK$’000 100 737 50 (1,301) (100) (737) (50) 1,301 500 (64,521) 50 40,609 (500) 64,521 (50) (40,609)	Six months ended 30 June 2008 2009 Increase Increase Increase (Decrease) (decrease) (decrease) in (decrease) increase in in basis profit after in basis loss after points income tax points income tax HK$’000 HK$’000 100 737 50 (1,301) (100) (737) (50) 1,301 500 (64,521) 50 40,609 (500) 64,521 (50) (40,609)

				40,609 (40,609)

(c) Equity price risk

Financial derivative liabilities are stated at fair value with reference to professional valuations and estimations that take into account of assumptions and estimations on factors affecting the value of these financial instruments. Change of these assumptions will expose the Group to equity price risk on the financial liabilities which are presented at fair value through profit or loss. The Directors believe that the exposure to equity price risk from this volatility is acceptable in the Group’s circumstances.

Equity price risk includes the Group’s financial derivative liabilities, the fair value of which will fluctuate because of changes in the derivative’s underlying equity price. The below sensitivity analysis is estimated based on reasonably possible changes in the market price of the underlying equity at the end of the reporting periods assuming that all other variables remain constants:

			Year ended 31 December	Year ended 31 December			Six months ended 30 June	Six months ended 30 June
	2006		2007		2008		2009
		Increase		(Decrease)		(Decrease)		Increase
	Increase	(decrease) in	Increase	increase in	Increase	increase in	Increase (decrease) in
	(decrease)	profit after	(decrease)	profit after	(decrease)	profit after	(decrease)	loss after
	in volatility	income tax	in volatility	income tax	in volatility	income tax	in volatility	income tax
	%	HK$’000	%	HK$’000	%	HK$’000	%	HK$’000
Volatility of marketing price
of the underlying equity
Increase	–	–	5%	(30,868)	10%	(41,265)	10%	64,852
Decrease	–	–	(5%)	15,963	(10%)	29,974	(10%)	(67,607)

(d) Credit risk

The Group’s exposure to credit risk arises from the trade and other receivables. Management has a formal credit policy in place and the exposure to credit risk is monitored through regular reviews of receivables and follow-up enquires on overdue accounts. Credit evaluations are performed on all customers requiring credit over a certain amount. At the end of the reporting periods, there is no significant concentration of credit risk in receivables. The maximum exposure to credit risk of the Group in this regard is represented by the carrying amount of trade and other receivables presented in the consolidated statements of financial position.

The Group’s maximum exposure to credit risk on financial guarantee as at 31 December 2006 is approximately HK$30,693,000.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The credit risk of the Group’s other financial assets, which comprise cash and cash equivalents and restricted and pledged deposits, arises from possible default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments. At the end of the reporting periods, the Group has placed these deposits with banks and financial institutions of high credit.

(e) Liquidity risk

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank and other borrowings.

The maturity profile of the Group’s financial liabilities as at the end of the reporting periods, based on the contracted undiscounted payments, is as follows:

As at 31 December 2006 Trade and other payables Bank and other borrowings Loan from minority shareholder of a subsidiary As at 31 December 2007 Trade and other payables Bank and other borrowings Convertible notes As at 31 December 2008 Trade and other payables Bank and other borrowings Convertible notes Loan from minority shareholder of a subsidiary As at 30 June 2009 Trade and other payables Bank and other borrowings Convertible notes Loan from minority shareholder of a subsidiary	On demand HK$’000 9,314 – – 9,314 47,490 – – 47,490 75,653 – – – 75,653 27,073 – – – 27,073	Less than 3 months HK$’000 – 2,081 – 2,081 16,084 21,873 – 37,957 65,788 244,319 – – 310,107 91,334 244,805 – – 336,139	3 to 12 months HK$’000 15,298 11,339 – 26,637 178,330 307,712 60,620 546,662 82,134 110,805 59,995 – 252,934 170,584 153,933 715,455 – 1,039,972	1 to 2 years HK$’000 63,573 17,747 244,936 326,256 63,573 99,525 60,620 223,718 5,086 95,916 1,169,577 273,968 1,544,547 6,305 281,866 1,630,115 277,339 2,195,625	2 to 5 years HK$’000 – 66,724 – 66,724 – 265,321 2,311,737 2,577,058 64,844 277,513 1,145,995 – 1,488,352 – 729,163 – – 729,163	Over 5 years HK$’000 – 18,069 – 18,069 – 1,004,813 – 1,004,813 – 1,001,044 – – 1,001,044 – 786,639 – – 786,639	Total HK$’000 88,185 115,960 244,936
							449,081

							305,477 1,699,244 2,432,977
							4,437,698

							293,505 1,729,597 2,375,567 273,968
							4,672,637

							295,296 2,196,406 2,345,570 277,339
							5,114,611

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

48. FINANCIAL INSTRUMENTS – CARRYING AMOUNT AND FAIR VALUE

(a) Financial instruments carried at fair value

The following table presents the carrying value of financial instruments measured at fair value at end of the reporting periods across the two levels of the fair value hierarchy defined in HKFRS 7 “Financial Instruments: Disclosures”, with the fair value of each financial instrument categorised in its entirely based on the lowest level of input that is significant to that fair value measurement. The levels are defined as follows:

Level 1

Fair value measured using quoted prices in active markets for identical financial instruments

Level 2

Fair value measured using quoted prices in active markets for similar financial instruments, or using valuation techniques in which all significant inputs are directly or indirectly based on observable market data

The following tables present the balances of financial assets and liabilities measured at fair value as at the reporting dates:

Financial assets: Financial asset at fair value through profit or loss Financial liabilities: Financial derivative liabilities Financial liabilities: Financial derivative liabilities	Fair value measurement	Fair value measurement
	As at 31 December 2006 Level 1 Level 2 Total HK$’000 HK$’000 HK$’000 630 – 630 – 21,395 21,395 As at 31 December 2008 Level 1 Level 2 Total HK$’000 HK$’000 HK$’000 – 93,162 93,162	As at 31 December 2007 Level 1 Level 2 Total HK$’000 HK$’000 HK$’000 – – – – 1,081,572 1,081,572 As at 30 June 2009 Level 1 Level 2 Total HK$’000 HK$’000 HK$’000 – 357,113 357,113

The table below shows the change in fair value of financial liabilities at fair value through profit or loss (including derivatives):

				As at
		As at 31 December		30 June
	2006	2007	2008	2009
	HK$’000	HK$’000	HK$’000	HK$’000
Change in fair value during
the year/period	–	267,789	976,924	(263,951)
Cumulative change in fair value	–	267,789	1,244,713	980,762

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Fair values of financial instruments carried at other than fair value
The fair values of financial assets and financial liabilities are determined as follows:
the fair value of financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cashflow analysis using information from observable current market transactions; and
the fair value of derivative instruments are calculated using generally accepted valuation models.

The following table shows the carrying amount and fair value of financial assets and liabilities of the Group which are carried at other than fair value at the end of the reporting periods:

Financial assets Trade and other receivables Restricted and pledged deposits Cash and cash equivalents Financial liabilities Trade and other payables Bank and other borrowings Convertible notes Loan from minority shareholder of a subsidiary	2006 Carrying amount Fair value HK$’000 HK$’000 19,944 (Note) – (Note) 47,993 (Note) 88,185 (Note) 100,318 (Note) – – 244,936 (Note)	As at 31 December 2007 Carrying amount Fair value HK$’000 HK$’000 31,016 (Note) 358,711 (Note) 63,338 (Note) 305,477 (Note) 1,183,129 (Note) 211,946 211,946 — —	2008 Carrying amount HK$’000 33,900 67,737 53,720 283,334 1,322,708 306,337 273,968	Fair value HK$’000 (Note) (Note) (Note) (Note) (Note) 482,095 (Note)	As at 30 June 2009 Carrying amount Fair value HK$’000 HK$’000 43,125 (Note) 25,139 (Note) 290,584 (Note) 295,296 (Note) 1,687,906 (Note) 381,536 1,998,903 277,339 (Note)	As at 30 June 2009 Carrying amount Fair value HK$’000 HK$’000 43,125 (Note) 25,139 (Note) 290,584 (Note) 295,296 (Note) 1,687,906 (Note) 381,536 1,998,903 277,339 (Note)

						(Note) (Note) 1,998,903 (Note)

Note:

The Directors consider that the carrying amounts of these categories approximate their fair value on the grounds that either their maturities are short or their effective interest rates are approximate to the discount rates as at the end of the reporting periods.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(III) SUBSEQUENT EVENTS

1. Resolution to approve the disposal of 80% equity interest in the Tianhe Project being voted down

The proposed transaction as announced on 1 June 2009 by the Company about the sale of 80% equity interest in Yaubond, a subsidiary of the Company through Sky Honest Investments Corp. and Nicco Limited together holding 100% indirect interest in the Tianhe Project, was put for independent shareholders’ approval in a special general meeting of shareholders held on 10 July 2009. The proposed resolution was voted down by the shareholders resulting that the transaction could not be proceeded and hence the relevant sale and purchase agreement was terminated on 22 July 2009.

Following the termination of the agreement, the lenders of the Term Loan have not expressed an intention to a standstill to refrain from taking legal actions against the subsidiaries of the Company nor have taken any legal action against the Group. Nonetheless, the Company continues the discussions with the lenders of the Term Loan with an intention for a full settlement. No agreement has been reached up to the date of this report.

2. Proposed Disposal of 100% equity interest in the Westin Project

On 14 September 2009 and 13 October 2009, a subsidiary of the Company, Yue Tian, and a third party, HNA Hotel Holdings Ltd. (“HNA Hotel”), entered into the agreement and a supplemental agreement respectively, pursuant to which Yue Tian has conditionally agreed to dispose of the entire equity interest in CJTY and assign the shareholder loan due by CJTY to Yue Tian and HNA Hotel has conditionally agreed to acquire the same from Yue Tian. The entire equity interest in CJTY will be transferred at a consideration of approximately RMB1,025,429,000 (equivalent to approximately HK$1,163,277,000) and the shareholder loan due by CJTY to Yue Tian will be assigned to HNA Hotel at a consideration equivalent to the face value on completion date on a dollar for dollar basis in cash.

The underlying assets of the equity interest in CJTY are the properties comprising The Westin Guangzhou and Skyfame Tower (except for the office premises from the 17th floor to 22nd floor of the Skyfame Tower which have been sold in 2008). As at the date of this report, the total current account balances due by CJTY to Yue Tian is approximately RMB187,136,000 (equivalent to approximately HK$212,293,000).

The net proceeds from the Disposal of approximately HK$1,085,736,000 net of transaction costs and taxes will be paid to a separate account subject to further agreement with the Noteholders as to the application thereof, pending negotiation with the Noteholders on possible restructuring of the Notes and, if there is any excess, the Board intends to use it to repay the outstanding Term Loan and as working capital for the Group.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The results, financial position, and cash flows of CJTY are set out as follows:

(a) The results of CJTY included in the Financial Information during the Relevant Periods are as follows:

Period from
4 May 2007
(date of
acquisition) to
Year ended
31 December 31 December
2007
2008
HK$’000
HK$’000
Revenue
104,105
545,220
Cost of sales and services
(59,685)
(333,028)
Gross profit
44,420
212,192
Other income
203
322
Sales and marketing expenses
(9,053)
(21,788)
Administrative expenses
(83,388)
(145,160)
Finance costs
(31,709)
(74,742)
Finance income
276
307
Loss before income tax
(79,251)
(28,869)
Income tax credit (expense)
1,179
(6,431)
Loss for the period/year
(78,072)
(35,300)

Six months ended
30 June
2008
2009
HK$’000
HK$’000
(Unaudited)
137,529
134,016
(59,710)
(53,469)
77,819
80,547
190
380
(9,715)
(7,296)
(71,495)
(70,599)
(36,445)
(36,092)
154
121
(39,492)
(32,939)
2,040
1,788
(37,452)
(31,151)

100

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(b) The assets and liabilities of CJTY included in the Financial Information as at 31 December 2007 and 2008 and 30 June 2009 are as follows:

Non-current assets Property, plant and equipment Prepaid lease payments – non-current portion Goodwill Current assets Properties held for sale Prepaid lease payments – current portion Inventories Trade and other receivables Cash and cash equivalents Current liabilities Trade and other payables Bank and other borrowings – current portion Amounts due to immediate holding company Deferred income Income tax payable Net current assets Total assets less current liabilities Non-current liabilities Bank and other borrowings – non-current portion Deferred tax liabilities Net assets	As at 31 December 2007 2008 HK$’000 HK$’000 1,015,473 1,045,606 223,808 232,906 46,530 52,778 1,285,811 1,331,290 603,427 573,808 445,191 377,357 31,790 19,542 16,173 26,837 48,239 37,073 1,144,820 1,034,617 197,776 110,534 – 14,746 446,386 294,996 – 3,779 – 25,621 644,162 449,676 500,658 584,941 1,786,469 1,916,231 857,817 989,678 136,699 120,205 994,516 1,109,883 791,953 806,348	As at 30 June 2009 HK$’000 960,101 200,919 52,772 1,213,792 620,364 400,115 13,519 24,122 133,646 1,191,766 88,844 47,382 212,245 3,077 16,986 368,534 823,232 2,037,024 1,143,499 118,405 1,261,904 775,120

101

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Period from
4 May 2007
(date of
acquisition) to
Year ended
31 December 31 December
2007
2008
HK$’000
HK$’000
Operating activities
Loss before income tax
(79,251)
(28,869)
Adjustments for:
Finance costs
31,709
74,742
Finance income
(276)
(307)
Depreciation of property,
plant and equipment
43,123
77,168
Amortisation of prepaid
lease payments
6,323
20,770
Prepaid lease payments
recognised as cost of sales
–
90,495
Impairment losses on trade
and other receivables
–
–
Loss (gain) on disposal of
property, plant and
equipment
–
2
Operating profit before
working capital changes
1,628
234,001
(Increase) decrease in properties
held for sale
(76,854)
63,280
(Increase) decrease in inventories
(30,863)
13,951
Decrease (increase) in trade
and other receivables
9,790
(9,633)
Increase (decrease) in trade
and other payables
32,348
(14,912)
Increase (decrease) in deferred
income
–
3,779
Cash (used in) generated from
operations
(63,951)
290,466
Income tax paid
–
(5,223)
Interest paid
(41,277)
(74,742)
Net cash (used in) from
operating activities
(105,228)
210,501

Six months ended
30 June
2008
2009
HK$’000
HK$’000
(Unaudited)
(39,492)
(32,939)
36,445
36,092
(154)
(121)
36,549
38,225
10,322
9,162
–
–
–
396
–
(26)
43,670
50,789
(19,729)
722
5,407
6,023
(19,964)
2,316
133,094
(3,537)
–
(701)
142,478
55,612
–
(8,636)
(36,445)
(36,092)
106,033
10,884

102

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Period from
4 May 2007
(date of
acquisition) to
Year ended
31 December 31 December
2007
2008
HK$’000
HK$’000
Investing activities
Interest received
276
307
Acquisition of subsidiaries
(644,634)
–
Additions to prepaid lease
payments
–
(14,769)
Additions to hotel properties
(135,540)
–
Payment of construction costs
of completed properties
in prior year
–
(82,817)
Purchases of property, plant and
equipment
(34,520)
(48,236)
Proceeds from sale of property,
plant and equipment
–
4
Net cash used in investing
activities
(814,418)
(145,511)
Financing activities
Proceeds from bank and other
borrowings
163,950
112,334
Repayment of bank and other
borrowings
–
(16,288)
Repayment of cash advances
from a related company
(33,709)
–
Advance from (repayment to)
holding companies
830,458
(175,502)
Net cash from (used in)
financing activities
960,699
(79,456)

Six months ended
30 June
2008
2009
HK$’000
HK$’000
(Unaudited)
154
121
–
–
(14,599)
–
–
–
(28,740)
(18,149)
(44,061)
(254)
–
114
(87,246)
(18,168)
–
334,128
(16,100)
(147,493)
–
–
3,644
(82,746)
(12,456)
103,889

103

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Period from
4 May 2007
(date of
acquisition) to
Year ended
31 December 31 December
2007
2008
HK$’000
HK$’000
Net increase (decrease) in
cash and cash equivalents
41,053
(14,466)
Effect of foreign exchange
rate changes
7,186
3,300
Cash and cash equivalents
at beginning of period/year
–
48,239
Cash and cash equivalents
at end of period/year
– Cash at bank and in hand
48,239
37,073

Six months ended
30 June
2008
2009
HK$’000
HK$’000
(Unaudited)
6,331
96,605
4,468
(32)
48,239
37,073
59,038
133,646

(IV) SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared for the Company and its subsidiaries in respect of any period subsequent to 31 December 2008 and up to the date of this report. No dividend or other distribution has been declared, made or paid by the Company in respect of any period subsequent to 30 June 2009.

Yours faithfully, BDO Limited Certified Public Accountants Hong Kong

LI Yin Fan

Practising Certificate Number P03113

104

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. MANAGEMENT DISCUSSION AND ANALYSIS OF THE REMAINING GROUP

FOR THE YEAR ENDED 31 DECEMBER 2006

Business review

The Remaining Group, since its acquisitions of the 49% equity interest in the Tianhe North Project in 2005 and 51% equity interest in Zhoutouzui Project during the year, has successfully turned around from a loss into a mild profit position as a result of the Remaining Group’s change of business focus to property development and project management that drove both the turnover and bottom line for the year. The new business brought in revenue of HK$23 million to the Remaining Group.

The Board has a clear strategy in property development business in view of its acquisition plans in 2006. During the year ended 31 December 2006, the Company contemplated several acquisition plans, namely commercial podium at Tianyu Garden Phase 2 that is a residential building at Tianhe District and the remaining 49% interest in Zhoutouzui Project in which the Remaining Group already held 51%. All these acquisitions would enable the Remaining Group to progress itself as a property developer in Guangzhou in the premier grade property market.

Liquidity and Financial Resources

Capital structure and liquidity

To fund the acquisition of the 51% equity interest in Zhoutouzui Project, the Company raised in August 2006 net proceeds of HK$235 million in cash by way of an open offer of 267,324,486 shares at a price of HK$0.90 per offer share to the Company’s shareholders. The offer also entitled the shareholders taking up 10 warrants for every 13 offer shares taken up. Holder of one warrant, expiring in August 2008, is entitled to subscribe for one share in the Company at an exercise price of HK$1.10. Assuming full exercise of the outstanding warrants, there will be further proceeds from new equity issue of HK$225 million brought into the Company.

The acquisition of the 51% interest in Zhoutouzui Project has taken up cash resources of the Remaining Group which is presented on the Remaining Group’s statement of financial position under non-current assets as properties held under development. The consequential effect of this acquisition is a decrease in current assets and current ratio.

The Remaining Group had non-current liabilities which consisted mainly of a loan due to a minority shareholder of the Zhoutouzui Project, balance consideration due to the vendor of the 51% equity interest in Zhoutouzui Project, and deferred tax liabilities resulting mainly from recognition of a surplus on the fair value of prepaid lease payments made by an acquired subsidiary. The major assets of the Remaining Group are properties held under development in Zhoutouzui Project acquired during the year, goodwill arising from such acquisition, and investment in the 49% equity stake in Tianhe Project. The gearing position of the Remaining Group was improved by the increase in equity as a result of the issue of shares through an open offer.

105

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Bank borrowings and pledge of assets

As at 31 December 2006, the Remaining Group had pledged its 49% shares in Yaubond Limited, an associate engaged in the property development of the Tianhe Project, to secure for the warranties given by the Remaining Group for appointing a subsidiary as the property project manager in the Tianhe Project. The Remaining Group had no bank borrowing nor any other pledge of assets.

Foreign Currency Management

The Remaining Group’s property development activities are conducted in the PRC for which it has contracted with suppliers for goods and services that are denominated in RMB. The Remaining Group does not hedge its foreign currency risks as the rate of exchange between HK dollar and RMB is controlled within a narrow range. However, any permanent changes in foreign exchange rates in RMB may have an impact on the Remaining Group’s results.

Contingent Liabilities

The Remaining Group had no contingent liabilities as at 31 December 2006.

Material Acquisition During the Year

In October 2006, Smartford Limited, a subsidiary of the Remaining Group, completed an acquisition agreement with an independent third party to purchase an indirect 51% equity interest in the Zhoutouzui Project. A balance consideration from the transaction of approximately HK$64 million due to the vendor is payable in cash with a maturity of two years, commencing from the date of obtaining the land use right certificate and bearing interest of 8% per annum.

Employees

The Remaining Group continues to recruit and take in staff with capable caliber to work in pace with the growth of the Remaining Group. As at 31 December 2006, other than the executive directors of the Company, the Remaining Group employed 59 employees in Hong Kong and the PRC. Employees are remunerated according to qualifications and experience, job nature and performance. Remuneration packages are aligned with the job markets in the territories.

FOR THE YEAR ENDED 31 DECEMBER 2007

Business Review

The Remaining Group’s revenue represented rental income from the leasing of investment property that was acquired since the Remaining Group’s successful completion of a number of acquisitions of development projects during the year and amongst which the commercial podium of Tianyu Garden Phase 2 started to bring in rental income to the Remaining Group whilst the Remaining Group had slowed down its business in project management during the year.

106

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The result for the year showed a profit attributable to equity holders despite losses from operations. As a result of the borrowings to finance for the acquisitions and liabilities taken up from the projects acquired, substantial amounts of finance costs, including interests amortised on Notes, issue cost and interests paid to banks and financial institution on borrowings, and revaluation deficit of an investment property were charged to the profit and loss account for the year. These negative effects were however compensated by non-operating gains, largely the gain from revaluation of financial derivative liabilities embedded in the Notes at the year-end, deferred tax credit resulted from the decrease in the PRC corporate income tax rate, the gains recognised on acquisition of land, and property interests with fair values over their acquisition costs.

Financial Resources and Liquidity

Capital structure and liquidity

The aforesaid acquisitions of development projects were financed by the proceeds raised from the Company’s issue of the Notes of US$200 million to a number of renowned institutional investors in May 2007. The notes bear a 4% coupon, maturing in 6 years with an annual yield-tomaturity of 15% and are convertible for new Shares at an initial conversion price of HK$1.35 per new Share which is subject to a reset mechanism gearing to share price performance. The issue of the Notes has enlarged the base of potential Shareholders and strengthened its capital resources.

In the acquisition of the 100% interest in the commercial podium at Tianyu Garden Phase 2 that was beneficially owned by Mr. Yu Pan, the Company’s controlling shareholder, convertible preference shares were issued to Mr. Yu as consideration which were fully converted into new Shares and hence increased the Company’s equity by HK$302 million.

The acquisition of the remaining 51% interest in Tianhe Project in the year was financed by the Sky Honest Loan being a short-term loan at principal value of HK$220 million. The acquisition of the Tianyu Garden Phase 2 also assumed liabilities for outstanding development costs and other costs of HK$28 million and long-term commercial loans of HK$116 million in the consolidated accounts of the Remaining Group.

As at 31 December 2007, the Remaining Group’s total liabilities were mainly consist of the Notes, commercial loans, deferred tax liabilities and development costs payable. The Remaining Group’s gearing ratio at the end of the reporting period was increased as a result of the increased indebtedness of the Remaining Group. Nonetheless, the management considered the gearing level is maintained at an affordable level.

The issue of the Notes strengthened and increased the Remaining Group’s post acquisition cash position at the end of the reporting period. The current ratio rose was improved as a result.

107

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Bank borrowings and pledge of assets

As at 31 December 2007, the Remaining Group had borrowings from commercial banks and the Sky Honest Loan. Such borrowings were used to finance the working capital and acquisition of project. To secure for the banking facilities granted, the Remaining Group had mortgages over its property interests in the Tianyu Garden Phase 2. In addition, to secure for the Notes and the Sky Honest Loan, cash in escrow accounts and shares of certain intermediary holding companies of project companies were charged in favour of the convertible noteholders and the Sky Honest Loan lenders.

Foreign Currency Management

The Remaining Group’s property development activities are conducted in the PRC. Its major activities are conducted in the PRC and denominated in RMB, the functional currency of the Company’s principal subsidiaries. However, certain financing activities of the Remaining Group are denominated in other currencies, such as, the Notes are denominated in US dollars and the Sky Honest Loan is denominated in HK dollars. Since US dollars is pegged with HK dollars, the expected exposures caused by fluctuations in the exchange rates for these currencies are not material. The Remaining Group does not have significant unfavourable exposure to foreign currency fluctuations as the expected rise in exchange rate of RMB against HK dollars and US dollars in the coming periods will favour the Remaining Group’s financial position. In view of the foreseeable insignificant unfavourable impact of the exchange exposure, the Remaining Group does not hedge against its foreign currency risk. However, any permanent changes in the exchanges rates in RMB for HK dollars and US dollars and changes in the peg system of US dollars with HK dollars may have possible impact on the Remaining Group’s results and financial position.

Material Acquisitions During the Year

During the year ended 31 December 2007, the Remaining Group completed the acquisitions of certain subsidiaries, details of which are as follows:

(a) On 24 April 2007, the Remaining Group entered into an agreement to acquire from the vendor, a subsidiary of Poly (Hong Kong) Investments Limited, an entire interest in Bright Able Developments Limited (“Bright Able”) at an aggregate consideration of approximately HK$321 million. Bright Able is an investment company holding 49% equity interest in Zhoutouzui Project. The acquisition was completed on 4 June 2007. The acquisition of the Zhoutouzui Project was satisfied by approximately HK$321 million in cash which was financed by the proceeds of the Notes.

108

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Pursuant to the agreement dated 28 May 2007 in relation to the acquisition from a company, wholly-owned by Mr. Yu Pan, of a commercial podium at Tianyu Garden Phase 2 at a consideration of approximately HK$196 million. In this connection, 145,537,077 convertible preference shares of the Company were issued to Mr. Yu’s associate as settlement of the consideration. The transaction was completed on 19 July 2007.

The acquisition of the Tianyu Garden Phase 2 was satisfied by the issue of convertible preference shares to Mr. Yu’s associate at a face value of approximately HK$196 million.

(c) On 21 June 2007, Sky Honest, a subsidiary of the Company, entered into an agreement to acquire the remaining 51% equity interest in the Remaining Group’s 49%-held associate, Yaubond Limited, at a cash consideration of approximately HK$204 million. The transaction was completed on 27 July 2007. The acquisition cost was financed by borrowing from two institutional lenders, which is secured by mortgages constituted by two deeds entered into respectively by Sky Honest and its holding company, Chain Up Limited.

Contingent Liabilities

The Remaining Group had no material contingent liabilities as at 31 December 2007.

Employees

To keep pace with the fast growth, the Remaining Group continues to recruit and take in staff with capable calibre. As at 31 December 2007, other than the Executive Directors, the Remaining Group employed 105 staff for property development and central management. During the year, certain staff costs relating to development projects were capitalised as property development costs whilst the remaining charged to the profit and loss account.

The increase in staff costs was led by the increase in the headcount in the project development operations acquired by the Remaining Group during the year. 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 2008

Business Review and Outlook

Business and Financial Review

During the year ended 31 December 2008, the Remaining Group’s revenue increased, contributed by the full-year rental income from its leasing business of the commercial podium at Tianyu Garden Phase 2 which was acquired in mid-2007.

109

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The operation of the leasing operation showed an operating loss after the revaluation losses of approximately HK$119 million of the investment property and a corresponding tax credit of HK$29 million. Finance costs, consisting of effective interests amortised on the Notes, interests paid to banks and financial institutions on borrowings, so far as not capitalised as development costs, amounted to approximately HK$190 million. Due to adjustment in property prices in the year led by the PRC central government’s austerity measures, the Remaining Group records and write down of goodwill of approximately HK$67 million. 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 statement of financial position.

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

Investment Property

The Remaining Group receives stable rental income from the leasing of approximately 20,000 m[2] commercial podium at Tianyu Garden Phase 2 located at the Tianhe District of Guangzhou. The property is 63% occupied, 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 Remaining Group acquired the land interest in January 2008, through a subsidiary of which it 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 m[2] 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 m[2] has been put onto the market in the second quarter of 2009.

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. The Remaining Group is going through administrative procedures in connection with the transfer of the land use right certificate to the project company whilst at the

110

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

same time in preparatory procedures for other permits leading to the commencement of construction that is planned to take place in 2010. The project, a high-rise riverfront luxury residential development in the centre district of Guangzhou City, with a GFA of approximately 212,000 m[2] , will become the Remaining Group’s leading project after the Disposal.

Tianhe Project

The project is a mixed development of office and serviced apartments with a GFA of approximately 84,000 m[2] situated in the business hub at Tianhe, Guangzhou. The Remaining Group is committed to repay the Sky Honest Loan lenders for a term loan of HK$220 million and accrued interests which had fallen due in January 2009. The directors anticipate to apply a portion of the sale proceed of the Disposal 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 cannot be used to repay, partially or entirely, the Sky Honest Loan.

Outlook

In the midst of the financial crisis spread out in 2008, the global economy has not bottomed out and the recent recovery signs in the capital markets and the local PRC property markets have not yet been confirmed. There may still be some setbacks in the mainland market in the coming months prior to the full recovery of sectors of the economy. In the longer run, the strong basic demand for domestic housing in the PRC continues to be a key driver to a recovery. Whilst maintaining a positive attitude towards the prospect, the Remaining 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 the issue of US$200 million Notes to several institutional investors. 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 management has been in discussions with the Noteholders about restructuring of the Notes and the redemption of the Notes with the proceeds from realization of assets. Up to the year end date, no conclusions on the restructuring have been reached.

As at 31 December 2008, the Remaining Group’s total liabilities, the Sky Honest Loan, mortgage loans from commercial banks, advance from a minority shareholder of a subsidiary, deferred tax liabilities and development costs payable, amounted to HK$2,255 million that include the Notes being restated to its principal value of US$192 million (approximately HK$1,500 million).

111

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The gearing ratio, based on the net debt (represented by bank and other borrowings, the Sky Honest Loan, the Notes and financial derivative liabilities, loan from minority shareholder and long-term other payable net of cash and bank balances) to the equity attributable to equity holders plus net debt of the Remaining Group at the end of the reporting period of the year 2008 is approximately 60.4%. To cope with the liquidity requirement induced by the possible redemption of the Notes, the Remaining Group has been working on feasible plans to realise assets to reduce the gearing level.

The acquisition of the Guiyang Project during the year has utilised some US$30 million cash in the account escrowed by the Noteholders. Cash balance of the Remaining Group decreased, but due to the reclassification from non-current assets and non-current liabilities attributable to Tianhe Project, that is planned to be disposed of, to current assets and liabilities, as a result, the current ratio was slightly improved

Borrowings and Pledge of Assets

The Remaining Group’s cash in accounts totaling approximately HK$68 million was restricted for the 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 Remaining Group were charged in favor of the security agent acting for the Noteholders and the lenders of the Sky Honest Loan. To secure for banking facilities granted to an operating subsidiary for working capital by a commercial bank in the mainland China, property interest in Tianyu Garden Phase 2 was mortgaged in favour of the bank.

Foreign Currency Management

The Remaining 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 Remaining Group are denominated in other currencies, such as the Notes in US dollars and the Term Loan in HK dollars.

Due to the appreciation of RMB against HK and US dollars during the year, a foreign exchange reserve surplus of approximately HK$226 million arises from the consolidation of the assets and liabilities of the PRC subsidiaries of the Remaining Group. 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 Remaining Group foresees no significant foreign currency exposure in the near future but rises in the exchange rates of RMB against HK dollars. Such fluctuations will not have unfavourable effect on the financial position of the Remaining Group. Hence, the Remaining 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 Remaining Group’s results and financial position.

112

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Contingent Liabilities

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

Material Acquisition During the Year

In January 2008, the Remaining Group formed a subsidiary with a third party, 貴州協輝房地產開發有限公司 (Guizhou Xiehui Property Development Company Limited) in which 55% equity interest was held by the Remaining Group, 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 as at 31 December 2008 and repaid in full after the year ended 31 December 2008.

Employees

To keep pace with the growth of the Remaining Group after the acquisitions of projects, the Remaining Group recruits suitable staff in capable caliber. As at 31 December 2008, other than the Executive Directors, the Remaining Group employed 90 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.

FOR THE SIX MONTHS ENDED 30 JUNE 2009

Business Review and Outlook

Business Review

During the six months ended 30 June 2009, the Remaining Group recorded a total turnover of HK$8 million. The decrease in turnover from the corresponding period in last year was led by the adverse impact on the occupancy rate of commercial properties in the aftermath of the economic crisis spread in the last quarter of 2008.

Finance costs, consisting of effective interests amortised on convertible notes, interests paid to banks and financial institutions on borrowings, so far not capitalised as development costs, amount to HK$85 million. The prices of the Company’s shares during the period have bottomed up giving rise to an increase in the fair value of the liabilities in financial derivative embedded in the convertible notes. This results to an exceptional loss of HK$264 million for the period whilst in the last period, there recorded a revaluation gain of HK$515 million.

Whilst the property prices start to pick up in the period, based on valuation of the independent valuers, there has been no further adjustment in the revaluation of investment property or write-down of goodwill in the acquired investments.

113

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Investment Property

The Remaining Group receives stable rental income from the leasing of about 20,000 m[2] commercial podium at Tianyu Garden Phase 2. The property is now 74% occupied, tenanted with renowned corporations and the US consulate.

Properties Held for/Under Development

Guiyang Project

The development, which the Remaining Group holds a 55% stake, consists of high-end residential apartments of a total GFA of approximately 480,000 m[2] and community facilities. The first phase of the development for GFA of about 91,000 m[2] has been launched for pre-sale in the second quarter of 2009 and are expected to be delivered for occupation in 2010. At the date of this report, some 62,000 m[2] GFA, representing 68% of the total area launched, were pre-sold at an average selling price of RMB4,000 per m[2] .

Zhoutouzui Project

The management is going through standard procedures in connection with the approval of the design plan and transfer of the land use right certificate to the project company from the original user. It is expected commencement of construction will take place in 2010.

Tianhe Project

Resettlement of the existing occupant of the land by means of building up a new fire station for the existing land occupant has been underway. The management is currently in active discussions with the Fire Bureau of Guangzhou about the detailed contractual terms of the construction of the new fire station. Nonetheless, construction works of the new fire station are in progress. It is expected the site will be ready for construction in 2010 once the land has been vacanted for development.

Going Concern

The Remaining Group is not in compliance with the trust deed in relation to the Notes on the ground that a subsidiary of the Company cannot obtain the land use right certificate and other permits in respect of the Zhoutouzui Project by 31 March 2009 and is in non-repayment of the Sky Honest Loan of HK$220 million which was due 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 land use right certificate and other permits of Zhoutouzui Project, failing which the Noteholders are entitled to an early redemption of US$75 million (approximately HK$586 million) in principal of the convertible notes and accrued interests (which amounted to approximately HK$152 million as at 30 June 2009) (the “Automatic Redemption”). The Noteholders have subsequently verbally consented to not exercising the Automatic Redemption pending negotiation on the restructuring of the terms of the Notes.

114

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Up to the period end date, the land use right certificate and other permits have not been obtained and negotiations in relation to the restructuring of the Notes with the Noteholders are in progress though no resolutions have been reached so far. The claim for the Automatic Redemption is in standstill. In addition, the non-repayment of the Sky Honest Loan for which the lenders did not extend any further standstill since after the termination of the transaction to dispose of a 80% interests in Tianhe Project in July 2009 would constitute an event of default under the terms of the Notes and the Trustee may at its sole discretion give an acceleration notice to declare that the whole of the outstanding Notes in principal value of US$192 million (approximately HK$1,499.9 million) be immediately due and repayable at the early redemption amount plus accrued interest (which amounted to approximately HK$389 million as at 30 June 2009) (“Early Redemption”). The Company continues with the discussions with the lenders of the Sky Honest Loan who have not expressed an intention to a standstill to refrain from taking legal actions against the subsidiaries of the Company.

The Directors believe that given the completion of the Disposal and the proposal to use the net proceed to redeem the Notes, the restructured terms of the Notes can be reached in the coming months which will relax certain terms and conditions of redemption of the Notes.

The Interim Financial Statements are prepared using the going concern basis, a fundamental accounting concept adopted in the presentation of the Interim Financial Statements. The Directors considered carefully that the business of the Remaining Group is a going concern after having considered the assumptions and qualifications that have material effects on the foreseeable period covering the next twelve months since the end of the reporting period. Key assumptions are: (i) the general economic performance in the PRC and the specific industrial parameters affecting the real estate sectors are becoming stable; (ii) contractual terms offered from suppliers and creditors in the ordinary course of business are not affected; (iii) no acceleration of the bank loan amortisation in the light of the potential claims; (iv) until agreement with the Noteholders and Sky Honest Loan lenders about the settlement of the Notes and the Sky Honest Loan, holders of the Notes will agree to refrain from exercising their rights of the Early Redemption or Automatic Redemption and the put option which is exercisable from 4 May 2010 onwards and the Sky Honest Loan lenders will refrain from exercising their rights under the Sky Honest Loan; and (v) assets can be realised to provide sufficient funding to meet with the claims from lenders of the Sky Honest Loan and the Early Redemption or Automatic Redemption of the Notes, should no restructuring plan be reached with the Noteholder and the Sky Honest Loan lenders.

Outlook

The global economy has shown ending signs of recession, though revival is yet to come. Business prospect to the Remaining Group is still very challenging despite the recent recovery in the real estate industry which is driven by the stimulus spending and loose monetary policies of the central government. We are yet to wait for the improving conditions in the property markets in general. Simultaneously, by strengthening the statement of financial position of the Remaining Group in consequence of the restructuring of the Notes and Sky Honest Loan, we will pave a stronger foundation for our future growth.

115

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Liquidity and Financial Resources

Capital Structure and Liquidity

The management has been in discussions with the Noteholders about restructuring of the Notes and the redemption of the Notes with the proceeds from realization of assets. Up to the period end date, no conclusions on the restructuring have been reached. Apart from the Notes with fair value in an aggregate of HK$739 million, the Remaining Group is indebted to commercial banks for mortgage loans, the Sky Honest Loan, advance from a minority shareholder of a subsidiary, deferred tax liabilities, advanced payments and received from pre-sale, totaling HK$1,266 million.

The gearing ratio, based on the net debt (represented by bank and other borrowings, loan from minority shareholder and other payable net of cash and cash equivalents) to the equity attributable to equity holders plus net debt at the end of the reporting periods of 30 June 2009 is 37.8%. The drop in gearing ratio is explained by the reduced indebtedness level caused by the redemption of the Notes. The gearing position will vary according to the outcome of the restructuring of the Notes.

Cash balance and restricted deposits increased caused by the net proceed from the Disposal which is assumed to be set aside pending further negotiations with the Noteholders about the restructuring of the Notes. The current ratio was 3.4. Current assets and current liabilities of the Remaining Group were HK$2,328 million and HK$684 million respectively on 30 June 2009.

Borrowings and Pledge of Assets

Other than the deposit restricted for construction costs of works-in-progress, cash in accounts totaling HK$17 million was restricted for the payment of interests to Noteholders and the Sky Honest Loan lenders. Apart from this escrowed money, shares of certain intermediate holding companies of the property developing subsidiaries of the Remaining Group were charged in favor of the security agents acting for the Noteholders and the Sky Honest Loan lenders. To secure for banking facilities 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.

Foreign Currency Management

The Remaining Group is principally engaged in property development activities which are all conducted in the PRC and denominated in Renminbi, the functional currency of the Company’s principal subsidiaries. At the same time, certain financing activities of the Remaining Group are denominated in other currencies, such as the Notes are in US dollars and the Loan in HK dollars.

116

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Due to the slight depreciation of RMB against HK and US dollars during the period, a foreign exchange loss arises on consolidation of the assets and liabilities of the PRC subsidiaries. The exchange reserve of HK$376 million as at 30 June 2009 adds to the equity attributable to shareholders of the Company. Since the US and HK dollars are pegged whilst RMB moves within narrow extents with the US and HK dollars, the Remaining 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 unfavourable effect on the financial position of the Remaining Group. For these reasons, the Remaining 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 Remaining Group’s results and financial position.

Contingent Liabilities

The Remaining Group had no material contingent liabilities as at 30 June 2009.

Employees

To keep pace with the growth of the Remaining Group after the acquisitions of projects, the Remaining Group recruits suitable staff in capable caliber. As at 30 June 2009, other than the Executive Directors, the Remaining Group employed 131 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. STATEMENT OF INDEBTEDNESS

As at the close of business on 31 August 2009, being the Latest Practicable Date for the purpose of this indebtedness statement prior to the printing of this circular, the Group has outstanding bank and other borrowings and long-term liabilities of approximately HK$2,395.0 million which comprised:

(i) secured bank loans of approximately HK$1,434.7 million which were secured by mortgages of ownership titles of properties held for sale, prepaid lease payments, hotel properties included in property, plant and equipment, investment properties and properties under development with aggregate carrying value of HK$3,379.5 million;
(ii) the Sky Honest Loan of HK$220.0 million, which has fallen due on 29 January 2009 and is secured by mortgage of shares in certain subsidiaries, assignment of interest and benefits in the shareholder’s loans to subsidiaries, and fixed and floating charges of assets in certain subsidiaries of the Company;
(iii) the liability component in the convertible notes at carrying value of HK$422.1 million with outstanding principal value of US$192 million (equivalent to approximately HK$1,499.9 million), which bear a coupon of 4% per annum payable semi-annually in arrear, maturity terms of 6 years and an annual yield-to-maturity of 15%, and are secured by restricted and pledged deposits of approximately HK$16.9 million and shares of certain subsidiaries of the

117

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Company which indirectly hold equity interests in certain property development projects. If not early redeemed, converted or repurchased and cancelled, the Group shall redeem the Notes at 201.33% of its principal amount on the maturity date of 3 May 2013. However, the Company is in non-compliance with the Trust Deed in relation to its failure to obtain the title deed and permits for the development of the Zhoutouzui Project by 31 May 2009, the Noteholders are, as a result of the breach, entitled to an Automatic Redemption of US$75 million (approximately HK$585.9 million) and associated interest accrued, which amounted to HK$170.1 million as at 31 August 2009. In addition, due to the non-repayment of the Sky Honest Loan, the lenders did not extend any further standstill since after the termination of the transaction to dispose of 80% interests in Tianhe Project in July 2009 which constitutes an event of default under the terms of the Notes. The trustee acting for the Noteholders may at its sole discretion give an acceleration notice to declare that the whole of the outstanding Notes in principal value of US$192 million be immediately due and repayable at the Early Redemption amount of US$192 million (approximately HK$1,499.9 million) plus associated accrued interest amounting to approximately HK$435.5 million as at 31 August 2009;

(iv) unsecured other borrowings for outstanding purchase consideration of approximately HK$63.6 million in respect of the acquisition of 51% equity interest in Zhoutouzui Project in 2006, which is due by 31 December 2010; and
(v) unsecured loan from minority shareholder of a subsidiary of approximately HK$254.6 million.

In addition, as at 31 August 2009, the Group had capital commitments contracted but not provided for in respect of the property development costs of approximately HK$1,141.9 million.

Save as aforesaid and apart from intra-group liabilities and normal trade and other payables in the ordinary course of business, the Group did not have any debt securities issued and outstanding or agreed to be issued, outstanding bank borrowings, bank overdrafts, liabilities under acceptances, acceptance credits, mortgages, charges, other indebtedness in the nature of borrowing, finance lease or hire purchase commitments, guarantees or material contingent liabilities as at 31 August 2009.

4. WORKING CAPITAL

As at the Latest Practicable Date, the Group is exposed to (i) the Sky Honest Loan which has become overdue on 29 January 2009, and (ii) certain non-compliances with the terms in the Trust Deed in relation to the Notes due to (a) a subsidiary’s failure to obtain the land use right certificate and other permits in respect of the Zhoutouzui Project on 31 May 2009, and (b) the non-payment of Sky Honest Loan due by a subsidiary of the Company.

With respect to (ii)(a), on 31 March 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 other 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, which amounted to approximately HK$170 million as at 31 August 2009 (the “Automatic Redemption”). As stated in the Company’s announcement dated 29 May 2009, the Special Committee of the Noteholders has given the Company on 29 May 2009 verbal consent to refrain from exercising the Noteholders’ right of the

118

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Automatic Redemption until the time when a concrete plan for a restructuring of the terms and conditions of the Notes has been agreed between the Company and the Noteholders. With respect to (ii)(b), due to the non-repayment of the Sky Honest Loan, the lenders did not extend any further standstill since after the termination of the transaction to dispose of 80% interests in Tianhe Project in July 2009 which constitutes an event of default under the terms of the Notes and the trustee acting for the Noteholders may at its sole discretion give an acceleration notice to declare that the whole of the outstanding Notes in principal value of US$192 million be immediately due and repayable at the Early Redemption amount of US$192 million plus accrued interest (which amounted to approximately HK$436 million as at 31 August 2009).

The Company plans to negotiate with the Noteholders and Sky Honest Loan lenders about the restructuring of the Notes and settlement of the Sky Honest Loan. As referred to in the section headed “Reasons for the Disposal and use of proceeds” set out in the letter from the Board contained in this circular, subject to the outcome of the negotiations, the Company plans to apply a majority portion of the proceeds from the Disposal to redeem all the outstanding Notes, settle the Sky Honest Loan, and if there is any excess, for working capital for the Group.

After the Disposal, the Group still has principal assets held for development, being the three projects at Zhoutouzui and Tianhe District in Guangzhou and Guiyang in Guizhou Province, and the Group will focus on the property development activities. Currently, the Group’s residential development project in Guiyang is under construction and pre-sale activities have commenced. For the Zhoutouzui Project, the Group is going through standard procedures in connection with the approval of the design plan and transfer of the land use right certificate to the project company. As for the relocation of the existing structure at the site of the Tianhe Project, the management of the Company is in active discussions with the Fire Bureau of Guangzhou about the detailed contractual terms of the construction of the new fire station. It is expected that the Group can commence construction works of the Zhoutouzui and Tianhe projects in the year 2010 when all these outstanding development steps are completed.

Notwithstanding the above, the Directors are of the view that in the event that no rescheduling plan can be executed in respect of the Notes or no agreement can be reached with the lenders of the Sky Honest Loan about the full settlement of the Sky Honest Loan, the Group’s other assets can be realised to provide additional funding as necessary to remedy the potential liability under the Sky Honest Loan and the obligation under the Notes if they are not covered by the net proceed from the Disposal. Apart from the above, the Directors also believe that new banking facilities will be available to the Remaining Group from financial institutions to finance work in progress of the property development projects in Zhoutouzui, Tianhe and Guiyang in accordance with respective construction timetables, routine operating costs of the Remaining Group, project loan interests and amortisation of loans in accordance with the existing relevant loan documents entered into with commercial banks.

The Directors are of the opinion that on the bases that (i) the Disposal can be completed as currently envisaged; (ii) further agreement will be reached between the Group and the lenders of the Sky Honest Loan in respect of the settlement of the Sky Honest Loan; (iii) the Notes restructuring plan can be successfully implemented to relax the terms and conditions of the Notes; (iv) the Remaining Group will be able to obtain new banking facilities to finance its ongoing property development projects; (v) funds will be generated from the realisation of other assets to provide additional funding as necessary, and (vi) taking into account the Remaining Group’s present available banking facilities, the Remaining Group would have sufficient working capital for its present requirement in the absence of unforeseen circumstances.

119

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Directors have also mentioned under the section headed “Reasons for the Disposal and use of proceeds” in the letter from the Board of this circular that the Directors considered that the business of the Group is a going concern after having considered the assumptions and qualification as mentioned in the preceding paragraphs. The Company’s auditors have, however, issued a disclaimer of opinion on the Group’s accountants’ report for the three years ended 31 December 2006, 2007 and 2008 and the six months ended 30 June 2009 due to the significance of the material uncertainly relating to the going concern basis in preparing the Group’s and the Company’s financial statements.

5. FINANCIAL AND TRADING PROSPECTS OF THE REMAINING GROUP

Since the third quarter of the year 2009, the global capital and financial markets begin an earlystage recovery, as there are signs of “green shoots” in the economic activities in major economic regions amongst which the property market in the PRC has shown a strong revival. The Directors believe that the financial position of the Remaining Group will be strengthened when property values continue to improve.

In the light of the improving business outlook, this eases the negotiations with the Noteholders about the rescheduling of the Notes which will work to the mutual benefit of the Noteholders and the Company.

The recent positive performance in the property markets in major cities of the PRC provides comfort that the general property market will resume its normal track in the coming 2 to 3 years which will coincide with the completion of the Guiyang, Tianhe and Zhoutouzui Projects. The Directors consider that the Disposal will improve the gearing position of the Remaining Group and give strength to pave a solid way for the Remaining Group’s development business for a better return to its shareholders.

120

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

1. BASIS OF THE PREPARATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF THE REMAINING GROUP

The unaudited pro forma financial information of the Remaining Group has been prepared to illustrate the effect of the Disposal.

The unaudited pro forma consolidated income statement and the unaudited pro forma consolidated statement of cash flows of the Remaining Group for the year ended 31 December 2008 are prepared based on the audited consolidated income statement and the audited consolidated statement of cash flows of the Group for the year ended 31 December 2008, respectively, as extracted from the Accountants’ Report of the Group set out in Appendix I to this circular as if the Disposal had been completed on 1 January 2008.

The unaudited pro forma consolidated statement of financial position of the Remaining Group as at 30 June 2009 is prepared based on the audited consolidated statement of financial position of the Group as at 30 June 2009 as extracted from the Accountants’ Report of the Group set out in Appendix I to this circular as if the Disposal had been completed on 30 June 2009.

The unaudited pro forma financial information is prepared to provide information on the Remaining Group as a result of the completion of the Disposal. It is prepared for illustrative purposes only and because of its hypothetical nature, it does not purport to represent what the results and cash flows of the Remaining Group for any future period, or financial position of the Remaining Group on any future date would have been had the Disposal been completed.

121

APPENDIX II

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

(a) Unaudited pro forma consolidated income statement of the Remaining Group

The Group for the year ended 31 December 2008 HK$’000 (Note 1) Continuing operations: Revenue 564,650 Cost of sales and services (335,813) Gross profit 228,837 Other income 4,066 Sales and marketing expenses (22,569) Administrative expenses (179,831) Fair value changes in investment properties (119,263) Impairment loss on goodwill (66,511) Fair value changes in financial derivative liabilities in relation to convertible notes 976,924 Finance costs_(Note 4)_ (189,957) Finance income 2,982 Profit before income tax 634,678 Income tax credit 49,670 Profit for the year from continuing operations 684,348 Discontinued operations: Loss for the year from discontinued operations – loss on disposal of a subsidiary – Profit for the year 684,348 Attributable to: – Equity holders of the Company 685,128 – Minority interests (780) 684,348	Pro forma adjustments relating to the Disposal HK$’000 HK$’000 (Note 2) (Note 3) (545,220) – 333,028 – (322) – 21,788 – 145,160 – – – – – – – 74,742 – (307) – 6,431 – – (71,947) 35,300 (71,947) – –	Unaudited pro forma Remaining Group HK$’000 19,430 (2,785) 16,645 3,744 (781) (34,671) (119,263) (66,511) 976,924 (115,215) 2,675 663,547 56,101 719,648 (71,947) 647,701 648,481 (780) 647,701

122

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

Notes:

(1) Figures are extracted from the audited consolidated income statement of the Group for the year ended 31 December 2008 included in the financial information of the Group in Appendix I to this circular.
(2) The adjustment reflects the de-consolidation of the results of CJTY for the year ended 31 December 2008, assuming the Disposal had taken place on 1 January 2008. The net asset value of CJTY before shareholder’s loan as at 1 January 2008 was amounted to HK$1,238.3 million.
(3) The adjustment reflects the estimated loss of approximately HK$71.9 million resulting from the Disposal, assuming that the Disposal had taken place on 1 January 2008. The estimated loss is calculated as follows:
Total share consideration of approximately RMB1,025.4 million (approximately HK$1,163.2 million) and debts consideration of approximately RMB187.1 million (approximately HK$212.3 million) less estimated transaction costs and relevant taxes of approximately HK$289.8 million, resulting in estimated net sales proceeds of approximately HK$1,085.7 million. The proceed is intended to be used as payment to a separate account subject to further negotiation with the Noteholders on the restructuring of the Notes.
Deducting the entire interest of:
- (i) the net asset value of CJTY before shareholder’s loan as at 1 January 2008 of approximately HK$1,238.3 million; and
- (ii) reserves comprising the foreign exchange reserve of approximately HK$78.7 million and the other reserve of approximately HK$2.0 million being released upon the Disposal.

The decrease of net asset value of CJTY before shareholder’s loan from HK$1,238.3 million as at 1 January 2008 to HK$987.3 million as at 30 June 2009 is due to the increase in bank and other borrowings for the repayment of the amount due to Yue Tian by CJTY. If assuming the Disposal had taken place on 30 June 2009, the Disposal will result in a gain of HK$262.0 million as disclosed in note 3 of unaudited pro forma consolidated statement of financial position of the Remaining Group under section (b) of this appendix.

(4) The adjustment reflects the elimination of finance costs that had been incurred on the bank borrowings for the year ended 31 December 2008 and that will be saved up upon the Disposal as a results of the deconsolidation of CJTY.

123

APPENDIX II

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

(b) Unaudited pro forma consolidated statement of financial position of the Remaining Group

Non-current assets Property, plant and equipment Prepaid lease payments – non-current portion Investment properties Properties held for development Goodwill Current assets Properties held for sale Prepaid lease payments – current portion Properties under development Inventories Trade and other receivables Restricted and pledged deposits Cash and cash equivalents Assets classified as held for sale Current liabilities Trade and other payables Bank and other borrowings – current portion Convertible notes - current portion Deferred income Income tax payable Liabilities associated with assets classified as held for sale	The Group as at 30 June 2009 HK$’000 (Note 1) 961,291 692,554 401,497 1,014,446 68,308 3,138,096 620,364 524,922 183,042 13,519 43,125 25,139 290,584 1,700,695 733,016 2,433,711 288,991 280,595 119,230 3,077 40,439 732,332 108,217 840,549	Pro forma adjustments relating to the Disposal HK$’000 HK$’000 (Note 2) (Note 3) (960,101) – (200,919) – – – – – (52,772) – (620,364) – (400,115) – – – (13,519) – (24,122) – – 1,085,736 (133,646) – – – (88,844) – (47,382) – – – (3,077) – (16,986) – – –	Unaudited pro forma Remaining Group HK$’000 1,190 491,635 401,497 1,014,446 15,536
			1,924,304
			– 124,807 183,042 – 19,003 1,110,875 156,938
			1,594,665 733,016
			2,327,681
			200,147 233,213 119,230 – 23,453
			576,043 108,217
			684,260

124

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

Net current assets Total assets less current liabilities Non-current liabilities Other payable Bank and other borrowings – non-current portion Convertible notes – non-current portion Financial derivative liabilities Loan from minority shareholder of a subsidiary Deferred tax liabilities Net assets Capital and reserves Share capital Reserves Total equity attributable to equity holders of the Company Minority interests Total equity	The Group as at 30 June Pro forma adjustments 2009 relating to the Disposal HK$’000 HK$’000 HK$’000 (Note 1) (Note 2) (Note 3) 1,593,162 4,731,258 6,305 – – 1,407,311 (1,143,499) – 262,306 – – 357,113 – – 277,339 – – 271,856 (118,405) – 2,582,230 2,149,028 14,777 – – 2,113,890 – (163,617) – 261,988 2,128,667 20,361 – – 2,149,028	Unaudited pro forma Remaining Group HK$’000 1,643,421
		3,567,725
		6,305 263,812 262,306 357,113 277,339 153,451
		1,320,326
		2,247,399

		14,777 2,212,261
		2,227,038 20,361
		2,247,399

125

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

Notes:

(1) Figures are extracted from the audited consolidated statement of financial position of the Group as at 30 June 2009 included in the financial information of the Group in Appendix I to this circular.
(2) The adjustment reflects the de-consolidation of the assets and liabilities of CJTY as at 30 June 2009, assuming that the Disposal had taken place on 30 June 2009.
(3) The adjustment reflects the estimated gain of approximately HK$262.0 million resulting from the Disposal, assuming that the Disposal had taken place on 30 June 2009. The estimated gain is calculated as follows:
Total share consideration of approximately RMB1,025.4 million (approximately HK$1,163.2 million) and debts consideration of approximately RMB187.1 million (approximately HK$212.3 million) less estimated transaction costs and relevant taxes of approximately HK$289.8 million, resulting in estimated net sales proceeds of approximately HK$1,085.7 million. The proceed is intended to be used as payment to a separate account subject to further negotiation with the Noteholders on the restructuring of the Notes.
Deducting the entire interest of:
- (i) the net asset value of CJTY before shareholder’s loan as at 30 June 2009 of approximately HK$987.3 million; and
- (ii) reserves comprising the foreign exchange reserve of approximately HK$155.7 million and the other reserve of approximately HK$7.9 million being released upon the Disposal.

126

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

(c) Unaudited pro forma consolidated statement of cash flows of the Remaining Group

The Group for the year ended 31 December 2008 HK$’000 (Note 1) Operating activities Profit before income tax 634,678 Adjustments for: Finance costs 189,957 Finance income (2,982) Equity-settled share-based payment expenses 1,478 Depreciation on property, plant and equipment 77,986 Amortisation of prepaid lease payments 20,770 Prepaid lease payments recognised as cost of sales 90,495 Fair value changes in financial derivative liabilities of convertible notes (976,924) Loss on disposal of a subsidiary – Loss on disposal of property, plant and equipment 2 Fair value changes in investment properties 119,263 Impairment loss on goodwill 66,511 Operating profit (loss) before working capital changes 221,234 Decrease in properties held for sale 63,280 Decrease in inventories 13,951 (Increase) decrease in trade and other receivables (1,442) Increase in trade and other payables 14,012 Increase in deferred income 3,779 Cash generated from operations 314,814 Income tax paid (8,320) Other borrowing costs paid (4,781) Interest paid (164,051) Net cash from (used in) operating activities 137,662	Pro forma adjustments relating to the Disposal HK$’000 HK$’000 (Note 2) (Note 3) 28,869 (71,947) (74,742) – 307 – – – (77,168) – (20,770) – (90,495) – – – – 71,947 (2) – – – – – (63,280) – (13,951) – 9,633 – 14,912 – (3,779) – 5,223 – – – 74,742 –	Unaudited pro forma Remaining Group HK$’000 591,600 115,215 (2,675) 1,478 818 – – (976,924) 71,947 – 119,263 66,511 (12,767) – – 8,191 28,924 – 24,348 (3,097) (4,781) (89,309) (72,839)

127

APPENDIX II

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

The Group for the year ended 31 December 2008 HK$’000 (Note 1) Investing activities Interest received 4,149 Additions to properties held for/under development (95,525) Additions to prepaid lease payments (597,558) Payment of construction costs of completed properties in prior year (82,817) Purchases of property, plant and equipment (48,808) Proceeds from sale of property, plant and equipment 4 Disposal of a subsidiary, net of cash disposed of – Net cash (used in) from investing activities (820,555) Financing activities Exercise of bonus warrants 8 Proceeds from shares issued under share option scheme 340 Expenses incurred on issue of shares (12) Decrease (increase) in restricted and pledged deposits 290,268 Proceeds from bank and other borrowings 254,037 Repayment of bank and other borrowings (170,985) Advance from immediate holding company – Advance from minority shareholder of a subsidiary 271,321 Capital contributions from minority shareholder of a subsidiary 25,452 Net cash from (used in) financing activities 670,429 Net decrease in cash and cash equivalents (12,464) Effect of foreign exchange rate changes 3,712 Cash and cash equivalents at beginning of year 63,338 54,586 Less: Balance reclassified as assets held for sale (866) Cash and cash equivalents at end of year 53,720	Pro forma adjustments relating to the Disposal HK$’000 HK$’000 (Note 2) (Note 3) (307) – – – 14,769 – 82,817 – 48,236 – (4) – – 1,048,664 – – – – – – – (1,085,736) (112,334) – 16,288 – 175,502 – – – – – (3,300) –	Unaudited pro forma Remaining Group HK$’000 3,842 (95,525) (582,789) – (572) – 1,048,664 373,620 8 340 (12) (795,468) 141,703 (154,697) 175,502 271,321 25,452 (335,851) (35,070) 412 63,338 28,680 (866) 27,814

128

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

Notes:

(1) Figures are extracted from the audited consolidated statement of cash flows of the Group for the year ended 31 December 2008 included in the financial information of the Group in Appendix I to this circular.
(2) The adjustment reflects the exclusion of the cash flows of CJTY for the year ended 31 December 2008, assuming the Disposal had taken place on 1 January 2008.
(3) The pro forma adjustment represents (a) the net cash inflow from Disposal of CJTY for payment to a separate account pending negotiation with the Noteholders on the restructuring of the Notes and (b) the estimated loss on disposal of subsidiaries as disclosed in note 3 of unaudited pro forma consolidated income statement of the Remaining Group under section (a) of this appendix.

129

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

2. ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

==> picture [188 x 45] intentionally omitted <==

16 October 2009

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

Dear Sirs,

We report on the unaudited pro forma financial information (the “Unaudited Pro Forma Financial Information”) of Skyfame Realty (Holdings) Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) which has been prepared by the directors of the Company, for illustrative purposes only, to provide information on how the proposed disposal of the entire interest in and the assignment of the shareholder’s loan due by 廣州市城建天譽房地產開發有限公司 (Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited), an indirect wholly-owned subsidiary of the Company which holds interest in a hotel building and an office tower in Guangzhou, People’s Republic of China, might have affected the financial information presented, for inclusion in Appendix II of the circular dated 16 October 2009.

Respective responsibilities of Directors of the Company and Reporting Accountants

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

It is our responsibility to form an opinion, as required by paragraph 29(7) of Chapter 4 of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

130

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

Our work did not constitute an audit or a review made in accordance with Hong Kong Standards on Auditing or Hong Kong Standards on Review Engagements issued by the HKICPA, and accordingly, we do not express any such audit or review assurance on the Unaudited Pro Forma Financial Information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of:

the financial position of the Remaining Group as at 30 June 2009 or any future date; and
the results and cash flows of the Remaining Group for the year ended 31 December 2008 or any future period.

Opinion

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Yours faithfully, BDO Limited Certified Public Accountants Hong Kong

LI Yin Fan

Practising Certificate Number P03113

131

APPENDIX III PROPERTY VALUATION ON THE TARGET PROPERTIES

The following is the text of the letter and valuation certificate received from DTZ Debenham Tie Leung Limited in connection with its opinion of market value of the Target Properties (Skyfame Tower (except for the office premises from 17th floor to 22nd floor of Skyfame Tower which have been sold) and Westin Guangzhou) as at 31 August 2009 prepared for the purpose of incorporation in this circular.

==> picture [76 x 70] intentionally omitted <==

16th Floor Jardine House 1 Connaught Place Central Hong Kong

16 October 2009

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

Dear Sirs,

Re: Skyfame Tower (except for the office premises from 17th floor to 22nd floor of Skyfame Tower which have been sold) and Westin Guangzhou located at 6 and 8 Linhe Zhong Road, Tianhe District, Guangzhou, Guangdong Province, the People’s Republic of China

Instructions, Purpose & Date of Valuation

In accordance with the instructions by Skyfame Realty (Holdings) Limited (the “Company”) for us to carry out the valuation of the market value in its existing state of the captioned property interest (the “Property”) in the People’s Republic of China (the “PRC”), we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we considered necessary for the purpose of providing the Company and its subsidiaries (together as the “Group”) with our opinion of the market value of the Property in its existing state as at 31 August 2009 (the “date of valuation”).

Definition of Market Value

The valuation of the property represents our opinion of its market value which in accordance with The HKIS Valuation Standards on Properties (First Edition 2005) of 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.

132

APPENDIX III PROPERTY VALUATION ON THE TARGET PROPERTIES

Valuation Assumption

Our valuations 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 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 Group and the opinion of the Group’s PRC legal adviser, regarding the title to the property and the interests in the property. In valuing the property, we have assumed that the owners have enforceable title to the property and have free and uninterrupted rights to use, occupy or assign the property for the whole of the unexpired term as granted.

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

Method of Valuation

We have valued the Property by Direct Comparison Method by making reference to comparable sale evidence as available in the relevant market, and where appropriate, we have valued them by Investment Approach by capitalizing the rental income derived from the existing tenancies with due allowance for the reversionary income potential of the properties.

In valuing the Property, we have complied with the requirements set 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 Institute of Surveyors.

Source of Information

In respect of the Property in the PRC, we have been provided with extracts of documents in relation to the title to the Property. However, we have not inspected the original documents to ascertain any amendments which may not appear on the copies handed to us.

In the course of our valuation, we have relied to a considerable extent on the information given by the Group and the opinion of the PRC legal adviser, Guang Dong Fair Strategy Law Firm, as to the PRC laws in respect of the interest in the Property. We have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, identification of buildings, completion date of buildings, particulars of occupancy, tenancy details, operation status, site and floor areas and all other.

Dimensions, measurements and areas included in the valuation certificate are based on information provided to us and are therefore only approximations. 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 by the Group that no material facts have been omitted from the information provided.

133

APPENDIX III PROPERTY VALUATION ON THE TARGET PROPERTIES

Site Inspection

We have inspected the exterior and, wherever possible, the interior of the Property. However, no structural survey has been made, but in the course of our inspection, we did not note any serious defects. We are not able to report whether the Property is free of rot, infestation and any other structure defects. No test was carried out on any of the service.

Unless otherwise stated, we have not carried out on-site measurements to verify the site or floor areas of the Property and we have assumed that the areas shown on the documents handed to us are correct.

Currency

Unless otherwise stated, all sums stated in our valuations are in Renminbi “RMB”, 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) China Real Estate Appraiser MSc, MRICS, MHKIS Director

Note: Mr. Philip C Y Tsang is a Registered Professional Surveyor who has over 16 years’ experience in the valuation of property in the PRC.

134

APPENDIX III PROPERTY VALUATION ON THE TARGET PROPERTIES

VALUATION CERTIFICATE

Property held for investment purposes in the PRC

Property

Description and tenure

Market value in Particulars of existing state as at occupancy 31 August 2009

Skyfame Tower (except for the office premises from 17th floor to 22nd floor of Skyfame Tower which have been sold) and Westin Guangzhou located at 6 and 8 Linhe Zhong Road, Tianhe District, Guangzhou, Guangdong Province, the PRC

The composite development comprises a 6-storey basement, a 6-storey podium, and south and north tower connected with a bridge. One of the towers is a 40-storey 5-star hotel with 448 guest rooms named Westin Guangzhou; whilst the other is a 36-storey Grade A office building named Skyfame Tower. The development was erected on a site with a site area of 7,672 m[2] and was completed in 2007.

The Property comprises Skyfame Tower (except for the office premises from 17th floor to 22nd floor of Skyfame Tower which have been sold) and Westin Guangzhou.

According to Real Estate Title Certificate, the gross floor area details are shown as follows:

	Approximate
	Gross Floor Area
Use	(m2)
Hotel	62,546.85
Office	31,875.93
Commercial	8,981.19
Above ground total:	103,403.97
Basement Ancillary	5,121.54
Facilities for Hotel
Basement Car parks for	18,983.72
Office (387 nos.)
Under ground total:	24,105.26
Grand total:	127,509.23

The majority part of Skyfame Tower is currently held as office and commercial use for investment purposes. It is subject to various tenancies with a total monthly rent of RMB3,643,360.37 and with the latest one to expire on 14 July 2014 whilst 32nd floor and 33rd floor are now owneroccupied as office.

Westin Guangzhou is operated as a hotel which provides services of guest rooms, business conference, banquet hall, restaurant, entertainment and relevant hotel facilities.

RMB2,400,000,000

The land use rights of the Property have been granted for terms of 70 years for residential use, 40 years for commercial, tourism, entertainment uses and 50 years for the other uses from 25 July 2001.

135

APPENDIX III PROPERTY VALUATION ON THE TARGET PROPERTIES

Notes:

(1) According to the copy of Certificate for State-owned Land Use Right (No.[2005]127) (穗國用[2005]字第127號), issued by Bureau of Land Resources and Housing Management of Guangzhou Municipality dated 9 May 2005, the details are summarized as follows:
(i) Location : Zone 7 of Tianhe Shanglü, west of Linhe East Road, Tianhe District, Guangzhou (ii) Nature of Land Use : Granted (iii) Owner : Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited (廣州市城建天譽房地產開發有限公司)
(iv) Site Area : 7,672 m[2] (v) Land Use Term : 70 years for residential use, 40 years for commercial, tourism, entertainment uses and 50 years for the other uses from 25 July 2001
(vi) Land Usage : Commercial and Services
(2) According to the 655 copies of Real Estate Title Certificates and Real Estate Title Proof (No. B0002216), issued by Bureau of Land Resources and Housing Management of Guangzhou Municipality dated 28 July 2008, the title of the Property have been vested in Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited (廣州市城建天譽房地產開發有限公司). The Property has a total gross floor area of 127,509.23 m[2] .
(3) According to Business License No. 006918, Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited (廣州市城建天譽房地產開發有限公司) was established on 26 September 2002 as a limited company with a registered capital of US$45,000,000 for an operation period from 24 September 2002 to 24 September 2018.
(4) According to the PRC legal opinion:
(i) Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited has legally obtained Certificate for State-owned Land Use Rights and is the legal land user of the Property;
(ii) Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited has legally obtained 655 copies of Real Estate Title Certificate and Real Estate Title Proof and is the legal owner of the Property with a total gross floor area of 127,509.23m[2] ;
(iii) All land premium and related tax have been settled in full; and
(iv) 653 Real Estate Title Certificates are subject to mortgage.
(5) The status of title and grant of major approvals, licenses in accordance with the PRC legal opinion and the information provided by the Group are as follows:

Certificate for the State-owned Land Use Rights Yes Real Estate Title Certificate Yes Real Estate Title Proof Yes Business License Yes

136

GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other matters the omission of which would make any statement in this circular misleading.

2. DISCLOSURE OF INTERESTS

(a) Directors’ interests in the securities of the Company and its associated corporation

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the Shares, underlying Shares and debentures of the Company or any of its associated corporation(s) (within the meaning of Part XV of the SFO) which were required (i) 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) to be notified to the Company and the Stock Exchange; or (ii) pursuant to Section 352 of the SFO to be entered in the register referred to therein; or (iii) pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers of the Listing Rules (“Model Code”) to be notified to the Company and the Stock Exchange are as follows:

(i) Interests in the Shares or underlying Shares

			Number
			of Shares or
	Company/		underlying	Approximate
Name of	Associated		Shares	shareholding
Director	corporation	Capacity	(long position)	percentage
Mr. YU Pan	Company	Interest of	1,058,112,271	71.61%
		controlled	(note 1)	(note 2)
		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”) and the entire issued share capital of which was held by Mr. YU Pan. The 963,776,271 Shares were charged in favour of the Trustee by way of the Skyfame Share Charge as defined in the “Letter from the Board”.

For the purposes 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.

137

GENERAL INFORMATION

APPENDIX IV

(ii) Interests in underlying Shares

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 1)
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	1.31	13 March 2007 to	600,000	0.04%
Keung, 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 executive of the Company had any interests or short positions in the Shares, underlying Shares and debentures of the Company or any of its associated corporation(s) (within the meaning of Part XV of the SFO) which were required (i) 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) to be notified to the Company and the Stock Exchange; or (ii) pursuant to Section 352 of the SFO to be entered in the register referred to therein, or (iii) pursuant to the Model Code to be notified to the Company and the Stock Exchange.

(b) Directors’ interests in service contracts

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

138

GENERAL INFORMATION

APPENDIX IV

(c) Substantial Shareholders’ interests

As at the Latest Practicable Date, so far as known to any Directors or chief executive of the Company, the following persons (other than a Director or chief executive of the Company) had, or were deemed or taken to have interests or short positions in the Shares or underlying Shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or, 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:

(i) Interests in the Shares or underlying Shares

		Number of
		Shares and
Name of		underlying		Approximate
Shareholder	Capacity	Shares		percentage
				(note 10)
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)
Bank of America	Interests of controlled	1,354,371,271	(long)	91.65%
Corporation	corporation and/or	(note 2)
	person having a security
	interest in Shares
Lehman Brothers	Interests of controlled	979,287,355	(long)	66.27%
Holdings Inc.	corporation and/or	(note 3)
(in liquidation)	person having a security
	interest in Shares
	Interests of controlled	2,700,000	(Short)	0.18%
	corporation
Walkers SPV Limited	Interests of controlled	335,911,700	(long)	22.73%
	corporation and/or	(note 4)
	person having a security
	interest in Shares

139

APPENDIX IV

GENERAL INFORMATION

		Number of
		Shares and
Name of		underlying		Approximate
Shareholder	Capacity	Shares		percentage
				(note 10)
DKR Capital Inc.	Interests of controlled	1,347,160,656	(long)	91.17%
	corporation and/or	(note 5)
	person having a security
	interest in Shares and/or
	parties to an agreement
	under s.317(1)(b) and
	s.318 of the SFO
DKR Management	Interests of controlled	1,347,160,656	(long)	91.17%
Co., Inc.	corporation and/or	(note 5)
	person having a security
	interest in Shares and/or
	parties to an agreement
	under s.317(1)(b) and
	s.318 of the SFO
DKR Capital Partners	Interests of controlled	1,347,160,656	(long)	91.17%
LP	corporation and/or	(note 5)
	person having a security
	interest in Shares and/or
	parties to an agreement
	under s.317(1)(b) and
	s.318 of the SFO
Oasis Management	Interests of controlled	1,347,160,656	(long)	91.17%
Holdings LLC	corporation and/or	(note 5)
	person having a security
	interest in Shares and/or
	parties to an agreement
	under s.317(1)(b) and
	s.318 of the SFO
DKR Oasis	Investment manager and/or	1,347,160,656	(long)	91.17%
Management	person having a security	(note 5)
Co. LP	interest in Shares and/or
	parties to an agreement
	under s.317(1)(b) and
	s.318 of the SFO

140

APPENDIX IV

GENERAL INFORMATION

		Number of
		Shares and
Name of		underlying		Approximate
Shareholder	Capacity	Shares		percentage
				(note 10)
DKR SoundShore	Beneficial owner and/or	276,162,679	(long)	18.69%
Oasis Holding	person having a security	(note 6)
Fund Ltd.	interest in Shares and/or
	parties to an agreement
	under s.317(1)(b) and
	s.318 of the SFO
Chestnut Fund Ltd.	Beneficial owner and/or	1,070,997,977	(long)	72.48%
	person having a security	(note 7)
	interest in Shares and/or
	parties to an agreement
	under s.317(1)(b) and
	s.318 of the SFO
Deutsche Bank	Person having a security	82,806,140	(long)	5.60%
Aktiengesellschaft	interest in Shares
PMA Capital	Investment manager and/or	1,073,142,871	(long)	72.62%
Management	person having a security	(note 8)
Limited	interest in Shares
PMA Prospect Fund	Beneficial owner and/or	1,046,582,411	(long)	70.83%
	person having a security	(note 8)
	interest in Shares
PMA Focus Fund	Beneficial owner and/or	990,336,731	(long)	67.02%
	person having a security	(note 8)
	interest in Shares
Dalton Investments	Investment manager	979,400,071	(long)	66.28%
LLC		(note 9)

141

GENERAL INFORMATION

APPENDIX IV

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. The 963,776,271 Shares were charged in favour of the Trustee by way of the Skyfame Share Charge as defined in the “Letter from the Board”.
These Shares comprised (i) 963,776,271 Shares charged in favour of Trustee (who held the benefit on trust for the Noteholders) by Grand Cosmos; and (ii) 390,595,000 underlying Shares which would be issued upon exercise of the conversion rights attaching to the portion of the Notes at the reset conversion price of HK$1.00 held directly or indirectly by Merrill Lynch & Co., Inc., Merrill Lynch International Incorporated, ML GCRE CP, L.L.C., ML Asian R.E. GP, L.L.C., Merrill Lynch Asian Real Estate Fund Manager Pte Ltd. and Merrill Lynch Asian Real Estate Opportunity Fund Pte. Ltd. All of these entities were controlled by Bank of America Corporation.
These Shares comprised (i) 7,699,184 existing Shares; (ii) 963,776,271 Shares charged in favour of the Trustee (who held the benefit on trust for the Noteholders) by Grand Cosmos; and (iii) 7,811,900 underlying Shares which would be issued upon exercise of the conversion rights attaching to the portion of the Notes at the reset conversion price of HK$1.00 held directly or indirectly by Lehman Brothers Commercial Corporation Asia Limited (in liquidation), LBCCA Holdings I LLC. and LBCCA Holdings II LLC. All these entities were controlled by Lehman Brothers Holdings Inc.
These Shares comprised 335,911,700 underlying Shares which would be issued upon exercise of the conversion rights attaching to the portion of the Notes at the reset conversion price of HK$1.00 held by Kingfisher Capital CLO Limited which was controlled by Walkers SPV Limited.
These Shares comprised (i) 8,413,185 existing Shares; (ii) 963,776,271 Shares charged in favour of the Trustee (who held the benefit on trust for the Noteholders) by Grand Cosmos; and (iii) 374,971,200 underlying Shares which would be issued upon exercise of the conversion rights attaching to the portion of the Notes at the reset price of HK$1.00 held directly or indirectly by DKR Oasis Management Co. LP.
These Shares comprised (i) 8,413,185 existing Shares; (ii) 192,755,254 Shares charged in favour of the Trustee (who held the benefit on trust for the Noteholders) by Grand Cosmos and Mr. YU Pan; and (iii) 74,994,240 underlying Shares which would be issued upon exercise of the conversion rights attaching to the portion of the Notes at the reset price of HK$1.00 held by DKR SoundShore Oasis Holding Fund Ltd.
These Shares comprised (i) 771,021,017 Shares charged in favour of the Trustee (who held the benefit on trust for the Noteholders) by Grand Cosmos; and (ii) 299,976,960 underlying Shares which would be issued upon exercise of the conversion rights attaching to the portion of the Notes at the reset price of HK$1.00 held by Chestnut Fund Ltd.
These Shares comprised (i) 963,776,271 Shares charged in favour of the Trustee (who held the benefit on trust for the Noteholders) by Grand Cosmos; and (ii) 109,366,600 underlying Shares which would be issued upon exercise of the conversion rights attaching to the portion of the Notes at the reset conversion price of HK$1.00 held by PMA Prospect Fund (as to 82,806,140 underlying Shares) and PMA Focus Fund (as to 26,560,460 underlying Shares). All of these funds were controlled by PMA Capital Management Limited.
These Shares comprised (i) 963,776,271 Shares charged in favour of the Trustee (who held the benefit on trust for the Noteholders) by Grand Cosmos; (ii) 15,623,800 underlying Shares which would be issued upon exercise of the conversion rights attaching to the portion of the Notes at the reset conversion price of HK$1.00 held by Dalton Investments LLC.
For the purpose of this section, the shareholdings percentage in the Company was calculated on the basis of 1,477,687,450 Shares in issue as at the Latest Practicable Date.

142

GENERAL INFORMATION

APPENDIX IV

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

	Name of non-wholly
Name of minority shareholder	owned subsidiary of	Shareholding
of a subsidiary of the Company	the Company	percentage
貴州協輝房地產有限公司	貴州譽浚房地產開發有限公司	45%
(Guizhou Xie Hui Real	(Guizhou Yu Jun Real Estate
Estate Company Limited*)	Development Company Limited*)

Save as disclosed above, as at the Latest Practicable Date and so far as known to the Directors or chief executive of the Company, no other person (not being a Director or chief executive of the Company) had any interests or short positions in Shares or underlying Shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, 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 the Company or any other member of the Group.

Save that Mr. YU 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.

(d) Directors’ interests in assets/contracts and other interests

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 2008, 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 2008, 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 2008, 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 2008, 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
For identification purpose only

143

GENERAL INFORMATION

APPENDIX IV

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 2008, being the date to which the latest audited consolidated accounts of the Group were made up).

3. COMPETING INTERESTS

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 (Lüjing 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.

In addition, Mr. YU has executed a deed of non-competition on 4 May 2007 with the subscribers of the Notes that he and his affiliates will not be engaged or interested in any business in the Group which is engaged in property development of luxury hotels and service apartments, luxury residential and/or high grade commercial buildings in the PRC except for the business undertaken by LJR.

4. MATERIAL CONTRACTS

Set out below are the material contracts (not being contracts entered into in the ordinary course of business) entered into by any member of the Group within the two years immediately preceding the Latest Practicable Date:

a. a fourth supplemental trust deed entered into between, amongst the others, the Company, Sharp Bright, Grand Cosmos and the Trustee dated 22 January 2008 amending the Trust Deed;
b. a deed made between the Company and the Trustee dated 22 January 2008 relating to amendments of the terms of the charge over accounts dated 4 May 2007;

144

APPENDIX IV

GENERAL INFORMATION

c. a supplemental agreement to the Loan Agreement entered into between Sky Honest as borrower, PMA Temple Fund, Diversified Asian Strategies Fund and PMA Credit Opportunities Fund as new lenders, LBCCA as the original lender, the mandated sole lead arranger, facility agent and the security agent dated 28 April 2008 relating to the Sky Honest Loan;
d. a deed of confirmation made between Sky Honest and Chain Up Limited as the obligors and LBCCA as facility agent and security agent dated 28 April 2008 relating to the acknowledgement and consents to the contents of the supplemental agreement dated 28 April 2008 by the obligors;
e. a fifth supplemental trust deed entered into between, amongst the others, the Company, Sharp Bright, Grand Cosmos and the Trustee dated 8 May 2008 relating to the Trust Deed;
f. a second supplemental agreement dated 20 October 2008 entered into between Mr. LUO Dong Ling and Smartford Limited relating to the extension of time for the settlement of the outstanding consideration by Smartford Limited of approximately HK$63.6 million to 31 December 2010 (bears interest at 20% per annum from 1 January 2009 up to date of settlement);
g. a loan agreement entered into between the Company as the borrower and Mr. Yu as the lender dated 1 April 2009 relating to an unsecured loan of RMB30,000,000 made by Mr. Yu to the Company;
h. the sale and purchase agreement dated 20 May 2009 entered into between Sky Honest, Nicco Limited, the Company, Happy Genius Management Limited (“Happy Genius”) and General Fortune lnvestment Limited (“General Fortune”) in relation to the sale and purchase of 80% of the issued share capital of and shareholders’ loan due by Yaubond Limited, a wholly owned subsidiary of the Company;
i. an escrow agreement dated 20 May 2009 in relation to the escrow deposit of RMB4,600,000 received from General Fortune;
j. an escrow agreement dated 20 May 2009 in relation to escrow deposit of HK$36,572,780 received from Happy Genius;
k. a deed of undertaking dated 29 May 2009 executed by Sky Honest, Nicco Limited, Happy Genius and General Fortune (collectively, the “Obligors”) in favour of the Trustee and LBCCA pursuant to which each Obligor undertakes certain acts for the benefit of the Trustee and LBCCA;
l. a termination agreement dated 22 July 2009 entered into between Happy Genius, General Fortune, Sky Honest, Nicco Limited and the Company in relation to the termination of the sale and purchase agreement referred to in paragraph (h);
m. the Agreement;

145

GENERAL INFORMATION

APPENDIX IV

n. an escrow agreement dated 19 September 2009 entered into between 廣州譽浚咨詢服務有限公司 (Guangzhou Yu Jun Consulting Service Company Limited*), HNA Hotel and Tianhe Sub-branch of Industrial and Commerce Bank of China in relation to the custody of the Earnest Money; and
o. the Supplemental Agreement.

5. LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened by or against any member of the Group.

6. EXPERT’S QUALIFICATIONS AND CONSENTS

BDO Limited and DTZ Debenham Tie Leung Limited have given and have not withdrawn their written consents to the issue of this circular with the inclusion of their letters and the reference to their names in the form and context in which they appear.

The qualification of the experts who have provided their advices which are contained in this circular is set out as follows:

Name	Qualification
BDO Limited	Certified public accountants
DTZ Debenham Tie Leung Limited	Independent valuer

As at the Latest Practicable Date, BDO Limited and DTZ Debenham Tie Leung Limited did not have any direct or indirect interests in any assets which had been, since 31 December 2008, 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 2008, 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 2008, being the date to which the latest audited consolidated accounts of the Group were made up).

As at the Latest Practicable Date, BDO Limited and DTZ Debenham Tie Leung Limited were not beneficially interested in the share capital of any member of the Group and did not have any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

7. MISCELLANEOUS

(a) The registered office of the Company is at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.

* For identification purposes only

146

GENERAL INFORMATION

APPENDIX IV

(b) The head office and principal place of business of the Company in the PRC is 32nd to 33rd Floors of Skyfame 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.

8. 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 3 November 2009:

(a) the Agreement and the Supplemental Agreement;
(b) the annual reports of the Company for the years ended 31 December 2007 and 2008 and the interim report of the Company for the six months ended 30 June 2009;
(c) the memorandum of association and bye-laws of the Company;
(d) the accountants’ report on the Company, the texts of which are set out in appendix I to this circular;
(e) the letter issued by BDO Limited in connection with the unaudited pro forma financial information of the Remaining Group, the text of which is set out in appendix II to this circular;
(f) the valuation report on the Target Properties prepared by DTZ Debenham Tie Leung Limited as set out in appendix III to this circular;
(g) the respective letter issued by BDO Limited and DTZ Debenham Tie Leung Limited referred to in the paragraph headed “Expert’s qualifications and consents” in this appendix;
(h) the material contracts referred to in the paragraph headed “Material Contracts” in this appendix; and
(i) the circular of the company dated 22 June 2009.

147

NOTICE OF SGM

==> picture [249 x 36] intentionally omitted <==

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

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the special general meeting of Skyfame Realty (Holdings) Limited (“the Company”) will be held at Empire Room 1, M/Floor, Empire Hotel Hong Kong Wanchai, 33 Hennessy Road, Wanchai, Hong Kong on Tuesday, 3 November 2009 at 11:00 a.m. for the purpose of considering and, if thought fit, passing the following resolution with or without amendments as ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT ,

(i) the agreement dated 14 September 2009 as amended and supplemented by the supplemental agreement dated 13 October 2009 (collectively the “ Agreement ”, a copy of which has been produced to the meeting and marked “A” and signed by the Chairman of the meeting for the purpose of identification) entered into between Yue Tian Development Limited (“ Yue Tian ”), a wholly-owned subsidiary of the Company, as vendor and HNA Hotel Holdings Limited as purchaser in relation to the disposal by Yue Tian of the entire issued share capital of 廣州市城建天譽房地產開發有限公司 (Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited[] ) (“ CJTY* ”) and the assignment of shareholder loan due by CJTY and the transactions contemplated thereunder be and are hereby generally and unconditionally approved in all respects; and
(ii) the Directors be and are hereby authorised to do all things and acts and sign all documents which they consider necessary, desirable or expedient in connection with or/to implement and/or give effect to the Agreement and the transactions contemplated thereunder and to agree to such variation, amendment or waiver as are, in the opinion of the Directors, in the interest of the Company.”

By Order of the Board CHEUNG Lin Shun Company Secretary

Hong Kong, 16 October 2009

For identification purposes only

148

NOTICE OF SGM

Notes:

Any member of the Company entitled to attend and vote at the meeting by the above notice shall be entitled to appoint another person as his/her proxy to attend and vote instead of such member. A proxy need not be a member of the Company.
The instrument appointing a proxy shall be in writing under the hand of the appointor or of his/her attorney duly authorized in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorized to sign the same.
The instrument appointing a proxy and (if required by the Board) the power of attorney or other authority (if any) under which it is signed, or a certified copy of such power or authority must be delivered to the office of Tricor Abacus Limited, the Company’s branch share registrars in Hong Kong at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong or by way of notice to or in any document accompanying the notice convening the meeting not less than fortyeight (48) hours before the time appointed for holding the meeting or adjourned meeting at which the person named in the instrument proposed to vote and in default the instrument of proxy shall not be treated as valid.
Delivery of an instrument appointing a proxy shall not preclude a member of the Company from attending and voting in person at the meeting convened and in such event, the instrument appointing a proxy shall be deemed to be revoked.
In the case of joint holders of any share, if more than one of such joint holders be present at any meeting, the vote of the senior who tenders a vote, whether in person, or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register in respect of the joint holding.
As at the date of this notice, the Board comprises Mr. Yu Pan, Mr. Lau Yat Tung, Derrick and Mr. Wong Lok as the Executive Directors; and Mr. Choy Shu Kwan, Mr. Cheng Wing Keung, Raymond, Ms. Chung Lai Fong and Mr. Jerry Wu as the independent non-executive Directors.

149

AI assistant

Greenheart Group Limited — Proxy Solicitation & Information Statement 2009

48939_rns_2009-10-15_0dc34b01-45b2-4405-88e6-63a095f6c63d.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

VERY SUBSTANTIAL DISPOSAL

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

VERY SUBSTANTIAL DISPOSAL

INTRODUCTION

LETTER FROM THE BOARD

AGREEMENT

Date

Parties

Assets to be disposed of

Consideration

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Condition precedent to the Disposal

Completion

LETTER FROM THE BOARD

INFORMATION ON CJTY

REASONS FOR THE DISPOSAL AND USE OF PROCEEDS

LETTER FROM THE BOARD

LETTER FROM THE BOARD

FINANCIAL EFFECT OF THE DISPOSAL

IMPLICATIONS OF THE LISTING RULES

GENERAL

LETTER FROM THE BOARD

THE SGM

LETTER FROM THE BOARD

RECOMMENDATION

GENERAL

1. ACCOUNTANTS’ REPORT OF THE GROUP

Respective responsibilities of directors and reporting accountants

Basis for disclaimer of opinion and inability to reach a review conclusion

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Disclaimer of opinion in respect of the Financial Information for the Relevant Periods

Inability to reach a review conclusion in respect of the 30 June 2008 Financial Information

(I) FINANCIAL INFORMATION

Consolidated Statements of Comprehensive Income

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Consolidated Statements of Financial Position

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Consolidated Statements of Changes in Equity

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Consolidated Statements of Cash Flows

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(II) NOTES TO THE FINANCIAL INFORMATION

1. GENERAL INFORMATION

2. ADOPTION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

FINANCIAL INFORMATION OF THE GROUP

3. BASIS OF PREPARATION

(a) Statement of compliance

(b) Basis of measurement

(c) Going concern

(d) Use of estimates and judgements

(e) Functional and presentation currency

4. PRINCIPAL ACCOUNTING POLICIES

(a) Basis of consolidation

(b) Subsidiaries

(c) Associates

(d) Jointly controlled entities

(e)

Goodwill

(f) Property, plant and equipment

(g)

Investment properties

(h) Prepaid lease payments

Greenheart Group Limited Proxy Solicitation & Information Statement 2009