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 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.

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VERY SUBSTANTIAL DISPOSAL

A notice convening the special general meeting of Skyfame Realty (Holdings) Limited to be held at Luk Kwok Hotel, Basement, Falcon Room 1, 72 Gloucester Road, Wanchai, Hong Kong on Friday, 10 July 2009 at 11:00 a.m. is set out on pages 184 to 186 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.

22 June 2009

* For identification purposes only

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Appendix I — Financial information of the Group. . . . . . . . . . . . . . . . . . . . . .	27
Appendix II — Pro forma financial information of the Remaining Group . . . .	129
Appendix III — Property valuation on the Land. . . . . . . . . . . . . . . . . . . . . . . . .	160
Appendix IV — General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	169
Notice of SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	184

— i —

DEFINITIONS

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

“10% Sale Shares”	being 1,881,350 Yaubond Shares, representing 10% of
	the total issued share capital of Yaubond
“10% Shareholders’ Loan”	being 10% of the total outstanding shareholders’ loans
	due by Yaubond to the Vendors as at the Completion
	Date
“70% Sale Shares”	being 13,169,450 Yaubond Shares, representing 70% of
	the total issued share capital of Yaubond
“70% Shareholders’ Loans”	being 70% of the total outstanding shareholders’ loans
	due by Yaubond to the Vendors as at the Completion
	Date
“Agreement”	the sale and purchase agreement executed by the
	Vendors, the Company and the Purchasers on 20 May
	2009 in relation to, among other things, the Disposal
“associate(s)”	has the meaning ascribed to it under the Listing Rules
“Board”	board of Directors
“Business Day(s)”	a day (not a Saturday) on which licensed banks in
	Hong Kong are generally open for business during
	their normal business hours
“BVI”	the British Virgin Islands
“Call Option”	the call option granted by the Vendors to Happy
	Genius under the Shareholders Agreement to require
	the Vendors to transfer the Vendors’ remaining
	interest in Yaubond to Happy Genius as described in
	the section headed “Relocation of Fire Station, Put
	Options and Call Option” set out in the Letter from
	the Board contained in this circular

— 1 —

DEFINITIONS

“CB Share Charge”	the share charge dated 4 May 2007 (and its
	supplements from time to time) and executed by Nicco
	in favour of the Noteholders relating to the shares of
	Yaubond held by Nicco
“China Aoyuan”	China Aoyuan Property Group Limited, a company
	incorporated in the Cayman Islands with limited
	liability, the issued shares of which are listed on the
	Stock Exchange
“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 Date”	the date on which Completion takes place
“connected persons”	has the meaning ascribed to it under the Listing Rules
“Consideration”	the consideration of the Disposal, being the sum of
	HK$352,098,086 and RMB58,000,000
“Demolition Completion”	completion of demolition of the fire station and
	associated buildings and facilities situated on the
	Land
“Deposits”	the deposits of HK$36,572,780 and RMB4,600,000
	paid by the Purchasers under the Agreement
“Director(s)”	the director(s) of the Company
“Disposal”	the disposal of the Sale Shares and the assignment
	of the Shareholders’ Loans by the Vendors to the
	Purchasers

— 2 —

DEFINITIONS

“Fair Value”

the market value of the Vendor’s remaining interest in and shareholders’ loans due by Yaubond at the material time when the Post-Demolition Put Option or the Call Option is exercised as determined by an independent professional valuer and independent auditor as approved by Happy Genius, Sky Honest and Nicco which shall take into consideration the valuation of the Land and the net asset value of Yaubond

“Fire Station Relocation”
the demolition of the fire station currently on the Land and construction of a fire station on another specified site as mentioned in the section headed “Relocation of Fire Station, Put Options and Call Option” set out in the Letter from the Board contained in this circular
“Framework Agreement” the non-legally binding framework agreement entered into between the Vendors and the Purchasers dated 24 February 2009 in relation to the disposal of the Sale Shares and the Shareholders’ Loans
“General Fortune”
General Fortune Investment Limited, a company incorporated in the BVI with limited liability and is wholly and beneficially owned by Mr. Hu Jin Xiong
“Grand Cosmos Share Charge”
a first priority fixed charge in favour of the Trustee granted by Sharp Bright International Limited over its 100% interest in Grand Cosmos Holdings Limited incorporating a first priority floating charge of the undertaking of Sharp Bright International Limited and all its present and future assets as security for the Notes
“Group”

the Company and its subsidiaries

“Guangzhou Huan Cheng”

廣州寰城實業發展有限公司 (Guangzhou Huan Cheng Real Estate Development Company Limited), a wholly foreign-owned enterprise established in the PRC

— 3 —

DEFINITIONS

“Happy Genius”	Happy Genius Management Limited, a company
	incorporated in the BVI with limited liability and is a
	wholly-owned subsidiary of China Aoyuan
“Hong Kong”	the Hong Kong Special Administrative Region of the
	PRC
“Land”	a parcel of land located at the junction of Tianhe
	Bei Road and Linhe Dong Road, Tianhe District,
	Guangzhou City, Guangdong Province, the PRC and
	having a development site area of approximately 6,057
	square metres
“Latest Practicable Date”	19 June 2009, being the latest practicable date prior
	to the 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
“Loan Share Charge”	the share charge dated 27 July 2007 (and its
	supplements from time to time) and executed by
	Sky Honest in favour of the lenders under the Loan
	Agreement relating to the shares of Yaubond held by
	Sky Honest
“Nicco”	Nicco Limited, a company incorporated in the BVI
	and an indirect wholly-owned subsidiary of the
	Company
“Noteholders”	holders of the Notes

— 4 —

DEFINITIONS

“Notes”
“Post-Demolition Put Option”
“PRC”
“Pre-Demolition Put Option”
“Pre-determined Price”
“Previous Announcements”

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

the put option granted by Happy Genius to the Vendors (or, where applicable exercisable by, the Trustee or LBCCA) pursuant to the Shareholders Agreement to require Happy Genius to acquire the Vendors’ remaining interest in Yaubond exercisable after Demolition Completion as described in the section headed “Relocation of Fire Station, Put Options and Call Option” set out in the Letter from the Board contained in this circular

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

the put option granted by Happy Genius to the Vendors (or, where applicable, the Tr ustee or LBCCA) under the Agreement and reiterated in the Shareholders Agreement to require Happy Genius to acquire the Vendors’ remaining interest in Yaubond exercisable in the event that the Demolition Completion does not take place on or before 30 June 2010 as described in the section headed “Relocation of Fire Station, Put Options and Call Option” set out in the Letter from the Board contained in this circular

R M B92,000,000 plus all shareholders’ loans to Yaubond provided by the Vendors since the Completion Date, which total shareholders’ loans to be injected into Yaubond by the Vendors since the Completion Date shall be no more than RMB12 million

the an nouncements 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

— 5 —

DEFINITIONS

“Purchasers”	Happy Genius and General Fortune
“Put Options”	collectively, the Pre-Demolition Put Option and the
	Post-Demolition Put Option
“Remaining Group”	the Group excluding Yaubond Group after Completion
“Sale Shares”	being the 10% Sale Shares and the 70% Sale Shares
“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, among other things,
	the Agreement and the transactions contemplated
	thereunder as well as the transactions arising from the
	exercise of the Put Options or the Call Option
“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)
“Shareholders Agreement”	the shareholders agreement to be entered into between
	the Vendors, the Purchasers and Yaubond upon
	Completion
“Shareholders’ Loans”	being the 10% Shareholders’ Loan and the 70%
	Shareholders’ Loans
“Sky Honest”	Sky Honest Investment Corp., a company incorporated
	in the BVI and an indirect wholly-owned subsidiary
	of the Company
“Sky Honest Loan”	the loan arranged by LBCCA of a principal amount of
	HK$220 million under the Loan Agreement
“Skyfame Share Charge”	a first priority fixed charge in favour of the Trustee
	granted by Grand Cosmos Holdings Limited over,
	among other things, all of its shareholding interest in
	the Company as security for the Notes

— 6 —

DEFINITIONS

“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“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 and 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
“Vendors”	Sky Honest and Nicco
“Yaubond”	Yaubond Limited, a company incorporated in the
	BVI and an indirect wholly-owned subsidiary of the
	Company as at the Latest Practicable Date
“Yaubond Group”	Yaubond and Guangzhou Huan Cheng
“Yaubond Shares”	ordinary shares of US$1 each in the issued share
	capital of Yaubond
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC
“sq. m”	square meters
“%”	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$ are made in this circular, for illustration only, at the rate of RMB0.8815 to HK$1. No representation is made that any amount in RMB could have been or could be converted at those rates or any other rates.

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LETTER FROM THE BOARD

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Executive Directors:

Mr. YU Pan (Chairman)

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

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

Independent non-executive Directors:

Mr. CHOY Shu Kwan

Mr. CHENG Wing Keung, Raymond Ms. CHUNG Lai Fong

Mr. Jerry WU

Head office and principal place of business in Hong Kong: 2502B, Tower 1 Admiralty Centre 18 Harcourt Road Hong Kong

22 June 2009

To the Shareholders and, for information only, the Noteholders

Dear Sir or Madam,

VERY SUBSTANTIAL DISPOSAL

INTRODUCTION

On 1 June 2009, the Board announced that on 20 May 2009, the Vendors, the Company, and the Purchasers entered into the Agreement pursuant to which (i) the Vendors have conditionally agreed to dispose of and the Purchasers have conditionally agreed to acquire the Sale Shares (being in aggregate 80% of the issued share capital of Yaubond) and the Shareholders’ Loans (being in aggregate 80% of all shareholders loans due by Yaubond to the Vendors on Completion Date) at the Consideration, being the sum of HK$352,098,086 and RMB58,000,000 (equivalent to a total of approximately HK$418 million); and (ii) the Company has guaranteed the due and punctual performance of the Vendors’ obligations under the Agreement.

* For identification purposes only

— 8 —

LETTER FROM THE BOARD

Under the Agreement and the Shareholders Agreement, the Vendors were granted the PreDemolition Put Option and Post-Demolition Put Option to sell their remaining interests in Yaubond to Happy Genius, and Happy Genius was granted the Call Option to acquire the Vendors’ remaining interests in Yaubond, details of which are set out in this circular below.

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, the Put Options and the Call Option; (ii) financial information of the Group; (iii) pro forma financial information of the Remaining Group; (iv) valuation report on the Land; and (v) notice of the SGM.

THE AGREEMENT

Date : 20 May 2009 Parties :
(1) Vendors : Sky Honest and Nicco, being wholly-owned subsidiaries of the Company. As at the Latest Practicable Date, each of Sky Honest and Nicco is holding 51% and 49% of the total issued share capital of Yaubond respectively.
(2) Purchasers : Happy Genius, being a wholly-owned subsidiary of China Aoyuan, and General Fortune, a company wholly and beneficially owned by Mr. Hu Jin Xiong. To the best of the Directors’ knowledge, information and belief after having made all reasonable enquiries, each of the Purchasers and their respective ultimate beneficial owners, including China Aoyuan, are third parties independent of the Group and its connected persons.

China Aoyuan is a company listed on the Main Board of the Stock Exchange and engaged in property investment and property development in the PRC. To the best of the Directors’ knowledge, information and belief after having made all reasonable enquiries, each of Happy Genius and General Fortune is an investment company set up for the sole purpose of holding the Yaubond Shares to be acquired under the Agreement. As disclosed in the announcement issued by China Aoyuan on 20 May 2009, General Fortune and its ultimate beneficial owner are independent third parties not connected with China Aoyuan and its connected persons.

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LETTER FROM THE BOARD

(3) Guarantor : The Company has guaranteed the due and punctual performance of the Vendors’ obligations under the Agreement.

Assets to be disposed of

(i) the Sale Shares, being 7,675,908 Yaubond Shares and 7,374,892 Yaubond Shares beneficially and legally owned by Sky Honest and Nicco respectively, representing 40.8% and 39.2% of the issued share capital of Yaubond respectively as at the Latest Practicable Date; and
(ii) the Shareholders’ Loans, being 80% of all outstanding shareholders’ loans due by Yaubond to the Vendors as at the Completion Date (of which 40.8% is due to Sky Honest and 39.2% is due to Nicco). As at 31 March 2009, the total outstanding shareholders’ loans due by Yaubond to the Vendors amounted to approximately HK$43.9 million, of which approximately HK$22.4 million is due to Sky Honest and approximately HK$21.5 million is due to Nicco.

Pursuant to the Agreement, of the total Sale Shares and the Shareholders’ Loans, Happy Genius will acquire the 70% Sale Shares (being 13,169,450 Yaubond Shares, of which 5,794,558 Yaubond Shares will be transferred from Sky Honest and 7,374,892 Yaubond Shares will be transferred from Nicco) and the 70% Shareholders’ Loans (of which 40.8% of the Shareholders’ Loan will be transferred from Sky Honest and 39.2% of the Shareholders’ Loan will be transferred from Nicco), and General Fortune will acquire the remaining 10% Sale Shares (being 1,881,350 Yaubond Shares, which will be transferred from Sky Honest) and the 10% Shareholders’ Loan (which will be transferred from Sky Honest) respectively. The Purchasers shall not be obliged to complete the purchase of the Sale Shares and/or the assignment of the Shareholders’ Loan unless the purchase of the 70% Sale Shares, the 10% Sale Shares, and the assignment of the 70% Shareholders’ Loans and the 10% Shareholders’ Loan are completed simultaneously.

As at the Latest Practicable Date, the Yaubond Shares held by Nicco were pledged in favour of the Noteholders under the CB Share Charge and the Yaubond Shares held by Sky Honest were pledged to LBCCA under the Loan Share Charge. Out of the proceeds from the Disposal, HK$156,740,400 will be paid to an escrow account charged to the Trustee subject to further agreement with the Noteholders as to the application thereof pending negotiation with the Noteholders on possible restructuring of the Notes, HK$183,999,600 will be applied for the repayment of amount outstanding under the Loan Agreement and RMB5,000,000 will be paid into a designated account of Guangzhou Huan Cheng for payment of expenses and costs relating to Fire Station Relocation and the Board intends to use the remaining balance as working capital for the Group.

— 10 —

LETTER FROM THE BOARD

Consideration

The aggregate consideration for the Sale Shares and the Shareholders’ Loans is the sum of HK$352,098,086 and RMB58,000,000 (equivalent to a total of approximately HK$418 million), of which the consideration for the Shareholders’ Loans shall be the face value of the amount of the Shareholders’ Loans as at the Completion Date and the consideration for the Sale Shares shall be the balance thereof.

Of the Consideration, HK$352,098,086 and RMB12,000,000 (equivalent to a total of approximately HK$366 million) shall be payable by Happy Genius for the acquisition of the 70% Sale Shares and 70% Shareholders’ Loans (representing approximately 87.5% of the aggregate Consideration), and RMB46,000,000 shall be payable by General Fortune for the acquisition of the 10% Sale Shares and 10% Shareholders’ Loan (representing approximately 12.5% of the aggregate Consideration) in the following manner:

(1) HK$36,572,780 and RMB4,600,000 (equivalent to approximately HK$5 million) have been paid by Happy Genius and General Fortune respectively as deposit within three (3) Business Days from the date of the Agreement which are held in escrow by two third party escrow agents independent of the Group, with the deposit of HK$36,572,780 to be released to LBCCA and the deposit of RMB4,600,000 to be released to the Group respectively on Completion Date;
(2) HK$147,426,820 shall be paid into LBCCA’s designated bank account by Happy Genius on the Completion Date;
(3) HK$156,740,400 shall be paid into the Trustee’s designated bank account by Happy Genius on the Completion Date;
(4) HK$11,358,086 and RMB7,000,000 (equivalent to approximately HK$8 million) and RMB41,400,000 (equivalent to approximately HK$47 million) shall be paid by Happy Genius and General Fortune respectively to the Group on the Completion Date; and
(5) RMB5,000,000 (equivalent to approximately HK$6 million) shall be paid by Happy Genius on the Completion Date to a bank account of Guangzhou Huan Cheng.

The Consideration was determined after arm’s length negotiations between the parties to the Agreement. The consolidated audited net assets value of Yaubond as at 31 December 2008 was HK$323.9 million and the face value of the Shareholders’ Loans as at 31 March 2009 was approximately HK$43.9 million. The valuation of the Land (based on the market value approach in its existing state assuming completion of Fire Station Relocation

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LETTER FROM THE BOARD

but without taking into account the cost of Fire Station Relocation) was approximately RMB703 million (equivalent to approximately HK$798 million) as at 31 December 2008 as estimated by an independent valuer, DTZ Debenham Tie Leung Limited. The market value of the Land represents 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. In addition, apart from the above mentioned, in determining the Consideration, the Company has also considered the financial position of the Group, the repayment obligation of the Group under the Sky Honest Loan, and the valuation of the Land based on its value for sale under repossession of RMB457 million (equivalent to approximately HK$518 million) as at 31 December 2008 as estimated by DTZ Debenham Tie Leung Limited, which value refers to the price that might reasonably be expected to realise within 180 days from the sale of a property in the market under repossession by the lender or receiver, on an “as is” basis, taking into account the unique quality of the property and the existence of any specific demand as well as factors which might adversely affect the marketability of the property due to market perception of increased risk or stigma, justified or otherwise. Based on the aforesaid, the Directors consider that the Consideration is fair and reasonable.

Conditions precedent

Completion shall be conditional upon the following conditions being fulfilled/waived:

a. if so required by the Listing Rules, the approval by the shareholders (or, if applicable, the independent shareholders) of China Aoyuan by way of poll at an extraordinary general meeting of China Aoyuan or, if permitted under the Listing Rules, by written consent, of all necessary resolutions (wherein the Purchasers shall ensure the single largest shareholder of China Aoyuan will vote in favour of such resolutions) to approve the Agreement and the transactions contemplated thereunder including the grant of the Put Options and transactions arising from the exercise of the Pre-Demolition Put Options;
b. if so required by the Listing Rules, the approval by the Shareholders at the SGM by way of poll of all necessary resolutions (wherein, the Vendors and the Company shall ensure the single largest shareholder of the Company will vote in favour of such resolutions, so long as it is not required to abstain from voting or to only vote against the resolutions) to approve the Agreement and the transactions contemplated thereunder, including the grant of the Call Option and transactions arising from the exercise of the Pre-Demolition Put Option;

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LETTER FROM THE BOARD

c. if so required by the Listing Rules, the approval by the shareholders (or, if applicable, independent shareholders) of China Aoyuan by way of poll at an extraordinary general meeting of China Aoyuan or, if permitted under the Listing Rules, by written consent, of all necessary resolutions (wherein, the Purchasers shall ensure the single largest shareholder of China Aoyuan will vote in favour of such resolutions) to approve the transactions arising from the exercise of the PostDemolition Put Option at the aggregate consideration of RMB92,000,000 plus all shareholders’ loans to Yaubond provided by the Vendors since the Completion Date;
d. if so required by the Listing Rules, (i) the approval by the Shareholders at the SGM by way of poll of all necessary resolutions (wherein the Vendors and the Company shall ensure the single largest shareholder of the Company will vote in favour of such resolutions, so long as it is not required to abstain from voting or to only vote against the resolutions) to approve the transactions arising from the exercise of the Post-Demolition Put Option and the Call Option; or (ii) if, due to the fact that the consideration of the transactions arising from the exercise of the Post-Demolition Put Option or the Call Option contains market value and therefore the actual amount cannot be ascertained, such that under the Listing Rules the transactions arising from the Post-Demolition Put Option and the Call Option cannot be put to the Shareholders for approval at the SGM, the Vendors shall then strive for the approval by the Shareholders at the SGM by way of poll of all necessary resolutions (wherein the Vendors and the Company shall ensure the single largest shareholder of the Company to vote in favour of such resolutions, so long as it is not required to abstain from voting or to only vote against the resolutions) to approve the sale by the Vendors of the remaining interest in and all shareholders’ loans due to them by Yaubond contemplated upon the exercise of the Post-Demolition Put Option or the Call Option at the aggregate consideration of RMB92,000,000 plus all shareholders’ loans to Yaubond provided by the Vendors since the Completion Date;

e. the Vendors obtaining and producing to the Purchasers: (i) all consents or approvals required under the Trust Deed and the Loan Agreement for the execution of the Agreement and the transactions contemplated thereunder; and (ii) if there are any restrictions on the daily operation and business of Guangzhou Huan Cheng under the Trust Deed or the CB Share Charge, supplemental deed or document executed by the relevant parties amending the terms of the Trust Deed removing such restrictions;

f. the delivery by the Vendors to the Purchasers of a legal opinion (in such form and substance to the Purchasers’ satisfaction but subject to usual qualifications and exceptions) addressed to the Purchasers and issued by Guangdong Fair Strategy Law Firm or such other PRC lawyers designated by the Purchasers and accepted by

— 13 —

LETTER FROM THE BOARD

the Vendors, confirming that (i) Guangzhou Huan Cheng has legally obtained the Land Use Rights Certificate, (ii) the validity of the Land Use Permit and the current planning over the use of the Land and completion of all relevant procedures and process (Fire Station Relocation excepted), and (iii) all premiums have been settled in accordance with the Land Grant Contract;

g. the delivery by the Vendors to the Purchasers of a legal opinion (in such form and substance to the Purchasers’ satisfaction but subject to usual qualifications and exceptions) issued by BVI firm of lawyers accepted by the Purchasers, confirming (i) each of Yaubond and each of the Vendors are duly incorporated and in good standing together with certificates of incumbency certifying the directors and shareholders of Yaubond and each of the Vendors; and (ii) the Vendors have duly signed the Agreement and the same is valid and legally enforceable against the Vendors;
h. except the expansion of “Event of Default” (as defined under the Loan Agreement) in order to cover the amendment, termination or unenforceability or the grant of the Put Options under the Agreement, the extension of the repayment date of the Sky Honest Loan to a date no earlier than 1 October 2010 on the same terms and conditions as stipulated in the Loan Agreement, provided that (i) the interest rate of the Sky Honest Loan cannot be changed to a rate higher than the existing rate, (ii) no fees or commission or similar charges should be payable for such extension or the Sky Honest Loan except for reasonable legal and actual expenses, and (iii) the Lender shall unconditionally waive all claims for all events of default or potential events of default occurring prior to such extension;
i. the delivery by Happy Genius to the Vendors of an undertaking letter executed by the single largest shareholder of China Aoyuan pursuant to which such shareholder undertakes to, in so far as permitted under the Listing Rules, vote in favour of the relevant resolutions to approve the transactions arising from the exercise of the Put Options;
j. the representations, warranties and undertakings given by the Vendors in the Agreement being true and correct in all material respects as if repeated at all times between the date of the Agreement and the Completion Date; and
k. the due execution by the Vendors of the escrow agreements for the Deposits on the date of the Agreement.

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LETTER FROM THE BOARD

The Purchasers may waive the conditions mentioned above (other than conditions (a), (b), (c), (d), (e), (h) and (i)) and the Vendors may waive condition (c). If the conditions mentioned above have not been fulfilled (or, where applicable, waived) on or before 31 August 2009, the Agreement shall lapse and shall be of no further effect and no party to the Agreement shall have any claim against or liability to the other parties, save for any antecedent breach thereof and the Vendors shall instruct the escrow agents to transfer the Deposits (together with any interest accrued thereon) to the Purchasers forthwith.

In the event that the Purchasers fail to complete the Agreement according to the terms thereof, the Deposits (together with any interest incurred) shall be released to and forfeited by the Vendors and if the Vendors fail to complete the Agreement according to the terms thereof, the Deposits (together with any interest incurred) shall be released to the Purchasers.

Completion

Completion shall take place on the seventh (7th) Business Day after all conditions have been satisfied or waived, as the case may be, or such other date as the parties may otherwise agree.

Upon Completion, Yaubond will cease to be a subsidiary of the Group, and the Company will, through its interest in Sky Honest and Nicco, retain a 20% interest in Yaubond, which will remain charged under the CB Share Charge and the Loan Share Charge respectively. The assets, liabilities and results of Yaubond will be accounted for in the Group’s results by adopting the equity accounting method. In addition, immediately after Completion, Yaubond will continue to owe the Vendors 20% of the outstanding shareholders’ loans as at the Completion Date.

RELOCATION OF FIRE STATION, PUT OPTIONS AND CALL OPTION

The Agreement provides that:

(i) the Company and the Vendors shall be responsible for the cost and expenses of demolition of the fire station currently on the Land and construction of a new fire station on another specified site as described in the paragraph headed “Information on Yaubond Group” below;
(ii) the Demolition Completion shall be completed by 31 December 2009. If it cannot be completed within such time, the Purchasers agree that the deadline shall be deferred to 30 June 2010 without any penalty or Capital Fee (as defined below);

— 15 —

LETTER FROM THE BOARD

(iii) if the Demolition Completion cannot be completed by 30 June 2010, the deadline shall be further extended to 31 December 2010 and (a) the Purchasers have the right to charge the Vendors a fee (“ Capital Fee ”) commencing from 1 July 2010 until the earlier of the date of the Demolition Completion or 31 December 2010 or the completion date of the sale and purchase arising from the exercise of the PreDemolition Put Option at a rate of 25% per annum of the Consideration paid by the Purchasers to the Vendors calculated on a daily basis; and (b) in addition, in consideration of the fee of HK$10 paid by the Vendors to Happy Genius, Happy Genius granted to the Vendors the Pre-Demolition Put Option, whereby the Vendors have the right exercisable between 1 July 2010 and 31 December 2010 (both dates inclusive) to require Happy Genius to acquire the Vendors’ remaining interest in and all shareholders’ loans due by Yaubond to the Vendors at a consideration of RMB92 million, plus all capital injected into Yaubond by the Vendors since the Completion Date (“ Pre-Demolition Option Consideration ”), which total maximum amount of capital to be injected into Yaubond by the Vendors in proportion to its shareholding in Yaubond shall be RMB12 million, as mentioned in the section headed “Shareholders Agreement” below. If the Vendors do not exercise the Pre-Demolition Put Option on or before 30 September 2010, the Vendors irrevocably authorised the Trustee or LBCCA to exercise the same thereafter and the Vendors will not exercise the Pre-Demolition Put Option themselves. Completion of the sale and purchase under the Pre-Demolition Put Option shall take place within five (5) Business Days (or such longer period as may be required by the Vendors, the Trustee or LBCCA in writing but in any event not later than 14 days) or, if the transactions contemplated under the Pre-Demolition Put Option requires approval by shareholders of China Aoyuan as a result of amendments to the Listing Rules after the date of the Agreement, not later than 120 days from the date of the written notice exercising the Pre-Demolition Put Option. Happy Genius shall pay the Pre-Demolition Option Consideration to an escrow agent jointly appointed by the Trustee and LBCCA or in such manner as the Trustee and LBCCA may jointly direct;
(iv) in the event that the Pre-Demolition Put Option is exercised, the Vendors shall have no further obligation or liability and the Purchasers shall have no claims against the Vendors in connection with the Fire Station Relocation, save for any outstanding Capital Fee and the outstanding relocation cost of RMB15 million;
(v) in the event that the Vendors (or the Trustee or LBCCA) (as the case may be) has not exercised the Pre-Demolition Put Option and the Demolition Completion cannot be completed by 31 December 2010, the Purchasers have the right to claim for all Capital Fee accrued from 1 July 2010, up to a maximum amount of RMB70 million and to claim against the Company and the Vendors for all damages arising from such delay.

— 16 —

LETTER FROM THE BOARD

Under the Shareholders Agreement, in addition to reiterating the Pre-Demolition Put Option, during the period commencing from the Demolition Completion until (a) one year after the Demolition Completion or (b) three months after obtaining the commencement of work permit for the Land (whichever is the later):

(i) the Vendors was granted the Post-Demolition Put Option to require Happy Genius to acquire the Vendors’ remaining interest in and all shareholders’ loans due by Yaubond to the Vendors at a consideration to be negotiated between the Vendors (or, where applicable, the Trustee or LBCCA) and Happy Genius based on the valuation of the Land and the assets and liabilities of the Yaubond Group at the relevant time (“ Post-Demolition Option Consideration ”) (but which in any event shall not be less than RMB92 million, plus all capital injected into Yaubond by the Vendors since the Completion Date, which total maximum amount of capital to be injected by the Vendors in proportion to its shareholding in Yaubond shall be RMB12 million). If the Vendors do not exercise the Post-Demolition Put Option within 3 months from the actual date of Demolition Completion, the Vendors irrevocably authorised the Trustee or LBCCA to exercise the same and the Vendors will not exercise the PostDemolition Put Option themselves;
(ii) Happy Genius was granted the Call Option to require the Vendors to sell the Vendors’ remaining interest in and all shareholders’ loans due by Yaubond to the Vendors at a consideration to be negotiated between the Vendors and Happy Genius based on the valuation of the Land and the assets and liabilities of the Yaubond Group at the relevant time (“ Call Option Consideration ”) (which in any event shall not be less than RMB92 million, plus all capital injected into Yaubond by the Vendors since the Completion Date which total maximum amount of capital to be injected into Yaubond by the Vendors in proportion to its shareholding in Yaubond shall be RMB12 million).

If within 15 days from the date of written notice requesting for the negotiation of the Post-Demolition Option Consideration or the Call Option Consideration (as the case may be) the Vendors (or, where applicable, the Trustee or LBCCA) and Happy Genius cannot agree on the Post-Demolition Option Consideration or the Call Option Consideration, then the Post-Demolition Option Consideration or the Call Option Consideration will be the higher of:

(i) the Fair Value; and
(ii) RMB92 million, plus all capital injected into Yaubond by the Vendors since the Completion Date which total maximum amount of capital to be injected into Yaubond by the Vendors in proportion to its shareholding in Yaubond shall be RMB12 million.

— 17 —

LETTER FROM THE BOARD

The Company envisaged that the valuation of the Land which forms part of the Fair Value will be appraised based on the market value approach as explained in the paragraph headed “Consideration” above. The Pre-Demolition Option Consideration and the minimum Post-Demolition Option Consideration of RMB92 million, plus all capital injected into Yaubond by the Vendors was determined with reference to the Consideration.

Completion of the sale and purchase under the Post-Demolition Put Option or Call Option shall take place within 30 days of the determination of the Post-Demolition Option Consideration or the Call Option Consideration (as the case may be) or five (5) Business Days after fulfillment of the condition precedents mentioned in the paragraph below or such longer period as may be required by the Vendors, the Trustee or LBCCA in writing but in any event not later than 14 days.

If the following applies:

(i) approval by shareholders of China Aoyuan is required as a result of: (1) the PostDemolition Option Consideration being more than RMB92 million plus all capital injected into Yaubond by the Vendors since the Completion Date or (2) as a result of amendments to the Listing Rules after the date of the Agreement; and/or
(ii) approval by Shareholders is required as a result of amendments to the Listing Rules after the date of the Agreement and/or approval by the Noteholders and lenders under the Loan Agreement;

the sale and purchase under the Post-Demolition Put Option or Call Option shall be subject to the fulfillment of the above condition precedents and Happy Genius undertakes to ensure the single largest shareholder of China Aoyuan will vote in favour of such resolutions (so long as it is not required to abstain from voting or to only vote against the resolutions) or, if permitted under the Listing Rules, to provide written consent, to approve the transactions under the Post-Demolition Put Option. If the condition precedents are not fulfilled within 120 days after determination of the Post-Demolition Option Consideration or the Call Option Consideration (as the case may be), then the Vendors and Happy Genius shall no longer be required to complete the transactions under the PostDemolition Put Option or the Call Option (as the case may be).

SHAREHOLDERS AGREEMENT

Upon Completion, Yaubond will be held as to 70% by Happy Genius, 10% by General Fortune, 10.2% by Sky Honest and 9.8% by Nicco and it is a term of the Agreement that Happy Genius, General Fortune, Sky Honest, Nicco and Yaubond shall on Completion enter into the Shareholders Agreement.

— 18 —

LETTER FROM THE BOARD

The principal terms of the Shareholders Agreement are set out below:

Parties:

(i) Happy Genius
(ii) General Fortune
(iii) Sky Honest
(iv) Nicco
(v) Yaubond

Object:

The sole object of Yaubond shall be the holding of the interest in Guangzhou Huan Cheng which in turn shall only carry on the business of developing the Land.

Board composition:

The board of directors of Yaubond shall consist of a maximum of five directors, with Happy Genius having the right to nominate and appoint three directors and General Fortune and Sky Honest each having the right to nominate and appoint one director.

Quorum:

The quorum for meetings of the board of directors of Yaubond shall be the presence of at least three directors and respectively appointed by Happy Genius, General Fortune and Sky Honest.

Voting:

Each director present in person or by alternate shall have one vote at each board meeting. In the event of an equality of votes, the chairman of the board meeting shall not be entitled to a second or casting vote.

Transfer of shares:

The transfer of shares in Yaubond by a shareholder is subject to the pre-emptive rights and tag along rights of the other shareholder(s).

— 19 —

LETTER FROM THE BOARD

Financing:

Development cost of the Land shall be financed by loans from banks and other financial institutions. If prior to obtaining any bank facilities, financing is required for development of the Land, the shareholders of Yaubond shall provide and extend to Yaubond the amount required in proportion to their respective shareholding in Yaubond up to the total amount of RMB60,000,000.

INFORMATION ON YAUBOND GROUP

The Sale Shares represent 80% of the entire issued share capital of Yaubond. Yaubond is a single purpose investment holding company incorporated in the BVI on 3 May 2005 and has not, since its incorporation, carried on any business other than acquisition and holding the entire equity interests in Guangzhou Huan Cheng. Guangzhou Huan Cheng was established in the PRC on 12 October 2004 and is currently a wholly foreign-owned enterprise with a registered capital of RMB220 million which has been paid up. As at the Latest Practicable Date, its application for an increase of the registered capital to RMB420 million has been approved by the Ministry of Commerce of the PRC. Guangzhou Huan Cheng has not carried on any business since its establishment other than the acquisition and holding of the Land.

The Land is situated at the junction of Tianhe Bei Road and Linhe Dong Road, Tianhe District, Guangzhou City, Guangdong Province, the PRC and having a development site area of approximately 6,057 square metres. Guangzhou Huan Cheng has obtained the land use right certificate issued by 廣州市國土資源和房屋管理局 (Bureau of Land Resources and Housing Management of Guangzhou Municipality) for a term of 40 years commencing from 12 April 2005 and the relevant land use permits in respect of the Land. As valued by DTZ Debenham Tie Leung Limited, an independent professional valuer, the market value of the Land in its existing state as at 31 December 2008 was RMB703 million (equivalent to approximately HK$798 million) and the value for sale under repossession was RMB457 million (equivalent to approximately HK$518 million). Under the current plan, the Land is planned to be developed into a 50-storey commercial and 42-storey hotel building (with six levels of basement) with a total gross floor area of 113,031 square meters, the calculated plot ratio floor area being 84,151 square meters. As at the Latest Practicable Date, construction work on the Land has not yet commenced. A portion of the Land is currently occupied by a fire station. According to the reply letter of the development proposal application issued on 23 July 2008, Guangzhou Urban Planning Bureau has agreed the development proposal to relocate and reconstruct the fire station outside the current site and the entire site of the Land can be used for commercial and/or office purpose after the Demolition Completion.

— 20 —

LETTER FROM THE BOARD

The audited consolidated net asset value of Yaubond as at 31 December 2008 and 2007 amounted to approximately HK$323.9 million and HK$284.6 million respectively, and the unaudited consolidated net asset value of Yaubond as at 31 March 2009 amounted to approximately HK$322.2 million. The audited consolidated net loss before taxation and net profit after taxation of Yaubond for the year ended 31 December 2008 amounted to approximately HK$4.3 million and HK$22.0 million respectively, and the audited consolidated net loss before taxation and net profit after taxation of Yaubond for the year ended 31 December 2007 amounted to approximately HK$0.1 million and HK$16.8 million respectively. The net profit after taxation recorded for the years ended 31 December 2008 and 2007 were mainly attributable to income tax credit arising from the write-back in 2008 of over-provision of taxation made in previous years and change in tax rate in 2007.

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

REASONS FOR THE DISPOSAL AND USE OF PROCEEDS

The Company is an investment holding company and its principal subsidiaries are engaged in investment holding, property development, the provision of project management and related services in the PRC. Upon Completion, the Company’s properties held for/under development include its 55% interest in the development project in Guiyang City, Guizhou Province, the PRC and the entire interest in the development project in Zhoutouzui, Guangzhou City, Guangdong Province, the PRC. The Company will also continue its principle business of hotel operation and lease of investment properties and sale of developed properties.

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 for the purpose of financing the consideration for the acquisition of 51% shareholding in and shareholder’s loan due by Yaubond. Under the Loan Agreement, the Yaubond Shares held by Sky Honest were pledged in favour of LBCCA as security agent for the lenders under the Sky Honest Loan. The Sky Honest Loan was originally due on 27 April 2008 and has been extended to 29 January 2009 and the lenders further consent to standstill and refrained from taking any legal action against Sky Honest and the guarantor several times as detailed in the Previous Announcements so as to provide time for Sky Honest to conclude the Agreement. On 17 June 2009, LBCCA, as the facility agent of the Sky Honest Loan, has served a notice to Sky Honest to remind the company of the existence of the events of default as stipulated in the Loan Agreement and the expiry of the standstill period previously granted. Should the Disposal not be proceeded, the lenders of the Sky Honest Loan shall consider all options available to

— 21 —

LETTER FROM THE BOARD

them under the Loan Agreement, including, but not limited to, their right to declare all amounts outstanding immediately due and payable and commence action to enforce the security granted pursuant to the Loan Share Charge. Furthermore, the Company’s auditors has issued a disclaimer opinion on the Group’s financial statements for the year ended 31 December 2008 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 Remaining 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 certain assets to provide additional funding as necessary to remedy the default of the loan and to meet other obligations.

After a substantial period of searching for and negotiation with potential buyers, the Company identified the terms offered by the Purchasers as the best offer available under the prevailing market condition and considering the financial pressure currently faced by the Group as described above. It is estimated that a net proceeds of approximately HK$416 million will be received by the Company after deduction of professional expenses which has been/will be incurred in connection with the Disposal. HK$183,999,600 from the net proceeds will be applied to repay the amount outstanding under the Loan Agreement and HK$156,740,400 will be paid to an escrow account charged to the Trustee subject to further agreement with the Noteholders as to the application thereof pending negotiation with the Noteholders on possible restructuring of the Notes and RMB5,000,000 will be paid into a designated account of Guangzhou Huan Cheng for payment of expenses and costs relating to the Fire Station Relocation. The remaining balance of the net proceeds is intended to be applied by the Company as working capital for the Group. The Company will, before the closing of the Disposal, negotiate with KPMG, the provisional liquidator of LBCCA who is the facility agent and one of the lenders of the Sky Honest Loan, on the restructuring of the remaining outstanding balance of the Sky Honest Loan after the settlement of a majority portion of the Sky Honest Loan with part of the net proceeds, including the repayment date of such outstanding balance to a date no earlier than 1 October 2010 as set out in condition (h) of the conditions precedent mentioned above. As for the Notes, as at the Latest Practicable Date, no agreement has yet been reached between the Company and the Noteholders on any restructuring of the Notes. Depending on the terms of the restructuring of the Notes, the Company will comply with the Listing Rules as and when required when the original terms of the Notes are revised or altered. In the event that either of the Put Options or the Call Option is exercised, the Board intends to use the net proceeds from the sale of the remaining interest in Yaubond and the relevant shareholders’ loans for repayment of the remaining amount outstanding under the Sky Honest Loan and for payment to an escrow account subject to negotiation with the Noteholders on possible restructuring of the Notes.

— 22 —

LETTER FROM THE BOARD

As the Disposal could generate cash for the Remaining Group’s working capital use and provide cash for the repayment of a major portion of the Sky Honest Loan which has been overdue, the Directors are of the view that the terms of the Disposal (including the exercise of the Pre-Demolition Put Option at the Pre-determined Price, the PostDemolition Put Option at the Pre-determined Price or the Fair Value, whichever is higher, or the Call Option and the transactions arising therefrom) are fair and reasonable so far as the Company and the Shareholders are concerned and are in the interest of the Company and the Shareholders as a whole.

FINANCIAL EFFECT OF THE DISPOSAL

As a result of the Disposal, subject to confirmation by the Company’s auditors and the net assets value of the Yaubond Group on Completion Date, the Remaining Group expects to realise a loss on disposal of approximately HK$50.2 million, which is calculated based on net proceeds of approximately HK$399.0 million, net of the estimated further cost of approximately HK$17.0 million to be incurred in the demolition and relocation of the fire station from the Land taken up as the Vendors’ obligations and transaction costs of approximately HK$2.0 million, and the carrying value of the investment amounting to HK$449.2 million which comprises the attributable interest in 80% of (i) net asset value of Yaubond and the face value of the Shareholders’ Loans as at 31 March 2009 totaling approximately HK$366 million; (ii) borrowing costs incurred and accrued up to completion on acquisition financing capitalised of approximately HK$31.7 million as at the Completion Date; (iii) fair value adjustment of the Land (net of its associated deferred tax) of approximately HK$223.9 million recognised upon acquisition; and (iv) release of foreign exchange reserve upon the Disposal of approximately HK$60.2 million.

Subject to further confirmation by the Company’s auditors and the net assets value of the Yaubond Group on Completion Date, it is expected that the Remaining Group would realise a loss on disposal of the remaining interest in Yaubond under the exercise of the Pre-Demolition Put Option of approximately HK$7.9 million. In addition, subject to further confirmation by the Company’s auditors, if the consideration receivable on the exercise of the Post-Demolition Put Option or the Call Option is at the Pre-determined Price, the Company expects that a loss on disposal of approximately HK$7.9 million would be recorded by the Remaining Group as a result of the disposal of the remaining interest in Yaubond under the exercise of the Post-Demolition Put Option or Call Option. The loss on disposal is expected to be less than the estimated amount if the consideration exceeds the Pre-determined Price.

— 23 —

LETTER FROM THE BOARD

IMPLICATIONS OF THE LISTING RULES

The Disposal and the exercise of (i) the Pre-Demolition Put Option at the Pre-determined Price; (ii) the Post-Demolition Put Option at the Pre-determined Price or Fair Value, whichever is higher; or (iii) the Call Option the exercise of which is not at the Company’s discretion and the transactions arising from exercise of any of such options constitute 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.

In the event that the final consideration payable by Happy Genius upon the exercise of the Post-Demolition Put Option is set at an amount other than the Pre-determined Price or the Fair Value (whichever is higher), the Company will comply with the relevant Listing Rules and seek Shareholders’ approval again if necessary.

Sharp Bright International Limited, a company wholly-owned by Mr. Yu Pan, an executive Director, the chairman and controlling shareholder of the Company, has executed the Grand Cosmos Share Charge and Grand Cosmos Holdings Limited has given the Skyfame Share Charge in favour of the Trustee as part of the security for the Notes. In addition, the Company has given certain share charges over its interests in certain of its subsidiaries in favour of the Trustee as security for the Notes. The number of shares of Grand Cosmos Holdings Limited and Shares charged pursuant to 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. Although the sale proceeds allocated for repayment of the Notes is below US$40 million and therefore no shares charged under the said share charges will be released as a result of the transactions contemplated by the Disposal and the Put Options or Call Option alone, the amount secured by the said share charges will be reduced with a reduction in the amount due under 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.

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 that although the sale proceeds allocated for the repayment of the Notes is below US$40 million and therefore no shares charged under the said share charges will be released as a result of the transactions contemplated by the Disposal and the Put Options or Call Option alone, the amount secured by the said share charges will still be reduced with a reduction in the amount due under the Notes, together with 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

— 24 —

LETTER FROM THE BOARD

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; and (iii) other Noteholders which together held 26,781,185 Shares as at the Latest Practicable Date shall abstain from voting to approve the Disposal, the exercise of the Pre-Demolition Put Option at the Pre-determined Price, the Post-Demolition Put Option at the Pre-determined Price or the Fair Value, whichever is higher, and the Call Option and the transactions arising therefrom at the SGM.

THE SGM

Set out on pages 184 to 186 of this circular is a notice convening the SGM to be held at Luk Kwok Hotel, Basement, Falcon Room 1, 72 Gloucester Road, Wanchai, Hong Kong on Friday, 10 July 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 as well as the exercise of the Pre-Demolition Put Option at the Pre-determined Price, the Post-Demolition Put Option at the Pre-determined Price or the Fair Value, whichever is higher and the exercise of the Call Option and the transactions arising therefrom, which shall be voted by way of poll.

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 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 resolutions to be proposed in the SGM to approve the Agreement and the transactions contemplated thereunder including the exercise of the Pre-Demolition Put Option at the Pre-determined Price, the Post-Demolition Put Option at the Predetermined Price or the Fair Value, whichever is higher and the transactions arising therefrom or from the exercise of the Call Option.

— 25 —

LETTER FROM THE BOARD

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

— 26 —

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.

22 June 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 (the “Relevant Periods”), prepared on the basis set out in note 3 of Section (II) below, for inclusion in the circular of the Company dated 22 June 2009 (the “Circular”) in connection with the proposed disposal of 80% interests in a subsidiary, Yaubond Limited (“Yaubond”).

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.

— 27 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

We have acted as auditors of the Group for the Relevant Periods. The consolidated financial statements for each of the Relevant Periods have been audited by us in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

The Financial Information has been prepared based on the audited consolidated financial statements of the Group for each of the Relevant Periods which are prepared in accordance with Hong Kong Financial Reporting Standards issued by the HKICPA without making any adjustments for the purpose of inclusion in the Circular. For the purpose of this report, we have examined the Financial Information for the Relevant Periods in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

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, to form an independent opinion, based on our examination on the Financial Information for the Relevant Periods, and to report an opinion to you.

Basis for disclaimer of opinion: material uncertainty relating to the going concern basis

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 note purchase agreement in relation to the convertible notes with outstanding principal value of approximately HK$1,499,885,000 (the “Notes”) at 31 December 2008 have not been complied with:

(1) the Group has not yet been able to obtain the land use right certificate for one of the property development projects within the agreed timeframe with the holders of the Notes; and
(2) as a result of (1) above, there can be an early redemption of the Notes to the extent of the principal amount of approximately HK$585,893,000 and payment of interests accrued up to the date of redemption.

— 28 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In forming our opinion, 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 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 noncurrent assets and non-current liabilities as current assets and current liabilities respectively. Such adjustments may have a consequential significant effect on the Group’s net assets as at 31 December 2006, 2007 and 2008 and the Group’s results for the Relevant Periods.

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 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 of the consolidated results and cash flows of the Group for the Relevant Periods.

— 29 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(I) FINANCIAL INFORMATION

Consolidated Income Statements

The following is the consolidated results of the Group for the Relevant Periods 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 before income tax
9
Income tax (expense) credit
13
Profit for the year
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
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
46,621
209,078
685,128
(1,752)
12,257
(780)
44,869
221,335
684,348
HK4.872 cents
HK17.398 cents
HK46.337 cents
HK4.162 cents
(HK1.750 cents)
(HK13.484 cents)

— 30 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheets

The following is the consolidated balance sheets 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 paid 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 2006 HK$’000 1,723 165 475,248 698,945 49,655 155,203 — 7,963 1,388,902 676 3 — — 19,944 630 — 47,993 69,246 — 69,246	at 31 December 2007 2008 HK$’000 HK$’000 1,017,087 1,046,987 223,808 736,550 492,325 401,543 1,529,339 962,867 118,088 68,316 — — 32,408 — — — 3,413,055 3,216,263 603,427 573,808 445,191 494,718 — 86,268 31,790 19,542 31,016 33,900 — — 358,711 67,737 63,338 53,720 1,533,473 1,329,693 — 713,399 1,533,473 2,043,092	at 31 December 2007 2008 HK$’000 HK$’000 1,017,087 1,046,987 223,808 736,550 492,325 401,543 1,529,339 962,867 118,088 68,316 — — 32,408 — — — 3,413,055 3,216,263 603,427 573,808 445,191 494,718 — 86,268 31,790 19,542 31,016 33,900 — — 358,711 67,737 63,338 53,720 1,533,473 1,329,693 — 713,399 1,533,473 2,043,092
			3,216,263
			573,808 494,718 86,268 19,542 33,900 — 67,737 53,720
			1,329,693 713,399
			2,043,092

— 31 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes Current liabilities Trade and other payables 31 Bank and other borrowings — current portion 32 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 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 2006 HK$’000 24,612 17,991 — 20,627 63,230 — 63,230 6,016 1,394,918 63,573 82,327 — 21,395 244,936 215,822 628,053 766,865 12,354 709,166 721,520 45,345 766,865	at 31 December 2007 2008 HK$’000 HK$’000 241,904 219,761 242,790 280,228 — 3,779 24,161 48,080 508,855 551,848 — 108,884 508,855 660,732 1,024,618 1,382,360 4,437,673 4,598,623 63,573 63,573 940,339 1,042,480 211,946 306,337 1,081,572 93,162 — 273,968 453,561 273,674 2,750,991 2,053,194 1,686,682 2,545,429 14,659 14,777 1,672,023 2,505,918 1,686,682 2,520,695 — 24,734 1,686,682 2,545,429	at 31 December 2007 2008 HK$’000 HK$’000 241,904 219,761 242,790 280,228 — 3,779 24,161 48,080 508,855 551,848 — 108,884 508,855 660,732 1,024,618 1,382,360 4,437,673 4,598,623 63,573 63,573 940,339 1,042,480 211,946 306,337 1,081,572 93,162 — 273,968 453,561 273,674 2,750,991 2,053,194 1,686,682 2,545,429 14,659 14,777 1,672,023 2,505,918 1,686,682 2,520,695 — 24,734 1,686,682 2,545,429
			551,848 108,884
			660,732

			1,382,360
			4,598,623
			63,573 1,042,480 306,337 93,162 273,968 273,674
			2,053,194

			2,545,429 14,777 2,505,918 2,520,695 24,734
			2,545,429

— 32 —

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 prepared on the basis set out in Section (II) below:

			Attribu	table to equity h	olders of the Company	olders of the Company			Total HK$’000 365,210
Share capital HK$’000 7,862 — — — — — — 1,818 2,674 — — — — 4,492 12,354	Share premium HK$’000 433,823 (5,531) — (5,531) — (5,531) — 58,496 237,919 11 — — — 296,426 724,718	Contributed surplus reserve HK$’000 15,497 — — — — — — — — — — — — — 15,497	Share- based payment reserve HK$’000 — — — — — — — — — — 3,584 — — 3,584 3,584	Convertible notes equity reserve HK$’000 4,207 — — — — — — (4,207) — — — — — (4,207) —	Merger reserve HK$’000 (301,652) — — — — — — — — — — (10) — (10) (301,662)	Statutory reserves HK$’000 6,108 — — — — — — — — — — — — — 6,108	Foreign exchange reserve HK$’000 4,329 — 14,935 14,935 — 14,935 — — — — — — — — 19,264	Retained profits HK$’000 195,036 — — — 46,621 46,621 — — — — — — — — 241,657
									(5,531) 17,791
									12,260 44,869
									57,129
									25,425 56,107 240,593 11 3,584 (10) 18,816
									344,526

									766,865

— 33 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes
Year ended 31
December 2007
At 1 January 2007
Expenses incurred on
issue of shares
Exchange differences
arising on consolidation
of overseas entities
Share of changes in reserves
of associate
Surplus arising from
revaluation upon
acquisition of
subsidiaries
Net (expenses) income
recognised directly in
equity
Profit for the year
Total recognised (expenses)
income for the year
Conversion of convertible
notes
36(a)(viii)
Conversion of convertible
preference shares
36(a)(vii)
Issue of shares:
— Convertible
preference
shares
36(a)(vi)
— Exercise of bonus
warrants
36(a)(v)
Transfer among reserves
Recognition of equity-
settled share-based
payment expenses
Acquisition of minority
interests in a subsidiary
40(b)
At 31 December 2007

Attributable to equity holders of the Company
Share
capital
Share
premium
Contributed
surplus
reserve
Share-
based
payment
reserve
Property
revaluation
reserve
Merger
reserve
Statutory
reserves
Other
reserves
Foreign
exchange
reserve
Retained
profits
Sub-total
Minority
interests
Total
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
12,354
724,718
15,497
3,584
—
(301,662)
6,108
—
19,264
241,657
721,520
45,345
766,865
—
(13)
—
—
—
—
—
—
—
—
(13)
—
(13)
—
—
—
—
—
—
—
—
165,827
—
165,827
8,936
174,763
—
—
—
—
—
—
—
—
4,274
—
4,274
—
4,274
—
—
—
—
84,842
—
—
—
—
—
84,842
—
84,842
—
(13)
—
—
84,842
—
—
—
170,101
—
254,930
8,936
263,866
—
—
—
—
—
—
—
—
—
209,078
209,078
12,257
221,335
—
(13)
—
—
84,842
—
—
—
170,101
209,078
464,008
21,193
485,201
347
42,196
—
—
—
—
—
—
—
—
42,543
—
42,543
—
59,757
—
—
—
—
—
—
—
—
59,757
—
59,757
1,905
378,587
—
—
—
—
—
—
—
—
380,492
—
380,492
53
5,747
—
—
—
—
—
—
—
—
5,800
—
5,800
—
—
—
—
—
—
—
2,049
—
(2,049)
—
—
—
—
—
—
12,562
—
—
—
—
—
—
12,562
—
12,562
—
—
—
—
—
—
—
—
—
—
—
(66,538)
(66,538)
2,305
486,287
—
12,562
—
—
—
2,049
—
(2,049)
501,154
(66,538)
434,616
14,659
1,210,992
15,497
16,146
84,842
(301,662)
6,108
2,049
189,365
448,686
1,686,682
—
1,686,682

— 34 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes
Year ended
31 December 2008
At 1 January 2008
Expenses incurred
on issue of shares
Exchange differences
arising on consolidation
of overseas entities
Impairment loss on
properties held for
development
19
Deferred tax credit directly
recognised in equity
35
Net (expenses) income
recognised directly in
equity
Profit (loss) for the year
Total recognised (expenses)
income for the year
Contribution from minority
shareholder of a
subsidiary
Conversion of convertible
notes
36(a)(viii)
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)
Transfer among reserves
Recognition of equity-
settled share-based
payment expenses
At 31 December 2008

Attributable to equity holders of the Company
Share
capital
Share
premium
Contributed
surplus
reserve
Share-
based
payment
reserve
Property
revaluation
reserve
Merger
reserve
Statutory
reserves
Other
reserves
Foreign
exchange
reserve
Retained
profits
Sub-total
Minority
interests
Total
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
14,659
1,210,992
15,497
16,146
84,842
(301,662)
6,108
2,049
189,365
448,686
1,686,682
—
1,686,682
—
(12)
—
—
—
—
—
—
—
—
(12)
—
(12)
—
—
—
—
—
—
—
—
186,763
—
186,763
62
186,825
—
—
—
—
(71,151)
—
—
—
—
—
(71,151)
—
(71,151)
—
—
—
—
17,788
—
—
—
—
—
17,788
—
17,788
—
(12)
—
—
(53,363)
—
—
—
186,763
—
133,388
62
133,450
—
—
—
—
—
—
—
—
—
685,128
685,128
(780)
684,348
—
(12)
—
—
(53,363)
—
—
—
186,763
685,128
818,516
(718)
817,798
—
—
—
—
—
—
—
—
—
—
—
25,452
25,452
116
13,555
—
—
—
—
—
—
—
—
13,671
—
13,671
—
—
—
(4,838)
—
—
—
—
—
4,838
—
—
—
—
8
—
—
—
—
—
—
—
—
8
—
8
2
411
—
(73)
—
—
—
—
—
—
340
—
340
—
—
—
—
—
—
—
4,109
—
(4,109)
—
—
—
—
—
—
1,478
—
—
—
—
—
—
1,478
—
1,478
118
13,974
—
(3,433)
—
—
—
4,109
—
729
15,497
25,452
40,949
14,777
1,224,954
15,497
12,713
31,479
(301,662)
6,108
6,158
376,128
1,134,543
2,520,695
24,734
2,545,429

— 35 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statements

The following is the consolidated cash flow statements of the Group for the Relevant Periods 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

Year ended 31 December
2006
2007
2008
HK$’000
HK$’000
HK$’000
(5,338)
(158,933)
137,662
2,800
2,801
4,149
(288,234) (1,195,082)
—
(495)
674
—
14,652
—
—
—
(2,303)
—
(1,911)
(7,623)
(95,525)
—
—
(597,558)
—
(135,540)
—
—
—
(82,817)
(1,748)
(34,585)
(48,808)
—
—
4
(274,936) (1,371,658)
(820,555)

— 36 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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
Less: Balance classified as assets held
for sale
Cash and cash equivalents at end
of year
29

Year ended 31 December
2006
2007
2008
HK$’000
HK$’000
HK$’000
240,593
—
—
11
5,800
8
—
—
340
(5,531)
(13)
(12)
—
1,562,380
—
—
(13,472)
—
—
(33,709)
—
—
(358,711)
290,268
62,745
401,206
254,037
(62,627)
(21,306)
(170,985)
—
—
271,321
—
—
25,452
235,191
1,542,175
670,429
(45,083)
11,584
(12,464)
966
3,761
3,712
92,110
47,993
63,338
47,993
63,338
54,586
—
—
(866)
47,993
63,338
53,720

— 37 —

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 and principal place of business are at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda 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 using 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.

— 38 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 May 2008) 1	Improvements to HKFRSs (issued May 2008) 1	Improvements to HKFRSs (issued May 2008) 1
HKFRSs Amendments	Improvements to HKFRSs (issued April 2009)			2
HKAS 1 (Revised)	Presentation of Financial Statements 3
HKAS 23 (Revised)	Borrowing Costs 3
HKAS 27 (Revised)	Consolidated and Separate Financial Statements					4
HKAS 32 and HKAS 1 Amendments	Puttable Financial Instruments and Obligations
	Arising on Liquidation 3
HKAS 39 Amendment	Eligible Hedged Items 4
HKFRS 1 and HKAS 27 Amendments	Cost of an Investment in a Subsidiary, Jointly
	Controlled Entity or Associate 3
Amendments to HKFRS 7	Improving Disclosure about Financial Instruments						3
Amendments to HK(IFRIC)	Embedded Derivatives 7
— Interpretation 9 and HKAS 39
HKFRS 1 (Revised)	First-time Adoption of Hong Kong Financial		Reporting
	Standards 4
HKFRS 2 Amendment	Share-based Payment — Vesting Conditions		and
	Cancellations 3
HKFRS 3 (Revised)	Business Combinations 4
HKFRS 8	Operating Segments 3
HK(IFRIC) — Interpretation 13	Customer Loyalty Programmes 5
HK(IFRIC) — Interpretation 15	Agreements for the Construction of Real Estate				3
HK(IFRIC) — Interpretation 16	Hedges of a Net Investment in a Foreign Operation							6
HK(IFRIC) — Interpretation 17	Distributions of Non-cash Assets to Owners	4
HK(IFRIC) — Interpretation 18	Transfers of Assets from Customers 8

1 Effective for annual periods beginning on or after 1 January 2009 except the amendments to HKFRS 5 which are effective for annual periods beginning on or after 1 July 2009.
2 Effective for annual periods beginning on or after 1 January 2010 except the amendments to HKFRS 2, HKAS 38, HK(IFRIC) – Interpretation 9 and HK(IFRIC) – Interpretation 16 which are effective for annual periods beginning on or after 1 July 2009.
3 Effective for annual periods beginning on or after 1 January 2009.
4 Effective for annual periods beginning on or after 1 July 2009. 5 Effective for annual periods beginning on or after 1 July 2008. 6 Effective for annual periods beginning on or after 1 October 2008.
7 Effective for annual periods ending on or after 30 June 2009.
8 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. The adoption of HK(IFRIC) — Interpretation 15 may affect the accounting treatment on revenue recognition of an entity engaged in the construction of real estate. However, the Group’s current accounting policy is already in compliance with HK(IFRIC) — Interpretation 15. The adoption of HKAS 1 (Revised) and HKFRS 8 may result in new or amended disclosures.

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.

— 39 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. Basis of Preparation

(a) Statement of compliance

The Financial Information has been prepared in accordance with all applicable HKFRSs issued by the HKICPA. 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

Notwithstanding that the Group had other short-term borrowings of Hong Kong dollars (“HK$”) 220,000,000 (the “Term Loan”) as at 31 December 2008, as disclosed in note 32(b), which are overdue and remain outstanding at the date of this report, and, after 31 December 2008, certain terms stipulated in the note purchase agreement in relation to the United States dollars (“US$”) 200 million convertible notes, as disclosed in note 33, with outstanding principal value of approximately HK$1,499,885,000 at 31 December 2008 have not been complied with, the Financial Information has been prepared on a going concern basis as the Directors are of the opinion that the Group will be able to continue as a going concern and to meet its obligations as and when they fall due having regard to the development of the events after the balance sheet date as described in Section (III) and the following arrangements and plans:

(1) The Group’s transaction to dispose of its 80% interest in the Tianhe Project as described in Section (III) would be completed on schedule in July 2009.
(2) The Term Loan was due for repayment on 29 January 2009. On 16 January 2009, the Group entered into a standstill arrangement with the lenders of the Term Loan. Under the standstill arrangement, the lenders agreed to refrain from exercising their rights and remedies under the relevant terms of the Term Loan until 19 February 2009.

In addition to the aforesaid standstill arrangement, the Group subsequently entered into several standstill arrangements with the same lenders. In accordance with the latest standstill arrangement dated 7 April 2009, the lenders agreed to refrain from exercising their rights and remedies under the relevant terms of the Term Loan until 17 April 2009. By then the Group has not yet settled the Term Loan and the lenders further agreed to refrain from taking legal actions against the Company and its subsidiaries subject to the completion of the disposal of 80% interest in Tianhe Project.

— 40 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Directors believe that the standstill arrangements are a positive indication of continuing support from the lenders of the Term Loan. With a view to securing the continuing support from the lenders, the Directors do not expect that the lenders will require the Group to repay the Term Loan before the disposal of the Group’s 80% interest in the Tianhe Project as described in Section (III). The proceeds from the disposal by the Group of the 80% interest and the expected subsequent disposal of the remaining interest in the Tianhe Project would be utilised to repay all of the Term Loan and accrued interests.

(3) 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.
(4) The Directors believe that the holders of the Notes will agree to refrain from exercising their rights of:
(i) 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 payment of US$75,000,000 (the “Automatic Redemption”) that is eligible from 31 March 2009 onwards, which has been extended to 31 May 2009, if the Group fails to fulfill the conditions stipulated in the trust deed of the Notes (the “Trust Deed”). 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 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; and
(ii) the put option, which is exercisable from 4 May 2010 onwards and the redemption amount under which shall not exceed 30% of the principal value of the Notes at the date of issue plus accrued interests.
(5) Taking into account the prevailing circumstances, the Directors believe that a debt rescheduling plan can be arranged to relax the terms and conditions of the Notes including extending the timing of the Automatic Redemption and the put option under the Trust Deed.
(6) Assets can be realised to provide additional funding to remedy the potential claim from the Automatic Redemption and early put option under the Trust Deed, should there be no rescheduling plan executed.
(7) The Directors believe that the non-compliances in repayment of the Term Loan occurred after the balance sheet date and the Notes as stated in Section (III) will be remedied and there will not be any other events triggering acceleration of repayment of debts such as redemption of the Notes and demand for immediate servicing of debts nor there will be any claims for consequential losses or damages.

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.

— 41 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(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

The Financial Information is presented in HK$, which is the Company’s functional currency while the functional currency of its principal subsidiaries is Renminbi (“RMB”).

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 year are included in the consolidated income statement 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 balance sheet 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 income statement as an allocation of the total profit or loss for the year 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.

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(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 in the consolidated balance sheet 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 subject to impairment in the same way as goodwill arising on a business combination.

(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 consolidated income statement.

Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid (“discount on business combination”), the excess is credited in full to the consolidated income statement.

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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 the consolidated income statement. An impairment loss for goodwill 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 charged in the consolidated income statement during the financial period in which they are incurred.

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 each balance sheet date. 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 the consolidated income statement on disposal.

(g) Investment properties

Investment properties are properties held to earn rentals or for capital appreciation and not occupied by the Group. 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 the consolidated income statement for the period in which they arise.

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(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 to the consolidated income statement.

(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 developmen t

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) Leasin g

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 the consolidated income statement 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.

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 charged to the consolidated income statement 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. 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. Gains or losses on investments held for trading are recognised in the consolidated income statement.

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FINANCIAL INFORMATION OF THE GROUP

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At each balance sheet date 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 the consolidated income statement 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. 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. At each balance sheet date 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 the consolidated income statement 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.

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.

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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 the consolidated income statement.

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 each balance sheet date subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, with changes in fair value recognised directly in the consolidated income statement 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 the consolidated income statement, if any.

Gains or losses are recognised in the consolidated income statement 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).

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 in the consolidated income statement upon conversion or expiration of the option.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 the consolidated income statement, 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 charged to the consolidated income statement 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.

(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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 consolidated balance sheet.

(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 year 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 balance sheet date.

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, 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 balance sheet date. Income taxes are recognised in the consolidated income statement except when they relate to items directly recognised to equity in which case the taxes are also directly recognised in equity.

(p) Foreign currency

Transactions entered into by 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 balance sheet date. Nonmonetary items carried at fair value that are denominated in foreign currencies are

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APPENDIX I

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 the income statement in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the consolidated income statement for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which case, the exchange differences are also recognised directly in equity.

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 balance sheet date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised directly in equity (the “foreign exchange reserve”). Exchange differences recognised in the income statement 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 the consolidated income statement 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 balance sheet date. 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 the consolidated income statement 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.

(r) Share-based payments

Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the consolidated income statement 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 each balance sheet date so that, ultimately, the cumulative amount

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 charged to the consolidated income statement over the remaining vesting period.

Where equity instruments are granted to persons other than employees, the consolidated income statement is charged with the fair value of goods or services received 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 each balance sheet date, 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 non-financial 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 the consolidated income statement 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.

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,

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 income statement 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.

The comparative amounts in the Financial Information are presented as if the entities or businesses had been combined at the previous balance sheet dates or when they first came under common control, whichever is shorter.

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

(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 income statement up to the date of disposal.

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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 goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the CGU to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the CGU and a suitable discount rate in order to calculate the present value. As at 31 December 2007 and 2008, the carrying amount of goodwill is approximately HK$118,088,000 and HK$68,316,000 respectively. The carrying amount as at 31 December 2008 is arrived at after an impairment on goodwill of approximately HK$66,511,000 provided during the impairment test for goodwill. Details of the recoverable amount calculation are disclosed in note 20.

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 People’s Republic of China (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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 the consolidated income statement. 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.

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. Business and Geographical Segment Information

For management purposes, the Group is currently organised into four operating divisions – property development, property investment, hotel operation and related ancillary services (“hotel operation”) and property project management and interior decoration services (“project management”). As over 90% of the Group’s segment revenue and segment results were derived from the PRC, no segment information has been disclosed in respect of the Group’s geographical segments. These divisions are the basis on which the Group reports its primary segment information.

Principal activities 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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Segment information about these businesses is presented below:

Property development Property investment Project management Eliminations Corporate HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 *Results for the year ended* *31 December 2006* External sales 11,920 14,953 23,456 — — Inter-segment sales — 483 — (483) — Segment revenue 11,920 15,436 23,456 (483) — Segment results (2,782) 11,901 12,519 Corporate operating expenses (35,015) Fair value changes in investment properties 95,634 Share of loss of associate, net of tax (112) Finance costs Finance income Profit before income tax Income tax expense Profit for the year *Assets and liabilities as at* *31 December 2006* Assets Interest in an associate 155,203 — — — — Segment assets 753,430 491,794 16,867 — 40,854 Total assets 908,633 491,794 16,867 — 40,854 Liabilities Segment liabilities 335,069 3,067 784 — 352,363 *Other segment information for the year* *ended 31 December 2006* Capital expenditure 1,916 — 15 — 1,728 Depreciation and amortisation 4 — 18 — 350	Total HK$’000 50,329 —
	50,329

	21,638 (35,015) 95,634 (112) (8,214) 4,090
	78,021 (33,152)
	44,869

	155,203 1,302,945
	1,458,148

	691,283

	3,659 372

— 55 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Property development HK$’000 *Results for the year ended* *31 December 2007* External sales 2,420 Inter-segment sales — Segment revenue 2,420 Segment results (13,190) Corporate operating expenses Fair value changes in investment properties Fair value changes in financial derivative liabilities — convertible notes — convertible preference shares Discount on business combinations 67,965 Share of profit of associate, net of tax 8,251 Finance costs Finance income Profit before income tax Income tax credit Profit for the year *Assets and liabilities as at* *31 December 2007* Assets Segment assets 2,703,455 Liabilities Segment liabilities 372,394 *Other segment information* *for the year ended* *31 December 2007* Capital expenditure 187,669 Depreciation and amortisation 8,530	Property investment HK$’000 18,547 424 18,971 10,404 (22,926) 504,727 16,701 — 25	Hotel operation Project management Eliminations HK$’000 HK$’000 HK$’000 102,190 2,474 — — — (424) 102,190 2,474 (424) (35,533) (1,813) 1,200,016 277 — 124,886 155 — 210,158 45 — 45,997 23 —	Corporate HK$’000 — — — (43,556) 538,053 2,745,710 8,964 2,010	Total HK$’000 125,631 —
				125,631

				(40,132) (43,556) (22,926) 267,789 (11,507) 67,965 8,251 (79,877) 14,089
				160,096 61,239
				221,335

				4,946,528

				3,259,846

				406,836 56,585

— 56 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Property development Property investment HK$’000 HK$’000 *Results for the year ended* *31 December 2008* External sales and segment revenue 289,886 19,345 Segment results 32,142 14,420 Corporate operating expenses Fair value changes in investment properties (119,263) Impairment loss on goodwill (66,511) Fair value changes in financial derivative liabilities — convertible notes Finance costs Finance income Profit before income tax Income tax credit Profit for the year *Assets and liabilities as at* *31 December 2008* Assets Assets classified as held for sale 713,399 — Other segment assets 2,671,643 403,731 3,385,042 403,731 Liabilities Liabilities associated with assets classified as held for sale 108,884 — Other segment liabilities 705,535 21,995 814,419 21,995 *Other segment information for the* *year ended 31 December 2008* Capital expenditure 761,128 — Depreciation and amortisation 22,077 10	Hotel operation Project managment Corporate HK$’000 HK$’000 HK$’000 255,419 — — 10,363 517 (26,939) — — — 1,242,211 — 228,371 1,242,211 — 228,371 — — — 69,893 — 1,807,619 69,893 — 1,807,619 38,083 — 13,963 78,195 — 6,641	Total HK$’000 564,650

		57,442 (26,939) (119,263) (66,511) 976,924 (189,957) 2,982
		634,678 49,670
		684,348

		713,399 4,545,956
		5,259,355

		108,884 2,605,042
		2,713,926

		813,174 106,923

— 57 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 are as follows:

Sale of properties Rental income Hotel operation Property development project management and interior decoration service fees	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 11,920 505 257,399 14,953 20,462 51,832 — 102,190 255,419 23,456 2,474 — 50,329 125,631 564,650	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 11,920 505 257,399 14,953 20,462 51,832 — 102,190 255,419 23,456 2,474 — 50,329 125,631 564,650
		564,650

— 58 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 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 consolidated income statement Finance income: Bank interest income Other interest income		Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 595 — 156,571 — 78,348 — — 12,125 36,821 5,867 47,884 74,742 — 6,020 — 6,462 144,377 268,134 — — (65,760) — (44,988) — — (12,125) (14,807) — (9,568) — — (6,020) — — (72,701) (80,567) 6,462 71,676 187,567 — 6,905 —	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 595 — 156,571 — 78,348 — — 12,125 36,821 5,867 47,884 74,742 — 6,020 — 6,462 144,377 268,134 — — (65,760) — (44,988) — — (12,125) (14,807) — (9,568) — — (6,020) — — (72,701) (80,567) 6,462 71,676 187,567 — 6,905 —	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 595 — 156,571 — 78,348 — — 12,125 36,821 5,867 47,884 74,742 — 6,020 — 6,462 144,377 268,134 — — (65,760) — (44,988) — — (12,125) (14,807) — (9,568) — — (6,020) — — (72,701) (80,567) 6,462 71,676 187,567 — 6,905 —	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 595 — 156,571 — 78,348 — — 12,125 36,821 5,867 47,884 74,742 — 6,020 — 6,462 144,377 268,134 — — (65,760) — (44,988) — — (12,125) (14,807) — (9,568) — — (6,020) — — (72,701) (80,567) 6,462 71,676 187,567 — 6,905 —
		1,752 —	4,215 (2,919)	4,781 (2,391)
		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

— 59 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. Profit Before Income Tax

Profit before income tax for the Relevant Periods has been arrived at after charging (crediting):

Notes Cost of materials sold Cost of properties sold Prepaid lease payments recognised as cost of sales Staff costs, including directors’ emoluments 10 Equity-settled share-based payment expenses incurred for non-employees Auditors’ remuneration Depreciation of property, plant and equipment 16 Less:_Amount capitalised as properties held for/under development _19 Total depreciation charged to consolidated income statement Amortisation of prepaid lease payments Less:_Amount capitalised as properties held for/under development _19 Total amortisation charged to consolidated income statement 17 Loss on disposal of property, plant and equipment Minimum lease payments under operating lease in respect of: — subleasing of properties recognised as cost of services — rented office premises — rented other premises Exchange loss, net Waiver of amount due from a director arising from business combination under common control Share of loss before tax of associate Share of tax credit of associate Write-off of hotel pre-operating expenses Direct operating expenses incurred for rental income	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 1,841 13,031 25,002 10,109 695 109,805 2,776 174 90,495 11,304 46,622 71,325 2,198 8,794 — 800 1,380 1,160	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 1,841 13,031 25,002 10,109 695 109,805 2,776 174 90,495 11,304 46,622 71,325 2,198 8,794 — 800 1,380 1,160
	369 43,821 77,992 (4) (18) (6)
	365 43,803 77,986
	3 12,764 28,931 — (6,441) (8,161)
	3 6,323 20,770 — — 2 2,816 2,784 1,280 — 1,526 1,472 — 2,094 3,038 4 524 822 22,136 12,853 — 112 31 — — (8,282) — — 9,925 — 2,919 4,388 4,435

— 60 —

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 consolidated income statement	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 8,993 39,273 67,694 941 7,144 5,704 505 3,768 1,478 1,386 1,388 2,700 11,825 51,573 77,576 (521) (4,951) (6,251) 11,304 46,622 71,325

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	Fees Salaries and other benefits (note (i)) HK$’000 HK$’000 — 1,718 — 576 — 210 — 260 — 183 100 — 100 — 100 — 300 2,947	Bonuses (note (ii)) Equity-settled share-based payment expenses Contributions to defined contribution 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

— 61 —

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 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	Fees Salaries and other benefits (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	Bonuses (note (ii)) Equity-settled share-based payment expenses Contributions to defined contribution 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

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.

— 62 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. Five Highest Paid Individuals

Of the five individuals with the highest emoluments in the Group, three, three and two of them were directors of the Company whose emoluments are included in note 11 above for each of the years ended 31 December 2006, 2007 and 2008 respectively. The emoluments of the remaining two, two and three individuals for each of the years ended 31 December 2006, 2007 and 2008 respectively are as follows:

Basic salaries and other benefits Bonuses Equity-settled share-based payment expenses Contributions to defined contribution pension plans	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 1,625 2,885 3,440 210 551 205 337 610 233 24 12 12 2,196 4,058 3,890	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 1,625 2,885 3,440 210 551 205 337 610 233 24 12 12 2,196 4,058 3,890
		3,890

Their emoluments were within the following bands:

	Number of employees	Number of employees
	Year ended 31 December
	2006	2007	2008
HK$Nil to HK$1,000,000	1	—	—
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	—

— 63 —

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

Year ended 31 December
2006
2007
2008
HK$’000
HK$’000
HK$’000
—
(620)
—
(1,639)
(5,740)
(9,010)
—
(43)
1,282
(58)
—
(22,917)
—
2,631
—
(1,697)
(3,772)
(30,645)
(31,455)
6,522
53,982
—
—
26,333
—
58,489
—
(31,455)
65,011
80,315
(33,152)
61,239
49,670

No provision for Hong Kong profits tax has been made for the Relevant Periods 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%, 17.5% and 16.5% for each of the years ended 31 December 2006, 2007 and 2008 respectively.

Enterprise income tax arising from other regions of the PRC is calculated at 33%, 33% and 25% of the estimated assessable profits for each of the years ended 31 December 2006, 2007 and 2008 respectively. 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.

— 64 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The income tax (expense) credit for the Relevant Periods can be reconciled to the profit before income tax per the consolidated income statements as follows:

Profit 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

Year ended 31 December
2006
2007
2008
HK$’000
HK$’000
HK$’000
78,021
160,096
634,678
(25,747)
(52,832)
(158,670)
(1,062)
34,171
82,749
(8,488)
(42,734)
(59,998)
2,362
74,127
161,359
(1,331)
(16,541)
—
—
—
2,119
—
58,489
—
—
1,968
27,615
—
4,658
(8,102)
1,114
(67)
2,598
(33,152)
61,239
49,670

14. Dividends

The Directors do not recommend payment of any dividend for the Relevant Periods.

— 65 —

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 attributable to ordinary equity holders of the Company and the following data:

Profit for the purposes of basic earnings 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 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

— 66 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. Property, Plant and Equipment

Hotel properties and leasehold improvements Office building and leasehold improvements Furniture, fixtures and equipment HK$’000 HK$’000 HK$’000 Cost At 1 January 2006 — — 537 Additions — — 201 Acquired through acquisition of subsidiaries — — 76 Exchange differences — — 14 At 31 December 2006 and at 1 January 2007 — — 828 Additions — — 33,421 Transfer from properties under development_(Note 19)_ 913,410 42,134 — Acquired through acquisition of subsidiaries — — 619 Exchange differences 66,013 1,342 1,091 At 31 December 2007 and at 1 January 2008 979,423 43,476 35,959 Additions 23,932 4,564 19,383 Disposals — — (13) Exchange differences 56,892 2,510 2,518 At 31 December 2008 1,060,247 50,550 57,847 Accumulated depreciation At 1 January 2006 — — 275 Depreciation for the year — — 111 Exchange differences — — 8 At 31 December 2006 and at 1 January 2007 — — 394 Depreciation for the year 36,139 305 6,477 Exchange differences 1,078 9 228 At 31 December 2007 and at 1 January 2008 37,217 314 7,099 Depreciation for the year 59,815 2,147 14,689 Disposals — — (7) Exchange differences 2,736 39 544 At 31 December 2008 99,768 2,500 22,325 Net book value At 31 December 2006 — — 434 At 31 December 2007 942,206 43,162 28,860 At 31 December 2008 960,479 48,050 35,522	Motor vehicles HK$’000 — 1,547 — — 1,547 1,164 — 1,250 132 4,093 1,315 — 192 5,600 — 258 — 258 900 76 1,234 1,341 — 89 2,664 1,289 2,859 2,936	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
		275 369 8
		652 43,821 1,391
		45,864 77,992 (7) 3,408
		127,257

		1,723

		1,017,087

		1,046,987

— 67 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. Prepaid Lease Payments

Cost
At beginning of year
Acquired through acquisition of subsidiaries
Additions
Recognised as cost of properties sold
Exchange differences
At end of year
Accumulated amortisation
At beginning of year
Amortisation for the year
— Capitalised as properties held for/under
development
— Charged to consolidated income statement
Eliminated upon sale of properties
Exchange differences
At end of year
Net book value
At end of year
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
2008
HK$’000
HK$’000
HK$’000
3,103
182
681,950
—
632,987
—
—
—
637,936
(2,955)
(191)
(94,269)
34
48,972
44,754
182
681,950
1,270,371
188
14
12,951
—
6,441
8,161
3
6,323
20,770
(179)
(17)
(3,774)
2
190
995
14
12,951
39,103
168
668,999
1,231,268
165
223,808
736,550
3
445,191
494,718
168
668,999
1,231,268
168
—
621,005
—
668,999
610,263
168
668,999
1,231,268

— 68 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

18. Investment Properties

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

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 _Less:_Assets classified as held for sale(Note 30)_ Representing: Properties held for development Properties under development	As at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 57,088 125,943 151,225 631,416 1,313,200 1,400,227 5,967 16,443 101,711 4,474 73,753 179,466 698,945 1,529,339 1,832,629 — — (71,151) 698,945 1,529,339 1,761,478 — — (712,343) 698,945 1,529,339 1,049,135 698,945 1,529,339 962,867 — — 86,268 698,945 1,529,339 1,049,135

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 and HK$88,840,000 as at 31 December 2006, 2007 and 2008 respectively has not been obtained at the balance sheet dates. The holders of the Notes have the right to redeem part of the Notes if this land use right certificate cannot be obtained on or before 31 March 2009, as disclosed in note 33 and Section (III).

— 69 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

At beginning of year 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 20. Goodwill	As at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 — 698,945 1,529,339 — 6,441 8,161 4 18 6 — 75,620 82,958 1,911 259,815 124,936 690,196 1,915,138 — — (590,417) — — (955,544) — — — (71,151) — — (712,343) 6,834 119,323 87,229 698,945 1,529,339 1,049,135	As at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 — 698,945 1,529,339 — 6,441 8,161 4 18 6 — 75,620 82,958 1,911 259,815 124,936 690,196 1,915,138 — — (590,417) — — (955,544) — — — (71,151) — — (712,343) 6,834 119,323 87,229 698,945 1,529,339 1,049,135
		1,049,135

Cost At beginning of year Reclassification upon associate becoming a subsidiary_(Note 21)_ Acquired through acquisition of subsidiaries Exchange differences At end of year Accumulated impairment loss At beginning of year Impairment loss recognised during the year At end of year Net book value At end of year	As at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 — 49,655 118,088 — 3,692 — 49,655 64,741 — — — 16,739 49,655 118,088 134,827 — — — — — 66,511 — — 66,511 49,655 118,088 68,316	As at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 — 49,655 118,088 — 3,692 — 49,655 64,741 — — — 16,739 49,655 118,088 134,827 — — — — — 66,511 — — 66,511 49,655 118,088 68,316
		134,827
		— 66,511
		66,511
		68,316

— 70 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

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 which was completed 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. In view of the imminent 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.

— 71 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Impairment test for goodwill

The Group operates in two CGUs which are 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.

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%

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.

— 72 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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)) Notes:	As at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 151,177 166,135 — — 4,317 — 3,692 3,692 — 334 2,636 — — (3,692) — — (173,088) — 155,203 — —	As at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 151,177 166,135 — — 4,317 — 3,692 3,692 — 334 2,636 — — (3,692) — — (173,088) — 155,203 — —
		—

(a) On 16 December 2005, Nicco Limited, an indirect wholly-owned subsidiary of the Company, acquired 49% interest in 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 whollyowned subsidiary of the Company.

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

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

	155,175 (3,998)
	151,177

	Year ended 31 December 2006 HK$’000 — (228)
	(228) —
	(228)

	(112)

— 73 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

22. Deposits Paid 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 connection with demolition and resettlement cost for property development purpose.

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
Place and				indirectly held
date of	Registered			by the Company
establishment	capital	Paid-up capital		(Note)		Principal activity
			2006	2007	2008
PRC, 31 March 2003	US$50,000,000	2006 and 2007:	51%	100%	100%	Property development
		US$12,000,000;				in the PRC
		2008:
		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.

— 74 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

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

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

	Period from
	13 October
	2006
	(date of
	acquisition)
	to 31	Year ended
	December	31 December
	2006	2007		2008
	HK$’000	HK$’000	HK$’000
	Revenue —	—		86
	Net expenses —	—		(4,275)
	Loss before income tax —	—		(4,189)
	Income tax —	—		—
	Loss after income tax —	—		(4,189)

24.	Properties Held for Sale
	As at 31 December
	2006	2007		2008
	HK$’000	HK$’000	HK$’000
	Completed properties held for sale 676	603,427	573,808

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

— 75 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 2008 HK$’000 HK$’000 HK$’000 — 942,206 960,479 — 43,162 48,050 475,248 492,325 401,543 — 603,427 573,808 475,248 2,081,120 1,983,880 676 — —	As at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 — 942,206 960,479 — 43,162 48,050 475,248 492,325 401,543 — 603,427 573,808 475,248 2,081,120 1,983,880 676 — —
		1,983,880

		—

(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, and by DTZ Debenham Tie Leung Limited and CB Richard Ellis, Chartered Surveyors, as at 31 December 2007.
(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.
(d) Gross rental income from investment properties amounted to HK$14,953,000, HK$18,547,000 and HK$19,345,000 respectively during the Relevant Periods.
(e) Gross rental income from properties held for sale amounted to HK$1,915,000 and HK$32,487,000 respectively during the years ended 31 December 2007 and 2008.

26. Inventories

Food and beverages Hotel consumable goods and supplies	As at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 — 2,439 2,513 — 29,351 17,029 — 31,790 19,542	As at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 — 2,439 2,513 — 29,351 17,029 — 31,790 19,542
		19,542

— 76 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 (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 2006 2007 2008 HK$’000 HK$’000 HK$’000 1,601 3,988 4,191 1,360 1,892 1,000 2,769 1,154 122 961 603 575 6,691 7,637 5,888 8,487 9,192 — 7,963 — — 4,766 14,187 28,012 27,907 31,016 33,900 (19,944) (31,016) (33,900) 7,963 — —

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 at 31 December 2008. The maximum balance of these amounts due from related companies during the years ended 31 December 2006, 2007 and 2008 amounted to HK$136,072,000, HK$49,242,000 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 follow-up enquires on overdue accounts. Credit evaluations are performed on all customers requiring credit over a certain amount.

(b) The loan receivable is unsecured, charges interest at a rate of 6.58% per annum and was fully repaid in January 2008.
(c) 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 2006 HK$’000 862 2,769 961 4,592	at 31 December 2007 HK$’000 1,535 917 603 3,055	2008 HK$’000 466 9 575
			1,050

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.

— 77 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

The Group did not make any impairment loss on trade and other receivables during the Relevant Periods.

28. Restricted and Pledged Deposits

As at 31 December 2007 and 2008, 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 and HK$67,737,000 respectively, have been charged in favour of the security trustees acting for the convertible noteholders and two financial institutions.

29. Cash and Cash Equivalents

Short-term bank deposits Cash at bank and in hand _Less:_Restricted and pledged deposits	As at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 23,604 346,727 46,311 24,389 75,322 75,146 47,993 422,049 121,457 — (358,711) (67,737) 47,993 63,338 53,720

30. Assets and Liabilities of Disposal Group Held for Sale

The assets and liabilities attributable to the Tianhe Project, which is determined to be disposed of as at 31 December 2008, have been included in the consolidated balance sheet as assets classified as held for sale and liabilities associated with assets classified as held for sale respectively. The proposed disposal, the details of which are disclosed in Section (III), 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 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(Note 35)_ 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

— 78 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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
(c)
Accruals and other payables
Amounts due within one year included
in current liabilities
Amount due after one year

As at 31 December
2006
2007
2008
HK$’000
HK$’000
HK$’000
—
8,462
35,678
3
3,467
2,761
40
1,583
986
4,379
4,743
5,761
4,422
18,255
45,186
—
25,649
3,888
—
128,944
62,688
63,573
63,573
63,573
—
8,196
22,140
20,190
60,860
85,859
88,185
305,477
283,334
(24,612)
(241,904)
(219,761)
63,573
63,573
63,573

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.

(c) The amount comprises receipts in advance, rental and other deposits from customers and tenants. The balance includes amounts due to related companies, which are controlled by Mr. Yu Pan, controlling shareholder of the Company, of HK$262,000 and HK$1,737,000 as at 31 December 2007 and 2008 respectively.

— 79 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 2006 2007 HK$’000 HK$’000 100,318 963,129 — 220,000 — — 100,318 1,183,129	2008 HK$’000 1,070,441 220,000 32,267 1,322,708

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; and (iv) investment properties with an aggregate carrying amount of approximately HK$475,248,000, HK$2,750,119,000 and HK$2,522,345,000 as at 31 December 2006, 2007 and 2008 respectively. The bank loans as at 31 December 2006, 2007 and 2008 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, respectively. The amounts will be fully repaid in 2013, 2015 and 2018.
(b) As at 31 December 2007 and 2008, the balance of the Term Loan advanced from two financial institutions is secured by a time deposit of approximately HK$21,183,000 and HK$21,426,000, 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 repayable on 29 January 2009. The Term Loan as at 31 December 2007 and 2008 carries variable interest at the rate of HIBOR plus 8.25% and HIBOR plus 10.25% per annum, respectively.

The Term Loan has become overdue and remains outstanding at the date of this report, but the lenders, having made certain standstill arrangements, agreed to refrain from taking legal actions against the Company and its subsidiaries subject to the completion of the disposal of 80% interest in Tianhe Project as stated in note 3(c).

At the balance sheet dates, 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	2008 HK$’000 280,228 27,961 83,825 930,694
		1,322,708 (280,228)
		1,042,480

— 80 —

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. The Notes bear a coupon of 4% per annum payable semi-annually in arrear, maturity terms of 6 years and an annual yieldto-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 each note 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$175,500,000 and HK$1,386,800,000 respectively.

Each 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 balance sheet date 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 noninterest bearing, non-redeemable and convertible into ordinary shares of the Company subject to the same initial conversion price and reset mechanism as the Notes.

— 81 —

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:

Nominal value HK$’000 60,000 — (60,000) — — 1,562,380 — — — (46,871) — 1,515,509 — — (15,624) — 1,499,885		Carrying amount	Carrying amount
Nominal value HK$’000 60,000 — (60,000) — — 1,562,380 — — — (46,871) — 1,515,509 — — (15,624) — 1,499,885	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	Financial derivative components HK$’000 — — — — — 1,386,835 — — — (37,474) (267,789) 1,081,572 — — (11,486) (976,924) 93,162 21,395 26,855 11,507 (59,757) — 21,395 1,081,572 93,162	Total HK$’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

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 to the liability component.

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

— 82 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 31 December 2007 and 2008, the Group’s obligations under convertible notes to the noteholders are secured by (i) restricted and pledged deposits of approximately HK$337,528,000 and HK$46,311,000 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).

Under the Trust Deed dated 4 May 2007 and a supplemental deed dated 22 January 2008 followed by a special committee meeting of the noteholders, the noteholders have an automatic right to redeem notes in principal amount of US$75,000,000 (approximately HK$585,893,000) if the project company of the Zhoutouzui Project cannot obtain the land use right certificate for the project on or before 31 March 2009. By a consent from the committee members of noteholders on 31 March 2009, the noteholders agreed to extend the timeline to 31 May 2009. 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 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.

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:

Carrying amount at 1 January Acquired through acquisition of a subsidiary Advance from minority shareholder of a subsidiary Contributions from minority shareholder of a subsidiary Imputed interest expense Exchange differences Others Carrying amount at 31 December	As at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 — 244,936 — 268,609 (250,956) — — — 271,321 (25,425) — — — 6,020 — — — 2,353 1,752 — — 244,936 — 273,674

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, is unsecured, interest-free and has no fixed terms of repayment but is agreed not to be repayable within the eighteen months from the balance sheet date.

— 83 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

35. Deferred Tax Liabilities

Movements of the deferred tax liabilities during the Relevant Periods are as follows:

At 1 January 2006 Conversion of convertible note Acquired through acquisition of subsidiaries (Credit) charges to consolidated income statement Exchange differences At 31 December 2006 and at 1 January 2007 Reclassification upon associate becoming a subsidiary Credit to consolidated income statement Acquired through acquisition of subsidiaries Exchange differences At 31 December 2007 and at 1 January 2008 Credit to consolidated income statement Credit to property revaluation reserve Reclassified as liabilities associated with assets held for sale_(Note 30)_ Exchange differences At 31 December 2008	Convertible notes HK$’000 860 (756) — (104) — — — — — — — — — — — —	Revaluation ofproperties Prepaid lease payments Investment properties Properties held for development HK$’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	Total HK$’000 82,573 (756) 99,140 31,455 3,410
		Prepaid lease payments HK$’000 — — — — — — — (1,179) 128,618 9,260 136,699 (24,166) — — 7,673 120,206
			215,822 4,317 (65,011) 266,682 31,751
			453,561 (80,315) (17,788) (107,787) 26,003
			273,674

As at 31 December 2006, 2007 and 2008, the Group have estimated unutilised tax losses of approximately HK$32,903,000, HK$70,326,000 and HK$62,127,000 respectively for offset 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.

— 84 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

36. Share Capital

(a) Authorised and issued share capital

Number of shares Convertible preference share of HK$0.01 each Total ‘000 ‘000 — 30,000,000 1,000,000 — 1,000,000 30,000,000 145,537 786,256 — 181,818 — 267,324 — 10 145,537 1,235,408 190,447 190,447 (335,984) — — 34,720 — 5,272 — 1,465,847 — 11,573 — 7 — 260 — 1,477,687		Nominal value
Convertible preference share of HK$0.01 each ‘000 — 1,000,000 1,000,000 145,537 — — — 145,537 190,447 (335,984) — — — — — — —	Ordinary share capital HK$’000 300,000 (10,000) 290,000 6,407 1,818 2,674 — 10,899 — 3,360 347 53 14,659 116 — 2 14,777	Convertible preference share capital HK$’000 — 10,000 10,000 1,455 — — — 1,455 1,905 (3,360) — — — — — — —	Total HK$’000 300,000 —
			300,000

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

— 85 —

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 Project1 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.
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 it was completed on 19 July 2007. The details of the acquisitions have been disclosed in notes 1 and 40. 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.

— 86 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(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$1.00 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. Convertible notes in the principal value amounted to US$194,000,000 and US$192,000,000 was outstanding at 31 December 2007 and 2008 respectively.
(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.

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.

(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.

— 87 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The gearing ratios as at the balance sheet dates 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 2008 HK$’000 HK$’000 HK$’000 430,222 2,540,220 2,059,748 (47,993) (63,338) (53,720) 382,229 2,476,882 2,006,028 766,865 1,686,682 2,520,695 1,149,094 4,163,564 4,526,723 33.3% 59.5% 44.3%

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 reserve

The amount represents the value of the unexercised equity component of the 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.

— 88 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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).

38. Principal Subsidiaries of the Company

Details of the Company’s principal subsidiaries as at the balance sheet dates 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
			2006	2007	2008
Directly held by the Company
Chain Up Limited	BVI	US$1	100%	100%	100%	Investment holding
Fine Luck	BVI	US$1	100%	100%	100%	Investment holding
Skyfame Management	Hong Kong	HK$1	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

— 89 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

		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
			2006	2007	2008
Indirectly held by the Company
Great Elegant	BVI	US$100	100%	100%	100%	Investment holding
Investment Limited
廣州市城建天譽房地產開發	PRC	US$45,000,000	—	100%	100%	Property development
有限公司(Guangzhou						and hotel operation
Cheng Jian Tianyu Real						in the PRC
Estate Development
Company Limited)
(“CJTY”)
廣州市創譽房地產開發	PRC	US$6,000,000	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%	Property development
有限公司(Guangzhou						in the PRC
Huan Cheng Real Estate
Development
Company Limited)
(“Guangzhou Huan Cheng”)
廣州譽浚咨詢服務	PRC	HK$5,000,000	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	100%	100%	100%	Investment holding
貴州譽浚房地產開發	PRC	RMB50,000,000	—	—	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%	Investment holding
Nicco Limited	BVI	US$100	100%	100%	100%	Investment holding
Smartford Limited	BVI	US$100	100%	100%	100%	Investment holding
Sky Honest Investments	BVI	US$1	—	100%	100%	Investment holding
Corp. (“Sky Honest”)
Yaubond	BVI	US$18,813,500	—	100%	100%	Investment holding
Yue Tian Development	Hong Kong	HK$72,000	—	100%	100%	Investment holding
Limited (“Yue Tian”)

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.

— 90 —

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 non-executive 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.

— 91 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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.

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:

Date of grant Exercise period Vesting period Exercise price 12 September 2006 13 March 2007 to 31 July 2015 Six months from the date of grant HK$1.31 12 September 2006 13 March 2008 to 31 July 2015 One and a half years from the date of grant HK$1.31 12 September 2006 13 March 2009 to 31 July 2015 Two and a half years from the date of grant HK$1.31 *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 63,850,000 9,800,000 14,900,000 39,150,000 63,850,000	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 15,340,000 15,340,000 15,370,000
					46,050,000

					4,800,000 17,100,000 24,150,000
					46,050,000

During the years ended 31 December 2007 and 2008, no share option was granted under the 2005 Scheme.

The Group recognised HK$3,584,000, HK$12,562,000 and HK$1,478,000 as equity-settled share-based payment expenses for the years ended 31 December 2006, 2007 and 2008, respectively, in relation to share options granted by the Company.

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 35.06% modelling under BSOP Model) Option life (expressed as weighted average life used in the modeling under 1.92 years BSOP Model) Expected dividend yield Nil Risk-free interest rate (based on Exchange Fund Notes) 3.66% to 3.92%

— 92 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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.

40. Notes to the Consolidated Cash Flow Statements

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

Profit before income tax
Adjustments for:
Finance costs
Finance income
Equity-settled share-based
payment expenses
Depreciation on 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 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 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

— 93 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Acquisition of subsidiaries

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 Fair value adjustments — HK$’000 HK$’000 76 — 548,279 141,917 146 — 2,467 — (4,168) — (52,308) (46,832) (282,568) — (268,609) — (56,685) 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

— 94 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 the entire equity interest in and shareholders’ loans of Yue Tian and its wholly-owned 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 assoicate 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.

— 95 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Carrying amount before acquisition 100% equity interest in Westin Project Remaining 49% equity interest in Zhoutouzui Project Remaining 51% equity interest in Tian He North Project Total carrying amount Fair value adjustments — HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 1,869 — — 1,869 — 118,515 — — 118,515 514,472 1,247,013 — 327,143 1,574,156 340,982 — — (173,088) (173,088) — 24,558 — 94 24,652 — 10,190 — 482 10,672 — (93,683) — (327) (94,010) — (31,437) — — (31,437) — — — (52,818) (52,818) (213,864) (647,100) — — (647,100) — (610,022) (268,654) (2,505) (881,181) — — 250,956 — 250,956 — 19,903 (17,698) 98,981 101,186 641,590 385,854 — 255,736 641,590 (641,590) — 66,538 — 66,538 — — — (84,842) (84,842) — 405,757 48,840 269,875 724,472 — 46,530 18,211 — 64,741 — — (67,965) (67,965) 452,287 67,051 201,910 721,248 257,104 — — 123,388 — — 26,855 — — 407,347 — — 654,962 335,705 204,415 1,062,309 335,705 204,415 (610,022) (268,654) (2,505) 452,287 67,051 201,910 629,449 321,251 204,116 25,513 14,454 299 654,962 335,705 204,415 (10,190) — (482) 644,772 335,705 203,933	Carrying amount before acquisition 100% equity interest in Westin Project Remaining 49% equity interest in Zhoutouzui Project Remaining 51% equity interest in Tian He North Project Total carrying amount Fair value adjustments — HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 1,869 — — 1,869 — 118,515 — — 118,515 514,472 1,247,013 — 327,143 1,574,156 340,982 — — (173,088) (173,088) — 24,558 — 94 24,652 — 10,190 — 482 10,672 — (93,683) — (327) (94,010) — (31,437) — — (31,437) — — — (52,818) (52,818) (213,864) (647,100) — — (647,100) — (610,022) (268,654) (2,505) (881,181) — — 250,956 — 250,956 — 19,903 (17,698) 98,981 101,186 641,590 385,854 — 255,736 641,590 (641,590) — 66,538 — 66,538 — — — (84,842) (84,842) — 405,757 48,840 269,875 724,472 — 46,530 18,211 — 64,741 — — (67,965) (67,965) 452,287 67,051 201,910 721,248 257,104 — — 123,388 — — 26,855 — — 407,347 — — 654,962 335,705 204,415 1,062,309 335,705 204,415 (610,022) (268,654) (2,505) 452,287 67,051 201,910 629,449 321,251 204,116 25,513 14,454 299 654,962 335,705 204,415 (10,190) — (482) 644,772 335,705 203,933	Carrying amount before acquisition 100% equity interest in Westin Project Remaining 49% equity interest in Zhoutouzui Project Remaining 51% equity interest in Tian He North Project Total carrying amount Fair value adjustments — HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 1,869 — — 1,869 — 118,515 — — 118,515 514,472 1,247,013 — 327,143 1,574,156 340,982 — — (173,088) (173,088) — 24,558 — 94 24,652 — 10,190 — 482 10,672 — (93,683) — (327) (94,010) — (31,437) — — (31,437) — — — (52,818) (52,818) (213,864) (647,100) — — (647,100) — (610,022) (268,654) (2,505) (881,181) — — 250,956 — 250,956 — 19,903 (17,698) 98,981 101,186 641,590 385,854 — 255,736 641,590 (641,590) — 66,538 — 66,538 — — — (84,842) (84,842) — 405,757 48,840 269,875 724,472 — 46,530 18,211 — 64,741 — — (67,965) (67,965) 452,287 67,051 201,910 721,248 257,104 — — 123,388 — — 26,855 — — 407,347 — — 654,962 335,705 204,415 1,062,309 335,705 204,415 (610,022) (268,654) (2,505) 452,287 67,051 201,910 629,449 321,251 204,116 25,513 14,454 299 654,962 335,705 204,415 (10,190) — (482) 644,772 335,705 203,933	2007 Fair value HK$’000 1,869 632,987 1,915,138 (173,088) 24,652 10,672 (94,010) (31,437) (266,682) (647,100) (881,181) 250,956
100% equity interest in Westin Project HK$’000 1,869 118,515 1,247,013 — 24,558 10,190 (93,683) (31,437) — (647,100) (610,022) — 19,903 385,854 — — 405,757 46,530 — 452,287 257,104 123,388 26,855 407,347 654,962 1,062,309 (610,022) 452,287 629,449 25,513 654,962 (10,190) 644,772	Remaining 49% equity interest in Zhoutouzui Project HK$’000 — — — — — — — — — — (268,654) 250,956 (17,698) — 66,538 — 48,840 18,211 — 67,051 — — — — 335,705 335,705 (268,654) 67,051 321,251 14,454 335,705 — 335,705	Remaining 51% equity interest in Tian He North Project HK$’000 — — 327,143 (173,088) 94 482 (327) — (52,818) — (2,505) — 98,981 255,736 — (84,842) 269,875 — (67,965) 201,910 — — — — 204,415 204,415 (2,505) 201,910 204,116 299 204,415 (482) 203,933
			742,776 — 66,538 (84,842)
			724,472 64,741 (67,965)
			721,248

			257,104 123,388 26,855
			407,347 1,195,082
			1,602,429 (881,181)
			721,248

			1,154,816 40,266
			1,195,082 (10,672)
			1,184,410

— 96 —

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.

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 post-retirement benefits other than contributions described above.

— 97 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

42. Operating Lease Commitments

Lessee

At the balance sheet dates, the Group had commitments for future minimum lease payments under non-cancellable 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 at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 3,375 5,336 2,078 12,358 10,532 45 15,733 15,868 2,123	As at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 3,375 5,336 2,078 12,358 10,532 45 15,733 15,868 2,123
		2,123

Lessor

At the balance sheet dates, the Group had commitments for future minimum rental receivable under non-cancellable 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 at 31 December 2006 2007 HK$’000 HK$’000 16,960 30,759 39,048 87,788 7,261 11,705 63,269 130,252	2008 HK$’000 53,706 135,447 4,099
		193,252

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 at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 833,365 915,973 1,167,158 — 286,296 — 833,365 1,202,269 1,167,158	As at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 833,365 915,973 1,167,158 — 286,296 — 833,365 1,202,269 1,167,158
		1,167,158

— 98 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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, the Group had no material contingent liabilities.

45. Pledge of Assets

At the balance sheet dates, the carrying amounts of the Group’s assets included in the following categories in the consolidated balance sheets were pledged to secure credit facilities granted to the Group as disclosed in notes 32 and 33:

Property, plant and equipment Prepaid lease payments Investment properties Properties held for sale Restricted and pledged deposits	As at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 — 985,368 1,008,529 — 668,999 610,263 475,248 492,325 401,543 — 603,427 502,010 — 358,711 67,737 475,248 3,108,830 2,590,082	As at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 — 985,368 1,008,529 — 668,999 610,263 475,248 492,325 401,543 — 603,427 502,010 — 358,711 67,737 475,248 3,108,830 2,590,082
		2,590,082

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

Related party		Year	ended 31 December	ended 31 December
relationship	Type of transaction	2006	2007	2008
		HK$’000	HK$’000	HK$’000
Mr. Yu Pan,	Waiver of amount	22,136	12,853	—
controlling	due from a
shareholder of the	director arising
Company	from business
	combination under
	common control
Grand Cosmos,	(a) Fair value of	—	407,346	—
immediate	consideration paid
holding company	for acquisition
of the Company	of 29% equity
	interest in a
	subsidiary
	(b) Fair value of	—	301,662	—
	consideration paid
	for acquisition
	of 100% equity
	interest in a
	subsidiary

— 99 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Related party		Year	ended 31 December	ended 31 December
relationship	Type of transaction	2006	2007	2008
		HK$’000	HK$’000	HK$’000
Companies	(a) Guarantee given	61,614	32,714	—
beneficially	to bank in respect
owned by	of credit facilities
Mr. Yu Pan	granted to related
	companies
	(b) Entertainment	220	834	1,077
	expenses
Companies	(a) Rental income	—	1,588	8,784
controlled by Mr.	from office
Yu Pan	leasing
	(b) Revenue from	—	246	994
	hotel operation
Employees and	Equity-settled share-	2,198	8,794	—
consultants	based payment
of companies	expenses
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	4,162	—	—
subsidiary,	project development
which is an	project management
assoicate of the
Group (Before
acquisition of a
subsidiary)
Other shareholders	(a) Fair value of	—	977,515	—
of subsidiaries	consideration paid
	for acquisition of
	equity interest in
	subsidiaries
	(b) Imputed interest	—	6,020	—
	on loan from
	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.

— 100 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(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.

(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	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 5,418 14,938 14,449 60 141 187 786 2,382 806 6,264 17,461 15,442	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 5,418 14,938 14,449 60 141 187 786 2,382 806 6,264 17,461 15,442
		15,442

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 Company has not issued and does not hold any financial instruments for trading purposes at the balance sheet dates.

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.

— 101 —

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 balance sheet dates are as follows:

	As at 31 December	As at 31 December
	2006	2007	2008
	HK$’000	HK$’000	HK$’000
Restricted and pledged deposits
— US$	—	337,528	46,311
Cash and cash equivalents
— US$	—	24	7
Financial derivative liabilities
— US$	—	1,081,572	93,162
Convertible notes
— US$	—	211,946	306,337

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 after income tax (due to changes in the carrying amounts of monetary assets and liabilities) in the next accounting period:

If United States dollar weakens against Renminbi If United States dollar strengthens against Renminbi If Hong Kong dollar weakens against Renminbi If Hong Kong dollar strengthens against Renminbi	2006 Change in exchange rate (Decrease) increase in profit after income tax % HK$’000 — — — — 3% (1,314) 3% 1,314	Year ended 31 December 2007 Change in exchange rate Increase (decrease) in profit after income tax % HK$’000 3% 26,873 3% (26,873) 3% 5,302 3% (5,302)	2008
			Change in exchange rate Increase (decrease) in profit after income tax % HK$’000 5% 17,710 5% (17,710) 5% 9,868 5% (9,868)

— 102 —

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 balance sheet dates based upon which the Company’s management evaluates the interest rate risk:

2006	As at 31 December 2007 Effective interest rate Amount (% per annum) HK$’000 6.58% 9,192 3.40% to 4.01% 337,528 2.75% to 3.05% 9,199 2.15% 21,183 0.00% to 0.72% 52,356 — — — — 60.58% 211,946 6.5% to 8.22% 963,129 12.75% 220,000	2008
Effective interest rate (% per annum) 6.58% — 3.10% to 4.05% — 0.00% to 0.72% 6.00% — — 4.80% to 7.24% —	Effective interest rate (% per annum) 6.58% 3.40% to 4.01% 2.75% to 3.05% 2.15% 0.00% to 0.72% — — 60.58% 6.5% to 8.22% 12.75%	Effective interest rate (% per annum) — 1.21% to 2.95% — 0.01% 0.00% to 0.36% — 20.00% 60.58% 6.73% to 7.44% 12.69%	Amount HK$’000 — 46,311 — 21,426 52,253

			273,968 32,267 306,337 1,070,441 220,000

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.

— 103 —

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 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 (decrease) in basis points Increase (decrease) in profit after income tax HK$’000 100 364 (100) (364) — — — —		Year ended 31 December 2007 Increase (decrease) in basis points Increase (decrease) in profit after income tax HK$’000 100 3,482 (100) (3,482) 100 (9,761) (100) 9,761		2008
						Increase (decrease) in basis points Increase (decrease) in profit after income tax HK$’000 100 737 (100) (737) 500 (64,521) (500) 64,521

(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 balance sheet dates assuming that all other variables remain constants:

Volatility of marketing price of the underlying equity Increase Decrease	2006 Increase (decrease) in volatility Increase (decrease) in profit after income tax % HK$’000 — — — —	Year ended 31 December 2007 Increase (decrease) in volatility (Decrease) increase in profit after income tax % HK$’000 5% (30,868) (5%) 15,963	2008
			Increase (decrease) in volatility (Decrease) increase in profit after income tax % HK$’000 10% (41,265) (10%) 29,974

— 104 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(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 balance sheet date, 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 balance sheets.

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 balance sheet dates, 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 balance sheet dates, 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 2007 Trade and other payables Bank and other borrowings Convertible notes 2008 Trade and other payables Bank and other borrowings Convertible notes Loan from minority shareholder of a subsidiary	On demand HK$’000 9,314 — — 9,314 47,490 — — 47,490 75,653 — — — 75,653	Less than 3 months HK$’000 — 2,081 — 2,081 16,084 21,873 — 37,957 65,788 244,319 — — 310,107	3 to 12 months HK$’000 15,298 11,339 — 26,637 178,330 307,712 60,620 546,662 82,134 110,805 59,995 — 252,934	1 to 2 years HK$’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	2 to 5 years HK$’000 — 66,724 — 66,724 — 265,321 2,311,737 2,577,058 64,844 277,513 1,145,995 — 1,488,352	Over 5 years HK$’000 — 18,069 — 18,069 — 1,004,813 — 1,004,813 — 1,001,044 — — 1,001,044	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

— 105 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

48. Financial Instruments – Carrying Amount and 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 at the balance sheet dates:

Financial assets Trade and other receivables Financial asset at fair value through profit or loss Restricted and pledged deposits Cash and cash equivalents Financial liabilities Trade and other payables Bank and other borrowings Convertible notes Financial derivative liabilities Loan from minority shareholder of a subsidiary		2006 Carrying amount Fair value HK$’000 HK$’000 19,944 (Note (a)) 630 630 — (Note (a)) 47,993 (Note (a)) 88,185 (Note (a)) 100,318 (Note (a)) — — 21,395 21,395 244,936 (Note (a))		As at 31 December 2007 Carrying amount Fair value HK$’000 HK$’000 31,016 (Note (a)) — — 358,711 (Note (a)) 63,338 (Note (a)) 305,477 (Note (a)) 1,183,129 (Note (a)) 211,946 211,946 1,081,572 1,081,572 — —		2008	2008
						Carrying amount Fair value HK$’000 HK$’000 33,900 (Note (a)) — — 67,737 (Note (a)) 53,720 (Note (a)) 283,334 (Note (a)) 1,322,708 (Note (a)) 306,337 482,095 93,162 93,162 273,968 (Note (a))

							(Note (a)) (Note (a)) 482,095 93,162 (Note (a))

Notes:

(a) 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 balance sheet dates.
(b) The table below shows the change in fair value of financial liabilities at fair value through profit or loss (including derivatives):

	As at 31 December	As at 31 December
	2006	2007	2008
	HK$’000	HK$’000	HK$’000
Change in fair value during the year	—	267,789	976,924
Cumulative change in fair value	—	267,789	1,244,713

— 106 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(III) SUBSEQUENT EVENTS

Disposal of 80% equity interest in the Tianhe Project

On 20 May 2009, a formal sale and purchase agreement was entered into between the Company as the guarantor, Sky Honest and Nicco Limited, both being subsidiaries of the Company, as the vendors, and Happy Genius Management Limited (“Happy Genius”), a subsidiary of China Aoyuan Property Group Limited, and General Fortune Investment Limited, two independent third parties, as the purchasers for the disposal of an aggregate of 80% equity interest in Yaubond, a subsidiary of Sky Honest and Nicco Limited holding 100% indirect interest in the Tianhe Project. The completion of the transaction is subject to, amongst other things, the approval of shareholders of the Company in a general meeting. It is expected that on completion, out of the total consideration of the sum of approximately HK$352,098,000 and RMB58,000,000 (equivalent to a total amount of approximately HK$417,975,000), an amount of approximately HK$340,740,000 will be applied as a partial settlement of approximately HK$184,000,000 of the overdue Term Loan and an amount of approximately HK$156,740,000 will be kept in an escrow account subject to further negotiation with the noteholders on the restructuring of the Notes; an amount of RMB5,000,000 (approximately HK$5,679,000) will be paid into a designated account of a subsidiary of Yaubond for payment of expenses and costs relating to relocation of the fire station; and the remaining proceed of RMB63,000,000 (approximately HK$71,556,000) will be contributed as the working capital of the Group. The Group will retain a minority stake of 20% equity interest in the Tianhe Project for which the Group holds put options to sell to Happy Genius and Happy Genius is granted the call option to acquire the Group’s remaining interests in Yaubond at either of a pre-determined amount plus capital injected into Yaubond by the Group since the completion date, or the market value of the remaining interest.

— 107 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Sales and marketing expenses Administrative expenses Impairment loss on goodwill Discount on business combinations Share of (loss) profit of an associate, net of tax Finance income (Loss) profit before income tax Income tax credit (Loss) profit for the year	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 — — (217) — (65) (4,129) — — (4,355) — 67,965 — (112) 8,251 — — 3 8 (112) 76,154 (8,693) — — 26,333 (112) 76,154 17,640

— 108 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) The assets and liabilities of the Yaubond Group included in the Financial Information as at 31 December 2006, 2007 and 2008 are as follows:

Non-current assets Properties held for development Goodwill Interest in an assoicate Current assets Trade and other receivables Cash and cash equivalents Assets classified as held for sale Current liabilities Trade and other payables Amounts due to holding companies Liabilities associated with assets classified as held for sale Net current (liabilities) assets Total assets less current liabilities Non-current liabilities Deferred tax liabilities Net assets	As at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 — 716,768 — — 3,692 — 155,203 — — 155,203 720,460 — — 157 — — 1,425 — — 1,582 — — — 713,399 — 1,582 713,399 — 4,766 — 154,819 8,377 24,902 154,819 13,143 24,902 — — 108,884 154,819 13,143 133,786 (154,819) (11,561) 579,613 384 708,899 579,613 — 143,600 — 384 565,299 579,613	As at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 — 716,768 — — 3,692 — 155,203 — — 155,203 720,460 — — 157 — — 1,425 — — 1,582 — — — 713,399 — 1,582 713,399 — 4,766 — 154,819 8,377 24,902 154,819 13,143 24,902 — — 108,884 154,819 13,143 133,786 (154,819) (11,561) 579,613 384 708,899 579,613 — 143,600 — 384 565,299 579,613
		—
		— —
		— 713,399
		713,399
		— 24,902
		24,902 108,884
		133,786
		579,613
		579,613 —
		579,613

— 109 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) The cash flows of the Yaubond Group included in the Financial Information during the Relevant Periods are as follows:

Operating activities
(Loss) profit before income tax
Adjustments for:
Finance income
Share of loss (profit) of
associate, net of tax
Discount on business
combinations
Impairment loss on goodwill
Increase in trade and other
receivables
Increase (decrease) in trade and
other payables
Net cash from (used in) operating
activities
Investing activities
Interest received
Acquisition of subsidiaries
Additions to properties held for
development
Repayment of loan to an assoicate
Capital contributions to an
associate
Net cash from (used in) investing
activities

Year ended 31 December
2006
2007
2008
HK$’000
HK$’000
HK$’000
(112)
76,154
(8,693)
—
(3)
(8)
112
(8,251)
—
—
(67,965)
—
—
—
4,355
—
(65)
(4,346)
—
(56)
(24)
—
4,899
(4,230)
—
4,778
(8,600)
—
3
8
—
(204,654)
—
—
(19,957)
(25,338)
14,652
—
—
—
(2,303)
—
14,652
(226,911)
(25,330)

— 110 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financing activities
(Repayment to) advance from
holding companies
Net cash (used in) from
financing activities
Net increase (decrease) in cash
and cash equivalents
Effect of foreign exchange rate
changes
Cash and cash equivalents at
beginning of year
Less: Balance reclassified as
assets held for sale
Cash and cash equivalents at end
of year
— Cash at bank and in hand

Year ended 31 December
2006
2007
2008
HK$’000
HK$’000
HK$’000
(14,652)
223,477
33,220
(14,652)
223,477
33,220
—
1,344
(710)
—
81
151
—
—
1,425
—
1,425
866
—
—
(866)
—
1,425
—

Note: Major Non-cash Transaction

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.

— 111 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Early redemption of convertible notes

Pursuant to condition 8E(ii) of the Trust Deed entered into by the Company and The Hong Kong and Shanghai Banking Corporation Limited as the trustee for the subscribers of the Notes issued on 4 May 2007, as amended by a supplemental trust deed dated 22 January 2008 and further resolved by the noteholders in a special committee meeting held on 10 June 2008, the noteholders have an automatic right to redeem outstanding notes of principal value of US$75,000,000 if the Group cannot obtain the land use right certificate for the Zhoutouzui Project on or before 31 March 2009. The timeline was further extended to 31 May 2009 by the noteholders pursuant to a consent letter issued by the committee of the noteholders to the Company on 31 March 2009. 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 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. Should there be an automatic redemption for the principal value of US$75,000,000, the Directors envisage that a feasible debt restructuring plan can be agreed upon with the noteholders which facilitate the redemption being undergone in an orderly manner simultaneously with the Group’s realisations of assets or any other refinancing plans. The Directors expect that the restructuring plan will lead to relaxation of the terms and conditions of the Notes which will include extending the redemption and put option rights. However, no concrete details of the plan have been agreed upon up to the date of this report.

(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 31 December 2008.

Yours faithfully,

BDO Limited

Certified Public Accountants

Hong Kong

LI Yin Fan

Practising Certificate Number P03113

— 112 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. MANAGEMENT DISCUSSION AND ANALYSIS ON THE REMAINING GROUP

FOR THE YEAR ENDED 31 DECEMBER 2006

Business review

During the year ended 31 December 2006, the Remaining Group 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. 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 is contemplating several acquisition plans, which comprises a five-star hotel, namely The Westin Guangzhou, and the annexed grade-A office tower in the Tianhe District of Guangzhou, commercial podium at Tianyu Garden Phase 2 that is a residential building which is adjacent to The Westin Guangzhou, and the remaining 49% interest in Zhoutouzui Project in which the Remaining Group is currently holding 51%. All these acquisitions would enable the Remaining Group to progress itself as a property developer in Guangzhou in 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.

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The acquisition of the 51% interest in Zhoutouzui Project has taken up cash resources of the Remaining Group which, on the other hand, is presented on the Remaining Group’s balance sheet 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 valuation of prepaid lease payments of an acquired subsidiary. The major assets of the Remaining Group are properties held under development in Zhoutouzui Project acquired during the year and goodwill arising from the acquisition of Zhoutouzui 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 in the year.

Bank borrowings and pledge of assets

As at 31 December 2006, 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, entered into an acquisition agreement with an independent third party to purchase an indirect 51% equity interest in the project company of Zhoutouzui Project. A balance consideration from the transaction of 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.

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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 reached HK$126 million, representing an increase of 150% when compared with last year. The changes were resulted from the Remaining Group’s successful completion of a number of acquisitions of development projects during the year and amongst which The Westin Guangzhou, the first five-star hotel operated by the international branded operator, The Westin International in the business district in Guangzhou, and its annexed office building Skyfame Tower (the “Westin Project”), were completed and put into operation in the year.

In 2007, the Remaining Group’s hotel operation contributes a dominant and recurring income to the Remaining Group that generated a total revenue of HK$102 million since its soft opening in May 2007. Taking advantage of the operator’s strong experience, The Westin Guangzhou has been in upward trends, both in room rate and occupancy, since its grand opening in October 2007. In addition, the Remaining Group received rental income of HK$20 million from the leasing of its properties at the commercial podium of Tianyu Garden Phase 2 and Skyfame Tower.

The result for the year showed a profit attributable to equity holders despite of losses from operations. The hotel operation contributed cash ever since its startingoff but its operating result was adversely affected by high hotel pre-opening costs and depreciation and amortisation costs. In addition, 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, and the gain recognised on acquisition of land and property interests with fair values over their acquisition costs.

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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-to-maturity 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. The principal value of the Notes outstanding as at 31 December 2006 was approximately HK$1,516 million (US$194 million) as a result of conversions into new Shares by Noteholders. The financial derivative liabilities embedded in the Notes were revalued at HK$1,082 million whilst the Notes also carried a liability of HK$212 million at 31 December 2007.

In the acquisition of the other 29% interest in the Westin Project and the 100% interest in the commercial podium at Tianyu Garden Phase 2 that were both beneficially owned by Mr. Yu Pan, the Company’s controlling shareholder, convertible preference shares valued totaling HK$709 million were issued to Mr. Yu in consideration which were fully converted into new Shares and hence increased the Company’s equity by HK$721 million.

The acquisition of the Westin Project and Tianyu Garden Phase 2 led to liabilities for outstanding development costs of HK$155 million and long-term commercial loans of HK$963 million.

As at 31 December 2007, the Remaining Group’s total liabilities were mainly consist of the Notes, the financial derivates embedded in the Notes, commercial loans, deferred tax liabilities and development costs payable. The Remaining Group’s gearing ratio at the balance sheet date 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 balance sheet date. The current ratio rose was improved as a result.

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Bank borrowings and pledge of assets

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

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 a loan from a financial institution 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 2 March 2007, the Remaining Group entered into two separate agreements with (i) a subsidiary of Poly (Hong Kong) Investments Limited (“Poly HK”) which was a substantial shareholder of a subsidiary of the Company, and an independent third party, and (ii) Wise Gain Investment Limited, a company wholly-owned by Mr. Yu Pan. Both agreements were for the acquisition of the entire equity interest in and shareholders’ loans of Yue Tian Development Limited and its wholly-owned subsidiary incorporated in the PRC (the “Yue Tian Group”). The total consideration of the two agreements amounted to

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approximately HK$887 million. The activity of the Yue Tian Group is the development of a property, comprising a hotel and office tower in 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 convertible preference shares of the Company to Mr. Yu’s associate at a face value of approximately HK$257 million.

(b) On 24 April 2007, the Remaining 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.

(c) 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.

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 636 staff of which 531 are in its hotel operation and 105 for property development and central management. During the year, certain staff costs relating to development projects were capitalised as property

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development costs whilst the remaining charged to the profit and loss account. The increase in staff costs was led by the Remaining Group’s new hotel operation business and its expansion in the development projects engaged. 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 recorded a total turnover of approximately HK$565 million, representing approximately 4.5 times of that in the year before. The increase in turnover was contributed by revenue from hotel operation of approximately HK$255 million which represents operating result for the first full calendar year since the grand opening of the Westin Hotel Guangzhou in October 2007, and the sales of approximately 9,000 square meters of office spaces in Skyfame Tower, giving rise to sale revenue of approximately HK$257 million.

The operation turned to be profitable in the year as a result of the growing turnover and the operating costs which became stabilised. The segment results of the Remaining Group after deduction of corporate operating expenses was a profit of approximately HK$35 million. The depreciation and amortisation of lease premium amounted to approximately HK$99 million mainly attributable to the hotel operation. 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$173 million. Due to adjustment in property prices in the year led by the PRC central government’s austerity measures, the Remaining Group records revaluation losses of approximately HK$119 million, income tax credit of approximately HK$23 million, and write down of goodwill of approximately HK$62 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 balance sheet. As a result of all of the abovementioned factors, the Remaining Group recorded a profit attributable to shareholders of approximately HK$684 million for the year ended 31 December 2008.

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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 hotel operation and rental income from leasing of investment properties and sale of developed properties. The operations in these segments are as follows:

Hotel Operation

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

Investment and Sale of Completed Properties

Completed in late 2007, Skyfame Tower, an office tower annexed to the hotel tower where The Westin Guangzhou situates, adds unsold above-the-ground area of approximately 32,000 sq.m. for offices and 9,000 sq.m. for commercial podium to the Remaining Group’s property portfolio available for sale or leasing. The office tower is currently approximately 81% tenanted with mostly multinational corporations with tenancies at an average monthly rental of approximately RMB162 per sq.m. and with usual lease period of 3 years. The Remaining Group also receives stable rental income from the leasing of approximately 20,000 sq.m. commercial podium at Tianyu Garden Phase 2, which is located adjacent to Skyfame Tower. The property is now 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 the Remaining Group holds a 55% stake, in a public tender which is being developed into a residential development in the edge of the centre district of Guiyang, the provincial capital of Guizhou Province. The development, consisting of high-end residential apartments of a total GFA of approximately 480,000 sq.m. 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 sq.m. has been put onto the market in the second quarter of 2009. Pre-marketing activities for presale recently launched receive positive market feedbacks.

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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 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 sq.m., will become the Remaining Group’s leading project after the Disposal.

Outlook

In the midst of the financial crisis spread out last year, 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 lead the market into 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 principal value of the Notes outstanding as at 31 December 2008 was approximately HK$1,500 million (US$192 million). As a reflection of the drop in share prices of the Company in the year, the financial derivative embedded in the Notes was revalued at HK$93 million and the Notes liabilities were amortised at carrying cost of HK$306 million as at 31 December 2008.

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As at 31 December 2008, the Remaining Group’s total liabilities, consisting mainly of the Notes, 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$2,605 million. The decrease as compared with the previous year was due to the decline in fair value of the Notes. Notwithstanding this and other than an additional mortgage loan of RMB100 million from a commercial bank in the PRC, there has not been material change in borrowing since the previous year.

The management has been in discussions with the Noteholders about restructuring plans to facilitate early redemption of the Notes, partially or in full, that may involve realisation of certain assets of the Remaining Group. On the date of this circular, other than the Disposal, no other concrete plans of asset realisation have come up nor has there been any other plan of redemption of the Notes. Had there been an agreement reached amongst the Noteholders for, assuming, full redemption at the outstanding principal value of the Notes on the balance sheet date, the financial derivatives embedded in the Notes together with its liability component will be stated as the principal value of approximately HK$1,499.9 million (US$192 million) instead of the carrying amounts of the financial derivative liabilities and the convertible note payable as presented on the balance sheet as at 31 December 2008.

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 balance sheet date of the year 2008 is approximately 44%. 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 has utilised some US$30 million cash in the account escrowed by the Noteholders, cash balance of the Remaining Group decreased, as a result, the current ratio is decreased to approximately 2.4.

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 a the Trustee and the lenders of the Sky Honest Loan.

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To secure for banking facilities in the total of approximately RMB1,011 million granted to some operating subsidiaries for working capital by two commercial banks in the mainland China, property interests in The Westin Guangzhou, Skyfame Tower and Tianyu Garden Phase 2 were mortgaged in favour of the banks. On 31 December 2008, other than the Notes, the Remaining Group’s secured bank and other borrowings in an aggregate amount of approximately HK$1,323 million were outstanding of which approximately HK$280 million, including the Sky Honest Loan, are due within one year.

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$126 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. Further, the Remaining Group foresees rises in the exchange rates of RMB against HK dollars in the foreseeable future, such fluctuations will not have unfavourable effect on the financial position of the 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 31 December 2008.

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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, which acquired a piece of land located in Guiyang City, Guizhou Province, the PRC through an open tender on 11 January 2008. The total cost of the land is approximately HK$629 million (RMB555 million). The contribution into the subsidiary was partly financed by cash of US$30 million released from an escrow account and a short term advance from a third party for the remaining which was paid down to HK$32 million as at 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 659 staff, of which 569 were for hotel operation and 90 for property development and central management. During the year ended 31 December 2008, total staff costs were HK$73 million, which is a 50% rise from last year as a result of the increased headcount and new remuneration policies in the PRC subsidiaries revamping the pay scales that commensurate with skills and talents of staff. Of the total staff costs, HK$4 million was capitalised as property development costs. Employees are remunerated according to qualifications and experience, job nature and performance. Remuneration packages are aligned with job markets in the business territories.

3. STATEMENT OF INDEBTEDNESS

As at the close of business on 30 April 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$2,041.8 million which comprised:

(i) secured bank loans of approximately HK$1,102.0 million which were secured by mortgages of ownership titles of properties held for sale, prepaid lease payments, hotel properties and office building included in property, plant and equipment, and investment properties with aggregate carrying value of HK$2,490.7 million;

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(ii) the Sky Honest Loan of HK$220.0 million which has fallen due on 29 January 2009, for which the lenders has granted standstill to refrain from taking legal action against the Group pending the Completion of the Disposal, and which 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 Notes of HK$344.9 million with outstanding principal value of 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 Company which indirectly hold interest 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;
(iv) unsecured payable 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;
(v) unsecured short-term loan from a director, Mr. Yu Pan, of approximately HK$1.3 million;
(vi) unsecured loan from minority shareholder of a subsidiary of approximately HK$277.7 million; and
(vii) other unsecured short-term borrowings of approximately HK$32.3 million.

In addition, as at 30 April 2009, the Group had capital commitments contracted but not provided for in respect of the property development costs of approximately HK$1,186.9 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 30 April 2009.

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4. WORKING CAPITAL

As at the Latest Practicable Date, the Group is exposed to (i) certain noncompliances with the terms in the Trust Deed entered into between the Noteholders and the Company due to a subsidiary’s not being able to obtain the land use right certificate and other permits in respect of the Zhoutouzui Project on 31 March 2009, and (ii) the Sky Honest Loan with principal amount of HK$220 million which has become overdue on 29 January 2009.

With respect to (i), 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 in relation to the property development project in Zhoutouzui (the “Zhoutouzui Project”), failing which, the Noteholders are entitled to an early redemption of the Notes of US$75 million in principal and accrued interests (the “Automatic Redemption”). The development plan for the Zhoutouzui Project has been submitted to the land planning authority in Guangzhou City for approval whilst the project company has actively worked with the Land Bureau in relation to the certification of the completion of the demolition of the structures originally erected on the land. It is expected that the land use right certificate can be obtained in 2010. On 29 May 2009 and as stated in the Company’s announcement dated 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 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), as announced by the Company on 17 April 2009, the lenders of the Sky Honest Loan have given consents to standstill arrangement to refrain from taking legal actions against the Company and its subsidiaries subject to the completion of the Disposal. Completion of the Disposal is subject to, among other things, approval by the Independent Shareholders.

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, a significant part of the proceeds will be applied to settle a majority portion of the Sky Honest Loan and be paid to an escrow account charged to the Trustee subject to further agreement with the Noteholders on possible restructuring of the Notes with a view to relaxing the terms and conditions of the Notes including extending the timing of the Automatic Redemption (the “Notes Restructuring”). In addition, the Company will, before the closing of the Disposal, negotiate with KPMG, the provisional liquidator of LBCCA which is the facility agent and one of the lenders of the Sky Honest Loan, on the restructuring of the remaining outstanding balance of the Sky Honest Loan after the settlement of a majority potion of the Sky Honest Loan out of the net proceeds, including the extension of the repayment date of such outstanding balance to a date no earlier than 1 October 2010 (the “Loan Restructuring”).

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Notwithstanding the above, the Directors are of the view that in the event no rescheduling plan can be executed in respect of the Notes or no further agreement can be reached between the Group and the lenders of the Sky Honest Loan, 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 Automatic Redemption. Apart from the above, the Directors also believe that new banking facilities will be available to the Group from financial institutions to finance work in progress of the property development projects in Zhoutouzui and Guiyang in accordance with respective construction timetables and operating cash inflows from the hotel and leasing operations can sufficiently support the routine operating costs of the 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 Loan Restructuring; (iii) the Notes Restructuring plan can be successfully implemented to relax the terms and conditions of the Notes; (iv) the Group will be able to obtain new banking facilities to finance certain property development projects; and (v) surplus funds will be generated from the realisation of certain assets to provide additional funding as necessary, and taking into account the Group’s existing cash and bank balances as well as the present available banking facilities, the Group would have sufficient working capital for its present requirement in the absence of unforeseen circumstances.

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 Company’s auditors has issued a disclaimer of opinion on the Group’s financial statements for the year ended 31 December 2008 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.

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5. FINANCIAL AND TRADING PROSPECTS OF THE REMAINING GROUP

The global capital and financial markets begin an early-stage recovery, as there are signs of “green shoots” in economic activity. Despite of the environment which is still very challenging that clouds the market and business prospects of the Remaining Group, the Directors believe that the financial position will be strengthened when property values improve alongside with the gradual revival of the property markets.

As improving market conditions are expected to come, the possibility of realisation of assets at better values to satisfy the Noteholders’ needs for redemption of the Notes will become higher and this also eases negotiations with the Noteholders about the rescheduled terms of the Notes which will work to the mutual benefit of the Noteholders and the Company.

In light of the recent positive performance in the property markets in major cities of the PRC that provides comfort that the market will resume its normal track in the coming 2 to 3 years that coincides with the completion of our Guiyang and Zhoutouzui projects, the Directors consider that the Disposal will enhance the liquidity positions of the Remaining Group and allow it to cope with the current financial stress and pave a solid way for the Remaining Group’s development business to yield a better return to the Remaining Group.

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PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

1. U NAU DITED PRO FOR M A FI NA NCI A L I N FOR M ATION OF TH E 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 cash flow statement of the Remaining Group for the year ended 31 December 2008 are prepared based on the audited consolidated income statement and the audited consolidated cash flow statement 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 balance sheet of the Remaining Group as at 31 December 2008 is prepared based on the audited consolidated balance sheet of the Group as at 31 December 2008 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 31 December 2008.

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.

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APPENDIX II

For the purposes of the preparation of the unaudited pro forma financial information of the Remaining Group, three scenarios are presented as follows:

Scenario 1: Taking into account the disposal of 80% interest in and shareholders’ loan due by Yaubond only;
Scenario 2: Taking into account the disposal of 80% interest in and shareholders’ loan due by Yaubond and the exercise of either of the Put Options or the Call Option to dispose of the remaining 20% interest in and shareholders’ loan due by Yaubond at a predetermined consideration of RMB92.0 million (approximately HK$104.4 million) assuming no capital has been injected by the Remaining Group into Yaubond after Completion; and
Scenario 3: Taking into account the disposal of 80% interest in and shareholders’ loan due by Yaubond and the exercise of the Post-Demolition Put Option or the Call Option to dispose of the remaining 20% interest in and shareholders’ loan due by Yaubond at a market value consideration of RMB140.6 million (approximately HK$159.5 million), which assumed market value consideration is for illustration purpose only and is made with reference to 20% of the valuation of the Land of RMB703.0 million (approximately HK$797.5 million), and assuming no capital has been injected by the Remaining Group into Yaubond after Completion.

— 130 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

(a) Unaudited pro forma consolidated income statement of the Remaining Group
Scenario 1: Disposal of 80% interest in and shareholders’ loan due by Yaubond only

	The Group	The Group
		for the					Unaudited
	year ended						pro forma
	31	December		Pro forma adjustments			Remaining
		2008		relating to the Disposal			Group
		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
		(Note 1) (Note 2)		(Note 3)	(Note 4a)	(Note 5a)
Revenue		564,650	—	—	—	—	564,650
Cost of sales and services		(335,813) —		—	—	—	(335,813)
Gross profit		228,837					228,837
Other income		4,066	—	—	—	—	4,066
Sales and marketing expenses		(22,569) 217		—	—	—	(22,352)
Administrative expenses		(179,831) 4,129		—	—	—	(175,702)
Fair value changes in investment
properties		(119,263) —		—	—	—	(119,263)
Impairment loss on goodwill		(66,511) 4,355		—	—	—	(62,156)
Fair value changes in financial
derivative liabilities in relation to
convertible notes		976,924	—	—	—	—	976,924
Loss on disposal of subsidiaries		—	—	—	—	(52,322)	(52,322)
Share of profit of associate, net of
tax		—	—	3,528	—	—	3,528
Finance costs		(189,957) —		—	13,356	—	(176,601)
Finance income		2,982	(8)	—	—	—	2,974
Profit before income tax		634,678					607,933
Income tax credit		49,670	(26,333)	—	—	—	23,337
Profit for the year		684,348					631,270

Attributable to:
— Equity holders of the Company		685,128	(17,640)	3,528	13,356	(52,322)	632,050
— Minority interests		(780) —		—	—	—	(780)
		684,348					631,270

— 131 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

Scenario 2: (i) disposal of 80% interest in and shareholders’ loan due by Yaubond and (ii) the exercise of either of the Put Options or the Call Option to dispose of the remaining 20% interest in and shareholders’ loan due by Yaubond at a predetermined consideration of RMB92.0 million (approximately HK$104.4 million), and assuming no capital has been injected by the Remaining Group into Yaubond after Completion

	The Group	The Group
		for the				Unaudited
	year ended					pro forma
	31	December	Pro forma adjustments			Remaining
		2008	relating to the Disposal			Group
		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
		(Note 1) (Note 2)		(Note 4b)	(Note 5b)
Revenue		564,650	—	—	—	564,650
Cost of sales and services		(335,813) —		—	—	(335,813)
Gross profit		228,837				228,837
Other income		4,066	—	—	—	4,066
Sales and marketing expenses		(22,569) 217		—	—	(22,352)
Administrative expenses		(179,831) 4,129		—	—	(175,702)
Fair value changes in investment properties		(119,263) —		—	—	(119,263)
Impairment loss on goodwill		(66,511) 4,355		—	—	(62,156)
Fair value changes in financial derivative liabilities
in relation to convertible notes		976,924	—	—	—	976,924
Loss on disposal of subsidiaries		—	—	—	(56,519)	(56,519)
Finance costs		(189,957) —		16,695	—	(173,262)
Finance income		2,982	(8)	—	—	2,974
Profit before income tax		634,678				603,547
Income tax credit		49,670	(26,333)	—	—	23,337
Profit for the year		684,348				626,884

Attributable to:
— Equity holders of the Company		685,128	(17,640)	16,695	(56,519)	627,664
— Minority interests		(780) —		—	—	(780)
		684,348				626,884

— 132 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

Scenario 3: (i) disposal of 80% interest in and shareholders’ loan due by Yaubond and (ii) the exercise of the Post-Demolition Put Option or the Call Option to dispose of the remaining 20% interest in and shareholders’ loan due by Yaubond at a market value consideration of RMB140.6 million (approximately HK$159.5 million) (which assumed market value consideration is for illustration purpose only and is made with reference to 20% of the valuation of the Land of RMB703.0 million (approximately HK$797.5 million)), and assuming no capital has been injected by the Remaining Group into Yaubond after Completion

	The Group	The Group
		for the				Unaudited
	year ended					pro forma
	31	December	Pro forma adjustments			Remaining
		2008	relating to the Disposal			Group
		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
		(Note 1) (Note 2)		(Note 4b)	(Note 5c)
Revenue		564,650	—	—	—	564,650
Cost of sales and services		(335,813) —		—	—	(335,813)
Gross profit		228,837				228,837
Other income		4,066	—	—	—	4,066
Sales and marketing expenses		(22,569) 217		—	—	(22,352)
Administrative expenses		(179,831) 4,129		—	—	(175,702)
Fair value changes in investment properties		(119,263) —		—	—	(119,263)
Impairment loss on goodwill		(66,511) 4,355		—	—	(62,156)
Fair value changes in financial derivative liabilities
in relation to convertible notes		976,924	—	—	—	976,924
Loss on disposal of subsidiaries		—	—	—	(1,386)	(1,386)
Finance costs		(189,957) —		16,695	—	(173,262)
Finance income		2,982	(8)	—	—	2,974
Profit before income tax		634,678				658,680
Income tax credit		49,670	(26,333)	—	—	23,337
Profit for the year		684,348				682,017

Attributable to:
— Equity holders of the Company		685,128	(17,640)	16,695	(1,386)	682,797
— Minority interests		(780) —		—	—	(780)
		684,348				682,017

— 133 —

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 Accountants’ Report of the Group in Appendix I to this circular.
(2) The adjustment reflects the de-consolidation of the results of the Yaubond Group for the year ended 31 December 2008, as if the Disposal had been completed on 1 January 2008.
(3) The Remaining Group will retain a minority stake of 20% interest in the Yaubond Group immediately upon completion of the Disposal and will apply the equity method of accounting to account for this remaining interest as its associate since the Group considers that it is in a position to exercise significant influence, through participation in the financial and operating policy of the Yaubond Group after the completion of the Disposal. The adjustment reflects the Remaining Group’s share of profit of the associate for the year ended 31 December 2008 had the Disposal been completed on 1 January 2008.
(4a) The adjustment reflects the elimination of finance costs incurred on the Sky Honest Loan for the year ended 31 December 2008 upon the partial repayment of the Sky Honest Loan by the amounts of approximately HK$184.0 million on 1 January 2008 had the Disposal been completed on the same date.
(4b) The adjustment reflects the elimination of finance costs incurred on the Sky Honest Loan for the year ended 31 December 2008 upon the full repayment of the Sky Honest Loan by the amounts of approximately HK$220.0 million on 1 January 2008 had the Disposal and the disposal of the remaining interest in Yaubond been completed on the same date.
(5a) The adjustment reflects the estimated loss of approximately HK$52.3 million resulting from the Disposal, assuming that the Disposal had been completed on 1 January 2008. The estimated loss is calculated after taking into account the following:
Total consideration of approximately HK$418.0 million less estimated transaction costs of HK$2.0 million, resulting in estimated net sales proceeds of approximately HK$416.0 million;
Outstanding cost of approximately HK$34.0 million (RMB30.0 million) to be paid in relation to the Fire Station Relocation which is borne by the Remaining Group as part of their obligations of the Disposal; and
Deducting the attributable 80% interest in:
- (i) the net asset value of the Yaubond Group of approximately HK$570.1 million at 1 January 2008; and
- (ii) the foreign exchange reserve of approximately HK$27.2 million being released upon the Disposal.

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PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

(5b) The adjustment reflects the estimated loss of approximately HK$56.5 million resulting from the Disposal, assuming that the Disposal and the exercise of either of the Put Options or Call Option at pre-determined consideration of RMB92 million had taken place on 1 January 2008. The estimated loss is calculated after taking into account the following:
Total consideration of approximately HK$522.4 million less estimated transaction costs of HK$2.0 million, resulting in estimated net sales proceeds of approximately HK$520.4 million. This includes the additional consideration of RMB92.0 million (approximately HK$104.4 million) in relation to the disposal of the remaining interest in Yaubond pursuant to either of the Put Options or the Call Option;
Outstanding cost of approximately HK$34.0 million (RMB30.0 million) to be paid in relation to the Fire Station Relocation which is borne by the Remaining Group as part of their obligations of the Disposal; and
Deducting the entire interest of:
- (i) the net asset value of the Yaubond Group of approximately HK$570.1 million at 1 January 2008; and
- (ii) the foreign exchange reserve of approximately HK$27.2 million being released upon the Disposal.
(5c) The adjustment reflects the estimated loss of approximately HK$1.4 million resulting from the Disposal, assuming that the Disposal and the exercise of at the market value consideration of RMB140.6 million the Post-Demolition Put Option or Call Option had taken place on 1 January 2008. The estimated loss is calculated after taking into account of the following:
Total consideration of approximately HK$577.5 million less estimated transaction costs of HK$2.0 million, resulting in estimated net sales proceeds of approximately HK$575.5 million. This includes the additional consideration of approximately HK$159.5 million in relation to the disposal of the remaining interest in Yaubond pursuant to the Post-Demolition Put Option or the Call Option, based on the higher consideration at the market value (being 20% of the valuation of the Land of RMB703.0 million) (based on existing market value);
Outstanding cost of approximately HK$34.0 million (RMB30.0 million) to be paid in relation to the Fire Station Relocation which is borne by the Remaining Group as part of their obligations of the Disposal; and
Deducting the entire interest of:
- (i) the net asset value of the Yaubond Group of approximately HK$570.1 million at 1 January 2008; and
- (ii) the foreign exchange reserve of approximately HK$27.2 million being released upon the Disposal.

— 135 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

(b) Unaudited pro forma consolidated balance sheet of the Remaining Group

Scenario 1: Disposal of 80% interest in and shareholders’ loan due by Yaubond only

	The Group					Unaudited
	as at					pro forma
	31 December		Pro forma adjustments			Remaining
	2008		relating to the Disposal			Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 1)	(Note 2)	(Note 3a)	(Note 4a)	(Note 5a)
Non-current assets
Property, plant and
equipment	1,046,987	—	—	—	—	1,046,987
Prepaid lease payments
— non-current portion	736,550	—	—	—	—	736,550
Investment properties	401,543	—	—	—	—	401,543
Properties held for
development	962,867	—	—	—	—	962,867
Goodwill	68,316	—	—	—	—	68,316
Interest in an associate	—	—	120,903	—	—	120,903
	3,216,263					3,337,166
Current assets
Properties held for sale	573,808	—	—	—	—	573,808
Prepaid lease payments
— current portion	494,718	—	—	—	—	494,718
Properties under
development	86,268	—	—	—	—	86,268
Inventories	19,542	—	—	—	—	19,542
Amount due from
subsidiary	—	24,902	(24,902)	—	—	—
Trade and other
receivables	33,900	—	—	—	—	33,900
Restricted and pledged
deposits	67,737	—	—	156,740	—	224,477
Cash and cash equivalents	53,720	—	19,922	21,280	—	94,922
	1,329,693					1,527,635
Assets classified as held
for sale	713,399	(713,399)	—	—	—	—
	2,043,092					1,527,635

— 136 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

	The Group					Unaudited
	as at					pro forma
	31 December		Pro forma adjustments			Remaining
	2008		relating to the Disposal			Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 1)	(Note 2)	(Note 3a)	(Note 4a)	(Note 5a)
Current liabilities
Trade and other payables	219,761	—	—	—	—	219,761
Bank and other
borrowings — current
portion	280,228	—	—	(184,000)	—	96,228
Deferred income	3,779	—	—	—	—	3,779
Amounts due to holding
companies	—	24,902	(24,902)	—	—	—
Income tax payable	48,080	—		—	—	48,080
	551,848					367,848
Liabilities associated with
assets classified as
held for sale	108,884	(108,884)	—	—	—	—
	660,732					367,848
Net current assets	1,382,360					1,159,787
Total assets less current
liabilities	4,598,623					4,496,953
Non-current liabilities
Other payable	63,573	—	—	—	—	63,573
Bank and other
borrowings — non-
current portion	1,042,480	—	—	—	—	1,042,480
Convertible notes	306,337	—	—	—	—	306,337
Financial derivative
liabilities	93,162	—	—	—	—	93,162
Loan from minority
shareholder of a
subsidiary	273,968	—	—	—	—	273,968
Deferred tax liabilities	273,674	—	—	—	—	273,674
	2,053,194					2,053,194
Net assets	2,545,429					2,443,759

— 137 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

	The Group					Unaudited
	as at					pro forma
	31 December		Pro forma adjustments			Remaining
	2008		relating to the Disposal			Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 1)	(Note 2)	(Note 3a)	(Note 4a)	(Note 5a)
Capital and reserves
Share capital	14,777	—	—	—	—	14,777
Reserves	2,505,918	—	—	—	(48,499)	2,404,248
					(53,171)
Equity attributable to
equity holders of the
Company	2,520,695					2,419,025
Minority interests	24,734	—	—	—	—	24,734
Total equity	2,545,429					2,443,759

— 138 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

	The Group					Unaudited
	as at					pro forma
	31 December		Pro forma adjustments			Remaining
	2008		relating to the Disposal			Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 1)	(Note 2)	(Note 3b)	(Note 4b)	(Note 5b)
Non-current assets
Property, plant and
equipment	1,046,987	—	—	—	—	1,046,987
Prepaid lease payments
— non-current portion	736,550	—	—	—	—	736,550
Investment properties	401,543	—	—	—	—	401,543
Properties held for
development	962,867	—	—	—	—	962,867
Goodwill	68,316	—	—	—	—	68,316
	3,216,263					3,216,263
Current assets
Properties held for sale	573,808	—	—	—	—	573,808
Prepaid lease payments
— current portion	494,718	—	—	—	—	494,718
Properties under
development	86,268	—	—	—	—	86,268
Inventories	19,542	—	—	—	—	19,542
Amount due from
subsidiary	—	24,902	(24,902)	—	—	—
Trade and other
receivables	33,900	—	—	—	—	33,900
Restricted and pledged
deposits	67,737	—	—	225,108	—	292,845
Cash and cash equivalents	53,720	—	24,902	16,300	—	94,922
	1,329,693					1,596,003
Assets classified as held
for sale	713,399	(713,399)	—	—	—	—
	2,043,092					1,596,003

— 139 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

	The Group					Unaudited
	as at					pro forma
	31 December		Pro forma adjustments			Remaining
	2008		relating to the Disposal			Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 1)	(Note 2)	(Note 3b)	(Note 4b)	(Note 5b)
Current liabilities
Trade and other payables	219,761	—	—	—	—	219,761
Bank and other
borrowings — current
portion	280,228	—	—	(220,000)	—	60,228
Deferred income	3,779	—	—	—	—	3,779
Amounts due to holding
companies	—	24,902	(24,902)	—	—	—
Income tax payable	48,080	—	—	—	—	48,080
	551,848					331,848
Liabilities associated with
assets classified as
held for sale	108,884	(108,884)	—	—	—	—
	660,732					331,848
Net current assets	1,382,360					1,264,155
Total assets less current
liabilities	4,598,623					4,480,418
Non-current liabilities
Other payable	63,573	—	—	—	—	63,573
Bank and other
borrowings — non-
current portion	1,042,480	—	—	—	—	1,042,480
Convertible notes	306,337	—	—	—	—	306,337
Financial derivative
liabilities	93,162	—	—	—	—	93,162
Loan from minority
shareholder of a
subsidiary	273,968	—	—	—	—	273,968
Deferred tax liabilities	273,674	—	—	—	—	273,674
	2,053,194					2,053,194
Net assets	2,545,429					2,427,224

— 140 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

	The Group					Unaudited
	as at					pro forma
	31 December		Pro forma adjustments			Remaining
	2008		relating to the Disposal			Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 1)	(Note 2)	(Note 3b)	(Note 4b)	(Note 5b)
Capital and reserves
Share capital	14,777	—	—	—	—	14,777
Reserves	2,505,918	—	—	—	(60,624)	2,387,713
					(57,581)
Equity attributable to
equity holders of the
Company	2,520,695					2,402,490
Minority interests	24,734	—	—	—	—	24,734
Total equity	2,545,429					2,427,224

— 141 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

	The Group					Unaudited
	as at					pro forma
	31 December		Pro forma adjustments			Remaining
	2008		relating to the Disposal			Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 1)	(Note 2)	(Note 3b)	(Note 4c)	(Note 5c)
Non-current assets
Property, plant and
equipment	1,046,987	—	—	—	—	1,046,987
Prepaid lease payments
— non-current portion	736,550	—	—	—	—	736,550
Investment properties	401,543	—	—	—	—	401,543
Properties held for
development	962,867	—	—	—	—	962,867
Goodwill	68,316	—	—	—	—	68,316
	3,216,263					3,216,263
Current assets
Properties held for sale	573,808	—	—	—	—	573,808
Prepaid lease payments
— current portion	494,718	—	—	—	—	494,718
Properties under
development	86,268	—	—	—	—	86,268
Inventories	19,542	—	—	—	—	19,542
Amount due from
subsidiary	—	24,902	(24,902)	—	—	—
Trade and other
receivables	33,900	—	—	—	—	33,900
Restricted and pledged
deposits	67,737	—	—	280,241	—	347,978
Cash and cash equivalents	53,720	—	24,902	16,300	—	94,922
	1,329,693					1,651,136
Assets classified as held
for sale	713,399	(713,399)	—	—	—	—
	2,043,092					1,651,136

— 142 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

	The Group					Unaudited
	as at					pro forma
	31 December		Pro forma adjustments			Remaining
	2008		relating to the Disposal			Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 1)	(Note 2)	(Note 3b)	(Note 4c)	(Note 5c)
Current liabilities
Trade and other payables	219,761	—	—	—	—	219,761
Bank and other
borrowings — current
portion	280,228	—	—	(220,000)	—	60,228
Deferred income	3,779	—	—	—	—	3,779
Amounts due to holding
companies	—	24,902	(24,902)	—	—	—
Income tax payable	48,080	—	—	—	—	48,080
	551,848					331,848
Liabilities associated with
assets classified as
held for sale	108,884	(108,884)	—	—	—	—
	660,732					331,848
Net current assets	1,382,360					1,319,288
Total assets less current
liabilities	4,598,623					4,535,551
Non-current liabilities
Other payable	63,573	—	—	—	—	63,573
Bank and other
borrowings — non-
current portion	1,042,480	—	—	—	—	1,042,480
Convertible notes	306,337	—	—	—	—	306,337
Financial derivative
liabilities	93,162	—	—	—	—	93,162
Loan from minority
shareholder of a
subsidiary	273,968	—	—	—	—	273,968
Deferred tax liabilities	273,674	—	—	—	—	273,674
	2,053,194					2,053,194
Net assets	2,545,429					2,482,357

— 143 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

	The Group					Unaudited
	as at					pro forma
	31 December		Pro forma adjustments			Remaining
	2008		relating to the Disposal			Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 1)	(Note 2)	(Note 3b)	(Note 4c)	(Note 5c)
Capital and reserves
Share capital	14,777	—	—	—	—	14,777
Reserves	2,505,918	—	—	—	(60,624)	2,442,846
					(2,448)
Equity attributable to
equity holders of the
Company	2,520,695					2,457,623
Minority interests	24,734	—	—	—	—	24,734
Total equity	2,545,429					2,482,357

Notes:

(1) Figures are extracted from the audited consolidated balance sheet of the Group as at 31 December 2008 included in the Accountants’ Report of the Group in Appendix I to this circular.
(2) The adjustment reflects the de-consolidation of the assets and liabilities of the Yaubond Group as at 31 December 2008, as if that the Disposal had been completed on 31 December 2008.
(3a) The adjustment reflects the disposal of the Group’s 80% interest of shareholders’ loans to the Yaubond Group at a consideration of approximately HK$19.9 million, which is equal to 80% of the carrying amount of the loans as at 31 December 2008, and the elimination of intra-group balances between the Group and the Yaubond Group immediately after completion of the Disposal. The Remaining Group will retain a minority stake of 20% interest in the Yaubond Group, so that Yaubond will become an associate of the Group. The adjustment also reflects the Group’s share of net asset value of the associate of approximately HK$115.9 million and a loan to the associate of approximately HK$5.0 million as at 31 December 2008 had the Disposal been completed on 31 December 2008.
(3b) The adjustment reflects the disposal of the Group’s entire interest of shareholders’ loans to the Yaubond Group at a consideration of approximately HK$24.9 million, which is equal to the carrying amount of the loans as at 31 December 2008, and the elimination of intra-group balances between the Group and the Yaubond Group.

— 144 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

(4a) It is expected that on completion, out of the total consideration of RMB368.0 million (approximately HK$418.0 million), (i) an amount of approximately HK$184.0 million will be applied as partial settlement of the overdue Sky Honest Loan of principal value of HK$220.0 million and an amount of approximately HK$156.7 million will be applied as payment to an escrow account subject to further negotiation with the Noteholders on the restructuring of the Notes; and (ii) the remaining proceeds of RMB68.0 million (approximately HK$77.3 million) will be contributed as the working capital of the Group (including payment of estimated transaction costs of HK$2.0 million).
(4b) Under the Agreement and the Shareholders Agreement, the Group was granted the PreDemolition Put Option and the Post-Demolition Put Option to sell their remaining interest in Yaubond, while Happy Genius was granted the Call Option to acquire the Group’s remaining interest in Yaubond. The adjustment reflects the consideration at pre-determined consideration in the sum of RMB92.0 million (approximately HK$104.4 million) and that no shareholders’ loans to Yaubond was provided by the Group since the completion date of the Disposal. The proceed is intended to be used for repayment of the outstanding amount of the Sky Honest Loan and as payment to an escrow account subject to further negotiation with the Noteholders on the restructuring of the Notes.

It is expected that on completion, out of the total consideration of approximately HK$522.4 million), (i) an amount of approximately HK$220.0 million will be applied as full settlement of the overdue Sky Honest Loan of principal value of equivalent amount and an amount of approximately HK$225.1 million will be applied as payment to an escrow account subject to further negotiation with the Noteholders on the restructuring of the Notes; and (ii) the remaining proceeds of RMB68.0 million (approximately HK$77.3 million) will be contributed as the working capital of the Group (including payment of estimated transaction costs of HK$2.0 million).

(4c) Under the Agreement and the Shareholders Agreement, the Group was granted the PostDemolition Put Option while Happy Genius was granted the Call Option to sell/acquire the Group’s remaining interests in Yaubond. The aggregate higher consideration at market value of approximately HK$159.5 million is based on the market value (being 20% of the valuation of the Land RMB703.0 million) (based on existing market value). The proceed is intended to be used for repayment of the outstanding amount of the Sky Honest Loan and as payment to an escrow account subject to further negotiation with the Noteholders on the restructuring of the Notes.

It is expected that on completion, out of the total consideration of approximately HK$577.5 million), (i) an amount of approximately HK$220.0 million will be applied as full settlement of the overdue Sky Honest Loan of principal value of equivalent amount and an amount of approximately HK$280.2 million will be applied as payment to an escrow account subject to further negotiation with the Noteholders on the restructuring of the Notes; and (ii) the remaining proceeds of RMB68.0 million (approximately HK$77.3 million) will be contributed as the working capital of the Group (including payment of estimated transaction costs of HK$2.0 million).

(5a) The adjustment reflects the estimated loss of approximately HK$53.2 million resulting from the Disposal under scenario 1, assuming that the Disposal had been completed on 31 December 2008. The estimated loss is calculated as follows:
Total consideration of approximately HK$418.0 million less estimated transaction costs of HK$2.0 million, resulting in estimated net sales proceeds of approximately HK$416.0 million;

— 145 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

Outstanding cost of approximately HK$34.0 million (RMB30.0 million, including RMB15.0 million which was paid during January 2009) to be paid in relation to the Fire Station Relocation which is borne by the Remaining Group as part of their obligations of the Disposal; and
Deducting the attributable 80% interest in:
- (i) the net asset value of the Yaubond Group of approximately HK$604.5 million at 31 December 2008; and
- (ii) the foreign exchange reserve of approximately HK$60.6 million being released upon the Disposal.
(5b) The adjustment reflects the estimated loss of approximately HK$57.6 million resulting from the Disposal under scenario 2, assuming that the Disposal and the exercise of either of the Put Options or the Call Option had taken place on 31 December 2008. The estimated loss is calculated as follows:
Total consideration of approximately HK$522.4 million less estimated transaction costs of HK$2.0 million, resulting in estimated net sales proceeds of approximately HK$520.4 million;
Outstanding cost of approximately HK$34.0 million (RMB30.0 million, including RMB15.0 million which was paid during January 2009) to be paid in relation to the Fire Station Relocation which is borne by the Remaining Group as part of their obligations of the Disposal; and
Deducting the entire interest in:
- (i) the net asset value of the Yaubond Group of approximately HK$604.5 million at 31 December 2008; and
- (ii) the foreign exchange reserve of approximately HK$60.6 million being released upon the Disposal.
(5c) The adjustment reflects the estimated loss of approximately HK$2.4 million resulting from the Disposal under scenario 3, assuming that the Disposal and the exercise of the Post-Demolition Put Option or the Call Option had taken place on 31 December 2008. The estimated loss is calculated as follows:
Total consideration of approximately HK$577.5 million less estimated transaction costs of HK$2.0 million, resulting in estimated net sales proceeds of approximately HK$575.5 million;
Outstanding cost of approximately HK$34.0 million (RMB30.0 million, including RMB15.0 million which was paid during January 2009) to be paid in relation to the Fire Station Relocation which is borne by the Remaining Group as part of their obligations of the Disposal; and
Deducting the entire interest in:
- (i) the net asset value of the Yaubond Group of approximately HK$604.5 million at 31 December 2008; and
- (ii) the foreign exchange reserve of approximately HK$60.6 million being released upon the Disposal.

— 146 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

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

Scenario 1: Disposal of 80% interest in and shareholders’ loan due by Yaubond only

	The Group
	for the					Unaudited
	year ended					pro forma
	31 December		Pro forma adjustments			Remaining
	2008		relating to the Disposal			Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 1)	(Note 2)	(Note 3)	(Notes 4a	(Note 5)
				and 4b)
Operating activities
Profit before income tax	634,678	8,693	3,528	13,356	(52,322)	607,933
Adjustments for:
Finance costs	189,957	—	—	(13,356)	—	176,601
Finance income	(2,982)	8	—	—	—	(2,974)
Equity-settled share-
based payment
expenses	1,478	—	—	—	—	1,478
Depreciation of property,
plant and equipment	77,986	—	—	—	—	77,986
Amortisation of prepaid
lease payments	20,770	—	—	—	—	20,770
Prepaid lease payments
recognised as cost of
sales	90,495	—	—	—	—	90,495
Fair value changes in
financial derivative
liabilities in relation to
convertible notes	(976,924)	—	—	—	—	(976,924)
Share of profit of
associate, net of tax	—	—	(3,528)	—	—	(3,528)
Loss on disposal of
subsidiaries	—	—	—	—	52,322	52,322
Loss on disposal of
property, plant and
equipment	2	—	—	—	—	2
Fair value changes in
investment properties	119,263	—	—	—	—	119,263
Impairment loss on
goodwill	66,511	(4,355)	—	—	—	62,156
	221,234					225,580

— 147 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

	The Group
	for the					Unaudited
	year ended					pro forma
	31 December		Pro forma adjustments			Remaining
	2008		relating to the Disposal			Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 1)	(Note 2)	(Note 3)	(Notes 4a	(Note 5)
				and 4b)
Decrease in properties held
for sale	63,280	—	—	—	—	63,280
Decrease in inventories	13,951	—	—	—	—	13,951
Increase in trade and other
receivables	(1,442)	24	—	—	—	(1,418)
Increase in trade and other
payables	14,012	4,230	—	—	—	18,242
Increase in deferred income	3,779	—	—	—	—	3,779
Cash generated from
operations	314,814					323,414
Income tax paid	(8,320)	—	—	—	—	(8,320)
Other borrowing costs paid	(4,781)	—	—	3,825	—	(956)
Interest paid	(164,051)	—	—	22,887	—	(141,164)
Net cash generated from
operating activities	137,662					172,974
Investing activities
Interest received	4,149	(8)	—	—	—	4,141
Additions to properties held
for/under development	(95,525)	8,643	—	—	—	(86,882)
Additions to prepaid lease
payments	(597,558)	—	—	—	—	(597,558)
Payment of construction
costs of completed
properties in prior year	(82,817)	—	—	—	—	(82,817)
Purchases of property, plant
and equipment	(48,808)	—	—	—	—	(48,808)
Proceeds from sale of
property, plant and
equipment	4	—	—	—	—	4
Advance to associate	—	—	(3,305)	—	—	(3,305)
Advance to subsidiary	—	(16,525)	16,525	—	—	—
Disposal of subsidiaries, net
of cash disposal of	—	—	—	380,517	—	380,517
Net cash used in investing
activities	(820,555)					(434,708)

— 148 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

	The Group
	for the					Unaudited
	year ended					pro forma
	31 December		Pro forma adjustments			Remaining
	2008		relating to the Disposal			Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 1)	(Note 2)	(Note 3)	(Notes 4a	(Note 5)
				and 4b)
Financing activities
Exercise of bonus warrants	8	—	—	—	—	8
Proceeds from shares
issued under share option
scheme	340	—	—	—	—	340
Expenses incurred on issue
of shares	(12)	—	—	—	—	(12)
Decrease in restricted and
pledged deposits	290,268	—	—	(156,740)	—	133,528
Proceeds from bank and
other borrowings	254,037	—	—	—	—	254,037
Repayment of bank and
other borrowings	(170,985)	—	—	(184,000)	—	(354,985)
Advance from holding
companies	—	16,525	(16,525)	—	—	—
Advance from minority
shareholder of a
subsidiary	271,321	—	—	—	—	271,321
Capital contributions from
minority shareholder of a
subsidiary	25,452	—	—	—	—	25,452
Net cash from financing
activities	670,429					329,689
Net (decrease) increase
in cash and cash
equivalents	(12,464)					67,955
Effect of foreign exchange
rate changes	3,712	(151)	—	—	—	3,561
Cash and cash equivalents
at beginning of year	63,338	—	—	—	—	63,338
	54,586					134,854
Less: Balance reclassified
as assets held for
sale	(866)	866	—	—	—	—
Cash and cash equivalents
at end of year	53,720					134,854

— 149 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

	The Group
	for the					Unaudited
	year ended					pro forma
	31 December		Pro forma adjustments			Remaining
	2008		relating to the Disposal			Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 1)	(Note 2)	(Note 3)	(Notes 4a	(Note 5)
				and 4c)
Operating activities
Profit before income tax	634,678	8,693	—	16,695	(56,519)	603,547
Adjustments for:
Finance costs	189,957	—	—	(16,695)	—	173,262
Finance income	(2,982)	8	—	—	—	(2,974)
Equity-settled share-
based payment
expenses	1,478	—	—	—	—	1,478
Depreciation of property,
plant and equipment	77,986	—	—	—	—	77,986
Amortisation of prepaid
lease payments	20,770	—	—	—	—	20,770
Prepaid lease payments
recognised as cost of
sales	90,495	—	—	—	—	90,495
Fair value changes in
financial derivative
liabilities in relation to
convertible notes	(976,924)	—	—	—	—	(976,924)
Loss on disposal of
subsidiaries	—	—	—	—	56,519	56,519
Loss on disposal of
property, plant and
equipment	2	—	—	—	—	2
Fair value changes in
investment properties	119,263	—	—	—	—	119,263
Impairment loss on
goodwill	66,511	(4,355)	—	—	—	62,156
	221,234					225,580

— 150 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

	The Group
	for the					Unaudited
	year ended					pro forma
	31 December		Pro forma adjustments			Remaining
	2008		relating to the Disposal			Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 1)	(Note 2)	(Note 3)	(Notes 4a	(Note 5)
				and 4c)
Decrease in properties held
for sale	63,280	—	—	—	—	63,280
Decrease in inventories	13,951	—	—	—	—	13,951
Increase in trade and other
receivables	(1,442)	24	—	—	—	(1,418)
Increase in trade and other
payables	14,012	4,230	—	—	—	18,242
Increase in deferred income	3,779	—	—	—	—	3,779
Cash generated from
operations	314,814					323,414
Income tax paid	(8,320)	—	—	—	—	(8,320)
Other borrowing costs paid	(4,781)	—	—	4,781	—	—
Interest paid	(164,051)	—	—	28,609	—	(135,442)
Net cash generated from
operating activities	137,662					179,652
Investing activities
Interest received	4,149	(8)	—	—	—	4,141
Additions to properties held
for/under development	(95,525)	8,643	—	—	—	(86,882)
Additions to prepaid lease
payments	(597,558)	—	—	—	—	(597,558)
Payment of construction
costs of completed
properties in prior year	(82,817)	—	—	—	—	(82,817)
Purchases of property, plant
and equipment	(48,808)	—	—	—	—	(48,808)
Proceeds from sale of
property, plant and
equipment	4	—	—	—	—	4
Advance to subsidiary	—	(16,525)	16,525	—	—	—
Disposal of subsidiaries, net
of cash disposal of	—	—	—	484,885	—	484,885
Net cash used in investing
activities	(820,555)					(327,035)

— 151 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

	The Group
	for the					Unaudited
	year ended					pro forma
	31 December		Pro forma adjustments			Remaining
	2008		relating to the Disposal			Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 1)	(Note 2)	(Note 3)	(Notes 4a	(Note 5)
				and 4c)
Financing activities
Exercise of bonus warrants	8	—	—	—	—	8
Proceeds from shares
issued under share option
scheme	340	—	—	—	—	340
Expenses incurred on issue
of shares	(12)	—	—	—	—	(12)
Decrease in restricted and
pledged deposits	290,268	—	—	(225,108)	—	65,160
Proceeds from bank and
other borrowings	254,037	—	—	—	—	254,037
Repayment of bank and
other borrowings	(170,985)	—	—	(220,000)	—	(390,985)
Advance from holding
companies	—	16,525	(16,525)	—	—	—
Advance from minority
shareholder of a
subsidiary	271,321	—	—	—	—	271,321
Capital contributions from
minority shareholder of a
subsidiary	25,452	—	—	—	—	25,452
Net cash from financing
activities	670,429					225,321
Net (decrease) increase
in cash and cash
equivalents	(12,464)					77,938
Effect of foreign exchange
rate changes	3,712	(151)	—	—	—	3,561
Cash and cash equivalents
at beginning of year	63,338	—	—	—	—	63,338
	54,586					144,837
Less: Balance reclassified
as assets held for
sale	(866)	866	—	—	—	—
Cash and cash equivalents
at end of year	53,720					144,837

— 152 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

	The Group
	for the					Unaudited
	year ended					pro forma
	31 December		Pro forma adjustments			Remaining
	2008		relating to the Disposal			Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 1)	(Note 2)	(Note 3)	(Notes 4a	(Note 5)
				and 4c)
Operating activities
Profit before income tax	634,678	8,693	—	16,695	(1,386)	658,680
Adjustments for:
Finance costs	189,957	—	—	(16,695)	—	173,262
Finance income	(2,982)	8	—	—	—	(2,974)
Equity-settled share-
based payment
expenses	1,478	—	—	—	—	1,478
Depreciation of property,
plant and equipment	77,986	—	—	—	—	77,986
Amortisation of prepaid
lease payments	20,770	—	—	—	—	20,770
Prepaid lease payments
recognised as cost of
sales	90,495	—	—	—	—	90,495
Fair value changes in
financial derivative
liabilities in relation to
convertible notes	(976,924)	—	—	—	—	(976,924)
Loss on disposal of
subsidiaries	—	—	—	—	1,386	1,386
Loss on disposal of
property, plant and
equipment	2	—	—	—	—	2
Fair value changes in
investment properties	119,263	—	—	—	—	119,263
Impairment loss on
goodwill	66,511	(4,355)	—	—	—	62,156
	221,234					225,580

— 153 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

	The Group
	for the					Unaudited
	year ended					pro forma
	31 December		Pro forma adjustments			Remaining
	2008		relating to the Disposal			Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 1)	(Note 2)	(Note 3)	(Notes 4a	(Note 5)
				and 4c)
Decrease in properties held
for sale	63,280	—	—	—	—	63,280
Decrease in inventories	13,951	—	—	—	—	13,951
Increase in trade and other
receivables	(1,442)	24	—	—	—	(1,418)
Increase in trade and other
payables	14,012	4,230	—	—	—	18,242
Increase in deferred income	3,779	—	—	—	—	3,779
Cash generated from
operations	314,814					323,414
Income tax paid	(8,320)	—	—	—	—	(8,320)
Other borrowing costs paid	(4,781)	—	—	4,781	—	—
Interest paid	(164,051)	—	—	28,609	—	(135,442)
Net cash generated from
operating activities	137,662					179,652
Investing activities
Interest received	4,149	(8)	—	—	—	4,141
Additions to properties held
for/under development	(95,525)	8,643	—	—	—	(86,882)
Additions to prepaid lease
payments	(597,558)	—	—	—	—	(597,558)
Payment of construction
costs of completed
properties in prior year	(82,817)	—	—	—	—	(82,817)
Purchases of property, plant
and equipment	(48,808)	—	—	—	—	(48,808)
Proceeds from sale of
property, plant and
equipment	4	—	—	—	—	4
Advance to subsidiary	—	(16,525)	16,525	—	—	—
Disposal of subsidiaries, net
of cash disposal of	—	—	—	540,018	—	540,018
Net cash used in investing
activities	(820,555)					(271,902)

— 154 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

	The Group
	for the					Unaudited
	year ended					pro forma
	31 December		Pro forma adjustments			Remaining
	2008		relating to the Disposal			Group
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Note 1)	(Note 2)	(Note 3)	(Notes 4a	(Note 5)
				and 4c)
Financing activities
Exercise of bonus warrants	8	—	—	—	—	8
Proceeds from shares
issued under share option
scheme	340	—	—	—	—	340
Expenses incurred on issue
of shares	(12)	—	—	—	—	(12)
Decrease in restricted and
pledged deposits	290,268	—	—	(280,241)	—	10,027
Proceeds from bank and
other borrowings	254,037	—	—	—	—	254,037
Repayment of bank and
other borrowings	(170,985)	—	—	(220,000)	—	(390,985)
Advance from holding
companies	—	16,525	(16,525)	—	—	—
Advance from minority
shareholder of a
subsidiary	271,321	—	—	—	—	271,321
Capital contributions from
minority shareholder of a
subsidiary	25,452	—	—	—	—	25,452
Net cash from financing
activities	670,429					170,188
Net (decrease) increase
in cash and cash
equivalents	(12,464)					77,938
Effect of foreign exchange
rate changes	3,712	(151)	—	—	—	3,561
Cash and cash equivalents
at beginning of year	63,338	—	—	—	—	63,338
	54,586					144,837
Less: Balance reclassified
as assets held for
sale	(866)	866	—	—	—	—
Cash and cash equivalents
at end of year	53,720					144,837

— 155 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

Notes:

(1) Figures are extracted from the audited consolidated cash flow statement of the Group for the year ended 31 December 2008 included in the Accountants’ Report of the Group in Appendix I to this circular.
(2) The adjustment reflects the exclusion of the cash flows of the Yaubond Group for the year ended 31 December 2008, as if the Disposal had been completed on 1 January 2008.
(3) The adjustment reflects the elimination of cash flows from intra-group advances. Under scenario 1, it also reflects an advance to the associate of approximately HK$3.3 million during the year ended 31 December 2008 had the Disposal been completed on 1 January 2008.
(4a) The pro forma adjustment represents the net cash inflow from disposal of subsidiaries, and the repayment of the Sky Honest Loan and payment to an escrow account pending negotiation with the Noteholders on the restructuring of the Notes as disclosed in notes 4(a) and 4(b) of unaudited pro forma consolidated income statement of the Remaining Group under Section (a).
(4b) The adjustment reflects the elimination of finance costs incurred on the Sky Honest Loan for the year ended 31 December 2008 upon the partial repayment of the Sky Honest Loan by the amount of approximately HK$184.0 million on 1 January 2008 had the Disposal been completed on the same date.
(4c) The adjustment reflects the elimination of finance costs incurred on the Sky Honest Loan for the year ended 31 December 2008 upon the full repayment of the Sky Honest Loan by the amount of approximately HK$220.0 million on 1 January 2008 had the Disposal and the disposal of the remaining interest in Yaubond been completed on the same date.
(5) The pro forma adjustment represents the estimated loss on disposal of subsidiaries as disclosed in notes 5(a), 5(b) and 5(c) of unaudited pro forma consolidated income statement of the Remaining Group under Section (a).

— 156 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

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

==> picture [61 x 31] intentionally omitted <==

22 June 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 80% interest in and shareholders’ loan due by Yaubond Limited, an indirect wholly-owned subsidiary of the Company which holds interest in a property development project in Guangzhou, the People’s Republic of China, and the exercise of the options at a pre-determined price or at market value consideration might have affected the financial information of the Group, for inclusion in Appendix II of the circular dated 22 June 2009 (the “Circular”). The basis of preparation of the Unaudited Pro Forma Financial Information is set out on Pages 129 to 156 of the Circular. The resulting group comprising the Group after the above transaction is referred to as the “Remaining Group”.

— 157 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

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.

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.

— 158 —

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

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 31 December 2008 or any future dates; or
the results and cash flows of the Remaining Group for the year ended 31 December 2008 or any future periods.

Opinion

In our opinion:

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

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PROPERTY VALUATION ON THE LAND

APPENDIX III

The following is the text of the letter and valuation certificate, prepared for the purpose of incorporation in this circular received from DTZ Debenham Tie Leung Limited, an independent valuer, in connection with its valuation as at 30 April 2009 of the Land.

==> picture [84 x 78] intentionally omitted <==

16th Floor Jardine House 1 Connaught Place Central Hong Kong

22 June 2009

The Directors

Skyfame Realty (Holdings) Limited Unit 2502B

Tower 1, Admiralty Centre 18 Harcourt Road

Hong Kong

Dear Sirs,

Re: A plot of land for commercial and services uses, situated at North of Tianhe Bei Road, Tianhe District, Guangzhou, Guangdong Province, the People’s Republic of China （中華人民共和國廣東省廣州市天河區天河北路以北商服用地）

INSTRUCTIONS, PURPOSE & DATE OF VALUATION

In accordance with the instruction of Skyfame Realty (Holdings) Limited (the “Company”) for us to carry out the valuation of the market value of the captioned property (the “Property”) in the People’s Republic of China (the “PRC”), we confirm that we have carried out inspection, made relevant enquiries and obtained such further information as we considered necessary for the purpose of providing you with our opinion of the value of the Property in its existing state (on assumption that the Property is a clear and vacant site) as at 30 April 2009 (the “date of valuation”).

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PROPERTY VALUATION ON THE LAND

APPENDIX III

DEFINITION OF MARKET VALUE

Our valuation of the Property represents its market value which in accordance with The HKIS Valuation Standards on Properties (First Edition 2005) published by The Hong Kong Institute of Surveyors is defined as “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.”

VALUATION BASIS AND ASSUMPTION

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

In the course of our valuation of the Property situated in the PRC, we have assumed that transferable land use rights in respect of the Property for its specific term at nominal annual land use fee have been granted and that any premium payable has already been fully paid. We have relied on the information and advice given by the Company and the opinion of the Company’s PRC legal adviser, Guangdong Fair Strategy Law Firm（廣東正大方略律師事務所）, regarding the title to the Property and the interest 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 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 any onerous nature which could affect its value.

METHOD OF VALUATION

We have valued the Property by direct comparison method by making reference to comparable sales evidences as available in the relevant market.

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.

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PROPERTY VALUATION ON THE LAND

APPENDIX III

SOURCE OF INFORMATION

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

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

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

TITLE INVESTIGATION

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

SITE INSPECTION

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

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

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PROPERTY VALUATION ON THE LAND

APPENDIX III

CURRENCY

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

We attach herewith our valuation certificate.

Yours faithfully, For and on behalf of

DTZ Debenham Tie Leung Limited

Philip C Y Tsang

Registered Professional Surveyor (GP) 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 properties in the PRC.

— 163 —

PROPERTY VALUATION ON THE LAND

APPENDIX III

VALUATION CERTIFICATE

Description and tenure

Property

The Property comprises a roughly rectangular-shaped site with a site area of 6,057 sq m.

A plot of land for The Property comprises a roughly commercial and rectangular-shaped site with a site area of services uses, 6,057 sq m. situated at North of Tianhe Bei Road, The Property is planned to be developed Tianhe District, into a 50-storey commercial and 42-storey Guangzhou, hotel building (with six levels of Guangdong basement). It is scheduled to be completed Province, in 2012. the PRC

The details of the planned gross floor area are shown as follows:

Use Hotel Office Serviced Apartment Commercial Club House Refuge Floor Above ground total: Basement Ancillary Facilities for Hotel Basement Car parks for Office (380 nos.) Basement Car parks for Hotel (54 nos.) Under ground total: Grand total:	Approximate Planned Gross Floor Area (sq m) 29,276.41 41,650.00 12,431.00 1,864.43 1,863.00 2,685.37 89,770.21 1,067.20 21,250.93 3,019.87 25,338.00 115,108.21

Capital value in Particulars of existing state as at occupancy 30 April 2009 As at the date of RMB703,000,000 valuation, most of the site is vacant (on assumption that and pending for the Property is a development. clear and vacant site)

Particulars of occupancy

(Please see Notes (1) and (2) below.)

Only a 2-storey fire station and some temporary structures are pending for clearance.

According to the reply letter of the development proposal application issued on 23 July 2008, Guangzhou Urban Planning Bureau has agreed the development proposal to relocate and reconstruct the fire station outside the site area of the Property and the entire site of the Property can be used for commercial and/ or office purpose after the demolition completion.

In the course of our valuation, we have assumed that the Property is a clear and vacant site.

(Please see Note (9) below.)

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 12 April 2005.

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PROPERTY VALUATION ON THE LAND

APPENDIX III

Notes:

(1) For your reference, the Value for Sale under Repossession of the Property, in its existing state (on assumption that the Property is a clear and vacant site), as at 30 April 2009, was in the sum of RMB457,000,000.

Value for Sale under Repossession (the action of regaining possession especially the seizure of collateral securing a loan that is in default) refers to the price that might reasonably to expected to realize within 180 days from the sale of a property in the market under repossession by the lender or receiver, on an “as is” basis, taking into account the unique quality of the property and the existence of any specific demand as well as factors which might adversely affect the marketability of the property due to market perception of increased risk or stigma, justified or otherwise.

(2) We have also issued a Valuation Report dated 11 February 2009 of the Property regarding its Capital Value in existing state and Value for Sale under Repossession (on assumption that the Property is a clear and vacant site) as at 31 December 2008 to the Company. The valuations were the same as at 31 December 2008 and 30 April 2009.
(3) According to Certificate for the State-owned Land Use Rights No. (2004)10053（穗國用(2004)第10053 號）, the details are shown as follows:
(i) Location : North of Tianhe Bei Road, Tianhe District
(ii) Nature of Land Use : Granted
(iii) Owner : Guangzhou Huan Cheng Real Estate Development Company Limited （廣州寰城實業發展有限公司）
(iv) Site Area : 6,057 sq m
(v) Land Use Term : 70 years for residential use, 40 years for commercial, tourism, entertainment uses and 50 years for the other uses from 12 April 2005
(vi) Land Usage : Commercial and Services
(vii) Boundaries : East to Guangdong Academy of Social Science（廣東省社會科學院）, south to Tianhe Bei Road, west to Linhe Dong Road（林和東路）, and north to Tianhe District Gynaecological and Paediatric Hospital and Health Institute（天河區婦幼保健院）.
(viii) Excursus : (a) Grant Contract of Land Use Right No.(2003)385 of this land has been signed.
- (b) Land use term commence on 12 April 2005. The land use fee has been fully settled.
- (c) Source of land use right: Purchased from Guangzhou Dongzhi Property Co., Ltd.（廣州東置房產有限公司）on 30 December 2004.
- (d) The site clearance works have not been carried out. According to the Notification No.(2003)1534 issued by Guangzhou Intermediate People’s Court, Guangzhou Huan Cheng Real Estate Development Company Limited（廣州寰城實業發展有限公司）is responsible for the site clearance and relocation works.

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PROPERTY VALUATION ON THE LAND

APPENDIX III

(4) According to Grant Contract of Land Use Rights No.(2003)385（穗國地出合(2003)385號）entered into between Bureau of Land Resources and Housing Management of Guangzhou Municipality and Guangzhou Dongzhi Property Co., Ltd.（廣州東置房產有限公司）on 2 December 2003, the details are shown as follows:

(i)	Location	:	North of Tianhe Bei Road, Tianhe District
(ii)	Site Area	:	7,217 sq m (among which 6,057 sq m is the granted site area)
(iii)	Land Use	:	Composite Business Building
(iv)	Land Use Term	:	70 years for residential use, 40 years for commercial and tourism
			uses, 50 years for composite use
(v)	Total Land	:	RMB45,196,084
	Premium
(vi)	Plot Ratio	:	13.74
(vii)	Total Planned	:	96,105 sq m (Office: 67,308 sq m; Basement: 12,876 sq m; Exhibition
	Gross Floor Area		Hall and Club House: 10,521 sq m; Fire Station: 5,400 sq m)

(5) According to the Agreement of Transfer Land Use Rights dated 21 October 2004, the land use rights of the Property has been transferred from Guangzhou Dongzhi Property Co., Ltd.（廣州東置房產有限公司）to Guangzhou Huan Cheng Real Estate Development Company Limited（廣州寰城實業發展有限公司）for a consideration of RMB35,000,000.
(6) According to Planning Permit for Construction Works No. (1995)259（穗城規東片地字(1995)第259號） issued by Guangzhou Urban Planning Bureau dated 4 July 1995, the details are shown as follows:
(i) Constructor : Guangzhou Public Security Bureauf（廣州市公安局）and Guangzhou Dongya Real Estate Development Co.（廣州東亞房地產開發公司）
(ii) Construction : Office, Commercial and Residential Building Project Name
(iii) Location : North of Tianhe Bei Road (iv) Site Area : 7,217 sq m (among which 1,160 sq m is road area)
(7) According to two Reply Letters of Change Constructor Name of Construction-use Land Nos. (2003)3584 and (2005)1731（《關於申請變更建設用地單位名稱的覆函》「穗規函(2003)3584號」和「穗規函(2005)1731號」）, Guangzhou Urban Planning Bureau agreed to change the constructor’s name issued on the Planning Permit for Construction Use of Land No.(1995)259（穗城規東片地字(1995)第259號《建設用地規劃許可證》）from Guangzhou Public Security Bureau（廣州市公安局）and Guangzhou Dongya Real Estate Development Co.（廣州東亞房地產開發公司）to Guangzhou Dongzhi Property Co., Ltd.（廣州東置房產有限公司）; and then to Guangzhou Huan Cheng Real Estate Development Company Limited （廣州寰城實業發展有限公司）.

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PROPERTY VALUATION ON THE LAND

APPENDIX III

(8) According to the Reply Letter of the Development Proposal Application No. (2008)11253（《關於送審建築設計方案的覆函》「穗規函(2008)11253號」）, issued on 31 December 2008, Guangzhou Urban Planning Bureau has agreed the development proposal in Planning Permit for Construction Use of Land No.(1995) 259（穗規地證 (1995) 259號《建設用地規劃許可證》）to construct a 53-storey commercial and 42-storey hotel with 6 storeys basement, comprising a total gross floor area of 113,031 sq m (above ground floor area: 88,653 sq m and under ground floor area: 24,378 sq m), in which 84,151 sq m is countable plot ratio floor area.
(9) According to the proposed development proposal provided by the Company, the Property is planned to comprise hotel, office, serviced apartment, commercial and other facilities. The total planned gross floor area of the Property is approximately 115,108.21 sq m.

We note that the total planned gross floor area of the Property provided by the Company is approximately 115,108.21 sq m, which is inconsistent with the Grant Contract of Land Use Rights and the reply letter from the Guangzhou Urban Planning Bureau.

We have not been provided with other relevant government approval, as instructed by the Company, in the course of our valuation, we have adopted such planned gross floor area and assumed the proposed design and construction of the Property have been approved by the relevant government departments and no extra land premium or other onerous payment payable to the government. We have also assumed that the fire station with a gross floor area of 5,400 sq m as specified in the Grant Contract of Land Use Rights has been agreed to relocate off the Property.

(10) According to Business License No. 008541, Guangzhou Huan Cheng Real Estate Development Company Limited （廣州寰城實業發展有限公司）was established on 12 October 2004 as a limited company with a registered capital of RMB220,000,000 for an operation period from 21 July 2005 to 21 July 2020.
(11) According to the PRC legal opinion prepared by the Company’s PRC legal adviser, Guangdong Fair Strategy Law Firm（廣東正大方略律師事務所）:
(i) According to Certificate for the State-owned Land Use Rights No. (2004)10053（穗國用(2004) 第10053號）, the land use rights with a site area of 6,057 sq m have been granted to Guangzhou Huan Cheng Real Estate Development Company Limited（廣州寰城實業發展有限公司）for terms of 70 years for residential use, 40 years for commercial, tourism, entertainment uses and 50 years for the other uses from 12 April 2005;
(ii) Guangzhou Huan Cheng Real Estate Development Company Limited（廣州寰城實業發展有限公司）is in possession of a proper legal title to the Property and is entitled to transfer the Property with the residual term of its land use rights at no extra land grant fee or other onerous payment payable to the government;
(iii) all land grant fee have been settled in full; and
(iv) the proposed usage and design of the development of the Property, with a total gross floor area of 113,031 sq m, are in compliance with the local planning regulations and have been approved by the relevant authorities.

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PROPERTY VALUATION ON THE LAND

APPENDIX III

(12) The status of title and grant of major approvals, licenses in accordance with the PRC legal opinion and the information provided by the Company are as follows:

Certificate for the State-owned Land Use Rights Yes Grant Contract of Land Use Rights Yes Agreement of Transfer Land Use Rights Yes Approval for Construction Land Yes Planning Permit for Construction Works Yes (for a total gross floor area of 113,031 sq m) Business License Yes

— 168 —

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

— 169 —

GENERAL INFORMATION

APPENDIX IV

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.
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.

(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.

— 170 —

GENERAL INFORMATION

APPENDIX IV

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).

(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:

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)

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GENERAL INFORMATION

APPENDIX IV

		Number of
		Shares and
Name of		underlying		Approximate
Shareholder	Capacity	Shares		percentage
				(note 10)
Merrill Lynch	Interests of controlled	1,516,931,271	(long)	102.66%
& Co., Inc.	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
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 Co.,	Interests of controlled	1,347,160,656	(long)	91.17%
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

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GENERAL INFORMATION

APPENDIX IV

		Number of
		Shares and
Name of		underlying		Approximate
Shareholder	Capacity	Shares		percentage
				(note 10)
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 Co. LP	person having a security	(note 5)
	interest in Shares and/or
	parties to an agreement
	under s.317(1)(b) and
	s.318 of the SFO
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

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GENERAL INFORMATION

APPENDIX IV

		Number of
		Shares and
Name of		underlying		Approximate
Shareholder	Capacity	Shares		percentage
				(note 10)
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	89,055,660	(long)	6.03%
Aktiengesellschaft	interest in Shares
PMA Capital	Investment manager and/or	1,073,142,871	(long)	72.62%
Management Limited	person having a security	(note 8)
	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 Greater China	Beneficial owner and/or	1,014,881,771	(long)	68.68%
(Master) Fund	person having a security	(note 9)
	interest in Shares
Dalton Investments	Investment manager	1,014,881,771	(long)	68.68%
LLC		(note 9)

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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.
These Shares comprised (i) 6,322,000 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 Mr. YU Pan; and (iii) 546,833,000 underlying Shares which would be issued upon exercise of the conversion rights attaching to the Notes at the reset conversion price of HK$1.00 held directly or indirectly by ML Asian R.E. Fund GP, L.L.C., ML Asian R.E. GP, L.P., Merrill Lynch Asian Real Estate Opportunity Fund, L.P., Merrill Lynch International Incorporated, Merrill Lynch International Holdings Inc., Merrill Lynch Europe PLC, Merrill Lynch Europe Intermediate Holdings, Merrill Lynch Holdings Limited, ML UK Capital Holdings, Merrill Lynch International (indirectly wholly owned by Merrill Lynch & Co. Inc.), Merrill Lynch Asian Real Estate Fund Manager Pte Ltd. and its sub-advisors. All of these entities were controlled by Merrill Lynch & Co., Inc.
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 Mr. YU Pan; and (iii) 7,811,900 underlying Shares which would be issued upon exercise of the conversion rights attaching to 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 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 Mr. YU Pan; and (iii) 374,971,200 underlying Shares which would be issued upon exercise of the conversion rights attaching to the Notes at the reset price of HK$1.00.
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 Notes at the reset price of HK$1.00.
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 Mr. YU Pan; and (ii) 299,976,960 underlying Shares which would be issued upon exercise of the conversion rights attaching to the Notes at the reset price of HK$1.00.

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GENERAL INFORMATION

APPENDIX IV

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 Mr. YU Pan; and (ii) 109,366,600 underlying Shares which would be issued upon exercise of the conversion rights attaching to 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 and Mr. YU Pan; (ii) 12,046,000 existing Shares held directly or indirectly by Dalton Investments LLC and Dalton Greater China (Master) Fund and (iii) 39,059,500 underlying Shares which would be issued upon exercise of the conversion rights attaching to the Notes at the reset conversion price of HK$1.00 held directly or indirectly by Dalton Investments LLC and Dalton Greater China (Master) Fund. The latter was managed 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.

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.

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GENERAL INFORMATION

APPENDIX IV

(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 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).

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GENERAL INFORMATION

APPENDIX IV

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 (Lűjing 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. an agreement entered into between Sunny Billion Holdings Limited (“Sunny Billion”) as the vendor, Sky Honest as the purchaser and the Company dated 21 June 2007 relating to the sale and purchase of 51% issued share capital of and shareholder’s loan due by Yaubond;
b. a share charge made between Smartford Limited (“Smartford”) as the chargor and the Trustee dated 3 July 2007 whereby all the shares of Bright Able Development Limited (“Bright Able”) were charged in favour of the Trustee;

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GENERAL INFORMATION

APPENDIX IV

c. a share charge made between Bright Able as the chargor and the Trustee dated 3 July 2007 whereby all the shares of Loyal Way (China) Group Limited (“Loyal Way”) were charged in favour of the Trustee;
d. a share charge made between Loyal Way as the chargor and the Trustee dated 3 July 2007 whereby all the shares of Fortunate Start Investments Limited (“Fortunate Start”) were charged in favour of the Trustee;
e. a share charge made between Loyal Way as the chargor and the Trustee dated 3 July 2007 whereby all the shares of Ace Billion Investments Limited (“Ace Billion”) were charged in favour of the Trustee;
f. a share charge made between Fortunate Start and Ace Billion together as the chargor and the Trustee dated 3 July 2007 whereby all the shares of Guangzhou Zhoutouzui Development Limited were charged in favour of the Trustee;
g. a second supplemental trust deed entered into between the Company, Sharp Bright, Grand Cosoms, Fine Luck Group Limited (“Fine Luck”), Great Elegant Investment Limited (“Great Elegant”), Smartford, Nicco, Red Empire Limited (“Red Empire”), Allright Investments Limited (“Allright Investments”), the Trustee, Bright Able, Loyal Way, Fortunate Start and Ace Billion dated 16 July 2007 amending the Trust Deed;
h. a deed of indemnity made by Full Ocean Development Inc. as the covenantor, Fine Luck as the covenantee and Long World Trading Limited (“Long World”) dated 19 July 2007 relating to certain indemnities given by the covenantor in favour of Long World and the covenantee;
i. an assignment of debt entered into between Sunny Billion as the assignor, Sky Honest as assignee and Yaubond dated 27 July 2007 relating to the assignment of debt due by Yaubond from the assignor to the assignee;
j. a deed of indemnity made by Sunny Billion as the covenantor, Sky Honest as the covenantee and Yaubond dated 27 July 2007 relating to certain indemnities given by the covenantor in favour of Yaubond and the covenantee;

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GENERAL INFORMATION

APPENDIX IV

k. the Loan Agreement;
l. the Loan Share Charge;
m. a share mortgage made by Chain Up Limited (“Chain Up”) as mortgagor and LBCCA dated 27 July 2007 relating to the mortgage of all the issued shares of Sky Honest in favour of LBCCA;
n. a guarantee executed by Chain Up in favour of LBCCA dated 27 July 2007 guaranteeing the due and punctual performance of all the secured obligations relating to the Sky Honest Loan;
o. a third supplemental trust deed entered into between the Company, Sharp Bright, Grand Cosoms, Fine Luck, Great Elegant, Smartford, Nicco, Red Empire, Allright Investments, Bright Able, Loyal Way, Fortunate Start, Ace Billion, Trustee and Long World dated 14 August 2007 amending the Trust Deed;
p. a share charge made between Long World as the chargor and the Trustee dated 14 August 2007 whereby all the shares of Trenco Holdings Limited were charged in favour of the Trustee;
q. a share charge made between Fine Luck as the chargor and the Trustee dated 14 August 2007 whereby all the shares of Long World were charged in favour of the Trustee;
r. a shareholders agreement made between Nicco, Sky Honest and Yaubond dated 17 August 2007 relating to Yaubond;
s. a fourth supplemental trust deed entered into between the Company, Sharp Bright, Grand Cosoms, Fine Luck, Great Elegant, Smartford, Nicco, Red Empire, Allright Investments, Bright Able, Loyal Way, Fortunate Start, Ace Billion, Long World and the Trustee dated 22 January 2008 amending the Trust Deed;

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GENERAL INFORMATION

APPENDIX IV

t. 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;
u. 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;
v. a deed of confirmation made between Sky Honest and Chain Up 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;
w. a fifth supplemental trust deed entered into between the Company, Sharp Bright, Grand Cosoms, Fine Luck, Great Elegant, Smartford, Nicco, Red Empire, Allright Investments, Bright Able, Loyal Way, Fortunate Start, Ace Billion, Long World and the Trustee dated 8 May 2008 relating to the Trust Deed;
x. a second supplemental agreement dated 20 October 2008 entered into between Mr. LUO Dong Ling and Smartford relating to the extension of time for the settlement of the outstanding consideration by Smartford 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);
y. 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; and
z. the Agreement.

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GENERAL INFORMATION

APPENDIX IV

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 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.
(b) The head office and principal place of business of the Company in Hong Kong is at 2502B, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong.
(c) 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.

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GENERAL INFORMATION

APPENDIX IV

(d) 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.
(e) 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 at 2502B, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong up to and including 10 July 2009:

(a) the Agreement;
(b) the annual reports of the Company for the years ended 31 December 2007 and 2008;
(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 Land 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; and
(h) the material contracts referred to in the paragraph headed “Material Contracts” in this appendix.

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NOTICE OF SGM

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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 Luk Kwok Hotel, Basement, Falcon Room 1, 72 Gloucester Road, Wanchai, Hong Kong on Friday, 10 July 2009 at 11:00 a.m. for the purpose of considering and, if thought fit, passing the following resolutions with or without amendments as resolutions of the Company:

ORDINARY RESOLUTIONS

(1) “ THAT ，
(i) the sale and purchase agreement dated 20 May 2009 (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 Sky Honest Investment Corp. (“ Sky Honest ”) and Nicco Limited (“ Nicco ”) as vendors (the “ Vendors ”, both wholly-owned subsidiaries of the Company), Happy Genius Management Limited (“ Happy Genius ”) and General Fortune Investment Limited as purchasers (the “ Purchasers ”) and the Company as guarantor in relation to the disposal by the Vendors of 80% in aggregate of the issued share capital of Yaubond Limited (“ Yaubond ”) (of which 40.8% is held by Sky Honest and 39.2% is held by Nicco) and 80% in aggregate of all shareholders loans due by Yaubond to the Vendors (of which 40.8% is due to Sky Honest and 39.2% is due to Nicco) for a total consideration of HK$352,098,086 and RMB58,000,000 and the transactions contemplated thereunder including:
- a. entering into the shareholders’ agreement (“ Shareholders Agreement ”) between the Vendors, the Purchasers and Yaubond upon the completion of the Agreement;
- b. the grant by Happy Genius to the Vendors (where applicable, exercisable by The Hongkong and Shanghai Banking Corporation Limited or Lehman Brothers Commercial Corporation Asia Limited) of the PreDemolition Put Option (as defined in the Circular of the Company dated

* For identification purposes only

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NOTICE OF SGM

22 June 2009) and the Post-Demolition Put Option (as defined in the Circular of the Company dated 22 June 2009) and the grant of the Call Option (as defined in the Circular of the Company dated 22 June 2009) by the Vendors to Happy Genius;

be and are hereby generally and unconditionally approved in all respects; and

(ii) the directors of the Company (“ 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.”
(2) “ THAT ,
(i) subject to and conditional upon passing of the resolution numbered 1 above, the disposal of the remaining interest of the Vendors in Yaubond (including all shareholders’ loans then due by Yaubond to the Vendors) (a) by the exercise of the Pre-Demolition Put Option at the Pre-Determined Price (as defined in the Circular of the Company dated 22 June 2009) or (b) by the exercise of the Post-Demolition Put Option at the higher of the Fair Value (as defined in the Circular of the Company dated 22 June 2009) or the Pre-Determined Price or (c) pursuant to the exercise of the Call Option be and is hereby approved and the Directors be and are hereby authorised to exercise the Pre-Demolition Put Option or the Post-Demolition Put Option if and when they shall deem fit; and
(ii) the Directors be and are hereby authorised to exercise the Pre-Demolition Put Option or the Post-Demolition Put Option if and when they deem fit and 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 exercise of the Pre-Demolition Put Option or the Post-Demolition Put Option and the transactions respectively contemplated thereunder and under the Call Option 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, 22 June 2009

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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.

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AI assistant

Greenheart Group Limited — Proxy Solicitation & Information Statement 2009

48939_rns_2009-06-21_277a5295-2b14-49b8-9ff1-4f4ab1066eb5.pdf

VERY SUBSTANTIAL DISPOSAL

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

VERY SUBSTANTIAL DISPOSAL

INTRODUCTION

LETTER FROM THE BOARD

THE AGREEMENT

Assets to be disposed of

Consideration

LETTER FROM THE BOARD

Conditions precedent

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Completion

RELOCATION OF FIRE STATION, PUT OPTIONS AND CALL OPTION

LETTER FROM THE BOARD

LETTER FROM THE BOARD

SHAREHOLDERS AGREEMENT

Parties:

Object:

Board composition:

Quorum:

Voting:

Transfer of shares:

Financing:

INFORMATION ON YAUBOND GROUP

LETTER FROM THE BOARD

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

LETTER FROM THE BOARD

THE SGM

RECOMMENDATION

GENERAL

1. ACCOUNTANTS’ REPORT OF THE GROUP

Basis for disclaimer of opinion: material uncertainty relating to the going concern basis

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

(I) FINANCIAL INFORMATION

Consolidated Income Statements

Consolidated Balance Sheets

Consolidated Statements of Changes in Equity

Consolidated Cash Flow Statements

(II) NOTES TO THE FINANCIAL INFORMATION

1. General Information

2. Adoption of New and Revised Hong Kong Financial Reporting Standards (“HKFRSs”)

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

(i) Properties held for sale

(j) Properties held for/under developmen t

(k) Leasin g

The Group as lessor

(l) Financial instruments

(i) Financial assets

(ii) Impairment loss on financial assets

(iii) Financial liabilities

(iv) Convertible debts

(m) Inventories

Greenheart Group Limited Proxy Solicitation & Information Statement 2009