Kerry Properties Limited

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Kerry Properties Limited, you should at once hand this document and the accompanying forms of proxy to the purchaser or the 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 the transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this document, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document.

PROPOSED PRIVATISATION OF

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BY

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KERRY HOLDINGS LIMITED

BY WAY OF A SCHEME OF ARRANGEMENT UNDER SECTION 99 OF THE COMPANIES ACT 1981 OF BERMUDA (AS AMENDED) INVOLVING THE CANCELLATION OF ALL OF THE ISSUED SHARES OF HK$1.00 EACH IN KERRY PROPERTIES LIMITED WHICH ARE HELD BY THE SCHEME SHAREHOLDERS

Financial adviser to Kerry Holdings Limited

The Hongkong and Shanghai Banking Corporation Limited

Independent financial adviser to the Independent Board Committee of Kerry Properties Limited

A letter from the board of directors of Kerry Properties Limited is set out on pages 11 to 21 of this document. An explanatory statement regarding the Proposal (as defined herein) and the Option Offer (as defined herein) is set out on pages 58 to 81 of this document. A letter from the Independent Board Committee (as defined herein) containing its advice to the Independent Shareholders (as defined herein) in relation to the Proposal and to the Optionholders (as defined herein) in relation to the Option Offer is set out on pages 22 and 23 of this document. A letter from the independent financial adviser, N M Rothschild & Sons (Hong Kong) Limited, containing its advice to the Independent Board Committee in relation to the Proposal and the Option Offer is set out on pages 24 to 57 of this document.

The action to be taken by the Independent Shareholders and the Shareholders (as defined herein) is set out on pages 80 and 81 of this document.

Notices convening the Court Meeting (as defined herein) and the Special General Meeting (as defined herein) to be held on 18 July 2003 are set out on pages 249 to 254 of this document. Whether or not you are able to attend the Meetings (as defined herein) in person, you are strongly urged to complete and sign the enclosed pink form of proxy in respect of the Court Meeting and the white form of proxy in respect of the Special General Meeting in accordance with the instructions respectively printed thereon and to deposit both of them with Kerry Properties Limited’s branch share registrar in Hong Kong, Abacus Share Registrars Limited, at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible and, in any event, not less than 48 hours before the time appointed for the holding of the relevant Meetings. In the case of the pink form of proxy, it may be handed to the Chairman of the Court Meeting at the Court Meeting if it is not so deposited.

This document is issued jointly by Kerry Properties Limited and Kerry Holdings Limited.

26 June 2003

* FOR IDENTIFICATION PURPOSE ONLY

	Page
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
Expected timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Letter from the KPL Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Letter from Rothschild . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
Explanatory Statement
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	58
Summary of the Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	58
Conditions of the Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	60
Financial effects of the Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	61
Background to, and reasons for, the Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	63
Option Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	69
Information relating to the KPL Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	70
Future intentions of KHL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	76
Information relating to the Kuok Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	76
Share certificates, dealings and Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	77
Registration and payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	77
Overseas Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	78
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	78
Meetings and Scheme Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	79
Action to be taken by the Independent Shareholders and the Shareholders . . . . . . .	80
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	81
Further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	81

		Page
Appendix I	– Financial information relating to the KPL Group. . . . . . . . . . . . . . . . .	82
Appendix II	– Property valuations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	164
Appendix III	– Infrastructure project valuations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	204
Appendix IV	– Letter to Optionholders, including the appendix and
	form of acceptance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	208
Appendix V	– Trading Announcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	216
Appendix VI	– Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	222
Appendix VII	– General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	225
Scheme of Arrangement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		241
Notice of Court Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		249
Notice of Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		252

SUMMARY

This document contains details of the proposal by KHL to privatise KPL.

Under the Proposal, each Scheme Shareholder is being offered:

FOR EACH SCHEME SHARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$9.50 IN CASH

This represents:

a premium of approximately 58.33% over the closing price of HK$6.00 per Share, as quoted on the Stock Exchange on 11 April 2003 (being the last traded price prior to the suspension of trading in the Shares pending the issue of the Announcement);
a premium of approximately 46.83% over the average closing price of approximately HK$6.47 per Share, based on the daily closing prices as quoted on the Stock Exchange over the 3-month period up to and including 11 April 2003;
a premium of approximately 84.47% over the lowest closing price during the 12-month period ended on the date of the Announcement of HK$5.15 per Share, as quoted on the Stock Exchange on 11 October 2002;
a premium of approximately 1.60% over the closing price of HK$9.35 per Share, as quoted on the Stock Exchange on the Latest Practicable Date; and
a discount of approximately 39.76% to the Adjusted NTAV per Share of approximately HK$15.77.

Any Shares issued as a result of the exercise of Options by Optionholders who are or will on exercise of the relevant Options become Scheme Shareholders will be treated as Scheme Shares and be subject to the Scheme. The Option Offer will be made to Optionholders in accordance with the Takeovers Code on the terms set out on pages 69 and 70 of this document.

HSBC, on behalf of KHL, is making the Option Offer during the Option Offer Period to the Optionholders to purchase and cancel all their Options. For the purchase and cancellation of each Option in respect of which the Option Offer is made, accepting Optionholders will receive the “seethrough” price of that Option, being the amount by which the Cancellation Price exceeds the exercise price of that Option, or where the exercise price of the relevant Option is equal to, or greater than the Cancellation Price, accepting Optionholders will receive HK$1.00 per board lot (which comprises 500 Shares) (or part board lot) of Shares for the number of Shares that would be issued if the relevant Options were exercised in full. The Option Offer is conditional on the Proposal becoming effective and binding.

The detailed terms and conditions of the Proposal, and the advice of the Independent Board Committee and Rothschild recommending that the Independent Shareholders vote against the Scheme are set out in this document, which you are urged to read carefully.

DEFINITIONS

In this document (other than Section 2 of Appendix I and each of Appendices II, III, V and VI to the Explanatory Statement, the Scheme and notices of the Meetings), the following expressions shall have the meanings respectively set opposite them unless the context otherwise requires:

“Adjusted NTAV”
the pro forma adjusted consolidated net tangible asset value of the KPL Group which is based on the audited consolidated net asset value of the KPL Group as at 31 December 2002 and adjusted for certain items as set out in Section 6 of Appendix I to the Explanatory Statement on pages 162 and 163 of this document
“Announcement”
the announcement dated 23 April 2003 issued jointly by KHL and KPL relating to the Proposal and published in South China Morning Post, Hong Kong Economic Times and Hong Kong Economic Journal on 24 April 2003
“Authorisations”
all necessary authorisations, registrations, filings, rulings, consents, permissions and approvals in connection with the Proposal
“Beijing Government”

the municipal government of Beijing

“Cancellation Price”
the cancellation price of HK$9.50 per Share payable in cash by KHL to the Scheme Shareholders whose names appear on the Registers at the Record Time
“Chesterton Petty” Chesterton Petty Limited, an independent professional property valuer
“Companies Act”

the Companies Act 1981 of Bermuda (as amended)

“Condition(s)”
the conditions or any of them to which the Proposal is subject, all of which are set out in the Explanatory Statement on pages 60 and 61 of this document
“Court Meeting”
a meeting of the Independent Shareholders to be convened at the direction of the Supreme Court at which the Scheme will be voted upon, notice of which is set out on pages 249 to 251 of this document, and any adjournment thereof
“DTZ”
DTZ Debenham Tie Leung Limited, an independent professional property valuer
“Effective Date”
the date on which the Scheme, if approved, becomes effective, which is expected to be between 2:00 p.m. and 5:00 p.m. on 11 August 2003 (Bermuda time) (equivalent to between 1:00 a.m. and 4:00 a.m. on 12 August 2003 (Hong Kong time))

DEFINITIONS

“Executive” the Executive Director of the Corporate Finance Division of the Securities and Futures Commission of Hong Kong or any delegate of the Executive Director
“Explanatory Statement” the explanatory statement set out on pages 58 to 81 of this document and issued in compliance with Section 100 of the Companies Act
“GDP” gross domestic product
“HK$” and “HK cents” Hong Kong dollars and cents respectively, the lawful currency of Hong Kong
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Hong Kong Government” the government of Hong Kong
“Hong Kong Property the Hong Kong properties division of the KPL Group Division”
“HSBC” The Hongkong and Shanghai Banking Corporation Limited, which is deemed to have been registered with the Securities and Futures Commission for Types 1, 4, 6 and 9 regulated activities under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) by virtue of it being an exempt dealer under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong) (repealed) and a licensed bank under the Banking Ordinance (Chapter 155 of the Laws of Hong Kong), being the financial adviser to KHL in connection with the Proposal and the Option Offer
“HSBC Shareholders” HSBC International Trustee Limited and HSBC Broking Services (Asia) Limited, both ultimately wholly-owned subsidiaries of HSBC Holdings plc, who together owned or controlled on a discretionary basis 451,031 Shares as at the Latest Practicable Date (representing approximately 0.04% of the issued share capital of KPL as at such date) and are presumed to be acting in concert with KHL under the Takeovers Code
“Independent Board Committee” an independent committee of the KPL Board comprising all of the independent non-executive KPL Directors, being Mr. Christopher Roger Moss, who presides as the Chairman of this committee, Dr. Fung Kwok King, Victor and Mrs. Lee Pui Ling, Angelina, appointed by the KPL Board to advise the Independent Shareholders in relation to the Proposal and the Optionholders in relation to the Option Offer

DEFINITIONS

“Independent Shareholders”
shareholders of KPL other than KHL, parties acting in concert with KHL and the Trust and the HSBC Shareholders (which are presumed to be acting in concert with KHL under the Takeovers Code)
“KHL”
Kerry Holdings Limited, a company incorporated in Hong Kong with limited liability, which, where the context so requires, includes certain subsidiaries and an associated company of Kerry Holdings Limited (all of which are parties acting in concert with Kerry Holdings Limited, details of which are set out in Section 3(a)(i) of Appendix VII to the Explanatory Statement on pages 226 to 228 of this document) which in aggregate own, and through which Kerry Holdings Limited is interested in, 730,524,460 Shares as at the Latest Practicable Date (representing approximately 61.67% of the issued share capital of KPL as at such date) and, for the avoidance of doubt, excludes NSKG and SKG
“KHL Director(s)”
director(s) of KHL
“KPL”
Kerry Properties Limited, an exempted company incorporated in Bermuda with limited liability, the shares of which are currently listed on the Stock Exchange
“KPL Board”
the board of KPL Directors
“KPL Director(s)”
director(s) of KPL
“KPL Executive Directors”
the executive KPL Directors, being Messrs. Kuok Khoon Loong, Edward, Ang Keng Lam, Wong Siu Kong, Ho Shut Kan and Thaddeus Thomas Beczak
“KPL Group” KPL and its subsidiaries
“KPL Selling Directors”
consists of those KPL Directors who are Shareholders except for Mr. Kuok Khoon Loong, Edward, who is included in NSKG and was interested in 857,704 Shares as at the Latest Practicable Date (representing approximately 0.07% of the issued share capital of KPL as at such date), who collectively were interested in 629,783 Shares as at the Latest Practicable Date (representing approximately 0.05% of the issued share capital of KPL as at such date)
“Kuok Group”
companies owned or controlled by Mr. Kuok Hock Nien and/or interests associated with him

DEFINITIONS

“Latest Practicable Date” 23 June 2003, being the latest practicable date prior to the printing of this document for the purpose of ascertaining certain information contained in this document
“Logistics Network Division” the logistics and warehouse division of the KPL Group
“Listing” the listing of the Shares on the Stock Exchange

“Meeting(s)” the Court Meeting and the Special General Meeting or either of them, as the case may be

“NAV” the audited consolidated net asset value of the KPL Group as at 31 December 2002 as set out in the published audited consolidated accounts of KPL for the year ended 31 December 2002
“NSKG” non-selling Kuok Group members (other than KHL), details of which/whom are set out in Section 3(a)(iii) of Appendix VII to the Explanatory Statement on pages 230 to 235 of this document and which/who together owned 107,302,598 Shares as at the Latest Practicable Date (representing approximately 9.06% of the issued share capital of KPL as at such date)
“Option(s)” outstanding option(s) granted by KPL pursuant to the 1997 Share Option Scheme to the persons eligible thereunder
“Option Cut-Off Time” 4:00 p.m. on 8 August 2003, being the time and date notified to Optionholders by KPL pursuant to Clause 5.3(c) of the rules of the 1997 Share Option Scheme prior to which Options may be exercised following the approval of the Scheme by the requisite majorities at the Meetings
“Option Offer” the conditional cash offer by HSBC, on behalf of KHL, to Optionholders during the Option Offer Period to purchase and cancel the Options on the terms and subject to the conditions contained in this document and the separate letters to the Optionholders, including any extension or revision thereof
“Option Offer Period” the period during which the Option Offer is open for acceptance, being the period starting immediately following the approval of the Scheme by the requisite majorities at the Meetings and ending at the Option Cut-Off Time
“Optionholders” holders of the Options
“Overseas Shareholders”
Scheme Shareholders who are not resident in Hong Kong
“PRC”

the People’s Republic of China, excluding for the purposes of this document the regions of Hong Kong, Macau and Taiwan

DEFINITIONS

“PRC Government”

the government of the PRC

“PRC Property Division” the PRC properties division of the KPL Group
“Proposal” the proposal for the privatisation of KPL by KHL by way of the Scheme

“Record Time” 4:00 p.m. (Hong Kong time) on the day immediately preceding the Effective Date (Hong Kong time)

“Registers” registers of members of KPL kept in Bermuda and Hong Kong
“Registrar” Abacus Share Registrars Limited situated at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, being KPL’s branch share registrar in Hong Kong
“Relevant Authorities” appropriate governments and/or governmental bodies, regulatory bodies, courts or institutions
“Restated NAV” the consolidated net asset value of the KPL Group as at 31 December 2002 restated in accordance with the requirements of Revised SSAP 12, details of which was announced by KPL in the Trading Announcement
“Revised SSAP 12” Statement of Standard Accounting Practice 12 “Income Taxes” issued by the Hong Kong Society of Accountants and which is effective for accounting periods beginning on or after 1 January 2003
“Rothschild” N M Rothschild & Sons (Hong Kong) Limited, an authorised financial institution deemed to have been registered under section 119(1) of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) for Types 1, 4, 6 and 9 regulated activities from 1 April 2003 (previously an investment adviser registered with the Securities and Futures Commission), being the independent financial adviser to the Independent Board Committee in relation to the Proposal and the Option Offer

DEFINITIONS

“Royal Asia Appraisal”

Royal Asia Appraisal Corporation, an independent professional property valuer

“SARS”

Severe Acute Respiratory Syndrome

“Scheme”

a scheme of arrangement under Section 99 of the Companies Act involving the cancellation of all the Scheme Shares as set out on pages 241 to 248 of this document, with or subject to any modification thereof or addition thereto or conditions approved or imposed by the Supreme Court

“Scheme Share(s)” Share(s) held by the Scheme Shareholders

“Scheme Shareholder(s)”

Shareholder(s) other than KHL and NSKG, who as at the Latest Practicable Date collectively held 346,712,667 Shares (representing approximately 29.27% of the issued share capital of KPL as at such date)

“Share(s)” ordinary share(s) of HK$1.00 each in the capital of KPL

“Shareholder(s)”

registered holder(s) of the Shares and includes a person entitled by transmission to be registered as such and joint holders

“SKG”

selling Kuok Group members comprising of the following listed entities:

(i) FFM Berhad and Jerneh Asia Berhad, which are both listed on the Kuala Lumpur Stock Exchange; and
(ii) Shangri-La Asia Limited and SCMP Group Limited, which are both listed on the Stock Exchange,

all of which are members of the Kuok Group and who together owned directly or indirectly 27,802,637 Shares as at the Latest Practicable Date (representing approximately 2.35% of the issued share capital of KPL as at such date)

“Special General Meeting”

the special general meeting of KPL for the approval and implementation of the Scheme, notice of which is set out on pages 252 to 254 of this document, and any adjournment thereof

“Stock Exchange”

The Stock Exchange of Hong Kong Limited

“Supreme Court”

the Supreme Court of Bermuda

DEFINITIONS

“Takeovers Code” The Hong Kong Code on Takeovers and Mergers “Trading Announcement” the announcement of KPL made on 13 June 2003 reporting certain financial matters, the text of which is reproduced in full in Appendix V “trading day” a day on which the Stock Exchange is open for the transaction of business

“Trust” a trust which held, as at the Latest Practicable Date, 34,411,179 Shares (representing approximately 2.90% of the issued share capital of KPL as at such date), and is presumed to be acting in concert with KHL under the Takeovers Code. The beneficiaries of the Trust are parties acting in concert with KHL
“US$” United States dollars, the lawful currency of the United States of America
“WHO” the World Health Organisation
“1997 Share Option Scheme” the executive share option scheme adopted by KPL on 27 March 1997 (as amended from time to time) and terminated on 17 April 2002 such that thereafter no further share options shall be offered thereunder but the share options which had been granted during the life thereof shall continue to be valid and exercisable in accordance with their terms of issue and in all other respects the provisions thereof shall remain in full force and effect

“%” per cent

2003

EXPECTED TIMETABLE

Latest time for lodging transfers of the

Shares in order to be entitled to attend and vote at the Court Meeting and the Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Monday, 14 July

Closure of the Registers for the determination of entitlements of the Independent Shareholders to attend and vote at the Court Meeting and of the Shareholders to attend and vote at the Special General Meeting . . . . . . . . . . . . . . . . . . . Tuesday, 15 July to Friday, 18 July (both dates inclusive)

Latest time for lodging forms of proxy in respect of:

Court Meeting[1] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:00 a.m. on Wednesday, 16 July Special General Meeting[1] . . . . . . . . . . . . . . . . . . . . . . . . . . 10:30 a.m. on Wednesday, 16 July Suspension of dealings in the Shares . . . . . . . . . . . . . . . . . . . . . . . . . 9:30 a.m. on Friday, 18 July Court Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:00 a.m. on Friday, 18 July Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:30 a.m. on Friday, 18 July Start of Option Offer Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11:00 a.m. on Friday, 18 July Press announcements of the results of the Meetings in South China Morning Post, Hong Kong Economic Journal and Hong Kong Economic Times . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 21 July Resumption of dealings in the Shares . . . . . . . . . . . . . . . . . . . . . . 9:30 a.m. on Monday, 21 July Last day for dealings in the Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 5 August Suspension of dealings in the Shares . . . . . . . . . . . . . . . . . . . 9:30 a.m. on Wednesday, 6 August Option Cut-Off Time and latest time for receipt of forms of acceptance in relation to the Option Offer . . . . . . . . . . . 4:00 p.m. on Friday, 8 August Supreme Court hearing of petition to sanction the Scheme[2] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 8 August

2003

EXPECTED TIMETABLE

Latest time for lodging transfers of

the Shares in order to qualify for

the Cancellation Price under the Scheme . . . . . . . . . . . . . . . . . . 4:00 p.m. on Friday, 8 August

Record Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Monday, 11 August

Effective Date[3] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 12 August

Withdrawal of the Listing becomes effective[3] . . . . . . . . . . . . . . . 4:00 p.m. on Tuesday, 12 August

Press announcements of the Effective Date and

the withdrawal of the Listing in South China Morning Post, Hong Kong Economic Journal and

Hong Kong Economic Times . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 13 August

Cheques for payment of the Cancellation Price

and monies under the Option Offer to be despatched on or before . . . . . . . . Friday, 22 August

Shareholders should note that the above timetable, which is mainly dependent on the availability of the dates for the Supreme Court to hear the proceedings relating to the Scheme, is subject to change. Further announcements will be made in the event that there are any changes.

Notes:

Forms of proxy should be deposited with the Registrar at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible and in any event by the times and dates stated above. In the case of the pink form of proxy in respect of the Court Meeting, it may be handed to the Chairman of the Court Meeting at the Court Meeting if it is not so deposited. In order to be valid, the white form of proxy for the Special General Meeting must be deposited not later than the time and date stated above. Completion and return of a form of proxy for either of the Meetings will not preclude an Independent Shareholder from attending the Court Meeting, or a Shareholder from attending the Special General Meeting, and voting in person if he so wishes. In such event, the returned form of proxy will be deemed to have been revoked.
All references in this document to times and dates are references to Hong Kong times and dates, other than references to the expected date for the Supreme Court hearing of the petition to sanction the Scheme, which are to the relevant date in Bermuda. For the period from 6 April 2003 to 26 October 2003, Bermuda time is eleven hours behind Hong Kong time.
The Scheme will become effective when it is sanctioned (with or without modification) by the Supreme Court and an office copy of the Supreme Court order is delivered to the Registrar of Companies in Bermuda for registration and is registered. Registration is expected to take place between 2:00 p.m. and 5:00 p.m. on 11 August 2003 (Bermuda time) (equivalent to between 1:00 a.m. and 4:00 a.m. on 12 August 2003 (Hong Kong time)). The Independent Shareholders should note the Conditions set out in the Explanatory Statement on pages 60 and 61 of this document. If the Scheme becomes effective, it is expected that the Listing will be withdrawn on Tuesday, 12 August 2003.

LETTER FROM THE KPL BOARD

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KERRY PROPERTIES LIMITED

Mr. Kuok Khoon Loong, Edward (Chairman) Mr. Ang Keng Lam

(Deputy Chairman and Joint Managing Director) Mr. Wong Siu Kong (Joint Managing Director) Mr. Ho Shut Kan

Mr. Thaddeus Thomas Beczak Dr. Fung Kwok King, Victor[#] Mrs. Lee Pui Ling, Angelina[#] Mr. Christopher Roger Moss[#]

Independent Non-executive Directors

Registered Office: Cedar House 41 Cedar Avenue Hamilton HM12 Bermuda

Head Office and Principal Place of Business in Hong Kong: 13-14/F., Cityplaza 3 14 Taikoo Wan Road Taikoo Shing Hong Kong

26 June 2003

To the Shareholders and the Optionholders

Dear Sir or Madam,

Proposed Privatisation of KERRY PROPERTIES LIMITED by Kerry Holdings Limited by way of a Scheme of Arrangement under Section 99 of the Companies Act

INTRODUCTION

It was announced on 23 April 2003 that KHL had requested the KPL Directors to put forward a proposal to the Scheme Shareholders regarding a proposed privatisation of KPL by KHL by way of a scheme of arrangement under Section 99 of the Companies Act. The Scheme involves the cancellation and extinguishment of all of the Scheme Shares in consideration for the payment of a cancellation price, which was announced on 23 April 2003 to be HK$8.50 per Scheme Share. It was further announced on 30 April 2003 that, to make the Cancellation Price more attractive, KHL had decided to increase the Cancellation Price to HK$9.50 per Scheme Share, representing an increase of approximately 11.76%.

FOR IDENTIFICATION PURPOSE ONLY

LETTER FROM THE KPL BOARD

Upon the Scheme becoming effective, KPL will be wholly-owned by KHL, and/or its subsidiaries and/or such entities as KHL may direct, subject to permission being granted by the Bermuda Monetary Authority, and NSKG. Applications were submitted to and permission granted by the Bermuda Monetary Authority for KPL to issue such number of new Shares as is equal to the number of Scheme Shares cancelled and extinguished under the Scheme to a wholly-owned subsidiary of KHL. In granting such permission, the Bermuda Monetary Authority does not accept any responsibility for the financial soundness of any of the parties to the Scheme or for the correctness of any of the statements made or opinions expressed in this document. No agreement, arrangement or understanding exists between KHL and any party other than KPL in relation to the issue of new Shares following the cancellation and extinguishment of the Scheme Shares upon the Scheme becoming effective. KPL will apply to the Stock Exchange for the withdrawal of the Listing immediately following the Effective Date. Whilst KHL has no intention to make significant changes to the existing businesses of the KPL Group upon the successful privatisation of KPL, it does not rule out the possibility of any changes in the future if and when it thinks changes may be needed in order to benefit the KPL Group.

For the avoidance of doubt, it should be noted that the final dividend of HK$0.12 per Share in respect of the year ended 31 December 2002 was paid on 30 May 2003 to those Shareholders whose names appeared on the Registers on 15 April 2003. Those Shareholders who elected to receive such final dividend wholly or partly by way of allotment of new Shares credited as fully paid in lieu of cash were issued such scrip Shares on 30 May 2003. Upon the Scheme becoming effective, the Scheme Shares will be acquired cum any dividend which may be declared.

For the purposes of the Proposal, save for the Trust and the HSBC Shareholders, which are presumed to be acting in concert with KHL under the Takeovers Code, NSKG, SKG and the KPL Selling Directors are the only parties acting in concert with KHL. The shareholdings of these parties in KPL as at the Latest Practicable Date are set out below in the section of this letter headed “Shareholding structure of KPL”.

In view of the interests of KHL in the Proposal, KHL and parties acting in concert with KHL, being NSKG, SKG and the KPL Selling Directors, will not be entitled to attend in their capacity as shareholders of KPL or vote at the Court Meeting. In addition, on the basis that the Trust and the HSBC Shareholders are presumed to be acting in concert with KHL, they will not be entitled to attend or vote at the Court Meeting for the purpose of approving the Scheme as required under Rule 2.10 of the Takeovers Code.

KHL, NSKG, SKG and the KPL Selling Directors have indicated that if the Scheme is approved at the Court Meeting, their respective Shares will be voted in favour of the special resolution to be proposed at the Special General Meeting to approve and give effect to the Scheme (including the cancellation of the Scheme Shares and the reduction of the issued share capital of KPL). The Trust and the HSBC Shareholders have given no indication as to their respective voting intentions as at the Latest Practicable Date. For further information, please refer to the section of this letter headed “Meetings and action to be taken by the Independent Shareholders and the Shareholders” set out below.

KHL has appointed HSBC as its financial adviser in connection with the Proposal and the Option Offer.

LETTER FROM THE KPL BOARD

The KPL Board comprises eight directors, of whom five are executive directors and the remaining three are independent non-executive directors. The five KPL Executive Directors are Messrs. Kuok Khoon Loong, Edward, Ang Keng Lam, Wong Siu Kong, Ho Shut Kan and Thaddeus Thomas Beczak, and the three independent non-executive directors are Mr. Christopher Roger Moss, Dr. Fung Kwok King, Victor and Mrs. Lee Pui Ling, Angelina.

As Messrs. Kuok Khoon Loong, Edward, Ang Keng Lam, Wong Siu Kong and Thaddeus Thomas Beczak are also KHL Directors and each of the KPL Executive Directors has interests in Kerry Group Limited, the controlling shareholder of KHL, none of the KPL Executive Directors are considered to be sufficiently independent under the Takeovers Code for the purpose of advising the Independent Shareholders on the Proposal and the Optionholders on the Option Offer.

As a result, Mr. Christopher Roger Moss, Dr. Fung Kwok King, Victor and Mrs. Lee Pui Ling, Angelina, the independent non-executive directors of KPL who have no interest in the Proposal or the Option Offer, have been appointed as members of the Independent Board Committee to advise the Independent Shareholders on the Proposal and the Scheme and the Optionholders on the Option Offer. Mr. Christopher Roger Moss is the Chairman of the Independent Board Committee.

Rothschild has been appointed as the independent financial adviser to the Independent Board Committee pursuant to Rule 2.1 of the Takeovers Code in connection with the Proposal and the Option Offer.

The purpose of this document is to provide you with further information regarding the Proposal and the Option Offer and to give you notices of the Meetings. Your attention is also drawn to the letter from the Independent Board Committee, the letter from Rothschild, the Explanatory Statement and the Scheme, all of which form part of this document.

SUMMARY OF THE PROPOSAL

It is proposed that, subject to the Conditions being fulfilled or, where applicable, waived, the Proposal will be implemented by way of the Scheme, which will involve a reduction in the issued share capital of KPL by the cancellation and extinguishment of all of the Scheme Shares. Forthwith upon such reduction of capital taking effect, the issued share capital of KPL will be increased to its former amount by the creation of such number of new Shares as is equal to the number of Scheme Shares cancelled. The credit arising in KPL’s books of account as a result of the reduction of issued share capital will be applied in paying up in full at par the new Shares so created, which will be allotted and issued, credited as fully paid, to KHL and/or its subsidiaries and/or such entities as it may direct, subject to permission being granted by the Bermuda Monetary Authority. Applications were submitted to and permission granted by the Bermuda Monetary Authority for KPL to issue such new Shares to a wholly-owned subsidiary of KHL. In granting such permission, the Bermuda Monetary Authority does not accept any responsibility for the financial soundness of any of the parties to the Scheme or for the correctness of any of the statements made or opinions expressed in this document. No agreement, arrangement or understanding exists between KHL and any party other than KPL in relation to the issue of such new Shares. The Scheme also provides that, in consideration for the cancellation and extinguishment of the Scheme Shares, the Scheme Shareholders whose names appear on the Registers at the Record Time will be paid the Cancellation Price by KHL for each Scheme Share held.

LETTER FROM THE KPL BOARD

Payment of the Cancellation Price will be effected by way of cheque and implemented in full in accordance with the terms of the Scheme without regard to any lien, right of set-off, counterclaim or other analogous right which KPL may have or claim to have against any Scheme Shareholder.

As at the Latest Practicable Date, there were 1,184,539,725 Shares in issue and the Scheme Shareholders owned 346,712,667 Shares, representing approximately 29.27% of the issued share capital of KPL as at such date.

As at the Latest Practicable Date, there were 32,039,084 Options (which can be exercised into 32,039,084 new Shares, representing approximately 2.70% of the issued share capital of KPL as at such date) granted by KPL out of which 15,703,441 Options (which can be exercised into 15,703,441 new Shares, representing approximately 1.33% of the issued share capital of KPL as at such date) were granted to the KPL Executive Directors. Any Shares issued as a result of the exercise of the Options by Optionholders who are or will on exercise of the relevant Options become Scheme Shareholders will be treated as Scheme Shares and be subject to the Scheme. The Option Offer will be made to Optionholders during the Option Offer Period in accordance with the Takeovers Code on the terms set out on pages 69 and 70 of this document.

On the basis of the Cancellation Price and of a total of 1,216,578,809 Shares in issue (assuming that all Options are exercised in full by all Optionholders), the Proposal valued the entire issued share capital of KPL as at the Latest Practicable Date at approximately HK$11,557.50 million. The maximum number of Scheme Shares and amount of cash required for the Proposal is up to 372,954,485 Scheme Shares (representing approximately 31.49% of the issued share capital of KPL as at the Latest Practicable Date) and approximately HK$3,543.07 million respectively, assuming that all Options are exercised in full by all Optionholders except for Mr. Kuok Khoon Loong, Edward, who is part of NSKG and held 5,797,266 Options (which can be exercised into 5,797,266 new Shares, representing approximately 0.49% of the issued share capital of KPL as at the Latest Practicable Date and will not form part of the Scheme Shares).

KHL intends to finance the cash required for the Proposal and the Option Offer from internal resources and banking facilities. A loan facility has been granted by HSBC to KHL in respect of the Proposal and the Option Offer. HSBC, KHL’s financial adviser, is satisfied that sufficient financial resources are available to KHL for the implementation of the Proposal and the Option Offer.

The Proposal will become effective and binding on KPL and all Scheme Shareholders, provided that the Conditions are fulfilled or, where applicable, waived. The Conditions are set out in the section headed “Conditions of the Proposal” in the Explanatory Statement on pages 60 and 61 of this document.

The Scheme will lapse if it does not become effective on or before 30 August 2003 (or such later date as KPL and KHL may agree) and the Scheme Shareholders will be notified accordingly by press announcement. Further announcements regarding the Proposal will be made as and when appropriate.

LETTER FROM THE KPL BOARD

Assuming that the Scheme becomes effective on 12 August 2003, cheques for the Cancellation Price are expected to be despatched to the Scheme Shareholders whose names appear on the Registers at the Record Time on or before 22 August 2003.

FINANCIAL EFFECTS OF THE PROPOSAL

Share Price

The Cancellation Price represents:

(i) a premium of approximately 58.33% over the closing price of HK$6.00 per Share, as quoted on the Stock Exchange on 11 April 2003 (being the last traded price prior to the suspension of trading in the Shares pending the issue of the Announcement);
(ii) a premium of approximately 54.98% over the average closing price of approximately HK$6.13 per Share, based on the daily closing prices as quoted on the Stock Exchange over the 5 trading days up to and including 11 April 2003;
(iii) a premium of approximately 49.37% over the average closing price of approximately HK$6.36 per Share, based on the daily closing prices as quoted on the Stock Exchange over the 1-month period up to and including 11 April 2003;
(iv) a premium of approximately 46.83% over the average closing price of approximately HK$6.47 per Share, based on the daily closing prices as quoted on the Stock Exchange over the 3-month period up to and including 11 April 2003;
(v) a premium of approximately 38.69% over the average closing price of approximately HK$6.85 per Share, based on the daily closing prices as quoted on the Stock Exchange over the 12-month period up to and including 11 April 2003; and
(vi) a premium of approximately 1.60% over the closing price of HK$9.35 per Share, as quoted on the Stock Exchange on the Latest Practicable Date.

Historical share price information on the Shares is set out in Section 2 of Appendix VII to the Explanatory Statement on page 225 of this document.

Net Asset Value

The Cancellation Price represents:

(i) a discount of approximately 47.05% to the NAV per Share of approximately HK$17.94 as at 31 December 2002;
(ii) a discount of approximately 43.82% to the Restated NAV per Share of approximately HK$16.91 as at 31 December 2002; and
(iii) a discount of approximately 39.76% to the Adjusted NTAV per Share of approximately HK$15.77.

LETTER FROM THE KPL BOARD

Earnings

The KPL Group’s published audited consolidated profit attributable to the Shareholders for the years ended 31 December 2002 and 31 December 2001 was approximately HK$660 million and HK$396 million respectively, representing earnings per Share of approximately HK56.71 cents and HK34.50 cents respectively, as shown in the Consolidated Profit and Loss Account of the KPL Group in Section 2 of Appendix I to the Explanatory Statement on page 85 of this document.

The KPL Group’s consolidated profit attributable to the Shareholders for the years ended 31 December 2002 and 31 December 2001 as restated in accordance with the requirements of Revised SSAP 12 was approximately HK$600 million and HK$147 million respectively, representing earnings per Share of approximately HK51.50 cents and HK12.85 cents respectively, as summarised in Section 1(b) of Appendix 1 to the Explanatory Statement on page 82 of this document.

Dividend Yield

Based on the Cancellation Price and the dividends for the year ended 31 December 2002, the dividend yield for the Shares would be approximately 3.16%.

SHAREHOLDING STRUCTURE OF KPL

The table below sets out the shareholding structure of KPL as at the Latest Practicable Date and immediately following completion of the Proposal on the basis of the same number of Shares in issue:

	As at the		Upon completion	Upon completion
	Latest Practicable	Date	of the Proposal4
	Number of Shares	%	Number of Shares	%
KHL	730,524,460	61.67	1,077,237,127 5	90.94
NSKG	107,302,598	9.06	107,302,598	9.06
SKG2	27,802,637	2.35	–	0.00
KPL Selling Directors2	629,783	0.05	–	0.00
Trust2	34,411,179	2.90	–	0.00
HSBC Shareholders2	451,031	0.04	–	0.00
Sub-total3	901,121,688	76.07	1,184,539,725	100.00
Independent Shareholders	283,418,037	23.93	–	0.00
	1,184,539,725	100.00	1,184,539,725	100.00

LETTER FROM THE KPL BOARD

Notes:

% figures are stated to 2 decimal places.
All of the Shares owned and controlled by SKG, the Trust and the HSBC Shareholders and all of the Shares in which the KPL Selling Directors are interested will form part of the Scheme Shares.
The figure represents the aggregate shareholding of KHL and parties acting in concert with KHL (in the case of the KPL Selling Directors, their shareholding and the Shares in which they are interested), and the Trust and the HSBC Shareholders, which are presumed to be acting in concert with KHL under the Takeovers Code.
For the avoidance of doubt, KHL’s and NSKG’s number of Shares and shareholding percentages will change depending upon the number of Options that are exercised.
Under the Scheme, the authorised and issued share capital of KPL will be reduced by cancelling and extinguishing the Scheme Shares. Forthwith upon such reduction of capital taking effect, the issued share capital of KPL will be increased to its former amount by the creation of such number of new Shares as is equal to the number of the Scheme Shares cancelled through applying the credit arising in KPL’s books of account as a result of such capital reduction in paying up in full at par the new Shares so created, which will be allotted and issued, credited as fully paid, to KHL and/or its subsidiaries and/or such entities as it may direct, subject to permission being granted by the Bermuda Monetary Authority. Applications were submitted to and permission granted by the Bermuda Monetary Authority for KPL to issue such new Shares to a wholly-owned subsidiary of KHL. In granting such permission, the Bermuda Monetary Authority does not accept any responsibility for the financial soundness of any of the parties to the Scheme or for the correctness of any of the statements made or opinions expressed in this document. No agreement, arrangement or understanding exists between KHL and any party other than KPL in relation to the issue of such new Shares.
The above table sets out the principal entities or group of entities involved, with intermediary entities being omitted. KHL’s interests in KPL are held through subsidiaries and an associated company, details of which are set out in Section 3(a)(i) of Appendix VII to the Explanatory Statement on pages 226 to 228 of this document.
KHL is also interested in Shares held by certain SKG members but, in order to show SKG’s interests separately, in this document such interests have not been included in the interests of KHL, details of which are set out in Section 3(a)(i) of Appendix VII to the Explanatory Statement on pages 226 to 228 of this document.

BACKGROUND TO, AND REASONS FOR, THE PROPOSAL

Your attention is drawn to the section headed “Background to, and reasons for, the Proposal” in the Explanatory Statement on pages 63 to 69 of this document.

INFORMATION RELATING TO THE KPL GROUP

Your attention is also drawn to the section headed “Information relating to the KPL Group” in the Explanatory Statement on pages 70 to 76 of this document.

FUTURE INTENTIONS OF KHL

Your attention is drawn to the section headed “Future Intentions of KHL” in the Explanatory Statement on page 76 of this document.

LETTER FROM THE KPL BOARD

OPTION OFFER TO OPTIONHOLDERS

A letter (enclosing a form of acceptance) setting out the terms and conditions of the Option Offer has been separately despatched to the Optionholders. Optionholders should refer to that letter, the text of which is set out in Appendix IV to the Explanatory Statement on pages 208 to 215 of this document.

A conditional cash offer will be made by HSBC, on behalf of KHL, to Optionholders during the Option Offer Period to purchase and cancel all their Options. For the purchase and cancellation of each Option in respect of which the Option Offer is made, accepting Optionholders will receive the “see-through” price of that Option, being the amount by which the Cancellation Price exceeds the exercise price of that Option, or where the exercise price of an Option is equal to, or greater than the Cancellation Price, accepting Optionholders will receive HK$1.00 per board lot (which comprises 500 Shares) (or part board lot) of Shares for the number of Shares that would be issued if the relevant Options were exercised in full. The Option Offer is conditional on the Proposal becoming effective and binding.

As at the Latest Practicable Date, there were 32,039,084 Options with exercise prices ranging from HK$6.79 to HK$15.12 per Option.

Under the terms of the 1997 Share Option Scheme, all Options will become exercisable at any time during the period following the approval of the Scheme by the requisite majorities at the Meetings until the Option Cut-Off Time, but any such exercise of Options, save for an exercise of those Options which are exercisable under their terms prior to the Meetings, shall be conditional on the Scheme being sanctioned by the Supreme Court. For the avoidance of doubt, any Options which are exercisable prior to the Meetings under their terms remain exercisable and any exercise of such Options, whether prior to or following the Meetings, will remain valid, whether the Scheme is sanctioned by the Supreme Court or not.

If the Scheme is approved by the requisite majorities at the Meetings and sanctioned by the Supreme Court, any Options that are not exercised prior to the Option Cut-Off Time or purchased and cancelled pursuant to the Option Offer will automatically lapse on the sanctioning of the Scheme by the Supreme Court.

If the Scheme is not approved by the requisite majorities at the Meetings or is not sanctioned by the Supreme Court, all Options will remain unaffected and will be exercisable during their relevant exercise periods pursuant to the terms of the 1997 Share Option Scheme.

MEETINGS AND ACTION TO BE TAKEN BY THE INDEPENDENT SHAREHOLDERS AND THE SHAREHOLDERS

As you will see from the notices of Meetings on pages 249 to 254 of this document, the Meetings have been convened to be held at 10:00 a.m. and 10:30 a.m. respectively in Atrium I & II, Level 39, Island Shangri-La Hotel, Pacific Place, Supreme Court Road, Central, Hong Kong on 18 July 2003.

LETTER FROM THE KPL BOARD

The Supreme Court has directed that the Court Meeting be held for the purpose of considering and, if thought fit, passing a resolution to approve the Scheme, with or without modification. In so far as the statutory requirement for the sanction of the Scheme by the Supreme Court is concerned, a resolution for the approval of the Scheme will be deemed to have been passed if a majority in number representing not less than three-fourths in value of the Shares held by the Independent Shareholders present and voting either in person or by proxy at the Court Meeting vote in favour of the Scheme.

Under Rule 2.10 of the Takeovers Code, however, such a resolution will only be considered to have been passed if (i) the Scheme is approved by at least 75% of the votes attaching to the Shares of the Independent Shareholders that are cast either in person or by proxy at the Court Meeting; and (ii) the number of votes cast against the resolution at the Court Meeting is not more than 10% of all the Shares held by all of the Independent Shareholders (i.e. not more than 28,341,803 Shares, based on 283,418,037 Shares held by the Independent Shareholders as at the Latest Practicable Date).

Immediately following the Court Meeting, the Special General Meeting will be held for the purpose of considering and, if thought fit, passing a special resolution to approve and give effect to the Scheme.

As at the Latest Practicable Date, KHL owned 730,524,460 Shares, representing approximately 61.67% of the issued share capital of KPL as at such date. Such Shares will not form part of the Scheme Shares and will not be voted at the Court Meeting. In view of the interests of KHL in the Proposal, parties who are acting in concert with KHL, being NSKG, SKG and the KPL Selling Directors, which/who collectively, owned (or, in the case of the KPL Selling Directors, were interested in), as at the Latest Practicable Date 135,735,018 Shares (representing approximately 11.46% of the issued share capital of KPL as at such date), will not be entitled to attend in their capacity as shareholders of KPL or vote at the Court Meeting. In addition, on the basis that the Trust and the HSBC Shareholders are presumed to be acting in concert with KHL, they will not be entitled to attend or vote at the Court Meeting for the purpose of approving the Scheme as required under Rule 2.10 of the Takeovers Code. However, the 63,294,630 Shares (representing approximately 5.34% of the issued share capital of KPL as at the Latest Practicable Date) owned by SKG, the Trust and the HSBC Shareholders or in which the KPL Selling Directors were interested as at the Latest Practicable Date, will still form part of the Scheme Shares. The 107,302,598 Shares owned by NSKG as at the Latest Practicable Date (representing approximately 9.06% of the issued share capital of KPL as at such date) will not form part of the Scheme Shares. The maximum number of Scheme Shares (assuming that all Options are exercised in full by all Optionholders except for Mr. Kuok Khoon Loong, Edward, who is part of NSKG and held 5,797,266 Options (which can be exercised into 5,797,266 new Shares, representing approximately 0.49% of the issued share capital of KPL as at the Latest Practicable Date and will not form part of the Scheme Shares)) will be 372,954,485 Shares (representing approximately 31.49% of the issued share capital of KPL as at the Latest Practicable Date).

LETTER FROM THE KPL BOARD

Whether or not they are able to attend the Meetings in person, the Independent Shareholders are strongly urged to complete and sign the enclosed pink form of proxy in respect of the Court Meeting and the Shareholders are strongly urged to complete and sign the enclosed white form of proxy in respect of the Special General Meeting in accordance with the instructions respectively printed thereon and to deposit them with the Registrar at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible, but in any case not later than the following respective times:

(a) in the case of the pink form of proxy for use at the Court Meeting, the Independent Shareholders are requested to deposit this form of proxy not later than 10:00 a.m. on 16 July 2003, but if it is not so deposited, it may be handed to the Chairman of the Court Meeting at the Court Meeting; and
(b) in order to be valid, the white form of proxy for use at the Special General Meeting must be deposited by the Shareholders not later than 10:30 a.m. on 16 July 2003.

A self-addressed, pre-paid envelope is enclosed for your convenience for returning by post (from within Hong Kong only) your completed forms of proxy. The completion and return of a form of proxy for any of the Meetings will not preclude you from attending the relevant Meetings and voting in person if you so wish. In the event that you attend a Meeting after having deposited the relevant form of proxy, that form of proxy will be deemed to have been revoked.

For the purpose of determining the entitlements of the Independent Shareholders to attend and vote at the Court Meeting and the Shareholders to attend and vote at the Special General Meeting, the Registers will be closed from 15 July to 18 July 2003 (both dates inclusive). During such period no transfer of Shares will be effected. In order to be entitled to attend and vote at the Court Meeting or the Special General Meeting, all transfers accompanied by the relevant share certificates must be lodged with the Registrar at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not later than 4:00 p.m. on 14 July 2003.

Assuming that all of the Conditions are fulfilled or, where applicable, waived, the Scheme will become effective on the Effective Date, which is expected to be between 2:00 p.m. and 5:00 p.m. on 11 August 2003 (Bermuda time) (equivalent to between 1:00 a.m. and 4:00 a.m. on 12 August 2003 (Hong Kong time)). Further press announcements will be made giving details of the results of the Meetings and, if all the resolutions are passed at the Meetings, the last day for dealing in the Shares, the Record Time, the result of the hearing of the petition for the sanction of the Scheme by the Supreme Court, the Effective Date and the date of the withdrawal of the Listing.

LETTER FROM THE KPL BOARD

RECOMMENDATIONS

Your attention is drawn to the recommendations of Rothschild to the Independent Board Committee in relation to the Scheme and the Option Offer set out in its letter on pages 24 to 57 of this document and to the recommendations of the Independent Board Committee to the Independent Shareholders in relation to the Scheme and to the Optionholders in relation to the Option Offer set out in their letter on pages 22 and 23 of this document.

SHARE CERTIFICATES, DEALINGS, LISTING, REGISTRATION AND PAYMENT

Your attention is drawn to the sections headed “Share certificates, dealings and Listing” and “Registration and payment” in the Explanatory Statement on pages 77 and 78 of this document.

FURTHER INFORMATION

A letter from the Independent Board Committee to the Independent Shareholders and Optionholders as well as a letter from Rothschild are reproduced on pages 22 to 57 of this document. We advise you to read these letters carefully before you take any action in respect of the Proposal and/or the Option Offer.

In considering what action to take in connection with the Proposal and/or the Option Offer, you should consider your own tax position and, if you are in any doubt, you should consult your professional advisers.

You are also urged to read carefully the Explanatory Statement and all the Appendices to the Explanatory Statement set out on pages 58 to 240 of this document, the Scheme set out on pages 241 to 248 of this document and the notices of the Meetings set out on pages 249 to 254 of this document.

Yours faithfully, For and on behalf of the board of Kerry Properties Limited Kuok Khoon Loong, Edward Chairman

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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KERRY PROPERTIES LIMITED

26 June 2003

To the Independent Shareholders and the Optionholders

Dear Sir or Madam,

Proposed Privatisation of KERRY PROPERTIES LIMITED by Kerry Holdings Limited by way of a Scheme of Arrangement under Section 99 of the Companies Act

BACKGROUND

Terms used in this letter have the same meanings as those defined in the document of which this letter forms part.

It was announced on 23 April 2003 that KHL had requested the KPL Directors to put forward the Proposal to the Scheme Shareholders for the purpose of acquiring interests of Scheme Shareholders in KPL by way of the Scheme at the cancellation price of HK$8.50 per Scheme Share. It was further announced on 30 April 2003 that, to make the Cancellation Price more attractive, KHL had decided to increase the Cancellation Price from HK$8.50 to HK$9.50 per Share, representing an increase of approximately 11.76%. Details of the Proposal and the Option Offer are set out in the section headed “Letter from the KPL Board” on pages 11 to 21 of this document and in the section headed “Explanatory Statement” on pages 58 to 81 of this document. For the purpose of the Proposal and the Option Offer we have been appointed members of the Independent Board Committee in order to give a recommendation to the Independent Shareholders as to how they should vote on the Scheme and to Optionholders in relation to the Option Offer. Rothschild has been appointed as the independent financial adviser to advise the Independent Board Committee in connection with the Proposal, the Scheme and the Option Offer.

ADVICE FROM ROTHSCHILD

We have considered carefully the terms of the Proposal and the Option Offer as well as the advice from Rothschild, including the principal factors and reasons as well as their recommendations. Your attention is drawn to the advice from Rothschild which is set out in their letter of advice which is reproduced on pages 24 to 57 of the document and to the letter from the KPL Board, the Explanatory

* FOR IDENTIFICATION PURPOSE ONLY

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Statement and the Appendices which form part of the Explanatory Statement, in particular, the financial information set out in Appendix I, the property valuations in Appendix II and the infrastructure project valuations set out in Appendix III.

In deciding the course of action to take, Independent Shareholders should have regard to their own personal circumstances and, in so doing, they may have regard to the “Further Considerations” highlighted by Rothschild in their letter of advice on pages 55 and 56 of the document.

RECOMMENDATIONS

The Independent Board Committee has resolved to adopt the advice of Rothschild and, accordingly, our recommendations are as follows:

The offer for the Scheme Shares

We cannot accept that the offer for the Scheme Shares under the Proposal is fair and reasonable insofar as the Independent Shareholders are concerned. Accordingly, we recommend that the Independent Shareholders vote against the Scheme and the resolution in relation to the Proposal and the Scheme at the Meetings.

The Option Offer

On the basis of Rothschild’s advice in relation to the offer for the Scheme Shares under the Proposal, we also cannot accept that the Option Offer is fair and reasonable insofar as the Optionholders are concerned.

However, as all outstanding Options will lapse if the Scheme is approved by the requisite majorities at the Meetings and is sanctioned by the Supreme Court, we recommend that the Optionholders accept the Option Offer in the event that the Scheme is approved by the requisite majorities at the Meetings in order to maximise the value of the Options notwithstanding our acceptance of Rothschild’s advice that the terms of the Option Offer are not fair and reasonable.

Yours faithfully,

Mr. Christopher Roger Moss

Independent Non-executive Director

Dr. Fung Kwok King, Victor

Independent Non-executive Director

Mrs. Lee Pui Ling, Angelina Independent Non-executive Director

LETTER FROM ROTHSCHILD

Set out below is the text of the letter from Rothschild to the Independent Board Committee prepared for inclusion in this document.

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26 June 2003

To the Independent Board Committee of

Kerry Properties Limited

Dear Sir or Madam,

PROPOSED PRIVATISATION OF KERRY PROPERTIES LIMITED BY KERRY HOLDINGS LIMITED BY WAY OF A SCHEME OF ARRANGEMENT

We refer to our engagement to advise the Independent Board Committee with respect to the Proposal, the Scheme and the Option Offer, details of which are contained in the scheme document of KPL dated 26 June 2003 (the “Document”) of which this letter forms a part. Rothschild has been appointed as the independent financial adviser to advise the Independent Board Committee as to whether or not the terms of the Proposal and the Scheme are fair and reasonable so far as the Independent Shareholders are concerned and whether or not the terms of the Option Offer are fair and reasonable so far as the Optionholders are concerned.

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

The KPL Board comprises eight directors of whom five are executive directors and the remaining three are independent non-executive directors. The five executive directors are Messrs. Kuok Khoon Loong, Edward, Ang Keng Lam, Wong Siu Kong, Ho Shut Kan and Thaddeus Thomas Beczak, and the three independent non-executive directors are Dr. Fung Kwok King, Victor, Mrs. Lee Pui Ling, Angelina and Mr. Christopher Roger Moss.

As noted in the “Letter from the KPL Board” of the Document, Messrs. Kuok Khoon Loong, Edward, Ang Keng Lam, Wong Siu Kong and Thaddeus Thomas Beczak are also KHL Directors and each of the KPL Executive Directors has interests in Kerry Group Limited, the controlling shareholder of KHL and, accordingly, none of the KPL Executive Directors are considered to be sufficiently independent under the Takeovers Code for the purpose of advising the Independent Shareholders on the Proposal and the Scheme, and the Optionholders on the Option Offer. As a result, Mr.

N M Rothschild & Sons (Hong Kong) Limited Telephone: (852) 2525-5333 16th Floor, Alexandra House Fax: (852) 2868-1728 16-20 Chater Road, Central (852) 2810-6997 Hong Kong SAR

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Christopher Roger Moss, Dr. Fung Kwok King, Victor and Mrs. Lee Pui Ling, Angelina, the independent non-executive directors of KPL, who have no interest in the Proposal, the Scheme or the Option Offer, have been appointed as members of the Independent Board Committee to advise the Independent Shareholders on the Proposal and the Scheme and the Optionholders on the Option Offer. Mr. Christopher Roger Moss has been nominated as the Chairman of the Independent Board Committee.

In formulating our recommendations, we have relied on the information and facts supplied to us by KPL and have assumed that any representations made to us are true, accurate and complete in all material respects as at the date hereof and that they may be relied upon. We have also assumed that all information, representations and opinions contained or referred to in the Document, including the valuations conducted by Chesterton Petty, DTZ and Royal Asia Appraisal, the independent valuers, are fair and reasonable and have relied on them.

We have been advised by the KPL Directors that no material facts have been omitted and we are not aware of any facts or circumstances which would render the information provided and the representations made to us untrue, inaccurate or misleading. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the KPL Directors. The KPL Directors (in respect of the information relating to the KPL Group, other than that relating to KHL’s future intentions with respect to the KPL Group, and the KPL Directors) and the KHL Directors (in respect of the information other than that relating to the KPL Group and the KPL Directors, but including KHL’s future intentions with respect to the KPL Group) have jointly and severally accepted full responsibility for the accuracy of the information contained in the Document and have confirmed, having made all reasonable enquiries, that, to the best of their knowledge and belief, opinions expressed in the information contained in this Document, for which they are responsible, have been arrived at after due and careful consideration and there are no other facts the omission of which would make any statement in the Document misleading. We believe that we have reviewed sufficient information to reach an informed view in order to provide a reasonable basis for our advice. We have not, however, conducted any independent in-depth investigation into the business and affairs of the KPL Group or any of their respective subsidiaries or associated companies.

TERMS OF THE PROPOSAL

For details of the terms of the Proposal, the Scheme and the Option Offer, your attention is drawn to the “Explanatory Statement” of the Document. In summary, the Proposal, the Scheme and the Option Offer involve the following principal steps:

all the Scheme Shares held by the Scheme Shareholders will be cancelled and, in consideration for that, each Scheme Shareholder will receive the Cancellation Price of HK$9.50 from KHL for every Scheme Share held;

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Optionholders accepting the Option Offer will receive (i) where the Cancellation Price exceeds the exercise price of the Options, the “see-through” price of the Options held, being the amount by which the Cancellation Price exceeds the exercise price of the Options, or (ii) where the exercise price of the Options is equal to, or greater than the Cancellation Price, HK$1.00 per board lot (which comprises 500 Shares) or part board lot of Shares which would be issued if the relevant Options were exercised in full. The Option Offer is conditional upon the Proposal and the Scheme becoming effective and binding; and
KPL will become wholly-owned by KHL (and/or its subsidiaries and/or such entities as KHL may direct, subject to permission being granted by the Bermuda Monetary Authority) and NSKG upon completion of the Proposal and the Scheme, and the listing of the Shares on the Stock Exchange will be withdrawn.

The Proposal and the Scheme are subject to a number of conditions, including but not limited to the court sanction of the Scheme, Independent Shareholders’ approval at the Court Meeting and Shareholders’ approval at the Special General Meeting, further details of which are set out under the section headed “Conditions of the Proposal” in the “Explanatory Statement” of the Document.

PRINCIPAL FACTORS AND REASONS

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

1. Background and rationale of the Proposal

KPL is an investment holding company. The principal activities of the subsidiaries and associated companies of KPL are property development and investment in Hong Kong, the PRC, Australia and the Philippines; logistics, freight and warehouse ownership and operation; infrastructure related investment in Hong Kong and the PRC; and hotel ownership in the PRC.

As stated under the section headed “Background to, and reasons for, the Proposal” in the “Explanatory Statement” of the Document, the KHL Directors noted that the Shares have traded at a progressively worsening average annual closing price over the last three years up to and including 11 April 2003, the last trading day of the Shares prior to the Announcement, which is similar to many Hong Kong listed companies with property interests primarily in Hong Kong and the PRC. They also noted that the daily trading volume of the Shares for the six months and 12 months up to and including 11 April 2003 were relatively thin whereby the average daily trading volumes of the Shares during the aforesaid periods represent approximately 0.08% and 0.07% of the issued capital of KPL as at the Latest Practicable Date

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respectively. The KHL Directors are of the view that it would be difficult for KPL to raise additional funds for its businesses from the equity capital markets given the low trading liquidity of the Shares and the depressed Hong Kong stock market. In addition, they do not anticipate any significant improvement in this respect in the foreseeable future.

In view of the above, the KHL Directors believe that the Proposal provides an opportunity for all Scheme Shareholders to realise their investments in KPL at a premium to the trading Share price prior to the Announcement.

2. Valuation considerations

In analysing the valuation of the Shares, we have taken into consideration the following principal factors: (i) historical financial performance and future prospects of the KPL Group; (ii) NAV and Adjusted NTAV; and (iii) analysis of the Cancellation Price.

(i) Historical financial performance and future prospects of the KPL Group

As noted under the section headed “Future intentions of KHL” in the “Explanatory Statement” of the Document, KHL intends to continue with the existing businesses of the KPL Group, and the management and daily operations of the KPL Group will be carried out by its existing management upon successful privatisation of KPL. In view of this, we believe it is appropriate to evaluate the terms of the Proposal based on the historical financial performance and future prospects of the existing businesses of the KPL Group, which are further discussed below.

The summaries of the consolidated results of the KPL Group for the three financial years ended 31 December 2002 and the published audited consolidated accounts of the KPL Group for the two financial years ended 31 December 2002 are set out in Appendix I to the Document.

As shown in the published audited consolidated accounts of the KPL Group, revenues of the KPL Group were derived primarily from proceeds from the sale of properties and rental income in Hong Kong and the PRC, logistics and warehouse income and infrastructure income. Set out below is a summary of the revenue, segment results and operating profit /(loss) for each of the major business segments of the KPL Group for the three financial years ended 31 December 2002, which were extracted from the published audited consolidated accounts of the KPL Group, and a brief review of the financial performance of the major business segments of the KPL Group during this period.

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Hong Kong property PRC property Logistics network Infrastructure Others2 Eliminations3 Total	Revenue HK$ million 2,704.7 1,089.5 1,317.6 0.0 791.5 (747.1)	2002 Segment results1 HK$ million 135.8 519.6 254.5 (0.3) 290.8 (360.3)	Operating profit / (loss) HK$ million (26.1) 431.7 197.5 (0.3) 76.1 0.0	Financial year ended 31 December 2001 Segment Operating Revenue results1 profit / (loss) HK$ million HK$ million HK$ million 2,810.2 38.4 (109.7) 1,344.9 498.5 381.1 837.5 180.9 80.1 89.3 165.3 165.3 1,091.2 394.4 10.5 (1,047.4) (423.7) 0.0 5,125.7 853.8 527.3	Financial year ended 31 December 2001 Segment Operating Revenue results1 profit / (loss) HK$ million HK$ million HK$ million 2,810.2 38.4 (109.7) 1,344.9 498.5 381.1 837.5 180.9 80.1 89.3 165.3 165.3 1,091.2 394.4 10.5 (1,047.4) (423.7) 0.0 5,125.7 853.8 527.3	Financial year ended 31 December 2001 Segment Operating Revenue results1 profit / (loss) HK$ million HK$ million HK$ million 2,810.2 38.4 (109.7) 1,344.9 498.5 381.1 837.5 180.9 80.1 89.3 165.3 165.3 1,091.2 394.4 10.5 (1,047.4) (423.7) 0.0 5,125.7 853.8 527.3	Revenue HK$ million 1,687.6 971.7 481.1 119.0 1,183.9 (1,128.5)	2000 Segment results1 p HK$ million 354.9 405.9 234.1 56.6 618.7 (651.5) 1,018.7	Operating rofit / (loss) HK$ million 226.2 318.9 73.9 56.6 115.3 0.0
	5,156.2	840.1	678.9	5,125.7	853.8	527.3	3,314.8		790.9

Notes:

This is defined as earnings before dividend income, interest, tax and share of profit/(loss) of the associated companies.
Revenue in this segment mainly represents inter-segment charge of interest, project management expenses and corporate expenses.
These represent eliminations of inter-segment transactions.
(a) Hong Kong property division

The Hong Kong property division accounted for approximately 50.9%, 54.8% and 52.5% of the KPL Group’s total revenue for the three financial years ended 31 December 2002 respectively.

Revenue of the Hong Kong property division, which comprises predominantly proceeds from the sale of properties and rental income, increased from approximately HK$1,687.6 million in 2000 to approximately HK$2,810.2 million in 2001. We understand that this increase was primarily due to the increase in the proceeds from sale of properties from approximately HK$1,223.1 million in 2000 to approximately HK$2,387.2 million in 2001, which in turn was mainly caused by the launch of new property projects including Ocean Pointe and Enterprise Square 2 during 2001. Revenue for the division also included gross rental income of approximately HK$464.5 million for 2000 and approximately HK$423.0 million for 2001. The decline in rental income in 2001 was mainly attributable to the disposals of certain investment properties including units in Enterprise Square and Tregunter Towers, and the KPL Group’s interest in Energy Plaza in 2001.

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For the financial year ended 31 December 2002, the continued sales of Ocean Pointe, Enterprise Square 2 and the launch of Jupiter Terrace and Constellation Cove resulted in a total revenue of approximately HK$2,704.7 million for the division, a level similar to 2001. Gross rental income for 2002 decreased from approximately HK$423.0 million to approximately HK$372.7 million as a result of the aforesaid disposals of investment properties in 2001.

Despite achieving higher revenues for the two financial years ended 31 December 2002 as compared to the financial year ended 31 December 2000, the operating profit margin of the division declined from approximately 13.4% in 2000 to negative 3.9% in 2001 and negative 1.0% in 2002. We note that this was mainly due to the difficult conditions experienced in the Hong Kong property market in recent years, which led to a decrease in the profitability of property development and investment of the KPL Group in Hong Kong. In addition, significant amounts of provision on stock of completed properties held for sale and properties under development were made by the KPL Group during the period under review. For the three financial years ended 31 December 2002, KPL made provisions of HK$400 million, HK$360 million and HK$266 million respectively for its stock of completed properties held for sale and properties under development. As the provisions for properties under development and stock of completed properties held for sale for 2001 and 2002 were made in respect of a 75% owned property development project, KPL’s share of the aforesaid provisions were HK$270 million and approximately HK$200 million for 2001 and 2002 respectively.

(b) PRC property division

The PRC property division accounted for approximately 29.3%, 26.2% and 21.1% of the KPL Group’s total revenue for the three financial years ended 31 December 2002 respectively.

Revenue of the PRC property division, which comprises predominately proceeds from sale of properties, rental and hotel revenue, increased from approximately HK$971.7 million in 2000 to approximately HK$1,344.9 million in 2001. We note that this improvement was primarily due to the increase in the proceeds from the sale of properties from approximately HK$440.7 million in 2000 to approximately HK$678.6 million in 2001 as a result of the sales of Central Residences and Kerry Everbright City in Shanghai during 2001. Gross rental income also increased from approximately HK$355.5 million in 2000 to approximately HK$462.3 million in 2001. The increase was mainly due to the

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consolidation of the gross property management fee income of Beijing Kerry Centre and an increase in the rental income of Shenzhen Kerry Centre in 2001. Hotel revenue also increased from approximately HK$175.5 million in 2000 to approximately HK$204.0 million in 2001, which was mainly due to an increase in average transient rates from approximately US$97.5 per night in 2000 to approximately US$117.4 per night in 2001. As a result of the growth as mentioned above, the operating profit for the division escalated from approximately HK$318.9 million in 2000 to approximately HK$381.1 million in 2001, representing an operating profit margin of approximately 32.8% and 28.3% respectively.

For the financial year ended 31 December 2002, revenue of the division decreased by approximately 19.0% from 2001 to approximately HK$1,089.5 million. We understand that the decline was principally due to a reduction in the number of units sold in Central Residences and Kerry Everbright City as compared with 2001. Gross rental income decreased slightly to approximately HK$456.0 million in 2002 while the overall average occupancy rates for the PRC property division were maintained at a similar level. Hotel revenue in 2002 increased as the average occupancy rate for the Beijing Kerry Centre Hotel increased from approximately 68.4% in 2001 to approximately 79.5% in 2002.

As a result of the above as well as a reduction of interest expenses of approximately HK$34.3 million in 2002, the operating profit for the PRC property division increased by approximately 13.3% from 2001 to approximately HK$431.7 million in 2002, representing an operating profit margin of approximately 39.6% for 2002.

(c) Logistics network division

The logistics network division accounted for approximately 14.5%, 16.3% and 25.6% of the KPL Group’s total revenue for the three financial years ended 31 December 2002 respectively.

Revenue of the logistics network division, increased from approximately HK$481.1 million in 2000 to approximately HK$837.5 million in 2001. In 2002, revenue from this division increased further to approximately HK$1,317.6 million. The strong increase in revenue during the last three financial years was mainly due to the rapid expansion of the KPL Group’s logistics network. In particular, the division acquired a number of logistics companies over the last few years, including Kerry Freight (Korea) Inc. in Korea, Kerry Logistics (Australia) Pty Ltd (formerly

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known as Charlick Trading Pty. Limited) in South Australia and Kerry Logistics (UK) Limited (formerly known as Trident International Limited) in the United Kingdom. During the period under review, KPL also set up a number of joint ventures and subsidiaries in the PRC, Thailand, the United States and Germany to further develop its logistics business.

Although the logistics business has expanded rapidly in the last few years, the operating profit margin of the logistics business remained low. The average operating profit margin for the last three financial years was approximately 3.9%. In 2001, the division recorded a one-time loss of approximately HK$79.6 million on the disposal of a warehouse in Yuen Long. However, this loss was partly offset by the reduction of interest expenses of the division by approximately HK$60.1 million which, together with the business expansion as mentioned above, resulted in an overall increase in operating profit of the division in 2001. As no such similar loss on disposal was recorded in 2002, and the interest expenses for the division was further reduced by approximately HK$44.4 million, the operating profit increased to approximately HK$197.5 million in 2002.

(d) Infrastructure division

For the two financial years ended 31 December 2001, revenue was generated from the investment in a fixed return co-operative joint venture, the HuNing Expressway in the PRC. The operating profit for the division increased by approximately 191.8% from 2000 to approximately HK$165.3 million in 2001 as a result of KPL’s disposal of its interest in the Hu-Ning Expressway, which reported a one-off gain on disposal of approximately HK$111.7 million in 2001. After the aforesaid disposal, no revenue was recorded for the division in 2002, and as such, the division recorded an operating loss of approximately HK$0.3 million in 2002. However, it should be noted that other investments of the infrastructure division include investments in Chiwan Container Terminal in the PRC, Asia Airfreight Terminal and Western Harbour Tunnel in Hong Kong, all of which have been equity accounted for in the consolidated financial statements of the KPL Group. The share of profit of these associated companies by the KPL Group in 2002 was approximately HK$107.8 million, representing an increase of approximately HK$51.7 million from 2001. Such increase was mainly due to an improvement in the performance of the associated companies including Chiwan Container Terminal, Asia Airfreight Terminal and Western Harbour Tunnel.

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(e) Operating profit of the KPL Group

The overall operating profit of the KPL Group has fluctuated during the three financial years ended 31 December 2002. It decreased from approximately HK$790.9 million in 2000 to approximately HK$527.3 million in 2001, and increased to approximately HK$678.9 million in 2002. As discussed above, the decline in operating profit in 2001 was mainly due to the downturn in the property market in Hong Kong, which resulted in a lower profit margin from the sale of properties, and the HK$360 million provision (KPL’s share of this provision was HK$270 million) for properties under development made in 2001. The increase in operating profit in 2002 was principally due to an improvement in the performance of the PRC property division and the logistics network division, a reduction in provision made for stock of properties held for sale and properties under development by HK$94 million (KPL’s share of this decrease was approximately HK$71 million), and a reduction of finance costs of approximately HK$180.8 million for the KPL Group in 2002.

(f) Profit attributable to Shareholders

Profit attributable to Shareholders decreased by approximately 45.6% from approximately HK$728.2 million in 2000 to approximately HK$395.8 million in 2001. In addition to the reasons as discussed above, we also note that the share of profits less losses of associated companies decreased from a profit of approximately HK$140.9 million in 2000 to a loss of approximately HK$1.0 million in 2001, which also contributed to the significant decrease in profit attributable to Shareholders in 2001. Such decrease in share of profits less losses of associated companies was mainly due to the share of losses amounting to approximately HK$115.4 million incurred by the associated companies which principally engage in property development and investment in Hong Kong. Other associated companies of KPL include its investments in the infrastructure businesses as discussed above and other overseas investments in property projects included in the international division which, in aggregate contributed approximately HK$77.6 million and HK$94.1 million to the profit of the KPL Group for 2000 and 2001 respectively.

In addition to the reasons for the increase in operating profit in 2002 as discussed above, an improvement in the performance of the associated companies in the infrastructure division, including Chiwan Container Terminal, Asia Airfreight Terminal and Western Harbour Tunnel also contributed to the growth in the profit attributable to Shareholders.

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In summary, the businesses of the KPL Group, which are primarily concentrated in the property sectors of Hong Kong and the PRC and with a significant portion of revenue generated from the sale of properties in Hong Kong, have been adversely affected by the downturn of the property market and economy in Hong Kong in the last few years. We note that the continuous decline in property prices in Hong Kong in recent years has led to significant provisions being made by the KPL Group in respect of its property interests, hence negatively impacted KPL Group’s overall profitability. However, we also note that the KPL Group has managed to record an improvement in revenue and net profit for the latest financial year ended 31 December 2002, which was principally due to the lower provision made for its property interests, the growth in the logistics network division, and the improvement in performance of the infrastructure projects. For further details of the material changes after the last financial year end and the future prospects of the KPL Group, your attention is drawn to the sub-section headed “(g) Material changes after the last financial year end and future prospects of the KPL Group” below.

(g) Material changes after the last financial year end and future prospects of the KPL Group

As discussed above, the financial performance of the KPL Group in recent years has been adversely affected by the downturn of the property market and the continued weakness of the economy in Hong Kong. As noted under the section headed “5. Material Changes” in Appendix I to the Document, KPL made an announcement on 13 June 2003 in relation to certain material changes in its financial performance for the first four months of 2003 as a result of the first adoption of the Revised SSAP12 and the revaluation of its property interests as at 30 April 2003, further details of which are set out in Appendix V to the Document. The adjustment relating to the Revised SSAP12 has a retrospective effect of reducing the net asset value of the KPL Group as at 31 December 2002 by approximately HK$1.2 billion and the revaluation of property interests of the KPL Group have resulted in a charge to the profit and loss accounts of the KPL Group for the first four months ended 30 April 2003 by approximately HK$1.1 billion. After the retrospective adjustment in relation to the Revised SSAP12, the Restated NAV of the KPL Group as at 31 December 2002 would be approximately HK$19,796.4 million, or approximately HK$16.91 per Share, based on approximately 1,170.6 million Shares in issue as at that date, and the earnings

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per Share (as restated) for the three financial years ended 31 December 2002 would be approximately HK$0.52, HK$0.13 and HK$0.65 respectively, further details of which are set out in Appendix I to the Document.

However, it should be noted that the retrospective adjustment in relation to the first adoption of the Revised SSAP12 by the KPL Group is a one-off adjustment which, together with the adjustment arising from the revaluation of the property interests, are non-cash items which will not have any cash flow impact on the KPL Group. All these adjustments have been reflected in the Adjusted NTAV which we have taken into consideration in our assessment of the Cancellation Price as further discussed in the sub-section headed “(iii) Analysis of the Cancellation Price” in this letter below.

As also noted under the sub-section headed “Impact on the KPL Group” in the “Explanatory Statement” of the Document, the KPL Board is of the view that the outbreak of SARS in Hong Kong and the Asian region may affect KPL Group’s investment and development properties portfolios in relation to sales and rental revenues as well as its warehousing and logistics operations. The KPL Board is also of the opinion that it would be difficult to accurately determine the full impact of the SARS outbreak on the KPL Group given the uncertainties in predicting the severity and duration of its effect on Hong Kong and the PRC, and the difficulties in predicting the adverse impact on the levels of rental income of the KPL Group which would only be more accurately determined when current leases are due for renewal. We have discussed the above with the management of KPL and we concur with the KPL Board’s view that the full impact of SARS on the KPL Group’s businesses remains uncertain and would be difficult to quantify.

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(ii) NAV and Adjusted NTAV

The NAV of the KPL Group (as disclosed in the published audited consolidated accounts of the KPL Group) as at 31 December 2002 was approximately HK$21,000.6 million and can be analysed as follows:

Investment properties
Properties held for/under development
Stock of completed properties held for sale
Hotel properties
Warehouses
Associated companies with significant
property interests
Unlisted investments with significant
property interests
Freehold land and buildings and staff quarters
Property and property related assets
Other assets
Total assets
Less: Bank borrowings
Other liabilities
Minority interests and loans
NAV

HK$ million
%
16,565.2
51.1%
3,211.0
9.9%
1,363.3
4.2%
953.0
2.9%
489.9
1.5%
4,660.7
14.4%
1,492.0
4.6%
17.0
0.1%
28,752.1
88.7%
3,650.5
11.3%
32,402.6
100.0%
7,057.5
1,527.9
2,816.6
21,000.6

As illustrated in the table above, property and property related assets represent, in aggregate, approximately 88.7% of the KPL Group’s total assets as at 31 December 2002. As noted in Appendix II to the Document, the property interests of the KPL Group, including those held by associated companies, have been revalued by Chesterton Petty, DTZ and Royal Asia Appraisal, the independent valuers, as at 30 April 2003. According to the property valuation reports set out in Appendix II to the Document, in terms of market value attributable to the KPL Group as at 30 April 2003, approximately 65.9% of the property interests of the KPL Group are located in Hong Kong and approximately 26.5% are located in the PRC with the remaining of approximately 7.6% principally located in the Philippines.

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A statement of the Adjusted NTAV of the KPL Group is set out in Appendix I to the Document which is summarised in the table below:

Audited net asset value as at 31 December 2002
Adjusted for:
•
intangible assets as at 31 December 2002
•
negative goodwill included in associated companies
as at 31 December 2002
•
net deficits arising from property revaluations, further
details of which are set out in Appendix II to
the Document
•
net surplus arising from the valuations of
infrastructure-related investments, further
details of which are set out in Appendix III
to the Document
•
unrealised gain on investments in listed securities
•
final dividend paid in cash for the financial year ended
31 December 2002
•
provision of deferred taxation
Adjusted NTAV
Adjusted NTAV per Share (based on approximately
1,184.5 million Shares in issue as at
the Latest Practicable Date)

HK$’000
21,000,570
(45,004)
23,924
(1,228,136)
61,045
190
(23,909)
(1,112,843)
18,675,837
HK$15.77

The above adjustments mainly reflect the net deficits arising from the revaluation of the property interests held by the KPL Group and the provision of deferred taxation arising from the first adoption of the Revised SSAP12.

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(iii) Analysis of the Cancellation Price

The Cancellation Price values the entire issued share capital of KPL at approximately HK$11,253.1 million and the approximately 346.7 million Scheme Shares held by the Scheme Shareholders as at the Latest Practicable Date at approximately HK$3,293.8 million. The Cancellation Price represents:

a premium of approximately 1.6% over the closing price of HK$9.35 per Share as quoted on the Stock Exchange as at the Latest Practicable Date;
a premium of approximately 58.3% over the closing price of HK$6.00 per Share as quoted on the Stock Exchange on 11 April 2003, being the last trading day of the Shares prior to the suspension of the trading in the Shares on the Stock Exchange, pending the issue of the Announcement;
a premium of approximately 55.0% over the average closing price of approximately HK$6.13 per Share as quoted on the Stock Exchange over the last five trading days up to and including 11 April 2003;
a premium of approximately 48.7% over the average closing price of approximately HK$6.39 per Share as quoted on the Stock Exchange over the last 30 trading days up to and including 11 April 2003;
a premium of approximately 46.7% over the average closing price of approximately HK$6.48 per Share as quoted on the Stock Exchange over the last 60 trading days up to and including 11 April 2003;
a premium of approximately 50.6% over the average closing price of approximately HK$6.31 per Share as quoted on the Stock Exchange over the last 180 trading days up to and including 11 April 2003;
a discount of approximately 47.0% to the NAV per Share as at 31 December 2002 of approximately HK$17.94;
a discount of approximately 43.8% to the Restated NAV per Share as at 31 December 2002 of approximately HK$16.91;
a discount of approximately 47.0% to the audited net tangible asset value (the “NTAV”) per Share as at 31 December 2002 of approximately HK$17.92, which was based on the published audited consolidated accounts of the KPL Group;

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a discount of approximately 43.8% to the NTAV per Share as at 31 December 2002 of approximately HK$16.89 (as restated) (the “Restated NTAV”);
a discount of approximately 39.8% to the Adjusted NTAV per Share of approximately HK$15.77;
an implied price-to-earnings ratio (“PER”) of approximately 16.8 times, based on the basic earnings per Share of HK$0.57 for the financial year ended 31 December 2002;
an implied PER (as restated) of approximately 18.4 times, based on the basic earnings per Share of HK$0.52 (as restated) for the financial year ended 31 December 2002; and
an implied dividend yield of approximately 3.2%, based on the dividend per Share of HK$0.30 for the financial year ended 31 December 2002.

Basis of our analysis

We have analysed the Cancellation Price in this section by reviewing: (a) the historical Share price performance of KPL; (b) the historical trading multiples of KPL and the multiples implied by the Cancellation Price; (c) the trading multiples of companies comparable to KPL; and (d) recent privatisations of property and property related companies in Hong Kong.

In assessing the fairness of the Cancellation Price, we are of the view that the analysis of discount to NTAV is the most important and appropriate valuation benchmark for property or property related companies. In particular, we have focused our analysis on the comparisons of discounts to NTAV and Adjusted NTAV implied by the Cancellation Price with the discounts applied to recent relevant privatisations completed in Hong Kong, which is further discussed in the sub-section headed “(d) Recent privatisations of property and property related companies in Hong Kong” below. In addition, we have reviewed the historical trading discounts to NTAV of KPL, the current trading discounts to NTAV of the companies comparable to KPL (the “Comparable Companies”) and the PER implied by the Cancellation Price for supplemental cross checking purposes as set out below.

We have also reviewed the trading multiples of the Comparable Companies. Since a majority of KPL’s turnover was derived from property development and investment, the Comparable Companies we have chosen are companies listed on the Stock Exchange and whose principal activities include both property development and investment. In selecting the

LETTER FROM ROTHSCHILD

Comparable Companies, we have taken into account their respective sizes, in terms of market capitalisation and net tangible asset value, and their business activities. In particular, we have reviewed all the property and property related companies listed in Hong Kong with market capitalisations between HK$3,000 million and HK$45,000 million, audited NTAV, based on their respective latest published annual reports, between HK$7,000 million and HK$60,000 million, and with at least 20.0% of their respective total revenues generated from each of the property development and property investment business.

The Comparable Companies we have selected based on the criteria set out above are Henderson Land Development Limited, Hang Lung Properties Limited and Sino Land Company Limited, which have market capitalisations between HK$9,521.5 million and HK$39,781.4 million as at the Latest Practicable Date, audited NTAV, based on their respective latest published annual reports, between HK$25,688.4 million and HK$55,991.4 million. We believe that these criteria would highlight companies which provide an appropriate comparison to KPL, which has a market capitalisation of approximately HK$11,253.1 million, based on the Cancellation Price, and NTAV and Restated NTAV of approximately HK$20,979.5 million and HK$19,775.3 million respectively. We note that there are other companies being included under the section headed “Net asset value and P/E comparison with peer group property companies” in the “Explanatory Statement” of the Document. However, these additional companies do not satisfy our selection criteria of Comparable Companies and accordingly, they are not included in the list of Comparable Companies.

(a) Historical Share price performance

The graph below illustrates the 3-year average closing price of the Shares for the period from 12 April 2000 to 11 April 2003, and the daily closing prices and trading volume of the Shares from 12 April 2000 and up to and including the Latest Practicable Date:

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14 20
18
12
16
10 14
12
8
10
6
8
4 Announcement of the Proposal 6
4
2
2
0 0
Share price (left scale) Cancellation Price (left scale)
Trading volume (right scale) 3-year average closing price (left scale)
Share price (HK$)
Daily trading volume (million Shares)
12-Apr-00 12-Jun-00 12-Aug-00 12-Oct-00 12-Dec-00 12-Feb-01 12-Apr-01 12-Jun-01 12-Aug-01 12-Oct-01 12-Dec-01 12-Feb-02 12-Apr-02 12-Jun-02 12-Aug-02 12-Oct-02 12-Dec-02 12-Feb-03 12-Apr-03 Latest Practicable Date
----- End of picture text -----

Source: Bloomberg

LETTER FROM ROTHSCHILD

The table below is a summary of the traded and closing prices (highest and lowest) and the average closing prices of the Shares and the total number of trading days which the closing prices of the Shares were above the Cancellation Price for the one-year period from 12 April 2002 to 11 April 2003, both days inclusive (the “One-Year Period”), and for the three-year period from 12 April 2000 to 11 April 2003, both days inclusive (the “Three-Year Period”):

	One-Year Period	Three-Year Period
Highest traded price	HK$9.40	HK$12.75
Lowest traded price	HK$5.10	HK$5.10
Highest closing price	HK$9.30	HK$12.60
Lowest closing price	HK$5.15	HK$5.15
Average closing price	HK$6.85	HK$8.17
Number of days closed above
the Cancellation Price	0 day	192 days
Total number of trading days	251 days	738 days

Source: Bloomberg

As illustrated in the graph above, the Shares have been consistently traded below the Cancellation Price since 2 August 2001. However, we note that the Cancellation Price of HK$9.50 is approximately 24.6% below the highest closing price of HK$12.60 per Share achieved on 27 February 2001 during the Three-Year Period and only approximately 2.2% above the highest closing price of HK$9.30 per Share achieved on 7 May 2002 during the One-Year Period. We also note that the closing prices of the Shares were above the Cancellation Price for approximately 26.0% of the time in the Three-Year Period.

In addition, we have also compared the share price performance of KPL against the Hang Seng Index (the “HSI”) and the Hang Seng Composite Property and Construction Index[1] (the “HSCPCI”) for the same period. We have used the HSI and HSCPCI in our comparison as they are commonly used indicators of the general stock

(1) KPL is a member of the HSCPCI and represents approximately 2.9% of the index as at the Latest Practicable Date (Source: Bloomberg).

LETTER FROM ROTHSCHILD

market trend in Hong Kong and the trend of property companies listed in Hong Kong respectively:

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

HK$
14
12 Announcement of the Proposal
10
8
6
4
2
0
KPL HSI (rebased) HSCPCI (rebased)
Source: Bloomberg
12-Apr-00 12-Jun-00 12-Aug-00 12-Oct-00 12-Dec-00 12-Feb-01 12-Apr-01 12-Jun-01 12-Aug-01 12-Oct-01 12-Dec-01 12-Feb-02 12-Apr-02 12-Jun-02 12-Aug-02 12-Oct-02 12-Dec-02 12-Feb-03 12-Apr-03 Latest Practicable Date
----- End of picture text -----

As demonstrated in the graph above, the performance of the Shares has largely out-performed the HSI and slightly under-performed the HSCPCI during the Three-Year Period. The graph implied that, despite the progressively worsening average annual closing Share price during the period under review, an investment in KPL would have achieved returns similar to the average return on investments in companies included in the HSCPCI and a better return than the average return on investments in the HSI constituent companies.

It should be noted that prior to the Announcement on 23 April 2003, stock market sentiment in Hong Kong and the Share price had been adversely affected by the war in Iraq and the outbreak of SARS. Between 4 February 2003 (being the first trading day of the Hong Kong stock market in February 2003) and 11 April 2003 (being the last trading day of the Shares prior to the suspension of the trading in the Shares, pending the issue of the Announcement), the HSI and HSCPCI dropped by approximately 6.6% and 14.2% respectively, and the Share price dropped by approximately 9.1%. Since then, stock market sentiment in Hong Kong has improved significantly and the HSI and HSCPCI increased by approximately 12.6% and 15.8% respectively since 11 April 2003 and up to and including the Latest Practicable Date. We also note that the closing price of the Shares of HK$6.00 on 11 April 2003 was at the lower end of the range of closing prices of HK$5.15 to HK$12.60 during the Three-Year Period.

LETTER FROM ROTHSCHILD

(b) Discount to NTAV and Adjusted NTAV

The Cancellation Price of HK$9.50 per Share represents a discount of:

approximately 47.0% to the NTAV per Share of approximately HK$17.92;
approximately 43.8% to the Restated NTAV per Share of approximately HK$16.89; and
approximately 39.8% to the Adjusted NTAV per Share of approximately HK$15.77.

We have compared the daily closing prices of the Shares against the then published audited NTAV per Share for the Three-Year Period. Set out below is a graph showing the historical trading discounts of the Shares to the corresponding published audited NTAV per Share for the Three-Year Period and up to and including the Latest Practicable Date, the average discount to NTAV of the Shares for the Three-Year Period and the discounts to NTAV and Adjusted NTAV implied by the Cancellation Price:

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-30%
-35% Announcement of the Proposal Discount to Adjusted
NTAV implied by
-40% the Cancellation Price
-45%
Discount to NTAV
-50% implied by the
-55% Cancellation Price
-60% Average discount to
-65% NTAV for the
Three-Year Period
-70%
-75%
-80%
12-Apr-00 12-Jun-00 12-Aug-00 12-Oct-00 12-Dec-00 12-Feb-01 12-Apr-01 12-Jun-01 12-Aug-01 12-Oct-01 12-Dec-01 12-Feb-02 12-Apr-02 12-Jun-02 12-Aug-02 12-Oct-02 12-Dec-02 12-Feb-03 12-Apr-03 Latest Practicable Date
----- End of picture text -----

Sources: Bloomberg and KPL’s annual reports

LETTER FROM ROTHSCHILD

From the above graph, we note that the Shares have been traded at substantial discounts to NTAV for the entire Three-Year Period, ranging from approximately 39.9% to 75.0% and with an average of approximately 60.4%. For the One-Year Period, the average discount to NTAV was approximately 63.6%. We note that the discounts to the NTAV, Restated NTAV and Adjusted NTAV implied by the Cancellation Price of approximately 47.0%, 43.8% and 39.8% respectively are substantially lower than the above average trading discount to NTAV for the period under review. However, we also note that such discounts to NTAV of approximately 47.0% and Restated NTAV of approximately 43.8% implied by the Cancellation Price are higher than the lowest discount of approximately 39.9% achieved on 27 February 2001 during the Three-Year Period whilst the discount to Adjusted NTAV implied by the Cancellation Price of approximately 39.8% is similar to such lowest discount to NTAV achieved during the period under review.

It should be noted that the discount to Adjusted NTAV implied by the Cancellation Price has taken into account the full effect of the revaluations of the property interests and infrastructure-related investments owned by the KPL Group as at 30 April 2003 and the effect of the change in the accounting standards in relation to the Revised SSAP12, further details of which are discussed in the sub-section headed “(ii) NAV and Adjusted NTAV” in this letter above. However, the historical net tangible asset values of the KPL Group for the period under review used in this section only reflected the effects arising from the revaluations of the investment properties at the respective financial year end date, which were conducted in accordance with the accounting policies adopted by the KPL Group.

LETTER FROM ROTHSCHILD

In addition, we have compared the discounts to NTAV, Restated NTAV and Adjusted NTAV implied by the Cancellation Price to the discounts to NTAV of the Comparable Companies as at the Latest Practicable Date, and our analysis is summarised in the following table:

		Closing share	Closing share	Market			Discount
		price	on the	capitalisation	Last	Last	of share
			Latest	on the Latest	audited	audited	price to
	Last year	Practicable		Practicable	NTAV per	consolidated	NTAV
	end date		Date	Date	share1	NTAV1	per share	PER
			(HK$)	(HK$ million)	(HK$)	(HK$ million)	(%)	(Times)
Henderson Land
Development
Company Limited2	30 June 2002		23.10	39,781.4	32.51	55,991.4	(29.0)	18.5
Hang Lung
Properties Limited2	30 June 2002		7.35	21,236.6	9.04	26,112.4	(18.7)	17.6
Sino Land
Company Limited	30 June 2002		2.45	9,521.5	6.65	25,688.4	(62.9)	36.0
Simple average							(36.9)	24.0
KPL under the
Proposal3	31 December	2002	9.50	11,253.1	17.924	20,979.54	(47.0)5	16.86

Sources: Bloomberg and annual reports of the respective companies

Notes:

These are based on the latest published annual reports of the respective companies.
These are HSI constituent companies.
These are based on the Cancellation Price of HK$9.50 under the Proposal.
The consolidated NTAV (as restated) and the Restated NTAV per Share are approximately HK$19,775.3 million and HK$16.89 respectively.
The discounts would be approximately 43.8% and 39.8% based on the Restated NTAV and the Adjusted NTAV per Share respectively.
The implied PER (as restated) is approximately 18.4 times.

LETTER FROM ROTHSCHILD

As illustrated above, the discounts to NTAV, Restated NTAV and Adjusted NTAV implied by the Cancellation Price of approximately 47.0%, 43.8% and 39.8% respectively fall within the range of discounts of the Comparable Companies and the discount to Adjusted NTAV is higher than the simple average discount to NTAV of the Comparable Companies of approximately 36.9% as at the Latest Practicable Date.

It should be noted that the latest financial year end date of the Comparable Companies was 30 June 2002 and no adjustment has been made to their respective NTAV as shown in the above table to reflect any potential changes to the valuations of their respective property portfolios as a result of the recent change in the state of the Hong Kong and PRC property markets, and the adoption of the Revised SSAP12.

(c) PER

The graph below shows the PER of the Shares (computed based on the historical closing Share price and the then published earnings per Share) for the Three-Year Period and up to and including the Latest Practicable Date, the average PER of the Shares for the Three-Year Period and the PER implied by the Cancellation Price:

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Times
30 Announcement of the Proposal
25
20
PER implied by the
Cancellation Price
15
Average PER for the
10 Three-Year Period
5
0
12-Apr-00 12-Jun-00 12-Aug-00 12-Oct-00 12-Dec-00 12-Feb-01 12-Apr-01 12-Jun-01 12-Aug-01 12-Oct-01 12-Dec-01 12-Feb-02 12-Apr-02 12-Jun-02 12-Aug-02 12-Oct-02 12-Dec-02 12-Feb-03 12-Apr-03 Latest Practicable Date
----- End of picture text -----

Sources: Bloomberg and KPL’s annual reports

The implied PER of approximately 16.8 times and the implied PER (as restated) of approximately 18.4 times are higher than the 3-year average of approximately 14.0 times. However, they are lower than the 1-year average of approximately 19.1 times and the highest historical PER of approximately 27.0 times achieved on 7 May 2002 during the period under review.

LETTER FROM ROTHSCHILD

We have also compared the PER implied by the Cancellation Price to those of the Comparable Companies and note that the implied PER is below the range of the Comparable Companies of approximately 18.5 times to 36.0 times whilst the implied PER (as restated) is within the range of the Comparable Companies, and both of them are lower than the simple average PER of approximately 24.0 times of the Comparable Companies as at the Latest Practicable Date.

It should be noted that the earnings per share of the Comparable Companies used in the above analysis have not been adjusted for any potential effect arising from the adoption of the Revised SSAP12 by the Comparable Companies.

(d) Recent privatisations of property and property related companies in Hong Kong

We have reviewed all privatisation proposals announced and completed since 1 January 2001 for property and property related companies listed on the Stock Exchange, details of which are summarised in the following table. We have excluded three of these transactions from our analysis in this section for the reasons as set out below. We believe this period captures appropriately recent premia and/or discounts applied to privatisations of Hong Kong property and property related companies.

LETTER FROM ROTHSCHILD

Date of Offer Company announcement price (HK$) Realty Development 17 December 2002 3.20 Corporation Limited Henderson Investment 5 November 2002 7.60 Limited 1(“HIL”) Ryoden Development 10 September 2002 0.80 Limited Grand Hotel Holdings 29 August 2002 1.84 Limited (“GHH”)3 (A share offer) Evergo China Holdings 7 August 2001 0.18 Limited 1 & 5 (“Evergo China”) Concord Land 6 February 2001 1.40 Development Limited 1 (“Concord Land”) The Mingly Corporation 11 January 2001 0.70 Limited Simple average (for illustrative purposes only) Simple average of relevant privatisation precedents KPL under the Proposal 9.50	Last trading day (%) 28.0 27.7 53.8 116.5 55.2 66.7 29.6 53.9 57.0 58.3	Premium over average closing share price 30 days 90 days (%) (%) 45.1 59.0 26.0 22.4 74.0 65.9 117.5 107.2 65.4 71.2 65.6 76.6 55.8 41.7 64.2 63.4 73.1 68.5 48.7 51.0	180 days (%) 53.6 18.9 82.6 116.5 81.5 58.0 7.9 59.9 65.1 50.6	Premium/(discount) of offer price to Audited Adjusted NTAV per NTAV per share share (%) (%) (25.9) (18.8) 12.1 (27.8)2 (38.5) (28.8) (25.2) 0.0 (79.6) (78.1) (70.8) (77.9) (41.7) (33.3) (38.5) (37.8) (32.8) (20.2) (47.0)4 (39.8)

Notes:

We have excluded these transactions from our analysis in this section for the reasons as set out below.
This discount has been adjusted for the market values of the listed subsidiaries and associated companies of HIL as at 3 December 2002, being the latest practicable date prior to the printing of the scheme document of HIL dated 6 December 2002 for ascertaining certain information contained therein.

LETTER FROM ROTHSCHILD

We have included the privatisation of GHH as a relevant privatisation precedent as approximately 85.8% of the net asset value of GHH as at 30 June 2002 (the last financial year end date prior to its privatisation proposal) was represented by properties. However, we note that this transaction is excluded in the relevant analysis under the section headed “Cancellation Price compared to peer companies’ recent privatisations” in the “Explanatory Statement” of the Document.
This is based on the consolidated net tangible assets of the KPL Group of approximately HK$20,979.5 million and approximately 1,170.6 million Shares in issue as at 31 December 2002. The discount to Restated NTAV implied by the Cancellation Price is 43.8%.
This transaction involved a cash and/or share exchange offer. The statistics shown in the above table are the figures represented by the cash alternative under this privatisation proposal.

We consider that it would be appropriate to exclude the privatisation proposals of HIL, Evergo China and Concord Land as precedents for our comparison purposes for the following reasons. The privatisation proposal of HIL is excluded as it was not approved by its shareholders at the court meeting and the proposal has lapsed. The privatisation proposals of Evergo China and Concord Land were excluded as both of them involved a share exchange offer whereby the minority shareholders of the offeree company would be given the opportunity, through a share exchange offer, to retain their interests in the offeree company and to participate in the benefits of a successful privatisation proposal.

Based on the relevant privatisation precedents in the above table, the average discount to audited NTAV per share was approximately 32.8% and the average discount to adjusted NTAV was approximately 20.2%, both of which are substantially lower than those represented by the Cancellation Price under the Proposal. In terms of the comparison between the offer prices and the pre-announcement historical average closing prices of 30, 90 and 180 days, the premia offered by the relevant privatisation precedents above are also substantially higher than those offered under the Proposal.

It should however be noted that the respective adjusted NTAV per share of each privatisation precedent shown in the above table has not been impacted by the adoption of the Revised SSAP12.

LETTER FROM ROTHSCHILD

3. Dividend yield

The following table sets out the dividend per Share, dividend payout ratio and the dividend yield of the KPL Group for the three financial years ended 31 December 2002:

	For the financial	For the financial	year	Average for
	ended 31 December			the period
	2002	2001	2000	under review4
Earnings per Share1(HK$)	0.57	0.35	0.65	0.52
Earnings per Share (as restated)2
(HK$)	0.52	0.13	0.65	0.43
Dividend per Share (HK$)	0.30	0.32	0.40	0.34
Dividend payout ratio3	53.2%	93.4%	61.9%	69.5%
Share price at the financial
year end date (HK$)	5.50	7.60	10.50	N/A
Dividend yield based on the
Share price at the financial
year end date	5.5%	4.2%	3.8%	4.5%5
Dividend yield based on the
last closing price of the Shares
prior to the Announcement	5.0%
Implied dividend yield based on
the Cancellation Price	3.2%
Weighted average dividend
yield for the HSCPCI
(as at the year end date)	3.8%	2.7%	N/A	3.3%
Weighted average dividend
yield for the HSCPCI
(as at 30 April 2003)				4.3%

Sources: Bloomberg, KPL’s annual reports and HSI Services Limited

N/A: Not applicable

Notes:

These are the earnings per Share based on the respective published audited consolidated accounts of the KPL Group.
These are the earnings per Share (as restated) after taking into account the effect of the Revised SSAP12.
These are based on dividend paid or proposed for a financial year and divided by profit attributable to Shareholders for that financial year based on the respective published audited consolidated accounts of the KPL Group.
These are the simple average of the figures in respect of each item shown in the above table.
The two-year average dividend yield for 2001 and 2002 is approximately 4.9%.

LETTER FROM ROTHSCHILD

As shown in the table above, the dividend per Share has been relatively constant over the last three financial years, ranging from HK$0.40 to HK$0.30 per Share and with a 3-year average of HK$0.34 per Share. The dividend yield based on the Share price as at the financial year end date of 31 December increased steadily from approximately 3.8% in 2000 to approximately 5.5% in 2002. The two-year average dividend yield for 2001 and 2002 was approximately 4.9%, which is higher than the average of approximately 3.3% of the HSCPCI for the same period. In addition, we note that the dividend yield offered by the Shares based on the last closing Share price prior to the Announcement of approximately 5.0% is higher than the weighted average dividend yield of the HSCPCI of approximately 4.3% at the end of April 2003. Based on the above comparisons, we note that an investment in the Shares has been offering a higher dividend yield than the average dividend yield offered by the constituent companies of the HSCPCI for the period under review. However, it should be noted that there is no assurance that KPL will continue to pay a similar dividend and/or its dividend yield will remain at similar level as shown in the above table in future.

LETTER FROM ROTHSCHILD

4. Trading volume

The table below sets out the trading volume of the Shares per month, the monthly trading volume as a percentage of the issued share capital of KPL and the monthly trading volume as a percentage of the Shares held by the public respectively for the period from 1 April 2002 and up to and including the Latest Practicable Date:

		Monthly trading
		volume of Shares	Monthly trading
		as a percentage	volume of Shares
Monthly trading		of total issued	as a percentage
volume of Shares		share capital	of public float
(million Shares)		of KPL1	of KPL2
April 2002	22.0	1.9%	7.8%
May 2002	18.2	1.5%	6.4%
June 2002	12.6	1.1%	4.5%
July 2002	10.1	0.9%	3.6%
August 2002	10.9	0.9%	3.8%
September 2002	7.2	0.6%	2.5%
October 2002	23.5	2.0%	8.3%
November 2002	26.9	2.3%	9.5%
December 2002	14.0	1.2%	4.9%
January 2003	20.5	1.7%	7.2%
February 2003	15.9	1.3%	5.6%
March 2003	13.2	1.1%	4.7%
April 2003	43.2	3.6%	15.3%
May 2003	48.7	4.1%	17.2%
From 1 June 2003 and
up to and including
the Latest Practicable Date3	11.8	1.0%	4.2%
Average monthly trading volume
(April 2002 to March 20034)	16.2	1.4%	5.7%

Notes:

These are based on the approximately 1,184.5 million Shares in issue as at the Latest Practicable Date.
For the purpose of this letter, public float of KPL refers to the approximately 283.4 million Shares held by the Independent Shareholders as at the Latest Practicable Date.
There were only 15 trading days during the period from 1 June 2003 to the Latest Practicable Date.
This represents the 12-month period immediately prior to the month in which the Announcement was made.

LETTER FROM ROTHSCHILD

From the table above, we note that the monthly trading volume of the Shares ranged from approximately 7.2 million Shares to approximately 26.9 million Shares for the period from April 2002 to March 2003. The average monthly trading volume of the Shares for the same period was approximately 16.2 million Shares, or approximately 1.4% of the total issued share capital of KPL, or approximately 5.7% of the public float of KPL.

In addition to the above analysis, we have also compared the trading volume of the Shares with the Comparable Companies. A comparison of the average monthly trading volume for the period from April 2002 to March 2003 is set out in the table below:

	Average monthly trading
	volume of the shares
	as a percentage of
	public float1from
	April 2002 to March 2003
Henderson Land Development Company Limited2	11.3%
Sino Land Company Limited	6.7%
Hang Lung Properties Limited2	5.5%
Simple average	7.8%
KPL	5.7%

Notes:

For the purpose of this letter, public float of the above companies (except KPL) were computed based on their respective number of shares in issue as at the Latest Practicable Date (as disclosed by the Stock Exchange) less any shares held by their relevant controlling shareholders and directors as disclosed in their respective latest interim reports.
These are HSI constituent companies.

As noted in the above table, the trading volume of the Shares as a percentage of the public float is within the range of the Comparable Companies but is lower than the simple average of approximately 7.8% for the Comparable Companies. We also note that the trading volume of the Shares has increased significantly since the date of the Announcement, which in our opinion was mainly caused by the announcement of the Proposal, and the trading volume in April 2003 and May 2003 represents approximately 15.3% and 17.2% of the public float respectively. However, based on the trading volume of the Shares in the past 12 months prior to the Announcement, we are of the view that it is not likely that the relatively active trading volume reached after the Announcement was made will continue if the Proposal lapses.

LETTER FROM ROTHSCHILD

5. The Option Offer

The Options were granted to certain directors and employees of KPL and such Options are not transferable. Under the 1997 Share Option Scheme, there were 32,039,084 Options outstanding as at the Latest Practicable Date which can be exercised into a total of 32,039,084 Shares. The exercise prices of the Options range from HK$6.79 to HK$15.12 and the exercise periods range from 11 April 1999 to 15 April 2012.

As summarised under the section headed “Terms of the Proposal” in this letter, we note that the accepting Optionholders will receive the “see-through” price of the Options held or HK$1.00 per board lot (which comprises 500 Shares) or part board lot of Shares which would be issued if the relevant Options were exercised in full, depending on the exercise prices of the Options. However, such Option Offer does not take into account the time value of the Options as the Options have different maturities and are exercisable for a considerable amount of time.

Optionholders should note that the information and analyses set out in this letter above with respect to the terms of the offer for the Scheme Shares under the Proposal and the Scheme are also relevant for the Optionholders in considering the Option Offer.

SUMMARY

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

(1) Despite achieving better results in 2002, the financial performance of the KPL Group has been adversely affected by the market downturn in recent years. In addition, as noted from the Trading Announcement, the KPL Group’s financial performance and net asset value have been negatively impacted subsequent to the last financial year end, and the KPL Board is of the view that the KPL Group’s businesses in Hong Kong and the PRC could be affected by the outbreak of SARS in Hong Kong and the Asian region. However, its full impact on the businesses of the KPL Group is uncertain and difficult to quantify.
(2) In assessing the fairness and reasonableness of the Cancellation Price, we are of the view that the analysis of discounts to NTAV is the most important and appropriate valuation benchmark for property and property related companies and, in particular, the comparison of the discounts under the Proposal to the discounts applied to recent relevant privatisations completed in Hong Kong. The Cancellation Price implied a discount

LETTER FROM ROTHSCHILD

to NTAV, Restated NTAV and Adjusted NTAV of approximately 47.0%, 43.8% and 39.8% respectively, which are:

substantially higher than the average discounts to NTAV and adjusted NTAV of recent relevant privatisations completed in Hong Kong of approximately 32.8% and 20.2% respectively. In addition, the premia over pre-announcement average closing prices implied by the Cancellation Price are also substantially lower than the averages of the aforesaid relevant privatisation precedents; and
substantially lower than the average trading discount to NTAV of KPL of approximately 60.4% during the Three-Year Period. However, the discounts to NTAV of approximately 47.0% and Restated NTAV of approximately 43.8% are higher than the lowest discount to NTAV of approximately 39.9% achieved on 27 February 2001 during the Three-Year Period and the discount to Adjusted NTAV of approximately 39.8% is similar to such lowest discount to NTAV of approximately 39.9% achieved during the period under review.
(3) Although the Cancellation Price is higher than the closing Share prices for the majority of the time in the Three-Year Period, it only represents a slight premium of approximately 2.2% over the highest closing price during the One-Year Period of HK$9.30 per Share achieved on 7 May 2002. It also represents a substantial discount of approximately 24.6% to the highest closing price during the Three-Year Period of HK$12.60 per Share achieved on 27 February 2001.
(4) The Cancellation Price represents an implied PER of approximately 16.8 times and an implied PER (as restated) of approximately 18.4 times, which are higher than the average trading PER of KPL of approximately 14.0 times in the Three-Year Period. However, the aforesaid implied PER and implied PER (as restated) are substantially lower than the highest PER of approximately 27.0 times achieved on 7 May 2002 during the ThreeYear Period. They are also lower than the average PER of approximately 24.0 times for the Comparable Companies as at the Latest Practicable Date.
(5) An investment in the Shares has been offering a higher dividend yield than the average dividend yield offered by the constituent companies of the HSCPCI during the period under review.
(6) Despite the progressively worsening average annual closing price of the Shares during the period under review, the Shares have largely out-performed the HSI though slightly under-performed the HSCPCI. In addition, we note that the closing price of the Shares of HK$6.00 on 11 April 2003, being the last closing price of the Shares prior to the

LETTER FROM ROTHSCHILD

Announcement, was at the lower end of the range of closing prices during the ThreeYear Period. It should also be noted that the Hong Kong stock market sentiment in the recent months prior to the Announcement was adversely affected by the war in Iraq and the outbreak of SARS, but has improved significantly in recent weeks.

(7) The trading volume of the Shares as a percentage of the public float is within the range of the Comparable Companies.

FURTHER CONSIDERATIONS

We would like to draw the attention of the Independent Board Committee to the issue that, if the Proposal is not approved by the Independent Shareholders and does not proceed, there is no assurance that the trading price and/or volume of the Shares will remain at their current levels.

We note that the share prices of HIL and eSun Holdings Limited (“eSun”), being the only two Hong Kong listed companies whose privatisations failed in the last 12 months up to the Latest Practicable Date, fell by approximately 13.9% and 17.4% respectively on the first trading day of their shares after they announced the failure of their privatisation proposals. In the case of HIL, its share price has risen to HK$7.55 as at the Latest Practicable Date, a level similar to the cancellation price of HK$7.60 under its privatisation proposal. In the case of eSun, its share price has dropped to HK$0.175 as at the Latest Practicable Date, which represents a discount of approximately 37.5% to the cancellation price of HK$0.28 under its privatisation proposal. We also note that there have been material changes in the financial performance of the KPL Group and its net asset value has been reduced substantially after the last financial year ended 31 December 2002. Accordingly, we are of the view that there is a risk that the Share price may fall, at least in the short term, towards or even below the level at which they had been trading prior to the Announcement.

As at the Latest Practicable Date, KHL, together with its concert parties, the Trust and the HSBC Shareholders which are presumed to be acting in concert with KHL under the Takeovers Code, already held a controlling stake in KPL, representing approximately 76.07% of the issued share capital of KPL. There is no indication that KHL and its concert parties have any intention of selling their controlling interest in KPL. Accordingly, we are of the opinion that, without the support of KHL, it is unlikely that Independent Shareholders will receive another offer or proposal from a third party. In addition, in the event that the Proposal is not approved by the Independent Shareholders and lapses, neither KHL nor its concert parties under the Proposal may, under the Takeovers Code, announce another offer for the Shares within 12 months from the date on which the Proposal lapses, except with the consent of the Executive. It should however be noted that KHL has not made a “no increase statement” in connection with the Proposal, and, accordingly KHL is at liberty to revise further the terms of the Proposal before the Court Meeting. On the above bases, we believe that it is unlikely that Independent Shareholders will receive another offer with terms better than the Proposal within the next 12 months, except with the support of KHL or in the circumstances where KHL further increases the cancellation price under the Proposal.

LETTER FROM ROTHSCHILD

The Independent Board Committee should also note that Independent Shareholders are at liberty to vote in favour of the resolutions in relation to the Proposal and the Scheme at the Meetings (although this does not assure the success of the Scheme and therefore a cancellation of their Shares) or sell their Shares in the market, should they be:

(a) attracted by the capital value of the Cancellation Price as compared with the historical trading performance or their respective investment costs of the Shares; and/or
(b) not confident in the future prospects of the KPL Group; and/or
(c) influenced by other personal considerations for which Independent Shareholders should seek their own independent advice.

RECOMMENDATIONS

The offer for the Scheme Shares under the Proposal

We have carefully considered all pertinent factors that affect the valuation of the Scheme Shares represented in the Proposal and we have highlighted, in the section headed “Further considerations” above, the consequences of the Proposal lapsing and some of the alternatives available to Independent Shareholders.

Having considered the above principal factors and reasons, we consider the terms of the offer for the Scheme Shares under the Proposal not fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote against the Scheme and the resolution in relation to the Proposal and the Scheme at the Meetings.

The Option Offer under the Proposal

On the basis of our opinion on the terms of the offer for the Scheme Shares under the Proposal as discussed above, we consider the terms of the Option Offer also not fair and reasonable so far as the Optionholders are concerned. However, it should be noted that (1) if the Optionholders do not accept the Option Offer but the Scheme is approved by the requisite majorities at the Meetings and is sanctioned by the Supreme Court, and (2) if the Optionholders do not exercise the Options which are currently exercisable but the Scheme is approved by the requisite majorities at the Meetings and is sanctioned by the Supreme Court, any outstanding Options will lapse. Accordingly, we advise the

LETTER FROM ROTHSCHILD

Independent Board Committee to recommend the Optionholders to accept the Option Offer in the event that the Proposal and the Scheme become effective and binding in order to maximise the value of the Options notwithstanding our opinion that the terms of the Option Offer are not fair and reasonable.

Yours very truly, For and on behalf of

N M Rothschild & Sons (Hong Kong) Limited

Kelvin Chau

Director

EXPLANATORY STATEMENT

This explanatory statement constitutes the statement required under Section 100 of the Companies Act.

SCHEME OF ARRANGEMENT FOR THE CANCELLATION OF THE SCHEME SHARES AND THE PAYMENT OF THE CANCELLATION PRICE

INTRODUCTION

It was announced by KHL and KPL on 23 April 2003 that KHL had requested the KPL Directors to put forward the Proposal to the Scheme Shareholders for consideration.

It was further announced on 30 April 2003 that, to make the Cancellation Price more attractive, KHL had decided to increase the Cancellation Price from HK$8.50 per Scheme Share (as originally announced on 23 April 2003) to HK$9.50 per Scheme Share, representing an increase of approximately 11.76%.

KHL and parties acting in concert with it, and the Trust and the HSBC Shareholders, which are presumed to be acting in concert with KHL under the Takeovers Code, collectively owned (or, in the case of the KPL Selling Directors, were interested in) 901,121,688 Shares representing approximately 76.07% of the issued share capital of KPL as at the Latest Practicable Date.

The purpose of this Explanatory Statement is to explain the terms and the effects of the Proposal and the Option Offer and to give to the Scheme Shareholders and Optionholders other relevant information.

A letter from the KPL Board is set out on pages 11 to 21 of this document. A letter from the Independent Board Committee, together with a letter from Rothschild, in connection with the Proposal, the Scheme and the Option Offer are set out on pages 22 to 57 of this document. The terms of the Scheme are set out on pages 241 to 248 of this document.

SUMMARY OF THE PROPOSAL

EXPLANATORY STATEMENT

such new Shares to a wholly-owned subsidiary of KHL. In granting such permission, the Bermuda Monetary Authority does not accept any responsibility for the financial soundness of any of the parties to the Scheme or for the correctness of any of the statements made or opinions expressed in this document. No agreement, arrangement or understanding exists between KHL and any party other than KPL in relation to the issue of such new Shares. The Scheme also provides that, in consideration for the cancellation and extinguishment of the Scheme Shares, the Scheme Shareholders whose names appear on the Registers at the Record Time will be paid the Cancellation Price by KHL for each Scheme Share held.

EXPLANATORY STATEMENT

CONDITIONS OF THE PROPOSAL

The Proposal will become effective and binding on KPL and all Scheme Shareholders subject to the fulfilment or waiver (as applicable) of the following conditions:

(a) the approval of the Scheme by a majority in number representing not less than threefourths in value of the Shares held by the Independent Shareholders present and voting either in person or by proxy (by way of poll) at the Court Meeting, provided that the Scheme is not disapproved by the Independent Shareholders at the Court Meeting holding more than 10% of all the Shares held by the Independent Shareholders (by way of poll);
(b) the passing of a special resolution (by way of poll) to approve and give effect to the Scheme (including the cancellation of the Scheme Shares and the reduction of the issued share capital of KPL) by a majority of at least three-fourths of votes cast by the Shareholders present and voting, in person or by proxy, at the Special General Meeting;
(c) the sanction of the Scheme (with or without modification) by the Supreme Court, the delivery to the Registrar of Companies in Bermuda of an office copy of the order of the Supreme Court for registration and the registration of such order;
(d) the necessary compliance with the requirements of Section 46 of the Companies Act in relation to the reduction of the issued share capital of KPL;
(e) the Authorisations having been obtained or made from, with or by (as the case may be) the Relevant Authorities, in Hong Kong, Bermuda and/or any other relevant jurisdictions;
(f) all Authorisations remaining in full force and effect without variation, and all necessary statutory or regulatory obligations in all relevant jurisdictions having been complied with and no requirement having been imposed by any Relevant Authorities which is not expressly provided for, or is in addition to requirements expressly provided for, in relevant laws, rules, regulations or codes in connection with the Proposal or any matters, documents (including circulars) or things relating thereto, in each aforesaid case up to and at the time when the Scheme becomes effective;
(g) there not having occurred since the date of the Announcement:
(i) any change in any relevant political, economic or fiscal conditions or exchange controls;
(ii) any act of God, escalation or outbreak of war, riot, civil commotion, fire, flood, explosion or terrorism; or
(iii) the imposition of economic sanctions,

which individually has, or in aggregate have, a material adverse effect on the current or future financial position of the KPL Group taken as a whole; and

EXPLANATORY STATEMENT

(h) all bank and other necessary consents which may be required under any existing contractual obligations of the KPL Group being obtained.

Condition (a) is the combined effect of Section 99 of the Companies Act and Rule 2.10 of the Takeovers Code. In so far as the statutory requirement for the sanction of the Scheme by the Supreme Court is concerned, a resolution for the approval of the Scheme will be deemed to have been passed if a majority in number representing not less than three-fourths in value of the Shares held by the Independent Shareholders present and voting either in person or by proxy at the Court Meeting vote in favour of the Scheme.

KHL reserves the right to waive any or all of Conditions (e) to (h), either in whole or in respect of any particular matter. Conditions (a) to (d) cannot be waived in any event. All of the Conditions will have to be fulfilled or waived, as applicable, on or before 30 August 2003 (or such later date as KPL and KHL may agree), otherwise, the Scheme will lapse.

FINANCIAL EFFECTS OF THE PROPOSAL

Share Price

The Cancellation Price represents:

(i) a premium of approximately 58.33% over the closing price of HK$6.00 per Share, as quoted on the Stock Exchange on 11 April 2003 (being the last traded price prior to the suspension of trading in the Shares pending the issue of the Announcement);

EXPLANATORY STATEMENT

(ii) a premium of approximately 54.98% over the average closing price of approximately HK$6.13 per Share, based on the daily closing prices as quoted on the Stock Exchange over the 5 trading days up to and including 11 April 2003;
(iii) a premium of approximately 49.37% over the average closing price of approximately HK$6.36 per Share, based on the daily closing prices as quoted on the Stock Exchange over the 1-month period up to and including 11 April 2003;
(iv) a premium of approximately 46.83% over the average closing price of approximately HK$6.47 per Share, based on the daily closing prices as quoted on the Stock Exchange over the 3-month period up to and including 11 April 2003;
(v) a premium of approximately 38.69% over the average closing price of approximately HK$6.85 per Share, based on the daily closing prices as quoted on the Stock Exchange over the 12-month period up to and including 11 April 2003; and
(vi) a premium of approximately 1.60% over the closing price of HK$9.35 per Share, as quoted on the Stock Exchange on the Latest Practicable Date.

Historical share price information on the Shares is set out in Section 2 of Appendix VII to the Explanatory Statement on page 225 of this document.

Net Asset Value

The Cancellation Price represents:

(i) a discount of approximately 47.05% to the NAV per Share of approximately HK$17.94 as at 31 December 2002;
(ii) a discount of approximately 43.82% to the Restated NAV per Share of approximately HK$16.91 as at 31 December 2002; and
(iii) a discount of approximately 39.76% to the Adjusted NTAV per Share of approximately HK$15.77.

Earnings

EXPLANATORY STATEMENT

Dividend Yield

Based on the Cancellation Price and the dividends for the year ended 31 December 2002, the dividend yield for the Shares would be approximately 3.16%.

BACKGROUND TO, AND REASONS FOR, THE PROPOSAL

Recent KPL traded Share price and liquidity trends

As with the performance of many Hong Kong listed property companies with properties primarily in Hong Kong and the PRC, the Shares have traded at a progressively worsening average annual closing price over the last three years ended 11 April 2003 (being the last day of trading prior to the suspension of trading in the Shares pending the release of the Announcement) and the trading volume of the Shares has been thin.

Over the 6-month and 12-month periods up to and including 11 April 2003, the Shares traded within the closing price range of HK$5.35 to HK$6.90 and HK$5.15 to HK$9.30 per Share respectively, with an average closing price of approximately HK$6.15 and HK$6.85 per Share respectively. The average daily trading volume of the Shares for the 6-month and 12-month periods up to and including 11 April 2003 was 953,969 and 806,837 Shares respectively. Such daily trading volume represents only approximately 0.08% and 0.07% of the issued share capital of KPL as at the Latest Practicable Date respectively.

Share trading liquidity comparisons

Some of the commonly known listed property companies, all of which are members of the Hang Seng Composite Property and Construction Index (“HSCPCI”), whose share trading statistics provide a useful insight to share trading liquidity are shown below. In selecting these companies, the KHL Directors took account of their respective sizes in terms of market capitalisation and their business activities. In particular, these companies’ principal activities include both property development and investment, have market capitalisations as at the Latest Practicable Date between HK$9 billion and HK$40 billion and have at least 20.0% of their respective total revenues generated from each of property development and property investment business. For the avoidance of doubt, the companies shown below differ from those included in the table under the heading “Net Asset value and P/E comparison with peer group property companies”, as the companies in that table were selected under the criteria outlined under the heading “Cancellation Price compared to the traded share prices of peer companies”.

EXPLANATORY STATEMENT

				Average daily	Average daily
				turnover/	volume traded/	Average daily
	Average daily	Average daily	Average	Average	Issued share	volume traded/
Company	volume traded	turnover	market cap	market cap	capital	Public float
			(HK$ million)	(%)	(%)	(%)1
Hang Lung Properties
Limited	3,015,553	23,861,750	22,652	0.1053	0.1044	0.2751
Henderson Land
Development Limited	3,361,356	90,559,121	46,668	0.1940	0.1952	0.5629
Sino Land Company
Limited	4,295,793	11,504,559	10,170	0.1131	0.1105	0.3232
Average	3,557,567	41,975,143	26,497	0.1375	0.1367	0.3871
KPL	806,837	5,449,092	7,987	0.0682	0.0689	0.1872
KPL liquidity ranking	Lowest	Lowest		Lowest	Lowest	Below
						average

Source: Bloomberg (period from 12 April 2002 to 11 April 2003)

Note:

For the purpose of the above table, the public float of all the above companies were computed based on the relevant number of shares in issue (as at the Latest Practicable Date as disclosed by the Stock Exchange) less any shares held by the relevant controlling shareholders and directors of the listed company as disclosed in their latest annual report published in the period between 12 April 2002 to 11 April 2003, save for KPL, for which Shares held by the controlling shareholders and directors are as at the Latest Practicable Date.

The above table shows the low trading liquidity of the Shares, in that the trading volume as a percentage of the public float of the Shares is below average and trading is lowest in terms of volume and turnover. This low trading liquidity relatively inhibits trading in the Shares compared to shares of the other companies shown.

Please also refer to a trading liquidity analysis in the Letter from Rothschild on page 52 of this document which is based on the same set of companies as those companies set out above.

KPL Listing

Given the low liquidity of the Shares and the depressed Hong Kong stock market, the KHL Directors are of the opinion that KPL’s ability to raise funds from the equity markets may be limited and any significant improvement in this in the foreseeable future is uncertain. Therefore, the KHL Directors believe that it may not be in the best interest of the Shareholders to maintain the listed status of KPL and the KPL Directors have been requested by KHL to put forward the Proposal to the Shareholders for consideration.

EXPLANATORY STATEMENT

The Scheme is an opportunity to realise investments at a significant premium

The Cancellation Price represents a significant premium of 58.33% over the closing price of the Shares on 11 April 2003 and a premium of approximately 54.98% and 46.83% over the average closing price per Share based on the daily closing prices as quoted on the Stock Exchange over the 5-trading day and 3-month periods up to and including 11 April 2003 respectively.

The Proposal is an opportunity for all Scheme Shareholders to realise their investments in KPL at a significant 58.33% premium to the closing price of the Shares on 11 April 2003. However, if the Proposal is not approved or does not proceed, the Cancellation Price for the Scheme Shares will not be paid to any Scheme Shareholder.

Furthermore, if the Proposal is not approved or does not proceed, the KHL Directors are of the view that the Share price will likely decline from the closing price of HK$9.35 per Share as at the Latest Practicable Date. This view is based on the trading of the shares of the only two companies whose proposed privatisations failed in the 12-months up to the Latest Practicable Date. Those share prices fell, on average, to a level equivalent to a 26.18% discount to the final proposed cancellation price at the close of the next trading day after the disapproval of those two privatisations.

Cancellation Price compared to the traded share prices of peer companies

The KHL Directors believe a reasonable comparative analysis of KPL would be with similar sized property companies listed in Hong Kong with similar primary businesses. Such a peer group of listed companies would be members of the HSCPCI and have net asset values ranging from approximately HK$15 billion to HK$30 billion (given KPL’s NAV in its latest published accounts is approximately HK$21 billion). The peer group of companies set out in the table below are all of the companies in the HSCPCI with net asset values (as published in their latest annual reports) of between approximately HK$15 billion and HK$30 billion. Please note, however, that New World China Land Limited and Henderson Investment Limited have been excluded from the analysis and calculation of the averages for the reasons set out below. The KHL Directors have reviewed recent research reports which show the peer group are generally used by analysts in comparison to KPL.

EXPLANATORY STATEMENT

The following table of the peer group companies compares their discount to net asset value and price-to-earnings ratio (“P/E”) with those of KPL based on the Cancellation Price.

Net asset value and P/E comparison with peer group property companies

				Premium/
			Net asset	(Discount) to
	Net asset	Closing price	value per	net asset
	value	per share 2	share 3	value 4	P/E 5
(HK$ million)		(HK$)	(HK$)	(%)
Great Eagle Holdings
Limited	14,604	4.35	25.05	(82.63)	4.28
Hang Lung Properties
Limited	26,112	7.35	9.04	(18.69)	17.60
Hysan Development
Company Limited	19,087	6.60	18.45	(64.23)	12.53
Sino Land Company
Limited	25,719	2.45	6.62	(62.99)	35.98
Average				(57.14)	17.60
KPL (based on
Cancellation Price)	21,001	9.50	17.94	(47.05)	16.756
KPL (based on
Cancellation Price
and Adjusted NTAV)	18,676	9.50	15.777	(39.76)	16.75
KPL ranking				Smaller	P/E ratio
				discount than	in line with
				average	average
New World China Land
Limited8	17,882	1.26	12.07	(89.56)	13.61
Henderson Investment
Limited8	19,959	7.55	7.08	6.64	11.95

Source: Latest published annual report for the relevant company

Notes:

Peer group companies are Hong Kong listed property companies in the HSCPCI with net asset values and primary businesses similar to that of KPL.
This represents the closing price per share as quoted on the Stock Exchange on the Latest Practicable Date.
This represents the latest audited net asset value per share prior to the Latest Practicable Date.
This represents the discount to the last reported net asset value per share of the closing price on the Latest Practicable Date.
The P/E ratio is based on the latest reported earnings per share prior to the Latest Practicable Date and the closing price per share as quoted on the Stock Exchange on the Latest Practicable Date.
The P/E ratio of KPL is based on KPL’s earnings per Share for the year ended 31 December 2002 of HK56.71 cents per Share and the Cancellation Price.

EXPLANATORY STATEMENT

This represents the Adjusted NTAV per Share. Please see Section 6 of Appendix I to the Explanatory Statement on pages 162 and 163 of this document.
New World China Land Limited, whose assets are primarily located within the PRC, and Henderson Investment Limited, which is a holding company with predominantly non-property related businesses (namely a 36.42% interest in Hong Kong and China Gas Company Limited as at 31 December 2002) and fixed assets such as toll roads and bridges in the PRC, are included in the table for information purposes only and have not been included in the calculation of the average discount to net asset value and P/E as they have dissimilar primary businesses compared to the KPL Group.
All figures except amounts of net asset value are stated to 2 decimal places.

Based on the above table, the KHL Directors note that the Cancellation Price represents a relatively higher valuation compared to the traded prices of the peer Hong Kong listed property companies because:

(a) Cancellation Price – Smaller Discount to NAV

The Cancellation Price represents a 47.05% discount to KPL’s NAV per Share which is a smaller discount than the average 57.14% discount to the latest reported net asset value of the peer group (see above).

(b) Cancellation Price – Smaller Discount to Adjusted NTAV

The Cancellation Price also represents a 39.76% discount to Adjusted NTAV which is an even smaller discount than the average 57.14% discount to the latest reported net asset value of the peer group.

The P/E of KPL of 16.75 times 2002 earnings based on the Cancellation Price is comparable to the average P/E of 17.60 times of the peer group.

Furthermore, the KHL Directors note that the Shares traded at substantial discounts to KPL’s net asset value during the three years ended 11 April 2003 based on the latest published net asset value available at the time (interim or final) ranging from approximately 39.94% to 74.74%, (not including adjustments for the 30 April 2003 property revaluation and the adoption of the Revised SSAP 12) and consider the Cancellation Price is an opportunity for investors to realise their investments at a smaller discount to KPL’s net asset value than has been achievable during the last three years.

Cancellation Price compared to peer companies’ recent privatisations

Comparisons with recent privatisations are commonly used. Therefore, the KHL Directors have reviewed all successful privatisations of Hong Kong listed property companies since 1 January 2001 and are of the view that although none of those companies (see below) are directly comparable to KPL, they do provide an objective and acceptable basis for comparison of privatisation statistics.

EXPLANATORY STATEMENT

All successful property company privatisations since 1 January 2001[1]

				Premium/(discount) of	Premium/(discount) of
				offer prices	per share
				To
		Offer/	Premium	Audited net	Adjusted net
	Date of	cancellation	over closing	tangible	tangible
Company	announcement	price3	share prices4	asset value	asset value
		(HK$)	(%)	(%)	(%)
Realty Development
Corporation Limited	17 December 2002	3.20	28.00	(25.93)	(18.78)
Ryoden Development
Limited	10 September 2002	0.80	53.85	(38.54)	(28.81)
Evergo China Holdings
Limited6	7 August 2001	0.18	55.17	(79.63)	(78.11)
Concord Land
Development
Limited5	6 February 2001	1.40	66.77	(70.84)	(77.87)
The Mingly
Corporation Limited	11 January 2001	0.70	29.63	(41.66)	(33.27)
Average			46.68	(51.32)	(47.37)
KPL under the Proposal		9.50	58.33	(46.99)	(39.76)
KPL ranking			Larger premium Smaller discount Smaller discount
			than average	than average	than average
Henderson Investment
Limited2 & 8	5 November 2002	7.60	27.73	12.10	(27.80)
Grand Hotel
Holdings Limited8	29 August 2002	1.84	116.47	(25.20)	(0.00)

Notes:

This table includes details of all successful privatisations of Hong Kong listed property companies between 1 January 2001 and the Latest Practicable Date. Grand Hotel Holdings Limited, another successful privatisation, is not included in the above analysis because at the time of that privatisation, the latest audited financial information available stated that its only source of revenue from business operations was derived from the ownership and management of hotels and serviced apartments, which is different to the primary businesses of KPL.
Henderson Investment Limited has been excluded as it was a failed privatisation.
This sets out the last cancellation/offer price made in relation to the privatisation of the relevant company.
This sets out the premium the cancellation/offer price represented over the closing price of the shares on the last day of trading prior to the announcement of the privatisation.
Involved share exchange offer.
Involved cash or share exchange offer. The cancellation price noted represents the cash offer, whilst the share exchange offer was valued between HK$0.13 and HK$0.07.
These adjusted net tangible asset values did not take into account any adjustments due to the adoption of the Revised SSAP 12.
Please note that both Henderson Investment Limited and Grand Hotel have been included for information purposes only and have not been included in the calculation of the average premium over closing share price[4] and the average discounts of the cancellation/offer price per share to audited net tangible asset value and to adjusted net tangible asset value.

EXPLANATORY STATEMENT

Based on the above table, the KHL Directors note the Cancellation Price compares more favourably to the offer/cancellation price of all successful property company privatisations since 1 January 2001:

a) Cancellation Price – Larger Premium to Closing Price

The Cancellation Price represents a 58.33% premium over the closing price of the Shares on the last trading day prior to the Announcement. This is a larger premium than the 46.68% average premium to the closing price the cancellation price represents of the five successful privatisations set out in the table above.

b) Cancellation Price – Smaller Discount to audited net tangible asset value

The Cancellation Price represents a 46.99% discount to the audited net tangible asset value per Share. This is a smaller discount than the 51.32% average discount to the audited net tangible asset value per share the cancellation/offer price represents of the five successful privatisations set out in the table above.

c) Cancellation Price – Smaller Discount to Adjusted NTAV

The Cancellation Price represents a 39.76% discount to the Adjusted NTAV per Share. This is a smaller discount than the 47.37% average discount to the adjusted net tangible asset value the cancellation/offer price represents of the five successful privatisations set out in the table above.

OPTION OFFER

HSBC, on behalf of KHL, is making the Option Offer during the Option Offer Period to the Optionholders to purchase and cancel all their Options.

For the purchase and cancellation of each Option in respect of which the Option Offer is made, accepting Optionholders will receive the “see-through” price of that Option, being the amount by which the Cancellation Price exceeds the exercise price of that Option, or where the exercise price of the relevant Option is equal to, or greater than the Cancellation Price, accepting Optionholders will receive HK$1.00 per board lot (which comprises 500 Shares) (or part board lot) of Shares for the number of Shares that would be issued if the relevant Options were exercised in full.

Details of the Options, including the date of grant and the exercise prices of the Options, are set out in Section 3(ii) of Appendix I to this document.

As at the Latest Practicable Date, there were 32,039,084 Options with exercise prices ranging from HK$6.79 to HK$15.12 per Option. Assuming that no Options lapse prior to or during the Option Offer Period and that the Option Offer is accepted in full by the Optionholders, except for Mr. Kuok Khoon Loong, Edward, who holds 5,797,266 Options and has undertaken to KHL not to accept the Option Offer in relation to the Options he holds, the aggregate consideration payable to the accepting Optionholders calculated on the basis of the “see-through” price being paid in respect of those

EXPLANATORY STATEMENT

Options whose exercise price is less than the Cancellation Price and HK$1.00 per board lot (which comprises 500 Share) (or part board lot) of Shares for the number of Shares which would be issued if the relevant Options were exercised in full, in respect of those Options whose exercise price is greater than or equal to the Cancellation Price would be approximately HK$29.65 million.

The Option Offer is conditional upon the Proposal becoming effective and binding. In order to accept the Option Offer, each Optionholder will be required to duly complete a form of acceptance in accordance with the instructions contained therein and to return it to Kerry Holdings Limited, 21/F CITIC Tower, No. 1 Tim Mei Avenue, Central, Hong Kong for the attention of: The Company Secretary, during the Option Offer Period. The Option Offer Period will start immediately following the approval of the Scheme by the requisite majorities at the Meetings, the time of which shall be notified to Optionholders by press announcement and/or letter (the Meetings are currently scheduled to take place at around 10:00 a.m. on 18 July 2003), and will end at 4:00 p.m. on 8 August 2003.

A letter (enclosing a form of acceptance) setting out the terms and conditions of the Option Offer, the text of which is set out in Appendix IV to the Explanatory Statement on pages 208 to 215 of this document, has been separately despatched to the Optionholders.

INFORMATION RELATING TO THE KPL GROUP

Background

KPL is an exempted company incorporated in Bermuda with limited liability on 2 January 1996 and the Shares have been listed on the Stock Exchange since 5 August 1996. It is the holding company of the Kuok Group’s property interests in Hong Kong and the PRC.

EXPLANATORY STATEMENT

Shareholding Structure of KPL

An overview of the shareholding structure of KPL, as at the Latest Practicable Date, is set out below:

==> picture [425 x 101] intentionally omitted <==

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

KHL [1] NSKG SKG KPL Selling Trust
Directors
61.67% 9.06% 2.35% 0.05% 2.90%
(730,524,460 Shares) (107,302,598 Shares) (27,802,637 Shares) (629,783 Shares) (34,411,179 Shares)
HSBC KPL [2] Independent
Shareholders 0.04% 23.93% Shareholders
(451,031 Shares) (283,418,037 Shares)
----- End of picture text -----

Total issued share capital of KPL as at the Latest Practicable Date – 1,184,539,725 Shares.

Notes:

KHL is a company incorporated in Hong Kong with limited liability, and is wholly-owned by Kerry Group Limited (a company incorporated in the Cook Islands and whose shareholders comprise Mr. Kuok Hock Nien and his relatives, other members of the Kuok family in Hong Kong and elsewhere, executives and employees (past and present) of the Kuok Group of companies, related trusts of some or all of the aforesaid and/or companies owned or controlled by any of them, and charitable foundations established by the Kuok family. Mr. Kuok Hock Nien, his relatives, related trusts and companies owned or controlled by any of them collectively control 30% or more of Kerry Group Limited. There are no other shareholders of Kerry Group Limited who hold 30% or more of the shares in Kerry Group Limited).
Listed on the Stock Exchange.
The above chart sets out the principal entities or group of entities involved, with intermediary entities being omitted. KHL’s interests shown in KPL are held through subsidiaries and an associated company, details of which are set out in Section 3(a)(i) of Appendix VII to the Explanatory Statement on pages 226 to 228 of this document.
Save for the Trust and the HSBC Shareholders, which are presumed to be acting in concert with KHL under the Takeovers Code, NSKG, SKG and the KPL Selling Directors are the only parties who are acting in concert with KHL.
% figures are stated to 2 decimal places.
KHL is also interested in Shares owned by certain SKG members but, in order to show SKG’s interests separately, in this document such interests have not been included in the interests of KHL, details of which are set out in Section 3(a)(i) of Appendix VII to the Explanatory Statement on pages 226 to 228 of this document.
The shareholdings stated in the diagram above and the total issued share capital of KPL will change in the event that any Options are exercised following the Latest Practicable Date.

Principal Business of the KPL Group

The KPL Group and KPL’s associated companies are principally engaged in (1) property development and investment in Hong Kong, the PRC, Australia and the Philippines; (2) logistics, freight and warehouse ownership and operation; (3) infrastructure-related investment in Hong Kong and the PRC; and (4) hotel ownership in the PRC. Set out below is a discussion of the KPL Group’s core activities.

EXPLANATORY STATEMENT

Hong Kong Property Division

The KPL Group is one of the largest property investment and development companies in Hong Kong with a significant portfolio of luxury residential developments. In 2002, total turnover of the Hong Kong Property Division was HK$2,705 million, representing approximately 52% of total turnover, whilst recurrent rental revenue was HK$373 million, representing approximately 15% of total recurrent revenue.

As at 31 December 2002, the gross asset value of the Hong Kong Property Division was HK$13,760 million, representing approximately 52% of the KPL Group’s total gross asset value.

PRC Property Division

The KPL Group’s portfolio of property investments and developments in the PRC are primarily located in Beijing, Shanghai and Shenzhen. In 2002, turnover from the PRC Property Division was HK$1,089 million, representing approximately 21% of total turnover; whilst gross rental revenue was HK$456 million, representing approximately 19% of total recurrent revenue. In 2002, revenue from The Beijing Kerry Centre Hotel, the KPL Group’s only hotel, was HK$232 million, representing approximately 10% of total recurrent revenue.

As at 31 December 2002, the gross asset value of the PRC Property Division was HK$6,632 million, representing approximately 25% of the KPL Group’s total gross asset value.

Logistics Network Division

The Logistics Network Division is one of the largest warehouse owners in Hong Kong. Its warehousing and logistics business is one of the main contributors of the KPL Group’s total revenue, and, in 2002, generated revenue of HK$1,318 million, representing approximately 54% of total recurrent revenue. Revenue from Hong Kong operations was HK$772 million, representing approximately 32% of total recurrent revenue.

As at 31 December 2002, the gross value of the KPL Group’s warehouses and logistics centres was HK$3,384 million. The gross value of the Hong Kong warehouses and logistics centres was HK$3,273 million, representing approximately 12% of the KPL Group’s total gross asset value.

Recent Developments

SARS

According to the WHO, SARS is the first severe and readily transmissible new disease to strike a globalised society, with an overall case fatality of approximately 15%. The outbreak of SARS started in Hong Kong and the Asian region in the first quarter of 2003. On 2 April 2003, the WHO issued a recommendation to postpone all but essential travel to Hong Kong and Guangdong, which was lifted on 23 May 2003.

EXPLANATORY STATEMENT

According to “The First Quarter Economic Report 2003” published by Hong Kong Government on 30 May 2003, “the SARS outbreak has hit the Hong Kong economy on many fronts. The blow to inbound tourism has been particularly severe. The severe setback in visitor arrivals in turn has resulted in a heavy slump in the airline, travel and hotel businesses. It has also hurt the retail and restaurant businesses considerably.”

However, following the peak of the global outbreak at the start of May, when more than 200 new cases were being reported each day, the number of new cases has gradually dwindled to the present daily handful during June. According to the WHO, the global outbreak, at least in this initial phase, is clearly coming under control.

According to Hong Kong Government information issued on 22 June 2003, no new confirmed case of SARS or fatality from SARS was reported on that day. This was the 7th time that Hong Kong had recorded zero infections and zero deaths on the same day.

On 23 June 2003, the WHO removed Hong Kong from its list of areas with recent local transmission of SARS, following 20 days since the last SARS case was isolated on 2 June 2003. According to the WHO, when a 20-day period (being twice the maximum incubation period) has passed since removal of the last SARS case from the community at large, the chain of human-tohuman transmission is considered broken, thus eliminating the risk of infection for both local residents and travellers.

The Hong Kong Government has introduced an emergency fiscal package of approximately HK$10.8 billion to relieve hardship and to revive the local economy. The Hong Kong Government reckons that the impact of SARS would drag down GDP in 2003 by around 1.8%, while the Hong Kong Government’s relief measures announced on 23 April 2003 are reckoned to cushion it by slightly more than 0.2%.

Impact on the KPL Group

Almost all of the KPL Group’s assets are located in Hong Kong and the PRC, which are also the most significant sources of revenue income. The SARS outbreak may mainly affect the KPL Group’s investment and development properties portfolios in relation to sales and rental revenues and insofar as any further provisions on account of any downward revaluations is made; the effect of SARS on the retail sector and consumer demand may also have an impact on the KPL Group’s warehousing and logistics operations.

At present, it is difficult to accurately determine and quantify the full impact of the SARS outbreak on the KPL Group due to the uncertainty in predicting the severity and duration of its effect on Hong Kong and the PRC. As most of the investment properties of the Hong Kong Property Division and the PRC Property Division are let under 2-year term leases, whilst warehouse rentals are mostly on 6-month to 2-year term leases, any adverse impact of the SARS outbreak on levels of rental income would only be more accurately determined when current leases are due for renewal.

EXPLANATORY STATEMENT

In addition, if low occupancy rates at the KPL Group’s hotel in Beijing (which had an annual average of around 80% in 2002) were to persist for a prolonged period, the operating and financial condition of the hotel would be adversely affected, although occupancy rates have slightly recovered from below 10% in the last week of April 2003 and around 6% in May to around 22% in June 2003.

Financial Information

Summary Financial Information

(a) A summary of the published audited consolidated results and net asset value per Share of the KPL Group for each of the three years ended 31 December 2002 is set out below:

		(audited)
	For the years ended 31		December
	2002	2001	2000
	HK$’000	HK$’000	HK$’000
Turnover	5,156,162	5,036,408	3,195,757
Operating profit	678,896	527,285	790,939
Profit before taxation	821,234	526,238	931,856
Profit after tax but before minority
interests	670,636	423,875	810,324
Profit attributable to Shareholders	660,310	395,750	728,201
Earnings per Share (HK cents)	56.71	34.50	64.90
Net asset value per Share (HK$)	17.94	18.95	20.981

Note:

Restated based on revised Statement of Standard Accounting Practice No. 9 “Events after the balance sheet date” issued by the Hong Kong Society of Accountants which became effective in 2001.

EXPLANATORY STATEMENT

(b) A summary of the restated consolidated results and net asset value per Share of the KPL Group after taking into account the effect of Revised SSAP 12 for each of the three years ended 31 December 2002 is set out below:

		(as restated)
	For the years ended 31		December
	2002	2001	2000
	HK$’000	HK$’000	HK$’000
Turnover	5,156,162	5,036,408	3,195,757
Operating profit	678,896	527,285	790,939
Profit before taxation	787,734	254,505	931,856
Profit after tax but before minority
interests	611,746	171,340	813,016
Profit attributable to Shareholders	599,671	147,430	730,633
Earnings per Share (HK cents)	51.50	12.85	65.12
Net asset value per Share (HK$)	16.91	18.01	20.09

Net asset value

The NAV of KPL as at 31 December 2002 was approximately HK$21,001 million, or approximately HK$17.94 per Share, based on 1,170,550,794 Shares in issue as at that date.

The Restated NAV of KPL as at 31 December 2002 was approximately HK$19,796 million, or approximately HK$16.91 per Share, based on 1,170,550,794 Shares in issue as at that date.

The Adjusted NTAV was approximately HK$18,676 million, or approximately HK$15.77 per Share based on 1,184,539,725 Shares in issue as at the Latest Practicable Date. Details of the Adjusted NTAV are set out in Section 6 of Appendix I to this Explanatory Statement on pages 162 and 163 of this document.

Dividends

The final dividend of HK$0.12 per Share in respect of the year ended 31 December 2002 was paid on 30 May 2003 to Shareholders whose names appeared on the Registers on 15 April 2003. Those Shareholders who elected to receive such final dividend wholly or partly by way of allotment of new Shares credited as fully paid in lieu of cash were issued such scrip Shares on 30 May 2003. 2,185,762 Shares (representing approximately 0.18% of the issued share capital of KPL as at the Latest Practicable Date) were issued to Scheme Shareholders pursuant to this scrip alternative. All Shares which were issued as a result of Scheme Shareholders electing for the scrip alternative in relation to this dividend are Scheme Shares and will be subject to the Scheme.

EXPLANATORY STATEMENT

Liquidity and financial resources

As at 31 December 2002, the KPL Group’s shareholders’ funds based on published audited accounts totalled HK$21,001 million or approximately HK$17.94 per Share, decreasing from HK$21,897 million or approximately HK$18.95 per Share as at 31 December 2001 mainly due to a deficit on revaluation of the KPL Group’s properties amounting to approximately HK$1,134 million.

As at 31 December 2002, the KPL Group’s net debt amounted to HK$5,633 million, representing total bank loans and overdrafts of HK$7,057 million less deposits and cash of HK$1,424 million, which was a decrease of HK$1,682 million as compared to HK$7,315 million as at 31 December 2001. Accordingly, as at 31 December 2002, the KPL Group’s net debt represented approximately 27% of its net assets based on published audited accounts. The decrease in the KPL Group’s net debt was mainly due to the redemption in 2002 of convertible bonds with a principal amount of US$197.18 million.

FUTURE INTENTIONS OF KHL

Whilst KHL has no intention to make significant changes to the existing businesses of the KPL Group upon the successful privatisation of KPL, it does not rule out the possibility of any changes in the future if and when it thinks changes may be needed in order to benefit the KPL Group.

Upon the privatisation of KPL, the KHL Directors do not intend to make any significant redeployment of its fixed assets other than in the ordinary course of business.

If the Proposal is implemented, the KHL Directors do not have any intention to make any significant changes to the continuing employment of the employees of the KPL Group.

If the Proposal is not implemented, the KPL Directors intend to continue the existing businesses of the KPL Group.

The KPL Directors intend that the Listing will be withdrawn if the Scheme is implemented and be maintained in the event that the Scheme is not approved or is withdrawn or lapses.

INFORMATION RELATING TO THE KUOK GROUP

KHL is wholly-owned by Kerry Group Limited. Kerry Group Limited is a company incorporated in the Cook Islands and whose shareholders comprise Mr. Kuok Hock Nien and his relatives, other members of the Kuok family in Hong Kong and elsewhere, executives and employees (past and present) of the Kuok Group of companies, related trusts of some or all of the aforesaid and/or companies owned or controlled by any of them, and charitable foundations established by the Kuok family. Mr. Kuok Hock Nien, his relatives, related trusts and companies owned or controlled by any of them collectively control 30% or more of Kerry Group Limited. There are no other shareholders of Kerry Group Limited who hold 30% or more of the shares in Kerry Group Limited.

EXPLANATORY STATEMENT

KHL is the main investment holding company of the Kuok Group in Hong Kong. KHL’s main investments include real estate development (primarily through its investments in KPL), hotels (primarily through its investments in Shangri-La Asia Limited), media (primarily through its investments in SCMP Group Limited), edible oils and grains, branded beverages and commodity trading.

Kerry Group Limited entered into a non-competition agreement (the “Non-competition Agreement”) dated 18 July 1996 with KPL, pursuant to which Kerry Group Limited has undertaken to KPL, subject to certain exceptions described in the Non-competition Agreement, that no member of the Kuok Group (excluding for this purpose the KPL Group) shall directly or indirectly be interested or engaged in any business listed therein in competition with the KPL Group in Hong Kong or the PRC. The undertaking under the Non-competition Agreement will cease to have effect on the earliest of (i) the date on which KPL becomes wholly-owned by members of the Kuok Group; (ii) the date on which members of the Kuok Group cease to be a “controlling shareholder” (as defined from time to time in the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited) of KPL or (iii) the tenth anniversary of the date on which the Shares were listed and first dealt in on the Stock Exchange.

Mr. Kuok Khoon Loong, Edward, Mr. Ang Keng Lam, Mr. Wong Siu Kong and Mr. Thaddeus Thomas Beczak are directors of both KHL and KPL.

SHARE CERTIFICATES, DEALINGS AND LISTING

Upon the Scheme becoming effective, all of the Scheme Shares will be cancelled and extinguished and all of the certificates representing the Scheme Shares will, accordingly, cease to have effect as documents or evidence of title.

KPL will apply to the Stock Exchange for the withdrawal of the Listing immediately following the Effective Date, which is expected to be on 12 August 2003 (Hong Kong time). In such event, the Listing is expected to be withdrawn on the same day, 12 August 2003.

The Scheme Shareholders will be notified of the exact dates on which the Scheme and the withdrawal of the Listing become effective by press announcement.

If the Scheme is not approved or is withdrawn or lapses, it is intended that the Listing will be maintained.

REGISTRATION AND PAYMENT

If the Scheme becomes effective, cheques for the Cancellation Price will be issued to the Scheme Shareholders whose names appear on the Registers at the Record Time. Such cheques will be despatched within ten days after the Effective Date.

It is proposed to close the Registers immediately after 4:00 p.m. on 8 August 2003, or such other date as may be notified to the Scheme Shareholders by press announcement, in order to establish entitlements to the Cancellation Price under the Scheme. The Scheme Shareholders or

EXPLANATORY STATEMENT

their successors in title should ensure that their Shares are registered or lodged for registration in their names or in the names of their nominees by 4:00 p.m. on 8 August 2003. The Registrar is situated at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

As provided in the Scheme, on or after the day being six calendar months after the posting of such cheques, KHL shall have the right to cancel or countermand payment of any such cheque which has not then been cashed or has been returned uncashed, and shall place all monies represented thereby in a deposit account in KPL’s name with a licensed bank in Hong Kong selected by KPL. KPL shall hold such monies until the expiry of six years from the Effective Date and shall, prior to such date, make payments thereout of the sums, together with interest thereon in accordance with Clause 3(e) of the Scheme, to persons who satisfy KPL that they are entitled thereto and that the cheques of which they are payees have not been cashed. On the expiry of six years from the Effective Date, KHL shall be released from any further obligation to make any payments under the Scheme and KPL shall thereafter transfer to KHL the balance (if any) of the sums then standing to the credit of the deposit account in its name, including accrued interest subject, if applicable, to the deduction of any interest or withholding or other tax or any other deduction required by law and subject to the deduction of any expenses.

In the absence of any specific instructions to the contrary received in writing by the Registrar, cheques will be despatched to the Scheme Shareholders whose names appear on the Registers at the Record Time at their respective addresses or, in the case of joint holders, to the registered address of that joint holder whose name stands first in the Registers in respect of the joint holding. All such cheques will be sent at the risk of the persons entitled thereto and neither KHL nor KPL will be liable for any loss or delay in transmission.

OVERSEAS SHAREHOLDERS

The making of the Proposal to persons not resident in Hong Kong may be subject to the laws of the relevant jurisdictions. Overseas Shareholders should inform themselves appropriately and observe any applicable legal or regulatory requirements. It is the responsibility of any Overseas Shareholders wishing to accept the Proposal to satisfy themselves as to the full observance of the laws of the relevant jurisdiction in connection therewith, including the obtaining of any governmental, exchange control or other consents which may be required, or the compliance with other necessary formalities and the payment of any issue, transfer or other taxes due in such jurisdiction.

TAXATION

The Scheme Shareholders and Optionholders, whether in Hong Kong or in other jurisdictions, are recommended to consult their professional advisers if they are in any doubt as to the taxation implications of the Proposal and/or the Option Offer and, in particular, whether the receipt of the Cancellation Price or monies in relation to the Option Offer would make such Scheme Shareholders or Optionholders liable to taxation in Hong Kong or in other jurisdictions.

EXPLANATORY STATEMENT

MEETINGS AND SCHEME SHARES

EXPLANATORY STATEMENT

Notices of the Meetings are set out on pages 249 to 254 of this document. The Meetings will be held on 18 July 2003 at the respective times specified in such notices in Atrium I & II, Level 39, Island Shangri-La Hotel, Pacific Place, Supreme Court Road, Central, Hong Kong.

ACTION TO BE TAKEN BY THE INDEPENDENT SHAREHOLDERS AND THE SHAREHOLDERS

A pink form of proxy for use at the Court Meeting and a white form of proxy for use at the Special General Meeting are enclosed with this document.

Whether or not they are able to attend any of the Meetings in person, the Independent Shareholders are strongly urged to complete and sign the enclosed pink form of proxy in respect of the Court Meeting and the Shareholders are strongly urged to complete and sign the enclosed white form of proxy in respect of the Special General Meeting in accordance with the instructions respectively printed thereon and to deposit them with the Registrar at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible, but in any case not later than the following respective times:

(a) in the case of the pink form of proxy for use at the Court Meeting, the Independent Shareholders are requested to deposit this form of proxy not later than 10:00 a.m. on 16 July 2003, but if it is not so deposited, it may be handed to the Chairman of the Court Meeting at the Court Meeting; and
(b) in order to be valid, the white form of proxy for use at the Special General Meeting must be deposited by the Shareholders not later than 10:30 a.m. on 16 July 2003.

EXPLANATORY STATEMENT

the Court Meeting or the Special General Meeting, all transfers accompanied by the relevant share certificates must be deposited with the Registrar at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not later than 4:00 p.m. on 14 July 2003.

RECOMMENDATIONS

FURTHER INFORMATION

Further information in relation to the Proposal and the Option Offer is set out in the Appendices to this document, all of which form part of this Explanatory Statement.

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

1. THREE-YEAR FINANCIAL SUMMARY

(a) Set out below is a summary of the published audited consolidated results and net asset value per Share of the KPL Group for each of the last three financial years ended 31 December 2002:

	2002	2001	2000
	HK$’000	HK$’000	HK$’000
Turnover	5,156,162	5,036,408	3,195,757
Operating profit	678,896	527,285	790,939
Profit before taxation	821,234	526,238	931,856
Taxation	(150,598)	(102,363)	(121,532)
Profit after taxation but before minority
interests	670,636	423,875	810,324
Minority interests	(10,326)	(28,125)	(82,123)
Profit for the year attributable to the
Shareholders	660,310	395,750	728,201
Dividends	351,141	369,660	450,748
Earnings per Share (HK cents)	56.71	34.50	64.90
Dividend per Share (HK cents)	30.00	32.00	40.00
Net asset value per Share (HK$)	17.94	18.95	20.981

Note:

Restated based on revised Statement of Standard Accounting Practice No. 9 “Events after the balance sheet date” issued by the Hong Kong Society of Accountants which became effective in 2001.
(b) Set out below is a summary of the restated consolidated results and net asset value per Share of the KPL Group after taking into account the effect of Revised SSAP 12 for each of the three years ended 31 December 2002:

	2002	2001	2000
	HK$’000	HK$’000	HK$’000
Turnover	5,156,162	5,036,408	3,195,757
Operating profit	678,896	527,285	790,939
Profit before taxation	787,734	254,505	931,856
Taxation	(175,988)	(83,165)	(118,840)
Profit after tax but before minority
interests	611,746	171,340	813,016
Minority interests	(12,075)	(23,910)	(82,383)
Profit for the year attributable to the
Shareholders	599,671	147,430	730,633
Earnings per Share (HK cents)	51.50	12.85	65.12
Net asset value per Share (HK$)	16.91	18.01	20.09

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

2. AUDITED CONSOLIDATED ACCOUNTS OF THE KPL GROUP FOR THE YEAR ENDED 31 DECEMBER 2002

The information in this Section 2 of Appendix I has been extracted from the published audited consolidated accounts of the KPL Group for the year ended 31 December 2002. For the purpose of this Section 2 of Appendix I, the following expressions correspond with the definitions of this document respectively set opposite them:

“Company” KPL “director(s)” KPL Director(s) “Group” KPL Group “shares” or “ordinary shares” Shares “shareholders” Shareholders

The page numbers stated within the auditors’ report refer to the page numbers in the 2002 annual report of KPL.

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

AUDITORS’ REPORT

Auditors’ Report

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AUDITORS’ REPORT TO THE SHAREHOLDERS OF KERRY PROPERTIES LIMITED

(incorporated in Bermuda with limited liability)

We have audited the accounts on pages 91 to 159 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

The Company’s directors are responsible for the preparation of accounts which give a true and fair view. In preparing accounts which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently.

It is our responsibility to form an independent opinion, based on our audit, on those accounts and to report our opinion to you.

BASIS OF OPINION

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the accounts. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the accounts, and of whether the accounting policies are appropriate to the circumstances of the Company and the Group, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the accounts are free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the accounts. We believe that our audit provides a reasonable basis for our opinion.

OPINION

In our opinion, the accounts give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2002 and of the Group’s profit and cash flows of the Group for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

PricewaterhouseCoopers Certified Public Accountants

Hong Kong, 3 March 2003

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

CONSOLIDATED PROFIT AND LOSS ACCOUNT

For the year ended 31 December 2002

Consolidated Profit And Loss Account

Note	2002 HK$’000	2001 HK$’000 5,036,408 (2,972,596) (875,131) 1,188,681 160,716 214,728 (360,000) (46,620) (232,321) 925,184 (397,899) 527,285 (1,047) 526,238 (102,363) 423,875 (28,125) 395,750 34.50 cents
Turnover 2 Cost of sales Direct operating expenses Gross profit Other revenues 2 Other income 3(b) Provision in respect of stock of completed properties held for sale/properties under development for sale 3(c) Amortisation of investment in a fixed return co-operative joint venture Administrative expenses Operating profit before finance costs 3(a) Finance costs 4 Operating profit Share of profits less losses of associated companies Profit before taxation Taxation 5 Profit after taxation Minority interests 3(c) Profit attributable to shareholders 6 Earnings per share 8	5,156,162 (2,387,768) (1,389,164) 1,379,230 55,915 39,697 (266,000) – (312,816) 896,026 (217,130) 678,896 142,338 821,234 (150,598) 670,636 (10,326) 660,310 56.71 cents

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET As at 31 December 2002

Consolidated Balance Sheet

Note	2002 HK$’000	2001 HK$’000 5,284 21,810,930 5,061,970 1,740,292
Intangible assets 11 Fixed assets 12 Associated companies 14 Other non-current assets 15 Current assets Stock of completed properties held for sale 16 Properties under development for sale 17 Accounts receivable, prepayments and deposits 18 Tax recoverable Tax reserve certificates Trading securities 19 Pledged bank deposits 33 Cash and bank balances Current liabilities Accounts payable, deposits received and accrued charges 20 Taxation Current portion of long-term liabilities 27 Unsecured bank overdrafts Net current assets Total assets less current liabilities Financed by: Share capital 21 Share premium 23 Other reserves 24 Retained profits 25 Proposed final dividend 25 Shareholders’ funds Minority interests and loans 26 Long-term liabilities 27 Deferred taxation 28	45,004 20,890,174 5,391,118 1,802,638
	1,363,328 591,273 862,038 30,764 – 2,043 70,450 1,353,744	1,017,343 3,069,042 753,135 32,103 4,286 3,964 168,872 2,125,394
	4,273,640	7,174,139
	1,415,574 109,533 1,335,481 2,949	1,458,659 51,576 3,241,076 2,646
	2,863,537 1,410,103 29,539,037 1,170,551 3,478,011 10,246,389 5,965,153 140,466 21,000,570 2,816,623 23,817,193 5,719,091 2,753 29,539,037	4,753,957 2,420,182 31,038,658 1,155,727 3,371,498 11,571,851 5,659,627 138,687 21,897,390 2,724,154 24,621,544 6,365,995 51,119 31,038,658

On behalf of the Board

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Kuok Khoon Loong, Edward

Director

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Ang Keng Lam Director

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

BALANCE SHEET As at 31 December 2002

Balance Sheet

Note	2002 HK$’000	2001 HK$’000 1,547 27,037,336
Fixed assets 12 Subsidiaries 13 Current assets Dividends receivable Accounts receivable, prepayments and deposits Tax recoverable Cash and bank balances Current liabilities Accounts payable and accrued charges Current portion of long-term liabilities 27 Net current assets Total assets less current liabilities Financed by: Share capital 21 Share premium 23 Other reserves 24(f) Retained profits 25 Proposed final dividend 25 Shareholders’ funds Long-term liabilities 27	1,753 28,230,796 360,000 3,031 423 308,423 671,877
		140,000 6,748 60 928,091
		1,074,899
	13,856 650,000	11,662 109,000
	663,856 8,021 28,240,570 1,170,551 3,478,011 17,801,176 450,366 140,466 23,040,570 5,200,000 28,240,570	120,662 954,237 27,993,120 1,155,727 3,371,498 17,800,950 226,258 138,687 22,693,120 5,300,000 27,993,120

On behalf of the Board

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Kuok Khoon Loong, Edward Director

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Ang Keng Lam Director

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2002

Consolidated Cash Flow Statement

Note	2002 HK$’000	As restated 2001 HK$’000 2,050,969 (411,975) (27,211) (10,578) 1,601,205
Operating activities Net cash generated from operations 29(a) Interest paid Hong Kong profits tax paid PRC and overseas tax paid Net cash from operating activities Investing activities Purchase of fixed assets, excluding interest capitalised Purchase of subsidiaries 29(d) Disposal of subsidiaries 29(f) Additional investments in associated companies Additional loans to associated companies Purchase of long-term investments Increase in trading securities arising from consolidation of an overseas subsidiary Interest received Dividends received from associated companies Dividends received from listed and unlisted investments Income received from investment in a fixed return co-operative joint venture Repayment of loans from investee companies Proceeds from sale of listed equity shares Proceeds from sale of fixed assets Proceeds from sale of investment in a fixed return co-operative joint venture Net cash (used in)/from investing activities Net cash inflow before financing Financing activities 29(b) Proceeds from issue of shares Consideration and expenses for purchase of shares for cancellation Repayment of bank loans Redemption of convertible bonds Purchase of convertible bonds for cancellation Drawdown of bank loans Dividends paid Capital injection from minority shareholders Dividends paid to minority shareholders in subsidiaries Decrease in loans from minority shareholders Net cash used in financing activities (Decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December Analysis of balances of cash and cash equivalents Pledged bank deposits Cash and bank balances Unsecured bank overdrafts	2,718,641 (285,204) (41,332) (74,109) 2,317,996
	(354,826) (74,397) – (32,176) (281,981) (2,576) – 30,849 125,325 27,727 – 1,300 1,660 151,131 –	(205,431) (27,265) (15,170) (49,501) (27,246) (5,317) (148) 54,548 29,580 17,792 89,309 5,101 1,027 829,842 437,989
	(407,964) 1,910,032	1,135,110 2,736,315
	752 (1,251) (7,281,010) (1,993,282) – 6,683,486 (227,526) 45,124 (200) (6,500)	– – (7,915,290) – (10,139) 6,620,385 (268,797) – (104,267) (35,346)
	(2,780,407) (870,375) 2,291,620 1,421,245 70,450 1,353,744 (2,949) 1,421,245	(1,713,454) 1,022,861 1,268,759 2,291,620 168,872 2,125,394 (2,646) 2,291,620

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2002

Consolidated Statement Of Changes In Equity

Note	2002 HK$’000	2001 HK$’000 23,805,701
Total equity as at 1 January Revaluation deficit on properties 24 Share of revaluation deficit of properties held by associated companies 24 Revaluation (deficit)/surplus on non-trading securities 24 Exchange differences arising on translation of the accounts of the PRC and overseas subsidiaries and associated companies 24 Net losses not recognised in the profit and loss account Profit for the year 25 Relevant portion of properties revaluation reserves realised in the profit and loss account on disposal of properties 24 Capital reserve released upon disposal of subsidiaries 24 Dividends 25 Issue of share capital 21, 23 Purchase of shares for cancellation 21, 23 Total equity as at 31 December	21,897,390 (1,121,393) (12,394) (194,863) 30,398 (1,298,252) 660,310 (30,853) – (349,362) 122,588 (1,251) 21,000,570
		(2,020,726) (169,178) 392,522 (83,836)
		(1,881,218) 395,750 (153,552) (494) (457,856) 189,059 – 21,897,390

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

Notes To The Accounts

1. PRINCIPAL ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these consolidated accounts are set out below:

(a) Basis of preparation

The accounts have been prepared under the historical cost convention as modified by the revaluation of investment properties, hotel properties, warehouses, freehold land and buildings and investments in securities, in accordance with accounting principles generally accepted in Hong Kong and comply with accounting standards issued by the Hong Kong Society of Accountants (“HKSA”).

In the current year, the Group adopted the following Statements of Standard Accounting Practice (“SSAPs”) issued by the HKSA which are effective for accounting periods commencing on or after 1 January 2002:

SSAP 1 (revised) : Presentation of financial statements SSAP 11 (revised) : Foreign currency translation SSAP 15 (revised) : Cash flow statements SSAP 34 (revised) : Employee benefits

The effect of adopting these new standards is set out in the accounting policies below.

(b) Consolidation

The consolidated accounts include the accounts of the Company and its subsidiaries made up to 31 December.

Subsidiaries are those entities in which the Company, directly and indirectly, controls more than half of the voting power; has the power to govern the financial and operating policies; to appoint or remove the majority of the members of the board of directors; or to cast majority of votes at the meetings of the board of directors.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated profit and loss account from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All significant intercompany transactions and balances within the Group are eliminated on consolidation.

The gain or loss on the disposal of a subsidiary represents the difference between the proceeds of the sale and the Group’s share of its net assets together with any unamortised goodwill or negative goodwill or goodwill/ negative goodwill taken to reserves which was not previously charged to or recognised in the consolidated profit and loss account.

Minority interests represent the interests of outside shareholders in the operating results and net assets of subsidiaries.

In the Company’s balance sheet, the investments in subsidiaries are stated at cost less provision for impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.

(c) Associated companies

An associated company is a company, not being a subsidiary, in which an equity interest is held for the longterm and significant influence is exercised in its management.

The consolidated profit and loss account includes the Group’s share of the post acquisition results of associated companies for the year and the consolidated balance sheet includes the Group’s share of the net assets of the associated companies and also goodwill/negative goodwill on acquisition (net of accumulated amortisation).

Equity accounting is discontinued when the carrying amount of the investment in an associated company reaches zero, unless the Group has incurred obligations or guaranteed obligations in respect of the associated company.

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(d) Joint ventures in the PRC

(i) Equity joint ventures

Equity joint ventures are Sino-foreign joint ventures in respect of which the partners’ capital contribution ratios are defined in the joint venture contracts and the partners’ profit sharing ratios are in proportion to the capital contribution ratios.

The Group’s investments in equity joint ventures are accounted for as long-term investments, associated companies or subsidiaries depending on the Group’s equity or controlling interest therein.

(ii) Fixed return co-operative joint ventures

Where investment income derived from investments in co-operative joint ventures is predetermined in accordance with the provisions of the joint venture contracts for a substantial portion of the joint venture period, these co-operative joint ventures are referred to as fixed return co-operative joint ventures. Fixed return co-operative joint ventures are stated at cost less the amount amortised on a straight-line basis through the profit and loss account over the joint venture period.

(e) Wholly foreign owned enterprises in the PRC

Interests in wholly foreign owned enterprises are accounted for as subsidiaries.

(f) Goodwill/negative goodwill

Goodwill represents the excess of purchase consideration over the fair values ascribed to the net assets of the subsidiaries and associated companies acquired at the date of acquisition.

Goodwill on acquisitions occurring on or after 1 January 2001 is included in intangible assets and is amortised using the straight-line method over its estimated useful life of not more than twenty years.

Goodwill on acquisitions that occurred prior to 1 January 2001 was written off against reserves.

Negative goodwill represents the excess of the fair value of the Group’s share of the net assets acquired over the cost of acquisition.

For acquisitions after 1 January 2001, negative goodwill is presented in the same balance sheet classification as goodwill. To the extent that negative goodwill relates to expectations of future losses and expenses that are identified in the Group’s plan for the acquisition and can be measured reliably, but which do not represent identifiable liabilities at the date of acquisition, that portion of negative goodwill is recognised in the profit and loss account when the future losses and expenses are recognised. Any remaining negative goodwill, not exceeding the fair values of the non-monetary assets acquired, is recognised in the profit and loss account over the remaining weighted average useful life of those assets; negative goodwill in excess of the fair values of those non-monetary assets is recognised in the profit and loss account immediately.

For acquisitions prior to 1 January 2001, negative goodwill was taken directly to reserves on acquisition.

Where an indication of impairment exists, the carrying value of the goodwill, including goodwill previously written off against reserves, is assessed and written down to its recoverable amount.

The gain or loss on disposal of an entity includes the unamortised balance of goodwill relating to the entity disposed of or, for pre 1 January 2001 acquisitions, the related goodwill written off against reserves to the extent it has not previously been realised in the profit and loss account.

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(g) Investments in securities

(i) Non-trading securities

Investments which are held for non-trading purposes are stated at fair value at the balance sheet date. Changes in the fair value of individual securities are credited or debited to the non-trading securities revaluation reserve until the security is sold, or is determined to be impaired. Upon disposal, the cumulative gain or loss representing the difference between the net sales proceeds and the carrying amount of the relevant security, together with any surplus/deficit transferred from the non-trading securities revaluation reserve, is dealt with in the profit and loss account.

Individual investments are reviewed regularly to determine whether they are impaired. When an investment is considered to be impaired, the cumulative loss recorded in the revaluation reserve is taken to the profit and loss account. Transfers from non-trading securities revaluation reserve to the profit and loss account as a result of impairments are written back in the profit and loss account when the circumstances and events leading to the impairments cease to exist.

(ii) Trading securities

Trading securities are carried at fair value. At each balance sheet date, the net unrealised gains and losses arising from the changes in fair value of trading securities are recognised in the profit and loss account. Profits or losses on disposal of trading securities, representing the difference between the net sales proceeds and the carrying amounts, are recognised in the profit and loss account as they arise.

(h) Properties and other fixed assets

(i) Investment properties

Investment properties are interests in land and buildings in respect of which construction work and development have been completed and are held for their investment potential, any rental income being negotiated at arm’s length.

Investment properties are stated at annual professional valuation at the balance sheet date. Changes in the value of investment properties are dealt with as movements in the investment properties revaluation reserve. If the total of this reserve is insufficient to cover a deficit on revaluation on a portfolio basis, the excess of the deficit is charged to the profit and loss account. Any subsequent revaluation surplus is credited to the profit and loss account to the extent of the deficit previously charged. Investment properties are not depreciated except where the unexpired term of the lease is 20 years or less, in which case depreciation is provided on the carrying value over the remaining term of the lease.

(ii) Hotel properties

Hotel properties are interests in land and buildings and their integral fixed plant and are stated at annual professional valuation at the balance sheet date. Changes in the value of hotel properties are dealt with as movements in the hotel properties revaluation reserve. If the reserve is insufficient to cover a deficit on revaluation on an individual basis, the excess of the deficit on revaluation is charged to the profit and loss account. Any subsequent revaluation surplus is credited to the profit and loss account on an individual basis to the extent of the deficit previously charged. It is the Group’s practice to maintain the properties in a continual state of sound repair and maintenance and accordingly the directors consider that depreciation is not necessary due to their high residual values, except where the unexpired term of the lease is 20 years or less, in which case depreciation is provided on the carrying value over the remaining term of the lease. The related maintenance expenditure is dealt with in the profit and loss account in the year of expenditure.

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(h) Properties and other fixed assets (Continued)
(iii) Freehold and other leasehold land and buildings

Freehold land and buildings and warehouses classified as other leasehold land and buildings are stated at valuation, being the open market value at the date of valuation, less subsequent aggregate depreciation and accumulated impairment losses. Changes in the value of freehold land and buildings and warehouses arising from revaluation are dealt with as movements in the freehold land and buildings revaluation reserve and other properties revaluation reserve, respectively. If the reserve is insufficient to cover a deficit on revaluation on an individual basis, the excess of the deficit on revaluation is charged to the profit and loss account. Any subsequent revaluation surplus is credited to the profit and loss account on an individual basis to the extent of the deficit previously charged.

No depreciation is provided on freehold land. Depreciation on buildings situated on freehold land is calculated to write off their valuation less residual value on a straight-line basis over their expected useful lives to the Group. The principal annual rate used for this purpose is 2.5%.

Depreciation on warehouses which are classified as other leasehold land and buildings is calculated to write off their valuation less residual value on a straight-line basis over their expected remaining useful lives to the Group ranging from eleven to thirty years.

Staff quarters are stated at cost less aggregate depreciation and accumulated impairment losses. Cost represents the purchase price of the staff quarters and other costs incurred to bring them into existing use.

Depreciation on staff quarters is calculated to write off their cost on a straight-line basis over their expected useful lives to the Group. The principal annual rate used for this purpose is 5%.

(iv) Properties held for/under development

Properties held for/under development for long-term purposes are stated at cost.

Properties under development for sale are included in current assets and are stated at the lower of cost and net realisable value, if presale of properties has not commenced.

Properties under development for sale are included in current assets and are stated at cost plus attributable profits recognised on the basis set out in note 1(t)(i) less sales instalments received and receivable and provision for any foreseeable losses and progress payments received and receivable, if presale of properties has commenced.

Cost of properties in the course of development comprises land cost, fees for land use rights and development costs including attributable interest and professional charges capitalised during the development period. Where properties, previously held as investment properties, are subject to redevelopment, they are valued at the date redevelopment commenced. Cost of properties under development includes the carrying value of the properties at the date when redevelopment commences. The properties under development revaluation reserve is transferred to the investment properties revaluation reserve or completed properties revaluation reserve upon completion of redevelopment. If sales of the properties commence before redevelopment is completed, the relevant portion of the revaluation reserve realised in respect of previous valuations is released from the properties under development revaluation reserve to the profit and loss account.

Net realisable value is determined by reference to sales proceeds of properties sold in the ordinary course of business less all estimated selling expenses after the balance sheet date, or by management estimates based on prevailing market conditions.

No depreciation is provided on properties held for/under development.

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(h) Properties and other fixed assets (Continued)
(v) Stock of completed properties held for sale

Stock of completed properties held for sale are included in current assets and are stated at the lower of cost and net realisable value. Cost comprises land and development costs and is determined by apportionment of the total land and development costs attributable to the unsold properties. Net realisable value is determined on the basis of anticipated sales proceeds less estimated selling expenses.

Upon the disposal of stock of completed properties held for sale, the relevant portion of the revaluation reserve realised in respect of previous valuations is released from the completed properties revaluation reserve to the profit and loss account.

(vi) Other fixed assets

Other fixed assets are stated at cost less aggregate depreciation and accumulated impairment losses. Cost represents the purchase price of the asset and other costs incurred to bring the asset into existing use.

Depreciation on other fixed assets is calculated to write off their cost on a straight-line basis over their expected useful lives to the Group. The principal annual rates used for this purpose are:

Leasehold improvements	15%
Warehouse operating equipment	5% to 20%
Motor vehicles, furniture, fixtures and office equipment	15% to 20%

(vii) Gain or loss on disposal of fixed assets

The gain or loss on disposal of other leasehold land and buildings is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in the profit and loss account. Any revaluation reserve balance remaining attributable to the relevant asset is transferred to retained profits and is shown as a movement in reserves.

The gain or loss on disposal of a fixed asset other than other leasehold land and buildings is the difference between the net sales proceeds and the carrying amount of the relevant asset together with any revaluation reserve balance remaining attributable to the relevant asset and is recognised in the profit and loss account.

(viii) Cost of restoring and improving fixed assets

Major costs incurred in restoring fixed assets to their normal working condition are charged to the profit and loss account. Improvements are capitalised and depreciated over their expected useful lives to the Group.

(ix) Impairment of assets

At each balance sheet date, both internal and external sources of information are considered to assess whether there is any indication that assets included in leasehold land and buildings and other fixed assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated and where relevant, an impairment loss is recognised to reduce the asset to its recoverable amount. Such impairment losses are recognised in the profit and loss account except where the asset is carried at valuation and the impairment loss does not exceed the revaluation surplus for that same asset, in which case it is treated as a revaluation decrease.

(i) Accounts receivable

Provision is made against accounts receivable to the extent they are considered to be doubtful. Accounts receivable in the balance sheet are stated net of such provision.

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(j) Convertible bonds

Convertible bonds are stated at the aggregate of the net proceeds from the issue plus finance costs provided.

The net proceeds represent the amount received on the issue of the convertible bonds after deduction of direct issue costs. Direct issue costs are amortised to the profit and loss account on a straight-line basis over the period from the date of issue to the date on which the bondholders can exercise their redemption option (the “Bondholders’ Redemption Date”). If any of the convertible bonds are purchased and cancelled, redeemed or converted prior to the Bondholders’ Redemption Date, any remaining unamortised costs attributable to such convertible bonds will be written off immediately to the profit and loss account.

Finance costs represent the premium that is to be paid to the bondholders upon redemption on or before the Bondholders’ Redemption Date. The estimated premium is provided for at a constant rate over the period when the bondholders’ redemption option is outstanding and is charged to the profit and loss account. If any of the convertible bonds are purchased and cancelled or converted prior to the Bondholders’ Redemption Date, any provision of such redemption premium in previous years in respect of the convertible bonds purchased or converted will be taken to the profit and loss account.

The gain or loss on purchase of convertible bonds, representing the difference between the consideration paid and the nominal value of the convertible bonds purchased, is recognised in the profit and loss account.

(k) Borrowing costs

Borrowing costs incurred on assets under active development that take a substantial period of time to be ready for their intended use or sale are capitalised into the carrying value of properties held for/under development. The capitalisation rate is based on attributable cost of the specific borrowings.

All other borrowing costs are charged to the profit and loss account in the year in which they are incurred.

(l) Deferred taxation

Deferred taxation is accounted for at the current taxation rate in respect of timing differences between profit as computed for taxation purposes and profit as stated in the accounts to the extent that a liability or an asset is expected to be payable or recoverable in the foreseeable future.

(m) Employee benefits

(i) Employee leave entitlements

Employee entitlements to annual leave and long service leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave and long service leave as a result of services rendered by employees up to the balance sheet date.

Employee entitlements to sick leave and maternity or paternity leave are not recognised until the time of leave.

(ii) Profit sharing and bonus plans

The expected cost of profit sharing and bonus payments are recognised as a liability when the Group has a present legal or constructive obligation as a result of services rendered by employees and a reliable estimate of the obligation can be made.

(iii) Retirement benefit costs

The Group’s contributions to the mandatory provident fund scheme and the defined contribution retirement schemes are expensed as incurred. Contributions to the defined contribution retirement scheme which is operated in Hong Kong are reduced by contributions forfeited by those employees who leave the scheme prior to vesting fully in the contributions. The assets of all these schemes are held separately and independently from those of the Group.

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(m) Employee benefits (Continued)
(iv) Share options

The nominal income received from the grantees as consideration for the grant is recognised as income upon acceptance of the grant by the grantees. No employee benefits cost is recognised when options are granted. When the options are exercised, equity is increased by the amount of the proceeds received.

(n) Operating leases

Leases where substantially all the risks and rewards of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases net of any incentives received from the leasing company are charged to the profit and loss account on a straight-line basis over the lease periods.

(o) Translation of foreign currencies

Transactions in foreign currencies are translated at exchange rates ruling at the transaction dates. Monetary assets and liabilities expressed in foreign currencies at the balance sheet date are translated at rates of exchange ruling at the balance sheet date. Exchange differences arising in these cases are dealt with in the profit and loss account.

The balance sheets of subsidiaries and associated companies expressed in foreign currencies are translated at the rates of exchange ruling at the balance sheet date whilst the profit and loss accounts are translated at average rates. Exchange differences are dealt with as a movement in reserves.

The profit and loss accounts of foreign enterprises were translated at closing rates in prior years. However, the translation of the profit and loss accounts of foreign enterprises in prior years has not been restated as the effect of this change is not material to the current and prior years.

(p) Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand and deposits held at call with banks less bank overdrafts.

(q) Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resource will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the accounts. When a change in the probability of an outflow occurs so that outflow is probable, they will then be recognised as a provision.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Group.

Contingent assets are not recognised but are disclosed in the notes to the accounts when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.

(r) Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(s) Segment reporting

In accordance with the Group’s internal financial reporting, the Group has determined that business segments be presented as the primary reporting format and geographical as the secondary reporting format.

Segment assets consist primarily of fixed assets, stock of completed properties held for sale, properties under development for sale, receivables and operating cash, and mainly exclude associated companies, other noncurrent assets, tax recoverable, tax reserve certificates and trading securities. Segment liabilities comprise operating liabilities and exclude items such as taxation, deferred taxation and minority interests and loans. Capital expenditure comprises additions to fixed assets (note 12), including additions resulting from acquisitions through purchases of subsidiaries (note 29(c)).

In respect of geographical segment reporting, turnover is based on the country of operations. Segment assets and capital expenditure are where the assets are located.

(t) Revenue and profit recognition

(i) The recognition of revenue and profits from the sale of properties under development in advance of completion commences when a legally binding contract of sale has been executed. The revenues and profits recognised in a year are a proportion of the total revenues and profits expected on completion, the proportion used being the percentage of the construction costs incurred at the end of the year to the estimated total construction costs on completion (with due allowances for contingencies). The profit so recognised is restricted to the amount of instalments received.

Where purchasers fail to pay the balances of the purchase price on completion and the Group exercises its right to resell the property, sales deposits received in advance of completion are forfeited and credited to operating profits; any profits recognised so far are reversed.

(ii) Revenue in respect of sale of completed properties and investment properties is recognised upon completion of sale agreements.
(iii) Rental revenue and other revenues incidental to the letting of properties are recognised on a straight-line basis over the periods of the respective leases.
(iv) Revenue from general storage and other ancillary services is recognised when the services are rendered. Revenue from leased storage is recognised on a straight-line basis over the periods of the respective leases.
(v) Income on development consultancy and project management is recognised on a pro-rata basis according to the progress of the projects.
(vi) Income from property management is recognised on an accrual basis.
(vii) Hotel revenue from rooms rental, food and beverage sales and other ancillary services is recognised when the services are rendered.
(viii) Dividend income is recognised when the right to receive payment is established.
(ix) Income from investments in fixed return co-operative joint ventures is recognised on an accrual basis in accordance with the provisions of the joint venture contracts.
(x) Interest income is recognised on a time proportion basis, taking into account the principal amounts outstanding and the interest rates applicable.

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

PRINCIPAL ACTIVITIES AND SEGMENTAL ANALYSIS OF OPERATIONS
(a) The principal activities of the Group are disclosed in the Report of the Directors. Revenues recognised during the year are as follows:

	Group 2002 2001 HK$’000 HK$’000	Group 2002 2001 HK$’000 HK$’000
Turnover Proceeds from sale of properties – completed properties – Hong Kong – PRC – properties under development for sale in the PRC – property held for development in the PRC – investment properties – Hong Kong – PRC Rental income Hotel revenue Storage and services income – warehouse – logistics Development consultancy, project management and property management fees Other revenues Income from investment in a fixed return co-operative joint venture Dividend income from: – listed investments – unlisted investments Interest income Total revenues
	2,294,771 299,057	1,771,601 11,230
	2,593,828 12,496 25,120	1,782,831 547,974 –
	37,223 64,811	708,564 119,419
	102,034 2,733,478 828,774 231,974	827,983 3,158,788 885,313 204,048
	399,094 918,495	426,678 317,799
	1,317,589 44,347 5,156,162 –	744,477 43,782 5,036,408 89,309
	61 27,666	67 17,725
	27,727 28,188 55,915 5,212,077	17,792 53,615 160,716 5,197,124

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

PRINCIPAL ACTIVITIES AND SEGMENTAL ANALYSIS OF OPERATIONS (CONTINUED)
(b) An analysis of the Group’s turnover and contribution to operating profit for the year by principal activities and markets is as follows:

	Turnover 2002 2001 HK$’000 HK$’000	Turnover 2002 2001 HK$’000 HK$’000	Operating profit 2002 2001 HK$’000 HK$’000 184,141 183,189 271,459 245,209 455,600 428,398 90,169 55,746	Operating profit 2002 2001 HK$’000 HK$’000 184,141 183,189 271,459 245,209 455,600 428,398 90,169 55,746
Principal activities: Property rental – Hong Kong – PRC Hotel operations Logistics and warehouse operations – warehouse – logistics Property sales – Hong Kong – PRC Infrastructure Project, property management and others Principal markets: Hong Kong PRC Others	372,741 456,033 828,774 231,974	423,058 462,255 885,313 204,048	184,141 271,459 455,600 90,169
				183,189 245,209
				428,398 55,746
	399,094 918,495	426,678 317,799	162,526 35,005	67,099 13,011
	1,317,589	744,477	197,531	80,110
	2,331,994 401,484	2,480,165 678,623	(210,271) 70,060	(292,912) 80,127
	2,733,478 – 44,347 5,156,162 3,517,120 1,127,025 512,017 5,156,162	3,158,788 – 43,782 5,036,408 3,537,250 1,347,769 151,389 5,036,408	(140,211) (300) 76,107 678,896 245,438 422,241 11,217 678,896	(212,785) 165,321 10,495 527,285 (19,515) 542,969 3,831 527,285

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

PRINCIPAL ACTIVITIES AND SEGMENTAL ANALYSIS OF OPERATIONS (CONTINUED)
(c) Primary reporting format – business segments

2002

	Hong Kong Property HK$’000	PRC Property HK$’000	Logistics and Warehouse HK$’000	Infrastructure HK$’000	International HK$’000	Others HK$’000	Eliminations HK$’000	Consolidated HK$’000
Revenue Turnover Inter-segment revenue Inter-segment interest income Results Segment results Dividend income Interest income Interest expenses Operating profit/(loss) Share of profits less losses of associated companies Profit/(loss) before taxation Taxation Profit/(loss) after taxation Minority interests Profit/(loss) attributable to shareholders Segment assets Associated companies Other non-current assets Tax recoverable Trading securities Total assets Segment liabilities Taxation and deferred taxation Minority interests and loans Total liabilities Capital expenditure Depreciation Amortisation of goodwill Provision in respect of stock of completed properties held for sale	2,704,735 – – 2,704,735 135,756 6,926 11,191 (180,003) (26,130) (26,887) (53,017) (52,853) (105,870) 81,813 (24,057) 10,757,016 3,268,164 946,144 2,457 1,895 14,975,676 10,436,297 51,012 275,529 10,762,838 209,930 1,069 – 266,000	1,089,491 – – 1,089,491 519,608 – 4,357 (92,277) 431,688 20,557 452,245 (62,818) 389,427 (89,035) 300,392 9,629,416 345,625 470 – – 9,975,511 2,754,243 37,757 2,278,230 5,070,230 4,886 4,071 – –	1,317,589 – – 1,317,589 254,505 – 1,352 (58,326) 197,531 (2,689) 194,842 (19,234) 175,608 (8,485) 167,123 4,200,388 7,529 21,209 – – 4,229,126 2,576,473 16,971 263,414 2,856,858 220,512 48,258 1,733 –	– – – – (300) – 4,164 (4,164) (300) 107,796 107,496 (6,012) 101,484 – 101,484 534,467 722,878 – – – 1,257,345 520,052 – – 520,052 – – – –	– – – – (5,795) 20,796 – – 15,001 43,561 58,562 (12,644) 45,918 – 45,918 11,035 1,046,922 812,399 – 148 1,870,504 112,135 – – 112,135 – – – –	44,347 386,809 360,295 791,451 296,632 5 7,124 (242,655) 61,106 – 61,106 2,963 64,069 5,381 69,450 17,913,431 – 22,416 28,307 – 17,964,154 9,943,637 6,546 (550) 9,949,633 5,024 3,583 – –	– (386,809) (360,295) (747,104) (360,295) – – 360,295 – – – – – – – (17,869,742) – – – – (17,869,742) (17,869,742) – – (17,869,742) – – – –	5,156,162 – –
								5,156,162
								840,111 27,727 28,188 (217,130)
								678,896 142,338
								821,234 (150,598)
								670,636 (10,326)
								660,310
								25,176,011 5,391,118 1,802,638 30,764 2,043
								32,402,574
								8,473,095 112,286 2,816,623
								11,402,004
								440,352 56,981 1,733 266,000

100

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

PRINCIPAL ACTIVITIES AND SEGMENTAL ANALYSIS OF OPERATIONS (CONTINUED)
(c) Primary reporting format – business segments (Continued)

				2001	2001
	Hong Kong Property HK$’000	PRC Property HK$’000	Logistics and Warehouse HK$’000	Infrastructure HK$’000	International HK$’000	Others HK$’000	Eliminations HK$’000	Consolidated HK$’000
Revenue Turnover Inter-segment revenue Inter-segment interest income Income from investment in a fixed return co-operative joint venture Results Segment results Dividend income Interest income Interest expenses Operating profit/(loss) Share of profits less losses of associated companies Profit/(loss) before taxation Taxation Profit/(loss) after taxation Minority interests Profit/(loss) attributable to shareholders Segment assets Associated companies Other non-current assets Tax recoverable Tax reserve certificates Trading securities Total assets Segment liabilities Taxation and deferred taxation Minority interests and loans Total liabilities Capital expenditure Depreciation Amortisation of goodwill and investment in a fixed return co-operative joint venture Provision in respect of properties under development for sale	2,810,223 – – – 2,810,223 38,385 14,597 18,740 (181,445) (109,723) (115,427) (225,150) (33,100) (258,250) 34,369 (223,881) 13,599,703 3,122,765 831,635 3,366 4,286 2,792 17,564,547 11,316,709 33,714 326,191 11,676,614 202,984 1,456 – 360,000	1,344,926 – – – 1,344,926 498,466 – 9,156 (126,540) 381,082 21,540 402,622 (62,732) 339,890 (47,243) 292,647 9,996,463 318,955 470 – – – 10,315,888 3,612,316 57,721 2,165,011 5,835,048 3,640 8,651 – –	837,477 – – – 837,477 180,944 – 1,938 (102,772) 80,110 (1,255) 78,855 (10,382) 68,473 (11,231) 57,242 4,029,179 5,985 21,407 – – – 4,056,571 2,438,669 1,044 228,121 2,667,834 125,974 35,691 293 –	– – – 89,309 89,309 165,321 – 3,659 (3,659) 165,321 56,101 221,422 (4,416) 217,006 – 217,006 502,756 596,370 – – – – 1,099,126 463,315 – – 463,315 – – 46,620 –	– – – – – 516 3,182 – – 3,698 37,994 41,692 (9,618) 32,074 – 32,074 790 1,017,895 859,300 – – 148 1,878,133 106,216 – – 106,216 – – – –	43,782 623,755 423,709 – 1,091,246 393,854 13 20,122 (407,192) 6,797 – 6,797 17,885 24,682 (4,020) 20,662 19,519,411 – 27,480 28,737 – 1,024 19,576,652 11,829,453 10,216 4,831 11,844,500 14,876 1,794 – –	– (623,755) (423,709) – (1,047,464) (423,709) – – 423,709 – – – – – – – (18,698,302) – – – – – (18,698,302) (18,698,302) – – (18,698,302) – – – –	5,036,408 – – 89,309
								5,125,717
								853,777 17,792 53,615 (397,899)
								527,285 (1,047)
								526,238 (102,363)
								423,875 (28,125)
								395,750
								28,950,000 5,061,970 1,740,292 32,103 4,286 3,964
								35,792,615
								11,068,376 102,695 2,724,154
								13,895,225
								347,474 47,592 46,913 360,000

101

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

PRINCIPAL ACTIVITIES AND SEGMENTAL ANALYSIS OF OPERATIONS (CONTINUED)
(d) Secondary reporting format – geographical segments

		2002	2002
	Segment revenue HK$’000	Segment results HK$’000	Segment assets HK$’000	Capital expenditure HK$’000
Hong Kong PRC Others	3,517,120 1,127,025 512,017 5,156,162	338,493 14,971,833 509,964 9,827,743 (8,346) 376,435 840,111 25,176,011 2001		239,853 128,636 71,863
				440,352

	Segment revenue HK$’000	Segment results HK$’000	Segment assets HK$’000	Capital expenditure HK$’000
Hong Kong PRC Others	3,537,250 1,437,078 151,389 5,125,717	192,785 659,888 1,104 853,777	18,764,623 10,077,760 107,617 28,950,000	250,176 16,492 80,806
				347,474

102

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

OPERATING PROFIT BEFORE FINANCE COSTS

			Group
		2002	2001
		HK$’000	HK$’000
(a)	Operating profit before finance costs is stated after crediting
	and charging the following:
	Crediting
	Gross rental income from investment properties
	– Hong Kong	372,741	423,058
	– PRC	456,033	462,255
		828,774	885,313
	Less: outgoings in respect of investment properties
	– Hong Kong	(42,436)	(32,029)
	– PRC	(53,179)	(63,567)
		(95,615)	(95,596)
	Net rental income from investment properties
	– Hong Kong	330,305	391,029
	– PRC	402,854	398,688
		733,159	789,717
	Interest income	30,849	54,548
	Less: amount capitalised in properties under development	(2,661)	(933)
		28,188	53,615
	Gain on sale of investment properties
	– excess of sales proceeds over book value	(21,657)	–
	– transfer from investment properties revaluation reserve	24,709	–
		3,052	–
	Realised gain on disposal of trading securities	636	248
	Unrealised gain on trading securities	–	1,220
	Charging
	Loss on sale of investment properties
	– excess of book value over sales proceeds	–	281,320
	– transfer from investment properties revaluation reserve	–	(256,218)
		–	25,102
	Cost of sale of completed properties and sale/presale of properties
	under development	2,288,786	2,132,929
	Transfer from completed properties revaluation reserve	–	(13,417)
		2,288,786	2,119,512
	Auditors’ remuneration	4,264	4,387
	Non-audit service fees paid and payable to auditors	2,309	2,554
	Depreciation of fixed assets	57,348	48,510
	Less: amount capitalised in properties under development	(367)	(918)
		56,981	47,592
	Amortisation of goodwill	1,733	293
	Unrealised loss on trading securities	897	–
	Operating lease charges – land and buildings	22,785	12,764
	Staff costs	375,049	298,483

103

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

OPERATING PROFIT BEFORE FINANCE COSTS (CONTINUED)
(b) In 2001, an amount of HK$111,689,000 was included in other income which represented gain on disposal of investment in a fixed return co-operative joint venture (note 15(a)).
(c) The amount represents a specific provision of HK$266 million (2001: HK$360 million) for the Constellation Cove project at Tai Po Kau in Hong Kong. The Group’s 75% share of the provision amounts to approximately HK$200 million (2001: HK$270 million).

The minority shareholders’ 25% share of the specific provision for the Constellation Cove project is approximately HK$66 million (2001: HK$90 million). The HK$66 million (2001: HK$90 million) has been accounted for within the minority interests results for the year.

FINANCE COSTS

	2002 HK$’000	Group 2001 HK$’000
Bank loans and overdrafts wholly repayable within five years Convertible bonds Others Less: amount capitalised in properties under development Total finance costs expensed during the year
	194,582 39,665 83,432	345,377 170,221 35,690
	317,679 (100,549) 217,130	551,288 (153,389) 397,899

The capitalisation rate applied to funds borrowed and used for the development of properties held for/under development is between 3% and 7% per annum.

5. TAXATION

Hong Kong profits tax has been provided at the rate of 16% (2001: 16%) on the estimated assessable profit for the year. Taxation on PRC and overseas profits has been calculated on the estimated assessable profit for the year at the rates of taxation prevailing in the PRC and the overseas countries in which the Group operates, respectively.

The amount of taxation charged to the consolidated profit and loss account represents:

	2002 HK$’000	Group 2001 HK$’000
Hong Kong profits tax – Current – Over provision in prior years PRC taxation – Current – Over provision in prior years – Deferred (note 28) Overseas taxation – Current Share of taxation attributable to associated companies
	68,444 (1,434)	42,262 (18,942)
	67,010	23,320
	108,577 (706) (50,522)	10,227 – 46,199
	57,349 2,173 24,066 150,598	56,426 380 22,237 102,363

104

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

6. PROFIT ATTRIBUTABLE TO SHAREHOLDERS

The profit attributable to shareholders dealt with in the accounts of the Company is HK$575,475,000 (2001: HK$384,229,000).

7. DIVIDENDS

7. DIVIDENDS
	Company 2002 2001 HK$’000 HK$’000
Interim, paid, of HK$0.18 (2001: HK$0.20) per ordinary share (note (a)) Final, proposed, of HK$0.12 (2001: HK$0.12) per ordinary share (note (b))	210,675 140,466	230,973
		138,687

(a) Amounts shown in respect of the interim dividend for the year ended 31 December 2002 reflect the cash dividend of HK$0.18 (2001: HK$0.20) per ordinary share. A scrip dividend alternative to the interim dividend was also offered, with the result that only approximately HK$208,277,000 (2001: HK$224,510,000) of the interim dividend was paid in cash.
(b) At a meeting held on 3 March 2003, the directors proposed a final dividend of HK$0.12 per ordinary share. This proposed dividend is not reflected as a dividend payable in these accounts, but will be reflected as an appropriation of retained profits for the year ending 31 December 2003.

8. EARNINGS PER SHARE – GROUP

The calculation of basic earnings per share is based on the Group’s profit attributable to shareholders of HK$660,310,000 (2001: HK$395,750,000) and the weighted average number of 1,164,439,012 shares (2001: 1,146,996,273 shares) in issue during the year.

The dilution from the outstanding share options granted by the Company in June 2000 and April 2002 is immaterial. There is no dilution arising from the other outstanding share options granted by the Company. Accordingly, diluted earnings per share has not been shown.

9. RETIREMENT BENEFIT COSTS

Pursuant to the Mandatory Provident Fund Schemes Ordinance (Chapter 485 of the Laws of Hong Kong) (the “MPF Ordinance”), companies within the Group in Hong Kong have enrolled all employees in Hong Kong aged between 18 and 65 into a mandatory provident fund scheme (the “MPF Scheme”) from 1 December 2000.

The MPF Scheme is a master trust scheme established under a trust arrangement and governed by laws in Hong Kong. The assets of the MPF Scheme are held separately from the assets of the employer, the trustees and other service providers. Contributions are made to the MPF Scheme by the employers at 5% of the employees’ relevant income as defined in the MPF Ordinance up to a maximum of HK$1,000 per employee per month (the “MPF Contribution”). The employees also contribute a corresponding amount to the MPF Scheme from 31 December 2000 if their relevant income is more than HK$4,000 per month. The MPF Contributions are fully and immediately vested in the employees as accrued benefits once they are paid to the approved trustees of the MPF Scheme. Investment income or profit derived from the investment of accrued benefits (after taking into account any loss arising from such investment) is also immediately vested in the employees.

105

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

9. RETIREMENT BENEFIT COSTS (CONTINUED)

Certain companies within the Group are also participants of the Kerry Trading Co. Limited, Provident Fund Scheme (the “Fund”) which is a defined contribution scheme as defined in the Occupational Retirement Schemes Ordinance (Chapter 426 of the Laws of Hong Kong). The Fund is for certain salaried persons (the “Fund Members”) under the employment of the companies participating in the Fund. The assets of the Fund are managed by the trustees of the Fund. Contributions are made to the Fund by companies participating in the Fund at 10% of the Fund Members’ monthly basic salaries up to a maximum of HK$5,000 per Fund Member per month (the “Basic Contribution”) less the MPF Contribution if the Basic Contribution is higher than the MPF Contribution. Fund Members are entitled to 100% of the employers’ contributions to the Fund plus investment earnings upon leaving employment after completing ten years of service or more, or upon retirement after attaining the retirement age after any number of years of service, or upon retirement due to ill health. Fund Members are also entitled to the employers’ contributions to the Fund plus investment earnings calculated at a reduced scale of between 20% and 90% after completing a period of service of at least two but less than ten years. The unvested benefits of employees terminating employment forfeited in accordance with the terms of the Fund can be utilised by the companies participating in the Fund to reduce the future levels of contributions.

The Group also made defined contributions to pension plans as required by the relevant municipality or provincial governments in the PRC. The rates of contributions for the relevant periods ranged from 8% to 23% of the staff’s salary. For overseas subsidiaries, the Group made contributions to pension schemes in accordance with the schemes set up by the overseas subsidiaries and/or as required by statutory requirements.

The amount of unvested benefits utilised by the Group during the year to reduce contributions to the Fund, the amount of unvested benefits available for future reduction of employers’ contributions as at 31 December and the total amount contributed by the Group to the above schemes during the year were as follows:

	2002 HK$’000	2001 HK$’000
Unvested benefits utilised to reduce contributions during the year ended 31 December Unvested benefits available as at 31 December Total contributions during the year ended 31 December	972 26 17,111	1,470
		407
		13,058

10. EMOLUMENTS OF DIRECTORS AND HIGHEST PAID INDIVIDUALS

(a) Directors

The aggregate amounts of emoluments payable to directors of the Company during the year were as follows:

	2002 HK$’000	Group 2001 HK$’000
Fees – Independent non-executive directors – Non-executive directors For management Basic salaries, housing allowances, other allowances and other benefits in kind Discretionary bonuses Directors’ pensions
	750 –	540 188
	750	728
	13,590 5,875 240	15,245 5,295 240
	19,705 20,455	20,780 21,508

106

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

10. EMOLUMENTS OF DIRECTORS AND HIGHEST PAID INDIVIDUALS (CONTINUED)

(a) Directors (Continued)

The emoluments of the directors fell within the following bands:

Emolument bands	Number 2002	of directors 2001
HK$ Nil – HK$1,000,000 HK$ Nil – HK$250,000 HK$250,001 – HK$1,000,000 HK$3,000,001 – HK$3,500,000 HK$4,000,001 – HK$4,500,000 HK$4,500,001 – HK$5,000,000 HK$5,000,001 – HK$5,500,000 HK$5,500,001 – HK$6,000,000 HK$6,500,001 – HK$7,000,000
	3 1	4 1
	4 1 1 – 1 1 – 8	5 1 – 1 1 – 1 9

No directors have waived emoluments in respect of the years ended 31 December 2002 and 2001.

On 16 April 2002, the Company granted options to four executive directors of the Company under an executive share option scheme approved by the shareholders of the Company on 27 March 1997 to acquire a total of 3,150,000 shares of par value of HK$1 each in the share capital of the Company at an exercise price of HK$7.10 per share. The option shares granted are divided into two tranches of 1,575,000 each and are exercisable from 16 April 2003 and 16 April 2004, respectively, to 15 April 2012.

Pursuant to the terms of the share option scheme adopted by the Company on 27 March 1997, following the adjustment events arising from the changes in the Company’s issued share capital in October 2001 and May 2002, the Company adjusted the respective exercise prices per option share of the unexercised options and the respective number of option shares comprising thereunder with effect from 12 August 2002. The exercise prices have been adjusted from HK$15.50 to HK$15.30, from HK$10.01 to HK$9.88, from HK$6.96 to HK$6.87, from HK$12.03 to HK$11.88 and from HK$7.10 to HK$7.02 in respect of the unexercised options granted on 11 April 1997, 27 November 1999, 1 June 2000, 2 March 2001 and 16 April 2002, respectively, with additional corresponding option shares of 84,122, 33,400, 40,619, 1,283 and 35,897 granted to five directors of the Company.

(b) Highest paid individuals

The aggregate amounts of emoluments payable to the five highest paid individuals of the Group during the year, of whom four (2001: four) are directors of the Company were as follows:

	2002 HK$’000	Group 2001 HK$’000
Basic salaries, housing allowances, other allowances and other benefits in kind Discretionary bonuses Pensions contributions	15,012 6,770 300 22,082	16,505 5,940 300
		22,745

107

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

EMOLUMENTS OF DIRECTORS AND HIGHEST PAID INDIVIDUALS (CONTINUED)

(b) Highest paid individuals (Continued)

The emoluments of the five highest paid individuals of the Group during the year, of whom four (2001: four) are directors of the Company, fell within the following bands:

Emolument bands	Number of individuals 2002 2001	Number of individuals 2002 2001
HK$2,500,001 – HK$3,000,000 HK$3,000,001 – HK$3,500,000 HK$4,000,001 – HK$4,500,000 HK$4,500,001 – HK$5,000,000 HK$5,000,001 – HK$5,500,000 HK$5,500,001 – HK$6,000,000 HK$6,500,001 – HK$7,000,000	– 2 1 – 1 1 – 5	1 1 – 1 1 – 1
		5

INTANGIBLE ASSETS

11. INTANGIBLEASSETS
	Goodwill HK$’000	Negative goodwill HK$’000	Total HK$’000
At 1 January 2001 Arising from acquisition of subsidiaries Amortisation At 31 December 2001 At 1 January 2002 Arising from acquisition of a subsidiary Amortisation At 31 December 2002	– 5,998 (300) 5,698 5,698 41,453 (1,754) 45,397	– (421) 7 (414) (414) – 21 (393) 2002 HK$’000	– 5,577 (293)
			5,284
			5,284 41,453 (1,733)
			45,004
			2001 HK$’000
At 31 December Cost Accumulated amortisation Net book amount		47,030 (2,026) 45,004	5,577 (293)
			5,284

108

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

12. FIXED ASSETS

Group

	Investment properties HK$’000	Hotel properties HK$’000	Othe land a	r leasehold nd buildings	Freehold land and buildings HK$’000	Properties held for/under development HK$’000	Leasehold improvements HK$’000	Warehouse operating equipment HK$’000	Motor vehicles, furniture, fixtures and office equipment HK$’000	Total HK$’000
			arehouses HK$’000	Staff quarters HK$’000
Cost or valuation At 1 January 2002 Exchange adjustment Additions, at cost Adjustment on revaluation Disposals Acquisition of a subsidiary At 31 December 2002 At cost At professional valuation At 31 December 2002 Aggregate depreciation At 1 January 2002 Exchange adjustment Charge for the year Adjustment on revaluation Disposals Acquisition of a subsidiary At 31 December 2002 Net book value as at 31 December 2002 Net book value as at 31 December 2001	17,751,730 713 7,752 (1,071,357) (123,692) –	953,000 – – – – –	571,630 – – (81,740) – –	4,003 2 – – (355) –	15,810 1,559 – 1,818 (4,323) –	2,318,224 594 330,209 – (29,261) –	7,643 (48) 3,131 – – –	193,550 6,906 26,097 – (4,448) 32,048	193,876 7,353 39,532 – (33,561) 43,276	22,009,466 17,079 406,721 (1,151,279) (195,640) 75,324
	16,565,146	953,000	489,890	3,650	14,864	2,619,766	10,726	254,153	250,476	21,161,671
	– 16,565,146	– 953,000	– 489,890	3,650 –	– 14,864	2,619,766 –	10,726 –	254,153 –	250,476 –	3,138,771 18,022,900
	16,565,146	953,000	489,890	3,650	14,864	2,619,766	10,726	254,153	250,476	21,161,671
	– – – – – –	– – – – – –	– – 13,251 (13,251) – –	1,480 1 208 – (144) –	2,324 232 216 (1,957) (815) –	– – – – – –	4,743 (8) 1,489 – – –	91,956 3,540 16,840 – (2,573) 16,987	98,033 3,797 25,344 – (14,902) 24,706	198,536 7,562 57,348 (15,208) (18,434) 41,693
	–	–	–	1,545	–	–	6,224	126,750	136,978	271,497
	16,565,146	953,000	489,890	2,105	14,864	2,619,766	4,502	127,403	113,498	20,890,174
	17,751,730	953,000	571,630	2,523	13,486	2,318,224	2,900	101,594	95,843	21,810,930

109

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

12. FIXED ASSETS (CONTINUED)

	Company	Company
	Motor vehicles, furniture, fixtures Leasehold and office improvements equipment HK$’000 HK$’000		Total HK$’000
Cost At 1 January 2002 Additions, at cost Disposals At 31 December 2002 Aggregate depreciation At 1 January 2002 Charge for the year Disposals At 31 December 2002 Net book value As at 31 December 2002 As at 31 December 2001	196 – – 196 29 29 – 58 138 167	2,929 857 (796) 2,990 1,549 516 (690) 1,375 1,615 1,380	3,125 857 (796)
			3,186
			1,578 545 (690)
			1,433
			1,753
			1,547

(a) The Group’s interests in investment properties, hotel properties, freehold and other leasehold land and buildings and properties held for/under development at their net book values are analysed as follows:

	2002 HK$’000	Group 2001 HK$’000
In Hong Kong, held on: Leases of over 50 years Leases of between 10 to 50 years In PRC, held on: Leases of between 10 to 50 years Overseas freehold land and buildings and properties under development	6,978,464 5,436,390 8,197,623 32,294 20,644,771	7,740,178 5,824,796 8,025,169 20,450
		21,610,593

(b) As at 31 December 2002, properties with an aggregate net book value of HK$4,548,431,000 (2001: HK$7,358,883,000) were pledged as security for bank loan facilities granted to the Group (note 33).
(c) All investment properties, hotel properties and warehouses in Hong Kong and the PRC were valued by DTZ Debenham Tie Leung Limited and Chesterton Petty Limited. Freehold land and buildings in Australia were valued by Edward Rushton Australia Pty Limited. They are independent professional valuers and the valuation was on an open market value basis as at 31 December 2002.

110

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

FIXED ASSETS (CONTINUED)
(d) The carrying amount of the warehouses classified as other leasehold land and buildings would have been HK$355,471,000 (2001: HK$359,611,000) had they been stated in the accounts at cost less aggregate depreciation and accumulated impairment loss.
SUBSIDIARIES

	Company 2002 2001 HK$’000 HK$’000	Company 2002 2001 HK$’000 HK$’000
Unlisted shares, at cost (note (a)) Amounts due from subsidiaries (note (b))	18,643,700 9,587,096 28,230,796	18,643,700 8,393,636
		27,037,336

(a) Details of subsidiaries are set out in note 36 to the accounts.
(b) The amounts due from subsidiaries are unsecured, not repayable within twelve months from the balance sheet date and interest-free except for an amount of HK$6,914,133,000 (2001: HK$5,739,180,000) which bears interest at prevailing market rates.
ASSOCIATED COMPANIES

		2002 HK$’000	Group 2001 HK$’000
Share of net assets other than goodwill (note (a)) Negative goodwill (note (b)) Amounts due from associated companies (note (c)) Amounts due to associated companies (note (d)) (a) Details of associated companies are set out in note 37 to the accounts. (b) Negative goodwill At 1 January Arising from acquisition of additional interest in an associated company Amortisation At 31 December		1,081,942 (23,924) 4,478,247 (145,147) 5,391,118 2002 HK$’000	1,061,363 (27,380) 4,090,205 (62,218)
			5,061,970
			2001 HK$’000
	At 1 January Arising from acquisition of additional interest in an associated company Amortisation At 31 December	27,380 – (3,456) 23,924	– 28,090 (710)
			27,380

(c) The amounts due from associated companies are unsecured, not repayable within twelve months from the balance sheet date and interest-free except for amounts totalling HK$1,299,414,000 (2001: HK$833,666,000) which bears interest at prevailing market rates.
(d) The amounts due to associated companies are unsecured, interest-free and not repayable within twelve months from the balance sheet date.

111

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

15. OTHER NON-CURRENT ASSETS

15. OTHERNON-CURRENTASSETS	15. OTHERNON-CURRENTASSETS
		2002 HK$’000	Group 2001 HK$’000
Long-term investments Fixed return co-operative joint venture (note (a)) Non-trading securities: Unlisted investments, at fair value Amounts due from investee companies (note (b)) Club debentures, at cost Long-term receivables (note (c)) (a) Fixed return co-operative joint venture Cost At 1 January Disposal At 31 December Aggregate amortisation At 1 January Charge for the year Disposal At 31 December Net book value as at 31 December		– 1,534,227 2,666 1,536,893 9,817 1,546,710 255,928 1,802,638 2002 HK$’000	– 1,726,509 3,966
			1,730,475 9,817
			1,740,292 –
			1,740,292
			Group 2001 HK$’000
	Cost At 1 January Disposal At 31 December Aggregate amortisation At 1 January Charge for the year Disposal At 31 December Net book value as at 31 December	– – – – – – – –	621,560 (621,560)
			–
			248,640 46,620 (295,260)
			–
			–

(b) The amounts due from investee companies are unsecured, interest-free and not repayable within twelve months from the balance sheet date.
(c) Amount represents second mortgage loans to buyers of certain properties developed by the Group.
STOCK OF COMPLETED PROPERTIES HELD FOR SALE – GROUP

As at 31 December 2002, the carrying amount of stock of completed properties held for sale that was carried at net realisable value amounted to HK$1,249,181,000 (2001: HK$582,026,000).

112

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

17. PROPERTIES UNDER DEVELOPMENT FOR SALE

	2002 HK$’000	Group 2001 HK$’000
Properties under development for sale Less: sales instalments received and receivable	604,433 (13,160) 591,273	3,645,856 (576,814)
		3,069,042

As at 31 December 2002, no properties under development for sale (2001: HK$2,636,012,000) were pledged as security for bank loan facilities granted to the Group.

18. ACCOUNTS RECEIVABLE, PREPAYMENTS AND DEPOSITS

Included in accounts receivable, prepayments and deposits are trade receivables. The Group maintains defined credit policies and applies credit policies appropriate to the particular business circumstances concerned. The ageing analysis of the trade receivables as at 31 December 2002 was as follows:

	2002 HK$’000	Group 2001 HK$’000
0 – 1 month 2 – 3 months Over 3 months	132,360 115,376 9,937 257,673	284,690 33,387 10,036
		328,113

19. TRADING SECURITIES

	2002 HK$’000	Group 2001 HK$’000
Equity securities: Listed in Hong Kong Listed outside Hong Kong Market value of listed investments	1,895 148 2,043	3,816 148
		3,964

20. ACCOUNTS PAYABLE, DEPOSITS RECEIVED AND ACCRUED CHARGES

Included in accounts payable, deposits received and accrued charges are trade payables. The ageing analysis of trade payables as at 31 December 2002 was as follows:

	2002 HK$’000	Group 2001 HK$’000
0 – 1 month 2 – 3 months Over 3 months	116,008 13,756 8,994 138,758	116,660 16,182 4,705
		137,547

113

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

SHARE CAPITAL

21. SHARECAPITAL
	Authorised Ordinary shares of HK$1 each No. of shares HK$’000
At 31 December 2001 and 2002	10,000,000,000 10,000,000

Issued and fully paid

	Ordinary shares of HK$1 each 2002 2001	Ordinary shares of HK$1 each 2002 2001	Ordinary shares of HK$1 each 2002 2001	Ordinary shares of HK$1 each 2002 2001
	No. of shares	HK$’000	No. of shares	HK$’000
At 1 January Issue of scrip dividend shares (notes (a) and (b)) Issue of new shares as a result of exercise of share options (note (c)) Purchase of shares for cancellation (note (d)) At 31 December	1,155,727,489 14,941,805 108,000 (226,500) 1,170,550,794	1,155,727 14,942 108 (226) 1,170,551	1,134,417,155 21,310,334 – – 1,155,727,489	1,134,417 21,310 – –
				1,155,727

(a) On 17 April 2002, the Company approved a final dividend on its issued ordinary shares for the year ended 31 December 2001. The Company offered to its shareholders a scrip dividend alternative under which the shareholders could elect to receive new ordinary shares in lieu of a cash dividend. 14,583,348 ordinary shares of HK$1 each were issued on 31 May 2002 under this scheme. Proceeds received in respect of the scrip dividend shares issued were used as additional working capital for the Group.
(b) On 12 August 2002, the Company declared an interim dividend on its issued ordinary shares for the year ended 31 December 2002. The Company offered to its shareholders a scrip dividend alternative under which the shareholders could elect to receive new ordinary shares in lieu of a cash dividend. 358,457 ordinary shares of HK$1 each were issued on 22 October 2002 under this scheme. Proceeds received in respect of the scrip dividend shares issued were used as additional working capital for the Group.
(c) During the year, a total of 108,000 option shares were exercised at an exercise price of HK$6.96 per share. Details of movement in share options during the year are set out in note 22.
(d) In December 2002, the Company purchased a total of 226,500 fully paid-up shares on the Stock Exchange of Hong Kong at a total consideration of HK$1,248,000. These shares were purchased at prices ranging from HK$5.45 to HK$5.55 per share and all these shares have been duly cancelled.

114

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

22. SHARE OPTIONS

On 17 April 2002, the shareholders of the Company approved the termination (to the effect that no further options shall be offered) of the executive share option scheme adopted by the Company on 27 March 1997 (the “1997 Share Option Scheme”) and the adoption of a new share option scheme (the “2002 Share Option Scheme”).

1997 Share Option Scheme

Under the 1997 Share Option Scheme, the directors of the Company were authorised, at their discretion, to invite executive directors and key employees of the Company or its subsidiaries to subscribe for shares in the Company subject to terms and conditions stipulated therein. The exercise price for any particular option was determined by the Board of Directors of the Company in its absolute discretion subject to the compliance with the requirements for share option schemes under the Listing Rules.

On 16 April 2002, the Company granted a total of 4,760,000 option shares at an exercise price of HK$7.10 per share, being the market price of the shares of the Company at the date of grant.

Pursuant to the terms of the 1997 Share Option Scheme, the Company adjusted the respective exercise prices per option share of the unexercised options and the respective number of option shares comprised thereunder on 12 August 2002 following the adjustment events arising from the changes in the Company’s issued share capital on 9 October 2001 and 31 May 2002.

The 1997 Share Option Scheme was terminated on 17 April 2002 such that no further options shall be offered but the options which had been granted during its life shall continue to be valid and exercisable in accordance with their terms of issue and in all other respects its provisions shall remain in full force and effect.

2002 Share Option Scheme

The 2002 Share Option Scheme was adopted by the Company on 17 April 2002. Under the 2002 Share Option Scheme, the directors of the Company may, at their discretion, grant options to executives and key employees in the service of any member of the Group and other persons who may make a contribution to the Group subject to terms and conditions stipulated therein. The exercise price for any particular option shall be such price as the Board of Directors of the Company may in its absolute discretion determine at the time of grant of the relevant option subject to the compliance with the requirements for share option schemes under the Listing Rules.

No options have been granted under the 2002 Share Option Scheme. The 2002 Share Option Scheme will expire on 16 April 2012.

Details of the movement of the share options under the 1997 Share Option Scheme during the year were as follows:

	2002 Number	2001 Number 26,047,045 1,240,000 475,526 – (61,285) 27,701,286
At 1 January Granted during the year (note (a)) Additional number of option shares granted for the adjustment during the year Exercised during the year (note (b)) Lapsed during the year At 31 December (note (c))	27,701,286 4,760,000 413,460 (108,000) (937,977) 31,828,769

115

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

SHARE OPTIONS (CONTINUED)
(a) Details of share options granted during the year, all of which were granted for a consideration of HK$1 per grant, were as follows:


	Exercise		Exercise
Exercise	price		price
period	HK$	Number	HK$	Number
16 April 2003 to
15 April 2012	7.10	2,380,000*	–	–
16 April 2004 to
15 April 2012	7.10	2,380,000*	–	–
2 March 2002 to
1 March 2011	–	–	12.03	424,000
2 March 2003 to
1 March 2011	–	–	12.03	424,000
2 March 2004 to
1 March 2011	–	–	12.03	392,000

3,150,000 option shares were granted to directors and 1,610,000 option shares were granted to employees at an exercise price of HK$7.10 per option share, which represents the market price of the shares of the Company at close of business on the date of grant.
(b) Details of share options exercised during the year were as follows:

Market value per Exercise share at Exercise price exercise date date HK$ HK$	Proceeds received HK$	Number
3 June 2002 6.96 8.20 4 June 2002 6.96 8.10 3 July 2002 6.96 8.30 12 July 2002 6.96 7.90	83,520 250,560 194,880 222,720 751,680	12,000 36,000 28,000 32,000
		108,000

No share options were exercised in 2001.

116

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

22. SHARE OPTIONS (CONTINUED)

2002 2001 Exercise Exercise Exercise price price period HK$ Number HK$ Number	2002 2001 Exercise Exercise Exercise price price period HK$ Number HK$ Number	2002 2001 Exercise Exercise Exercise price price period HK$ Number HK$ Number
11 April 1999 to 26 March 2007 15.30 27 May 2000 to 26 March 2007 9.88 27 May 2001 to 26 March 2007 9.88 1 June 2001 to 31 May 2010 6.87 1 June 2002 to 31 May 2010 6.87 1 June 2003 to 31 May 2010 6.87 2 March 2002 to 1 March 2011 11.88 2 March 2003 to 1 March 2011 11.88 2 March 2004 to 1 March 2011 11.88 16 April 2003 to 15 April 2012 7.02 16 April 2004 to 15 April 2012 7.02	11,460,743 15.50 2,984,984 10.01 2,985,020 10.01 2,824,000 6.96 2,824,000 6.96 2,761,148 6.96 420,000 12.03 420,000 12.03 395,340 12.03 2,376,750 – 2,376,784 – 31,828,769	11,933,846 2,977,191 2,977,220 2,890,000 2,890,000 2,772,419 430,000 430,000 400,610 – –
		27,701,286

(d) No share options were cancelled during the year (2001: Nil).

23. SHARE PREMIUM

23. SHAREPREMIUM
	2002 HK$’000	2001 HK$’000
At 1 January Arising from scrip dividend (notes 21(a) and (b)) Arising from exercise of share options (note 21(c)) Application on purchase of shares for cancellation (note 21(d)) At 31 December	3,371,498 106,894 644 (1,025) 3,478,011	3,203,749 167,749 – –
		3,371,498

117

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

24. OTHER RESERVES

Group

	Investment properties revaluation reserve HK$’000	Hotel properties revaluation reserve HK$’000	Other properties revaluation reserve HK$’000	Properties under development revaluation reserve HK$’000	Completed properties revaluation reserve HK$’000	Share of post acquisition revaluation reserve of associated companies HK$’000	Non-trading securities revaluation reserve HK$’000	Others (note (a)) HK$’000	Total HK$’000
At 1 January 2001 On revaluation of properties (note (b)) Arising from valuation of non-trading securities (note (c)) Release upon disposal of subsidiaries Reclassifications Transfer to profit and loss account on disposal of properties Transfer (to)/from retained profits Exchange differences arising from investments in the PRC and overseas subsidiaries/associated companies At 31 December 2001 Company and subsidiaries Associated companies At 31 December 2001	3,874,289 (2,070,875) – – (2,289) (140,135) – 666	72,456 – – – 4,025 – – –	507,175 50,149 – – – – (7,084) –	95,619 – – – – – – –	13,417 – – – – (13,417) – –	330,473 (169,178) – – (106,967) – – (13,785)	967,814 – 392,522 – – – – –	7,749,597 – – (494) 105,231 – 3,359 (70,717)	13,610,840 (2,189,904) 392,522 (494) – (153,552) (3,725) (83,836)
	1,661,656	76,481	550,240	95,619	–	40,543	1,360,336	7,786,976	11,571,851
	1,661,656 –	76,481 –	550,240 –	95,619 –	– –	– 40,543	1,360,336 –	7,777,247 9,729	11,521,579 50,272
	1,661,656	76,481	550,240	95,619	–	40,543	1,360,336	7,786,976	11,571,851

118

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

24. OTHER RESERVES (CONTINUED)

Group

	Investment properties revaluation reserve HK$’000	Hotel properties revaluation reserve HK$’000	Other properties revaluation reserve HK$’000	Freehold land and buildings revaluation reserve HK$’000	Properties under development revaluation reserve HK$’000	Share of post acquisition revaluation reserve of associated companies HK$’000	Non-trading securities revaluation reserve HK$’000	Others (note (a)) HK$’000	Total HK$’000
At 1 January 2002 On revaluation of properties (note (b)) Arising from valuation of non-trading securities (note (c)) Transfer to profit and loss account on disposal of properties Transfer (to)/from retained profits Exchange differences arising from investments in the PRC and overseas subsidiaries/associated companies At 31 December 2002 Company and subsidiaries Associated companies At 31 December 2002	1,661,656 (1,079,930) – (27,033) – –	76,481 – – – – –	550,240 (45,238) – – – –	– 3,775 – – – –	95,619 – – – – –	40,543 (12,394) – (3,820) (516) (16,770)	1,360,336 – (194,863) – – –	7,786,976 – – – 4,159 47,168	11,571,851 (1,133,787) (194,863) (30,853) 3,643 30,398
	554,693	76,481	505,002	3,775	95,619	7,043	1,165,473	7,838,303	10,246,389
	554,693 –	76,481 –	505,002 –	3,775 –	95,619 –	– 7,043	1,165,473 –	7,824,483 13,820	10,225,526 20,863
	554,693	76,481	505,002	3,775	95,619	7,043	1,165,473	7,838,303	10,246,389

119

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

24. OTHER RESERVES (CONTINUED)

(a) Others

			Group
	Capital reserve (note (d)) HK$’000	Exchange fluctuation reserve HK$’000	Enterprise expansion and general reserve funds (note (e)) HK$’000	Capital redemption reserve (note (g)) HK$’000	Total HK$’000
At 1 January 2001 Release upon disposal of subsidiaries Reclassifications Transfer from retained profits Exchange differences arising from investments in the PRC and overseas subsidiaries/ associated companies At 31 December 2001 Company and subsidiaries Associated companies At 31 December 2001 At 1 January 2002 Transfer from retained profits Exchange differences arising from investments in the PRC and overseas subsidiaries/ associated companies At 31 December 2002 Company and subsidiaries Associated companies At 31 December 2002	7,975,583 (494) – – –	(245,236) – 105,231 – (70,717)	11,608 – – 3,359 –	7,642 – – – –	7,749,597 (494) 105,231 3,359 (70,717)
	7,975,089	(210,722)	14,967	7,642	7,786,976
	7,975,089 –	(210,846) 124	5,362 9,605	7,642 –	7,777,247 9,729
	7,975,089	(210,722)	14,967	7,642	7,786,976
	7,975,089 – –	(210,722) – 47,168	14,967 3,933 –	7,642 226 –	7,786,976 4,159 47,168
	7,975,089			7,868	7,838,303
	7,975,089 –	(163,836) 282	5,362 13,538	7,868 –	7,824,483 13,820
	7,975,089			7,868	7,838,303

(b) These represent surplus/(deficit) arising from revaluation of properties at the balance sheet date. The accounting policies in respect of revaluation of properties are set out in note 1(h)(i) to (iii) to the accounts.

(c) This represents the surplus/(deficit) arising from valuation of the Group’s non-trading securities at the balance sheet date (note 15).

(d) Capital reserve of the Group arose from the Group’s reorganisation in preparation for its listing on the Stock Exchange of Hong Kong in August 1996, adjusted by the excess or deficit of the fair values of the net assets of subsidiaries and associated companies subsequently acquired over the cost of investment at the date of acquisition before 1 January 2001 (note 1(f)).

120

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

OTHER RESERVES (CONTINUED)
(e) Enterprise expansion and general reserve funds represent funds set up by a subsidiary and associated companies established and operating in the PRC. According to the PRC Foreign Enterprise Accounting Standards, upon approval, the enterprise expansion reserve fund may be used for increasing capital while the general reserve fund may be used for making up losses and increasing capital.
(f) Other reserves

		Company
	Contributed surplus HK$’000	Capital redemption reserves (note (g)) HK$’000	Total HK$’000
At 1 January 2001 and 31 December 2001 At 1 January 2002 Transfer from retained profits At 31 December 2002	17,793,308 17,793,308 – 17,793,308	7,642 7,642 226 7,868	17,800,950
			17,800,950 226
			17,801,176

(i) The contributed surplus of the Company arose when the Company issued shares in exchange for the shares of companies being acquired, and represents the difference between the nominal value of the Company’s shares issued and the value of net assets of the companies acquired. Under the 1981 Companies Act of Bermuda (as amended), the contributed surplus is distributable to the shareholders. At Group level, the contributed surplus is reclassified into its components of reserves of the underlying subsidiaries.
(ii) As at 31 December 2002, the reserves of the Company available for distribution amounted to approximately HK$18,392,008,000 (2001: HK$18,165,895,000).
(g) The capital redemption reserve arose from the purchase of the Company’s shares for cancellation during 1998 and 2002 and represents a transfer from the Company’s retained profits equivalent to the nominal value of the shares purchased for cancellation.
RETAINED PROFITS

	Group 2002 2001 HK$’000 HK$’000	Group 2002 2001 HK$’000 HK$’000	Company 2002 2001 HK$’000 HK$’000	Company 2002 2001 HK$’000 HK$’000
At 1 January Transfer (to)/from other reserves Profit for the year 2001/2000 final dividend paid 2002/2001 interim dividend paid At 31 December 2002/2001 final dividend proposed Company and subsidiaries Associated companies	5,798,314 (3,643) 660,310 (138,687) (210,675) 6,105,619 (140,466) 5,965,153 5,629,053 336,100 5,965,153	5,856,695 3,725 395,750 (226,883) (230,973) 5,798,314 (138,687) 5,659,627 5,313,057 346,570 5,659,627	364,945 (226) 575,475 (138,687) (210,675) 590,832 (140,466) 450,366 450,366 – 450,366	438,572 – 384,229 (226,883) (230,973)
				364,945 (138,687)
				226,258
				226,258 –
				226,258

121

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

26. MINORITY INTERESTS AND LOANS

	2002 HK$’000
Share of equity Loans from minority shareholders	612,868 2,203,755 2,816,623

The loans from minority shareholders represent proportionate funding from the minority shareholders of joint venture projects, including an amount of approximately HK$654,042,000 (2001: HK$692,204,000) received from a subsidiary of Shangri-La Asia Limited, a related company whose shares are listed on the Stock Exchange of Hong Kong. These loans are unsecured, subordinated to the bank loans of the relevant subsidiaries, have no fixed terms of repayment, and interest-free except for an amount of HK$298,681,000 (2001: HK$349,754,000) which bears interest at prevailing market rates.

27. LONG-TERM LIABILITIES

	Group 2002 2001 HK$’000 HK$’000	Group 2002 2001 HK$’000 HK$’000	Company 2002 2001 HK$’000 HK$’000 5,850,000 5,409,000 – – 5,850,000 5,409,000 – – 5,850,000 5,409,000 (650,000) (109,000) – – (650,000) (109,000) 5,200,000 5,300,000
Bank loans – unsecured Bank loans – secured (note 33) Total bank loans (note (a)) Convertible bonds (note (c)) Current portion of long-term liabilities Bank loans (note (a)) Convertible bonds (note (c))	6,407,773 646,799 7,054,572 – 7,054,572 (1,335,481) – (1,335,481) 5,719,091	5,569,900 2,076,655 7,646,555 1,960,516 9,607,071 (1,280,560) (1,960,516) (3,241,076) 6,365,995	5,850,000 – 5,850,000 – 5,850,000 (650,000) – (650,000) 5,200,000

(a) At 31 December 2002, the Group’s bank loans were repayable as follows:

	Group 2002 2001 HK$’000 HK$’000	Group 2002 2001 HK$’000 HK$’000	Company 2002 2001 HK$’000 HK$’000 650,000 109,000	Company 2002 2001 HK$’000 HK$’000 650,000 109,000
Within one year After one year In the second year In the third year In the fourth year In the fifth year	1,335,481	1,280,560	650,000
	870,279 26,178 270,634 4,552,000	1,152,988 413,007 – 4,800,000	450,000 – 250,000 4,500,000	400,000 100,000 – 4,800,000
	5,719,091 7,054,572	6,365,995 7,646,555	5,200,000 5,850,000	5,300,000 5,409,000

122

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

27. LONG-TERM LIABILITIES (CONTINUED)

(b) As at 31 December 2002, the Group had total available cash resources of approximately HK$7.6 billion (2001: HK$9.2 billion) comprising net cash and bank balances (including pledged bank deposits) of approximately HK$1.4 billion (2001: HK$2.3 billion) and undrawn bank loan facilities of approximately HK$6.2 billion (2001: HK$6.9 billion).
(c) Convertible bonds

	2002 HK$’000	Group 2001 HK$’000
Nominal value At 1 January Convertible bonds purchased for cancellation Exchange adjustment Redeemed during the year At 31 December Provision for premium on redemption At 1 January Additions, net of amounts written back on convertible bonds purchased for cancellation Utilised during the year upon redemption At 31 December Issue costs At 1 January Amortised during the year, including amounts written off on convertible bonds purchased for cancellation At 31 December Carrying value as at 31 December Current portion of long-term liabilities
	1,537,531 – 291 (1,537,822)	1,548,005 (10,139) (335) –
	–	1,537,531
	425,244 30,216 (455,460)	295,040 130,204 –
	–	425,244
	(2,259) 2,259	(11,368) 9,109
	– – – –	(2,259) 1,960,516 (1,960,516) –

(i) On 25 March 1997, Kerry Properties Capital Limited (“KPCL”), a wholly owned subsidiary of the Company, issued US$250,000,000 guaranteed redeemable convertible bonds (the “Bonds”) at a price of 100% of their principal amount. The Bonds, which were guaranteed by the Company and listed on the Luxembourg Stock Exchange, carried interest at 2% per annum payable semi-annually in arrears on 15 June and 15 December of each year.
(ii) The Bonds were convertible at the option of the bondholders between 5 May 1997 and 1 June 2007, both days inclusive, unless previously redeemed, at an initial conversion price of HK$21.50 per share at a fixed rate of exchange on conversion of HK$7.7474 = US$1. The conversion price was subject to adjustment in certain events as stipulated in the trust deed dated 25 March 1997 as amended by a supplemental trust deed dated 19 May 1999 (the “Trust Deed”).

123

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

27. LONG-TERM LIABILITIES (CONTINUED)

(c) Convertible bonds (Continued)
(iii) Unless previously purchased and cancelled, redeemed or converted, the Bonds would be redeemed on 15 June 2007 at their principal amount. The bondholders had an option to require KPCL to redeem the Bonds (the “Bondholders’ Option”), in whole, on 25 March 2002 at a redemption price of 129.712% of their principal amount. KPCL had an option to redeem the Bonds (the “KPCL’s Option”), in whole or in part, at any time after 25 March 1999 at the redemption prices set out below, except that the Bonds might not be so redeemed unless (i) the closing price of the Company’s shares on the Stock Exchange of Hong Kong is at least 130% of the conversion price for at least 20 dealing days in a period of 30 consecutive dealing days; or (ii) at least 90% in principal amount of the Bonds had already been converted, redeemed or purchased and cancelled.

Period of redemption	Redemption prices
26 March 1999 – 25 March 2002	Principal plus premium to generate a yield
	of 7.06% per annum
26 March 2002 – 15 June 2007	100%

In addition, KPCL might redeem at any time in whole, but not in part, in the event of certain changes relating to taxation in the British Virgin Islands, Bermuda or Hong Kong as stipulated in the Trust Deed.

(iv) During the year, bondholders holding the Bonds with a principal amount of US$196,780,000 exercised the Bondholders’ Option and the Group redeemed these Bonds on 25 March 2002 at a redemption price of 129.712%. KPCL also exercised the KPCL’s Option to redeem the remaining bonds with a principal amount of US$400,000 on 27 June 2002 at par. All the Bonds have now been duly redeemed.

28. DEFERRED TAXATION

28. DEFERREDTAXATION
	2002 HK$’000	Group 2001 HK$’000
At 1 January Acquisition of a subsidiary (note 29(c)) Transfer (to)/from profit and loss account (note 5) At 31 December Deferred taxation liability provided for in respect of: Accelerated depreciation allowance Other timing differences (note c)	51,119 2,156 (50,522) 2,753 2,156 597 2,753	4,920 – 46,199
		51,119
		– 51,119
		51,119

(a) No recognition of the potential deferred taxation asset relating to estimated tax losses has been made as the recoverability of this potential deferred taxation asset is uncertain. The potential deferred taxation not provided for in the accounts in respect of estimated tax losses amounts to HK$312,851,000 (2001: HK$297,425,000).
(b) The changes arising on revaluation of properties of subsidiaries and associated companies do not constitute a timing difference and accordingly there are no deferred tax implications.
(c) Other timing differences represent the tax effect of timing differences arising from the use of different bases of recognition of revenue and expenses in respect of pre-sale of properties in the PRC for financial reporting and taxation purposes.

124

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

29. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

(a) Reconciliation of profit before taxation to net cash generated from operations

	2002 HK$’000	Group 2001 HK$’000 526,238 46,620 293 47,592 (89,309) (17,792) 397,899 (53,615) 26,184 (111,689) (248) (1,220) 360,000 – 1,047 1,132,000 980,146 (61,177) 2,050,969
Profit before taxation Amortisation of investment in a fixed return co-operative joint venture Amortisation of goodwill Depreciation Income from investment in a fixed return co-operative joint venture Dividend income from listed and unlisted investments Finance costs Interest income Loss on sale of fixed assets Gain on sale of investment in a fixed return co-operative joint venture Gain on sale of listed equity shares Unrealised loss/(gain) on valuation of listed equity shares Provision in respect of stock of completed properties held for sale/properties under development for sale Deficit on revaluation of fixed assets transferred to profit and loss account Share of profits less losses of associated companies Operating profit before working capital changes Decrease in current assets, excluding tax recoverable, tax reserve certificates, trading securities, pledged bank deposits and cash and bank balances Decrease in accounts payable, deposits received and accrued charges Net cash generated from operations	821,234 – 1,733 56,981 – (27,727) 217,130 (28,188) 1,366 – (636) 897 266,000 13,941 (142,338) 1,180,393 1,606,786 (68,538) 2,718,641

125

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (CONTINUED)

(b) Analysis of changes in financing during the year

	Share capital (including share premium) 2002 2001 HK$’000 HK$’000	Share capital (including share premium) 2002 2001 HK$’000 HK$’000	Share capital (including share premium) 2002 2001 HK$’000 HK$’000		Long-term borrowings (including current portion) 2002 2001 HK$’000 HK$’000	Long-term borrowings (including current portion) 2002 2001 HK$’000 HK$’000	Long-term borrowings (including current portion) 2002 2001 HK$’000 HK$’000	Minority interests and loans 2002 2001 HK$’000 HK$’000 2,724,154 3,003,054	Minority interests and loans 2002 2001 HK$’000 HK$’000 2,724,154 3,003,054	Minority interests and loans 2002 2001 HK$’000 HK$’000 2,724,154 3,003,054
	2002 HK$’000				2002 HK$’000			2002 HK$’000
At 1 January Non-cash movement: Issue of scrip dividend Share of profit Share of revaluation reserves Release of revaluation reserve on disposal of properties Exchange adjustment Loans of subsidiaries acquired Share of increase in share capital of subsidiaries Purchase of subsidiaries Disposal of subsidiaries Provision of premium and amortisation of issue cost of convertible bonds Purchase of shares for cancellation Proceeds from issue of shares Repayment of bank loans Redemption of convertible bonds Purchase of convertible bonds for cancellation Drawdown of bank loans Capital injection from minority shareholders Decrease in loans from minority shareholders Dividends paid to minority shareholders in subsidiaries At 31 December	4,527,225	4,338,166			9,607,071	10,761,173		2,724,154
	121,836 – – – – – – – – –		189,059 – – – – – – – – –		– – – – 3,469 2,363 – – – 32,475		– – – – (291) 11,920 – – – 139,313	– 10,326 37,733 2,324 (667) – – 4,329 – –		– 28,125 (50,872) (116,083) 795 – 2,781 2,113 (6,146) –
	121,836 (1,251) 752 – – – – – – – 4,648,562	189,059 – – – – – – – – – 4,527,225		38,307 – – (7,281,010) (1,993,282) – 6,683,486 – – – 7,054,572		150,942 – – (7,915,290) – (10,139) 6,620,385 – – – 9,607,071		54,045 – – – – – – 45,124 (6,500) (200) 2,816,623	(139,287) – – – – – – – (35,346) (104,267) 2,724,154

126

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

29. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (CONTINUED)

(c) Purchase of subsidiaries

	2002 HK$’000	2001 HK$’000 49,412 2,580 19,619 8,287 (59,025) (393) (3,049) (11,920) – 5,511 (2,113) 3,398 5,577 8,975 32,503 (23,528) 8,975 2001 HK$’000 32,503 (8,287) 3,049 27,265
Net asset acquired: Fixed assets Other investments Accounts and other receivables Cash and bank balances Accounts and other payables Taxation Bank overdrafts Bank loans Deferred taxation Less: Minority interests Goodwill Satisfied by: Cash Shareholders’ loan assigned Analysis of the net cash outflow in respect of the purchase of subsidiaries	33,631 1 82,573 10,772 (72,444) (1,969) – (2,363) (2,156) 48,045 (4,329) 43,716 41,453 85,169 85,169 – 85,169 2002 HK$’000
Cash consideration Cash and bank balances acquired Bank overdrafts acquired Net cash outflow in respect of the purchase of subsidiaries	85,169 (10,772) – 74,397

(d) Analysis of the net cash outflow in respect of the purchase of subsidiaries

127

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

29. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (CONTINUED)

(e) Disposal of subsidiaries

	2002 HK$’000	2001 HK$’000
Net asset disposed of: Accounts and other receivables Tax recoverable Cash and bank balances Accounts and other payables Taxation Less: Minority interests Capital reserve released upon disposal Satisfied by: Cash Analysis of the net cash outflow in respect of the disposal of subsidiaries	– – – – – – – – – – – 2002 HK$’000	2,131 760 22,835 (11,394) (27)
		14,305 (6,146)
		8,159 (494)
		7,665
		7,665
		2001 HK$’000
Cash consideration Cash and bank balances disposed Net cash outflow in respect of the disposal of subsidiaries	– – –	7,665 (22,835)
		(15,170)

128

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

30. RELATED PARTY TRANSACTIONS

Significant related party transactions, in addition to those connected transactions (where applicable) disclosed in the Report of the Directors, which were carried out in the normal course of the Group’s business during the year were as follows:

		Group
	2002	2001
	HK$’000	HK$’000
(Income)/expenses
Rental and storage income (note (a))	(4,149)	(2,964)
Project management and consultancy fees income (note (b))	(2,307)	(4,709)
Administration and management service fees
– income (note (c))	(793)	–
– expense (note (d))	259	293
Rent and related service charges (note (d))	315	356
Marketing, consultancy and administrative management fees expense (note (e))	10,240	9,416
Insurance premiums expense (note (f))	18,524	9,307

(a) This represents rental and storage income arising from the leasing of commercial, residential, carparks and warehouse storage space to various subsidiaries and associated companies of Kerry Group Limited, the ultimate holding company of the Company, and other related parties at market rates.
(b) The Group provided project management, project consultancy, leasing, renovation, refurbishment and maintenance services to various members of Kerry Group Limited and other related parties. The fees are determined on a cost reimbursement basis or with reference to relevant industry practice.
(c) The Group provided management services to certain subsidiaries and associated companies of Kerry Group Limited. In consideration for these services, the Group received fees, which have been determined on a cost reimbursement basis.
(d) Kerry Trading Co. Limited (“Kerry Trading”), a fellow subsidiary of the Company, provided administration and management services to certain members of the Group. In consideration for these services, members of the Group paid Kerry Trading a fee, which has been determined on a cost reimbursement basis. In addition, the Company reimbursed rent and related service charges to Kerry Trading for the use of office space, which has been determined on a cost reimbursement basis. Such fees are subject to review on an annual basis.
(e) This represents payment of services fee to Shangri-La International Hotel Management Limited, a subsidiary of Shangri-La Asia Limited, a related company of the Group, which provided marketing, consultancy and administrative management services to a member of the Group. The service fees payable during the year were determined at either a fixed amount or a certain percentage of the gross operating revenue of the relevant company in accordance with the agreement for the provision of the above services.
(f) This represents payment of insurance premiums at market rates to Jerneh Insurance (HK) Limited and Taishan Insurance Brokers Limited, related companies of the Group.

129

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

31. COMMITMENTS

(a) At 31 December 2002, the Group had capital commitments in respect of committed investments and construction in progress not provided for in these accounts as follows:

	2002 HK$’000	Group 2001 HK$’000
Contracted but not provided for Authorised but not contracted for	1,137,474 1,275 1,138,749	355,598 –
		355,598

(b) At 31 December 2002, the Group had future aggregate minimum lease payments under non-cancellable operating leases in respect of land and buildings as follows:

	2002 HK$’000	Group 2001 HK$’000
Within one year In the second to fifth year, inclusive Over five years	29,076 84,780 100,880 214,736	10,389 23,403 –
		33,792

(c) At 31 December 2002, the Group had future aggregate minimum lease rental receivable under non-cancellable operating leases in respect of land and buildings as follows:

	2002 HK$’000	Group 2001 HK$’000
Within one year In the second to fifth year, inclusive Over five years	728,958 616,931 610,817 1,956,706	647,088 429,118 653,823
		1,730,029

(d) In November 1997, the Group entered into a joint development agreement for the redevelopment of a site at Tuen Mun. Pursuant to the agreement, the Group was committed to pay HK$48,000,000 as fitting out and relocation payment. The Group was further committed to make additional payments, totalling between HK$100,000,000 and HK$460,000,000 for the redevelopment project. In September 2002, the project was cancelled and the commitments were then released.
(e) As at 31 December 2002, the Group had interest rate swap contracts with principal sums of HK$3,760,000,000 (2001: HK$4,540,000,000). The duration of these contracts was 3 years (2001: 1 to 3 years) at fixed rates of 3.620% to 5.510% (2001: 2.510% to 3.935%).

130

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

32. CONTINGENT LIABILITIES

(a) Banking facilities

	Group 2002 2001 HK$’000 HK$’000	Group 2002 2001 HK$’000 HK$’000	Company 2002 2001 HK$’000 HK$’000	Company 2002 2001 HK$’000 HK$’000
Guarantees for banking and other facilities of certain subsidiaries, associated companies and investee companies (notes (i) and (ii)) Guarantees to certain banks for mortgage facilities granted to first buyers of certain properties in the PRC (note (iii))	912,431 83,569 996,000	1,038,259 150,914 1,189,173	1,674,063 34,944 1,709,007	2,573,677 58,035
				2,631,712

(i) The Group has executed guarantees for banking and other facilities granted to certain associated companies and investee companies. The utilised amount of such facilities covered by the Group’s guarantees which also represented the financial exposure of the Group at the balance sheet date amounted to approximately HK$912,431,000 (2001: HK$1,038,259,000). The total amount of such facilities covered by the Group’s guarantees amounted to approximately HK$1,609,938,000 (2001: HK$1,214,495,000).
(ii) The Company has executed guarantees to banks for facilities granted to certain subsidiaries, associated companies and investee companies. The utilised amount of such facilities covered by the Company’s guarantees which also represented the financial exposure of the Company at the balance sheet date amounted to approximately HK$1,674,063,000 (2001: HK$2,573,677,000). The total amount of such facilities covered by the Company’s guarantees amounted to approximately HK$2,437,299,000 (2001: HK$3,270,653,000).
(iii) The Group and the Company have executed guarantees to certain banks for mortgage facilities granted to first buyers of certain properties in the PRC. The utilised amount of such facilities covered by the Group’s and the Company’s guarantees which also represented the financial exposure of the Group and the Company at the balance sheet date amounted to approximately HK$83,569,000 (2001: HK$150,914,000) and HK$34,944,000 (2001: HK$58,035,000), respectively. The total amount of such facilities covered by the Group’s and the Company’s guarantees amounted to approximately HK$384,246,000 (2001: HK$569,217,000) and HK$275,780,000 (2001: HK$223,347,000), respectively.

131

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

32. CONTINGENT LIABILITIES (CONTINUED)

(b) Guarantees and undertakings

(i) A wholly owned subsidiary of the Company, through its associated company, has a 20% interest in a company which is engaged in the development of a site in the Olympic Mass Transit Railway Station Development. Another wholly owned subsidiary of the Company, through its associated company, has a 32.5% interest in another company which is engaged in the development of an adjacent site. The companies developing the sites (the “Developers”) were each granted exclusive rights to develop the relevant sites pursuant to separate development agreements (the “Development Agreements”) entered into by each of the Developers and the MTR Corporation Limited (the “MTRC”).

Pursuant to two deeds of guarantee in relation to each of the above developments, the Company has provided several guarantees in favour of the MTRC for the due and punctual performance and observance by each of the Developers of 20% and 32.5%, respectively, of the Developer’s obligations, liabilities, stipulations, acts and duties under or in connection with the respective Development Agreements and the due and punctual payment of 20% and 32.5%, respectively, of all monies and liabilities due, owing or payable to the MTRC from or by each of the Developers under or in connection with the respective Development Agreements.

In consideration of the MTRC entering into and agreeing to the terms of the sale and purchase agreement (the “S & P Agreement”) and certain trust arrangements (the “Trust Arrangements”) in relation to the sale of an office development developed by the Developer in which the Group has a 20% interest, the Company has agreed to provide several guarantees and indemnities to indemnify the MTRC against 20% of all claims, demands, cost, damages, losses, expenses and/or liabilities which the MTRC may incur or suffer and which are in any way connected with or result from the entering into and/or the observance and/or performance of the S & P Agreement and/or the carrying out by the MTRC of the Trust Arrangements. The Company has also guaranteed the payment on demand of 20% of the full amount of such costs, losses, expenses or liabilities.

(ii) The Group has a 15% effective interest in Western Harbour Tunnel Company Limited (“WHTCL”) which acquired a 30-year franchise from the Government of the Hong Kong Special Administrative Region (the “Government”) to build and operate the Western Harbour Crossing (the “Crossing”). Pursuant to a deed of guarantee dated 2 September 1993 as amended by a deed of novation dated 27 June 1995, a second deed of novation dated 12 October 1998 and a third deed of novation dated 30 May 2000 (the “Guarantee”), the Company together with the other beneficial shareholders of WHTCL have jointly and severally undertaken to the Government that if the aggregate of all costs incurred by WHTCL up to the operating date of the Crossing and all maintenance and repair costs incurred by WHTCL after the operating date of the Crossing but before the issuance of the maintenance certificate exceeds HK$7,534,000,000 then they will pay to WHTCL such excess amount.

Pursuant to a shareholders agreement dated 30 December 1992 as amended by a cross-indemnity deed dated 20 December 1993, a supplemental deed dated 8 September 1994, a second supplemental deed dated 12 October 1998 and a third supplemental deed dated 23 May 2000 in respect of WHTCL, the Company together with the other beneficial shareholders have agreed that in relation to any claim made or asserted under the Guarantee, as between themselves, the total of all liabilities in respect of such claim and of all costs, charges and expenses suffered or incurred by any of them resulting therefrom or attributable thereto shall be shared by them in proportion to their respective ultimate ownership of the issued capital of WHTCL.

132

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

32. CONTINGENT LIABILITIES (CONTINUED)

(b) Guarantees and undertakings (Continued)
(iii) A wholly owned subsidiary of the Company, through its associated company, has a 40% interest in a company (the “Hang Hau Developer”) which is engaged in the development of a site at the Hang Hau Mass Transit Railway Station Development. The Hang Hau Developer was granted exclusive rights to develop the site pursuant to a development agreement (the “Hang Hau Development Agreement”) entered into by the Hang Hau Developer with, amongst others, the MTRC.

Pursuant to a deed of guarantee in relation to the above development, the Company has provided several guarantees in favour of the MTRC for the due and punctual performance and observance by the Hang Hau Developer of 40% of its obligations, liabilities, stipulations, acts and duties under or in connection with the Hang Hau Development Agreement and the due and punctual payment of 40% of all monies and liabilities due, owing or payable to the MTRC from the Hang Hau Developer under or in connection with the Hang Hau Development Agreement.

(iv) The Group has 38.2% interest in a company (the “Seller”) which, pursuant to a sale and purchase agreement (the “Mortgage S&P Agreement”), has sold certain loans (the “Loans”) to The Hong Kong Mortgage Corporation Limited (the “HKMC”). Pursuant to a support agreement (the “Support Agreement”) entered into by the Company with, amongst others, the HKMC, the Company has severally undertaken (i) if the Seller fails to repurchase any Loans in accordance with the Mortgage S&P Agreement, to, or to procure a third party approved by the HKMC to, complete repurchase of such Loans; and (ii) if the Seller fails to pay when due any amount in full in respect of the Loans required to be paid by it to the HKMC, to pay on behalf of the Seller on a several basis an amount equal to 38.2% of the amount that the Seller has failed to pay to the HKMC.

The Company has also severally undertaken with the HKMC that it shall indemnify and keep indemnified the HKMC, its directors, officers and employees and its successors and assignees from and against 38.2% of all liabilities, losses, damages, actions, proceedings, demands, claims, costs and expenses which may be brought against, suffered or incurred by such indemnified person by reason of any breach of the Seller’s undertakings, representations and warranties in the Mortgage S&P Agreement and the Support Agreement or of any breach of the Company’s representations, warranties and undertakings in the Support Agreement.

(v) The Group has a 50% interest in a company (“Party 1”) which owns a piece of land in Cheung Sha Wan while another company (“Party 2”) owns an adjacent piece of land. Party 1 and Party 2 are negotiating the joint redevelopment of the two pieces of land. Prior to the joint redevelopment, the parties need to surrender the existing two pieces of land to the Government in exchange for the grant of a new lot for commercial/residential development with public car park facilities (the “Proposed Land Exchange”). The Proposed Land Exchange involves the grant of a street and its associated footpaths as part of the new lot and requires the permanent closure of the above-mentioned street and its associated footpaths.

Pursuant to an undertaking (the “Undertaking”) dated 24 May 2002, in consideration of the Government entering into and continuing the negotiations with Party 1 and Party 2 on the Proposed Land Exchange, the Company and other parties, including the holding companies of the shareholders of Party 1 and Party 2, have jointly and severally undertaken, covenanted and agreed that they shall indemnify and keep indemnified the Government and any of its officers from and against all and any actions (including judicial reviews), liabilities, demands, claims, expenses, costs and losses arising directly or indirectly out of or in connection with the gazetting of the permanent closure of the above-mentioned street and its associated footpaths under the Roads (Works, Use and Compensation) Ordinance and the authorisation of such closure.

Pursuant to a deed of cross indemnity and a collateral deed of cross indemnity, both dated 24 May 2002, the Group’s liabilities under the Undertaking shall be several and shall be determined based on its share of interest in the joint redevelopment.

133

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

33. PLEDGE OF ASSETS – GROUP

At 31 December 2002, the Group’s total bank loans of HK$7,054,572,000 (2001: HK$7,646,555,000) included an aggregate amount of HK$6,407,773,000 (2001: HK$5,569,900,000) which is unsecured and an aggregate amount of HK$646,799,000 (2001: HK$2,076,655,000) which is secured by the following:

(i) legal charges over certain fixed assets (note 12);
(ii) charges on all assets, including bank balances amounting to HK$70,450,000 (2001: HK$168,872,000), of certain subsidiaries. Such bank balances can be used for payment of construction and other operating costs or for repayment of outstanding bank loans of the respective subsidiaries;
(iii) assignments of sale proceeds, insurance proceeds, rental income and deposits arising from the tenancy agreements of certain properties;
(iv) mortgages over the issued shares of certain subsidiaries;
(v) assignments and subordinations of shareholders’ loans of certain subsidiaries; and
(vi) corporate guarantees from the Company and the respective parent companies of the shareholders of certain subsidiaries.

34. ULTIMATE HOLDING COMPANY

The directors regard Kerry Group Limited, a company incorporated in the Cook Islands, as being the ultimate holding company.

35. APPROVAL OF ACCOUNTS

The accounts were approved by the board of directors on 3 March 2003.

134

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

36. GROUP STRUCTURE – SUBSIDIARIES

At 31 December 2002, the Company held interests in the following subsidiaries:

λ^
µ^
µ^
λ^

Aberporth Resources
British Virgin Islands
Investment holding
US$1
100%
Limited
Able Plus
British Virgin Islands
Investment holding
US$1
100%
Holdings Limited
Amble Aim Sdn. Bhd.
Malaysia
Investment holding
RM2
100%
Ansellman Limited
British Virgin Islands
Investment holding
US$1
100%
Architectural Design
Hong Kong
Provision of architectural
HK$2
100%
and Management
services
Services Limited
Auto Plaza Limited
Hong Kong
Investment holding,
Ordinary HK$4,998
100%
property investment
Non-voting
and carpark operation
deferred HK$2
Balkis Limited
British Virgin Islands
Investment holding
US$10,000
100%
Baron Development
British Virgin Islands
Investment holding
US$1
100%
Limited
Barriedale Limited
British Virgin Islands
Investment holding
US$10,000
100%
Barrowdale Limited
British Virgin Islands
Investment holding
US$1,000
100%
Beaverton Limited
British Virgin Islands
Investment holding
US$1
100%
Beihai Kerry Property
The People’s
Property ownership
RMB1,708,616
100%
Development Ltd.
Republic of China
Beijing Jia Ao Real
The People’s
Property investment
US$77,967,600
71.25%
Estate Development
Republic of China
Co., Ltd.
Beijing Kerry Centre
The People’s
Hotel ownership
US$33,000,000
71.25%
Hotel Co., Ltd.
Republic of China
Beijing Kerry
The People’s
Operation of
US$2,100,000
100%
Datalinks Limited
Republic of China
internet data centre
Belminton Inc.
British Virgin Islands
Investment holding
US$1,000
100%
Bestford Resources Limited
British Virgin Islands
Dormant
HK$1
100%
(formerly known as
ibe-Datalinks
(China) Limited)
Bethan Company Limited
Hong Kong
Dormant
HK$2
100%
Big Sky Resources Limited
British Virgin Islands
Investment holding
US$100
100%
Brinkworth Assets Limited
British Virgin Islands
Investment holding
US$1
100%

135

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

GROUP STRUCTURE – SUBSIDIARIES (CONTINUED)

		Principal activities and
		place of operation (if
	Place of	different from place of	Particulars of	Indirect interest
	incorporation/	incorporation/	issued capital/	held unless
Name	establishment	establishment)	registered capital	denoted with∆
Burgo Inc	British Virgin Islands	Dormant	US$1,000	100%
Busyhigh Limited	Samoa	Investment holding	HK$1	100%
Calistock Limited	British Virgin Islands	Investment holding	US$1	100%
		in Hong Kong
Capabletech Limited	British Virgin Islands	Investment holding	US$1	100%
Cashel Assets Limited	British Virgin Islands	Investment holding	US$1	100%
(formerly known as
Mid-Levels Portfolio
(Century Tower I)
Holdings Limited)
Catren Company Limited	Hong Kong	Carpark ownership	Voting class “A”	60%
			HK$9,998
			Non-voting class “B”
			HK$2
Chance Brilliant Limited	British Virgin Islands	Investment holding	US$1	100%
Charlicks New	Papua New Guinea	Dormant	PGK54,000	99.99%
Guinea Ltd.
Chipelli Investments	Hong Kong	Property investment	HK$100,000	80%
Limited
Clavering Services	British Virgin Islands	Investment holding	US$1,000	100%
Limited		in Hong Kong
Close Encounters Limited	British Virgin Islands	Investment holding	HK$10,000	100%
Comphor Company	British Virgin Islands	Investment holding	US$10	100%
Limited
Cremorne Investments	British Virgin Islands	Investment holding	US$100	100%
Limited
Darcey Investments	British Virgin Islands	Investment holding	US$100	100%
Limited
Dec Limited	British Virgin Islands	Investment holding	US$10,000	100%
Denleigh Limited	British Virgin Islands	Investment holding	US$1	60%
Denver Rose	British Virgin Islands	Investment holding	US$1	100%
Investments Limited		in Hong Kong
Errol Company Ltd.	British Virgin Islands	Investment holding	US$1	100%
Ever Asset Group Limited	British Virgin Islands	Investment holding	US$1	100%

136

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

36. GROUP STRUCTURE – SUBSIDIARIES (CONTINUED)

		Principal activities and
		place of operation (if
	Place of	different from place of	Particulars of	Indirect interest
	incorporation/	incorporation/	issued capital/	held unless
Name	establishment	establishment)	registered capital	denoted with∆
Fair Page Limited	Hong Kong	Property investment	HK$2	100%
Garden Streams Limited	British Virgin Islands	Investment holding	US$1	100%
		in Hong Kong
Goldash Holdings Limited	British Virgin Islands	Investment holding	US$1	100%
Golden Explorer Group	British Virgin Islands	Investment holding	US$1	100%
Limited
Harvard Developments	British Virgin Islands	Dormant	US$12	75%
Limited
Hong Kong Shanghai	Samoa	Investment holding	HK$8,000,000	55%
Development Co Ltd.
ibe-Datalinks (Beijing)	Samoa	Investment holding	HK$1	100%
Limited
ibe-Datalinks (H.K.)	Hong Kong	Dormant	HK$2	100%
Limited
ibe-Tech (BVI) Limited	British Virgin Islands	Investment holding	US$1	100%
ibe-Tech Investments	British Virgin Islands	Investment holding	US$1	100% ∆
Limited
ibe-Tech Limited	Hong Kong	Dormant	HK$2	100%
ISA Investments Limited	British Virgin Islands	Investment holding	US$1	100%
Insightful Investments	British Virgin Islands	Dormant	US$1	100%
Limited
Intelligain Investments	British Virgin Islands	Investment holding	US$1	100%
Limited
Intelliocean Investments	British Virgin Islands	Investment holding	US$1	100%
Limited
International Enterprise	Hong Kong	Investment holding	Ordinary HK$10	100%
Co. Limited			Non-voting deferred
			HK$10,000
Interseed Company	Hong Kong	Property trading	HK$2	100%
Limited
Invergarry Limited	Hong Kong	Dormant	HK$2	100%
Irrewarra Holdings Limited	British Virgin Islands	Investment holding	US$1	100%
Julian Holdings Limited	British Virgin Islands	Investment holding	US$1	100%
KLN Container Line	British Virgin Islands	Freight forwarding	HK$1,200,000	100%
Limited		business
Kanya Corp.	British Virgin Islands	Investment holding	US$1,000	100%

137

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

GROUP STRUCTURE – SUBSIDIARIES (CONTINUED)

λ^
λ^
λ^
λ^
^*

Principal activities and
place of operation (if
Place of
different from place of
Particulars of
Indirect interest
incorporation/
incorporation/
issued capital/
held unless
Name
establishment
establishment)
registered capital
denoted with∆
Kerry BCI Cold Store
Hong Kong
Warehouse ownership
HK$10,000
60%
(Kwai Chung) Limited
Kerry BCI Cold Store
British Virgin Islands
Warehouse ownership
US$1
60%
(Tsuen Wan) Limited
in Hong Kong
Kerry BCI Warehouse
British Virgin Islands
Warehouse ownership
US$1
60%
(Tsuen Wan) Limited
in Hong Kong
Kerry BCI Warehouse
British Virgin Islands
Investment holding
HK$10,000,000
60%
Holdings Limited
Kerry BCI Warehouse
Hong Kong
Warehouse operation
HK$20
60%
Limited
Kerry Beijing
Samoa
Investment holding
HK$1,000,000
75%
(Guang Hua) Ltd
Kerry Beijing
Samoa
Investment holding
HK$1
100%
(Shibalidian)
Development Ltd.
Kerry Cao Jia Yan
The People’s
Property development
US$13,400,000
100%
Properties (Shanghai)
Republic of China
Co., Ltd.
Kerry Cargo Centre
Hong Kong
Warehouse ownership
HK$2
100%
Limited
Kerry Centre Real Estate
The People’s
Property investment
HK$142,000,000
100%
(Shenzhen) Co. Ltd.
Republic of China
Kerry Chemquest
British Virgin Islands
Investment holding
US$1,000
100%
Investments Ltd.
Kerry D.G. Warehouse
Hong Kong
Warehouse ownership
HK$20,000,000
100%
(Kowloon Bay) Limited
Kerry Development
The People’s
Property trading
US$40,000,000
100%
(Shanghai) Co., Ltd.
Republic of China
Kerry Development
The People’s
Dormant
–
100%
(Shenzhen) Co., Ltd.
Republic of China
Kerry Distribution
Hong Kong
Provision of
HK$500,000
100%
(Hong Kong) Limited
distribution services
Kerry Distribution
Thailand
Provision of
Baht20,000,000
60%
(Thailand) Limited
distribution services
Kerry Estate Management
British Virgin Islands
Investment holding
HK$10,000
100% ∆
Limited

138

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

36. GROUP STRUCTURE – SUBSIDIARIES (CONTINUED)

*
^
^

Principal activities and
place of operation (if
Place of
different from place of
Particulars of
Indirect interest
incorporation/
incorporation/
issued capital/
held unless
Name
establishment
establishment)
registered capital
denoted with∆
Kerry Facilities
Hong Kong
Building management
HK$2
100%
Management
(Hong Kong) Limited
Kerry Freight (Australia)
Australia
Freight forwarding
A$2
100%
Pty Ltd
Kerry Freight
Hong Kong
Freight forwarding business Ordinary HK$10,000
100%
(Hong Kong) Limited
Non-voting deferred
HK$2,750,000
Kerry Freight (Korea) Inc.
Korea
Freight forwarding
Won500,000,000
50.999%
Kerry Freight (Thailand)
Thailand
Freight forwarding
Baht6,500,000
49% #
Limited
Kerry Freight (USA) Inc.
Delaware, U.S.A.
Freight forwarding
US$1
100%
Kerry Freight
Hong Kong
Freight forwarding
HK$2
100%
International Limited
Kerry Freight Services
British Virgin Islands
Investment holding
HK$1
100%
(China) Limited
(formerly known as
ibe-Datalinks Limited)
Kerry Freight Services
British Virgin Islands
Investment holding
US$1
100%
(Europe) Limited
(formerly known as
Ocean Rocket Assets
Limited)
Kerry Freight Services
British Virgin Islands
Investment holding
US$1
100%
(HKSAR) Limited
Kerry Freight Services
British Virgin Islands
Investment holding
HK$1
100%
(Korea) Limited
Kerry Freight Services
British Virgin Islands
Investment holding
US$1
100%
(Philippines) Limited
Kerry Freight Services
British Virgin Islands
Investment holding
HK$1
100%
(Thailand) Limited
Kerry Freight Services
British Virgin Islands
Investment holding
US$1
100%
(U.K.) Limited
Kerry Freight Services
British Virgin Islands
Investment holding
HK$1
100%
(USA) Limited
Kerry Freight Services
British Virgin Islands
Investment holding
HK$1
100%
Limited
Kerry Fuzhou (Gutian) Ltd.
Samoa
Investment holding
HK$6,000,000
100%

139

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

36. GROUP STRUCTURE – SUBSIDIARIES (CONTINUED)

*
^
λ^
^
λ^
*

Principal activities and
place of operation (if
Place of
different from place of
Particulars of
Indirect interest
incorporation/
incorporation/
issued capital/
held unless
Name
establishment
establishment)
registered capital
denoted with∆
Kerry Global Freight
British Virgin Islands
Freight forwarding
HK$100,000
70%
Limited
and agency business
and customs brokerage
Kerry Guangxi
Samoa
Investment holding
HK$1,500,000
100%
(Beihai) Ltd
Kerry Infrastructure
British Virgin Islands
Investment holding
HK$10,000
100%
(China) Limited
Kerry Infrastructure
British Virgin Islands
Investment holding
HK$595,026,381
100% ∆
Limited
Kerry Logistics (Australia)
Australia
Operation of logistics
A$2,000,000
100%
Pty Ltd
services, rail terminal
and container depot
Kerry Logistics
Samoa
Investment holding
US$1
100%
(Beijing) Ltd.
Kerry Logistics (China)
British Virgin Islands
Investment holding
US$1
100%
Limited
Kerry Logistics (HKSAR)
British Virgin Islands
Investment holding
US$1
100%
Limited
Kerry Logistics
Hong Kong
Provision of logistics
HK$10,000,000
100%
(Hong Kong) Limited
services
Kerry Logistics
Korea
Dormant
Won100,000,000
100%
(Korea) Inc.
Kerry Logistics
The People’s
Operation of logistics
HK$1,600,000
100%
(Shanghai
Republic of China
business
Waigaoqiao) Co., Ltd.
Kerry Logistics
Samoa
Dormant
HK$1
100%
(Shenzhen Futian)
Investments Ltd.
Kerry Logistics
Samoa
Investment holding
HK$1
100%
(Shenzhen Yantian) Ltd.
Kerry Logistics
Thailand
Logistics centre
Baht135,000,000
60%
(Thailand) Limited
development
Kerry Logistics
The People’s
Operation of logistics
HK$1,600,000
100%
(Tianjin) Co., Ltd.
Republic of China
business
Kerry Logistics (Tianjin)
Samoa
Investment holding
HK$10,000
100%
Investments Ltd.
Kerry Logistics
Samoa
Investment holding
HK$1
100%
(Waigaoqiao) Ltd.
Kerry Logistics Holdings
Australia
Investment holding
A$100
100%
(Australia) Pty Ltd

140

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

GROUP STRUCTURE – SUBSIDIARIES (CONTINUED)

		Principal activities and
		place of operation (if
	Place of	different from place of	Particulars of	Indirect interest
	incorporation/	incorporation/	issued capital/	held unless
Name	establishment	establishment)	registered capital	denoted with∆
Kerry Logistics Limited	British Virgin Islands	Investment holding	HK$42,430,000	100%
Kerry Logistics	Bermuda	Investment holding	HK$500,000	100% ∆
Network Limited		in Hong Kong
Kerry Logistics Services	British Virgin Islands	Investment holding	HK$1	100%
(Australia) Limited
Kerry Logistics Services	British Virgin Islands	Investment holding	HK$1	100%
(Korea) Limited
Kerry Logistics Services	British Virgin Islands	Investment holding	HK$1	100%
(Thailand) Limited
Kerry Logistics Services	British Virgin Islands	Investment holding	US$2	100%
Limited
Kerry Logistics Shanghai	Samoa	Dormant	HK$1	100%
Corporation
Kerry Overseas Project	Liberia	Project management	US$100	100%
Management Limited		in Asia
(Jia Li Hai Wai
Xiang Mu Guan Li
Limited)
Kerry Project Management	Hong Kong	Project management	HK$300,000	100%
(H.K.) Limited
Kerry Project Services	Hong Kong	Project management	HK$2	100%
Limited
Kerry Properties	British Virgin Islands	Investment holding	HK$1	100%
(Australia) Limited
Kerry Properties	British Virgin Islands	Investment holding	HK$4,554,642,958	100% ∆
(China) Limited
Kerry Properties	Hong Kong	Investment holding	Ordinary HK$1,000	100%
(H.K.) Limited			Non-voting deferred
			HK$200,000,000
Kerry Properties	British Virgin Islands	Investment holding	HK$413,179	100% ∆
(Hong Kong) Limited
Kerry Properties	British Virgin Islands	Investment holding	US$1	100%
(Philippines) Limited
Kerry Properties	Samoa	Investment holding	HK$1	100%
(Shenzhen Central
District) Ltd. (formerly
known as Splendid
Limited)

141

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

GROUP STRUCTURE – SUBSIDIARIES (CONTINUED)

λ^
λ^
λ^
λ^

Principal activities and
place of operation (if
Place of
different from place of
Particulars of
Indirect interest
incorporation/
incorporation/
issued capital/
held unless
Name
establishment
establishment)
registered capital
denoted with∆
Kerry Properties
The People’s
Property trading and
HK$112,082,975
100%
(Shenzhen) Co., Ltd.
Republic of China
development
Kerry Properties
Australia
Investment holding
A$1
100%
(Sydney) Pty Ltd
Kerry Properties Beijing
Samoa
Dormant
HK$1
100%
Kerry Centre Ltd.
Kerry Properties
British Virgin Islands
Group financing
US$10,000
100%
Capital Limited
in Hong Kong
Kerry Properties
The People’s
Real estate management
US$350,000
100%
Development
Republic of China
Management
(Shanghai) Co., Ltd.
Kerry Properties
British Virgin Islands
Dormant
US$10,000
100%
Finance Limited
Kerry Properties
British Virgin Islands
Investment holding
HK$1
100% ∆
International Limited
Kerry Properties
British Virgin Islands
Dormant
US$1
100%
Investments Limited
Kerry Properties
British Virgin Islands
Provision of nominee
HK$1,000
100%
Nominees Limited
services
Kerry Properties
Hong Kong
Investment holding
HK$5,000,000
100%
Shenzhen Kerry
Centre Limited
Kerry Properties
British Virgin Islands
Group financing
HK$4,670,665,187
100% ∆
Treasury Limited
Kerry Property
Hong Kong
Property management
HK$20
100%
Management
Services Limited
Kerry Real Estate
Hong Kong
Estate agency
HK$2
100%
Agency Limited
Kerry Real Estate
The People’s
Dormant
RMB23,000,000
100%
Development
Republic of China
(Suzhou) Co., Ltd.
Kerry Real Estate
The People’s
Real estate management
HK$3,000,000
100%
Management
Republic of China
(Shenzhen) Ltd.
Kerry Real Estate
Samoa
Dormant
HK$1
100%
Services (Beijing) Ltd.
Kerry Real Estate
Samoa
Investment holding
HK$1
100%
Services (Shanghai) Ltd.

142

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

36. GROUP STRUCTURE – SUBSIDIARIES (CONTINUED)

		Principal activities and
		place of operation (if
	Place of	different from place of	Particulars of	Indirect interest
	incorporation/	incorporation/	issued capital/	held unless
Name	establishment	establishment)	registered capital	denoted with∆
Kerry Real Estate Services	Samoa	Investment holding	HK$1	100%
(Shenzhen) Ltd.
Kerry Shanghai	Samoa	Investment holding	US$2	100%
(Cao Jia Yan) Ltd.
Kerry Shanghai	Samoa	Dormant	HK$1	100%
(Caohejing) Ltd.
Kerry Shanghai	Samoa	Dormant	HK$1	100%
(Heng Shan) Ltd.
(formerly known as
Kerry Shanghai
(Anyi) Ltd.)
Kerry Shanghai	Samoa	Investment holding	HK$6,000,000	60%
(Hongkou) Ltd.
Kerry Shanghai	Samoa	Investment holding	HK$1,000,000	75%
(Jingan Beili) Ltd
Kerry Shanghai	Samoa	Investment holding	HK$1,000,000	100%
Development Ltd
Kerry Suzhou	Samoa	Investment holding	HK$1,000,000	100%
(Gucheng) Ltd
Kerry Warehouse	Hong Kong	Warehouse ownership	HK$10,000,000	100%
(Chai Wan) Limited
Kerry Warehouse	Hong Kong	Warehouse ownership	HK$2	100%
(Fanling 1) Limited
Kerry Warehouse	Hong Kong	Warehouse ownership	HK$2	100%
(Fanling 2) Limited
Kerry Warehouse	British Virgin Islands	Investment holding	HK$1	100%
(HKSAR) Limited
Kerry Warehouse	Hong Kong	Warehouse operation	HK$25,000,000	100%
(Hong Kong) Limited
Kerry Warehouse	Hong Kong	Warehouse ownership	HK$30,000	100%
(Kwai Chung) Limited
Kerry Warehouse	Samoa	Investment holding	HK$1	100%
(Shanghai) Ltd.
(formerly known as
Kerry Logistics
(Shanghai) Ltd.)
Kerry Warehouse	Hong Kong	Warehouse ownership	HK$10,000,000	100%
(Shatin) Limited
Kerry Warehouse	Hong Kong	Warehouse ownership	HK$5,000,000	100%
(Sheung Shui) Limited

143

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

36. GROUP STRUCTURE – SUBSIDIARIES (CONTINUED)

Principal activities and
place of operation (if
Place of
different from place of
Particulars of
Indirect interest
incorporation/
incorporation/
issued capital/
held unless
Name
establishment
establishment)
registered capital
denoted with∆
Kerry Warehouse
Hong Kong
Warehouse ownership
HK$2
100%
(Tsuen Wan) Limited
Kerry Warehouse
Hong Kong
Warehouse ownership
HK$2
100%
(Yuen Long 1) Limited
Kerry Warehouse
Hong Kong
Dormant
HK$2
100%
(Yuen Long 2) Limited
Kerry Warehouse Limited
British Virgin Islands
Investment holding
US$1
100%
Kildare Limited
Hong Kong
Property trading
HK$2
100%
(formerly known as
Flopina Company
Limited)
Kimberley Inc.
British Virgin Islands
Investment holding
US$1,000
100%
La Corte Investments
British Virgin Islands
Investment holding
US$1
100%
Limited
Licotar Company Limited
Hong Kong
Dormant
HK$2
100%
LINC Group Holdings
Hong Kong
Dormant
HK$20
100%
Limited
Logistics (Thailand)
Thailand
Investment holding
Common
49% #
Limited
Baht49,000
Preference
Baht51,000
Longstone Holdings
British Virgin Islands
Investment holding
US$100
100%
Limited
Lynart Group Limited
British Virgin Islands
Investment holding
HK$10,000
100%
Mable Road Company
Hong Kong
Property investment
Ordinary HK$10
100%
Limited
Non-voting deferred
HK$10,000
Madigan Company
Hong Kong
Property trading
HK$2
100%
Limited
Magnifair Company
Hong Kong
Dormant
HK$10,000
100%
Limited
Mainco Management
Hong Kong
Building management
HK$10,000
60%
Limited
Malbridge Development
Hong Kong
Dormant
HK$100
100%
Limited
Maple Crest Development
British Virgin Islands
Investment holding and
US$120
75%
Limited
property trading
in Hong Kong
Marrakesh Limited
British Virgin Islands
Investment holding
US$1
100%

144

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

36. GROUP STRUCTURE – SUBSIDIARIES (CONTINUED)

		Principal activities and
		place of operation (if
	Place of	different from place of	Particulars of	Indirect interest
	incorporation/	incorporation/	issued capital/	held unless
Name	establishment	establishment)	registered capital	denoted with∆
Mazlo Holdings Limited	British Virgin Islands	Investment holding	US$1	100%
Merlin Limited	Samoa	Investment holding in	HK$1,000,000	100%
		the People’s
		Republic of China
Mid-Levels Portfolio	British Virgin Islands	Investment holding	US$1	100%
(Aigburth) Holdings
Limited
Mid-Levels Portfolio	Cook Islands	Property investment	US$9	100%
(Aigburth) Limited		in Hong Kong
Mid-Levels Portfolio	British Virgin Islands	Investment holding	US$1	100%
(Branksome)
Holdings Limited
Mid-Levels Portfolio	Hong Kong	Property investment	HK$1,000	100%
(Branksome) Limited		and development
Mid-Levels Portfolio	British Virgin Islands	Investment holding	US$1	100%
(Century Tower II)
Holdings Limited
Mid-Levels Portfolio	British Virgin Islands	Investment holding	US$1	100%
(Gladdon) Holdings
Limited
Mid-Levels Portfolio	Hong Kong	Property investment	HK$1,000	100%
(Gladdon) Limited
Mid-Levels Portfolio	British Virgin Islands	Investment holding	US$1	100%
(May Tower I)
Holdings Limited
Mid-Levels Portfolio	Hong Kong	Dormant	HK$100	100%
(May Tower I) Limited
Mid-Levels Portfolio	British Virgin Islands	Investment holding	US$1	100%
(Tavistock) Holdings
Limited
Mid-Levels Portfolio	Hong Kong	Property investment	HK$1,000	100%
(Tavistock) Limited
Mid-Levels Portfolio	British Virgin Islands	Investment holding	US$100	100%
(Tregunter Towers
1 & 2) Holdings Limited
Mid-Levels Portfolio	British Virgin Islands	Property investment	US$1	100%
(Tregunter Towers		in Hong Kong
I & 2) Limited
Mid-Levels Portfolio	British Virgin Islands	Investment holding	US$1	100%
(Valverde) Holdings
Limited

145

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

GROUP STRUCTURE – SUBSIDIARIES (CONTINUED)

		Principal activities and
		place of operation (if
	Place of	different from place of	Particulars of	Indirect interest
	incorporation/	incorporation/	issued capital/	held unless
Name	establishment	establishment)	registered capital	denoted with∆
Mid-Levels Portfolio	Hong Kong	Property investment	HK$1,000	100%
(Valverde) Limited		and trading
Mid-Levels Portfolio	British Virgin Islands	Investment holding	US$1	100%
Holdings Limited
Mighty Gold	British Virgin Islands	Investment holding	US$1	100%
Investments Limited
Muman Holdings Limited	British Virgin Islands	Investment holding	US$1	100%
(formerly known as
Mid-Levels Portfolio
(May Tower II)
Holdings Limited)
NMC 6 Limited	British Virgin Islands	Property investment	Ordinary US$1	100%
		in Hong Kong
NMC 7 Limited	British Virgin Islands	Property investment	Ordinary US$1	100%
		in Hong Kong
NMC 8 Limited	British Virgin Islands	Property investment	Ordinary US$1	100%
		in Hong Kong
NMC 9 Limited	British Virgin Islands	Property investment	Ordinary US$1	100%
		in Hong Kong
Nettlefold Limited	British Virgin Islands	Investment holding	US$10,000	100%
Newtonmore Investments	British Virgin Islands	Investment holding	HK$1	100%
Limited
Nite Lites Limited	British Virgin Islands	Investment holding	HK$10,000	100%
Norbiton Group Limited	British Virgin Islands	Investment holding	HK$10,000	100%
Norminster Limited	Hong Kong	Investment holding	HK$1,000	100%
Norwarth Investments	British Virgin Islands	Investment holding	US$1	100%
Limited
Ocean City Investments	British Virgin Islands	Investment holding	US$1	75%
Limited
Olsen Holdings Limited	British Virgin Islands	Investment holding	US$1	100%
Omisoka Holdings Limited	British Virgin Islands	Investment holding	US$1	100%
Pacific Worth Group	British Virgin Islands	Investment holding	US$1	100%
Limited
Pembrooke Development	British Virgin Islands	Investment holding	HK$10,000	100%
Investments Limited		in Hong Kong
Pettico Limited	Hong Kong	Provision of	HK$20	100%
		finance services
Pirton Resources Limited	British Virgin Islands	Investment holding	US$1	100%

146

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

GROUP STRUCTURE – SUBSIDIARIES (CONTINUED)

λ^*
µ^
µ^

Pola Company Limited
British Virgin Islands
Investment holding
US$1,000
100%
Ponnelle Limited
British Virgin Islands
Investment holding
US$1
100%
Port Destiny Limited
Hong Kong
Property trading
HK$2
100%
Powerful Might
Hong Kong
Dormant
HK$2
100%
Investments Limited
Princeton Investment
Hong Kong
Property ownership
HK$2
100%
Company Limited
Prismatic Limited
Hong Kong
Property development
HK$20
100%
Quintoll Limited
British Virgin Islands
Investment holding
US$1
100%
Rayhay Company Limited
Hong Kong
Dormant
HK$2
100%
Renmark Limited
British Virgin Islands
Investment holding
US$1
100%
Rhosilli Company Limited
Hong Kong
Dormant
HK$2
100%
Rightful Investments
British Virgin Islands
Investment holding
US$1
100%
Limited
Risenland Development
The People’s
Property development
HK$44,000,000
100%
(Fuzhou) Co., Ltd.
Republic of China
Riversfield Holdings
British Virgin Islands
Investment holding
US$1
100%
Limited
Rodder Holdings Limited
British Virgin Islands
Investment holding
US$1
100%
Roving Spirit Limited
British Virgin Islands
Investment holding
HK$10,000
100%
Sageman Limited
British Virgin Islands
Investment holding
US$1
100%
Scene View Limited
British Virgin Islands
Investment holding
US$1
100%
Sedan Chair Limited
British Virgin Islands
Investment holding
HK$10,000
100%
Senworld Investment
Hong Kong
Property investment
HK$2
100%
Limited
Shabu Inc.
British Virgin Islands
Investment holding
US$1
100%
Shanghai Gang Hu
The People’s
Property investment
US$155,300,000
54.45%
Properties Co., Ltd.
Republic of China
and development
Shanghai Kerry Real
The People’s
Property investment
US$12,000,000
55.20%
Estate Development
Republic of China
Co., Ltd.

147

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

GROUP STRUCTURE – SUBSIDIARIES (CONTINUED)

µ^
µ^*

Shanghai Xin Ci Hou
The People’s
Property investment
US$60,000,000
74.25%
Properties Co., Ltd.
Republic of China
Shenzhen Kerry Yantian
The People’s
Logistics centre
RMB88,000,000
55%
Port Logistics Company
Republic of China
development
Limited
Shine Concept
British Virgin Islands
Investment holding
US$1
100%
Investments Limited
Siemens Holdings Limited
British Virgin Islands
Investment holding
US$1
100%
Silverstone Assets Limited
British Virgin Islands
Investment holding
US$100,000
100%
in Hong Kong
Sky Wealth Investments
British Virgin Islands
Investment holding
US$1
100%
Limited
Sophonica International
British Virgin Islands
Dormant
US$1
100%
Corp.
Southwark Profits Limited
British Virgin Islands
Investment holding
US$100
100%
Spring Champion Limited
British Virgin Islands
Investment holding
US$1
100%
Taskan Limited
Hong Kong
Property holding
HK$2
100%
Tellico Investment Limited
Liberia
Investment holding
US$1
100%
Tellson International
British Virgin Islands
Investment holding
US$1
100%
Limited
Templepatrick Limited
Hong Kong
Financing
HK$100
100%
(formerly known as
Mid-Levels Portfolio
(Century Tower II)
Limited)
Terowie Holdings Limited
British Virgin Islands
Investment holding
HK$10,000
100%
Toccate Company
Hong Kong
Group financing
Ordinary HK$10
100%
Limited
Non-voting deferred
HK$1,000,000
Torres Investments Limited
British Virgin Islands
Investment holding
HK$10,000
100%
Travel Aim Investment
Netherlands
Investment holding
NLG40,000
100%
B.V.
Trebanos Investment
Hong Kong
Property investment
HK$2
100%
Company Limited
Trident International
United Kingdom
Sea and air freight
£20,000
91%
Limited
forwarding
Twindale Limited
British Virgin Islands
Investment holding
US$1
100%
Ubagan Limited
Hong Kong
Dormant
HK$10,000
100%
Upsmart Investments
Hong Kong
Lease holding
HK$2
100%
Limited

148

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

36. GROUP STRUCTURE – SUBSIDIARIES (CONTINUED)

		Principal activities and
		place of operation (if
	Place of	different from place of	Particulars of	Indirect interest
	incorporation/	incorporation/	issued capital/	held unless
Name	establishment	establishment)	registered capital	denoted with∆
Viola Developments	British Virgin Islands	Investment holding	US$1	100%
Limited
Washers Limited	British Virgin Islands	Investment holding	HK$10,000	100%
Win House Industries	Hong Kong	Provision of construction	HK$1,000,000	100%
Limited		work
Win House/Kai Tai	Hong Kong	Provision of construction	HK$100	75%
(Joint Venture)		work
Company Limited
Wing Tak Cheung	Hong Kong	Property development	HK$10,000	100%
Limited
Wing Tsing Financial	British Virgin Islands	Group financing in	US$1	100%
Services Limited		Hong Kong
Wirabay Limited	British Virgin Islands	Provision of trustee services	US$1	100%
Wiseside Investment	Hong Kong	Property investment	HK$2	75%
Company Limited
Woody Company	Hong Kong	Property investment	HK$2	100%
Limited
Wymer Limited	British Virgin Islands	Investment holding	US$5,000	100%
Yanawa Limited	British Virgin Islands	Investment holding	US$1	100%
Ying He Company	Hong Kong	Investment holding	Ordinary HK$10	100%
Limited			Non-voting deferred
			HK$21,000,000
Zinnerman Limited	British Virgin Islands	Investment holding	US$1	100%

companies not audited by PricewaterhouseCoopers
^ English translation of name only
deemed subsidiary
∆ direct interest
λ wholly foreign-owned enterprise
µ sino-foreign equity joint venture enterprise

149

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

37. GROUP STRUCTURE – ASSOCIATED COMPANIES

At 31 December 2002, the Company held interests in the following associated companies:

±
±
±
µ^

*
µ^

Principal
activities and
place of operation
Particulars of
(if different
class of
Place of
from place of
issued shares/
incorporation/
incorporation/
registered
Interest held
Name
establishment
establishment)
capital
indirectly
Adwood Company Limited
Hong Kong
Investment holding
10 shares of
30%
HK$10 each
Ariel Investments Limited
Hong Kong
Investment holding
1,000,000 shares
45%
of HK$1 each
Asia Airfreight Services
Hong Kong
Provision of air cargo
10,000 shares
15% β
Limited
services
of HK$1 each
Asia Airfreight Terminal
Hong Kong
Air cargo handling
360,000,000
15% β
Company Limited
terminal operation
shares of
HK$1 each
Bay Tower Properties
British Virgin Islands
Investment holding
1,000 shares of
33.33%
Limited
US$1 each
Beijing BHL Logistics
The People’s
Land resettlement
US$20,000,000
20%
Limited
Republic of China
Benefit Bright (B.V.I.)
British Virgin Islands
Investment holding
1,000 shares of
32.50%
Limited
in Hong Kong
US$1 each
Benefit Bright Limited
Hong Kong
Property investment
2 shares of
32.50%
and trading
HK$1 each
Brisbane Trading
Hong Kong
Property development
100,000 ordinary
50%
Company Limited
and trading
shares of HK$10 each
108,376,196
non-voting
deferred shares
of HK$1 each
Capital Fun Limited
Hong Kong
Provision of nominee
2 shares of
20%
services
HK$1 each
Cardiff Investments Limited
Hong Kong
Investment holding
100,000 shares
30%
of HK$1 each
Cavalcade Holdings Limited
British Virgin Islands
Investment holding
100 shares of
45%
US$1 each
Cheerjoy Development
Hong Kong
Property development
2 shares of
35%
Limited
HK$1 each
Chiwan Container
The People’s
Port terminal operation
US$44,000,000
25%
Terminal Co., Ltd.
Republic of China
Cushion Company Limited
Hong Kong
Dormant
10,000 shares
33.33%
of HK$1 each

150

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

37. GROUP STRUCTURE – ASSOCIATED COMPANIES (CONTINUED)

*
±
±
±
±

±
±
±
µ^*

Principal
activities and
place of operation
Particulars of
(if different
class of
Place of
from place of
issued shares/
incorporation/
incorporation/
registered
Interest held
Name
establishment
establishment)
capital
indirectly
EDSA Parking Services, Inc.
Philippines
Carpark operations
2,500 shares of
39.12%
Pesos 100 each
EDSA Properties
Philippines
Property development,
4,215,222,612
39.12%
Holdings Inc.
investment holding
shares of
and real estate
Peso 1 each
management
EPHI Logistics Holdings,
Philippines
Dormant
15,000 shares
40%∆
Inc.
of Pesos 100 each
Enterprico Investment Limited
Hong Kong
Loan financing
100,000 ordinary shares
45%
of HK$1 each
Grand Creator
British Virgin Islands
Investment holding
10 shares of
40%
Investment (BVI) Limited
US$1 each
Grand Creator
Hong Kong
Property development
2 shares of
40%
Investment Limited
HK$1 each
Hang Hau Station
Hong Kong
Project management
2 shares of
40%
(Project Management)
HK$1 each
Limited
Hang Hau Station
Hong Kong
Dormant
2 shares of
40%
Construction Limited
HK$1 each
Harvest Sun (B.V.I.) Limited
British Virgin Islands
Investment holding
100 shares of
20%
in Hong Kong
US$1 each
Harvest Sun Limited
Hong Kong
Property investment and
2 shares of
20%
trading
HK$1 each
Hilaire Inc.
British Virgin Islands
Investment holding
900 shares of
33.33%
US$1 each
Hong Kong International
Hong Kong
Dormant
10 shares of
30%
Logistics Centre Limited
HK$1 each
Hong Kong Tunnels and
Hong Kong
Tunnel management
1,000,000 shares
15% β
Highways Management
of HK$1 each
Company Limited
Jacksons Landing
Australia
Property development
400 ordinary
25%
Development Pty.
shares of
Limited
A$1 each
Jacksons Landing Estate
Australia
Property management
10 ordinary
25%
Management Pty
shares of
Limited
A$1 each
Kerry BHL Logistics Limited
The People’s
Provision of
US$2,650,000
50%
Republic of China
logistics services

151

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

GROUP STRUCTURE – ASSOCIATED COMPANIES (CONTINUED)

*

±
λ
±

Kerry Hung Kai Warehouse
Hong Kong
Warehouse operation
5,000,000 shares
50%
(Cheung Sha Wan) Limited
of HK$1 each
Kosco Limited
British Virgin Islands
Provision of nominee
1 share of US$1
32.50%
services
KUMM International
Samoa
Investment holding
7,000,000 shares
25%
Co., Ltd.
of US$I each
Olympian City 1 (Project
Hong Kong
Project management
2 shares of
20%
Management) Limited
HK$1 each
Olympian City 1
Hong Kong
Leasing and estate
2 shares of
20%
Management
management
HK$1 each
Company Limited
Olympian City 2 (Project
Hong Kong
Project management
2 shares of
32.50%
Management) Limited
HK$1 each
Olympian City 2
Hong Kong
Provision of
1,000 shares of
38.20%
Finance Company Limited
finance services
HK$1 each
Olympian City 2
Hong Kong
Leasing and estate
1,000 shares of
32.50%
Management Company
management
HK$1 each
Limited
Point Perfect Investments
British Virgin Islands
Investment holding
10 shares
35%
Limited
of US$1 each
Portstewart Limited
Hong Kong
Provision of finance
2 shares
50%
(formerly known as
services
of HK$1 each
ibe-Datalinks
Management Limited)
Reca Limited
British Virgin Islands
Provision of nominee
1 share of US$1
40%
services
Shangri-La Plaza
Philippines
Operation of shopping
1,354,500,000
30.80%
Corporation
mall and other related
preferred shares
activities
of Peso 1 each
235,000,000
common shares
of Peso 1 each
Tianjin Jialing Union
The People’s
Property holding
US$6,900,000
25%
Industries Co., Ltd.
Republic of China
Time Rank Limited
Hong Kong
Property trading
2 shares of
50%
HK$1 each
Top Spring Development
Hong Kong
Investment holding
22,000,000 shares
25%
(Beijing) Limited
of HK$I each

152

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

NOTES TO THE ACCOUNTS 31 December 2002

GROUP STRUCTURE – ASSOCIATED COMPANIES (CONTINUED)

*
±

*±

companies not audited by PricewaterhouseCoopers
^ English translation of name only
β deemed associated company
λ wholly foreign-owned enterprise
µ sino-foreign equity joint venture enterprise
± companies having a financial accounting period which is not coterminous with the Group
∆ being the interest fully controlled by the Group

153

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

3. SHARE CAPITAL

(i) The authorised and issued share capital of KPL as at the Latest Practicable Date are as follows:

Number of Shares	Number of Shares	Nominal value
		HK$’000
Authorised Shares of HK$1.00 each	10,000,000,000	10,000,000

Issued and fully paid Shares of HK$1.00 each:
At 31 December 2002	1,170,550,794	1,170,551
Issue of scrip Shares on 30 May 20031	13,925,576	13,925
Issue of new Shares as a result of exercise of
Options2	63,355	63
At the Latest Practicable Date	1,184,539,725	1,184,539

Notes:

On 15 April 2003, KPL approved a final dividend of HK$0.12 per Share for the year ended 31 December 2002. KPL offered Shareholders a scrip alternative under which Shareholders could elect to receive new Shares credited as fully paid in lieu of a cash dividend. 13,925,576 Shares were issued on 30 May 2003 to Shareholders who elected to receive all or part of such dividend by allotment of Shares in lieu of cash.
During the period from 1 January 2003 to the Latest Practicable Date, a total of 63,355 Options were exercised at an exercise price of HK$6.79 per Share and 63,355 Shares were allotted and issued as a result of such exercise.

Save as disclosed above, there was no movement in the issued share capital of KPL during the period from 1 January 2003 to the Latest Practicable Date.

Each of the Shares ranks pari passu in all respects, including dividends, voting rights and capital.

154

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

(ii) As at the Latest Practicable Date there were no warrants or convertible securities relating to Shares issued by KPL and there were 32,039,084 Options, details of which are set out below:

Number of
Number of
Number of
Number of
Options
Options
Options
Options
granted
adjusted
exercised
lapsed
during the
during the
during the
during the
Exercise
period from period from
period from
period from
Number of
price at
Number
01/01/2003
01/01/2003
01/01/2003
01/01/2003 Options held
the Latest
of Options to the Latest to the Latest to the Latest to the Latest at the Latest Practicable
Date of
held
Practicable
Practicable
Practicable
Practicable
Practicable
Date
Exercise
Grantee
Grant
Tranche
at 01/01/2003
Date
Date
Date
Date
Date
(HK$)
period

1.
Directors
Mr. Kuok
11/04/1997
N/A
2,859,475
–
34,041
–
–
Khoon
Loong,
27/11/1999
I
418,218
–
4,709
–
–
Edward
27/11/1999
II
418,218
–
4,708
–
–
01/06/2000
I
341,000
–
4,000
–
–
01/06/2000
II
341,000
–
4,000
–
–
01/06/2000
III
340,793
–
4,050
–
–
16/04/2002
I
505,698
–
5,829
–
–
16/04/2002
II
505,698
–
5,829
–
–
Mr. Ang
11/04/1997
N/A
1,715,684
–
20,424
–
–
Keng
Lam
27/11/1999
I
418,218
–
4,709
–
–
27/11/1999
II
418,218
–
4,708
–
–
01/06/2000
I
341,000
–
4,000
–
–
01/06/2000
II
341,000
–
4,000
–
–
01/06/2000
III
340,793
–
4,050
–
–
16/04/2002
I
505,698
–
5,829
–
–
16/04/2002
II
505,698
–
5,829
–
–

2,893,516
15.12
11/04/1999-26/03/2007
422,927
9.77
27/05/2000-26/03/2007
422,926
9.77
27/05/2001-26/03/2007
845,853
345,000
6.79
01/06/2001-31/05/2010
345,000
6.79
01/06/2002-31/05/2010
344,843
6.79
01/06/2003-31/05/2010
1,034,843
511,527
6.94
16/04/2003-15/04/2012
511,527
6.94
16/04/2004-15/04/2012
1,023,054
5,797,266
1,736,108
15.12
11/04/1999-26/03/2007
422,927
9.77
27/05/2000-26/03/2007
422,926
9.77
27/05/2001-26/03/2007
845,853
345,000
6.79
01/06/2001-31/05/2010
345,000
6.79
01/06/2002-31/05/2010
344,843
6.79
01/06/2003-31/05/2010
1,034,843
511,527
6.94
16/04/2003-15/04/2012
511,527
6.94
16/04/2004-15/04/2012
1,023,054
4,639,858

155

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

1.
Directors (Continued)
Mr. Wong
11/04/1997
N/A
1,143,789
–
13,616
–
–
Siu
Kong
27/11/1999
I
209,108
–
2,355
–
–
27/11/1999
II
209,109
–
2,353
–
–
01/06/2000
I
174,000
–
2,000
–
–
01/06/2000
II
174,000
–
2,000
–
–
01/06/2000
III
173,832
–
2,148
–
–
16/04/2002
I
505,698
–
5,829
–
–
16/04/2002
II
505,698
–
5,829
–
–
Mr. Ho
11/04/1997
N/A
800,653
–
9,531
–
–
Shut
Kan
27/11/1999
I
135,920
–
1,531
–
–
27/11/1999
II
135,921
–
1,529
–
–
01/06/2000
I
122,000
–
2,000
–
–
01/06/2000
II
122,000
–
2,000
–
–
01/06/2000
III
121,283
–
303
–
–
02/03/2001
I
35,000
–
–
–
–
02/03/2001
II
35,000
–
–
–
–
02/03/2001
III
32,945
–
1,227
–
–
16/04/2002
I
75,854
–
875
–
–
16/04/2002
II
75,855
–
873
–
–

1,157,405
15.12
11/04/1999-26/03/2007
211,463
9.77
27/05/2000-26/03/2007
211,462
9.77
27/05/2001-26/03/2007
422,925
176,000
6.79
01/06/2001-31/05/2010
176,000
6.79
01/06/2002-31/05/2010
175,980
6.79
01/06/2003-31/05/2010
527,980
511,527
6.94
16/04/2003-15/04/2012
511,527
6.94
16/04/2004-15/04/2012
1,023,054
3,131,364
810,184
15.12
11/04/1999-26/03/2007
137,451
9.77
27/05/2000-26/03/2007
137,450
9.77
27/05/2001-26/03/2007
274,901
124,000
6.79
01/06/2001-31/05/2010
124,000
6.79
01/06/2002-31/05/2010
121,586
6.79
01/06/2003-31/05/2010
369,586
35,000
11.74
02/03/2002-01/03/2011
35,000
11.74
02/03/2003-01/03/2011
34,172
11.74
02/03/2004-01/03/2011
104,172
76,729
6.94
16/04/2003-15/04/2012
76,728
6.94
16/04/2004-15/04/2012
153,457
1,712,300

156

APPENDIX I

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

Number of Number of Number of Number of Options Options Options Options granted adjusted exercised lapsed during the during the during the during the Exercise period from period from period from period from Number of price at Number 01/01/2003 01/01/2003 01/01/2003 01/01/2003 Options held the Latest of Options to the Latest to the Latest to the Latest to the Latest at the Latest Practicable Date of held Practicable Practicable Practicable Practicable Practicable Date Exercise Grantee Grant Tranche at 01/01/2003 Date Date Date Date Date (HK$) period	Number of Number of Number of Number of Options Options Options Options granted adjusted exercised lapsed during the during the during the during the Exercise period from period from period from period from Number of price at Number 01/01/2003 01/01/2003 01/01/2003 01/01/2003 Options held the Latest of Options to the Latest to the Latest to the Latest to the Latest at the Latest Practicable Date of held Practicable Practicable Practicable Practicable Practicable Date Exercise Grantee Grant Tranche at 01/01/2003 Date Date Date Date Date (HK$) period	Number of Number of Number of Number of Options Options Options Options granted adjusted exercised lapsed during the during the during the during the Exercise period from period from period from period from Number of price at Number 01/01/2003 01/01/2003 01/01/2003 01/01/2003 Options held the Latest of Options to the Latest to the Latest to the Latest to the Latest at the Latest Practicable Date of held Practicable Practicable Practicable Practicable Practicable Date Exercise Grantee Grant Tranche at 01/01/2003 Date Date Date Date Date (HK$) period	Number of Number of Number of Number of Options Options Options Options granted adjusted exercised lapsed during the during the during the during the Exercise period from period from period from period from Number of price at Number 01/01/2003 01/01/2003 01/01/2003 01/01/2003 Options held the Latest of Options to the Latest to the Latest to the Latest to the Latest at the Latest Practicable Date of held Practicable Practicable Practicable Practicable Practicable Date Exercise Grantee Grant Tranche at 01/01/2003 Date Date Date Date Date (HK$) period	Number of Number of Number of Number of Options Options Options Options granted adjusted exercised lapsed during the during the during the during the Exercise period from period from period from period from Number of price at Number 01/01/2003 01/01/2003 01/01/2003 01/01/2003 Options held the Latest of Options to the Latest to the Latest to the Latest to the Latest at the Latest Practicable Date of held Practicable Practicable Practicable Practicable Practicable Date Exercise Grantee Grant Tranche at 01/01/2003 Date Date Date Date Date (HK$) period	Number of Number of Number of Number of Options Options Options Options granted adjusted exercised lapsed during the during the during the during the Exercise period from period from period from period from Number of price at Number 01/01/2003 01/01/2003 01/01/2003 01/01/2003 Options held the Latest of Options to the Latest to the Latest to the Latest to the Latest at the Latest Practicable Date of held Practicable Practicable Practicable Practicable Practicable Date Exercise Grantee Grant Tranche at 01/01/2003 Date Date Date Date Date (HK$) period	Number of Number of Number of Number of Options Options Options Options granted adjusted exercised lapsed during the during the during the during the Exercise period from period from period from period from Number of price at Number 01/01/2003 01/01/2003 01/01/2003 01/01/2003 Options held the Latest of Options to the Latest to the Latest to the Latest to the Latest at the Latest Practicable Date of held Practicable Practicable Practicable Practicable Practicable Date Exercise Grantee Grant Tranche at 01/01/2003 Date Date Date Date Date (HK$) period
1. Directors (Continued) Mr. Thaddeus 27/11/1999 I Thomas 27/11/1999 II Beczak 01/06/2000 I 01/06/2000 II 01/06/2000 III 2. The remaining 11/04/1997 N/A Option- holders 27/11/1999 I 27/11/1999 II 01/06/2000 I 01/06/2000 II 01/06/2000 III 02/03/2001 I 02/03/2001 II 02/03/2001 III 16/04/2002 I 16/04/2002 II	104,553 104,554 70,000 70,000 68,733 4,941,142 1,698,967 1,699,000 1,776,000 1,776,000 1,715,714 385,000 385,000 362,395 783,802 783,835 31,828,769	– – – – – – – – – – – – – – – – –	1,178 1,176 1,000 1,000 459 58,812 19,149 19,087 23,000 23,000 15,842 – – 13,007 8,815 8,775 371,014	– – – – – – – – (22,000) (22,000) (19,355) – – – – – (63,355)	– – – – – – – – – – (15,711) (14,000) (14,000) (13,178) (20,227) (20,228) (97,344)	105,731 9.77 27/05/2000-26/03/2007 105,730 9.77 27/05/2001-26/03/2007 211,461 71,000 6.79 01/06/2001-31/05/2010 71,000 6.79 01/06/2002-31/05/2010 69,192 6.79 01/06/2003-31/05/2010 211,192 422,653 4,999,954 15.12 11/04/1999-26/03/2007 1,718,116 9.77 27/05/2000-26/03/2007 1,718,087 9.77 27/05/2001-26/03/2007 3,436,203 1,777,000 6.79 01/06/2001-31/05/2010 1,777,000 6.79 01/06/2002-31/05/2010 1,696,490 6.79 01/06/2003-31/05/2010 5,250,490 371,000 11.74 02/03/2002-01/03/2011 371,000 11.74 02/03/2003-01/03/2011 362,224 11.74 02/03/2004-01/03/2011 1,104,224 772,390 6.94 16/04/2003-15/04/2012 772,382 6.94 16/04/2004-15/04/2012 1,544,772 16,335,643 32,039,084

4. INDEBTEDNESS

Borrowings

At the close of business on 31 March 2003, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this document, the KPL Group had outstanding borrowings of approximately HK$7,057.6 million comprising bank loans of approximately HK$7,056.8 million and overdrafts of approximately HK$0.8 million. In addition, certain of KPL’s subsidiaries have proportionate unsecured advances from minority shareholders of approximately HK$1,954.8 million. Bank loans amounting to HK$6,893.3 million

157

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

and the bank overdrafts of HK$0.8 million were unsecured whilst bank loans amounting to HK$163.5 million were secured by legal charges over certain properties, floating charges on all assets of a subsidiary of KPL and an assignment of insurance proceeds.

Contingent liabilities

Banking facilities

The KPL Group has provided proportionate guarantees for banking and other facilities granted to associated companies and investee companies. The KPL Group’s financial exposure represented by the KPL Group’s portion of the utilised amount of such facilities as at 31 March 2003 amounted to approximately HK$746 million. The total amount of such facilities covered by the KPL Group’s guarantees amounted to approximately HK$1,507 million.

The KPL Group has also provided proportionate guarantees to certain banks for mortgage facilities granted to first buyers of certain properties in the PRC. The KPL Group’s financial exposure represented by the KPL Group’s portion of the utilised amount of such facilities as at 31 March 2003 amounted to approximately HK$79 million. The total amount of such facilities covered by the KPL Group’s guarantees amounted to approximately HK$1,359 million.

Guarantees and undertakings

(i) A wholly-owned subsidiary of KPL, through its associated company, has a 20% interest in a company which is engaged in the development of a site in the Olympic Mass Transit Railway Station Development. Another wholly-owned subsidiary of KPL, through its associated company, has a 32.5% interest in another company which is engaged in the development of an adjacent site. The companies developing the sites (the “Developers”) were each granted exclusive rights to develop the relevant sites pursuant to separate development agreements (the “Development Agreements”) entered into by each of the Developers and MTR Corporation Limited (the “MTRC”).

Pursuant to two deeds of guarantee in relation to each of the above developments, KPL has provided several guarantees in favour of the MTRC for the due and punctual performance and observance by each of the Developers of 20% and 32.5% respectively, of the Developer’s obligations, liabilities, stipulations, acts and duties under or in connection with the respective Development Agreements and the due and punctual payment of 20% and 32.5% respectively, of all monies and liabilities due, owing or payable to the MTRC from or by each of the Developers under or in connection with the respective Development Agreements.

158

FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

Developer in which the KPL Group has a 20% interest, KPL has agreed to provide several guarantees and indemnities to indemnify the MTRC against 20% of all claims, demands, cost, damages, losses, expenses and/or liabilities which the MTRC may incur or suffer and which are in any way connected with or result from the entering into and/ or the observance and/or performance of the S & P Agreement and/or the carrying out by the MTRC of the Trust Arrangements. KPL has also guaranteed the payment on demand of 20% of the full amount of such costs, losses, expenses or liabilities.

(ii) The KPL Group has a 15% effective interest in Western Harbour Tunnel Company Limited (“WHTCL”) which acquired a 30-year franchise from the Hong Kong Government to build and operate the Western Harbour Crossing (the “Crossing”). Pursuant to a deed of guarantee dated 2 September 1993 as amended by a deed of novation dated 27 June 1995, a second deed of novation dated 12 October 1998 and a third deed of novation dated 30 May 2000 (the “Guarantee”), KPL together with the other beneficial shareholders of WHTCL have jointly and severally undertaken to the Hong Kong Government that if the aggregate of all costs incurred by WHTCL up to the operating date of the Crossing and all maintenance and repair costs incurred by WHTCL after the operating date of the Crossing but before the issuance of the maintenance certificate exceeds HK$7,534,000,000 then they will pay to WHTCL such excess amount.

Pursuant to a shareholders agreement dated 30 December 1992 as amended by a cross-indemnity deed dated 20 December 1993, a supplemental deed dated 8 September 1994, a second supplemental deed dated 12 October 1998 and a third supplemental deed dated 23 May 2000 in respect of WHTCL, KPL together with the other beneficial shareholders have agreed that in relation to any claim made or asserted under the Guarantee, as between themselves, the total of all liabilities in respect of such claim and of all costs, charges and expenses suffered or incurred by any of them resulting therefrom or attributable thereto shall be shared by them in proportion to their respective ultimate ownership of the issued capital of WHTCL.

(iii) A wholly-owned subsidiary of KPL, through its associated company, has a 40% interest in a company (the “Hang Hau Developer”) which is engaged in the development of a site at the Hang Hau Mass Transit Railway Station Development. The Hang Hau Developer was granted exclusive rights to develop the site pursuant to a development agreement (the “Hang Hau Development Agreement”) entered into by the Hang Hau Developer with, amongst others, the MTRC.

Pursuant to a deed of guarantee in relation to the above development, KPL has provided several guarantees in favour of the MTRC for the due and punctual performance and observance by the Hang Hau Developer of 40% of its obligations, liabilities, stipulations, acts and duties under or in connection with the Hang Hau Development Agreement and the due and punctual payment of 40% of all monies and liabilities due, owing or payable to the MTRC from the Hang Hau Developer under or in connection with the Hang Hau Development Agreement.

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FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

(iv) The KPL Group has 38.2% interest in a company (the “Seller”) which, pursuant to a sale and purchase agreement (the “Mortgage S&P Agreement”), has sold certain loans (the “Loans”) to The Hong Kong Mortgage Corporation Limited (the “HKMC”). Pursuant to a support agreement (the “Support Agreement”) entered into by KPL with, amongst others, the HKMC, KPL has severally undertaken (i) if the Seller fails to repurchase any Loans in accordance with the Mortgage S&P Agreement, to, or to procure a third party approved by the HKMC to, complete repurchase of such Loans; and (ii) if the Seller fails to pay when due any amount in full in respect of the Loans required to be paid by it to the HKMC, to pay on behalf of the Seller on a several basis an amount equal to 38.2% of the amount that the Seller has failed to pay to the HKMC.

KPL has also severally undertaken with the HKMC that it shall indemnify and keep indemnified the HKMC, its directors, officers and employees and its successors and assignees from and against 38.2% of all liabilities, losses, damages, actions, proceedings, demands, claims, costs and expenses which may be brought against, suffered or incurred by such indemnified person by reason of any breach of the Seller’s undertakings, representations and warranties in the Mortgage S&P Agreement and the Support Agreement or of any breach of KPL’s representations, warranties and undertakings in the Support Agreement.

(v) The KPL Group has a 50% interest in a company (“Party 1”) which owns a piece of land in Cheung Sha Wan while another company (“Party 2”) owns an adjacent piece of land. Party 1 and Party 2 are negotiating the joint redevelopment of the two pieces of land. Prior to the joint redevelopment, the parties need to surrender the existing two pieces of land to the Hong Kong Government in exchange for the grant of a new lot for commercial/ residential development with public car park facilities (the “Proposed Land Exchange”). The Proposed Land Exchange involves the grant of a street and its associated footpaths as part of the new lot and requires the permanent closure of the above-mentioned street and its associated footpaths.

Pursuant to an undertaking (the “Undertaking”) dated 24 May 2002, in consideration of the Hong Kong Government entering into and continuing the negotiations with Party 1 and Party 2 on the Proposed Land Exchange, KPL and other parties, including the holding companies of the shareholders of Party 1 and Party 2, have jointly and severally undertaken, covenanted and agreed that they shall indemnify and keep indemnified the Hong Kong Government and any of its officers from and against all and any actions (including judicial reviews), liabilities, demands, claims, expenses, costs and losses arising directly or indirectly out of or in connection with the gazetting of the permanent closure of the above-mentioned street and its associated footpaths under the Roads (Works, Use and Compensation) Ordinance and the authorisation of such closure.

Pursuant to a deed of cross indemnity and a collateral deed of cross indemnity, both dated 24 May 2002, the KPL Group’s liabilities under the Undertaking shall be several and shall be determined based on its share of interest in the joint redevelopment.

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FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

Save as aforesaid and apart from intra-group liabilities, the KPL Group did not have any other outstanding loan capital, bank overdrafts and liabilities under acceptances or other similar indebtedness, debentures, mortgages, charges, loans, acceptance credits, hire purchase commitments, guarantees or other material contingent liabilities at the close of business on 31 March 2003.

The KPL Directors have confirmed that there has not been any material adverse change in the indebtedness or contingent liabilities of the KPL Group since 31 March 2003.

For the purpose of the above statement of indebtedness, foreign currency amounts have been translated into Hong Kong dollars at the rates of exchange prevailing at the close of business on 31 March 2003.

5. MATERIAL CHANGES

Save as set out in the statement of indebtedness (other than the guarantees and undertakings) and the statement of Adjusted NTAV set out in Sections 4 and 6 respectively of this Appendix and the Trading Announcement set out in Appendix V, it is the view of the KPL Directors that there have been no material changes in the financial or trading position or prospects of the KPL Group since 31 December 2002, the date to which the last published audited consolidated accounts of the KPL Group were made up.

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FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

6. STATEMENT OF ADJUSTED NTAV

Set out below is a statement of Adjusted NTAV, which has been calculated based on the audited consolidated net asset value of the KPL Group as at 31 December 2002 and adjusted as follows:

Net asset value as at 31 December 2002
Less: Intangible assets per balance sheet as at 31 December 2002
Add:
Negative goodwill included in associated companies
as at 31 December 2002
Net tangible asset value as at 31 December 2002
Less: Net deficit arising from the revaluation of the KPL Group’s
interests in properties under development, stock of
completed properties held for sale, associated companies
and other investments as at 30 April 2003
Net deficit arising from the revaluation of the KPL Group’s
interests in investment properties and other leasehold
and freehold land and buildings as at 30 April 2003
Net surplus arising from the revaluation of the KPL Group’s
interests in infrastructure-related investments as at 30 April 2003
Unrealised gain on investments in trading securities1
Final dividend of HK$0.12 per Share paid on 30 May 2003
Adjusted NTAV before provision for deferred taxation
Less: Provision for deferred taxation
Adjusted NTAV
Total number of issued Shares as at the Latest Practicable Date
Adjusted NTAV per Share after provision for deferred taxation

HK$’000
21,000,570
(45,004)
23,924
20,979,490
(275,906)
(952,230)
61,045
190 1
(23,909)2
19,788,680
(1,112,843)3
18,675,837
1,184,539,725
HK$15.77

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FINANCIAL INFORMATION RELATING TO THE KPL GROUP

APPENDIX I

Notes:

This represents the difference between the total marked-to-market value of listed securities held by the KPL Group as at the Latest Practicable Date (other than those held as interests in associated companies) and the value of such listed securities as stated in KPL’s annual report for the year ended 31 December 2002.
This represents final dividend paid in cash. Shareholders holding 971,308,993 Shares elected to receive new Shares in lieu of cash, resulting in 13,925,576 Shares being issued to such Shareholders on 30 May 2003.
This represents full provision for deferred tax liabilities as at 30 April 2003 in accordance with Revised SSAP 12 and contingent tax liability that will arise if the properties under development, stock of completed properties held for sale and infrastructure-related investments are sold at the revalued amount.

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APPENDIX II PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

The following is the letter and summary of valuation extracted from the property valuation report, prepared for the purpose of inclusion in this document in connection with DTZ/ Chesterton Petty’s valuations of the property interests of the KPL Group in Hong Kong, the PRC, Thailand, Australia, United Kingdom, United States of America and Korea as at 30 April 2003, setting out the basis of their valuations:

==> picture [161 x 71] intentionally omitted <==

PETTY

26 June 2003

The Directors Kerry Properties Limited 13th Floor Cityplaza 3 14 Taikoo Wan Road Taikoo Shing Hong Kong

Dear Sirs,

We refer to your instructions for us to value the interests in the properties held by Kerry Properties Limited (referred to as the “Company” or “KPL”) or its subsidiaries (together referred to as the “KPL Group”) in Hong Kong, the People’s Republic of China (the “PRC”), Thailand, Australia, United Kingdom, United States of America and Korea. We confirm that we have made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the values of such property interests as at 30 April 2003 (the “Date of Valuation”).

Unless otherwise stated, our valuation of each of the property interests represents its open market value which we would define as intended to mean “an opinion of the best price at which the sale of an interest in property would have been completed unconditionally for cash consideration on the Date of Valuation, assuming:

(a) a willing seller;
(b) that, prior to the Date of Valuation, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interest, for the agreement of the price and terms and for the completion of the sale;

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APPENDIX II PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

(c) that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the Date of Valuation;
(d) that no account is taken of any additional bid by a prospective purchaser with a special interest; and
(e) that both parties to the transaction had acted knowledgeably, prudently and without compulsion.”

Unless otherwise stated, our valuations have been made on the assumption that the KPL Group sells the property interests on the open market without the benefit of deferred term contracts, leasebacks, joint ventures, management agreements or any similar arrangements which could serve to affect the values of the property interests. In addition, no forced sale situation in any manner is assumed in our valuations.

In valuing the property interests in Hong Kong which are held under Government Leases expiring before 30 June 1997, we have taken account of the provisions contained in Annex III of the Joint Declaration of the Government of the United Kingdom and the Government of People’s Republic of China on the Question of Hong Kong and the New Territories Leases (Extension) Ordinance 1988 that such leases have been extended without premium until 30 June 2047 and that a rent of three per cent of the rateable value for the time being of each of such properties is charged per annum from the date of extension.

We have relied on the information given by the KPL Group and the advice provided by the KPL Group’s PRC legal adviser, Fangda Partners, PRC Lawyers, regarding the title to each of the property interests in the PRC and the interests of the KPL Group in the properties in the PRC. The status of titles and grant of major approvals and licences, in accordance with the information provided by the KPL Group are set out in the notes in the valuation certificate.

In valuing the property interests in Groups I, II, V, VI, VII, X, XII, and XIII, we have adopted the direct comparison approach by making reference to comparable sales evidence as available in the relevant market or, wherever appropriate, by investment approach of valuation by considering the capitalized income derived from the existing tenancies with due provision for the reversionary income potential of the property interests.

Due to the specific nature of the property interest, The Beijing Kerry Centre Hotel comprised in property interest No. 59 in Group VI has been valued as a fully operational entity having regard to the trading accounts of the property and based on our opinion as to its future trading potential.

In valuing the property interests in Groups III, VIII and XIV, which are held under development by the KPL Group in Hong Kong, the PRC and Australia respectively, we have valued each of these property interests on the basis that these properties will be developed and completed in accordance

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APPENDIX II PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

with the KPL Group’s latest development proposals provided to us. In arriving at our opinion of value, we have valued each of such property interests by the direct comparison approach by making reference to comparable transactions in the locality and have also taken into account the construction costs that will be expended to complete the development to reflect the quality of the completed development. The “Capital value when completed” represents our opinion of the aggregate selling prices of the development assuming that it would have been completed at the Date of Valuation.

In valuing the property interests in Groups IV, IX and XV, which are held for development by the KPL Group in Hong Kong, the PRC and Australia respectively, we have also valued each of these property interests by the direct comparison approach assuming sale of each of these property interests in its existing state with the benefit of vacant possession and by making reference to comparable site transactions as available in the relevant market.

In valuing property interest No. 75 in Group XI, which is held for investment purposes by the KPL Group in Thailand and which was completed recently and is pending occupation, due to the specific nature of the buildings and structures, we have adopted the Depreciated Replacement Costs (“DRC”) approach. A DRC approach requires an estimate of the open market value of the land in its existing use and an estimate of the new replacement cost of the buildings and structures, from which deductions are made to allow for the age, condition and functional obsolescence. The value is subject to adequate potential profitability of the undertaking.

In valuing property interests No. 9 in Group I, No. 39 in Group III and 53 in Group V in respect of the property-related contractual rights held by the KPL Group in Hong Kong, we have valued each of these interests in accordance with the provisions of the relevant profits sharing agreement and development document between MTR Corporation Limited and in which the Company has interests. The profit element represents the disposal proceeds minus the deductible costs. We have also taken into account the deductible costs, if any, expended and recoverable as at the Date of Valuation.

The property interests in Groups XVI, XVII, XVIII, XIX, XX, XXI and XXII, which are leased to the KPL Group in Hong Kong, the PRC, Australia, United Kingdom, United States of America, Thailand and Korea respectively, have no commercial value due to prohibition against assignment or lack of substantial profit rent.

We have not been provided with any copies of the title documents relating to the property interests owned by the KPL Group in Hong Kong, Thailand and Australia but have caused searches to be made at the appropriate Land Registries in Hong Kong, Thailand and Australia. In respect of the property interests owned by the KPL Group in the PRC, we have been provided with extracts of documents in relation to the titles to the property interests. However, we have not inspected the original documents to ascertain any amendments which may not appear on the copies handed to us.

In the course of our valuation, we have relied to a very considerable extent on the information given by the KPL Group and the advice provided by the KPL Group’s legal adviser on PRC law and have accepted advice given to us on such matters as planning approvals or statutory notices,

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APPENDIX II PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

easements, tenure, completion date of buildings, identification of buildings, development schemes, site and floor plans, site and floor areas, number of parking spaces, particulars of occupancy, lettings, rental incomes and revenue, terms of joint venture agreements or development agreements, total construction costs and professional fees, construction costs and professional fees expended, estimated outstanding construction costs and professional fees, interest attributable to the KPL Group and all other relevant matters.

Dimensions, measurements and areas included in the valuation certificates are based on information provided to us and are therefore only approximations. We have no reason to doubt the truth and accuracy of the information provided to us by the KPL Group which is material to the valuations. We were also advised by the KPL Group that no material facts have been omitted from the information provided.

We have inspected the exterior and, wherever possible, the interior of all the property interests owned by the KPL Group. However, we have not carried out investigations on site to determine the suitability of the soil conditions and the services etc. for any development. Our valuations are prepared on the assumption that these aspects are satisfactory and that no extraordinary expenses or delays will be incurred during the construction period. Moreover, no structural survey has been made, but in the course of our inspection, we did not note any serious defects. We are not, however, able to report whether the properties are free of rot, infestation or any other structural defects. No tests were carried out to any of the services. Unless otherwise stated, we have not been able to carry out detailed on-site measurements to verify the site and floor areas of the properties and we have assumed that the areas shown on the documents handed to us are correct.

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

Unless otherwise stated, all sums stated in our valuation certificates are in Hong Kong dollars. The exchange rates adopted in our valuations as at 30 April 2003 are US$1 = HK$7.8, RMB1.06 = HK$1, THB5.5 = HK$1 and AUS1 = HK$4.86 which were approximately the prevailing exchange rates as at the Date of Valuation and there has been no significant fluctuation in the exchange rates between the Date of Valuation and the date of this letter.

Our valuations are summarized below and the valuation certificates are attached.

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APPENDIX II PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

Valuations as at 31 December 2002 of certain property interests held by the KPL Group have also been made by us and are set out in the summary of valuation. No valuation certificates or other documents have been prepared by us herein in respect of such valuations.

Yours faithfully, Yours faithfully, for and on behalf of for and on behalf of DTZ Debenham Tie Leung Limited Chesterton Petty Limited Chiu Kam Kuen Charles C K Chan Registered Professional Surveyor Registered Professional Surveyor F.H.K.I.S., F.R.I.C.S., F.H.K.F.A. M.Sc., F.H.K.I.S., F.R.I.C.S., MCIArb Executive Director Executive Director

Notes: Mr. Chiu Kam Kuen is a Chartered Surveyor who has about eighteen years’ experience in valuation of properties in Hong Kong and about eleven years’ experience in valuation of properties in the PRC.

Mr. Charles Chan is a Chartered Surveyor who has about eighteen years’ experience in valuation of properties in Hong Kong and about fourteen years’ experience in valuation of properties in the PRC.

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APPENDIX II PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

SUMMARY OF VALUATION

					Capital value
		Capital value	Capital value		in existing
		in existing	in existing		state as at
		state as at	state as at	KPL’s	30 April 2003
		31 December	30 April	attributable	attributable to
	Property interest	2002	2003	interest	KPL’s interest
		HK$	HK$	%	HK$
Group I – Property interests (Residential and Commercial) held for investment purposes by the
	KPL Group in Hong	Kong
1.	Branksome,	1,452,000,000	1,355,000,000	100	1,355,000,000
	3 Tregunter Path,
	Mid-Levels,
	Hong Kong
2.	Tavistock,	535,000,000	513,000,000	100	513,000,000
	10 Tregunter Path,
	Mid-Levels,
	Hong Kong
3.	Residential units (except	1,921,000,000	1,776,000,000	100	1,776,000,000
	Duplex on 51st and 52nd
	Floors together with
	Flat Roofs thereof),
	Aigburth,
	63 Car Parking Spaces and
	47 Ancillary Spaces on
	Aigburth Podium,
	12 Tregunter Path,
	Mid-Levels,
	Hong Kong
4.	Various Portions of	1,204,000,000	1,137,000,000	100	1,137,000,000
	and 86 Car Parking
	Spaces in Towers 1
	and 2,
	Tregunter,
	14 Tregunter Path,
	Mid-Levels,
	Hong Kong

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PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

APPENDIX II

					Capital value
		Capital value	Capital value		in existing
		in existing	in existing		state as at
		state as at	state as at	KPL’s	30 April 2003
		31 December	30 April	attributable	attributable to
	Property interest	2002	2003	interest	KPL’s interest
		HK$	HK$	%	HK$
5.	Belgravia,	741,000,000	700,000,000	100	700,000,000
	57 South Bay Road,
	Repulse Bay,
	Hong Kong
6.	Gladdon,	20,000,000	19,100,000	100	19,100,000
	3 May Road,
	Mid-Levels,
	Hong Kong
7.	7 Car Parking Spaces of	N/a	1,400,000	80	1,120,000
	Elm Tree Towers,	(see Note)
	8-10 Chun Fai Road,
	Tai Hang,
	Hong Kong

Note: As at 31 December 2002, the whole property comprised 8 car parking spaces and was valued at HK$1,800,000. 8. 111 High Street, 46,900,000 44,700,000 100 44,700,000 Sai Ying Pun, Hong Kong

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PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

APPENDIX II

Capital value Capital value Capital value in existing in existing in existing state as at state as at state as at KPL’s 30 April 2003 31 December 30 April attributable attributable to Property interest 2002 2003 interest KPL’s interest HK$ HK$ % HK$ 9. The interest attributable N/a N/a N/a 977,485,000 to the KPL Group in (see Note 1) (see Note 2) (see Note 3) the commercial developments known as Olympian City 1 and Olympian City 2, and 528 car parking spaces at Olympic Station, Tai Kok Tsui, Kowloon

Notes:

(1) As at 31 December 2002, the whole of the commercial developments and 528 car parking spaces at Olympic Station was valued at HK$3,555,000,000.
(2) As at 30 April 2003, the whole of the commercial developments and 528 car parking spaces at Olympic Station was valued at HK$3,265,000,000.
(3) HK$977,485,000 was the capital value in existing state as at 30 April 2003 attributable to KPL’s interest having taken into account the terms stipulated in the respective development agreements with the registered owner.
Kindergarten including N/a 12,800,000 75 9,600,000 5 Car Parking Spaces in (see Note) Constellation Cove, 1 Hung Lam Drive, Tai Po, New Territories
Note: As at 31 December 2002, the property, together with property interest No. 54 and certain sold portions of Constellation Cove as a whole having a total gross floor area of approximately 27,744.33 sq.m. (298,640 sq.ft.) and 118 car parking spaces, was valued at HK$1,237,000,000.

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PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

APPENDIX II

					Capital value
		Capital value	Capital value		in existing
		in existing	in existing		state as at
		state as at	state as at	KPL’s	30 April 2003
		31 December	30 April	attributable	attributable to
	Property interest	2002	2003	interest	KPL’s interest
		HK$	HK$	%	HK$
11.	The Commercial Portions	N/a	81,000,000	8	6,480,000
	of and 17 Carparking
	Spaces in Belair Monte,
	3 Ma Sik Road,
	Fanling,
	New Territories
12.	Various Portions of and	6,490,000,000	5,340,000,000	10.16	542,544,000
	537 Car Parking Spaces in
	Citibank Plaza,
	3 Garden Road,
	Central,
	Hong Kong
13.	34th, 36th and 37th Floors	388,400,000	317,400,000	100	317,400,000
	of Citibank Tower and
	Car Parking Spaces
	Nos. 39, 40 and 41 on
	2nd Basement,
	Citibank Plaza,
	3 Garden Road,
	Central,
	Hong Kong
14.	Various Portions of and	1,394,000,000	1,274,000,000	15	191,100,000
	286 Car Parking Spaces in
	Harbour Centre,
	25 Harbour Road,
	Wanchai,
	Hong Kong

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PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

APPENDIX II

					Capital value
		Capital value	Capital value		in existing
		in existing	in existing		state as at
		state as at	state as at	KPL’s	30 April 2003
		31 December	30 April	attributable	attributable to
	Property interest	2002	2003	interest	KPL’s interest
		HK$	HK$	%	HK$
15.	6th Floor and Car Parking	26,300,000	22,400,000	100	22,400,000
	Spaces Nos. 426 and 436
	on 4th Floor, AXA Centre,
	151 Gloucester Road,
	Wanchai,
	Hong Kong
16.	7th Floor and Car Parking	26,700,000	22,100,000	100	22,100,000
	Spaces Nos. 424 and 425
	on 4th Floor,
	AXA Centre,
	151 Gloucester Road,
	Wanchai,
	Hong Kong
17.	8th Floor and Car Parking	27,100,000	23,000,000	100	23,000,000
	Spaces Nos. 403 and 404
	on 4th Floor,
	AXA Centre,
	151 Gloucester Road,
	Wanchai,
	Hong Kong
18.	9th Floor and Car Parking	27,400,000	23,000,000	100	23,000,000
	Spaces Nos. 434 and 435
	on 4th Floor,
	AXA Centre,
	151 Gloucester Road,
	Wanchai,
	Hong Kong
19.	Various Portions of	138,000,000	123,000,000	45	55,350,000
	Hollywood Centre,
	233 Hollywood Road,
	Sheung Wan,
	Hong Kong

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PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

APPENDIX II

Property interest
20.
Various Portions of and
28 Car Parking Spaces in
Enterprise Square,
9 Sheung Yuet Road,
Kowloon Bay,
Kowloon
21.
Auto Plaza (other than
certain portions of
Government
Accommodation),
65 Mody Road,
Tsimshatsui,
Kowloon
22.
Various Portions in
South Seas Centre,
75 Mody Road,
Tsimshatsui,
Kowloon
23.
38 Car Parking Spaces
in South Seas Centre,
75 Mody Road,
Tsimshatsui,
Kowloon
24.
Various Portions of
Wing On Plaza,
62 Mody Road,
Tsimshatsui,
Kowloon
Sub-total:

Capital value
Capital value
Capital value
in existing
in existing
in existing
state as at
state as at
state as at
KPL’s
30 April 2003
31 December
30 April
attributable
attributable to
2002
2003
interest
KPL’s interest
HK$ HK$ %
HK$ 240,650,000
213,000,000
100
213,000,000
715,000,000
679,000,000
100
679,000,000
18,600,000
18,300,000
100
18,300,000
9,360,000
6,800,000
100
6,800,000
64,000,000
59,000,000
10
5,900,000
15,485,410,000 13,761,000,000
8,659,379,000

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APPENDIX II PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

					Capital value
		Capital value	Capital value		in existing
		in existing	in existing		state as at
		state as at	state as at	KPL’s	30 April 2003
		31 December	30 April	attributable	attributable to
	Property interest	2002	2003	interest	KPL’s interest
		HK$	HK$	%	HK$
Group II – Property interests		(Warehouses) held	for investment	purposes by the	KPL Group in
	Hong Kong
25.	Kerry Warehouse	205,000,000	198,000,000	100	198,000,000
	(Chai Wan),
	50 Ka Yip Street,
	Chai Wan,
	Hong Kong
26.	Whole of Lower Ground,	363,000,000	362,000,000	100	362,000,000
	Ground, 2nd to 4th and
	6th Floors of Block A;
	Whole of Lower Ground
	and 2nd to 16th Floors
	of Block B; the parking
	area/loading and
	unloading platform,
	5 container, 24 lorry and
	27 van/car parking spaces,
	Kerry BCI Warehouse 1,
	3 Kin Chuen Street,
	Kwai Chung,
	New Territories
27.	Kerry Warehouse (Shatin),	161,000,000	160,000,000	100	160,000,000
	36-42 Shan Mei Street,
	Shatin,
	New Territories
28.	Kerry Warehouse	147,000,000	146,000,000	100	146,000,000
	(Sheung Shui),
	2 San Po Street,
	Sheung Shui,
	New Territories

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APPENDIX II PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

					Capital value
		Capital value	Capital value		in existing
		in existing	in existing		state as at
		state as at	state as at	KPL’s	30 April 2003
		31 December	30 April	attributable	attributable to
	Property interest	2002	2003	interest	KPL’s interest
		HK$	HK$	%	HK$
29.	Kerry Hung Kai Warehouse	340,000,000	337,000,000	50	168,500,000
	(Cheung Sha Wan),
	3 Fat Tseung Street,
	Cheung Sha Wan,
	Kowloon
30.	Kerry Warehouse (Fanling 1),	110,000,000	106,000,000	100	106,000,000
	39 On Lok Mun Street,
	On Lok Tsuen,
	Fanling,
	New Territories
31.	Kerry D.G. Warehouse	219,000,000	195,000,000	100	195,000,000
	(Kowloon Bay),
	7 Kai Hing Road,
	Kowloon Bay,
	Kowloon
32.	Kerry Warehouse	100,000,000	95,000,000	100	95,000,000
	(Kwai Chung),
	4-6 Kwai Tai Road,
	Kwai Chung,
	New Territories
33.	Kerry Warehouse	90,000,000	86,000,000	100	86,000,000
	(Yuen Long 1),
	19 Tak Yip Street,
	Tung Tau Industrial Area,
	Yuen Long,
	New Territories
34.	Kerry Warehouse (Fanling 2),	52,000,000	51,000,000	100	51,000,000
	23 Yip Cheong Street,
	On Lok Tsuen,
	Fanling,
	New Territories

176

PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

APPENDIX II

						Capital value
		Capital value		Capital value		in existing
			in existing	in existing		state as at
			state as at	state as at	KPL’s	30 April 2003
		31	December	30 April	attributable	attributable to
	Property interest		2002	2003	interest	KPL’s interest
			HK$	HK$	%	HK$
35.	Kerry BCI Warehouse 2,	368,000,000		346,000,000	100	346,000,000
	35 Wing Kei Road,
	Kwai Chung,
	New Territories
36.	Kerry Warehouse	320,000,000		305,000,000	100	305,000,000
	(Tsuen Wan),
	3 Shing Yiu Street,
	Kwai Chung,
	New Territories
37.	Kerry Cargo Centre,	1,260,000,000		1,210,000,000	100	1,210,000,000
	55 Wing Kei Road,
	Kwai Chung,
	New Territories
	Sub-total:	3,735,000,000		3,597,000,000		3,428,500,000
Group III – Property interests held under development by the KPL					Group in Hong	Kong
38.	The Cliveden,		N/a	506,000,000	50	253,000,000
	98 Route Twisk,
	Tsuen Wan,
	New Territories
39.	The interest attributable to		N/a	N/a	N/a	668,800,000
	the KPL Group in
	Hang Hau Station Development,
	15 Pui Shing Road,
	Tseung Kwan O,
	Sai Kung,
	New Territories

177

PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

APPENDIX II

					Capital value
		Capital value	Capital value		in existing
		in existing	in existing		state as at
		state as at	state as at	KPL’s	30 April 2003
		31 December	30 April	attributable	attributable to
	Property interest	2002	2003	interest	KPL’s interest
		HK$	HK$	%	HK$
40.	Enterprise Square Three,	N/a	364,000,000	100	364,000,000
	39 Wang Chiu Road,
	Kowloon Bay,
	Kowloon
41.	Branksome II,	N/a	965,000,000	100	965,000,000
	3 Tregunter Path,
	Mid-Levels,
	Hong Kong
	Sub-total:	N/a	1,835,000,000		2,250,800,000
Group IV – Property interests held for development by the KPL				Group in Hong	Kong
42.	152-160 Kwok Shui Road,	N/a	127,000,000	100	127,000,000
	Kwai Chung,
	New Territories
43.	15 Ho Man Tin Hill Road,	N/a	410,000,000	100	410,000,000
	Ho Man Tin,
	Kowloon
44.	Enterprise Square Five,	N/a	336,000,000	100	336,000,000
	Junction of Sheung Yee
	Road and Wang Chiu Road,
	Kowloon Bay,
	Kowloon
45.	Ap Lei Chau Inland	N/a	460,000,000	35	161,000,000
	Lot No. 129,
	Ap Lei Chau,
	Hong Kong
	Sub-total:	N/a	1,333,000,000		1,034,000,000

178

APPENDIX II PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

					Capital value
	Capital value		Capital value		in existing
		in existing	in existing		state as at
		state as at	state as at	KPL’s	30 April 2003
	31	December	30 April	attributable	attributable to
	Property interest	2002	2003	interest	KPL’s interest
		HK$	HK$	%	HK$
Group V – Property interests held		for sale by	the KPL Group in	Hong Kong
46.	Various Portions of and	N/a	68,600,000	100	68,600,000
	172 Car Parking Spaces in
	Ocean Pointe,
	8 Sham Tsz Road,
	Sham Tseng,
	New Territories
47.	Various Portions of and	N/a	20,500,000	7	1,435,000
	39 Car Parking Spaces in
	Greenfields,
	1 Fung Kam Street,
	Yuen Long,
	New Territories
48.	9 Car Parking Spaces in	N/a	720,000	100	720,000
	Camellia Court,
	3 Yu Tai Road,
	Fanling,
	New Territories
49.	16 Car Parking Spaces and	N/a	9,600,000	100	9,600,000
	3 Ancillary Spaces in
	Tavistock II,
	10A Tregunter Path,
	Mid-Levels,
	Hong Kong
50.	24 Car Parking Spaces,	N/a	14,400,000	100	14,400,000
	14 Ancillary Spaces and
	6 Ancillary Spaces for Visitors in
	Valverde, 11 May Road,
	Mid-Levels,
	Hong Kong

179

PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

APPENDIX II

					Capital value
		Capital value	Capital value		in existing
		in existing	in existing		state as at
		state as at	state as at	KPL’s	30 April 2003
		31 December	30 April	attributable	attributable to
	Property interest	2002	2003	interest	KPL’s interest
		HK$	HK$	%	HK$
51.	6 Lorry Parking Spaces in	N/a	2,600,000	100	2,600,000
	Enterprise Square Two,
	3 Sheung Yuet Road,
	Kowloon Bay,
	Kowloon
52.	The Commercial Area of	N/a	19,300,000	50	9,650,000
	and 43 Car Parking Spaces
	in Richwood Park,
	33 Lo Fai Road,
	Tai Po,
	New Territories
53.	The interest attributable to	N/a	N/a	N/a	727,305,000
	the KPL Group in the	(see Note 1)	(see Note 2)		(see Note 3)
	unsold stock
	of Island Harbourview,
	Central Park and Park Avenue
	and 1,313 car parking
	spaces at Olympic Station,
	Tai Kok Tsui,
	Kowloon

Notes:

(1) As at 31 December 2002, the property comprised a total domestic gross floor area of approximately 69,861.76 sq. m. (751,992 sq. ft.) and 1,313 car parking spaces and was valued at HK$3,550,000,000.
(2) As at 30 April 2003, the whole of the unsold stock of Island Harbourview, Central Park and Park Avenue having a total domestic gross floor area of approximately 60,808.25 sq.m. (654,540 sq.ft.) and 1,313 car parking spaces at Olympic Station was valued at HK$2,827,000,000.
(3) HK$727,305,000 was the capital value in existing state as at 30 April 2003 attributable to KPL’s interest having taken into account the terms stipulated in the respective development agreements with the registered owner.

180

PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

APPENDIX II

					Capital value
		Capital value	Capital value		in existing
		in existing	in existing		state as at
		state as at	state as at	KPL’s	30 April 2003
		31 December	30 April	attributable	attributable to
	Property interest	2002	2003	interest	KPL’s interest
		HK$	HK$	%	HK$
54.	Various Portions of and	N/a	862,000,000	75	646,500,000
	98 Car Parking Spaces in	(see Note)
	Constellation Cove,
	1 Hung Lam Drive,
	Tai Po,
	New Territories

Note: As at 31 December 2002, the property, together with property interest No. 10 and certain sold portions of Constellation Cove as a whole having a total gross floor area of approximately 27,744.33 sq.m. (298,640 sq.ft.) and 118 car parking spaces, was valued at HK$1,237,000,000.

	Sub-total:	N/a	997,720,000		1,480,810,000
Group VI – Property interests held for investment purposes by the KPL Group in the PRC
55.	The unsold portion of	1,280,926,000	1,195,000,000	54.45	650,677,500
	Tower I and Tower II
	and the Commercial Podium
	and Basement, Phase 1,
	Kerry Everbright City,
	No. 218 Tianmu Road West,
	Zhabei District,
	Shanghai
56.	The unsold portion of	82,400,000	77,500,000	55.20	42,780,000
	Office Tower, and
	the unsold portion of
	commercial area on L1 and
	L2, and 153 car parks in
	Shanghai Trade Square/
	International Apartments,
	Lot C, No. 171 Jiefang,
	Siping Road, Hongkou District,
	Shanghai

181

APPENDIX II PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

						Capital value
		Capital value		Capital value		in existing
			in existing	in existing		state as at
			state as at	state as at	KPL’s	30 April 2003
		31	December	30 April	attributable	attributable to
	Property interest		2002	2003	interest	KPL’s interest
			HK$	HK$	%	HK$
57.	Shanghai Kerry Centre,	1,548,100,000		1,478,000,000	74.25	1,097,415,000
	No. 1515 Nanjing Road West,
	Jingan District,
	Shanghai
58.	Office Tower A	2,175,700,000		2,021,000,000	15	303,150,000
	(excluding the HSBC Portion
	on Levels 2 & 3),
	Office Tower B,
	the Commercial Podium
	(excluding the HSBC Portion
	on Level 1) and the Basement,
	and 167 car parks,
	Beijing COFCO Plaza,
	8 Jianguomennei Avenue,
	Dongcheng District,
	Beijing
59.	South and North Office	3,800,000,000		3,599,400,000	71.25	2,564,572,500
	Towers, East and West
	Apartment Towers,
	Commercial area on L1 and
	B1, and 603 car parks of
	Beijing Kerry Centre,
	The Beijing Kerry Centre Hotel,
	No. 1 Guanghua Road,
	Chaoyang District,
	Beijing

182

PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

APPENDIX II

Capital value Capital value Capital value in existing in existing in existing state as at state as at state as at KPL’s 30 April 2003 31 December 30 April attributable attributable to Property interest 2002 2003 interest KPL’s interest HK$ HK$ % HK$ 60. Unsold portions of 519,000,000 461,600,000 100 461,600,000 Shenzhen Kerry Centre attributable to Kerry Centre Real Estate (Shenzhen) Co., Ltd. (formerly known as Shenzhen Kerry Centre Real Estate Ltd.; Shenzhen Top Spring Plaza Real Estate Ltd.), junction of Renmin Road South and Youyi Road, Luohu District, Shenzhen, Guangdong Province Sub-total: 9,406,126,000 8,832,500,000 5,120,195,000

Group VII – Property interest held for sale by the	Group VII – Property interest held for sale by the	Group VII – Property interest held for sale by the	KPL Group in the PRC
61.	Unsold portion of	N/a	105,000,000	100	105,000,000
	Central Residences Phase I,
	1038 Huashan Road,
	Changning District,
	Shanghai
	Sub-total:	N/a	105,000,000		105,000,000
Group VIII – Property interests held under development by the KPL Group in the					PRC
62.	Phases II, III & IV,	N/a	851,000,000	54.45	463,369,500
	Kerry Everbright City,
	Tianmu Road West,
	Zhabei District,
	Shanghai

183

PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

APPENDIX II

					Capital value
		Capital value	Capital value		in existing
		in existing	in existing		state as at
		state as at	state as at	KPL’s	30 April 2003
		31 December	30 April	attributable	attributable to
	Property interest	2002	2003	interest	KPL’s interest
		HK$	HK$	%	HK$
63.	Arcadia Court,	N/a	403,000,000	100	403,000,000
	Lot No. B205-0008,
	Fuzhong Road,
	Futian District,
	Shenzhen,
	Guangdong Province
64.	Central Residences Phase II,	N/a	242,500,000	100	242,500,000
	Southwest Caojiayan,
	Yanan Road West
	and Jiangsu Road,
	Changning District,
	Shanghai
65.	Phase IIIB of Shenzhen	N/a	50,000,000	100	50,000,000
	Regency Park,
	Lot No. H402-37,
	Yinhu Road,
	Luohu District,
	Shenzhen,
	Guangdong Province
66.	Yu Quan Hua Yuan,	N/a	97,000,000	100	97,000,000
	139 Gutian Road,
	Gulou District,
	Fuzhou,
	Fujian Province
67.	Shenzhen Kerry Yantian	N/a	150,000,000	55	82,500,000
	Port Logistics Centre,
	South Area of
	Yantian Bond District,
	Shenzhen,
	Guangdong Province
	Sub-total:	N/a	1,793,500,000		1,338,369,500

184

APPENDIX II PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

					Capital value
		Capital value	Capital value		in existing
		in existing	in existing		state as at
		state as at	state as at	KPL’s	30 April 2003
		31 December	30 April	attributable	attributable to
	Property interest	2002	2003	interest	KPL’s interest
		HK$	HK$	%	HK$
Group IX – Property interests held for development by the KPL				Group in the PRC
68.	Lot 1288,	N/a	205,500,000	99	203,445,000
	Yanan Zhong Road,
	Jingan District,
	Shanghai
69.	A plot of land,	N/a	No commercial	65	No commercial
	South of Pudong Road and		value		value
	East of Dongsheng Avenue,
	Changchun Economic and
	Technology Development
	Zone,
	Changchun,
	Jilin Province
70.	Lot No. 28,	N/a	45,500,000	25	11,375,000
	Tianjin Harbour Nanjiang
	Area,
	Tanggu District,
	Tianjin
71.	A plot of land,	N/a	4,400,000	100	4,400,000
	Southwest junction of
	Beihai Avenue and
	Guizhou Road,
	Beihai,
	Guangxi Province
	Sub-total:	N/a	255,400,000		219,220,000

185

PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

APPENDIX II

					Capital value
		Capital value	Capital value		in existing
		in existing	in existing		state as at
		state as at	state as at	KPL’s	30 April 2003
		31 December	30 April	attributable	attributable to
	Property interest	2002	2003	interest	KPL’s interest
		HK$	HK$	%	HK$
Group X – Property interests		held and occupied	by the KPL Group in the PRC
72.	Units 906 and 907,	N/a	950,000	54.45	517,275
	Block 3,
	Chunlan Mansion,
	Magnolia Garden,
	Junction of Caoqi Road
	North, Puhuitang Road
	and Yude Road,
	Xuhui District,
	Shanghai
73.	Unit 1406, Block 2,	N/a	675,000	74.25	501,188
	Huilan Mansion,
	Magnolia Garden,
	Junction of Caoqi Road
	North,
	Puhuitang Road
	and Yude Road,
	Xuhui District,
	Shanghai
74.	Unit A on 4th Level,	N/a	250,000	100	250,000
	Block 5,
	Yurong Garden,
	Gutian Road,
	Gulou District,
	Fuzhou,
	Fujian Province
	Sub-total:	N/a	1,875,000		1,268,463

186

APPENDIX II PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

				Capital value
	Capital value	Capital value		in existing
	in existing	in existing		state as at
	state as at	state as at	KPL’s	30 April 2003
	31 December	30 April	attributable	attributable to
Property interest	2002	2003	interest	KPL’s interest
	HK$	HK$	%	HK$

– Group XI Property interest held for investment purposes by the KPL Group in Thailand

75.	Laem Chabang Logistics	N/a	32,500,000	60	19,500,000
	Centre, Highway No. 7
	(Bypass Laem Chabang),
	Nong-kham Sub-District,
	Sri Racha District,
	Chonburi Province,
	Thailand
	Sub-total:	N/a	32,500,000		19,500,000
Group XII – Property interest held for		investment purposes by the KPL Group in			Australia
76.	4 Martin Avenue,	N/a	19,440,000	100	19,440,000
	Gillman,
	Adelaide,
	South Australia
	Sub-total:	N/a	19,440,000		19,440,000
Group XIII – Property interests held for sale by the KPL Group in Australia
77.	Units M305 and M306 of	N/a	12,295,800	25	3,073,950
	McCafferys Mews and
	Units C101 and C201 of
	McCafferys Chalet,
	Cadigal Avenue,
	Jacksons Landing,
	Pyrmont,
	Sydney,
	Australia

187

PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

APPENDIX II

Property interest
78.
Unit 801C of Reflections,
Refinery Drive,
Jacksons Landing,
Pyrmont,
Sydney,
Australia
79.
Terrace at Bowman Street,
Jacksons Landing,
Pyrmont,
Sydney,
Australia
80.
Terraces at John Street,
Jacksons Landing,
Pyrmont,
Sydney,
Australia
81.
The Cooperage,
Jacksons Landing,
Pyrmont,
Sydney,
Australia
82.
Terraces at Mount Street,
Jacksons Landing,
Pyrmont,
Sydney,
Australia
Sub-total:

Capital value
Capital value
Capital value
in existing
in existing
in existing
state as at
state as at
state as at
KPL’s
30 April 2003
31 December
30 April
attributable
attributable to
2002
2003
interest
KPL’s interest
HK$ HK$ %
HK$ N/a
3,499,200
25
874,800
N/a
4,860,000
25
1,215,000
N/a
17,010,000
25
4,252,500
N/a
18,468,000
25
4,617,000
N/a
9,331,200
25
2,332,800
N/a
65,464,200
16,366,050

188

APPENDIX II PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

					Capital value
		Capital value	Capital value		in existing
		in existing	in existing		state as at
		state as at	state as at	KPL’s	30 April 2003
		31 December	30 April	attributable	attributable to
	Property interest	2002	2003	interest	KPL’s interest
		HK$	HK$	%	HK$
Group XIV – Property interests		held under development by the KPL Group in Australia
83.	Distillery Hill Stage 1,	N/a	295,488,000	25	73,872,000
	Jones Street,
	Jacksons Landing,
	Pyrmont,
	Sydney,
	Australia
84.	The Escarpment,	N/a	22,356,000	25	5,589,000
	Refinery Drive,
	Jacksons Landing,
	Pyrmont,
	Sydney,
	Australia
85.	McCaffreys Stables,	N/a	2,430,000	25	607,500
	Cadigal Avenue,
	Jacksons Landing,
	Pyrmont,
	Sydney,
	Australia
	Sub-total:	N/a	320,274,000		80,068,500
Group XV – Property interests		held for development by the KPL Group in Australia
86.	Distillery Hill Stages 2-5,	N/a	233,280,000	25	58,320,000
	Jacksons Landing,
	Pyrmont,
	Sydney,
	Australia

189

APPENDIX II

PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

Capital value Capital value Capital value in existing in existing in existing state as at state as at state as at KPL’s 30 April 2003 31 December 30 April attributable attributable to Property interest 2002 2003 interest KPL’s interest HK$ HK$ % HK$ 87. 21 Harris Street, N/a 17,496,000 25 4,374,000 Jacksons Landing, Pyrmont, Sydney, Australia Sub-total: N/a 250,776,000 62,694,000 Grand Total: 28,626,536,000 33,200,449,200 23,835,610,513

Property interest

Capital value in existing state as at 30 April 2003 attributable to KPL’s interest HK$

Group XVI – Property interest leased to the KPL Group in Hong Kong

13th and 14th Floors, Cityplaza 3, 14 Taikoo Wan Road, Taikoo Shing, Quarry Bay, Hong Kong

No commercial value

Group XVII – Property interests leased to the KPL Group in the PRC

A unit on 4th Floor, West Lodge, Shui Bu Building, Longting Road, Gulou District, Fuzhou, Fujian Province

No commercial value

190

APPENDIX II PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

Property interest

Capital value in existing state as at 30 April 2003 attributable to KPL’s interest

HK$

A unit on 3rd Floor, West Lodge, Shui Bu Building, Longting Road, Gulou District, Fuzhou, Fujian Province
Flat C, 15th Floor, Block 4, Shen Ye Hua Yuen, Futian District, Shenzhen, Guangdong Province
Flat 2603, 26th Floor, Block A, Nan Yang Mansion, Luohu District, Shenzhen, Guangdong Province
Flat 2404, 24th Floor, Block B, Ming Shi Court, Luohu District, Shenzhen, Guangdong Province
Flat A, 19th Floor, Block C, Lu Sha Hua Yuan, Shenzhen, Guangdong Province

No commercial value

191

APPENDIX II PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

Property interest

Capital value in existing state as at 30 April 2003 attributable to KPL’s interest

HK$

Unit 16F, West Lodge, CWTC Century Towers Apartment, 18 Guangqumenwai Avenue, Chaoyang District, Beijing
Unit 20H, East Lodge, CWTC Century Towers Apartment, 18 Guangqumenwai Avenue, Chaoyang District, Beijing
Unit 17F, East Lodge, CWTC Century Towers Apartment, 18 Guangqumenwai Avenue, Chaoyang District, Beijing
Unit 19H, East Lodge, CWTC Century Towers Apartment, 18 Guangqumenwai Avenue, Chaoyang District, Beijing
Unit 21F, West Lodge, CWTC Century Towers Apartment, 18 Guangqumenwai Avenue, Chaoyang District, Beijing

No commercial value

192

APPENDIX II PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

Property interest

Capital value in existing state as at 30 April 2003 attributable to KPL’s interest

HK$

Unit 15E, West Lodge, CWTC Century Towers Apartment, 18 Guangqumenwai Avenue, Chaoyang District, Beijing
Unit 18H, East Lodge, CWTC Century Towers Apartment, 18 Guangqumenwai Avenue, Chaoyang District, Beijing
Unit 21G, West Lodge, CWTC Century Towers Apartment, 18 Guangqumenwai Avenue, Chaoyang District, Beijing
Unit 2109, Block 6, Jiu Long Garden, Beijing
No. 19, Quan Fa Garden, Tian Yuan, Beijing
Unit No. 738C, River Garden, Beijing

No commercial value

193

APPENDIX II PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

Property interest

Capital value in existing state as at 30 April 2003 attributable to KPL’s interest

HK$

Unit 1612B, 16th Level, Bank Centre, No. 189 Sha He Road, Shamen, Guangdong Province
Portion of Fu Xing Storage Building, No. B105-20 Bin Lang Road, Futian Free-trade Zone, Shenzhen, Guangdong Province
Units C & D, 20th Level, Century Tower, No. 39 Qing Hai Xi Road, Qingdao
Units B1 & B2, No. 37 Warehouse, Zone F, No. 253 Ai Dao Road, Wai Gao Qiao Free-trade Zone, Shanghai
Portion of Unit B, No. 37 Warehouse, Zone F, No. 253 Ai Dao Road, Wai Gao Qiao Free-trade Zone, Shanghai

No commercial value

194

APPENDIX II PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

Property interest

Capital value in existing state as at 30 April 2003 attributable to KPL’s interest

HK$

111. Unit 08, 36th Level,

No commercial value

Tian Jin Jin Huang Building, No. 20 Nan Jing Road, Hexi District, Tianjin

Unit 201-208, 2nd Level,

No commercial value

Composite Building, Chao Yang Harbour, No. A1 Dong Si Huan Nan Road, Chaoyang District, Beijing

No. 8 Lao Jun Tang Village, 18 Li Dian Xiang, Chaoyang District, Beijing

No commercial value

Unit C06,

Yong Chang Commercial Centre, No. 3 Yong Chang Bei Road, Economy and Technology Development Zone, Beijing

Room 203, Section B, Hi-tech Building, No. 900 Yishan Road, Shanghai

No commercial value

Group XVIII – Property interests leased to the KPL Group in Australia

116. 13-27 Martin Avenue,

No commercial value

Gillman, South Australia

195

APPENDIX II PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

Property interest

Capital value in existing state as at 30 April 2003 attributable to KPL’s interest

HK$

Grand Trunkway, Gillman, South Australia

No commercial value

Group XIX – Property interests leased to the KPL Group in United Kingdom

Unit 1, Broadoak Industrial Park,

No commercial value

Ashburton Road West, Trafford Park, Manchester, M17 1RW, United Kingdom

3 Bond and Units B1 and B2, John Gilbert Way, Trafford Park Road, Trafford Park, Manchester, M17 1AB, United Kingdom

No commercial value

Unit 4 Thames Road Industrial Estate, Silvertown, London, E16 2EZ, United Kingdom

No commercial value

40 Victoria Way, Charlton, London, SE7 7QS, United Kingdom

No commercial value

196

APPENDIX II PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

Property interest

Capital value in existing state as at 30 April 2003 attributable to KPL’s interest

HK$

Valley Farm Way, Wakefield Road, Stourton, Leeds, LS10 1SE, United Kingdom

No commercial value

Unit F, Court Farm Trading Estate, Northumberland Close, Stanwell Staines, Middlesex, TW19 7LN, United Kingdom

No commercial value

Group XX – Property interest leased to the KPL Group in United States of America

Office No. 201, 147-45 Farmers Blvd, Jamaica, New York, United States of America

No commercial value

Group XXI – Property interests leased to the KPL Group in Thailand

Room No. 801 on 8th Floor, Chao Phya Tower, 89 Soi Wat Suan Plu, New Road, Bangrak, Bangkok 10500, Thailand

No commercial value

197

APPENDIX II PROPERTY VALUATIONS (OTHER THAN THE PHILIPPINES)

Property interest

Capital value in existing state as at 30 April 2003 attributable to KPL’s interest

HK$

Room No. 802 on 8th Floor, Chao Phya Tower, 89 Soi Wat Suan Plu, New Road, Bangrak, Bangkok 10500, Thailand

No commercial value

Room No. 803 on 8th Floor, Chao Phya Tower, 89 Soi Wat Suan Plu, New Road, Bangrak, Bangkok 10500, Thailand

No commercial value

Group XXII – Property interests leased to the KPL Group in Korea

8th Floor, DaiShin Securities Building, 282-23, Yeomchang-Dong, KangSeo-Ku, Seoul, Korea

No commercial value

A212, Incheon Aircargo Terminal, 2851 WoonSeo-Dong, Jung-Ku, Incheon, Korea

No commercial value

301, HeungDo Building,

No commercial value

282-24, Yeomchang-Dong, KangSeo-Ku, Seoul, Korea

103, Masan Free Trade Area, No commercial value 975-7, Yangduck-Dong, Masan, Korea

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PROPERTY VALUATIONS (THE PHILIPPINES)

APPENDIX II

The following is the text of a letter, prepared for the purpose of incorporation in this document, received from Royal Asia Appraisal in connection with the valuation of KPL’s property interests in the Philippines as at 30 April 2003.

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11 June 2003
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The Directors Kerry Properties Limited 13–14/F., Cityplaza 3 14 Taikoo Wan Road Taikoo Shing Hong Kong

Dear Sirs,

VALUATION OF PROPERTIES IN THE PHILIPPINES

In accordance with your instructions, we have made an investigation and appraisal of certain designated properties in the Philippines. The appraisals, which reflect our independent opinion of the Fair Market Value (as defined below) of the properties as at 30 April 2003, are set out in three reports. This letter summarizes the principal conclusions of our appraisals and will be reproduced in the scheme document to be issued in relation to the proposed privatization of Kerry Properties Limited by Kerry Holdings Limited by way of a scheme of arrangement.

INSPECTION AND VALUATION

We have personally inspected the property, requested cost information from reputable sources and have also given consideration to (i) the Cost of Reproduction, New (as defined below) of the replaceable property; (ii) the age, condition, past maintenance, and present and prospective serviceability in comparison with units of like kind; and (iii) accrued depreciation.

Cost of Reproduction, New is defined as the estimated amount of money needed to acquire in like kind and in new condition an asset or group of assets, taking into consideration the current prices of materials, manufactured equipment, labor, contractor’s overhead, profit, fees and all other attendant costs associated with its acquisition, installation and construction in place, but without provision for overtime or bonuses for labor and premiums for materials. In instances where the Cost of Reproduction, New is no longer applicable in valuing the property, these were appraised on the basis of Cost of Replacement, New which is defined as the estimated amount of money required to replace a property with one equal in utility to the original and serve as a substitute in function and in an unused condition.

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APPENDIX II

PROPERTY VALUATIONS (THE PHILIPPINES)

Fair Market Value is defined as the amount in terms of money at which the property would change hands between a willing buyer and a willing seller in the open market, both having a reasonable knowledge of all relevant facts, neither being under compulsion to buy or to sell and with equity to both, and where appropriate, contemplating the use of the property for the continuation of the operation as part of the business concern.

In valuing land, we have used the Market Data Approach wherein properties used as bases of comparison are situated within the immediate vicinity of the subject property. Our comparison was premised on factors of location, characteristics of the land and time element.

The values of the buildings and machinery and equipment were arrived at using the Cost Approach. In this approach, an estimate is made of the current Cost of Reproduction, New of the replaceable property in accordance with the prevailing market prices for materials, equipment, labor, contractor’s overhead, profit, fees and all other attendant costs associated with its acquisition, installation and construction in place, but without provision of overtime or bonuses for labor and premiums for materials. Adjustments are then made to reflect depreciation resulting from physical deterioration and obsolescence to arrive at a reasonable valuation.

Where elements are of foreign origin, the pricing process gave full consideration to all expenditures normally incurred in importation such as packing and crating charges, air, inland and ocean freight, insurance, bank charges and commissions, wharfage, taxes and duties, brokerage and handling.

LIMITING CONDITIONS

Please note the following limiting conditions in our performance of the appraisals:

All existing liens and encumbrances, if any, have been disregarded and the properties are appraised as though free and clear under responsible ownership;
No relocation survey was made to pinpoint the exact location and boundaries of the properties appraised;
We have assumed in our valuation that the properties as currently used are not in contravention of any planning or similar governmental regulations;
In the inventory, machinery equipment listed as complete working units, i.e., machinery equipment, as listed, is meant to include all parts and accessories normally comprising the unit;
We have totally disregarded such items which, in our opinion, have no practical take-up value or are normally charged as operating expenses; and

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PROPERTY VALUATIONS (THE PHILIPPINES)

APPENDIX II

Royal Asia Appraisal Corporation by reason of this appraisal is under no obligation to give testimony or attendance in court to any governmental agency with reference to the subject property unless arrangements have been previously made therefor.

We hereby certify that we have neither present nor prospective interest on the properties appraised or on the value reported. Our valuations are summarized below in the “Summary of Valuations”. Valuations as at 31 December 2002 of certain property interests have also been made by us and are set out in the “Summary of Valuations”.

Yours faithfully, ROYAL ASIA APPRAISAL CORPORATION

GREGORIO M. ABREU , JR. President & CEO

ALLAN V. ROYO ROBERTO G. CACAL, JR., I.P.A. Vice President Assistant Vice President Licensed Mechanical Engineer Licensed Real Estate Appraiser PTR No. A-40223169 PTR No. A-40223171

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APPENDIX II

SUMMARY OF VALUATIONS

Fair Market Value as at 31 December Property Interest 2002 1. Land located on EDSA corner Shaw Boulevard, Mandaluyong City, Metropolitan Manila, Philippines, on which EDSA Shangri-La Hotel, Shangri-La Plaza Mall and a carpark building are situated. PhP 8,723,110,000 2. Shangri-La Plaza Mall, located on EDSA corner Shaw Boulevard, Mandaluyong City, Metropolitan Manila, Philippines, and machinery and equipment attached thereto Building PhP 5,518,050,000 Machinery and Equipment 413,117,300 PhP 5,931,167,300 3. Carpark Building located on EDSA corner Shaw Boulevard, Mandaluyong City, Metropolitan Manila, Philippines PhP 337,520,000 4. The Enterprise Center, located on the southwest corners of Ayala Avenue, Paseo de Roxas, and Dela Rosa Street, Makati City, Metropolitan Manila, Philippines Land PhP 2,754,900,000 Building 4,624,330,000 Machinery and Equipment 537,349,000 PhP 7,916,579,000 5. A site located on the southwest corners of Dela Rosa, Perea and Nieva Streets, within Legaspi Village, Makati City, Metropolitan Manila, Philippines PhP N/A	Fair Market Kerry Properties Value as at Limited’s 30 April attributable 2003 interest PhP 8,723,110,000 73.875%# PhP 5,548,700,000 58.154%@ 411,281,000 58.154%@ PhP 5,959,981,000 58.154%@ PhP 337,520,000 73.875%# PhP 2,754,900,000 17.375%^ 4,624,330,000 17.375%^ 532,637,000 17.375%^ PhP 7,911,867,000 17.375%^ PhP 514,080,000 49.718%∆	Fair Market Value as at 30 April 2003 attributable to Kerry Properties Limited’s interest PhP 6,444,197,513 PhP 3,226,790,998 239,176,353
		PhP 3,465,967,351

		PhP 249,342,900 PhP 478,663,875 803,477,337 92,545,679
		PhP 1,374,686,891

		PhP 255,590,294

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PROPERTY VALUATIONS (THE PHILIPPINES)

APPENDIX II

Including attributable interest of 34.758% held through Philippine Deposit Receipts
@ Including attributable interest of 27.361% held through Philippine Deposit Receipts
^ Including attributable interest of 8.175% held through Philippine Deposit Receipts
∆ Including attributable interest of 23.392% held through Philippine Deposit Receipts

Source of Information for the % interests:

Certification of Kerry Properties Limited; and
Figures from 2002 Annual Report of Kerry Properties Limited

GREGORIO M. ABREU, JR. President & CEO

ALLAN V. ROYO

Vice President

Licensed Mechanical Engineer PTR No. A-40223169

ROBERTO G. CACAL, JR., I.P.A.

Assistant Vice President Licensed Real Estate Appraiser PTR No. A-40223171

203

INFRASTRUCTURE PROJECT VALUATIONS

APPENDIX III

The following is the letter and summary of valuation extracted from the infrastructure project valuation report, prepared for the purpose of inclusion in this document in connection with DTZ/ Chesterton Petty’s valuations of the infrastructure projects of the KPL Group in Hong Kong and the PRC as at 30 April 2003, setting out the basis of their valuations:

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PETTY
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26 June 2003

The Directors Kerry Properties Limited 13th Floor Cityplaza 3 14 Taikoo Wan Road Taikoo Shing Hong Kong

Dear Sirs,

We refer to your instructions for us to value the interests in the infrastructure projects held by Kerry Properties Limited (referred to as the “Company” or “KPL”) or its subsidiaries (together referred to as the “KPL Group”) in Hong Kong and the People’s Republic of China (the “PRC”). We confirm that we have inspected the infrastructure projects, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market values of such infrastructure projects as at 30 April 2003 (the “Date of Valuation”).

Unless otherwise stated, our valuation of each infrastructure project represents the market value as defined in the International Valuation Standards of the KPL Group’s attributable interest in the respective infrastructure projects as at the Date of Valuation. According to the International Valuation Standards, the market value is defined as “the estimated amount for which an asset 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”.

We have primarily adopted market approach called the price/earnings (“P/E”) multiple to assess the market value of the KPL Group’s interest in each of the infrastructure projects. The P/E multiple approach is applicable to projects which have established earning performance and operating activities. Under this methodology, the market value is determined by multiplying the net income to

204

INFRASTRUCTURE PROJECT VALUATIONS

APPENDIX III

a P/E multiple with regard to the risks and nature of the projects. In estimating the P/E multiple, reference has been made to the historical operating results of the projects and other companies with similar business nature. We have referred to historical operating results of each infrastructure project in the past 3 years.

In deriving the P/E multiple, we have taken into consideration all pertinent factors affecting the business operations. The factors basically include:

the general economic outlook as well as specific investment environment for the industry;
the nature and current financial status of the business;
performance of the business; and
market expectation for similar business.

The P/E multiples and approximate annual net incomes (in respect of the whole of each infrastructure project) used in our valuations are summarized below:

		Approximate
		annual net	P/E
		income	multiple
		HK$ (million)
(1)	Asia Airfreight Terminal	160	6.5
(2)	Western Harbour Crossing	177	12
(3)	Chiwan Container Terminal	162	9

In determining the market value of the infrastructure projects, we have made the following key assumptions:

there will be no major changes in existing political, legal, fiscal or economic conditions in the country or district where the business is in operation;
the inflation and interest rates will not differ materially from those presently prevailing;
there will be no major changes in the current rate of taxation;
the business is not subject to any unusual or onerous restrictions or encumbrances; and
there will be no major business disruptions through international crisis, diseases, industrial disputes, industrial accidents or severe weather conditions that will affect the existing business.

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APPENDIX III

INFRASTRUCTURE PROJECT VALUATIONS

We have been provided with extracts of the documents and financial information relating to the infrastructure projects. We have relied upon the aforesaid information in forming our opinion of the market values. However, we have not inspected the original documents to ascertain any amendments which may not appear on the copies handed to us. We have no reason to doubt the truth and accuracy of the information provided to us by the KPL Group which is material to the valuations. We were also advised by the KPL Group that no material facts have been omitted from the information provided.

While we have exercised our professional knowledge and cautions in adopting assumptions and other relevant key factors in our valuations, those factors and assumptions are still vulnerable to the change of the business, economic environment, competitive uncertainties or any other abrupt alterations of external factors.

We have inspected the infrastructure projects. However, no structural survey has been made, but in the course of our inspection, we did not note any serious defects. We are not, however, able to report whether the infrastructure projects are free of rot, infestation or any other structural defects. No tests were carried out to any of the services. Unless otherwise stated, we have not been able to carry out detailed on-site measurements to verify the site and floor areas or any dimensions of the infrastructure projects and we have assumed that the areas and dimensions shown on the documents handed to us are correct.

Unless otherwise stated, all sums stated in our valuation certificates are in Hong Kong dollars. The exchange rate adopted in our valuations as at 30 April 2003 is RMB1.06 = HK$1, which was approximately the prevailing exchange rate as at the Date of Valuation and there has been no significant fluctuation in exchange rate between the Date of Valuation and the date of this letter.

Our valuations are summarized below and the valuation certificates are attached.

Yours faithfully,	Yours faithfully,
for and on behalf of	for and on behalf of
DTZ Debenham Tie Leung Limited	Chesterton Petty Limited
Chiu Kam Kuen	Charles C K Chan
Registered Professional Surveyor	Registered Professional Surveyor
F.H.K.I.S., F.R.I.C.S., F.H.K.F.A.	M.Sc., F.H.K.I.S., F.R.I.C.S., MCIArb
Executive Director	Executive Director

Notes: Mr. Chiu Kam Kuen is a Chartered Surveyor who has extensive experience in valuation of infrastructure projects in Hong Kong and the PRC.

Mr. Charles Chan is a Chartered Surveyor who has extensive experience in valuation of infrastructure projects in Hong Kong and the PRC.

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INFRASTRUCTURE PROJECT VALUATIONS

APPENDIX III

SUMMARY OF VALUATION

Infrastructure project

Market value in existing state as at 30 April 2003 attributable to KPL’s interest

HK$

Group I – Infrastructure projects held by the KPL Group in Hong Kong

1. Asia Airfreight Terminal at Chek Lap Kok Airport, Hong Kong 2. Western Harbour Crossing, Hong Kong Sub-total:	156,000,000 318,000,000
	474,000,000

Group II – Infrastructure project held by the KPL Group in the PRC

3. Berth Nos. 9, 10 & 11, Chiwan Container Terminal, Shenzhen, Guangdong Province Sub-total: Grand Total:	345,500,000
	345,500,000
	819,500,000

207

LETTER TO OPTIONHOLDERS, INCLUDING THE APPENDIX AND FORM OF ACCEPTANCE

APPENDIX IV

The following is a copy of the letter sent to Optionholders in connection with the Option Offer, including an example of the appendix to such letter and the form of acceptance relating to the Option Offer.

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

26 June 2003

To the holders of options granted under the 1997 Share Option Scheme

Dear Sir/Madam,

PROPOSED PRIVATISATION OF KERRY PROPERTIES LIMITED BY KERRY HOLDINGS LIMITED BY WAY OF A SCHEME OF ARRANGEMENT UNDER SECTION 99 OF THE COMPANIES ACT AND RELATED CONDITIONAL CASH OFFER FOR ALL THE OPTIONS GRANTED TO OPTIONHOLDERS PURSUANT TO THE 1997 SHARE OPTION SCHEME

1. INTRODUCTION

It was announced on 23 April 2003 that:

KHL had requested the KPL Directors to put forward a proposal to the Scheme Shareholders regarding a proposed privatisation of KPL by way of a scheme of arrangement under Section 99 of the Companies Act involving the cancellation of all the Scheme Shares; and
an appropriate offer or proposal to holders of any outstanding options in KPL would be made in accordance with the Takeovers Code unless the requirement of such offer or proposal is waived by the Executive.

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LETTER TO OPTIONHOLDERS, INCLUDING THE APPENDIX AND FORM OF ACCEPTANCE

APPENDIX IV

A scheme document dated the same date as this letter issued jointly by KPL and KHL (the “ Scheme Document ”) is enclosed with this document. Terms used but not defined in this document shall have the same meanings and construction as in the Scheme Document. This document and the accompanying form of acceptance should be read in conjunction with the Scheme Document.

This document explains the action you may take in relation to your Options.

2. COURSES OF ACTION AVAILABLE TO OPTIONHOLDERS

In summary, the choices available to you in respect of all or any of your Options are:

(a) accept the Option Offer in accordance with its terms set out in this letter below; or
(b) exercise your Options (i) if the relevant Option is currently exercisable, in accordance with the terms of the 1997 Share Option Scheme, or (ii) if the relevant Option is not currently exercisable, but the requisite majorities approve the Scheme at the Meetings, at any time following the Meetings until 4:00 p.m. on 8 August 2003 (the “Option Cut-Off Time”) in accordance with the terms of the 1997 Share Option Scheme; or
(c) do nothing, in which case if the Scheme is approved by the requisite majorities at the Meetings and is sanctioned by the Supreme Court, your Options will lapse on the sanctioning of the Scheme by the Supreme Court.

Please note that if the Scheme is either not approved by the relevant majorities at the Meetings or not sanctioned by the Supreme Court, the Proposal and the Option Offer will lapse and (1) (if you accept the Option Offer under (a) above, or if you exercise your Options under (b) (ii) above or if you do nothing under (c) above) your Options will remain unaffected and will be exercisable during their relevant exercise periods pursuant to the terms of the 1997 Share Option Scheme or (2) (if you exercise your Options under (b)(i) above) you will continue to hold the Shares allotted and issued to you on exercise of your Options.

For further details, please refer to the remaining sections of this letter and the terms of the 1997 Share Option Scheme.

3. TERMS OF THE OPTION OFFER

On behalf of KHL, we are making a conditional cash offer during the Option Offer Period for your agreement for the purchase and cancellation of the Options granted to you pursuant to the terms of the 1997 Share Option Scheme.

The terms of the Option Offer are set out in this document and on pages 69 to 70 of the Scheme Document.

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LETTER TO OPTIONHOLDERS, INCLUDING THE APPENDIX AND FORM OF ACCEPTANCE

APPENDIX IV

For the purchase and cancellation of each Option in respect of which the Option Offer is made, if you accept the Option Offer, you will receive the “see-through” price of that Option, being the amount by which the Cancellation Price exceeds the exercise price of that Option, or where the exercise price of the relevant Option is equal to, or greater than the Cancellation Price, HK$1.00 per board lot (which comprises 500 Shares) (or part board lot) of Shares for the number of Shares that would be issued if the relevant Options were exercised in full.

The Option Offer is conditional upon the Proposal becoming effective and binding. The conditions of the Proposal are set out on pages 60 and 61 of the Scheme Document.

Your attention is drawn to the letter from the Independent Board Committee to the Independent Shareholders and Optionholders set out on pages 22 to 23 of the Scheme Document and the letter from Rothschild to the Independent Board Committee set out on pages 24 to 57 of the Scheme Document which contain the recommendations of the Independent Board Committee and of Rothschild, respectively, in relation to the Scheme and the Option Offer.

4. OPTIONS HELD AS AT THE LATEST PRACTICABLE DATE

Information on the Options held by you as at the Latest Practicable Date is set out in the Appendix to this letter.

5. ACCEPTANCE, REVISIONS AND PAYMENT

If you wish to accept the Option Offer, please sign and return the enclosed form of acceptance to Kerry Holdings Limited, 21/F CITIC Tower, No. 1 Tim Mei Avenue, Central, Hong Kong, for the attention of: The Company Secretary, during the Option Offer Period. The Option Offer Period will start immediately following the approval of the Scheme by the requisite majorities at the Meetings, the time of which shall be notified to Optionholders by press announcement and/or letter (the Meetings are currently scheduled to take place at around 10:00 a.m. on 18 July 2003), and will end at 4:00 p.m. on 8 August 2003. No acknowledgement of receipt of any form(s) of acceptance will be given.

HSBC on behalf of KHL, reserves the right to revise the terms of the Option Offer after the despatch of this document and the Scheme Document to reflect any changes made to the Proposal and/or the Scheme and any such changes will be notified to you by press announcement and/or letter.

As stated above, the Option Offer is conditional upon the Proposal becoming effective and binding. Unless the Proposal becomes effective and binding, and therefore the Option Offer becomes unconditional, on or before 30 August 2003 (or such later date as KHL and KPL may decide), the Option Offer will lapse.

Assuming that the Option Offer becomes unconditional, it is expected that the consideration due to you if you accept the Option Offer will be paid by way of cheque within 10 days of the date on which the Option Offer becomes effective and binding.

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LETTER TO OPTIONHOLDERS, INCLUDING THE APPENDIX AND FORM OF ACCEPTANCE

APPENDIX IV

The making of the Option Offer to Optionholders who are not resident in Hong Kong may be subject to the laws of the relevant jurisdiction. If you are not a resident in Hong Kong, you should inform yourself appropriately and observe any applicable legal and regulatory requirements. It is your responsibility, if you wish to accept the Option Offer, to satisfy yourself as to the full observance of the laws of any relevant jurisdiction, including obtaining governmental, exchange control or other consents which may be required, or the compliance with other necessary formalities and the payment of any issue, transfer or other taxes due in such jurisdiction.

6. EXERCISE OR LAPSE OF OPTIONS

If the Scheme is approved by the requisite majorities at the Meetings and is sanctioned by the Supreme Court, any Options that are not exercised prior to the Option Cut-Off Time or purchased and cancelled pursuant to the Option Offer will automatically lapse on the sanctioning of the Scheme by the Supreme Court.

7. GENERAL

(a) All communications, notices, forms of acceptance, cheques, certificates and other documents of any nature to be delivered by or sent to or from the Optionholders will be delivered by or sent to or from them, or their designated agents, at their risk, and none of HSBC, KHL or KPL accepts any liability for any loss or any other liabilities whatsoever which may arise as a result.

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LETTER TO OPTIONHOLDERS, INCLUDING THE APPENDIX AND FORM OF ACCEPTANCE

APPENDIX IV

(b) Acceptance of the Option Offer by any Optionholder will be deemed to constitute a warranty by such Optionholder that:
(i) the Options are still outstanding and valid at the date of such acceptance; and
(ii) the Options are free from all liens, charges, encumbrances, rights of pre-emption and any other third party rights.

Any breach of such warranties as at the date of acceptance will make such acceptance invalid.

(c) The provisions set out in the form of acceptance form part of the terms of the Option Offer.
(d) The Option Offer and all acceptances will be governed by and construed in accordance with the laws of Hong Kong.
(e) Due execution of the form of acceptance in respect of the Option Offer will constitute an authority to HSBC, KHL, any KHL Director or their respective agents to complete and execute on behalf of the accepting Optionholders, the form of acceptance and any document and to do any other act that may be necessary or expedient for the purpose of vesting in KHL, or such person or persons as KHL shall direct, all rights of the Optionholders in respect of the Options which are the subject of such acceptance.

Yours faithfully for and on behalf of

The Hongkong and Shanghai Banking Corporation Limited Jimmy Woo Ronald Tham Director, Hong Kong Coverage Director, Corporate Finance Execution Corporate Finance and Advisory Corporate Finance and Advisory

The Hongkong and Shanghai Banking Corporation Limited

Level 15, 1 Queen’s Road Central, Hong Kong Tel: (852) 2841 8888 Fax: (852) 2845 5654

212

LETTER TO OPTIONHOLDERS, INCLUDING THE APPENDIX AND FORM OF ACCEPTANCE

APPENDIX IV

Sample
APPENDIX
Share Options held as at the Latest Practicable Date
Name of Optionholder: Mr. ABC
Date of Grant of Options
11/04/1997
27/11/1999
01/06/2000
02/03/2001
16/04/2002
Options unexercised1
(A)
40,001
34,449
52,100
11,000
15,432
Cancellation Price (HK$)
(B)
9.50
9.50
9.50
9.50
9.50
Exercise Price of Options (HK$)2
(C)
15.12
9.77
6.79
11.74
6.94
See-through Price (HK$)
(D = B - C)
N/A
N/A
2.71
N/A
2.56
Cash Per Tranche in
respect of the in-the-money
Options (HK$)3
(E = A x D)
N/A
N/A
141,191
N/A
39,505.92
Cash Per Tranche in
respect of out-of-the-money
Options (HK$)4
(F)
81
69
N/A
22
N/A
If you accept the Option Offer
in respect of all your Options
and the Option Offer
becomes unconditional,
you will receive (HK$)
(G=E+F)
180,868.92
Notes:
1.
This represents your number of Options as at the Latest Practicable Date and in respect of which the Option Offer is being made.
2.
As adjusted since the date of grant up to and including the Latest Practicable Date.
3.
This represents the cash you will receive if you accept the Option Offer in respect of all of your unexercised in-the-money Options granted on the specified date, in the
event that the Option Offer becomes unconditional.
4.
Where the exercise price of an Option is equal to or greater than the Cancellation Price, if you accept the Option Offer in respect of such out-of-the-money Options,
you will receive, in the event that the Option Offer becomes unconditional, HK$1 per board lot (or part board lot) of Shares for the number of Shares that would be
issued if the relevant Options were exercised in full.
5.
Information on Options held by you has been provided by KPL. In case of any dispute, the records of KPL as to numbers of Options and the calculations of HSBC and/
or KHL shall be final and binding on you.

213

APPENDIX IV LETTER TO OPTIONHOLDERS, INCLUDING THE APPENDIX AND FORM OF ACCEPTANCE FORM OF ACCEPTANCE To: Kerry Holdings Limited The Hongkong and Shanghai Banking Corporation Limited Kerry Properties Limited I hereby: (i) accept the Option Offer made by HSBC, on behalf of KHL, in respect of ALL my holding of Options which are unexercised as at the date of this acceptance, on the terms and subject to the conditions set out in the letter from HSBC dated 26 June 2003 in relation to the Option Offer.[1] OR (ii) accept the Option Offer made by HSBC, on behalf of KHL, in respect of those of my holding of Options as set out below, on the terms and subject to the conditions set out in the letter from HSBC dated 26 June 2003 in relation to the Option Offer:[1] Options unexercised Options in respect of Date of grant of (as at the Latest which the Option Offer Option(s) Practicable Date) is accepted[2] 11/04/1997 40,001 27/11/1999 34,449 01/06/2000 52,100 02/03/2001 11,000 16/04/2002 15,432 AND subject to the Option Offer becoming unconditional, direct Kerry Properties Limited to cancel those of my holding of Options in respect of which I accept the Option Offer. Signed by:

Name: Mr. ABC

Date:

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LETTER TO OPTIONHOLDERS, INCLUDING THE APPENDIX AND FORM OF ACCEPTANCE

APPENDIX IV

Notes:

Please tick as appropriate.
Please complete this column by inserting the number of Options in respect of which you wish to accept the Option Offer.
This form of acceptance is subject to the terms and conditions of the Option Offer as set out in the letter from HSBC dated 26 June 2003 in relation to the Option Offer.
This form of acceptance should be returned in the enclosed envelope to Kerry Holdings Limited, 21/F., CITIC Tower, No. 1 Tim Mei Avenue, Central, Hong Kong, for the attention of: The Company Secretary during the Option Offer Period. The Option Offer Period will start immediately following the approval of the Scheme by the requisite majorities at the Meetings, the time of which shall be notified to you by press announcement and/or letter (the Meetings are currently scheduled to take place at around 10:00 a.m. on 18 July 2003), and will end at 4:00 p.m. on 8 August 2003.
Terms used but not defined in this Form of Acceptance shall have the meanings given to them in the letter from HSBC dated 26 June 2003 in relation to the Option Offer and the Scheme Document.

215

TRADING ANNOUNCEMENT

APPENDIX V

1. TRADING ANNOUNCEMENT

Set out below is the full text of the Trading Announcement which was issued by KPL pursuant to paragraph 2 of the listing agreement made between KPL and the Stock Exchange setting out the continuing obligations which KPL undertakes to comply with as a condition of listing.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

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KERRY PROPERTIES LIMITED

ANNOUNCEMENT MADE PURSUANT TO PARAGRAPH 2 OF THE LISTING AGREEMENT

In the course of preparation of the Scheme Document for the purpose of the Privatisation Proposal, the Board has received certain information which it now announces, in accordance with paragraph 2 of the Listing Agreement, as follows:

As a company that prepares its financial statements in accordance with Hong Kong GAAP, the KPL Group is required to adopt a new accounting policy in respect of the year ending 31 December 2003 as a result of Revised SSAP 12 issued by the Hong Kong Society of Accountants coming into effect for accounting periods commencing on or after 1 January 2003. The KPL Group has also been advised by its auditors of the requirement to adopt Revised SSAP 12 in order to comply with Hong Kong GAAP.
Hong Kong GAAP requires the change in accounting policy resulting from the adoption of Revised SSAP 12 to be applied retrospectively. As a result of the retrospective application of Revised SSAP 12, shareholders’ funds as at 31 December 2002 and profit attributable to shareholders for the year ended 31 December 2002 have been restated from approximately HK$21.0 billion to approximately HK$19.8 billion and from approximately HK$660 million to approximately HK$600 million, respectively, as described below.
In connection with the Privatisation Proposal, the KPL Group is required by the Takeovers Code to prepare a valuation of its interests in properties and infrastructure projects for inclusion in the Scheme Document. Valuations prepared as at 30 April 2003 show an overall decrease in the values of property interests of the KPL Group. As a result of the decrease, there is a charge of approximately HK$1,106 million to the KPL Group’s unaudited consolidated profit and loss account for the four months ended 30 April 2003 as detailed below.
This charge to the unaudited consolidated profit and loss account of the KPL Group is a non-cash item and does not have any cash flow impact on the KPL Group.

In addition, the trading environment in which the KPL Group operates has been more difficult in the first quarter of 2003 than management had expected. The principal factors affecting the KPL Group’s trading environment are discussed in this announcement.

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

216

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APPENDIX V

INTRODUCTION

In the course of preparation of the Scheme Document for the purpose of the Privatisation Proposal, the Board has received certain information which it now announces in accordance with paragraph 2 of the Listing Agreement, as set out below, together with the principal factors affecting the trading environment in which the KPL Group operates.

EFFECT OF THE REQUIREMENT TO ADOPT REVISED SSAP 12

Requirement to adopt Revised SSAP 12

For the financial year ending 31 December 2003, Hong Kong GAAP requires the KPL Group to adopt Revised SSAP 12. Revised SSAP 12 is applicable to all companies which prepare their accounts in accordance with Hong Kong GAAP and is applicable in respect of financial statements relating to accounting periods beginning on or after 1 January 2003. The KPL Group has also been advised by its auditors of the requirement to adopt Revised SSAP 12 in order to comply with Hong Kong GAAP.

Deferred taxation under Revised SSAP 12

Under Revised SSAP 12, deferred taxation must be provided for in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities (i.e., amounts attributed to those assets and liabilities for taxation purposes) and their carrying amounts in the financial statements. In the case of the KPL Group, the principal temporary differences arise from depreciation on fixed assets, revaluations of investment properties, hotel properties, other land and buildings and tax losses carried forward.

Deferred taxation before adoption of Revised SSAP 12

Prior to the adoption of Revised SSAP 12, the KPL Group’s accounting policy on deferred taxation is to account for it at the current taxation rate in respect of timing differences between profit as computed for taxation purposes and profit as stated in the accounts to the extent that a liability or an asset is expected to be payable or recoverable in the foreseeable future.

Accordingly, in prior accounting periods, a deferred tax liability was not required to be provided in full if the timing differences were not expected to crystallise in the foreseeable future.

Retrospective effect of Revised SSAP 12

The requirement for the KPL Group to adopt Revised SSAP 12 for its current financial year ending 31 December 2003 results in a change in its accounting policy. In accordance with accounting standards in Hong Kong in respect of changes in accounting policy, the application of Revised SSAP 12 will be retrospective. As a result of the retrospective application of Revised SSAP 12, an additional provision of approximately HK$1.2 billion has been made for the deferred tax liability as at 31 December 2002, of which approximately HK$555 million, HK$344 million and HK$305 million have been charged against the investment properties revaluation reserve, retained profits and other reserves, respectively.

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APPENDIX V

TRADING ANNOUNCEMENT

Profit attributable to shareholders for the year ended 31 December 2002 has been restated from approximately HK$660 million to approximately HK$600 million. Shareholders’ funds as at 31 December 2002 have decreased from approximately HK$21.0 billion to approximately HK$19.8 billion.

EFFECT OF THE REQUIREMENT TO PREPARE PROPERTY VALUATIONS

Requirement to prepare property valuations

In connection with the Privatisation Proposal, the KPL Group is required by the Takeovers Code to prepare a valuation of its interests in properties and infrastructure projects for inclusion in the Scheme Document. Accordingly, valuations of the KPL Group’s interests in properties and infrastructure projects as at 30 April 2003 have been prepared by its independent property valuers, as a result of which the KPL Group’s share of values of (i) investment properties; (ii) hotel properties; and (iii) other freehold and leasehold land and buildings have decreased by approximately HK$952 million. In the absence of sufficient revaluation reserves, following the prior year adjustments in respect of deferred taxation (described above), to offset this decrease in valuations of properties, the decrease in valuations amounting to approximately HK$914 million has been charged to the KPL Group’s unaudited consolidated profit and loss account for the four months ended 30 April 2003 in accordance with Hong Kong accounting standards.

Provisions in respect of certain property interests

Furthermore, the valuations as at 30 April 2003 indicate that the following provisions in respect of the KPL Group’s property interests are required:

(1) an additional provision for stock of remaining completed properties at Constellation Cove with the KPL Group’s 75% share of the additional provision amounting to approximately HK$55 million; and
(2) a provision for a decline in the carrying value of associated companies amounting to approximately HK$137 million.

Effect of the provisions

The effect of the above provisions is to further decrease the KPL Group’s profit by approximately HK$192 million. Together with the deficit on revaluation of properties charged to the unaudited consolidated profit and loss account of approximately HK$914 million, the total charge to the KPL Group’s unaudited consolidated profit and loss account for the four months ended 30 April 2003 amounts to approximately HK$1,106 million. This charge to the unaudited consolidated profit and loss account of the KPL Group is a non-cash item and does not have any cash flow impact on the KPL Group.

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APPENDIX V

OTHER FACTORS AFFECTING THE KPL GROUP

The trading environment in which the KPL Group operates has been more difficult in the first quarter of 2003 than management had expected. The principal factors affecting the KPL Group’s trading environment relate to Hong Kong’s recent general economic situation, which has seen a period of deflation in Hong Kong lasting for 65 consecutive months since November 1998. The accompanying impact on confidence and investor sentiment are highlighted by some Hong Kong households having to cope with net mortgage debt (i.e., debt greater than property value).

The uncertainty in the trading environment affecting the KPL Group has been exacerbated since 31 December 2002 by the Iraqi war as well as the outbreak of the SARS virus, a new and previously unknown highly infectious disease for which a vaccine is still being worked on. Further, the rise in unemployment in Hong Kong, which currently stands at 7.8%, has been spurred on by SARS, particularly in the retail, hospitality and transport sectors.

The above factors have continued to affect consumer confidence as well as spending, and together with the continued excess of property development over demand, have together continued to exert downward pressure on the Hong Kong property market. This is reflected in the KPL Group’s valuations as at 30 April 2003 which are set out above.

PRIVATISATION PROPOSAL

Shareholders are reminded of the Privatisation Proposal as described in the Previous Announcements.

As required under Rule 10.4 of the Takeovers Code, the financial information contained in this announcement has been reported on in accordance with the Takeovers Code and the report has been lodged with the Executive.

The Company has also issued a joint announcement today with KHL that the Company has made an application to the Executive pursuant to Rule 8.2 of the Takeovers Code, and consent has been granted by the Executive, for a further extension of time within which to despatch the Scheme Document to Shareholders from 20 June 2003 until 30 June 2003 in order to give all the parties involved time to assess the impact of this announcement on the Privatisation Proposal. Please refer to the joint announcement of the Company and KHL dated today’s date.

Shareholders and potential investors should be aware that implementation of the Privatisation Proposal is subject to the satisfaction or waiver of the conditions set out in the Previous Announcements and therefore may or may not become effective.

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

219

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APPENDIX V

GENERAL

The Board confirms that apart from the Privatisation Proposal as announced in the Previous Announcements, there are no negotiations or agreements relating to intended acquisitions or realisations which are discloseable under paragraph 3 of the Listing Agreement, and except for matters in connection with the abovementioned, the Board is not aware of any other matter discloseable under the general obligation imposed by paragraph 2 of the Listing Agreement, which is or may be of a price sensitive nature.

DEFINITIONS

The words and expressions below have the following meanings:

“Board” the board of directors of the Company

“Company” Kerry Properties Limited, an exempted company incorporated in Bermuda with limited liability, the Shares of which are currently listed on The Stock Exchange of Hong Kong Limited

“Constellation Cove” a property situated at 1 Hung Lam Drive, Tai Po, New Territories, Hong Kong and developed by the KPL Group

“Executive” the Executive Director of the Corporate Finance Division of the Securities and Futures Commission of Hong Kong or any delegate of the Executive Director

“HK$” Hong Kong dollar(s), the lawful currency of Hong Kong “Hong Kong” the Hong Kong Special Administrative Region of the PRC “Hong Kong GAAP” generally accepted accounting principles in Hong Kong “Hong Kong Government” the government of Hong Kong

“KHL” Kerry Holdings Limited, a company incorporated in Hong Kong with limited liability, and the controlling shareholder of the Company

“KPL Group” the Company and its subsidiaries

“Listing Agreement” the listing agreement made between the Company and The Stock Exchange of Hong Kong Limited setting out the continuing obligations which the Company undertakes to comply with as a condition of listing

220

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APPENDIX V

“PRC” the People’s Republic of China, excluding for the purposes of this announcement the regions of Hong Kong, Macau and Taiwan
“Previous Announcements” the joint announcements by KHL and the Company dated 23 April 2003, 30 April 2003 and 14 May 2003, respectively, in respect of the Privatisation Proposal
“Privatisation Proposal” the proposal for the privatisation of the Company by KHL by way of a scheme of arrangement under section 99 of the Companies Act 1981 of Bermuda (as amended)
“Revised SSAP 12” Statement of Standard Accounting Practice 12 “Income Taxes” issued by the Hong Kong Society of Accountants
“SARS” Severe Acute Respiratory Syndrome
“Scheme Document” a scheme document of the Company containing details of the Privatisation Proposal to be despatched to Shareholders
“Share(s)” share(s) of HK$1.00 each in the capital of the Company “Shareholder(s)” holder(s) of Shares “Takeovers Code” The Hong Kong Code on Takeovers and Mergers On behalf of the board of
Kerry Properties Limited Chow Yin Ping, Anita Company Secretary
Hong Kong, 13 June 2003

The directors of the Company jointly and severally accept full responsibility for the accuracy of the information contained in this announcement and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this announcement have been arrived at after due and careful consideration and there are no other facts not contained in this announcement, the omission of which would make any statement in this announcement misleading.

For identification purpose only

221

REPORTS

APPENDIX VI

1. REPORT OF PRICEWATERHOUSECOOPERS ON THE TRADING ANNOUNCEMENT

Set out below is the full text of the report by PricewaterhouseCoopers under Rule 10 of the Takeovers Code.

==> picture [109 x 53] intentionally omitted <==

The Board of Directors Kerry Properties Limited 13/F, Cityplaza 3 14 Taikoo Wan Road Taikoo Shing Hong Kong

13 June 2003

Our Ref: JW.SSYM/02028486

Dear Sirs

We have performed the procedures detailed below in connection with the announcement (the “Announcement”) made by the Kerry Properties Limited (the “Company”) and its subsidiaries (collectively the “Group”) dated 13 June 2003 pursuant to paragraph 2 of the Listing Agreement. A copy of the latest draft Announcement is attached to this letter.

The preparation of the Announcement is the sole responsibility of the Directors and has been approved by them. Our responsibility is to report on the results of our procedures.

Our procedures consisted of the following:

(a) enquiries of Directors of the Company as to the accounting policies adopted in the quantification of the financial effect on the Group as a result of:
(i) the adoption of the revised Statement of Standard Accounting Practice 12 “Income Taxes” (“Revised SSAP 12”) issued by the Hong Kong Society of Accountants in August 2002; and
(ii) the provisions made because of the requirement to prepare property valuations at 30 April 2003 as disclosed in the Announcement;

222

REPORTS

APPENDIX VI

(b) a comparison of the accounting policies adopted as above with those adopted in the preparation of the audited annual accounts of the Group for the year ended 31 December 2002; and
(c) a check of the arithmetical calculations relating to the financial figures presented in the Announcement.

The procedures do not constitute an audit or a review performed in accordance with auditing standards generally accepted in Hong Kong and, accordingly, we do not express an audit or a review opinion on the Announcement.

Based on our procedures, so far as the accounting policies and calculations are concerned, the quantification of the financial effect on the Group as a result of the adoption of the Revised SSAP 12 and the provisions made because of the requirement to prepare property valuations at 30 April 2003 as disclosed in the Announcement has been compiled on a basis consistent, in all material respects, with accounting policies normally adopted by the Group as set out in the audited annual accounts of the Group for the year ended 31 December 2002 except for the change in accounting policy for income taxes as mentioned in (a)(i) above.

Terms not otherwise defined herein shall have the meanings described thereto in the Announcement.

Yours faithfully

==> picture [219 x 44] intentionally omitted <==

PricewaterhouseCoopers Certified Public Accountants

223

REPORTS

APPENDIX VI

2. REPORT OF ROTHSCHILD ON THE TRADING ANNOUNCEMENT

Set out below is the full text of the report by Rothschild under Rule 10 of the Takeovers Code.

26 June 2003

To the Directors of

Kerry Properties Limited

Dear Sir or Madam,

TRADING ANNOUNCEMENT OF KERRY PROPERTIES LIMITED

We refer to the Trading Announcement of KPL for which the KPL Directors are solely responsible. The Trading Announcement is set out in Appendix V to the document issued jointly by KPL and KHL dated 26 June 2003 in connection with the proposed privatisation of KPL (the “Document”). Unless otherwise stated, all terms used herein shall have the same meanings as defined in the Document.

We have discussed with you the basis upon which the Financial Information (as defined below) contained in the Trading Announcement has been prepared and considered the letter dated 13 June 2003 addressed to you from PricewaterhouseCoopers, the auditors of KPL, regarding, inter alia, the accounting policies adopted in the quantification of the financial effects on the KPL Group as a result of (i) the adoption of the Revised SSAP12 issued by the Hong Kong Society of Accountants in August 2002; and (ii) the provisions made as a result of the requirement to prepare property valuations as at 30 April 2003 for inclusion in the Document (together, the “Financial Information”), and calculations applied in preparing the Trading Announcement.

On the above basis, we are of the opinion that the Financial Information has been compiled after due and careful consideration and with due objectivity.

Yours very truly, For and on behalf of

N M Rothschild & Sons (Hong Kong) Limited

Kelvin Chau

Director

N M Rothschild & Sons (Hong Kong) Limited Telephone: (852) 2525-5333 16th Floor, Alexandra House Fax: (852) 2868-1728 16-20 Chater Road, Central (852) 2810-6997 Hong Kong SAR

224

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APPENDIX VII

1. RESPONSIBILITY STATEMENT

The issue of this document has been approved by the KPL Directors who jointly and severally accept full responsibility for the accuracy of the information contained in this document relating to the KPL Group (other than that relating to KHL’s future intentions with respect to the KPL Group) and the KPL Directors and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in the information contained in this document for which they are responsible have been arrived at after due and careful consideration and there are no other facts relating to the KPL Group (other than those relating to KHL’s future intentions with respect to the KPL Group) and the KPL Directors not contained in this document, the omission of which would make any statement in this document misleading.

The issue of this document has been approved by the KHL Directors who jointly and severally accept full responsibility for the accuracy of the information contained in this document (other than that relating to the KPL Group (except for KHL’s future intentions with respect to the KPL Group) and the KPL Directors) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in the information contained in this document for which they are responsible have been arrived at after due and careful consideration and there are no other facts (other than those relating to the KPL Group (except for KHL’s future intentions with respect to the KPL Group) and the KPL Directors) not contained in this document, the omission of which would make any statement in this document misleading.

2. MARKET PRICES

The Shares are traded on the Stock Exchange.

The table below shows the respective closing prices of the Shares on the Stock Exchange (i) on the last trading day of each of the six calendar months preceding the date of the Announcement, (ii) on 11 April 2003, being the last trading day prior to the suspension of trading in the Shares pending the issue of the Announcement, and (iii) on the Latest Practicable Date.

Date	Price per Share
	HK$
31 October 2002	5.50
29 November 2002	6.30
31 December 2002	5.50
30 January 2003	6.45
28 February 2003	6.60
31 March 2003	6.50
11 April 2003	6.00
Latest Practicable Date	9.35

The lowest and highest closing prices per Share recorded on the Stock Exchange during the period from 23 October 2002, being the date six months prior to the date of the Announcement, to the Latest Practicable Date were respectively HK$5.40 on 19 December 2002 and HK$6.90 on 6, 7, 24 and 25 February 2003.

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APPENDIX VII

3. DISCLOSURE OF INTERESTS

For the purpose of this paragraph, the “Offer Period” means the period from 23 April 2003 to the Latest Practicable Date, both dates inclusive, and the “Disclosure Period” means the period beginning from six months prior to the Offer Period and ending with the Latest Practicable Date, both dates inclusive, and “interested” and “interests” have the same meanings as ascribed thereto in Part XV of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). For the purposes of Note 1 to paragraph 4 of Schedule I of the Takeovers Code, holdings of Shares and/or Options are the relevant shareholdings in KPL and holdings of shares in KHL are the relevant shareholdings in KHL.

(a) Holdings, interests and dealings in Shares and Options

As at the Latest Practicable Date:

(i) KHL owned 730,524,460 Shares through its subsidiaries and an associated company as follows:

Name Ban Thong Company Limited1 Caninco Investments Limited1 Darmex Holdings Limited1 Desert Grove Limited1 Kerry Trading Co. Limited1 Kerry Asset Management Limited2 Moslane Limited1 Shortlawn Limited1	% of Total Issued No. of Shares Share Capital 330,269 0.03% 299,632,708 25.29% 246,519,994 20.81% 79,743,860 6.73% 711,761 0.06% 1,143,157 0.10% 84,942,917 7.17% 17,499,794 1.48% 730,524,460 61.67%	% of Total Issued No. of Shares Share Capital 330,269 0.03% 299,632,708 25.29% 246,519,994 20.81% 79,743,860 6.73% 711,761 0.06% 1,143,157 0.10% 84,942,917 7.17% 17,499,794 1.48% 730,524,460 61.67%
		61.67%

Notes:

A 100% owned subsidiary of KHL.
An associated company owned as to 43.85% by KHL.

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APPENDIX VII

In addition, Shangri-La Asia Limited and SCMP Group Limited, both being members of SKG, are associated companies of KHL and KHL is accordingly interested in the 21,617,637 Shares held directly or indirectly by them. For the purposes of this document, however, in order to show the Shares owned by SKG separately the 20,602,589 Shares and 1,015,048 Shares owned by Shangri-La Asia Limited and SCMP Group Limited respectively have not been included in the Shares owned by KHL;

During the Disclosure Period, following the election to receive Shares credited as fully paid in lieu of cash in relation to KPL’s final dividend for the year ended 31 December 2002, KHL, through its subsidiaries and an associated company, was allotted and issued 10,320,761 Shares on 30 May 2003 as follows:

Name Ban Thong Company Limited1 Caninco Investments Limited1 Darmex Holdings Limited1 Desert Grove Limited1 Kerry Asset Management Limited2 Kerry Trading Co. Limited1 Moslane Limited1 Shortlawn Limited1	% of Total Issued No. of Shares Share Capital – – 4,235,091 0.36% 3,484,380 0.29% 1,127,121 0.10% 16,157 0.00% 10,060 0.00% 1,200,606 0.10% 247,346 0.02% 10,320,761

Notes:

A 100% owned subsidiary of KHL.
An associated company owned as to 43.85% by KHL.

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APPENDIX VII

In addition, the following dealings in Shares were made between wholly-owned subsidiaries of KHL during the Disclosure Period in order to consolidate KHL’s holdings in KPL:

Price per
Buyer
Seller
Date
Share
(HK$)
Caninco Investments
Broad Haven
6 December 2002
5.80
Limited
Limited
Caninco Investments
Dublin Investments
6 December 2002
5.80
Limited
Holdings Ltd.
Darmex Holdings
Rakaia Limited
6 December 2002
5.80
Limited
Darmex Holdings
Robshar Limited
6 December 2002
5.80
Limited
Caninco Investments
Duke Company Inc.
6 January 2003
5.80
Limited
Total

No. of
Shares
84,534,128
84,534,128
73,967,361
84,534,128
41,795,233

369,364,978

Save as disclosed in this Section 3(a), KHL does not own any Shares or Options and has not dealt for value in the Shares or Options during the Disclosure Period.

(ii) The KPL Directors had the following interests in Shares and Options:

		Number of Shares	Number of Shares	Number of Shares		Number
	Personal	Family	Corporate	Other		of
Name of KPL Director	interests	interests	interests	interests	Total	Options
Mr. Kuok Khoon Loong,
Edward	–	–	857,704	–	857,704	5,797,266
Mr. Ang Keng Lam	2,5852	–	–	523,7331, 3	526,318	4,639,858
Mr. Wong Siu Kong	–	–	–	2,0001	2,000	3,131,364
Mr. Ho Shut Kan	–	–	–	–	–	1,712,3004
Mr. Thaddeus Thomas
Beczak	–	–	–	101,4655	101,465	422,653
Dr. Fung Kwok King,
Victor	–	–	–	–	–	–
Mrs. Lee Pui Ling, Angelina	–	–	–	–	–	–
Mr. Christopher Roger
Moss,O.B.E.	–	–	–	–	–	–

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GENERAL INFORMATION

APPENDIX VII

Notes:

This represents deemed interests held by the relevant directors through discretionary trust(s).
This includes 36 Shares allotted and issued, credited as fully paid in lieu of cash, in relation to KPL’s final dividend for the year ended 31 December 2002.
This includes 7,401 Shares allotted and issued, credited as fully paid in lieu of cash, in relation to KPL’s final dividend for the year ended 31 December 2002.
As at the Latest Practicable Date, Mr. Ho Shut Kan did not hold any Shares. To the extent that he exercises his Options prior to the Option Cut-Off Time, Mr. Ho Shut Kan will be treated as a KPL Selling Director.
This represents interests held by the relevant director and his spouse jointly.

The KHL Directors (save those who are also KPL Directors and whose interests are set out above) had the following interests in Shares and Options:

		Number of Shares	Number of Shares	Number of Shares		Number
	Personal	Family	Corporate	Other		of
Name of KHL Director	interests	interests	interests	interests	Total	Options
Mr. Kuok Khoon Chen1	7,000	202,9302	1,125,6523	–	1,335,582	–
Mr. Kuok Khoon Ean1	–	–	–	1,222,3514	1,222,351	–
Mr. Kuok Khoon Ho1	–	–	–	110,6474, 5 110,647		–

Notes:

A member of NSKG for the purposes of this document.
This represents deemed interests derived from the spouse of the relevant director through discretionary trusts.
This includes 15,626 Shares allotted and issued, credited as fully paid in lieu of cash, in relation to KPL’s final dividend for the year ended 31 December 2002.
This represents deemed interests held by the relevant directors through discretionary trust(s).
This includes 1,563 Shares allotted and issued, credited as fully paid in lieu of cash, in relation to KPL’s final dividend for the year ended 31 December 2002.

Save as disclosed in this Section 3(a), none of the KPL Directors or KHL Directors had any interest in Shares or Options or dealt for value in Shares or Options during the Disclosure Period;

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GENERAL INFORMATION

APPENDIX VII

(iii) The persons acting in concert with KHL, namely NSKG, SKG and the KPL Selling Directors, and the Trust and the HSBC Shareholders, which are presumed to be acting in concert with KHL under the Takeovers Code, owned or controlled the following Shares and Options:

Number of Shares Number of Options

(including scrip dividend election)

NSKG

Allerlon Limited Baylite Company Limited Bearsden Limited Billet Assets Limited Bright August Profits Limited Brookline Limited Catterall Limited Chay Limited Dime Group Limited Foresight Limited Formbright Investments Limited Funny Whale Investments Limited Mr. Goon Swee Kheong Grand Tune Limited Madam Ho Poh Lin Joyce M. Kuok Foundation Kuok Foundation Overseas Limited Mr. Kuok Khoon Chen Madam Kuok Oon Kwong Mr. Kuok Khoon Loong, Edward Luxhart Assets Limited Manor Top Investments Limited Peacebright Assets Limited Rightune Limited Rubi Limited Tangkakji Limited Tarcoola Assets Limited Top Cheer Limited Top Notch Limited Trendfield Inc. Zheng Ge Ru Foundation NSKG Total:	1,222,351 30,211,522 1,129,524 245,931 198,939 463,579 4,020,846 92,6491 503,765 202,930 693,9742 376,862 584,029 857,7043 269,473 4,567,383 2,455,795 7,000 344,113 – 10,398,001 1,051,244 622,794 215,8392 215,8392 4,689,076 622,794 143,203 17,9981 36,142,844 4,734,597 107,302,598	– – – – – – – – – – – – – – – – – – – 5,797,2664 – – – – – – – – – – – 5,797,266

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GENERAL INFORMATION

APPENDIX VII

Number of Shares

Number of Options

SKG FFM Berhad Jerneh Insurance (HK) Limited SCMP (1994) Limited Shang Holdings Limited SKG Total: KPL Selling Directors Mr. Ang Keng Lam Mr. Wong Siu Kong Mr. Thaddeus Thomas Beczak KPL Selling Directors Total: Trust HSBC Shareholders HSBC International Trustee Limited HSBC Broking Services (Asia) Limited HSBC Shareholders Total: Total	6,183,000 2,000 1,015,048 20,602,589 27,802,637 526,3185 2,0005 101,4655 629,7835 34,411,179 451,0276 46 451,0316 170,597,228	– – – –
		–

		4,639,858 3,131,364 422,653
		8,193,875

		–
		– –
		–

		13,991,141

Notes:

Represents the other interests held by Mr. Kuok Khoon Ho disclosed in paragraph 3(a)(ii) above.
Represents the corporate interests held by Mr. Kuok Khoon Chen disclosed in paragraph 3(a)(ii) above.
Represents the corporate interests held by Mr. Kuok Khoon Loong, Edward disclosed in paragraph 3(a)(ii) above.
Represents Options held by Mr. Kuok Khoon Loong, Edward disclosed in para 3(a)(ii) above.
Represents the Shares which the KPL Selling Directors owned or controlled and/or were interested in.
Represents Shares owned or controlled on a discretionary basis.

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GENERAL INFORMATION

APPENDIX VII

and during the Disclosure Period dealt for value in the Shares as follows:

Acquisitions

Price Name Date per Share (HK$) Madam Ho Poh Lin1 31 October 2002 5.525 7 and 8 November 2002 5.575 12 November 2002 5.500 20 December 2002 5.517 Jerneh Insurance (HK) 12 December 2002 5.800 Limited2 19 December 2002 5.505 Kerry Asset Management 23 October 2002 5.400 Limited3 8 November 2002 5.550 12 November 2002 5.540 13 December 2002 5.800 17, 18 and 19 December 2002 5.613 20 December 2002 5.516 HSBC International 15 November 2002 6.000 Trustee Limited4 HSBC Securities 3 March 2003 6.800 (Asia) Limited5 Total Notes: 1. A member of NSKG. 2. A subsidiary of Jerneh Asia Berhad, a member of SKG. 3. An associated company of KHL. 4. A member of HSBC Shareholders. 5. A wholly-owned subsidiary of HSBC Holdings plc.	No. of Shares 40,000 20,000 10,000 90,000 25,000 30,000 50,000 20,000 50,000 20,000 160,000 320,000 82,000 3,000
	920,000

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GENERAL INFORMATION

APPENDIX VII

Disposals

Name Date Price per Share (HK$) Jerneh Insurance 16 January 2003 6.150 (HK) Limited1 20 January 2003 6.000 21 January 2003 6.0283 HSBC Securities 3 March 2003 6.900 (Asia) Limited2 Total	No. of Shares 47,500 5,000 53,000 3,000
	108,500

Notes:

A subsidiary of Jerneh Asia Berhad, a member of SKG.
A wholly-owned subsidiary of HSBC Holdings plc.

During the Disclosure Period, following their election to receive Shares credited as fully paid in lieu of cash in relation to KPL’s final dividend for the year ended 31 December 2002, the persons acting in concert with KHL, namely NSKG, SKG and the KPL Selling Directors, and the Trust and the HSBC Shareholders, which are presumed to be acting in concert with KHL under the Takeovers Code, were allotted and issued 1,717,692 Shares on 30 May 2003 as follows:

NSKG	No. of Shares
Allerlon Limited	–
Baylite Company Limited	426,310
Bearsden Limited	15,965
Billet Assets Limited	3,476
Bright August Profits Limited	–
Brookline Limited	–
Catterall Limited	56,388
Chay Limited	1,309
Dime Group Limited	7,120
Foresight Limited	–
Formbright Investments Limited	9,808
Funny Whale Investments Limited	5,326
Mr. Goon Swee Kheong	–
Grand Tune Limited	–
Madam Ho Poh Lin	3,807
Joyce M. Kuok Foundation	57,086

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GENERAL INFORMATION

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NSKG	No. of Shares	No. of Shares
Kuok Foundation Overseas Limited		33,993
Mr. Kuok Khoon Chen		–
Madam Kuok Oon Kwong		–
Mr. Kuok Khoon Loong, Edward		–
Luxhart Assets Limited		146,968
Manor Top Investments Limited		14,858
Peacebright Assets Limited		8,802
Rightune Limited		2,909
Rubi Limited		2,909
Tangkakji Limited		66,276
Tarcoola Assets Limited		8,802
Top Cheer Limited		–
Top Notch Limited		254
Trendfield Inc.		506,041
Zheng Ge Ru Foundation		40,646
Sub-total		1,419,053

SKG	No. of Shares
FFM Berhad		–
Jerneh Insurance (HK) Limited		–
SCMP (1994) Limited		–
Shang Holdings Limited		291,202
Sub-total		291,202

KPL Selling Directors
Mr. Ang Keng Lam		7,4371
Mr. Wong Siu Kong		–
Mr. Thaddeus Thomas Beczak		–
Sub-total		7,437

Trust		–
HSBC Shareholders
HSBC International Trustee Limited		–
HSBC Broking Services (Asia) Limited		–
Total		1,717,692

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GENERAL INFORMATION

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Note:

These Shares were allotted and issued to Mr. Ang Keng Lam and a discretionary trust of which Mr. Ang Keng Lam is a beneficiary and through which Mr. Ang Keng Lam is interested in these Shares.

Save as disclosed above, none of the parties acting in concert with KHL nor the Trust and the HSBC Shareholders, which are presumed to be acting in concert with KHL under the Takeovers Code, owned or controlled any Shares or Options as at the Latest Practicable Date or had dealt for value in Shares or Options during the Disclosure Period;

(iv) PricewaterhouseCoopers Limited, a related company of PricewaterhouseCoopers, owned or controlled the following Shares and Options as trustee of a discretionary trust:

		% of Total Issued
Name	No. of Shares	Share Capital1
PricewaterhouseCoopers Limited	250,5642	0.02

Notes:

Percentage of the issued share capital of KPL as at the Latest Practicable Date.
This represents Shares owned as trustee of a discretionary trust, the beneficiaries of which include a former director of a private company which is an indirect subsidiary of KHL.

and during the Disclosure Period, following their election to receive Shares credited as fully paid in lieu of cash in relation to KPL’s final dividend for the year ended 31 December 2002, PricewaterhouseCoopers Limited, in its capacity as trustee, were allotted and issued 3,451 Shares on 30 May 2003.

The KPL Group has appointed Fidelity Investments Management (H.K.) Limited (“Fidelity”) to handle the KPL Group’s mandatory provident fund assets. The KPL Group also participates in the Kerry Trading Co. Limited Provident Fund Scheme (“KTPF Scheme”). The trustees of the KTPF Scheme (the “Trustees”) have subscribed for units in the Fidelity Advantage Portfolio Fund – Growth Fund (“FAP Fund”) managed by Fidelity and the Trustees have also confirmed that the other retirement fund’s assets which they manage for the KTPF Scheme did not have any interests in the Shares or Options as at the Latest Practicable Date.

The assets which Fidelity manages for the KPL Group under the mandatory provident fund are invested in the Fidelity Retirement Master Trust (“FRMT”). Both the FRMT and the FAP Fund are feeder funds which solely invest in the Fidelity Growth Investment Fund (“FGI Fund”). Fidelity is unable to respond to KPL’s enquiries as to whether the FGI Fund currently has interests in the Shares due to its internal disclosure policy, which only permits disclosure of the FGI Fund’s portfolio in its annual report. As at 31 December 2002, the FGI Fund did not own or control any Shares or Options.

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GENERAL INFORMATION

APPENDIX VII

Save as disclosed in this Section 3(a)(iv) above, no subsidiary of KPL, pension fund of any member of the KPL Group, or any adviser to KPL as specified in class (2) of the definition of associate in the Takeovers Code, but excluding exempt principal traders, owned or controlled any Shares or Options or has dealt for value in the Shares or Options during the Disclosure Period;

(v) Save for the undertaking from Mr. Kuok Khoon Loong, Edward to KHL in relation to the Option Offer disclosed in Section 3(c)(ii) below, no arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code existed between any person and KHL or KPL or any person acting in concert with KHL or any person who is an associate of KHL or of KPL by virtue of classes (1), (2), (3) or (4) of the definition of “associate” under the Takeovers Code; and
(vi) Save for interest held by HSBC International Trustee Limited and HSBC Broking Services (Asia) Limited, no interest in Shares or Options was managed on a discretionary basis by fund managers (other than exempt fund managers) connected with KPL.

(b) Holdings, interests and dealings in the shares of KHL

As at the Latest Practicable Date:

(i) KPL did not own any shares in KHL and had not dealt in the shares of KHL during the Disclosure Period; and
(ii) None of the KPL Directors had any interest in the shares of KHL and none of the KPL Directors had dealt for value in any such shares during the Disclosure Period.

(c) Other interests

As at the Latest Practicable Date:

(i) No benefit is to be given to any KPL Director as compensation for loss of office or otherwise in connection with the Proposal or the Option Offer;
(ii) Save for an undertaking from Mr. Kuok Khoon Loong, Edward to KHL not to accept the Option Offer in relation to the 5,797,266 Options he holds, no agreement, arrangement or understanding, including any compensation arrangement, existed between KHL or any person acting in concert with KHL and any of the KPL Directors, recent KPL Directors, Shareholders or recent Shareholders having any connection with or dependence upon the Proposal or the Option Offer;
(iii) Save for the undertaking from Mr. Kuok Khoon Loong, Edward to KHL in relation to the Option Offer disclosed in Section 3(c)(ii) above and an undertaking from each of the KPL Selling Directors to the Supreme Court to be bound by the Scheme, and to execute and procure to be executed all such documents as may be required in relation to being so bound, no agreement or arrangement existed

236

GENERAL INFORMATION

APPENDIX VII

between any KPL Director and any other person which is conditional on or dependent upon the outcome of the Proposal or the Option Offer or otherwise connected with the Proposal or the Option Offer;

(iv) No material contract had been entered into by KHL in which any of the KPL Directors has a material personal interest; and
(v) None of the KPL Directors had a service contract in force with any member of the KPL Group or associated companies of KPL which had more than twelve months to run or which was entered into or amended within six months before the date of the Announcement.

4. MATERIAL CONTRACTS

No material contracts have been entered into by members of the KPL Group, not being contracts entered into during the ordinary course of business carried on or intended to be carried on by any member of the KPL Group, within the two years preceding the date of the Announcement.

5. MATERIAL LITIGATION

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

6. MISCELLANEOUS

(a) The registered office of KHL is 21/F., CITIC Tower, 1 Tim Mei Avenue, Central, Hong Kong.
(b) The ultimate controlling shareholder of KHL is Kerry Group Limited (a company incorporated in the Cook Islands and whose shareholders comprise Mr. Kuok Hock Nien and his relatives, other members of the Kuok family in Hong Kong and elsewhere, executives and employees (past and present) of the Kuok Group of companies, related trusts of some or all of the aforesaid and/or companies owned or controlled by any of them, and charitable foundations established by the Kuok family. Mr. Kuok Hock Nien, his relatives, related trusts and companies owned or controlled by any of them collectively control 30% or more of Kerry Group Limited. There are no other shareholders of Kerry Group Limited who hold 30% or more of the shares in Kerry Group Limited). The directors of Kerry Group Limited are Messrs. Kuok Hock Nien, Kuok Khoon Chen, Kuok Khoon Ean, Kuok Khoon Ho and Lee Yong Sun.
(c) The directors of KHL are Messrs. Kuok Khoon Chen, Kuok Khoon Loong, Edward, Lee Yong Sun, Kuok Khoon Ho, Kuok Khoon Ean, Thaddeus Thomas Beczak, Ang Keng Lam, Lui Man Shing, Wong Siu Kong and Ye Longfei.

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APPENDIX VII

(d) The Registers are open to inspection by Shareholders or any other person in accordance with KPL’s Bye-laws.
(e) The registered office of HSBC is 1 Queen’s Road Central, Hong Kong.
(f) All costs, charges and expenses of and incidental to the Scheme and the costs of carrying the Scheme into effect will be borne by KHL if the Scheme does not become effective and by KHL and KPL (insofar as they relate to each of them) if the Scheme becomes effective.
(g) The English text of this document and the forms of proxy shall prevail over the Chinese text.
(h) All announcements in relation to the Proposal and the Option Offer will be published as a paid announcement in at least one leading English language newspaper and one leading Chinese language newspaper, being in each case a newspaper which is published daily and circulating generally in Hong Kong.

7. EXPERTS

The following are the qualifications of the experts who have given opinions or advice which are contained in this document:

Name Qualifications HSBC Licensed bank and deemed registered institution Rothschild Restricted licence bank and deemed registered institution Chesterton Petty Property valuer and member of The Hong Kong Institute of Surveyors DTZ Property valuer and member of The Hong Kong Institute of Surveyors Royal Asia Appraisal Licensed Appraiser by The Department of Trade and Industry (Philippines)

PricewaterhouseCoopers Certified Public Accountants

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GENERAL INFORMATION

APPENDIX VII

8. CONSENTS

HSBC, Rothschild, Chesterton Petty, DTZ, Royal Asia Appraisal and PricewaterhouseCoopers have given and have not withdrawn their respective written consents to the issue of this document with the inclusion therein of their opinions, letters or valuation reports, as the case may be, and the references to their names, opinions, letters or valuation reports in the form and context in which they respectively appear.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the offices of KPL’s Bermuda attorneys, Appleby Spurling & Kempe, situated at 5511 The Center, 99 Queen’s Road Central, Hong Kong during normal business hours on any weekday (public holidays excepted) until the Effective Date or the date on which the Scheme lapses or is withdrawn, whichever is the earliest:

(a) the memorandum and articles of association of KHL;
(b) the Memorandum of Association and Bye-laws of KPL;
(c) the audited consolidated accounts of the KPL Group for each of the years ended 31 December 2000, 2001 and 2002;
(d) the letter from Rothschild, the text of which is set out on pages 24 to 57 of this document;
(e) the letter and summaries of valuations from Chesterton Petty/DTZ and Royal Asia Appraisal, the texts of which are set out in Appendix II to this Explanatory Statement, and the valuation certificates from Chesterton Petty/DTZ and the appraisal reports from Royal Asia Appraisal;
(f) the letters from PricewaterhouseCoopers and Rothschild, the texts of which are set out in Appendix VI to the Explanatory Statement;
(g) the letters of consent referred to in Section 8 of this Appendix VII;
(h) the undertaking given by Mr. Kuok Khoon Loong, Edward to KHL in relation to the Option Offer referred to in Section 3(c)(ii) of this Appendix VII; and
(i) the undertakings given by each of the KPL Selling Directors to the Supreme Court in relation to being bound by the Scheme referred to in Section 3(c)(iii) of this Appendix VII above.

239

GENERAL INFORMATION

APPENDIX VII

10. CLARIFICATION IN RELATION TO CERTAIN DISCLOSURE MADE IN THE 2002 ANNUAL REPORT ON KPL

KPL wishes to advise Shareholders that the attendance records of the independent nonexecutive KPL Directors for the years 1999 to 2001 of 72%, 47% and 75% respectively as disclosed on page 27 of the 2002 annual report of KPL should refer to the average attendance records of “audit committee members” in those years and had been disclosed as such properly in KPL’s annual report in 2001. It was intended that there should be an asterisk denoting the attendance records as average attendance records of audit committee members in KPL’s 2002 annual report in relation to those years but this had been omitted inadvertently in the printing process and the omission is regretted.

240

SCHEME OF ARRANGEMENT

IN THE SUPREME COURT OF BERMUDA

CIVIL JURISDICTION

2003: NO. 231

IN THE MATTER OF KERRY PROPERTIES LIMITED

And

IN THE MATTER OF SECTION 99 OF THE COMPANIES ACT 1981

SCHEME OF ARRANGEMENT

Between

KERRY PROPERTIES LIMITED

And

THE SCHEME SHAREHOLDERS (as defined herein)

PRELIMINARY

(A) In this Scheme of Arrangement, unless inconsistent with the subject or context, the following expressions shall bear the following meanings:

“Companies Act”

the Companies Act 1981 of Bermuda (as amended);

“Company”

Kerry Properties Limited, an exempted company incorporated in Bermuda with limited liability, the shares of which are listed on the Stock Exchange;

“Concert Group”

the Offeror and parties acting in concert with it, and the Trust and the HSBC Shareholders which are presumed to be acting in concert with the Offeror under the Takeovers Code;

241

SCHEME OF ARRANGEMENT

“Controlling Shareholders” the Offeror and NSKG;
“Court”

the Supreme Court of Bermuda;

“Court Meeting”
the meeting of the Independent Shareholders convened by the direction of the Court;
“Directors”
the directors of the Company;
“Effective Date”
the date (Bermuda time) on which this Scheme becomes effective in accordance with Clause 6 of this Scheme;
“Group” the Company and its subsidiaries;
“HK$”
Hong Kong dollars, the lawful currency of Hong Kong;
“Hong Kong” the Hong Kong Special Administrative Region of the People’s Republic of China;
“HSBC Shareholders”
HSBC International Trustee Limited and HSBC Broking Services (Asia) Limited, both ultimately wholly-owned subsidiaries of HSBC Holdings plc, who together owned or controlled on a discretionary basis 451,031 Shares as at the Latest Practicable Date and are presumed to be acting in concert with KHL under the Takeovers Code;
“Independent Shareholders” Shareholders other than members of the Concert Group;
“Latest Practicable Date”
23 June 2003, being the latest practicable date prior to the printing of the document containing this Scheme for the purpose of ascertaining certain information for inclusion herein;
“NSKG”
those members of the Concert Group whose names are set out in Note 1 to paragraph (E) in the Preliminary section of this Scheme;
“Offeror”

Kerry Holdings Limited, a company incorporated in Hong Kong with limited liability, which, where the context so requires, includes certain subsidiaries and an associated company of the Offeror which in aggregate own, and through which the Offeror is interested in, 730,524,460 Shares as at the Latest Practicable Date;

242

SCHEME OF ARRANGEMENT

“Record Date”

the business day immediately before the Effective Date on which banks are open for business in Hong Kong;

“Registers” registers of members of the Company kept in Bermuda and Hong Kong;
“Relevant Authority” appropriate government and/or governmental bodies, regulatory bodies, courts or institutions;
“Scheme”
this scheme of arrangement under Section 99 of the Companies Act in its present form or with or subject to any modification thereof or addition thereto or condition(s) approved or imposed by the Court;
“Scheme Shareholders” Shareholders other than the Controlling Shareholders;

“Scheme Shares” the Shares held by the Scheme Shareholders as at 4:00 p.m. (Hong Kong time) on the Record Date;

“Shareholder(s)” registered holder(s) of Shares;
“Shares” shares of HK$1.00 each in the capital of the Company;
“Stock Exchange” The Stock Exchange of Hong Kong Limited;
“Takeovers Code” the Hong Kong Code on Takeovers and Mergers; and
“Trust” a trust which is presumed to be acting in concert with the Offeror under the Takeovers Code, the beneficiaries of which are parties acting in concert with the Offeror.
(B) The Company was incorporated on 2 January 1996 in Bermuda under the Companies Act and, as of the Latest Practicable Date, had an authorised share capital of HK$10,000,000,000 divided into 10,000,000,000 Shares of which 1,184,539,725 Shares have been issued and are fully paid or credited as fully paid. The Shares are listed on the Stock Exchange.
(C) The Offeror was incorporated on 18 January 1974 in Hong Kong with limited liability and, as at the Latest Practicable Date, had an authorised share capital of HK$500,000,000 divided into 500,000,000 shares of HK$1.00 each of which 311,752,569 shares have been issued and are fully paid or credited as fully paid.
(D) The primary purpose of this Scheme is that all of the Scheme Shares should be cancelled and extinguished and that the Company should become wholly-owned by the Offeror, and/or its subsidiaries and/or, such entities as the Offeror may direct, subject to permission being granted by the Bermuda Monetary Authority, and NSKG. In consideration of such cancellation, the Scheme Shareholders (whose names appear on the Registers at 4:00 p.m. (Hong Kong time) on the Record Date) will be entitled to receive HK$9.50 in cash for each Scheme Share

243

SCHEME OF ARRANGEMENT

held. Applications were submitted to and permission was granted by the Bermuda Monetary Authority for the Company to issue such number of new Shares as is equal to the number of Scheme Shares cancelled and extinguished under the Scheme to a wholly-owned subsidiary of the Offeror.

(E) On the Latest Practicable Date, the Controlling Shareholders owned or controlled an aggregate of 837,827,058 Shares fully paid as follows:

	Number of
Name of Controlling Shareholders	Shares
Kerry Holdings Limited	730,524,460
NSKG1	107,302,598

Note:

NSKG comprises of the following Shareholders: Allerlon Limited; Baylite Company Limited; Bearsden Limited; Billet Assets Limited; Bright August Profits Limited; Brookline Limited; Catterall Limited; Chay Limited; Dime Group Limited; Foresight Limited; Formbright Investments Limited; Funny Whale Investments Limited; Mr. Goon Swee Kheong; Grand Tune Limited; Madam Ho Poh Lin; Joyce M. Kuok Foundation; Kuok Foundation Overseas Limited; Mr. Kuok Khoon Chen; Madam Kuok Oon Kwong; Luxhart Assets Limited; Manor Top Investments Limited; Peacebright Assets Limited; Rightune Limited; Rubi Limited; Tangkakji Limited; Tarcoola Assets Limited; Top Cheer Limited; Top Notch Limited; Trendfield Inc.; Zheng Ge Ru Foundation and Mr. Kuok Khoon Loong, Edward.
(F) On the Latest Practicable Date, members of the Concert Group (other than the Controlling Shareholders and the Directors) owned or controlled an aggregate of 62,664,847 Scheme Shares as follows:

	Number of
Name of Concert Group member	Scheme Shares
FFM Berhad	6,183,000
Jerneh Asia Berhad	2,000
Shangri-La Asia Limited	20,602,589
SCMP Group Limited	1,015,048
Trust	34,411,179
HSBC Shareholders	451,031

244

SCHEME OF ARRANGEMENT

(G) On the Latest Practicable Date, the following Directors were interested in an aggregate of 629,783[1] Scheme Shares as follows:

	Number of
Name of Directors	Scheme Shares
Mr. Ang Keng Lam	526,318
Mr. Wong Siu Kong	2,000
Mr. Thaddeus Thomas Beczak	101,465

Note:

This does not include the 857,704 Shares in which Mr. Kuok Khoon Loong, Edward is interested, as such shares have been included under NSKG’s shareholdings in the Company and do not constitute Scheme Shares. Furthermore, Mr. Ho Shut Kan, a director of the Company, does not currently own nor is he beneficially interested in any Shares, but he does hold 1,712,300 Options (which are exercisable into 1,712,300 Shares). To the extent that he exercises his Options prior to 4:00 p.m. (Hong Kong time) on the Option Cut-off Time, any Shares issued to him on such exercise shall be Scheme Shares.
(H) The Offeror has agreed to appear by Counsel at the hearing of the petition to sanction this Scheme and satisfy the payment obligations under Part II thereof. Each of the persons referred to in (F) and (G) above has consented to and agreed to be bound by the Scheme and has undertaken to the Court to be bound thereby and to execute and procure to be executed all such documents as may be required in connection with their said consent, agreement and undertaking.

245

SCHEME OF ARRANGEMENT

THE SCHEME

PART I

CANCELLATION AND EXTINGUISHMENT OF THE SCHEME SHARES

On the Effective Date:
(a) the issued share capital of the Company shall be reduced by cancelling and extinguishing all the Scheme Shares; and
(b) the Company shall apply the credit arising in its books of account as a result of the said reduction referred to in Clause 1(a) above to paying up in full at par such number of new Shares as is equal to the Scheme Shares, which will be allotted and issued, credited as fully paid, to the Offeror and/or its subsidiaries and/or such entities as it may direct, subject to permission being granted by the Bermuda Monetary Authority.

PART II

CONSIDERATION FOR CANCELLATION AND EXTINGUISHMENT OF THE SCHEME SHARES

In consideration for the cancellation and extinguishment of the Scheme Shares, the Offeror shall pay or procure that there shall be paid to each Scheme Shareholder (as appearing in the Registers at 4:00 p.m. (Hong Kong time) on the Record Date) HK$9.50 in cash for each Scheme Share held.
(a) Not later than ten days after the Effective Date, the Offeror shall send or cause to be sent to the Scheme Shareholders (as appearing in the Registers at 4:00 p.m. (Hong Kong time) on the Record Date) cheques in respect of the sums payable to such holders pursuant to Clause 2 of this Scheme.
(b) Unless indicated otherwise in writing to the Company’s branch share registrar in Hong Kong, Abacus Share Registrars Limited at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, all such cheques shall be sent by post in pre-paid envelopes addressed to such Scheme Shareholders at their respective addresses as appearing in the Registers at 4:00 p.m. (Hong Kong time) on the Record Date or, in the case of joint holders, at the address appearing on such Registers at such time of that one of the joint holders whose name stands first in such Registers in respect of the relevant joint holding.

246

SCHEME OF ARRANGEMENT

(c) Cheques shall be despatched at the risk of addressees and neither the Company nor the Offeror shall be responsible for any loss or delay in transmission.
(d) Each such cheque shall be payable to the order of the person to whom in accordance with the provisions of Clause 3(b) above the envelope containing the same is addressed and the encashment of any cheque shall be a good discharge to the Offeror for the monies represented thereby.
(e) On or after the day being six calendar months after the posting of the cheques pursuant to Clause 3(b) above, the Offeror shall have the right to cancel or countermand payment of any such cheque which has not then been cashed or has been returned uncashed and shall place all monies represented thereby in a deposit account in the Company’s name with a licensed bank in Hong Kong selected by the Company. The Company shall hold such monies until the expiration of six years from the Effective Date and shall, prior to such date, make payments thereout of the sums payable pursuant to Clause 2 of this Scheme to persons who satisfy the Company that they are respectively entitled thereto and the cheques referred to in Clause 3(b) above of which they are payees have not been cashed. Any payments made by the Company hereunder shall include any interest accrued on the sums to which the respective persons are entitled pursuant to Clause 2 of this Scheme, calculated at the annual interest rate prevailing from time to time with respect to the account at the licensed bank in which the monies are deposited, subject, if applicable, to the deduction of interest tax or any withholding tax or any other deduction required by law. The Company shall exercise its absolute discretion in determining whether or not it is satisfied that any person is so entitled or not so entitled, as the case may be, which determination shall be conclusive and binding upon all persons claiming an interest in the relevant monies.
(f) On the expiration of six years from the Effective Date, the Offeror shall be released from any further obligation to make any payments under this Scheme and the Company shall transfer to the Offeror the balance (if any) of the sums then standing to the credit of the deposit account referred to in Clause 3(e) above including accrued interest subject, if applicable, to the deduction of any interest tax or any withholding tax or any other deduction required by law and any expenses.
(g) Clause 3(f) above shall take effect subject to any prohibition or condition imposed by law.
As from the Effective Date, all certificates existing on the Record Date in respect of holding of any number of Scheme Shares shall cease to be valid for any purpose as documents or evidence of title and every holder thereof shall be bound on the request of the Company to deliver up to the Company the certificates for his or her holdings in such Scheme Shares.

247

SCHEME OF ARRANGEMENT

All mandates or relevant instructions in force at 4:00 p.m. (Hong Kong time) on the Record Date relating to the Scheme Shares shall cease to be valid as effective mandates or instructions.
This Scheme shall become effective upon an office copy of the Order of the Court sanctioning this Scheme under Section 99 of the Companies Act being duly registered by the Registrar of Companies in Bermuda.
Unless this Scheme shall have become effective as aforesaid on or before 30 August 2003 (or such later date as the Company and the Offeror may agree), this Scheme shall lapse.
The Company and the Offeror may jointly consent for and on behalf of all concerned to any modification of, or addition to, this Scheme or to any condition which the Court may think fit to approve or impose.
The expenses and costs incurred by the Company in connection with the Scheme will be borne:
(a) by the Company and the Offeror, insofar as they relate to each of them, if the Scheme becomes effective; and
(b) by the Offeror if the Scheme does not become effective.

Dated 26 June 2003

248

NOTICE OF COURT MEETING

IN THE SUPREME COURT OF BERMUDA

CIVIL JURISDICTION

2003: NO. 231

IN THE MATTER OF KERRY PROPERTIES LIMITED

AND IN THE MATTER OF SECTION 99 OF THE COMPANIES ACT 1981

NOTICE OF COURT MEETING OF THE INDEPENDENT SHAREHOLDERS

NOTICE IS HEREBY GIVEN that, by an order dated 12 June 2003 and by an order dated 25 June 2003, made in the above matters, (together the “Order”), the Supreme Court of Bermuda (the “Court”) has directed a Meeting to be convened of the Independent Shareholders representing the holders of the ordinary shares of HK$1.00 each in the capital of Kerry Properties Limited (hereinafter called “the Company”) other than those of such ordinary shares owned or controlled by:

(a) Kerry Holdings Limited (“KHL”);
(b) the various members of NSKG (as defined in the Scheme of Arrangement referred to below);
(c) FFM Berhad, Jerneh Asia Berhad, Shangri-La Asia Limited and SCMP Group Limited;
(d) the Trust which is presumed to be acting in concert with KHL; and
(e) HSBC International Trustee Limited and HSBC Broking Services (Asia) Limited, which are presumed to be acting in concert with KHL,

or in which the directors of the Company (other than Mr. Kuok Khoon Loong, Edward, who falls within the category (b) above) are interested, for the purpose of considering and, if thought fit, approving (with or without modification) a Scheme of Arrangement (the “Scheme of Arrangement”) proposed to be made between the Company and the Scheme Shareholders (as defined in the Scheme of Arrangement) and that such meeting will be held in the Atrium I & II, Level 39, Island Shangri-La Hotel, Pacific Place, Supreme Court Road, Central, Hong Kong on 18 July 2003 at 10:00 a.m.

249

NOTICE OF COURT MEETING

A copy of the Scheme of Arrangement and the explanatory statement required to be furnished pursuant to section 100 of the above-mentioned Act together with a pink form of proxy for use at the said meeting are incorporated in or accompany the composite document of which this notice forms part, and have been posted to every Shareholder (as defined in the Scheme of Arrangement) including the Independent Shareholders having a registered address in the registers of members of the Company.

Additional copies of the said documents can be obtained by any person entitled to attend the said meeting during usual business hours on any day prior to the day appointed for the said meeting (other than a Saturday afternoon, a Sunday or a statutory holiday in Bermuda or Hong Kong as the case may be):

(i) at the registered office of the Company in Bermuda situated at Cedar House, 41 Cedar Avenue, Hamilton HM 12, Bermuda;
(ii) at the office of the branch share registrar of the Company in Hong Kong, namely Abacus Share Registrars Limited situated at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong; and
(iii) at the office in Hong Kong of the Company’s Bermuda attorneys, namely Appleby Spurling & Kempe, situated at 5511 The Center, 99 Queen’s Road Central, Hong Kong,

and can also be seen on display at the principal place of business of the Company at 13/F and 14/F, Cityplaza 3, 14 Taikoo Wan Road, Taikoo Shing, Hong Kong.

Every Independent Shareholder may vote in person at the said meeting (or at any adjournment thereof) or they may appoint up to two individuals as his proxies to attend and vote instead of him. A proxy need not be a member of the Company. The number of proxies appointed by a clearing house (or its nominee) is not subject to the aforesaid limitation.

In the case of joint holders of ordinary shares held by Independent Shareholders, the vote of the senior who tenders a vote, whether in person or by proxy, will be accepted to the exclusion of the vote(s) of the other joint holder(s), and for this purpose, seniority will be determined by the order in which the names stand in the registers of members of the Company in respect of the relevant joint holding.

It is requested that the pink form of proxy for use at the said meeting be deposited at the office of the branch share registrar of the Company in Hong Kong as stated above not later than 10:00 a.m. on 16 July 2003, but if it is not so deposited, it may be handed to the Chairman of the said meeting at such meeting.

250

NOTICE OF COURT MEETING

Completion and return of the form of proxy will not preclude a member from attending the said meeting and voting in person if he so wishes. In the event that a member attends the said meeting after having lodged his form of proxy, his form of proxy will be deemed to have been revoked.

By the said Order, the Court has appointed, Mr. Christopher Roger Moss, a director of the Company, or failing him, Dr. Fung Kwok King, Victor, a director of the Company, or failing him, Mrs. Lee Pui Ling, Angelina, a director of the Company, or failing her, Mr. Ho Shut Kan, a director of the Company to act as Chairman of the said meeting and has directed the Chairman to report the result thereof to the Court.

The Scheme of Arrangement will be subject to the subsequent approval of the Court.

Dated this 26th day of June 2003.

Appleby Spurling & Kempe

Cedar House, 41 Cedar Avenue Hamilton, Bermuda Attorneys for the Company

251

NOTICE OF SPECIAL GENERAL MEETING

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KERRY PROPERTIES LIMITED

NOTICE IS HEREBY GIVEN that a Special General Meeting of Kerry Properties Limited (the “Company”) will be held at Atrium I & II, Level 39, Island Shangri-La Hotel, Pacific Place, Supreme Court Road, Central, Hong Kong on 18 July 2003 at 10:30 a.m. (or as soon thereafter as the meeting of certain holders of the ordinary shares of HK$1.00 each in the capital of the Company convened by direction of the Supreme Court of Bermuda (the “Court”) for the same place and day shall have been concluded or adjourned), for the purpose of considering and, if thought fit, passing the following resolution which will be proposed as a Special Resolution:

SPECIAL RESOLUTION

“ THAT :

(A) the Scheme of Arrangement dated 26 June 2003 (the “Scheme”) between the Company and the Scheme Shareholders (as defined in the Scheme) in the form of the print thereof which has been produced to this meeting and for the purposes of identification signed by the Chairman of this meeting, with any modification thereof or addition thereto or condition approved or imposed by the Court, be and is hereby approved; and
(B) for the purpose of giving effect to the Scheme, on the Effective Date (as defined in the Scheme):
(i) the issued share capital of the Company be reduced by cancelling and extinguishing the Scheme Shares (as defined in the Scheme);
(ii) subject to and forthwith upon such reduction of capital taking effect, the issued share capital of the Company be increased to its former amount by the creation of such number of new ordinary shares of HK$1.00 each in the capital of the Company as is equal to the number of the Scheme Shares cancelled; and
(iii) the Company shall apply the credit arising in its books of account as a result of such reduction of capital in paying up in full at par the new ordinary shares of HK$1.00 each in the capital of the Company to be created as aforesaid, which

252

* FOR IDENTIFICATION PURPOSE ONLY

NOTICE OF SPECIAL GENERAL MEETING

new shares shall be allotted, and issued, credited as fully paid, to Kerry Holdings Limited and/or its subsidiaries and/or such entities as it may direct and the Directors of the Company be and are hereby unconditionally authorised to allot and issue the same accordingly.”

By Order of the Board Chow Yin Ping, Anita Company Secretary

Hong Kong, 26 June 2003

Head Office and Principal Place of Business in Hong Kong: 13th and 14th Floor Cityplaza 3, 14 Taikoo Wan Road Taikoo Shing Hong Kong

Notes:

(i) Every member entitled to attend and vote at the above meeting (or at any adjournment thereof) is entitled to appoint up to two individuals as his proxies to attend and vote instead of him. A proxy need not be a member of the Company. The number of proxies appointed by a clearing house (or its nominee) is not subject to the aforesaid limitation.
(ii) The instrument appointing the proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under its seal or under the hand of any officer, attorney or other person authorised to sign the same.
(iii) A white form of proxy for use at the meeting is enclosed herewith.
(iv) In order to be valid, the white form of proxy, together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy thereof must be deposited at the Company’s branch share registrar in Hong Kong, Abacus Share Registrars Limited at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, not less than 48 hours before the time appointed for holding the meeting (or at any adjournment thereof). Completion and return of the form of proxy will not preclude a member from attending the meeting and voting in person if he so wishes. In the event that a member attends the meeting after having lodged his form of proxy, his form of proxy will be deemed to have been revoked.

253

NOTICE OF SPECIAL GENERAL MEETING

(v) In the case of joint holders of any share, any one of such holders may vote at the meeting (or at any adjournment thereof), either personally or by proxy, in respect of such share as if he were solely entitled thereto; but if more than one of such joint holders be present at the meeting personally or by proxy, that one of the said holders so present whose name stands first on the registers of members of the Company in respect of such share shall alone be entitled to vote in respect thereof. Several executors or administrators of a deceased member, and several trustees in bankruptcy or liquidators of a member in whose name any share stands will for this purpose be deemed joint holders thereof.
(vi) The registers of members of the Company will be closed from 15 July 2003 to 18 July 2003, both days inclusive, during which period no transfer of shares will be effected. In order to be entitled to attend and vote at the meeting , all transfers accompanied by the relevant share certificates, must be lodged for registration with the Company’s branch share registrar in Hong Kong, Abacus Share Registrars Limited at the above address not later than 4:00 p.m. on 14 July 2003.

254

AI assistant

Kerry Properties Limited — Merger & Acquisition 2003

49390_rns_2003-06-27_55fbd29e-aa10-4f98-b099-2248a68585af.pdf

PROPOSED PRIVATISATION OF

KERRY PROPERTIES LIMITED

BY

KERRY HOLDINGS LIMITED

Financial adviser to Kerry Holdings Limited

The Hongkong and Shanghai Banking Corporation Limited

CONTENTS

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

EXPECTED TIMETABLE

EXPECTED TIMETABLE

Shareholders should note that the above timetable, which is mainly dependent on the availability of the dates for the Supreme Court to hear the proceedings relating to the Scheme, is subject to change. Further announcements will be made in the event that there are any changes.

KERRY PROPERTIES LIMITED

Independent Non-executive Directors

INTRODUCTION

LETTER FROM THE KPL BOARD

LETTER FROM THE KPL BOARD

SUMMARY OF THE PROPOSAL

LETTER FROM THE KPL BOARD

FINANCIAL EFFECTS OF THE PROPOSAL

Share Price

Net Asset Value

Earnings

Dividend Yield

SHAREHOLDING STRUCTURE OF KPL

LETTER FROM THE KPL BOARD

Notes:

BACKGROUND TO, AND REASONS FOR, THE PROPOSAL

INFORMATION RELATING TO THE KPL GROUP

FUTURE INTENTIONS OF KHL

OPTION OFFER TO OPTIONHOLDERS

MEETINGS AND ACTION TO BE TAKEN BY THE INDEPENDENT SHAREHOLDERS AND THE SHAREHOLDERS

LETTER FROM THE KPL BOARD

LETTER FROM THE KPL BOARD

RECOMMENDATIONS

SHARE CERTIFICATES, DEALINGS, LISTING, REGISTRATION AND PAYMENT

FURTHER INFORMATION

KERRY PROPERTIES LIMITED

BACKGROUND

ADVICE FROM ROTHSCHILD

RECOMMENDATIONS

The offer for the Scheme Shares

The Option Offer

Mr. Christopher Roger Moss

PROPOSED PRIVATISATION OF KERRY PROPERTIES LIMITED BY KERRY HOLDINGS LIMITED BY WAY OF A SCHEME OF ARRANGEMENT

TERMS OF THE PROPOSAL

PRINCIPAL FACTORS AND REASONS

1. Background and rationale of the Proposal

2. Valuation considerations

(i) Historical financial performance and future prospects of the KPL Group

(b) PRC property division

(c) Logistics network division

(d) Infrastructure division

(e) Operating profit of the KPL Group

(f) Profit attributable to Shareholders

(ii) NAV and Adjusted NTAV

(iii) Analysis of the Cancellation Price

Basis of our analysis

(a) Historical Share price performance

(b) Discount to NTAV and Adjusted NTAV

(c) PER

(d) Recent privatisations of property and property related companies in Hong Kong

3. Dividend yield

4. Trading volume

5. The Option Offer

SUMMARY

FURTHER CONSIDERATIONS

RECOMMENDATIONS

The offer for the Scheme Shares under the Proposal

The Option Offer under the Proposal

N M Rothschild & Sons (Hong Kong) Limited

Kelvin Chau

Kerry Properties Limited Merger & Acquisition 2003