Kerry Properties Limited — Proxy Solicitation & Information Statement 2004

May 31, 2004

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult a licensed securities dealer, 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 circular and the enclosed form of proxy to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, 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 circular.

==> picture [146 x 84] intentionally omitted <==

website: http://www.kerryprops.com

(Stock Code: 00683)

DISCLOSEABLE AND CONNECTED TRANSACTIONS RELATING TO THE JOINT ACQUISITION, OWNERSHIP AND

DEVELOPMENT OF THE SITES IN JINGAN DISTRICT, SHANGHAI, THE PRC

ADOPTION OF CHINESE NAME

ADOPTION OF NEW BYE-LAWS

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

A letter from the Board is set out on pages 9 to 40 of this circular. A letter from the Independent Board Committee is set out on pages 41 to 42 of this circular. A letter from the Independent Financial Adviser containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 43 to 63 of this circular.

Resolutions will be proposed at the Special General Meeting of Kerry Properties Limited to be held at Island Ballroom, Level 5, Island Shangri-La Hotel, Pacific Place, Supreme Court Road, Central, Hong Kong on Friday, 25 June 2004 at 10:00 a.m. to approve the matters referred to in this circular.

The notice convening the Special General Meeting is set out on pages 89 to 91 of this circular. Whether or not you are able to attend the meeting, you are requested to complete the enclosed form of proxy in respect of the Special General Meeting in accordance with the instructions printed thereon and return it to Abacus Share Registrars Limited, the Company’s branch share registrar in Hong Kong, of 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 Special General Meeting. Completion and return of the accompanying form of proxy will not preclude you from attending and voting at the meeting should you so wish.

* For identification purpose only

31 May 2004

CONTENTS

		Page
Definitions	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from	the Board
1.	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
2.	Details of the Master Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
3.	Corporate structure and ownership chart of the Sites . . . . . . . . . . . . . . . . . .	21
4.	Information on the Joint Venture Companies and the Sites . . . . . . . . . . . . .	25
5.	Information on the Company and SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
6.	Reasons for, and benefits of, the Master Agreement . . . . . . . . . . . . . . . . . . .	31
7.	Financial effects of the transactions contemplated by
	the Master Agreement on the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	33
8.	Implications under the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35
9.	Listing Rules implications of the proposed
	continuing connected transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	36
10.	Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37
11.	Adoption of Chinese name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37
12.	Adoption of new bye-laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38
13.	Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38
14.	General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	39
Letter from	the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	41
Letter from	ING Bank N.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	43
Appendix I	– Property valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	64
Appendix II – Summary of material changes to the bye-laws
	of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	79
Appendix III – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		81
Notice of Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		89

– i –

DEFINITIONS

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

• “An Sheng”

An Sheng International Investment Limited, a company incorporated in Hong Kong with limited liability and majority owned by Party A and the remaining shareholding owned by independent third parties not connected with the Company, SA or any of their subsidiaries or connected persons of the Company or SA

• “associates” has the meaning ascribed to it in the Listing Rules

• “Authorities”

any government authority of the Shanghai Municipal People’s Government（上海市人民政府）whose approval will be required for the approval of all or any of the transactions contemplated in the Master Agreement, including but not limited to the Shanghai Foreign Investment Commission（上海市外國投資工作委員會）and the Land Bureau

• “Board” the board of directors of the Company

• “CECL” China Enterprise Company Limited（中華企業股份有限公 司）, a joint stock limited company established in the PRC, whose A shares are listed on the Shanghai Stock Exchange. The major shareholder of CECL is Shanghai Housing holding approximately 49.87% of the share capital of CECL as at 31 December 2003

• “circular” this circular, including the appendices hereto

• “Company” or “KPL” Kerry Properties Limited, an exempt company incorporated in Bermuda with limited liability, the shares of which are listed on the Main Board of the Hong Kong Stock Exchange

• “Company 1” Shanghai Ji Xiang Properties Co., Ltd（上海吉祥房地產有 限公司）, an equity joint venture incorporated on 28 December 1994 in the PRC, held as to 99% by KSJN and 1% by JPD

• “Company 1 Contract” the equity transfer contract to be entered into between KSJN and KSD in respect of the sale by KSJN and the purchase by KSD of a 50.5% equity interest in Company 1 and the assignment of agreed proportionate share of the amounts owed by Company 1 to KSJN

– 1 –

DEFINITIONS

• “Company 3”

• “Company 3 Contract”

Shanghai Jin Ci Hou Properties Company Limited（上海金 慈厚房地產發展有限公司）, a limited liability company incorporated on 15 December 2000 in the PRC, owned as to 55% by SRE and as to 45% by Shanghai Housing

the contract entered into on 13 April 2004 between SRE, Shanghai Housing, KSD, KSJN, Party A and Company 3 whereby the parties agreed to enter into the necessary related contracts (including but not limited to the share transfer agreement, debt settlement agreement and site clearance agreement) for:

• (i) the sale by SRE and Shanghai Housing and the purchase by KSD, KSJN and Party A of a 100% equity interest in Company 3;

• (ii) the provision by KSD, KSJN and Party A to Company 3 of funds for the purpose of the repayment by Company 3 of amounts due to SRE and Shanghai Housing respectively; and

• (iii) the procurement of the clearance and delivery of vacant possession of, and the provision of the related public utilities for, Site 3b by SRE

• “Company 4”

• “Company 4 Contract”

Shanghai Ming Cheng Real Estate Development Co., Ltd. （上海名城房地產發展有限公司 ), an equity joint venture incorporated on 9 November 1995 in the PRC, owned as to 70% by Party A and as to 30% by An Sheng

the contract entered into on 13 April 2004 between Party A, An Sheng, KSD, KSJN and Company 4 whereby the parties agreed to enter into the necessary related contracts (including but not limited to the share transfer agreement and debt settlement agreement) for:

• (i) the sale by Party A and An Sheng and the purchase by KSD and KSJN of a 99% equity interest in Company 4;

• (ii) the provision by KSD and KSJN to Company 4 of funds for the purpose of the repayment by Company 4 of amounts due to Party A and An Sheng respectively; and

– 2 –

DEFINITIONS

• (iii) the site clearance of Site 4, to be jointly undertaken by Party A and Company 4, the cost of which will be borne equally by Party A and Company 4

• “Completion” completion of the Master Agreement “connected persons” has the meaning ascribed to it in the Listing Rules “connected transactions” has the meaning ascribed to it in the Listing Rules “continuing connected has the meaning ascribed to it in the Listing Rules transactions”

• “Directors” the directors of the Company “Group” the Company and its subsidiaries “HIBOR” Hong Kong Interbank Offer Rates “HK$” Hong Kong dollars, the lawful currency of Hong Kong “Hong Kong” Hong Kong Special Administrative Region of the PRC “Hong Kong Stock Exchange” The Stock Exchange of Hong Kong Limited

• “Hotel Management Agreement” the hotel management agreement to be entered into between the SLIM Group and the Joint Venture Companies relating to the provision of hotel management and marketing services to the hotel to be built on the Sites of the Project, as more particularly referred to in paragraph 2.1(e)(iv) in the “Letter from the Board” of this circular

• “Independent Board the independent committee of the Board consisting of all Committee” the independent non-executive Directors, being Mr. LAU Ling Fai, Herald, who presides as the chairman of the committee, Mrs. LEE Pui Ling, Angelina and Mr. Christopher Roger MOSS, O.B.E.

• “Independent Financial Adviser” or “ING”

• ING Bank N.V., a deemed registered institution for types 1, 4, 6 and 9 regulated activities under the SFO and the financial adviser to the Independent Board Committee and the Independent Shareholders

– 3 –

DEFINITIONS

“Independent Shareholders”	Shareholders who are not required to abstain from voting at
	the Special General Meeting to approve the KPL Resolution
“Jingan District Government”	the People’s Government of Jingan District, Shanghai, PRC
	（上海市靜安區人民政府）
“Joint Venture Companies”	collectively, Company 1, Company 3 and Company 4 and
	“Joint Venture Company” shall mean any one of them
“JPD”	Jingan District Property Development and Management
	Company（上海市靜安區房地產開發經營公司）, a state-
	owned enterprise owned by the Jingan District Government
“KHL”	Kerry Holdings Limited, a company incorporated in Hong
	Kong with limited liability, which, as at the Latest
	Practicable Date, held as disclosed under the SFO,
	approximately 45.21% and 62.86% of the issued share
	capital of SA and the Company respectively
“KPL Resolution”	the resolution to approve the Relevant Transactions by the
	Independent Shareholders at the Special General Meeting
“KSD”	Kerry Shanghai Development Ltd, incorporated in Samoa,
	an indirect wholly-owned subsidiary of the Company
“KSJN”	Kerry Shanghai (Jingan Nanli) Ltd, incorporated in Samoa,
	an indirect wholly-owned subsidiary of SA
“Kuok Group”	companies owned or controlled by Mr. Kuok Hock Nien
	and/or interests associated with him
“Land Bureau”	Shanghai Municipal Housing, Land and Resources
	Administration Bureau（上海市房屋土地資源管理局）
“Latest Practicable Date”	24 May 2004, being the latest practicable date prior to the
	printing of this circular for ascertaining certain information
	contained in this circular
“LIBOR”	London Interbank Offer Rates
“Listing Rules”	the Rules Governing the Listing of Securities on the Hong
	Kong Stock Exchange

– 4 –

DEFINITIONS

• “Macau” Macau Special Administrative Region of the PRC

• “Master Agreement” the agreement made between SA and the Company on 13 April 2004 relating to the joint acquisition, ownership and development of the Sites in Jingan District, Shanghai

• “Mingcheng Plaza” a 6-storey commercial building with a 2-level basement, situated within Site 4

• “Party A” Shanghai Jingan District Land Development Holding Corporation（上海市靜安區土地開發控股總公司）, a stateowned enterprise of Jingan District

• “PBOC Rate”

• the People’s Bank of China’s lending rates for RMB from time to time

• “PRC”

• the People’s Republic of China, which for the purpose of this circular excludes Hong Kong, Macau and Taiwan

• “Property Sales, Leasing and Management Agreement”

• the agreement to be entered into between the Group and the Joint Venture Companies relating to the provision of various services including marketing and promotion consultancy services on sales and leases, tenancy management services on leases, sales agency services for referral of buyers and lease agency services for referral of tenants, as more particularly referred to in paragraph 2.1(e)(i) in the “Letter from the Board” of this circular

• “Project”

• the acquisition, ownership, construction and development of the Sites

• “Project Management Agreement”

• the project development, construction management and project consultancy services agreement to be entered into between the Group and the Joint Venture Companies, as more particularly referred to in paragraph 2.1(d) in the “Letter from the Board” of this circular

• “Relevant Transactions”

the transactions contemplated under the Master Agreement and the Underlying Contracts but shall exclude the agreements referred to in paragraph 2.1(e)(i) to (iv) in the “Letter from the Board” of this circular which have yet to be entered into

– 5 –

DEFINITIONS

• “RMB” Renminbi, the lawful currency of the PRC “SA” Shangri-La Asia Limited, an exempted company incorporated in Bermuda with limited liability, the shares of which are primarily listed on the Main Board of the Hong Kong Stock Exchange with secondary listing on the Singapore Stock Exchange

• “SA Board” the board of directors of SA “SA Directors” the directors of SA “SA Group” SA and its subsidiaries

• “SA Independent SA Shareholders who are not required to abstain from voting Shareholders” at the special general meeting of SA to approve the SA Resolution

• “SA Resolution” the resolution to approve the terms of the Master Agreement and certain transactions contemplated under the Master Agreement by the SA Independent Shareholders at a special general meeting of SA

• “SA Shareholders” holders of SA Shares “SA Share(s)” ordinary share(s) of HK$1.00 each in the share capital of SA

• “SA Valuer” CB Richard Ellis Limited, an independent professional valuer appointed by SA to value the Sites

• “SFO” Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

• “Shanghai Housing” Shanghai Housing and Land (Group) Corporation（上海房 地（集 團）公司）, a state-owned company incorporated in the PRC

• “Shanghai Kerry Centre” the composite office, commercial and residential property development at 1515 Nanjing Xi Lu, Jingan District, Shanghai which is currently owned as to 74.25% by the Company, 24.75% by SA and 1% by JPD

– 6 –

DEFINITIONS

“Shangri-La International”	Shangri-La International Hotel Management Limited, a
	company incorporated in Hong Kong, Shangri-La
	International Hotel Management Limited, a company
	incorporated in the British Virgin Islands, and Shangri-La
	International – China Management Limited, a company
	incorporated in Hong Kong and a subsidiary of Shangri-La
	International Hotel Management Limited, Hong Kong
“Share(s)”	ordinary share(s) of HK$1.00 each in the share capital of
	the Company
“Shareholder(s)”	holder(s) of Shares
“Singapore Stock Exchange”	Singapore Exchange Securities Trading Limited
“Site 1”	Lot No. 1238, Yanan Zhong Lu, Jingan District, Shanghai,
	further particulars of which are set out on page 25 of this
	circular
“Site 2”	Lot No. 1288, Yanan Zhong Lu, Jingan District, Shanghai,
	further particulars of which are set out on page 26 of this
	circular
“Site 2 Contract”	the land grant contract dated 6 February 2002 made between
	KSD, Party A and the Land Bureau in respect of Site 2
“Site 2 Supplemental Contract”	the supplemental contract to be entered into between KSD,
	KSJN, Party A and the Land Bureau for the amendment of
	the Site 2 Contract so that KSD will be entitled to 50.5%,
	KSJN will be entitled to 48.5% and Party A will be entitled
	to 1% interest in the Site 2 Contract respectively
“Site 3a”	Changde Lu 104-126 Nong and Nos. 50-134 Anyi Lu, Jingan
	District, Shanghai, further particulars of which are set out
	on page 27 of this circular
“Site 3b”	Lot No. 1537 (Nos. 1519-1553) Nanjing Xi Lu, Jingan
	District, Shanghai, further particulars of which are set out
	on page 27 of this circular
“Site 4”	Lot No. 1565 Nanjing Xi Lu, Jingan District, Shanghai,
	further particulars of which are set out on page 28 of this
	circular
“Sites”	collectively, Site 1, Site 2, Site 3a, Site 3b and Site 4 and
	“Site” means any one of them

– 7 –

DEFINITIONS

“SLIM Group” SLIM International Limited, a company incorporated in Hong Kong with limited liability and which is a whollyowned subsidiary of SA, and its subsidiaries

“Special General Meeting” the special general meeting of the Company to be held at Island Ballroom, Level 5, Island Shangri-La Hotel, Pacific Place, Supreme Court Road, Central, Hong Kong on Friday, 25 June 2004 at 10:00 a.m. at which the resolutions set out in this circular will be proposed, the notice of which is set out on pages 89 to 91 of this circular

• “sq.m.” square metres

• “SRE” Shanghai Real Estate (Group) Company Limited（上海房 地產經營（集團）有限公司）, a limited liability company incorporated in the PRC, which is 90% owned by CECL and 10% owned by Shanghai Housing

• “subsidiary” has the meaning ascribed to it in section 2(4) of the Companies Ordinance of Hong Kong (Chapter 32 of the Laws of Hong Kong)

• “Underlying Contracts” the Company 1 Contract, the Site 2 Supplemental Contract, the Company 3 Contract and the Company 4 Contract entered into or to be entered into (as the case may be) by the parties and any other contracts which the parties thereto may enter into to implement the transactions contemplated under those contracts or agreements, the principal terms of which are more particularly described on pages 11 to 15 of this circular

• “US$” United States Dollars, the lawful currency of the United States of America

• “Valuers” Chesterton Petty Limited and DTZ Debenham Tie Leung Limited, independent professional property valuers appointed by the Company as joint valuers of the Sites

• “%” per cent.

Note: For the purposes of the Company’s announcement dated 3 May 2004 and in this circular, unless stated otherwise, the exchange rates of RMB1.06 = HK$1.00 and US$1.00 = HK$7.80 have been used.

– 8 –

LETTER FROM THE BOARD

==> picture [147 x 83] intentionally omitted <==

website: http://www.kerryprops.com

(Stock Code: 00683)

Executive Directors:

Mr. ANG Keng Lam (Chairman) Mr. WONG Siu Kong (Deputy Chairman and Managing Director)

Mr. HO Shut Kan Mr. MA Wing Kai, William

Independent Non-executive Directors: Mr. LAU Ling Fai, Herald Mrs. LEE Pui Ling, Angelina Mr. Christopher Roger MOSS, O.B.E.

Registered Office:

Canon’s Court 22 Victoria Street Hamilton HM 12 Bermuda

Head Office and Principal Place of Business in Hong Kong:

13-14/F, Cityplaza 3 14 Taikoo Wan Road Taikoo Shing Hong Kong

31 May 2004

To the Shareholders and Optionholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTIONS RELATING

TO THE JOINT ACQUISITION, OWNERSHIP AND

DEVELOPMENT OF THE SITES IN JINGAN DISTRICT, SHANGHAI, THE PRC

ADOPTION OF CHINESE NAME

ADOPTION OF NEW BYE-LAWS

1. INTRODUCTION

On 3 May 2004, the Company announced that SA and the Company have entered into the Master Agreement relating to the joint acquisition, ownership and development of the Sites in Jingan District, Shanghai. Site 1 is currently owned by Company 1, which is a 99% owned subsidiary of SA, while the Group currently has a 99% interest in Site 2. The remaining three sites, namely Site 3a, Site 3b and Site 4, are presently owned by independent third parties.

• For identification purpose only

– 9 –

LETTER FROM THE BOARD

The Master Agreement is a top-level agreement between SA and the Company which sets out the framework and material terms and conditions for implementing the transactions therein described. Broadly, the transactions contemplated by the Master Agreement can be broken down into three parts, being:

• (i) the restructuring of the SA Group’s and the Group’s respective interests in Site 1 and Site 2 and the acquisition of the remaining three sites, such that all the sites will be owned by the Joint Venture Companies respectively in which SA, the Company and an independent third party will be interested in the proportions of 48.5:50.5:1 respectively;

• (ii) the consolidation into Company 1 of the Sites through merger of the Joint Venture Companies and the development of the Sites into a property development consisting of a hotel, offices, retail podiums, residential and serviced apartments; and

• (iii) the provision of hotel management and marketing services to the resulting hotel by the SLIM Group and the provision of certain marketing and promotion consultancy services during construction and after completion of the Project by the Group.

In respect of the transactions in paragraph (iii) above, the terms thereof have yet to be agreed and each of SA and the Company agrees to ensure compliance with its obligations under the Listing Rules when the relevant agreements are entered into. The entering into of the Relevant Transactions constitutes non-exempt connected transactions for the Company under the Listing Rules and is therefore subject to the approval of the Independent Shareholders at a duly convened special general meeting. In addition, given the total estimated size of the Project, the transactions contemplated by the Master Agreement also constitute discloseable transactions for the Company.

An Independent Board Committee has been formed to advise the Independent Shareholders in relation to the Relevant Transactions. ING has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders.

The purpose of this circular is (i) to provide you with further information in respect of the Master Agreement and the transactions contemplated therein, (ii) to set out the opinions and recommendations of the Independent Board Committee and ING in relation to the entering into of the Relevant Transactions; and (iii) to give you notice of the Special General Meeting at which the resolutions set out therein will be proposed.

KHL and its associates will abstain from voting in respect of the KPL Resolution at the Special General Meeting.

The following directors of the Company, namely, Messrs. Ang Keng Lam and Wong Siu Kong, who are also directors of KHL, and their associates will also abstain from voting in respect of the KPL Resolution.

– 10 –

LETTER FROM THE BOARD

The Company would also like to take the opportunity to seek Shareholders’ approval at the Special General Meeting to adopt a Chinese name and a new set of bye-laws. Further information regarding these proposals is set out in this circular.

2. DETAILS OF THE MASTER AGREEMENT

2.1 Overview

• The Master Agreement was entered into between SA and the Company on 13

• April 2004.

Pursuant to the Master Agreement:

• (a) SA and the Company shall procure KSJN and KSD respectively to jointly acquire, own and develop the Sites pursuant to transactions and contracts or agreements set out in the table below:

What the Master Agreement

Site and/or Underlying Contracts provide

Subject matters

• Site 1 The Master Agreement (i) acknowledges the sale of 1% of Company 1 from JPD to Party A[(Note 1)] , and (ii) provides that KSJN, KSD and Party A shall enter into a further contract within 90 days from the date the Master Agreement becomes unconditional or such longer period as the parties may agree for the purposes set out in column (3) herein.

• Sale of 50.5% interest in Company 1 from KSJN to KSD, and assignment to KSD of approximately US$757,000 (HK$5,904,600), being the agreed proportionate share of amounts due from Company 1 to KSJN (of which US$685,423 (HK$5,346,299) is shareholders’ loans and HK$6,224,623 is amount payable), for US$39,488,308 (HK$308,008,802) to be satisfied in cash.

• Site 2 The Master Agreement provides for the transactions set out in column (3) herein.

• SA will procure KSJN to pay KSD US$12,776,754 (HK$99,658,681) to be satisfied by cash and the parties will enter into the Site 2 Supplemental Contract relating to the Site 2 Contract.

• SA and the Company will cause KSJN and KSD to procure Company 1 to apply for the issue of the real estate ownership certificate in respect of Site 2 in Company 1’s name, and to accept the same when issued.

– 11 –

LETTER FROM THE BOARD

The Master Agreement further provides that KSD, KSJN, Party A and the Land Bureau shall enter into a supplemental contract (the Site 2 Supplemental Contract) within 90 days from the date the Master Agreement becomes unconditional or such longer period as the parties may agree for the purposes set out in column (3) herein.

1. The inclusion of KSJN as a party to the Site 2 Contract, so that as between KSJN, KSD and Party A, they shall have interests in the Site 2 Contract in the proportions of 48.5%, 50.5% and 1% respectively.

Site 3a The Master Agreement provides that KSJN and Site and KSD shall enter into an agreement with 3b SRE, Shanghai Housing, Company 3 and Party A (the Company 3 Contract) in the agreed form.

Following the execution of the Master Agreement, the Company 3 Contract, in the form contemplated by the Master Agreement, was executed on 13 April 2004 and shall be effective subject to, inter alia, the passing of the KPL Resolution and the SA Resolution (see also page 19 below). The Company 3 Contract provides for the transactions set out in column (3) herein.

1. Sale by SRE and Shanghai Housing (as vendors) of their entire interests in Company 3 to KSJN, KSD and Party A in the proportions of 48.5%, 50.5% and 1% for a total consideration of RMB 20,000,000 (HK$18,867,924) (as to RMB9,700,000 (HK$9,150,943) payable by KSJN, as to RMB10,100,000 (HK$9,528,302) payable by KSD and as to RMB200,000 (HK$188,679) payable by Party A) to be satisfied in cash within 7 days of the share transfer agreement to be entered into by SRE, Shanghai Housing, KSJN, KSD and Party A. The amounts of consideration receivable by SRE and Shanghai Housing are RMB11,000,000 (HK$10,377,358) and RMB9,000,000 (HK$8,490,566) respectively.

2. KSD and KSJN shall procure the Company and SA respectively to provide several guarantees to SRE and Shanghai Housing for KSD’s and KSJN’s respective payment obligations in proportion to their equity interest in Company 3 for (i) the total consideration of RMB20,000,000 (HK$18,867,924) under the share transfer agreement; (ii) the provision of RMB394,597,736 (HK$372,262,015) to Company 3 for repayment of amounts due to SRE and Shanghai Housing respectively; and (iii) the maximum consideration of

– 12 –

LETTER FROM THE BOARD

RMB179,184,358 (HK$169,041,847) payable by Company 3 to SRE for the site clearance under the related contracts contemplated under the Company 3 Contract (including the share transfer agreement, debt settlement agreement and site clearance agreement) in such form and substance as KSD, KSJN, SRE and Shanghai Housing shall mutually agree.

1. The provision by KSD, KSJN and Party A, following the acquisition, of funds to Company 3 upon the same terms and conditions in an amount equivalent to RMB199,271,857 (HK$187,992,318), RMB191,379,902 (HK$180,547,077) and RMB3,945,977 (HK$3,722,620) respectively by way of shareholders’ loans and/or equity contribution for the purposes of repayment of the amounts of RMB223,318,925 (HK$210,678,231) and RMB171,278,811 (HK$161,583,784), due to SRE and Shanghai Housing respectively.

2. KSD, KSJN, Party A and Company 3 will use all reasonable endeavours to procure Company 3 to enter into an agreement with SRE whereby SRE shall be responsible for the clearance and delivery of vacant possession and the provision of the related public utilities for Site 3b for a consideration of RMB174,184,358 (HK$164,324,866), which includes a sum of RMB155,000,000 (HK$146,226,415) being the estimated site clearance cost. In the event that the site clearance cost exceeds RMB155,000,000 (HK$146,226,415), Company 3 shall be responsible for 25% of the increased site clearance costs provided that Company 3’s liability for such increased clearance costs shall not

– 13 –

LETTER FROM THE BOARD

exceed RMB5,000,000 (HK$4,716,981). SRE and the third party site clearance company commissioned by SRE shall be responsible for the 25% and 50% respectively of the increased site clearance costs.

Site 4 The Master Agreement provides that KSJN and KSD shall enter into an agreement with Company 4, An Sheng and Party A (the Company 4 Contract) in the agreed form.

Following the execution of the Master Agreement, the Company 4 Contract, in the form contemplated by the Master Agreement, was executed on 13 April 2004 and shall be effective subject to, inter alia , the passing of the KPL Resolution and the SA Resolution (see also page 19 below). The Company 4 Contract provides for the transactions set out in column (3) herein.

1. Sale by An Sheng and Party A (as vendors) of their interests in Company 4 to KSJN and KSD in the proportions of 48.5% and 50.5% for a total consideration of US$4,950,000 (HK$38,610,000) (or equivalent of RMB40,971,150 (HK$38,652,028)) (as to US$2,425,000 (HK$18,915,000) payable by KSJN and as to US$2,525,000 (HK$19,695,000) payable by KSD) to be satisfied in cash, 60% of which will be paid after the signing of the share transfer agreement to be entered into between An Sheng, Party A, KSJN and KSD and the remaining 40% will be paid after obtaining the relevant government approvals for the share transfer. The amounts of consideration receivable by Party A and An Sheng shall be US$3,450,000 (HK$26,910,000) and US$1,500,000 (HK$11,700,000) respectively.

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LETTER FROM THE BOARD

  2. The provision by KSD and KSJN, following the acquisition, of funds to Company 4 upon the same terms and conditions, in an amount equivalent to RMB49,800,575 (HK$46,981,675) and RMB47,828,275 (HK$45,121,014) respectively by way of shareholders’ loans and/or equity contribution for the purpose of repayment of the amounts of RMB97,628,850 (HK$92,102,689) representing in aggregate 99% of the total shareholders’ loans due to An Sheng and Party A. Following repayment of the loans referred to herein, the parties will hold the shareholders’ loans of Company 4 in the same proportions as their proposed shareholdings in Company 4.

  3. The site clearance of Site 4 is to be undertaken jointly by Party A and Company 4, the cost of which will be borne equally by Party A and Company 4.

• Note 1: Pursuant to an equity transfer contract between JPD and Party A, JPD will transfer its 1% equity interest in Company 1 to Party A subject to the approval of the share transfer by the Shanghai Foreign Investment Commission which was granted on 14 May 2004.

• (b) The Company, SA together with Party A shall for the purpose of funding the costs and expenses of the Project be required to make on the same terms equity contribution to, and/or provide shareholders’ loans to, and/or provide collateral or security for the benefit of, the Joint Venture Companies or otherwise in connection with the Project in proportion to their then respective equity interest in the Joint Venture Companies and/or the Project from time to time.

Further contribution from the Company, SA and Party A for the benefit of the Joint Venture Companies or in connection with the Project shall be made in such forms (including equity injection, shareholders’ loans and the provisions of guarantees and/or collateral) as the parties shall agree.

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LETTER FROM THE BOARD

In the event that such contribution is made in the form of shareholders’ loans, interest will be charged on the shareholders’ loans to be provided by KSD, KSJN and Party A to the Joint Venture Companies at the prevailing rate(s) as the parties shall agree but in any event not exceeding HIBOR, LIBOR or the PBOC Rate (as the case may be) plus 2% per annum; the shareholders’ loans will not be revolving loans and will not be secured and will be repaid by the Joint Venture Companies depending on their cash flow position and subject to agreement with banks or financial institutions which have extended loans or facilities to the relevant Joint Venture Companies.

In the event that collateral/security is provided by the parties for the benefit of the Joint Venture Companies and/or the Project, such collateral/security will be in any one or more of the following forms:

• (1) pledge over the respective interest of the Company and SA in the Joint Venture Companies and/or the Project;

• (2) assignment of KSJN’s and KSD’s shareholders’ loans to the Joint Venture Companies; and/or

• (3) several corporate guarantees by the Group and the SA Group

It is agreed that the total costs of the Project (including the cost of the acquisition of the Sites and related costs), based on the current US$: RMB exchange rate, are estimated to be not more than US$600,000,000 (HK$4,680,000,000). No party shall be required to commit further funding if the cost of the Project exceeds US$700,000,000 (HK$5,460,000,000).

On the basis of a maximum total commitment of US$700,000,000 (HK$5,460,000,000) and the current proportions of equity interest in the Joint Venture Companies, the maximum commitment by each of the Company, SA and Party A in respect of the Project (including the commitments which they have already made for the purposes of acquiring the Sites, as set out above) shall be approximately US$353,500,000 (HK$2,757,300,000), US$339,500,000 (HK$2,648,100,000) and US$7,000,000 (HK$54,600,000) respectively. In the event that the Company and SA shall have acquired the 1% from Party A pursuant to paragraph (c) below, the maximum commitment by each of the Company and SA in respect of the Project aforesaid shall be approximately US$357,000,000 (HK$2,784,600,000) and US$343,000,000 (HK$2,675,400,000) respectively. The Group has already contributed approximately HK$169.0 million in relation to its interest in Site 2 before entering into the Master Agreement and the Underlying Contracts. The additional immediate net cash payment upon completion of the Master Agreement and the Underlying Contracts as

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LETTER FROM THE BOARD

provided in the circular is approximately HK$555.5 million (excluding the Group’s share of potential maximum liability for increased clearance cost for Site 3b amounting to approximately HK$2.4 million). Therefore, the amount of funds immediately committed to the Project after completion of the Master Agreement and the Underlying Contracts by the Company is approximately HK$725 million, while the amount committed by SA will be approximately US$93 million (HK$725 million).

• (c) The Company and SA shall use all reasonable endeavours to procure Party A to sell its 1% interest in the Project, including the Joint Venture Companies, Site 2 and the Underlying Contracts (if applicable), to KSD and KSJN and shall procure KSD and KSJN to purchase Party A’s 1% interest on an equal basis upon such terms and conditions as the Company, SA and Party A shall agree and to take such actions in compliance with the Listing Rules so that KSD and KSJN shall be interested in the Project, the Joint Venture Companies, the Sites and/or the Underlying Contracts (if applicable) in the ratio of 51:49.

There is currently no agreement with Party A on the sale of the 1% interest although the parties have had preliminary discussions with Party A. There is no assurance that the Company and SA will be able to procure Party A to sell its 1% interest or that the terms upon which Party A is willing to sell would be acceptable to the Company and SA. The timing of the sale, if any, cannot be determined at this stage.

• (d) In connection with the development of the Project, members of the Group and the Joint Venture Companies will enter into the Project Management Agreement.

Under the Project Management Agreement, the Group will act as overall project manager of the Project and will provide to the Joint Venture Companies and/or the Project for the construction of the Project, the project management services for the Project and related project development, construction management and project consultancy services and will be responsible for the co-ordination and management of workers on site, giving advice and recommendations on the overall design and layout of the Project, controlling the costs and quality of materials and works performed by architects, engineers and contractors and monitoring the development progress of the Project during the period of construction of the Project at a fee of 1.5% of the total construction costs for the Project. The fee is to be satisfied in cash and payable over the course of the Project based on the relevant stages of completion of construction of the Project. Based on the maximum estimated construction costs of approximately US$500,000,000 (HK$3,900,000,000) and the current RMB: US$ exchange rates, the total fee is expected to be not more than US$7,500,000 (HK$58,500,000).

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LETTER FROM THE BOARD

The Project Management Agreement constitutes connected transaction of the Company under the Listing Rules.

• (e) Pursuant to the Master Agreement, the SLIM Group and the Group will enter into the following agreements in relation to the Project as set out below, subject to compliance with their respective obligations under the Listing Rules:

Nature of the agreement Details

• (i) Property Sales, Leasing and Management Agreement

• The Group will provide to the Joint Venture Companies and/or the Project certain marketing and promotion consultancy services during construction and after completion of the Project. Such services will include marketing and promotion consultancy services on sales and leases, tenancy management services on leases, sales agency services for referral of buyers and lease agency services for referral of tenants.

• (ii) Technical Consultancy Services Agreement

• The SLIM Group will provide to the Joint Venture Companies and/or the Project technical consultancy services for the development of the hotel to be built on the Sites of the Project.

• (iii) Marketing Consultancy Services Agreement

• The SLIM Group will provide to the Joint Venture Companies and/or the Project marketing consultancy services during the development stage of the hotel to be built on the Sites of the Project.

• (iv) Hotel Management Agreement

• The SLIM Group will provide to the Joint Venture Companies and/or the Project hotel management and marketing services to the hotel to be built on the Sites of the Project after the hotel has commenced business.

The entering into of the Property Sales, Leasing and Management Agreement and the Hotel Management Agreement will constitute continuing connected transactions of the Company under the Listing Rules. Depending on the terms and implementation of the Technical Consultancy Services Agreement and the Marketing Consultancy Services Agreement, these contracts may

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LETTER FROM THE BOARD

be treated as continuing connected transactions of the Company under the Listing Rules. When the relevant agreements in relation to these transactions are entered into, the Company will ensure that it complies with its obligations under the Listing Rules (see also pages 36 and 37 below).

2.2 Conditions to Completion

• (a) Completion of the Master Agreement is conditional upon:

• i the passing of the SA Resolution; and

• ii the passing of the KPL Resolution.

• (b) Each of the Underlying Contracts is or will be conditional upon:

• i the passing of the SA Resolution;

• ii the passing of the KPL Resolution; and

• iii all necessary approvals, consents, authorisation and licences, whether corporate, regulatory, governmental or otherwise required under the relevant Underlying Contract having been obtained.

If the KPL Resolution or the SA Resolution is not passed on or before 30 June 2004 or such later date as SA and the Company may agree, any party may terminate the Master Agreement by notice in writing to the other.

Upon the Master Agreement becoming unconditional, SA shall procure KSJN and the Company shall procure KSD to agree, sign and execute the relevant contracts and agreements contemplated under the Master Agreement and the Underlying Contracts (if not already signed) to implement the transactions contemplated thereunder within 90 days therefrom or such longer period as the parties may agree.

The Company and SA will ensure that the implementation of the contracts and documents conform with the terms and conditions agreed in the Master Agreement.

If not all the Underlying Contracts have been executed upon the expiry of 90 days from the date of the Master Agreement becoming unconditional or such other date as the parties may agree for whatever reasons, or if, following the execution of the Underlying Contracts, completion does not take place in relation to all the Underlying Contracts for whatever reasons, without releasing each party from its obligation to the other party for antecedent breaches (if any) under the Master Agreement, both SA and the Company agree that (i) they shall be discharged from their respective obligations in relation to Company 1 and the Site 2 Supplemental Contract, and (ii) they shall take

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such actions as they are reasonably able to procure the vendors of Company 3 and Company 4 to discharge the parties from their respective obligations in relation to Site 3a, Site 3b and Site 4. To the extent that the parties have entered into any further agreement or documentation and/or made any applications to any regulatory or governmental authority to implement the transactions contemplated by the Master Agreement, the parties shall do all that is reasonably necessary and within their power and/or control to put each party back in the same position (or as near to as possible) as if such party has not entered into the Master Agreement.

The Company 3 Contract and the Company 4 Contract have already been executed on 13 April 2004 and shall be effective upon, inter alia , the passing of the SA Resolution and the KPL Resolution. Each of the Underlying Contracts is not inter-conditional with the other but, as set out above, if any of the Underlying Contracts cannot be completed, the parties will do all that is reasonably necessary and within their power and/or control to put each party back in the same position (or as near to as possible) as if such party has not entered into the Master Agreement. Although no formal agreement has been signed with the Land Bureau in respect of Site 2, the parties do not expect any difficulties with the signing of the Site 2 Supplemental Contract with the Land Bureau.

2.3 Possible merger of the Sites

It was further provided in the Master Agreement that subject to completion of the transactions contemplated under the Master Agreement and the Underlying Contracts, the Joint Venture Companies would be merged by way of dissolving Company 3 and Company 4 and transferring all their assets and liabilities to Company 1. For so long as Party A is holding any interest in any of the Joint Venture Companies, the Sites and/or the Project, SA and the Company shall procure KSJN and KSD to agree with Party A the terms of such merger and to take all such necessary actions as shall be required to effect such merger and such actions as are required under the Listing Rules. To the extent that the consolidation or merger results in a material change to the intention of the parties as set out in the Master Agreement, the Company shall comply with its Listing Rules obligations.

2.4 Expected time frame of the Project

Construction of the Sites is expected to commence in early 2005 and to be completed in phases up to mid-2009. It is expected that the hotel business will commence in 2008. The Sites will be developed into a mixed use development consisting of a hotel, offices, retail podiums, residential and serviced apartments.

It is the current intention of SA and the Company to retain the Project for investment holding purpose, except the residential portion which may be considered for sale depending on the prevailing market conditions, and, if sold, the proceeds will be used to fund the development of the Project.

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LETTER FROM THE BOARD

3. CORPORATE STRUCTURE AND OWNERSHIP CHART OF THE SITES

The charts below set out the relationships between the parties concerned and the ownership of the Sites before and after the implementation of the Master Agreement.

3.1 Site 1

Before

==> picture [289 x 226] intentionally omitted <==

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

Jingan District
SA
Government
100%
KSJN JPD Party A
99% 1%
Equity Transter
Contract
Company 1 (Note 1)
Site 1
----- End of picture text -----

After

==> picture [289 x 226] intentionally omitted <==

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

The Company SA
100% 100%
KSD KSJN Party A
50.5% 48.5% 1%
Company 1
Site 1
----- End of picture text -----

Note 1: Pursuant to an equity transfer contract between JPD and Party A, JPD will transfer its 1% equity interest in Company 1 to Party A subject to the approval of the share transfer by the Shanghai Foreign Investment Commission which was granted on 14 May 2004.

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LETTER FROM THE BOARD

3.2 Site 2

Before

==> picture [289 x 416] intentionally omitted <==

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

The Company
100%
KSD Party A
99% 1%
Site 2
After
The Company SA
100% 100%
KSD KSJN Party A
50.5% 48.5% 1%
Site 2
----- End of picture text -----

After

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LETTER FROM THE BOARD

3.3 Site 3a and Site 3b

Before

==> picture [184 x 170] intentionally omitted <==

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

Shanghai
SRE
Housing
55% 45%
Company 3
Site 3a and
Site 3b
----- End of picture text -----

After

==> picture [289 x 226] intentionally omitted <==

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

The Company SA
100% 100%
KSD KSJN Party A
50.5% 48.5% 1%
Company 3
Site 3a and
Site 3b
----- End of picture text -----

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LETTER FROM THE BOARD

3.4 Site 4

Before

==> picture [184 x 170] intentionally omitted <==

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

An Sheng Party A
30% 70%
Company 4
Site 4
----- End of picture text -----

After

==> picture [289 x 226] intentionally omitted <==

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

The Company SA
100% 100%
KSD KSJN Party A
50.5% 48.5% 1%
Company 4
Site 4
----- End of picture text -----

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LETTER FROM THE BOARD

4. INFORMATION ON THE JOINT VENTURE COMPANIES AND THE SITES

4.1 Information on Company 1 and Site 1

The principal activities of Company 1 are property development and operations.

Company 1 is currently directly owned as to 99% by KSJN and is a subsidiary of SA. Pursuant to an equity transfer contract dated 1 March 2004 between Party A and JPD, Party A agreed to, subject to the grant of approval for such transfer (which was granted on 14 May 2004), acquire 1% equity interest from JPD in Company 1. JPD is a joint venture partner holding 1% equity interest in Shanghai Kerry Centre, currently owned as to 24.75% by SA and as to 74.25% by the Company.

The principal asset of Company 1 is its interest in Site 1. Site 1 is situated at Lot No. 1238, Yanan Zhong Lu, Jingan District, Shanghai. The site faces Anyi Lu to the north, adjacent to Site 2 in the west, faces Yanan Zhong Lu to the south and Tongren Lu to the east. The site area is approximately 15,157 sq.m. The site is currently vacant pending development of the Project. The legal and beneficial title to Site 1 is vested in Company 1 as evidenced by the real estate ownership certificate Hufangdishizi (1996) No. 100076 issued in favour of Company 1.

Since its incorporation on 28 December 1994, Company 1 has not carried on any other business save for the holding of Site 1, which has been held by Company 1 since 1994. The carrying value of Site 1 in the audited financial statements of the SA Group for the year ended 31 December 2003 was approximately US$78,200,000 (HK$609,960,000). Upon completion of the Company 1 Contract, KSJN’s interest in Company 1 will be reduced to 48.5% and Company 1 shall cease to be a subsidiary of SA and will be accounted for as an associated company of SA. As the Company’s interest in Company 1 will be 50.5%, Company 1 will become a subsidiary of the Company.

Based on the audited financial statements of Company 1 as at 31 December 2003, Company 1 had total assets of approximately RMB664,969,000 (HK$627,329,245) (including the book value of Site 1 of approximately RMB664,817,000 (HK$627,185,849) and net assets of approximately RMB647,011,000 (HK$610,387,736) with amounts due to KSJN in the total amount of US$1,483,452 (HK$11,570,926) (including loans of US$685,423 (HK$5,346,299) and amount payable of HK$6,224,623) and shareholders’ loan due to JPD in the amount of US$5,509 (HK$42,970). Company 1 has not recorded any turnover or profit/loss since its incorporation. The original purchase cost of the 99% equity interest (including amounts due to KSJN) in Company 1 paid by SA/KSJN was approximately US$77,597,000 (HK$605,256,600). The SA Group acquired the first 25% equity interest in KSJN in December 1993 and the remaining 75% equity interest (including shareholders’ loans) in KSJN in July 1996. The SA Group also granted shareholders’ loans to KSJN to meet the funding requirements of Company 1 since March 1994. This was satisfied partly in cash of approximately US$62,010,000 (HK$483,678,000) and the balance by issue of shares of SA at a consideration of approximately HK$121,575,000. The current carrying cost of 99% equity interest in

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Company 1 in SA’s accounts (including amounts due from Company 1 to KSJN) after writing off the acquisition premium and exchange differences in prior years was approximately US$77,128,000 (HK$601,598,400).

As set out in Appendix I to this circular, the Valuers have valued Site 1 at US$77,800,000 (HK$606,840,000) as at 31 March 2004 resulting in the valuation being lower than the book value of Site 1 in Company 1 by approximately HK$20,346,000. Independent of the Valuers’ valuation, the SA Valuer has valued Site 1 at US$78,000,000 (HK$608,400,000) as at 8 April 2004.

The consideration for the acquisition of KSJN’s 50.5% equity interest in Company 1 and assignment of the agreed proportionate share of amounts due from Company 1 to KSJN is US$39,488,308 (HK$308,008,802).

There will be no material gain/loss being recorded by the SA Group on the disposal of its 50.5% equity interest and assignment to KSD of the agreed proportionate share of the amounts due from Company 1 to KSJN. SA plans to use the proceeds for future injection into the Project.

All the four directors currently on the board of Company 1 are nominated by KSJN. After the acquisition referred to above, KSJN and KSD shall have the right to nominate such number of directors to the board of Company 1 to reflect the ratio of KSJN’s and KSD’s shareholding control of Company 1. Party A shall have no board representation.

4.2 Information on Site 2

Pursuant to the Site 2 Contract entered into on 6 February 2002 between Party A, KSD and the Land Bureau, the Land Bureau had agreed to grant the land use right in respect of Site 2 to KSD and Party A or to a PRC company to be incorporated by them for a consideration of RMB12,666,025 (HK$11,949,080). The cost for clearance of, and the provision of public utilities to, Site 2 already incurred and paid for is RMB168,321,471 (HK$158,793,841). After KSJN has obtained 48.5% interest under the Site 2 Contract, KSJN and KSD shall procure Company 1 to apply to have the real estate ownership certificate of Site 2 to be issued unto Company 1. Under the Site 2 Contract, KSD and Party A are entitled to 99% and 1% respectively of the land use right in respect of Site 2.

Site 2 is situated at Lot No. 1288, Yanan Zhong Lu, Jingan District, Shanghai. Site 2 faces Anyi Lu to the north, adjacent to Site 1 in the east, faces Yanan Zhong Lu to the south and Changde Lu to the west. The site area is approximately 13,693 sq.m. The site is currently vacant pending development of the Project. The land premium in the sum of RMB12,666,025 (HK$11,949,080) for Site 2 has been fully paid, of which RMB1,900,000 (HK$1,792,453) was paid in February 2002 and RMB10,766,025 (HK$10,156,627) was paid in April 2002. 99% of the total amount of land premium was paid by KSD and the remaining 1% by Party A.

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LETTER FROM THE BOARD

The original purchase cost of Site 2 paid by KSD was RMB179,177,621 (HK$169,035,492).

As set out in Appendix I to this circular, the Valuers have valued Site 2 at US$26,000,000 (HK$202,800,000) as at 31 March 2004. Independent of the Valuers’ valuation, the SA Valuer has valued Site 2 at US$26,200,000 (HK$204,360,000) as at 8 April 2004.

48.5% of the value of Site 2 based on the Valuers’ valuation is US$12,610,000 (HK$98,358,000). The consideration for the disposal of KSD’s 48.5% interest in Site 2 is US$12,776,754 (HK$99,658,681).

The Group will record a profit of approximately HK$16,800,000 upon disposal of its 48.5% interest and plans to use the proceeds for future injection into the Project.

4.3 Information on Company 3, Site 3a and Site 3b

The principal activity of Company 3 is property development. The principal assets of Company 3 are Site 3a and Site 3b. Site 3a has a site area of 9,053 sq.m. and Site 3b has a site area of 6,102 sq.m.

Site 3a is situated at Changde Lu 104-126 Nong and Nos. 50-134 Anyi Lu, Jingan District, Shanghai. It faces Changde Lu to the west and Anyi Lu to the south, the east side is adjacent to Shanghai Kerry Centre and the north boundary is adjacent to Site 3b.

Site 3b is situated at Lot No.1537 (Nos. 1519-1553) Nanjing Xi Lu, Jingan District, Shanghai. It faces Nanjing Xi Lu to the north, Shanghai Kerry Centre to the east, Site 3a to the south and Site 4 to the west. It is currently occupied by 2-3 storey houses with retail shops fronting Nanjing Xi Lu.

Pursuant to a land grant contract dated 14 May 2003, between Company 3 and the Land Bureau, Company 3 acquired the land use right in respect of Site 3a and Site 3b. The land premium has been fully paid.

Based on the audited financial statements of Company 3 at 31 December 2003, Company 3 has total assets of approximately RMB538,065,000 (HK$507,608,491) (including the total book value of Site 3a and Site 3b of approximately RMB537,990,000 (HK$507,537,736)) and net assets of approximately RMB20,000,000 (HK$18,867,924). Since its incorporation, Company 3 has not carried on any business save for the property investment in Site 3a and Site 3b and has not recorded any turnover or profit/loss since then.

As set out in Appendix I to this circular, the Valuers have valued Site 3a and Site 3b at US$70,800,000 (HK$552,240,000) as at 31 March 2004 resulting in the valuation being higher than the total book value of Site 3a and Site 3b in Company 3 by approximately HK$44,702,000. Independent of the Valuers’ valuation, the SA Valuer has valued Site 3a and Site 3b at US$70,700,000 (HK$551,460,000) as at 8 April 2004.

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LETTER FROM THE BOARD

The consideration for the acquisition of 50.5% interest in Company 3 by KSD of RMB297,334,958 (HK$280,504,677) (excluding the Group’s share of potential maximum liability for increased clearance cost for Site 3b of RMB2,525,000 (HK$2,382,075)) comprises RMB10,100,000 (HK$9,528,302) for the acquisition of equity interest, RMB199,271,857 (HK$187,992,318) for the contribution towards shareholders’ loans and RMB87,963,101 (HK$82,984,057) being its share of the consideration for the clearance and delivery of vacant possession and the provision of the related public utilities for Site 3b.

The five directors currently on the board of Company 3 are all nominated by SRE and Shanghai Housing. After acquisition by KSJN and KSD of 48.5% and 50.5% equity interest in Company 3, each of KSJN and KSD shall have the right to nominate such number of directors to the board of Company 3 to reflect the ratio of KSJN’s and KSD’s shareholding control of Company 3. Party A shall have no board representation.

Company 3 is currently owned as to 45% by Shanghai Housing and as to 55% by SRE. SRE, a limited liability company incorporated in the PRC, is 90% owned by CECL and 10% owned by Shanghai Housing.

4.4 Information on Company 4 and Site 4

The principal activity of Company 4 is property development. The principal assets of Company 4 are Site 4 and the Mingcheng Plaza built thereon.

Site 4 has a site area of 1,991 sq. m. Site 4 is situated at Lot No. 1565 Nanjing Xi Lu, Jingan District, Shanghai. It faces Nanjing Xi Lu to the north, Site 3b to the east, Site 3a to the south and Changde Lu to the west. The Mingcheng Plaza, a 6-storey commercial building with a 2-level basement, is situated within Site 4 with a buildable gross floor area of approximately 8,464 sq. m. The Mingcheng Plaza is being leased out as offices and is currently subject to a mortgage in favour of CITIC Industrial Bank, Shanghai Branch, which shall be repaid and discharged by Party A (as the borrower) from the proceeds of sale and the repayment of the shareholders’ loans from Company 4 to Party A after completion of the acquisition of the equity interests by KSJN and KSD in Company 4.

Based on the audited financial statements of Company 4 at 31 December 2003, Company 4 had total assets of approximately RMB140,584,000 (HK$132,626,415) (including the book value of Site 4 and the Mingcheng Plaza of approximately RMB101,724,000 (HK$95,966,038)) and net assets of approximately RMB32,712,000 (HK$30,860,377). For the year ended 31 December 2003, Company 4 recorded a turnover of approximately RMB9,318,000 (HK$8,790,566) and losses both before tax and after tax of approximately RMB8,417,000 (HK$7,940,566). For the year ended 31 December 2002, Company 4 recorded a turnover of approximately RMB4,183,000 (HK$3,946,226) and losses both before tax and after tax of approximately RMB932,000 (HK$879,245).

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LETTER FROM THE BOARD

As set out in Appendix I to this circular, the Valuers have valued Site 4 (including the Mingcheng Plaza) at US$16,500,000 (HK$128,700,000) as at 31 March 2004 resulting in the valuation being higher than the book value of Site 4 and the Mingcheng Plaza in Company 4 by approximately HK$32,734,000. Independent of the Valuers’ valuation, the SA Valuer has valued Site 4 at US$16,800,000 (HK$131,040,000) as at 8 April 2004.

The consideration for the acquisition of 50.5% interest in Company 4 by KSD of RMB70,700,000 (HK$66,698,113) comprises RMB20,899,425 (HK$19,716,438) for the acquisition of equity interest and RMB49,800,575 (HK$46,981,675) being its contribution towards shareholders’ loans.

The five directors currently on the board of Company 4 are all nominated by An Sheng and Party A. After acquisition by KSJN and KSD of 48.5% and 50.5% equity interest in Company 4, each of KSJN and KSD shall have the right to nominate such number of directors to the board of Company 4 to reflect the ratio of KSJN’s and KSD’s shareholding control of Company 4. Party A shall have no board representation.

Company 4 is currently owned as to 30% by An Sheng and as to 70% by Party A.

4.5 Information relating to the use of the Sites

The aggregate site area of the Sites is approximately 46,000 sq.m.

It is the parties’ intention to develop the Sites into a mixed use development consisting of an office tower, a hotel and serviced apartment tower, two residential towers, a three-storey retail podium and a three-level basement, with the approximate gross floor area set out below:

	Approximate
Type of use	gross floor area
Office	76,000 sq.m.
Hotel	75,200 sq.m.
	(640 rooms)
Serviced apartments	18,100 sq.m.
Residential	29,800 sq.m.
Retail	40,900 sq.m.
Basement	92,300 sq.m.

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LETTER FROM THE BOARD

It should be noted that the development mix set out above, and the proposed gross floor area, are based on the preliminary conceptual design and current estimates of the achievable gross floor area and will be subject to further changes and revision.

The proposed development mix has not yet been submitted to and approved by the relevant PRC authorities, including Shanghai Urban Planning Administration Bureau.

5. INFORMATION ON THE COMPANY AND SA

5.1 Information on the Company

The Group is principally engaged in (1) property development and investment in Hong Kong, the PRC and the Asia Pacific region, (2) logistics, freight, warehouse ownership and operations, and (3) infrastructure-related investment in Hong Kong and the PRC.

For the year ended 31 December 2003, the audited consolidated turnover, audited consolidated net profit before taxation and audited consolidated net profit after taxation and minority interests of the Company were approximately HK$4,204 million, HK$572 million and HK$395 million, respectively. The comparative figures for the year ended 31 December 2002 were approximately HK$5,156 million, HK$788 million and HK$600 million, respectively. As at 31 December 2003, the Company’s consolidated equity attributable to shareholders was stated at approximately HK$19,883 million.

As at the Latest Practicable Date, KHL was interested in 751,042,097 Shares as disclosed under the SFO, representing approximately 62.86% of the issued Shares of 1,194,842,540 and is the controlling shareholder of the Company. SA, as an associated company of KHL, is an associate of KHL under the Listing Rules and is therefore a connected person of the Company.

5.2 Information on SA

The SA Group is principally engaged in ownership and operation of hotels and associated properties and the provision of hotel management and related services. SA’s subsidiaries are also the registered proprietors of various trademarks and service marks in various countries, including the brand names “Shangri-La”, “Traders”, “Rasa”, “Summer Palace” and “Shang Palace” and related devices and logos.

For the year ended 31 December 2003, the audited consolidated turnover, audited consolidated net profit before taxation and audited consolidated net profit after taxation and minority interests of SA were approximately US$540 million (HK$4,212 million), US$128 million (HK$998 million) and US$73 million (HK$569 million), respectively. The comparative figures for the year ended 31 December 2002 were approximately

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LETTER FROM THE BOARD

US$601 million (HK$4,688 million), US$122 million (HK$952 million) and US$63 million (HK$491 million), respectively. As at 31 December 2003, SA’s consolidated equity attributable to shareholders was stated at approximately US$2,624 million (HK$20,467 million).

As at the Latest Practicable Date, KHL was interested in 1,069,240,245 SA Shares as disclosed under the SFO, representing approximately 45.21% of the issued SA Shares of 2,365,161,271 and is the controlling shareholder of SA. The Company, as a subsidiary of KHL, is an associate of KHL under the Listing Rules and is therefore a connected person of SA.

6. REASONS FOR, AND BENEFITS OF, THE MASTER AGREEMENT

6.1 Acquisition of the Sites

The entering into of the Master Agreement and the Underlying Contracts enables each of SA and the Company to consolidate the land which it currently owns with adjacent plots of land so as to maximise the land’s development potential. Assuming that all the Sites are consolidated in accordance with the intention of the Master Agreement, as set out in this circular, both SA and the Company will be able to develop the Sites into a mixed use development, consisting of a hotel, offices, retail podiums, residential and serviced apartments, which will also be connected to the Shanghai Kerry Centre. This new development will be a landmark in Nanjing Xi Lu which is one of the prime business areas of Shanghai. The Directors also expect that the new development will enhance the value of Shanghai Kerry Centre.

The consideration payable by KSD for the acquisition of 50.5% interest in Company 1 and the agreed proportionate share of all sums due from Company 1 to KSJN was determined with reference to the audited net asset value of Company 1 of approximately RMB647,011,000 (HK$610,387,736) as at 31 December 2003, the Valuers’ valuation of US$77,800,000 (HK$606,840,000) as at 31 March 2004 of Site 1 and the face value of all sums due from Company 1 to KSJN, of approximately US$1,483,452 (HK$11,570,926) (including loans of US$685,423 (HK$5,346,299) and payable of HK$6,224,623).

The consideration payable by KSJN for its 48.5% interest in the Site 2 Contract was arrived at by reference to the Valuers’ valuation of US$26,000,000 (HK$202,800,000) of Site 2 as at 31 March 2004.

The consideration payable under the Company 3 Contract was arrived at after arm’s length negotiations between KSD, KSJN, Party A and the various third party vendors by reference to the audited net asset value of Company 3 of RMB20,000,000 (HK$18,867,924) as at 31 December 2003, the Valuers’ valuation of US$70,800,000 (HK$552,240,000) as at 31 March 2004 for both Site 3a and Site 3b, the face value of the shareholders’ loans owed by Company 3 to the third party vendors of

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LETTER FROM THE BOARD

RMB394,597,736 (HK$372,262,015) and the cost for the clearance and delivery of vacant possession and the provision of the related public utilities for Site 3b for a consideration of RMB174,184,358 (HK$164,324,866) which includes a sum of RMB155,000,000 (HK$146,226,415) being the estimated site clearance cost. In the event that the site clearance cost exceeds RMB155,000,000 (HK$146,226,415), Company 3 shall be responsible for 25% of the increased site clearance costs provided that Company 3’s liability for such increased clearance costs shall not exceed RMB5,000,000 (HK$4,716,981).

The consideration payable under the Company 4 Contract was arrived at after arm’s length negotiations between KSD, KSJN and the various third party vendors by reference to the audited net asset value of Company 4 of approximately RMB32,712,000 (HK$30,860,377) as at 31 December 2003, the Valuers’ valuation of US$16,500,000 (HK$128,700,000) as at 31 March 2004 of Site 4 and the face value of the 99% shareholders’ loans owed by Company 4 to the third party vendors of RMB97,628,850 (HK$92,102,689).

6.2 The Project Management Agreement

The entering into of the Project Management Agreement will enable the Joint Venture Companies to tap the Company’s extensive experience in property development management, construction, marketing and promotion in the PRC. At the end of December 2003, the Group has approximately 8.5 million square feet of properties under development in the PRC.

The consideration payable under the Project Management Agreement was arrived at after arm’s length negotiation taking into consideration the recommended rates proposed by the Hong Kong Institute of Surveyors for such a type of project which, depending upon the character, size of the project and the extent of the Group’s involvement, should range from 1.5% to 3.0% of the total construction costs.

The consideration payable under the Project Management Agreement is also consistent with the fee of 1.5% of total construction costs charged by the Group for similar project management agreements rendered in connection with Shanghai Kerry Centre.

6.3 Outlook of the high end mixed-use property development in Shanghai

Several high end mixed-use developments in Shanghai which incorporate elements such as offices, residential, serviced apartments, retail and/or a luxury hotel and situated in prime locations have experienced good occupancies and rental/room rates in recent years. The rapid pace of economic growth in the city has enabled such developments to sustain these favourable levels of business despite additions to competitive supply. The performance of the Group’s existing investments in Shanghai in this part of the property sector in recent years is testimony to the Group’s point of view. The medium to long term outlook for these quality mixed-use developments in key locations in Shanghai remains very positive given the pace of growth of the local economy, the extensive investments in manufacturing and allied businesses being committed in and around Shanghai and the staging of the World Expo in 2010.

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LETTER FROM THE BOARD

7. FINANCIAL EFFECTS OF THE TRANSACTIONS CONTEMPLATED BY THE MASTER AGREEMENT ON THE GROUP

As set out above, upon the disposal of its 48.5% interest in Site 2, the Group will record a profit of approximately HK$16,800,000 and the Group plans to use the proceeds for future injection into the Project.

It is currently expected that funding for the acquisition of the interests in the Joint Venture Companies and the on-going development of the Project, as set out in this circular, will be sourced from the Group’s internal cash reserves, bank borrowings by the Joint Venture Companies and the estimated proceeds from operation of the Project.

Based on the initial plan relating to the Project, the following is the breakdown of the Group’s estimated commitment for the Project:

The Group’s total financial commitment for the Project (based on 50.5% of the estimated total cost of the Project in the sum of US$600,000,000) Estimated project bank loans to be obtained by Company 1 (proportionate to the Group’s 50.5% interest in the Project)(Note 1) Estimated net proceeds from operation of the Project (proportionate to the Group’s 50.5% interest in the Project)(Note 2) Estimated funds required from the Group Less: Cash generated from disposal of 48.5% interest in Site 2 50.5% share of total cost of Site 2 already contributed by KSD Balance of estimated direct cash contribution from the Group	HK$’000 2,363,400 (1,221,090) (330,876) 811,434	HK$’000 811,434 (99,659) (86,225) 625,550

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LETTER FROM THE BOARD

However, the above breakdown based on the initial plan will be subject to changes during the progress of the Project and will be reassessed from time to time taking into consideration the most cost-effective use of funds and prevailing market conditions. To the extent any changes in the plan involve increased cash contribution from the Group in excess of HK$625,550,000, these will be met from resources available to the Group such as internal cash funds and available borrowing facilities.

Notes:

1. The amount of estimated bank loans ranging between 50% to 55% of the development project costs for the Project is arrived with reference to the SA Group’s and the Group’s past experience in obtaining project loans for their development projects in the PRC.

2. The amount of estimated net proceeds from operation of the Project is calculated based on the prevailing rental and market price of similar high end properties in Shanghai.

Out of the HK$625,550,000 cash contribution required from the Group, the immediate cash requirement from the Group for completion of the Master Agreement and the Underlying Contracts is approximately HK$555,553,000 (excluding the Group’s share of potential maximum liabilities for increased clearance cost for Site 3b of approximately HK$2,400,000).

Consideration for the acquisition of 50.5% interest and assignment of the agreed proportionate share of the amounts due from Company 1 Proceeds from the disposal of 48.5% interest in Site 2 Total consideration for the acquisition of Company 3 (including provision of shareholders’ loans by KSD for the purpose of repaying 50.5% of the shareholders’ loans owed by Company 3 to SRE and Shanghai Housing and the proportionate payment for the site clearance costs and provisions of public utilities) Total consideration for the acquisition of Company 4 (including provision of shareholders’ loans by KSD for the purpose of repaying 50.5% of the shareholders’ loans owed by Company 4 to Party A and An Sheng) Total immediate cashflow commitment

HK$’000 308,009 (99,659) 280,505 66,698 555,553

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LETTER FROM THE BOARD

The entering into, and implementation, of the Master Agreement is not expected to have any material effect on the asset-base, cash-flow or gearing of the Group.

8. IMPLICATIONS UNDER THE LISTING RULES

As set out above, SA and the Company are connected persons (as defined in the Listing Rules).

The entering into of the Relevant Transactions constitutes connected transactions for the Company under the Listing Rules, which primarily include the following:

• (a) the sale of 50.5% interest in Company 1 from KSJN to KSD and the assignment by KSJN to KSD of the agreed proportionate share of the amounts owed by Company 1 to KSJN, as contemplated by the Master Agreement;

• (b) the change of interest in the Site 2 Contract so that KSJN will have a 48.5% interest in the Site 2 Contract and the Company’s interest in the Site 2 Contract will drop from 99% to 50.5%, as contemplated by the Master Agreement;

• (c) the joint arrangement of the acquisition by KSD of 50.5% interest in, and the acquisition by KSJN of 48.5% interest in, Company 3 from the independent third party vendors;

• (d) the joint arrangement of the acquisition by KSD of 50.5% interest in, and the acquisition by KSJN of 48.5% interest in, Company 4 from the independent third party vendors;

• (e) the on-going funding and other financial assistance to the Project by SA and the Company as contemplated by the Master Agreement; including the equity contribution to, and/or the provision of shareholders’ loans to, and/or the provision of collateral/security for the benefit of, the Joint Venture Companies and/or the Project in the form of (i) pledge over the respective interest of the Company’s and SA’s interest in the Joint Venture Companies and/or the Project; and/or (ii) assignment of KSJN’s and KSD’s shareholders’ loans to the Joint Venture Companies; and/or (iii) several corporate guarantees by the Group and the SA Group; and

• (f) the Project Management Agreement.

Accordingly, the Relevant Transactions require the approval of the Independent Shareholders at the Special General Meeting.

In addition, given the total estimated size of the Project, the transactions contemplated by the Master Agreement, when aggregated, also constitute discloseable transactions for the Company.

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LETTER FROM THE BOARD

9. LISTING RULES IMPLICATIONS OF THE PROPOSED CONTINUING CONNECTED TRANSACTIONS

Pursuant to the Master Agreement, members of the Group will enter into the Property Sales, Leasing and Management Agreement with the Joint Venture Companies, and the SLIM Group will enter into the Technical Consultancy Services Agreement, the Marketing Consultancy Services Agreement and the Hotel Management Agreement with the Joint Venture Companies.

The entering into of the Property Sales, Leasing and Management Agreement and the Hotel Management Agreement will constitute continuing connected transactions of the Company under the Listing Rules. In the case of the Hotel Management Agreement, it will also constitute a continuing connected transaction for SA under the Listing Rules. It is the intention of both SA and the Company to comply with the relevant provisions of the Listing Rules when these agreements are entered into.

Depending on the terms and implementation of the Technical Consultancy Services Agreement and the Marketing Consultancy Services Agreement, these contracts may be treated as continuing connected transactions.

Under the current Listing Rules, the period of such agreements cannot be longer than three years except in special circumstances. While, under the current Listing Rules, the agreements can be renewed, each renewal will be subject to compliance by SA and the Company of their respective obligations under the Listing Rules as applicable at that time.

Under the current Listing Rules, depending on the size and terms of the continuing connected transaction, each of these agreements could either be classified as a continuing connected transaction subject to (i) full exemption from reporting and announcement requirements, or (ii) reporting and announcement requirements, or (iii) reporting, announcement and independent shareholders’ approval requirements. The Technical Consultancy Services Agreement and the Marketing Consultancy Services Agreement are likely to fall within category (i) for the Company. The Hotel Management Agreement and the Property Sales, Leasing and Management Agreement will fall within category (ii) for the Company. Hence, Independent Shareholders’ approval will not be required in relation to these agreements. The SA Directors also currently expect the Hotel Management Agreement to fall within category (ii) for SA. Hence, it is not likely that the approval of the SA Independent Shareholders will be sought in relation to the Hotel Management Agreement.

Accordingly, at this moment, there is no assurance that the Hotel Management Agreement or the Property Sales, Leasing and Management Agreement will be for a period longer than three years and no assurance that they will be renewed following the expirations of these periods, and each Shareholder should therefore be mindful of the possibility that the SLIM Group may not be the manager of the resulting hotel indefinitely, and/or the Group may not be the manager and sales and leasing agent of the resulting offices, commercial properties and residential units indefinitely.

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LETTER FROM THE BOARD

The Company has strong ties and a history of co-investment with SA. Given the parties’ history of mutual co-operation and the core-expertise of SA and the Company in the field of hotel management and property management respectively, the Directors believe that the SLIM Group will be best placed to provide hotel management and marketing services to the hotel and the Group will be best placed to provide tenancy management services and sales and leasing services for the non-hotel properties. If these agreements are not renewed for whatever reasons, independent third parties will have to be appointed to provide these services. Given that both the Hotel Management Agreement and the Property Sales, Leasing and Management Agreement will be entered into on normal commercial terms and at market price, the Directors are of the view that non-renewal of the Hotel Management Agreement and/or the Property Sales, Leasing and Management Agreement will not affect the financial viability of the Project.

10. RECOMMENDATIONS

The Independent Board Committee is required under the Listing Rules to advise the Independent Shareholders in relation to the Relevant Transactions. ING has been appointed as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in this regard. Accordingly, your attention is drawn to the letter from the Independent Board Committee set out on pages 41 to 42 of this circular, which contains its recommendation to the Independent Shareholders, and the letter from the ING set out on pages 43 to 63 of this circular, which contains its advice to the Independent Board Committee and the Independent Shareholders.

Both the Independent Board Committee and ING recommend that Independent Shareholders vote in favour of the KPL Resolution to be proposed at the Special General Meeting.

11. ADOPTION OF CHINESE NAME

The Company has been using the Chinese name 「嘉里建設有限公司」 for identification purposes since 1996. In order to formalise the use of such Chinese name and to better reflect the identity of the Company in Chinese, the Directors propose to adopt 「嘉里建設有限公 司」 as the Chinese name of the Company for identification purposes.

The proposed adoption of the Chinese name of the Company will be subject to the passing of the Resolution No. 2 as a special resolution by the Shareholders at the Special General Meeting. Upon the registration of the Chinese name with the Registrar of Companies in Hong Kong, the adoption of the Chinese name will become effective and the Chinese name 「嘉里建設有限公司」 will, for the purposes of identification, form part of the Company’s name in Hong Kong. The Company will apply for registration of the Chinese name with the Registrar of Companies in Hong Kong under Part XI of the Companies Ordinance if and when the Resolution No. 2 is passed at the Special General Meeting.

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LETTER FROM THE BOARD

The proposed adoption of the Chinese name of the Company will not affect the rights of any Shareholders. Since the existing share certificates of the Company bear both the English and Chinese names of the Company, the Company will not issue any replacement share certificates following the adoption of the Chinese name. All existing share certificates in issue bearing the present name of the Company will after the proposed adoption of the Chinese name continue to be evidence of title to the Shares and will be valid for trading, settlement and delivery for the same number of Shares. The existing English stock short name “KERRY PPT” and Chinese stock short name “嘉里建設 ” of the Company used in the trading system of the Hong Kong Stock Exchange will remain unchanged.

The Board considers that the adoption of the Chinese name is in the best interests of the Company and the Shareholders. The Board therefore recommends that Shareholders vote in favour of the Resolution No. 2 to be proposed at the Special General Meeting.

A further announcement will be made when the proposed adoption of the Chinese name of the Company becomes effective.

12. ADOPTION OF NEW BYE-LAWS

Following the recent changes to the Listing Rules which came into effect on 31 March 2004, it has become necessary for the Company to amend its bye-laws to reflect the changes required by the new Listing Rules. The Company would like to take this opportunity to adopt new bye-laws which not only reflect the changes required by the Listing Rules but also bring the Company’s bye-laws up to date with certain current best practices.

An explanation of the main changes between the proposed new bye-laws and the existing bye-laws of the Company is set out in Appendix II of this circular on pages 79 to 80.

The proposed adoption of the new bye-laws will be subject to the passing of the Resolution No. 3 as a special resolution by the Shareholders at the Special General Meeting.

The Board considers that the adoption of the new bye-laws is in the best interests of the Company and the Shareholders. The Board therefore recommends that Shareholders vote in favour of the Resolution No. 3 to be proposed at the Special General Meeting.

13. SPECIAL GENERAL MEETING

Set out on pages 89 to 91 is a notice convening the Special General Meeting to be held at Island Ballroom, Level 5, Island Shangri-La Hotel, Pacific Place, Supreme Court Road, Central, Hong Kong on Friday, 25 June 2004 at 10:00 a.m. for the purposes of considering and, if thought fit, passing the resolutions set out therein.

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LETTER FROM THE BOARD

14. GENERAL

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, An Sheng, Party A, SRE, CECL and Shanghai Housing and their respective ultimate beneficial owners are independent third parties and not connected with or related to the Company or SA or any of their respective subsidiaries or their respective associates or connected persons of the Company. Further, none of them has any shareholding interest in the capital of the Company.

Whether or not you are able to attend the Special General Meeting, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return it to Abacus Share Registrars Limited, the Company’s branch share registrar in Hong Kong, of 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 Special General Meeting. Completion and return of the accompanying proxy form will not preclude you from attending and voting at the meeting should you so wish.

Any connected person with a material interest in the Master Agreement and the transactions contemplated therein, and any other Shareholders and their respective associates with a material interest in the Master Agreement and the transactions contemplated therein, shall abstain from voting on the KPL Resolution to approve the Relevant Transactions.

In view of the interest of KHL in the Relevant Transactions, KHL (which, as at the Latest Practicable Date, was interested in 751,042,097 Shares as disclosed under the SFO, representing approximately 62.86% of the issued share capital of the Company) and its associates will abstain from voting in respect of the KPL Resolution.

The following directors of the Company, namely, Messrs. Ang Keng Lam and Wong Siu Kong, who are also directors of KHL, and their associates will also abstain from voting in respect of the KPL Resolution.

As far as the Company is aware, having made all reasonable enquiries:

• (i) KHL and its associates control or are entitled to exercise control over the voting rights in respect of their respective Shares;

• (ii) (a) there were no voting trusts or other agreements or arrangements or understandings (other than an outright sale) entered into by or binding upon KHL and its associates, (b) there were no obligations or entitlements of KHL and its associates, whereby such persons have or might have temporarily or permanently passed control over the exercise of the voting right in respect of their Shares to third parties, either generally or on a case-by-case basis; and

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LETTER FROM THE BOARD

• (iii) there were no discrepancies between the beneficial shareholding interests of KHL and its associates in the Company and the number of Shares in respect of which they would control or would be entitled to exercise control over the voting right at the Special General Meeting.

All the resolutions to be proposed at the Special General Meeting will be decided by way of a poll.

The Company will publish an announcement on the results of the Special General Meeting on the business day following the Special General Meeting with respect to whether or not the resolutions set out in this circular have been passed by the Shareholders.

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

Yours faithfully, For and on behalf of Kerry Properties Limited Ang Keng Lam Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [147 x 83] intentionally omitted <==

website: http://www.kerryprops.com

(Stock Code: 00683)

Independent Board Committee:

Mr. LAU Ling Fai, Herald Mrs. LEE Pui Ling, Angelina Mr. Christopher Roger MOSS, O.B.E.

Registered Office:

Canon’s Court 22 Victoria Street Hamilton HM 12 Bermuda

31 May 2004

To the Independent Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTIONS RELATING TO THE JOINT ACQUISITION, OWNERSHIP AND

DEVELOPMENT OF THE SITES IN JINGAN DISTRICT, SHANGHAI, THE PRC

We refer to the circular of which this letter forms part. Terms defined in the circular shall have the same meanings when used herein unless the context otherwise requires.

The Independent Board Committee has been formed to advise the Independent Shareholders as to whether, in our opinion, the entering into of the Relevant Transactions contemplated under the Master Agreement, in accordance with the principal terms set out in the Master Agreement, is in the interests of the Company and its Shareholders as a whole and the terms of which are fair and reasonable so far as the Company and Independent Shareholders are concerned. ING has been appointed as the independent financial adviser to the Independent Board Committee and the Independent Shareholders.

In our opinion, the terms of the Relevant Transactions are fair and reasonable and the entering into of the Relevant Transactions contemplated under the Master Agreement, in accordance with the principal terms set out in the Master Agreement, is in the interests of the Company and its Shareholders as a whole and so far as the Company and the Independent

* For identification purpose only

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Shareholders are concerned. Accordingly, we recommend the Independent Shareholders to vote in favour of the KPL Resolution, which will be proposed as an ordinary resolution, in respect of the terms of the Master Agreement and the Relevant Transactions contemplated under the Master Agreement at the Special General Meeting.

Yours faithfully,

The Independent Board Committee of Kerry Properties Limited Mr. LAU Ling Fai, Herald Mrs. LEE Pui Ling, Angelina Mr. Christopher Roger MOSS, O.B.E.

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LETTER FROM ING BANK N.V.

The following is the text of the letter of advice from the independent financial adviser to the Independent Board Committee and Independent Shareholders for the purpose of incorporation into this circular.

39/F One International Finance Centre 1 Harbour View Street, Central Hong Kong

31 May 2004

To the Independent Board Committee

and Independent Shareholders of Kerry Properties Limited

Dear Sirs,

DISCLOSABLE AND CONNECTED TRANSACTIONS RELATING TO THE JOINT ACQUISITION, OWNERSHIP AND DEVELOPMENT OF THE SITES IN JINGAN DISTRICT, SHANGHAI, THE PRC WITH SHANGRI-LA ASIA LIMITED

1. INTRODUCTION

We refer to our appointment to advise the Independent Board Committee in respect of the terms of certain of the connected transactions contemplated under the Master Agreement, details of which are set out in a circular (the “Circular”) to the Shareholders dated 31 May 2004. This letter sets out our evaluation of the terms of the connected transactions contemplated under the Master Agreement, our recommendations thereon and is prepared for inclusion in the Circular. Unless otherwise defined, all terms defined in the Circular shall have the same meanings herein.

On 3 May 2004, the respective boards of directors of KPL and SA jointly announced that they have entered into a Master Agreement on 13 April 2004 relating to the joint acquisition, ownership and development of five adjacent pieces of land in Jingan District, Shanghai, the PRC. Details of the Master Agreement are, among other things, further described on page 11 to page 20 of the Circular. The entering into of the Master Agreement, which contemplates broadly (i) the acquisition by KSD from KSJN of 50.5% equity interest in Company 1 and assignment of agreed proportionate share of all sums due from Company 1 to KSJN, (ii) the acquisition by KSJN from KSD of 48.5% interest in Site 2 Contract, (iii) KPL and SA entering into joint arrangements to acquire 99.0% interest in each of Company 3 and Company 4, (iv) the provision of on-going funding and other financial assistance to the Project by the Group and the SA Group, and (v) the entering into of Project Management Agreement between the Group and the Joint Venture Companies, constitutes connected transactions for KPL under the Listing Rules.

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LETTER FROM ING BANK N.V.

As at the Latest Practicable Date of this Circular, KHL had an interest of approximately 62.86% and 45.21% in the issued share capital of KPL and SA, respectively, as disclosed under the SFO, and is the controlling shareholder of KPL and SA. Pursuant to the Listing Rules, SA is an associate of KHL and is therefore regarded as a connected person of KPL. Accordingly, the Relevant Transactions contemplated by the Master Agreement are subject to the approval of the Independent Shareholders at a Special General Meeting. KHL and its associates shall abstain from voting on the ordinary resolution in respect of the terms of the Master Agreement and the Relevant Transactions contemplated under the Master Agreement at the Special General Meeting.

The following directors of the Company, Messrs. Ang Keng Lam and Wong Siu Kong, who are also directors of KHL, and their associates will also abstain from voting on the ordinary resolution in respect of the terms of the Master Agreement and the Relevant Transactions contemplated under the Master Agreement.

ING is independent from and not connected with the Group or any of its substantial shareholders, directors or chief executive, or any of their respective associates, and is accordingly qualified to give independent advice to the Independent Board Committee and the Independent Shareholders.

We were neither a party to the negotiations entered into by the Group in relation to the Relevant Transactions contemplated under the Master Agreement, nor were we involved in the deliberations leading up to the decision of the Directors to enter into the Relevant Transactions as contemplated. We do not, by this letter, warrant the merits of the Relevant Transactions contemplated under the Master Agreement, other than to form an opinion, for the purpose of Chapter 14A of the Listing Rules, on whether the terms of the Relevant Transactions contemplated under the Master Agreement are fair and reasonable, and that the entering into of the Relevant Transactions contemplated under the Master Agreement, in accordance with the principal terms set out in the Master Agreement, is on normal commercial terms, in the ordinary and usual course of business, and is in the interests of KPL and its shareholders as a whole.

In formulating our recommendation, we have relied on the statements, information and representations provided by the management of KPL, and the valuation report prepared by the Valuers in respect of the Sites as attached herein in Appendix I to the Circular (the “Valuation Report”). We have assumed that all such statements, information and representations contained or referred to in the Circular provided by the management of KPL and for which the Directors have collectively and individually accepted full responsibility, are true, accurate, and complete in all material respects at the time they were made and continue to be so at the date hereof.

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LETTER FROM ING BANK N.V.

We have also relied on our discussions with the Directors and members of the management of KPL regarding the information and representations contained in the Circular. We have been advised by the Directors that no material facts have been withheld or omitted from the information provided and referred to in the Circular. The Directors have further confirmed, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts or representations the omission of which would make any statement in the Circular, including this letter, misleading in any material respects.

We consider that we have reviewed sufficient information to reach an informed view and to justify relying on the accuracy of the information contained in the Circular to provide a reasonable basis for our advice. We are not aware of, and have no reason to suspect that, any facts or circumstances which would render the information provided or the representations made to us untrue, inaccurate or misleading in any material respects, nor do we suspect that any material facts have been omitted or withheld from the information supplied in the Circular. We have not, however, conducted a physical verification of the Sites, or carried out any independent verification of the information provided to us, or conducted any in-depth investigation into the business and affairs of KHL, the Group, and their respective associates.

2. INFORMATION ON THE GROUP AND SA GROUP

KPL is principally engaged in (1) property development and investment in Hong Kong, the PRC and the Asia Pacific region; (2) logistics, freight, warehouse ownership and operations; and (3) infrastructure-related investment in Hong Kong and the PRC.

The Group’s portfolio of developments and investments in the PRC (the “PRC Property Division”) are primarily located in Beijing, Shanghai and Shenzhen and it derives its revenues mainly from rental income, proceeds from the sale of properties and hotel revenue. For the financial year ended 31 December 2003, the PRC Property Division reported a total turnover of approximately HK$1,241.6 million, representing an increase of approximately 14.0% over a turnover of approximately HK$1,089.5 million for the previous year. Profit attributable to shareholders from the PRC Property Division increased by approximately 26.2% from approximately HK$237.5 million for the financial year ended 31 December 2002 to HK$299.7 million for the financial year ended 31 December 2003, accounting for approximately 75.9% of the Group’s total profit. As advised by the Directors, the PRC Property Division will continue to be one of the main drivers of the Group’s profitability.

As at 31 December 2003, the Group had more than 3.7 million square feet and 1.7 million square feet of investment properties in the PRC and Hong Kong, respectively. In addition, the Group also has approximately 8.5 million square feet and 3.8 million square feet of properties under development in the PRC and in Hong Kong, respectively, and as such has extensive experience in property development, management, construction, marketing and promotion.

– 45 –

LETTER FROM ING BANK N.V.

SA Group is principally engaged in the ownership and operation of hotels and associated properties, and the provision of hotel management and related services. SA’s subsidiaries are also the registered proprietors of various trademarks and service marks in various countries, including the brand names “Shangri-La”, “Traders”, “Rasa”, “Summer Palace”, “Shang Palace” and related devices and logos. Currently, the SA Group manages 42 hotels with an inventory of approximately 20,700 rooms and has contracted to manage 21 new hotels with an inventory of approximately 9,400 rooms which are expected to commence operations between 2004 through 2007. With its network of existing and proposed new hotels in South East Asia, South Asia, Australia and the Middle East, it is positioned as one of the dominant Asian luxury hotel brands. Further, with 17 hotels under management in the PRC and an additional 13 new hotels that it will manage over the next four years, the SA Group’s hotel network in the PRC seeks to have a dominant presence in the luxury end of that market.

3. THE PROJECT

The Project contemplated in the Master Agreement relates to the joint acquisition, ownership and development of five adjacent pieces of land in Jingan District, Shanghai, the PRC into a large mixed use development consisting of a hotel, offices, retail podiums, residential and serviced apartments, which will be connected to the Shanghai Kerry Centre. Currently, such Sites are either owned by the Group, the SA Group and/or independent third parties.

To achieve the stated objective, it is contemplated that the Group and the SA Group which currently has a controlling interest of 99.0% each in Site 2 and Site 1, respectively, will consolidate such interests in Company 1. In turn, Company 1 will be jointly owned by the Group, the SA Group and an independent third party (“Party A”), with each having an equity interest of 50.5%, 48.5%, and 1.0%, respectively. Contemporaneously, these parties will jointly acquire Company 3 and Company 4 from various independent third parties and it is further provided in the Master Agreement that, subject to the completion of the transactions contemplated under the Master Agreement and the Underlying Contracts, the Joint Venture Companies would be merged by dissolving Company 3 and Company 4, and Company 3 and Company 4 will transfer all their underlying assets and liabilities to Company 1.

Upon completion of the above, Company 1 will hold all the Sites. Company 1 will be 50.5% owned by the Group, 48.5% owned by the SA Group and 1.0% owned by Party A, and these parties will jointly undertake the development of the Project. Currently, the total development costs of the Project are estimated to be not more than US$600.0 million (equivalent to approximately HK$4,680.0 million) and no party shall be required to commit further funding if the cost of the Project exceeds US$700.0 million (equivalent to approximately HK$5,460.0 million). On the basis of a maximum total commitment of HK$5,460.0 million and the current proportions of equity interest held by the Group in the Joint Venture Companies, the Group’s proportionate share of such development commitments is estimated to be up to approximately HK$2,757.3 million (including the commitments which it has already made for the purposes of acquiring the Sites as set out in the Circular).

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LETTER FROM ING BANK N.V.

In the event that the Group and the SA Group are able to procure Party A to sell its 1.0% interest in the Project, including the Joint Venture Companies, Site 2 and the Underlying Contracts (if applicable) to the Group and the SA Group on an equal basis, the Group’s proportionate share of the aforesaid development commitments will amount to up to approximately HK$2,784.6 million.

Company 1 is currently 99.0% owned by the SA Group and 1.0% owned by JPD. The principal asset of Company 1 is its interest in Site 1. Site 1 is situated at Lot No. 1238, Yanan Zhong Lu, Jingan District, Shanghai. The site faces Anyi Lu to the north, adjacent to Site 2 in the west, faces Yanan Zhong Lu to the south and Tongren Lu to the east. The site area is approximately 15,157 sq.m. Site 1 is currently vacant pending development of the Project. The legal and beneficial title to Site 1 is vested in Company 1 as evidenced by the real estate ownership certificate Hufangdishizhi (1996) No. 100076 issued in favour of Company 1. The land premium for Site 1 has been fully paid.

Pursuant to the Site 2 Contract entered into on 6 February 2002 between the Group, Party A and the Land Bureau, the Group and Party A have obtained as to 99.0% and 1.0%, respectively, of the land use right in respect of Site 2. Site 2 is situated at Lot No. 1288, Yanan Zhong Lu, Jingan District, Shanghai. Site 2 faces Anyi Lu to the north, adjacent to Site 1 in the east, faces Yanan Zhong Lu to the south and Changde Lu to the west. The site area is approximately 13,693 sq.m. Site 2 is currently vacant pending development of the Project. The land premium for Site 2 has been fully paid.

The principal assets of Company 3 are Site 3a and Site 3b. Site 3a is situated at Changde Lu 104-126 Nong and Nos. 50-134 Anyi Lu, Jingan District, Shanghai. It faces Changde Lu to the west and Anyi Lu to the south, the east side is adjacent to Shanghai Kerry Centre and the north boundary is adjacent to Site 3b. Site 3b is situated at Lot No. 1537 (Nos. 1519-1553) Nanjing Xi Lu, Jingan District, Shanghai. It faces Nanjing Xi Lu to the north, Shanghai Kerry Centre to the east, Site 3a to the south and Site 4 to the west. It is currently occupied by 2-3 storey houses with retail shops fronting Nanjing Xi Lu. Pursuant to a land grant contract dated 14 May 2003 between Company 3 and the Land Bureau, Company 3 acquired the land use right in respect of Site 3a and Site 3b. The total site area for Site 3a and Site 3b is approximately 15,155 sq.m. The land premium has been fully paid.

The principal assets of Company 4 are Site 4 and the Mingcheng Plaza built thereon. Site 4 is situated at Lot No. 1565 Nanjing Xi Lu, Jingan District, Shanghai, faces Nanjing Xi Lu to the north, Site 3b to the east, Site 3a to the south and Changde Lu to the west. The Mingcheng Plaza, a 6-storey commercial building with a 2-level basement, is situated within Site 4 with a buildable gross floor area of approximately 8,464 sq.m. The Mingcheng Plaza is being leased out as offices and is currently subject to a mortgage in favour of CITIC Industrial Bank, Shanghai Branch, which shall be repaid and discharged by Party A (as the borrower) from the proceeds of the sale and the repayment of the shareholders’ loan from Company 4 to Party A after completion of the acquisition of the equity interests by KSJN and KSD in Company 4. The site area is approximately 1,991 sq.m. The land premium for Site 4 has been fully paid.

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LETTER FROM ING BANK N.V.

As noted in the location site map of the Sites below, the Project upon development will be a landmark in Nanjing Xi Lu, one of the prime business areas of Shanghai. The management of KPL has also indicated that it is currently unaware of any other comparable new developments of such scale and size in the Jingan District. In view of their strategic proximity to each other, the joint acquisition, ownership and development of the five adjacent sites presents a compelling opportunity for a large mixed use development.

==> picture [326 x 271] intentionally omitted <==

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

中信泰富廣場
CITIC Square
上海商城
Shanghai Centre
SITE 3b 囱隆廣場
地塊3b Plaza 66
SITE 4
Shanghai
地塊4 Kerry Centre
上海嘉里中心
SITE 3a
地塊3a
SITE 1
希爾頓酒店 SITE 2 地塊1
地塊2
Hilton Hotel
安義路 Anyi Lu
Lu
Xi
Beijing
北京西路
Tongren
Lu
銅仁路
常德路
----- End of picture text -----

4. PRINCIPAL FACTORS CONSIDERED

In arriving at our opinion regarding the Relevant Transactions contemplated under the Master Agreement, we have considered the following principal factors:

(a) Co-investment Opportunity

The Group and Party A were granted the land use rights of Site 2 during year 2002 for a term of 70 years for residential development. Site 2 which has a site area of approximately 13,693 sq.m. is currently vacant and pending development.

The SA Group acquired its interests in Company 1 which owns the land use rights of Site 1 during the 1990s. The land use rights of Site 1 has a term of 50 years for composite (commercial/office/hotel/residential) development. Based on the Valuation Report in relation to Site 1, we note that the land use of Site 1 has been changed to temporary green land use in 1998 and the land use term will recount from the date of termination of temporary green land use. Site 1 has a site area of approximately 15,157 sq.m., is also currently vacant and pending development.

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LETTER FROM ING BANK N.V.

Site 1 and Site 2 are adjacent to each other and on a combined basis, would have an aggregate site area of approximately 28,850 sq.m. available for a relatively large mixed use development.

Together with Site 3a, Site 3b and Site 4 which are proximate to Site 1 and Site 2, the Project will have an aggregate site area of approximately 45,996 sq.m. and an expected combined current permitted development potential of approximately 248,000 sq.m. and is poised to be a landmark development in the Jingan District, Shanghai.

With the Group’s extensive experience in property development and the SA Group’s well-established reputation in hotel management, both parties will be able to leverage on each other’s strengths through this joint acquisition, ownership and development opportunity, and enhance the development potential of their existing sites. In the event that the Group were to develop Site 2 on its stand-alone basis, the development potential and investment return of such site would be relatively limited when compared with this current proposed Project in terms of its scale, size and characteristic of the development.

(b) Development Potential of Sites

According to the conditions for the grant of the State-owned land use rights for Site 2, Site 2 can only be used for residential development. Based on the Valuation Report in relation to Site 2 referred to from page 71 to page 73 of the Circular, Site 2 which is zoned-residential has a current permitted development potential of approximately 44,730 sq.m, indicating a plot ratio of approximately 3.3 times its site area. With reference to the Valuation Report in relation to Site 1 as referred to from page 68 to page 70 of the Circular, Site 1 which can be used for composite development has a current permitted development potential of approximately 106,099 sq.m., implying a plot ratio of approximately 7.0 times its site area.

Upon proposed integration of Site 2 with adjacent Site 1, Site 3a, Site 3b and Site 4, the Sites can be enhanced into a large mixed use development complete with a hotel, retail podiums, offices, residential and serviced apartments. Currently, the development is anticipated to commence in early 2005 and to be completed and launched in several phases, with the residential being targeted for completion in 2007. The hotel and serviced apartments part of the Project is expected to be completed in late 2008 while the remaining development consisting of offices and retail podiums is targeted to be completed during 2009. It is the current intention of the Group and the SA Group to retain the Project for investment holding purpose, except the residential portion which may be considered for sale depending on the prevailing market conditions from time to time, and if sold, the proceeds will be used to fund the development of the Project.

Apart from enhancing the development potential of Site 2, the mixed use development which will be connected to Shanghai Kerry Centre is anticipated to attract more traffic flow to Shanghai Kerry Centre, and in turn enhance the value for the Group and the SA Group which currently own an equity interest of 74.25% and 24.75%, respectively, in Shanghai Kerry Centre.

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LETTER FROM ING BANK N.V.

(c) Ownership Structure

The table below sets out the Group’s and SA Group’s current and proposed effective interest in the Sites before and after the entering into of the Master Agreement:

			Site 3a &
Ownership Structure	Site 1(1)	Site 2	Site 3b (3)	Site 4 (3)
Before
KPL Group (via KSD)	–	99.0%	–	–
SA Group (via KSJN)	99.0%	–	–	–
Party A	1.0%	1.0%	–	70.0%
After(2)
KPL Group (via KSD)	50.5%	50.5%	50.5%	50.5%
SA Group (via KSJN)	48.5%	48.5%	48.5%	48.5%
Party A	1.0%	1.0%	1.0%	1.0%

Notes:

• (1) Pursuant to an equity transfer contract between JPD and Party A, JPD will transfer its 1.0% equity interest in Company 1 to Party A subject to the approval of the share transfer by the Shanghai Foreign Investment Commission which was granted on 14 May 2004.

• (2) The ownership structure as set out above outlines the shareholdings of the Group, the SA Group and Party A pursuant to the entering into of the Underlying Contracts. It is further contemplated in the Master Agreement that KPL and SA shall use all reasonable endeavours to procure Party A to sell its 1.0% interest in the Project to KSD and KSJN on an equal basis. Following such acquisition by KSD and KSJN from Party A, the Group and the SA Group will ultimately own a resultant equity interest of 51.0% and 49.0%, respectively, in the Project.

• (3) Site 3a, Site 3b and Site 4 are currently owned by independent third parties.

We note that it is further contemplated in the Master Agreement that upon completion of the transactions contemplated under the Master Agreement and the Underlying Contracts, Company 1, Company 3 and Company 4 shall be merged by dissolving Company 3 and Company 4 and Company 3 and Company 4 will transfer all their underlying assets and liabilities to Company 1.

Based on the foregoing, we note that the Group will own a controlling 50.5% equity interest in the enlarged Company 1 and will be able to consolidate the results of this enlarged entity.

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LETTER FROM ING BANK N.V.

(d) Corporate Strategy

The following paragraph on the reasons for, and benefits of, the Master Agreement is extracted from the Circular:

“The entering into of the Master Agreement and the Underlying Contracts enables each of SA and the Company to consolidate the land which it currently owns with adjacent plots of land so as to maximise the land’s development potential. Assuming that all the Sites are consolidated in accordance with the intention of the Master Agreement, as set out in this circular, both SA and the Company will be able to develop the Sites into a mixed use development, consisting of a hotel, offices, retail podiums, residential and serviced apartments, which will also be connected to the Shanghai Kerry Centre. This new development will be a landmark in Nanjing Xi Lu which is one of the prime business areas of Shanghai. The Directors also expect that the new development will enhance the value of Shanghai Kerry Centre.”

As stated in the Company’s annual report for the financial year ended 31 December 2003, despite the widespread effects of SARS and the Iraq war, China continued to experience economic growth and accelerated its pace of economic development to a six-year high of 9.1% growth rate in gross domestic product during 2003. According to the National Statistics Bureau and the Shanghai Statistics Bureau, Shanghai has experienced double-digit gross domestic product growth rates which have outstripped China’s gross domestic product growth rates for 11 consecutive years, since 1992. The rapid growth rate of the economy in Shanghai has resulted in improvement in its living standards, and the disposable income per capita of urban residents in Shanghai has risen by approximately 4.3 times from RMB2,486 in 1991 to RMB13,250 in 2002. According to the United Nations Development Program Human Development Report 2003, the urbanisation rate in China has risen from 17.4% to 36.7% during the 25 years of economic reform from 1976 to 2001. Such urbanisation rate is predicted to reach 49.5% by 2015. We concur with the Directors’ view that continued urbanisation, expansion of the population in the major commercial cities and increasing standards of living in the PRC will drive property demand in the major cities.

As stated in the Company’s annual report for the financial year ended 31 December 2003, in response to the fast-growing affluent sector in China seeking higher quality products and accommodation as part of their enhanced lifestyle, one of the Group’s focuses is to concentrate on upmarket residential and mixed use projects for the burgeoning sector as well as for the growing expatriate communities.

In view of the foregoing, we note that the Project is consistent with the overall corporate strategy of the Group.

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LETTER FROM ING BANK N.V.

(e) Extension of Existing Co-investment Relationship with SA Group

This Project represents the third co-investment arrangement between the Group and the SA Group. Co-investment between the Group and the SA Group has occurred in the PRC in the past since 1996. As at the date of this Circular, SA is a co-investor in two of the Group’s developments in the PRC namely, Beijing Kerry Centre and Shanghai Kerry Centre, in which the Group has an effective interest of approximately 71.25% and 74.25%, respectively, and the SA Group has an effective interest of approximately 23.75% and 24.75%, respectively.

As advised by the management of KPL, it is anticipated that the scope of activities to be provided by the SA Group in this Project will be similar to that undertaken in the existing co-investment in Beijing Kerry Centre with the Group. The characteristics of this proposed large mixed use development will also be similar to that of Beijing Kerry Centre which currently consists of a hotel, offices, retail podiums and serviced apartments.

(f) Undertaking by the Group

As stated in the Initial Public Offering (the “IPO”) prospectus of KPL dated 23 July 1996, SA has an understanding with the Kuok Group that so long as SA continues to be controlled by the Kuok Group, SA will be offered, at the earliest time practicable, the opportunity to acquire at an arm’s length price all or part of any hotel or serviced apartment projects in Hong Kong or the PRC that may be undertaken by the Kuok Group and are to be managed by Shangri-La International. This understanding is applicable to the Group, as part of the Kuok Group, and KPL has given an undertaking to Kerry Group Limited (“KGL”), on behalf of the Kuok Group that, for so long as KPL remains a member of the Kuok Group, it will, if and as requested by KGL, make such reciprocal offer to SA (the “Undertaking”). KGL is the ultimate controlling shareholder of KHL, and KHL is the controlling shareholder of KPL and SA. KGL, KHL, KPL, SA and Shangri-La International are members of the Kuok Group.

Based on the foregoing, we understand that the Project contemplated under the Master Agreement, which is expected to include a hotel and serviced apartments in the development in the PRC, and is to be managed by Shangri-La International, falls within the ambit of the aforesaid Undertaking. In connection with this, we have noted that KGL has requested KPL to make the aforesaid offer and SA has advised KGL and KPL that, subject to the approval of the respective independent shareholders of SA and KPL to permit SA’s and KPL’s participation in the Project, SA’s investment participation in the Project constitutes full compliance by KPL of the aforesaid Undertaking.

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LETTER FROM ING BANK N.V.

(g) Terms of the Master Agreement

• (I) Consideration for Site 1

Pursuant to the Master Agreement, KSD shall acquire 50.5% equity interest in Company 1 from KSJN and agreed proportionate share of all sums due from Company 1 to KSJN for a consideration of approximately US$39.5 million (equivalent to approximately HK$308.0 million), to be satisfied in cash. Based on the audited financial statements of Company 1 as at 31 December 2003, the assignment of such agreed proportionate share of all sums due from Company 1 to KSJN would amount to approximately US$0.76 million (equivalent to approximately HK$5.9 million).

As stated in the letter from the Board contained in the Circular, the consideration payable by KSD for its acquisition of a 50.5% equity interest and agreed proportionate share of all sums due from Company 1 to KSJN was determined with reference to the audited net asset value of Company 1 of approximately RMB647.0 million (equivalent to approximately HK$610.4 million) as at 31 December 2003, the Valuers’ valuation of US$77.8 million (equivalent to approximately HK$606.8 million) as at 31 March 2004 of Site 1 and the face value of all sums due from Company 1 to KSJN of approximately US$1.5 million (equivalent to approximately HK$11.6 million). The principal asset of Company 1 is its interest in Site 1.

Based on the audited financial statements of Company 1, the audited net asset value of Company 1 as at 31 December 2003 (the “Company 1 Book Value”) amounted to approximately RMB647.0 million (equivalent to approximately HK$610.4 million) and the book value of Site 1 as at 31 December 2003 was approximately RMB664.8 million (equivalent to approximately HK$627.2 million).

The consideration for the acquisition of a 50.5% equity interest in Company 1 by KSD from KSJN and agreed proportionate share of all sums due from Company 1 to KSJN of approximately US$39.5 million (equivalent to approximately HK$308.0 million) is approximately equal to KSD’s proportionate share of the Company 1 Book Value of approximately HK$308.3 million. The book value of Site 1 is approximately HK$20.4 million higher than the independent valuation of Site 1 as at 31 March 2004.

The Directors have further confirmed that as at the date of this Circular, having made all reasonable enquiries, that to the best of their knowledge, there are no material changes in the Company 1 Book Value since 31 December 2003, and there are also no contingent liabilities the omission of which would make the Company 1 Book Value inaccurate.

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LETTER FROM ING BANK N.V.

In view of the foregoing, particularly given the fact that the consideration payable by KSD for its acquisition of a 50.5% equity interest in Company 1 from KSJN and agreed proportionate share of all sums due from Company 1 to KSJN is approximately equal to KSD’s proportionate share of the Company 1 Book Value, we consider that the consideration payable by KSD for its 50.5% equity interest in Company 1 and agreed proportionate share of all sums due from Company 1 to KSJN is fair and reasonable to the Group.

(II) Consideration for Site 2

Pursuant to the Master Agreement, KSD shall dispose a 48.5% interest in the Site 2 Contract to KSJN for a consideration of approximately US$12.8 million (equivalent to approximately HK$99.7 million) to be satisfied in cash.

As stated in the letter from the Board contained in the Circular, the consideration receivable by KSD for its disposal of a 48.5% interest in the Site 2 Contract to KSJN was arrived at by reference to the Valuers’ valuation of US$26.0 million (equivalent to approximately HK$202.8 million) of Site 2 as at 31 March 2004. As advised by the Company, the total paid cost of the land use rights (including the cost of clearance and provision of public utilities to Site 2) as at 31 December 2003 (the “Site 2 Book Value”) amounted to approximately RMB181.0 million (equivalent to approximately HK$170.7 million). The original cost of Site 2 paid by KSD was approximately RMB179.2 million (equivalent to approximately HK$169.0 million).

Based on the Valuation Report in relation to Site 2 as attached herein in Appendix I to the Circular, the independent valuation of Site 2 as at 31 March 2004, after taking into account that the land premium for Site 2 has been fully paid, amounted to approximately US$26.0 million (equivalent to approximately HK$202.8 million).

The consideration for the disposal of a 48.5% interest in the Site 2 Contract by KSD to KSJN of approximately US$12.8 million (equivalent to approximately HK$99.7 million) represents a premium of approximately HK$16.8 million (or approximately 20.3%) over its proportionate share of the Site 2 Book Value and a premium of approximately HK$1.3 million (or approximately 1.3%) over the proportionate share of the independent valuation of Site 2. The Company plans to use the proceeds for future injection into the Project.

In view of the foregoing, particularly given the fact that KSD will record a profit of approximately HK$16.8 million from the disposal of a 48.5% interest in the Site 2 Contract to KSJN, representing a premium of approximately 20.3% over the proportionate share of Site 2 Book Value, we consider that the consideration receivable by KSD for the disposal of its 48.5% interest in the Site 2 Contract is favourable to the Group.

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LETTER FROM ING BANK N.V.

(III) Attributable value of the Group’s interest in Site 1 and Site 2

	KPL Group	SA Group	Total
	US$ million	US$ million	US$ million
Land	Site 2	Site 1
Valuation	26.0	77.8	103.8
Attributable value to the Group
(based on 50.5% interest of
the valuation)			52.4
_Less:_The Group’s 99.0% interest
in the valuation of Site 2			(25.7)
Net amount payable by the Group
for its attributable value			26.7
Consideration payable by the Group
for acquisition of 50.5% interest
in Company 1 and agreed
proportionate share of all sums due
from Company 1 to KSJN			39.5
_Less:_Consideration receivable by
the Group for disposal of
48.5% interest in Site 2			(12.8)
Net amount payable by the Group			26.7

As noted from the above, the net amount payable by the Group for a 50.5% interest in Site 1 and Site 2 is consistent with its net amount payable by the Group for its attributable value based on the independent valuation of these sites.

• (IV) Joint arrangement on Site 3a and Site 3b

Under Company 3 Contract as contemplated in the Master Agreement, KSD, KSJN and Party A shall acquire the entire equity interest in Company 3 from various independent third parties in the proportion of 50.5%, 48.5% and 1.0%, respectively, for a total consideration of RMB20.0 million (equivalent to approximately HK$18.9 million) to be satisfied in cash.

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LETTER FROM ING BANK N.V.

The Master Agreement further contemplates that, following the acquisition of Company 3, KSD, KSJN and Party A shall provide an amount of approximately RMB199.3 million (equivalent to approximately HK$188.0 million), RMB191.4 million (equivalent to approximately HK$180.5 million) and RMB3.9 million (equivalent to approximately HK$3.7 million), respectively, by way of shareholders’ loans and/or equity contribution for the purpose of repayment by Company 3 of the amounts due to the independent third parties. In addition, KSD, KSJN and Party A shall also pay one of such independent third parties a consideration amounting to a maximum of approximately RMB179.2 million (equivalent to approximately HK$169.0 million) for site clearance and provision of related public utilities.

As stated in the letter from the Board, the consideration of approximately HK$18.9 million payable by the Group, the SA Group and Party A for the acquisition of entire equity interest in Company 3, and the terms for Company 3 Contract in respect of the provision of shareholders’ loans and/or equity contribution for the purpose of repayment by Company 3, and the site clearance and provision of related public utilities, were arrived at after arm’s length negotiations between KSD, KSJN, Party A and various third party vendors by reference to: the audited net asset value of Company 3 of RMB20.0 million (equivalent to approximately HK$18.9 million) as at 31 December 2003; the Valuers’ valuation of US$70.8 million (equivalent to approximately HK$552.2 million) as at 31 March 2004 for both Site 3a and Site 3b (the total book value of which amounted to approximately RMB538.0 million (equivalent to approximately HK$507.5 million) as at 31 December 2003); the face value of the shareholders’ loans owed by Company 3 to the third party vendors of approximately RMB394.6 million (equivalent to approximately HK$372.2 million); and payment by Company 3 to a third party vendor of a consideration amounting to a maximum of approximately RMB179.2 million (equivalent to approximately HK$169.0 million) for site clearance and provision of related public utilities.

In view that KSD is paying RMB10.1 million (equivalent to approximately HK$9.5 million) for its share of acquisition in Company 3, and shall provide an amount of approximately RMB199.3 million (equivalent to approximately HK$188.0 million) for its share of repayment in amounts owing by Company 3 to the independent third parties, and a further amount of up to approximately RMB90.5 million (equivalent to approximately HK$85.4 million) for its share of costs of site clearance and provision of related public utilities for Site 3b, we note that this is in line with its payment obligation for the proportionate 50.5% equity interest in Company 3 as set out in the Underlying Contract with the independent third parties.

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LETTER FROM ING BANK N.V.

• (V) Joint arrangement on Site 4

Under Company 4 Contract as contemplated in the Master Agreement, KSD and KSJN shall acquire an equity interest of 50.5% and 48.5% in Company 4, respectively, from Party A and an independent third party for a total consideration of US$4.95 million or approximately RMB41.0 million (equivalent to approximately HK$38.6 million) to be satisfied in cash.

Similar to that noted under Company 3, it is further contemplated in the Master Agreement that following the acquisition of Company 4, KSD and KSJN shall provide an amount of approximately RMB49.8 million (equivalent to approximately HK$47.0 million) and RMB47.8 million (equivalent to approximately HK$45.1 million), respectively, by way of shareholders’ loans and/or equity contribution for the purpose of repayment by Company 4 of the amounts due to Party A and the independent third party.

As stated in the letter from the Board, the consideration of approximately HK$38.6 million payable by the Group and the SA Group for the acquisition of 99.0% equity interest in Company 4, and the terms for Company 4 Contract in respect of the provision of shareholders’ loans and/or equity contribution for the purpose of repayment by Company 4 were arrived at after arm’s length negotiations between KSD, KSJN and the various third party vendors by reference to: the audited net asset value of Company 4 of RMB32.7 million (equivalent to approximately HK$30.9 million); the Valuers’ valuation of US$16.5 million (equivalent to approximately HK$128.7 million) as at 31 March 2004 of Site 4 (the book value of which amounted to approximately RMB101.7 million (equivalent to approximately HK$96.0 million) as at 31 December 2003); and the face value of 99.0% shareholders’ loans owed by Company 4 to the third party vendors of approximately RMB97.6 million (equivalent to approximately HK$92.1 million).

In view that KSD is paying US$2.525 million or approximately RMB20.9 million (equivalent to approximately HK$19.7 million) for its share of acquisition in Company 4 and shall provide an amount of approximately RMB49.8 million (equivalent to approximately HK$47.0 million) for its share of repayment in amounts owed by Company 4 to Party A and the independent third party, we note that this is in line with its payment obligation for the proportionate 50.5% equity interest in Company 4 as set out in the Underlying Contract with Party A and the independent third party.

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LETTER FROM ING BANK N.V.

• (VI) On-going Funding and Other Financial Assistance

As stated in the letter from the Board, the total development costs of the Project (including costs for acquisition of the Sites and related costs) are estimated to be not more than US$600.0 million (equivalent to approximately HK$4,680.0 million) and no party shall be required to commit further funding if the cost of the Project exceeds US$700.0 million (equivalent to approximately HK$5,460.0 million). On the basis of a maximum total commitment of HK$5,460.0 million and the current proportions of equity interest held by the Group in the Joint Venture Companies, the Group’s proportionate share of such development commitments is estimated to be up to approximately HK$2,757.3 million. The development costs of the Project is expected to be financed by way of (a) shareholders’ equity and loan contributions by KSD, KSJN and Party A on the same terms according to their proportionate equity interests; (b) bank borrowings; and (c) cash flow from the operating activities of the Project.

Pursuant to the Master Agreement, the equity contribution to, and/or the provision of shareholders’ loans to, and the provision of collateral/security for the benefit of the Joint Venture Companies and/or the Project in the form of (i) pledge over the respective interest of the Group and the SA Group in the Joint Venture Companies and/or the Project; and/or (ii) assignment of KSD’s and KSJN’s shareholders’ loans to the Joint Venture Companies; and/or (iii) corporate guarantees by the Group and the SA Group, are severable and the Group’s obligation under the Master Agreement and the Underlying Contracts shall be in accordance with its proportionate equity interest in the Joint Venture Companies and/or the Project, currently at 50.5%.

As advised by the Directors, the Company will have sufficient resources, including bank loans, to satisfy its proportionate share of such development commitments, currently estimated to be up to approximately HK$2,757.3 million (including its proportionate share of guarantee for bank borrowings to be assumed by Company 1 in relation to the Project), as and when they fall due.

(VII) Project Management Agreement

In connection with the development of the Project, the Group will act as overall project manager, provide certain on-going project management services and related development, construction management and project consultancy services during the construction period of the Project at a fee based on 1.5% of the total construction costs.

As stated in the letter from the Board, the entering into of the Project Management Agreement will enable the Joint Venture Companies to tap the Company’s extensive experience in property development management, construction, marketing and promotion in the PRC. At the end of December 2003, the Group has approximately 8.5 million square feet of properties under development in the PRC.

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LETTER FROM ING BANK N.V.

As stated in the letter from the Board, the proposed fee at 1.5% of the total construction costs was arrived at after arm’s length negotiation taking into consideration the recommended rates proposed by the Hong Kong Institute of Surveyors.

Based on our understanding of the rates recommended by the Hong Kong Institute of Surveyors, we note that, depending upon the character, size of the project and the extent of the Group’s involvement, the recommended rates for such type of fee range from 1.5% to 3.0% of the total construction costs. With reference to the IPO prospectus of KPL, we further note that the proposed fee at 1.5% of the total construction costs is within the range of 1.0% to 2.5% of the total budgeted construction costs proposed to be charged by the Group to the Kuok Group companies at that time. This rate is also consistent with the fee of 1.5% of total construction costs charged by the Group for similar project management agreement rendered in connection with Shanghai Kerry Centre, currently 74.25% and 24.75% owned by the Group and the SA Group, respectively.

As stated in the letter from the Board, based on the maximum estimated construction costs of approximately US$500.0 million (equivalent to approximately HK$3,900.0 million), the total fee is expected to be not more than US$7.5 million (equivalent to approximately HK$58.5 million).

(h) Financial Effects on the Group

• (I) Profit and Loss Accounts

As stated in the letter from the Board, a one-off gain (before expenses) of approximately HK$16.8 million (the “Gain”), representing the surplus of the consideration for the disposal by KSD of its 48.5% interest in the Site 2 Contract to KSJN, is expected to arise in connection with Site 2 upon completion of the Master Agreement. Based on the audited financial statements of the Group for the financial year ended 31 December 2003, the Group recorded a profit attributable to shareholders of approximately HK$394.7 million. We note that the transactions contemplated under the Master Agreement will have no material effect on the total profit of the Group upon completion of the Master Agreement.

(II) Net Assets

As at 31 December 2003, the audited net asset value of the Group amounted to approximately HK$19,883 million. As advised by the Directors, barring any unforeseen circumstances, the Gain (after deducting expenses) to be recognized in the profit and loss account of the Group for the financial year ending 31 December 2004 is expected to lead to an increase in the net asset value of the Group by the same amount, and we note that there will be no material effect on the net asset value of the Group pursuant to the completion of Master Agreement.

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LETTER FROM ING BANK N.V.

(III) Net Gearing

Based on the audited financial statements of the Group for the financial year ended 31 December 2003, the net gearing ratio stood at approximately 23.2%. Upon completion of the transactions contemplated under the Master Agreement, the Group would incur a net cash outflow of up to approximately HK$557.9 million (being HK$308.0 million, up to HK$282.9 million, and HK$66.7 million, for the Group’s cash obligations in the aforesaid acquisitions of its 50.5% equity interests in Company 1, Company 3, and Company 4, respectively, and partially offset by the cash proceeds of approximately HK$99.7 million for its disposal of 48.5% interest in Site 2) and, barring any unforeseen circumstances, the estimated net gearing ratio of the Group would increase to approximately 26.0%. As stated in the letter from the Board, the consideration for the acquisitions of its equity interests in Company 1, Company 3 and Company 4 and the satisfaction of its obligations under the Underlying Contracts will be financed by its internal cash reserves and/or external bank borrowings.

(IV) Liquidity

As stated in the Company’s annual report for the financial year ended 31 December 2003, the Group had cash on hand of approximately HK$1.6 billion and total undrawn bank loan and overdraft facilities of approximately HK$6.6 billion as at 31 December 2003. On the basis of a maximum total commitment of HK$5,460.0 million and the current proportions of equity interest held by the Group in the Joint Venture Companies, the Group’s proportionate share of such development commitments is estimated to be up to approximately HK$2,757.3 million. We note that the Group’s total cash on hand, undrawn bank loan and overdraft facilities are in excess of the Group’s proportionate share of the maximum development commitments.

(i) Proposed Continuing Connected Transactions

As stated in the letter from the Board, the Group and the SA Group currently expect to enter into various agreements to provide certain services to the Joint Venture Companies in relation to the Project. In particular, it is contemplated that:

• (1) the Group will enter into the Property Sales, Leasing and Management Agreement with the Joint Venture Companies and/or the Project; and

• (2) the SA Group will enter into the Hotel Management Agreement with the Joint Venture Companies and/or the Project.

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LETTER FROM ING BANK N.V.

Entering of the aforesaid agreements will constitute continuing connected transactions for the Group and/or the SA Group. When such relevant agreements are entered into, the Company will ensure compliance with the obligations under the Listing Rules.

As stated in the letter from the Board, under the current Listing Rules, the period of the aforesaid agreements cannot be longer than three years except in special circumstances and with the approval from the Hong Kong Stock Exchange. Unless the approval for a longer term agreement is obtained from the Hong Kong Stock Exchange, these agreements will expire in three years. There is currently no assurance that the Group and the SA Group will be able to renew the Property Sales, Leasing and Management Agreement and the Hotel Management Agreement, upon the expiry of a three-year term. In such event, independent third parties will have to be appointed to provide the relevant services to the Joint Venture Companies for the Project.

The Directors have indicated that the aforesaid contemplated agreements proposed to be entered into will be based on normal commercial terms and at market price, and they are of the view that non-renewal of the aforesaid agreements will not affect the financial viability of the Project.

5. RECOMMENDATION

The Project relating to the joint acquisition, ownership and development of five adjacent pieces of land in Jingan District, Shanghai, the PRC, presents an opportunity for the Group and the SA Group to co-invest and enhance the development potential of their existing sites. The Group has obtained 99.0% of the land use right in respect of Site 2 and the SA Group currently owns 99.0% in Site 1. Both sites are adjacent to each other and vacant pending development. Through the joint acquisition of adjacent Site 3a, Site 3b and Site 4 currently owned by various independent third parties, the Project has the development potential of a large mixed use development consisting of a hotel, offices, retail podiums, residential and serviced apartments.

Having analysed and considered the principal factors as set out in our letter above, we draw your attention to the following key factors, which should be read in conjunction with and interpreted in the full context of this letter contained in the Circular, in arriving at our conclusion:

• (a) The Group has extensive experience in property development, management, construction, marketing and promotion, and has undertaken similar projects in the PRC. The SA Group is well-established in hotel management and is one of the pre-eminent Asian luxury brands. Both parties are able to leverage on each other’s strengths through this co-investment, and the Project is in line with the overall corporate strategy of the Group to focus on mixed use developments and tap the fast-growing affluent sector in China.

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LETTER FROM ING BANK N.V.

• (b) According to the conditions for the grant of the State-owned land use rights for Site 2, Site 2 can only be used for residential development. Based on the Valuation Report in relation to Site 2, the approximately 13,693 sq.m. site area has an indicative plot ratio of approximately 3.3 times with a current permitted development potential of approximately 44,730 sq.m..

• (c) The SA Group currently owns 99.0% interest in Site 1 which is located adjacent to Site 2. Site 1 can be used for composite development consisting of commercial, office, hotel and residential. Based on the Valuation Report in relation to Site 1, Site 1 has a site area of approximately 15,157 sq.m. and a current permitted development potential of approximately 106,099 sq.m., indicating a plot ratio of approximately 7.0 times its site area.

• (d) Site 3a, Site 3b and Site 4 are strategically proximate to Site 1 and Site 2. The entering into of joint arrangements by the Group and the SA Group to jointly acquire such sites from various independent third parties at arm’s length prices, is integral to the development of a landmark project with an aggregate site area of approximately 45,996 sq.m. in Jingan District, Shanghai. The management of KPL has indicated that it is currently unaware of any comparable new developments of such scale and size in this district.

• (e) Upon completion, the Project will be connected to Shanghai Kerry Centre which is currently 74.25% and 24.75% owned by the Group and the SA Group, respectively. The contemplated large mixed use development is expected to increase the traffic flow at Shanghai Kerry Centre and in turn, enhance the value of this existing co-investment.

• (f) The Group will own a controlling 50.5% equity interest in Company 1, the ultimate holding company of all Sites. Similar to its existing two co-investments with the SA Group, namely, Beijing Kerry Centre and Shanghai Kerry Centre, the Group will be able to consolidate the results of Company 1.

• (g) The Project falls within the ambit of the Undertaking outlined in the KPL’s IPO prospectus. KGL has requested KPL to make the offer to SA the opportunity to acquire the hotel and serviced apartment portion of the Project, and SA has advised that, subject to the approval of the respective independent shareholders of SA and KPL to permit SA’s and KPL’s participation in the Project, SA’s investment participation in the Project constitutes full compliance by KPL of the aforesaid Undertaking.

• (h) The principal asset of Company 1 is its interest in Site 1 which is valued at approximately US$77.8 million (equivalent to approximately HK$606.8 million). The consideration of approximately US$39.5 million (equivalent to approximately

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LETTER FROM ING BANK N.V.

HK$308.0 million) payable by the Group for its acquisition of 50.5% equity interest in Company 1 and agreed proportionate share of all sums due from Company 1 to KSJN is approximately equal to KSD’s proportionate share of the Company 1 Book Value.

• (i) The consideration for the disposal of a 48.5% interest in Site 2 by the Group to the SA Group represents a premium of approximately 20.3% and 1.3%, respectively, over its book cost and an independent valuation of Site 2. As such, the Group will be able to record a profit of approximately HK$16.8 million arising from such disposal.

• (j) Obligations by the Group to provide on-going funding and other financial assistance to the Project are integral to its commitment to the development of the Project, are severable and shall be in accordance with its proportionate equity interest in the Joint Venture Companies and/or the Project, currently at 50.5%.

• (k) The Project Management Agreement to be entered into between the Group and the Joint Venture Companies with a proposed fee charged at 1.5% of the total construction costs is in line with the range of rates recommended by the Hong Kong Institute of Surveyors, guideline set forth by the Group in its IPO prospectus and consistent with the rate charged by the Group for similar project management agreement rendered in connection with Shanghai Kerry Centre. Based on the maximum estimated construction costs of approximately US$500.0 million (equivalent to approximately HK$3,900.0 million), the total fee is expected to be not more than US$7.5 million (equivalent to approximately HK$58.5 million).

Based on the above, we are of the opinion that the terms of the Relevant Transactions are fair and reasonable and that the entering into of the Relevant Transactions contemplated under the Master Agreement, in accordance with the principal terms set out in the Master Agreement, is on normal commercial terms, in the ordinary and usual course of business, and is in the interests of KPL and its shareholders as a whole so far as KPL and the Independent Shareholders are concerned. Accordingly, we would advise the Independent Shareholders, as well as recommend the Independent Board Committee to advise the Independent Shareholders, to vote in favour of the ordinary resolution in respect of the terms of the Master Agreement and the Relevant Transactions contemplated under the Master Agreement to be proposed at the Special General Meeting.

Yours faithfully, For and on behalf of ING Bank N.V.

Malcolm E.O. Brown

Managing Director

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PROPERTY VALUATION

APPENDIX I

==> picture [164 x 59] intentionally omitted <==

PETTY

10th Floor Jardine House 1 Connaught Place Central Hong Kong

31 May 2004

The Directors

Kerry Properties Limited 13-14/F, Cityplaza 3, 14 Taikoo Wan Road, Taikoo Shing Hong Kong

Dear Sirs,

• Re: (1) Lot No. 1238, Yanan Zhong Lu, Jingan District, Shanghai, The People’s Republic of China

• (2) Lot No. 1288, Yanan Zhong Lu, Jingan District, Shanghai, The People’s Republic of China

• (3) Lot No. 1537 (Nos. 1519-1553) Nanjing Xi Lu, Changde Lu 104-126 Nong, Nos. 50-134 Anyi Lu, Jingan District, Shanghai, The People’s Republic of China

• (4) Mingcheng Plaza, Lot No. 1565 Nanjing Xi Lu, Jingan District, Shanghai, The People’s Republic of China

In accordance with the instruction of Kerry Properties Limited (the “Company”) for us to carry out open market valuation of the property interests situated in the People’s Republic of China (the “PRC”), we confirm that we have inspected the property, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing the Company with our opinion of value of the property interests as at 31 March 2004 (the “date of valuation”).

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PROPERTY VALUATION

APPENDIX I

Our valuation of the property interests represents our opinion of its open market value which we would define as intended to mean “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;

• (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 that both parties to the transaction had acted knowledgeably, prudently and without compulsion.”

Our valuations have been made on the assumption that the Company sells the property interests on the open market without the benefit of a deferred term contract, leaseback, management agreement or any similar arrangement which could serve to increase the value of the property interests.

In the course of our valuation of the property in the PRC, we have assumed that transferable land use rights in respect of the property interests for respective specific terms at nominal annual land use fees have been granted and that any premium payable has already been fully settled. We have relied on the advice given by the Company and its legal adviser on PRC laws, Fangda Partners, regarding the titles to the property interests.

We have prepared our valuations on an entire interest basis in respect of the property interests.

In valuing property interests Nos. 1-3, we have valued the property interests by Direct Comparison Approach assuming sale of the property interests in existing state with the benefit of vacant possession and by making reference to comparable transactions as available in the relevant market.

In valuing property interest No. 4, we have adopted investment approach of valuation by considering the reversionary income potential of the property interest. As instructed by the Company, in the course of our valuation, we have disregarded the rental receivable from the existing tenancies.

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PROPERTY VALUATION

APPENDIX I

We have relied to a very considerable extent on the information given by the Company and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, development schemes, construction cost, site and floor areas and all other relevant matters.

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

We have been provided with extracts of documents in relation to the titles to the property interests. However, we have not searched the original documents to verify ownership or to ascertain any lease amendments which may not appear on the copies handed to us. We have relied on the advice given by the Company and its legal adviser regarding the property interests.

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

Unless otherwise stated, we have not been able to carry out detailed on-site measurements to verify the site 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 valuation 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 property interests is free from encumbrances, restrictions and outgoings of an onerous nature which could affect its value.

The summary of valuation 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, RPS (GP)	Registered Professional Surveyor, RPS (GP)
F.R.I.C.S., F.H.K.I.S., F.H.K.F.A.	M.Sc., F.R.I.C.S., F.H.K.I.S., M.C.I.Arb.
Executive Director	Executive Director

Notes: Mr. Chiu Kam Kuen is a registered professional surveyor with extensive experience in the property valuation in the PRC.

Mr. Charles C. K. Chan is a registered professional surveyor with extensive experience in the property valuation in the PRC.

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PROPERTY VALUATION

APPENDIX I

SUMMARY OF VALUATION

Capital value in existing state as at Property 31 March 2004 1. Lot No. 1238, US$77,800,000 Yanan Zhong Lu, Jingan District, Shanghai, The People’s Republic of China 2. Lot No. 1288, US$26,000,000 Yanan Zhong Lu, Jingan District, Shanghai, The People’s Republic of China 3. Lot No. 1537 (Nos. 1519-1553) Nanjing Xi Lu, US$70,800,000 Changde Lu 104-126 Nong, Nos. 50-134 Anyi Lu, Jingan District, Shanghai, The People’s Republic of China 4. Mingcheng Plaza, US$16,500,000 Lot No. 1565 Nanjing Xi Lu, Jingan District, Shanghai, The People’s Republic of China

Total:

US$191,100,000

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PROPERTY VALUATION

APPENDIX I

VALUATION CERTIFICATE

Capital value in Particular of existing state as at Property Description and tenure occupancy 31 March 2004 1. Lot No. 1238, The property comprises a piece of site The property is US$77,800,000 Yanan Zhong Lu, with a site area of approximately currently a site Jingan District, 15,157 sq.m. (163,150 sq.ft.). pending for Shanghai, development. The People’s The property has a development Republic of China potential of approximate gross floor area of 106,099 sq.m. (1,142,050 sq.ft.). The land use rights of the property has been granted for a term of 50 years from 11 May 1994 to 10 May 2044 for composite (commercial/ residential/office) uses.

Notes:–

(1)	The	salient terms as stipulated in Realty	salient terms as stipulated in Realty	Title Certificate No. (1996) 100076, inter alia, are summarized
	as follows:–
	(i)	Location	:	Lot No. 1238, Yanan Zhong Lu, Jingan District
	(ii)	Site area	:	15,157 sq.m.
	(iii)	Use	:	Composite (commercial/residential/office)
	(iv)	Owner	:	Shanghai Ji Xiang Properties Co., Ltd.（上海吉祥房地產有
				限公司）
	(v)	Land use term	:	50 years from 11 May 1994 to 10 May 2044.
(2)	According to Contract for Grant of State-owned Land Use Rights No. (1994) 11 entered into between
	Shanghai Land Administration Bureau (the Grantor), Kerry Shanghai (Jingan Nanli) Ltd.（嘉里上海
	（靜安南里）有限公司）(99%) and Jingan District Property Development and Management Company
	（上海市靜安區房地產開發經營公司）(1%) (together the Grantee) on 4 March 1994, the salient
	conditions, inter alia, are summarized as follows:–
	(i)	Location	:	Lot No. 1238, Yanan Zhong Lu, Shanghai
	(ii)	Site area	:	15,157 sq.m.
	(iii)	Use	:	Composite (commercial/office/hotel/residential in which
				residential not exceeding 25%)
	(iv)	Plot ratio	:	≦7 (total gross floor area not more than 106,099 sq.m.)
	(v)	Land premium	:	US$11,458,692
	(vi)	Land use term	:	50 years

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PROPERTY VALUATION

APPENDIX I

• (3) According to Supplemental Contract No. (1998) 99 entered into between Shanghai Real Estate & Land Resources Administration Bureau (Party A) and Shanghai Ji Xiang Properties Co., Ltd. (Party B) on 9 October 1998:–

• (i) Party A agreed Party B to change the land to temporary green land use; and

• (ii) Party A agreed that the land use term to be counted from the date of termination of temporary green land use if the land is used as temporary green land for three successive years.

• (4) According to Contract for Demolition, Resettlement and Urban Utilities Accommodation No. (1994) 3 entered into between Shanghai Jingan District People’s Government (Party A), Kerry Shanghai (Jingan Nanli) Ltd. (99%) and Jingan District Property Development and Management Company（上海市靜安 區房地產開發經營公司） (1%) (together Party B) on 4 March 1994:–

• (i) the demolition, resettlement and urban utilities costs are US$64,932,588 for the site of 15,157 sq.m.;

• (ii) Party A is responsible for the demolition and resettlement works, the provision of compensation to the existing residents, the site levelling works and the provision of urban utilities; and

• (iii) after the demolition, resettlement and urban utilities costs are settled in full, the Grantor would issue the Realty Title Certificate to the Grantee.

• (5) The salient terms as stipulated in Equity Joint Venture Contract, inter alia, are summarized as follows:–

• (i) Joint venture company : Shanghai Ji Xiang Properties Co., Ltd. （上海吉祥房地產有 限公司）

• (ii) Party A : Jingan District Property Development and Management Company（上海市靜安區房地產開發經營公司） (1%)

• Party B : Kerry Shanghai (Jingan Nanli) Ltd. (99%)

• (iii) Registered capital : Party A contributes US$760,000 Party B contributes US$75,240,000

Total: US$76,000,000

• (iv) Profit sharing ratio : According to respective share of capital contribution

• (6) According to Business Licence No. 005367 dated 18 June 2001, Shanghai Ji Xiang Properties Co., Ltd. has been established with a registered capital of US$76,000,000 and its operation period shall commence from 28 December 1994 to 27 December 2044.

• (7) The PRC legal opinion states that:–

• (i) Shanghai Ji Xiang Properties Co., Ltd. is a sino-foreign equity joint venture established in the PRC with a registered capital of US$76,000,000. The term of its business licence is 50 years;

• (ii) Shanghai Ji Xiang Properties Co., Ltd. has obtained the Realty Title Certificate and legally owns the land use rights of the property with a site area of 15,157 sq.m. The land use terms is 50 years from 11 May 1994 to 10 May 2044 for composite (commercial/residential/office) uses;

• (iii) according to Supplemental Contract No. (1998) 99 entered into between Shanghai Real Estate & Land Resources Administration Bureau and Shanghai Ji Xiang Properties Co., Ltd., Shanghai Real Estate & Land Resources Administration Bureau agreed to change the land to temporary green land use and that the land use term to be counted from the date of termination of temporary green land use if the land is used as temporary green land for three successive years; and

• (iv) Shanghai Ji Xiang Properties Co., Ltd. has the right to transfer the land use rights of the property upon completion of construction of 60% of the gross floor area and mortgage the land use rights provided that the mortgage loan is used for development of the property.

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PROPERTY VALUATION

APPENDIX I

• (8) We have based on the PRC legal opinion and prepared our valuation on the following assumptions:–

• (i) Shanghai Ji Xiang Properties Co., Ltd. is in possession of a proper legal title to the property interest and is entitled to transfer the property interest with the residual term of its land use rights at no extra land premium or other onerous payment payable to the government;

• (ii) all land premium, demolition, resettlement and urban utilities costs have been settled in full;

• (iii) the design and construction of the proposed development will be in compliance with the local planning regulations and would be approved by the relevant authorities; and

• (iv) the property interest may be disposed of freely to local and overseas purchasers.

• (9) The status of the title and grant of major approvals and licences in accordance with the information provided by the Company and the opinion of the PRC legal adviser are as follows:–

Realty Title Certificate	Yes
Contract for Grant of State-owned Land Use Rights	Yes
Contract for Demolition, Resettlement and Urban Utilities Accommodation	Yes
Red-line Drawing	Yes
Equity Joint Venture Contract	Yes
Business Licence	Yes

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PROPERTY VALUATION

APPENDIX I

VALUATION CERTIFICATE

Property

Description and tenure

Capital value in Particular of existing state as at occupancy 31 March 2004

1. Lot No. 1288, The property comprises a piece of site Yanan Zhong Lu, with a site area of approximately Jingan District, 13,693 sq.m. (147,391 sq.ft.) (in Shanghai, which 1,598 sq.m. (17,201 sq.ft.) is to The People’s be devoted as public greenery area). Republic of China

The property is currently a site pending for development.

US$26,000,000

The property has a development potential of approximate gross floor area of 44,730 sq.m. (481,474 sq.ft.). (Please see Notes (1) and (3) below)

The land use rights of the property has been granted for a term of 70 years for residential use.

Notes:–

• (1) According to Contract for Grant of State-owned Land Use Rights No. (2002) 31 entered into between Shanghai Real Estate and Land Resources Administration Bureau（上海市房屋土地資源管理局）(Party A), Kerry Shanghai Development Ltd.（嘉里上海發展有限公司）(99%) and Shanghai Jingan District Land Development Holding Corporation（上海市靜安區土地開發控股總公司）(1%) (together Party B) on 6 February 2002, the salient conditions, inter alia, are summarized as follows:–

(i) Location : Lot No. 1288, Yanan Zhong Lu, Jingan District (ii) Site area : 13,693 sq.m. (in which 1,598 sq.m. is to be devoted as public greenery area) (iii) Use : Residential (iv) Plot ratio : ≤ 35,000 sq.m./hectare (total gross floor area not more than 42,332.50 sq.m.) based on site area of 12,095 sq.m. (v) Land premium : RMB12,666,025 (vi) Land use term : 70 years (vii) Party B should complete the construction before 30 June 2007.

• (2) According to Contract for Demolition, Resettlement and Urban Utilities Accommodation No. (2002) 2 entered into between Shanghai Jingan District People’s Government (Party A), Kerry Shanghai Development Ltd. (99%) and Shanghai Jingan District Land Development Holding Corporation（上海 市靜安區土地開發控股總公司） (1%) (together Party B) on 6 February 2002:–

• (i) the demolition, resettlement and urban utilities costs are RMB168,326,471 for the site of 13,693 sq.m.;

• (ii) Party A is responsible for the demolition and resettlement works, the provision of compensation to the existing residents, the site levelling works and the provision of urban utilities; and

• (iii) Party A shall complete the said resettlement works before 6 February 2003.

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PROPERTY VALUATION

APPENDIX I

• (3) According to the Supplemental Contract entered into between Shanghai Jingan District People’s Government (Party A), Kerry Shanghai Development Ltd. (99%) and Shanghai Jingan District Land Development Holding Corporation（上海市靜安區土地開發控股總公司）(1%) (together Party B) on 6 February 2002:–

• (i) Party A would assist Party B to apply for the extra plot ratio of 1.5 on the 1,598 sq.m. greenery area site. The extra gross floor area would thus be 2,397 sq.m. In case the bonus gross floor area is not obtained, Party A would revert back demolition, resettlement and urban utilities costs of US$489 per sq.m. gross floor area to Party B;

• (ii) if the permitted plot ratio exceeds 1.5, Party B would pay a supplemental land premium and demolition, resettlement and urban utilities costs of US$236 per sq.m. gross floor area; and

• (iii) if the permitted plot ratio does not exceed 1.5, Party B would not be required to pay supplemental land premium and demolition, resettlement and urban utilities costs.

• (4) The PRC legal opinion states that:–

• (i) Kerry Shanghai Development Ltd. and Shanghai Jingan District Land Development Holding Corporation（上海市靜安區土地開發控股總公司）have obtained Contract for Grant of Land Use Rights of the property with a site area of 13,693 sq.m. The land use term is 70 years for residential use;

• (ii) Shanghai Jingan District People’s Government (Party A) would assist Kerry Shanghai Development Ltd. (99%), Shanghai Jingan District Land Development Holding Corporation

• （上海市靜安區土地開發控股總公司） (1%) (together Party B) to apply for the extra plot ratio of 1.5 on the 1,598 sq.m. greenery area site. The extra gross floor area would thus be 2,397 sq.m. In case the bonus gross floor area is not obtained, Party A would revert back demolition, resettlement and urban utilities costs of US$489 per sq.m. gross floor area to Party B;

• (iii) Kerry Shanghai Development Ltd. and Shanghai Jingan District Land Development Holding Corporation（上海市靜安區土地開發控股總公司）have the rights to transfer the land use rights of the property upon the completion of construction amounted to 25% of the total development costs; and

• (iv) the land premium and demolition, resettlement and urban utilities costs have been settled. The project company, which is yet to be established by Kerry Shanghai Development Ltd. and Shanghai Jingan District Land Development Holding Corporation（上海市靜安區土地開發控 股總公司）, will be able to obtain the Realty Title Certificate upon submission of application.

• (5) We have based on the PRC legal opinion and prepared our valuation on the following assumptions:–

• (i) Kerry Shanghai Development Ltd. and Shanghai Jingan District Land Development Holding Corporation（上海市靜安區土地開發控股總公司）are in possession of a proper legal title to the property interest and are entitled to transfer the property interest with the residual term of its land use rights at no extra land premium or other onerous payment payable to the government;

• (ii) all land premium, demolition, resettlement and urban utilities costs have been settled in full;

• (iii) the design and construction of the proposed development will be in compliance with the local planning regulations and would be approved by the relevant authorities; and

• (iv) the property interest may be disposed of freely to local and overseas purchasers.

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PROPERTY VALUATION

APPENDIX I

(6)	The status of the title and grant of major approvals and licences in accordance with	the information
	provided by the Company and the opinion of the PRC legal adviser are as follows:–
	Realty Title Certificate	No
	Contract for Grant of State-owned Land Use Rights	Yes
	Contract for Demolition, Resettlement and Urban Utilities Accommodation	Yes
	Red-line Drawing	Yes
	Business Licence	No

– 73 –

PROPERTY VALUATION

APPENDIX I

VALUATION CERTIFICATE

Capital value in Particular of existing state as at Property Description and tenure occupancy 31 March 2004 3. Lot No. 1537 The property comprises a piece of site The property is US$70,800,000 (Nos. 1519-1553) with a site area of approximately currently a site Nanjing Xi Lu, 15,155 sq.m. (163,128 sq.ft.). pending for Changde Lu, development. 104-126 Nong, The property has a development Nos. 50-134 potential of approximate gross floor Part of the site has Anyi Lu, area of 90,695 sq.m. (976,241 sq.ft.). 2-3 storey Jingan District, buildings, which Shanghai, The land use rights of the property are to be cleared The People’s has been granted for a term of 50 away in due Republic of China years for composite use. course.

Notes:–

• (1) According to Contract for Grant of State-owned Land Use Rights No. (2003) 60 entered into between Shanghai Real Estate and Land Resources Administration Bureau （上海市房屋土地資源管理局） (Party A) and Shanghai Jin Ci Hou Properties Company Limited（上海金慈厚房地產發展有限公司） (Party B) on 14 May 2003, the salient conditions, inter alia, are summarized as follows:–

(i) Location : Lot No. 1537 (Nos. 1519-1553) Nanjing Xi Lu, Changde Lu,104-126 Nong, Nos. 50-134 Anyi Lu, Jingan District (ii) Site area : 15,155 sq.m. (iii) Use : Composite (iv) Plot ratio : total gross floor area not more than 90,695 sq.m. (v) Land premium : RMB35,270,813 (vi) Land use term : 50 years

• (vii) Party B should complete the construction before 16 December 2007.

• (2) According to Business Licence No. 3101061012387 dated 7 April 2004, Shanghai Jin Ci Hou Properties Company Limited（上海金慈厚房地產發展有限公司） has been established with a registered capital of RMB20,000,000 for an operation period of 20 years.

• (3) The PRC legal opinion states that:–

• (i) Shanghai Jin Ci Hou Properties Company Limited（上海金慈厚房地產發展有限公司）is a limited liability company established in the PRC with a registered capital of RMB20,000,000. The term of its business licence is 20 years;

• (ii) Shanghai Jin Ci Hou Properties Company Limited（上海金慈厚房地產發展有限公司）has obtained Contract for Grant of Land Use Rights of the property with a site area of 15,155 sq.m. The land use term is 50 years for composite use;

• (iii) the land premium has been fully settled. Shanghai Jin Ci Hou Properties Company Limited（上 海金慈厚房地產發展有限公司）will be able to obtain the Realty Title Certificate upon submission of application; and

• (iv) Shanghai Jin Ci Hou Properties Company Limited（上海金慈厚房地產發展有限公司）has the right to transfer the land use rights of the property upon completion of construction amounted to 25% of the total development costs and mortgage the land use rights provided that the mortgage loan is used for development of the property.

– 74 –

PROPERTY VALUATION

APPENDIX I

• (4) We have based on the PRC legal opinion and prepared our valuation on the following assumptions:–

• (i) Shanghai Jin Ci Hou Properties Company Limited（上海金慈厚房地產發展有限公司）is in possession of a proper legal title to the property interest and is entitled to transfer the property interest with the residual term of its land use rights at no extra land premium or other onerous payment payable to the government;

• (ii) all land premium, demolition, resettlement and urban utilities costs have been settled in full;

• (iii) the design and construction of the proposed development will be in compliance with the local planning regulations and would be approved by the relevant authorities; and

• (iv) the property interest may be disposed of freely to local and overseas purchasers.

• (5) The status of the title and grant of major approvals and licences in accordance with the information provided by the Company and the opinion of the PRC legal adviser are as follows:–

Realty Title Certificate	No
Contract for Grant of State-owned Land Use Rights	Yes
Red-line Drawing	Yes
Business Licence	Yes

– 75 –

PROPERTY VALUATION

APPENDIX I

VALUATION CERTIFICATE

Capital value in Particular of existing state as at Property Description and tenure occupancy 31 March 2004 4. Mingcheng Plaza, The property comprises a 6-storey Part of the US$16,500,000 Lot No. 1565 office building plus 2 levels of property is Nanjing Xi Lu, basement “Mingcheng Plaza” erected currently leased as Jingan District, on a piece of site with a site area of office with various Shanghai, approximately 1,991 sq.m. (21,431 tenancies with a The People’s sq.ft.). The building was completed in total monthly Republic of China 2000. rental of about US$88,000. The The property has a total gross floor latest expiry date area of approximately 8,464.31 sq.m. will be in 2007. (91,110 sq.ft.). As instructed by The land use rights of the property the Company, in has been granted for a term of 50 the course of our years from 9 March 1995 to 8 March valuation, we have 2045 for office use. disregarded the rental receivable from the existing tenancies.

Notes:–

(1) The salient terms as stipulated in Realty Title Certificate No. (2002) 001164, inter alia, are summarized as follows:–

• (i) Location : Lot No. 1565 Nanjing Xi Lu, Jingan District (ii) Site area : 1,991 sq.m. (iii) Use : Office (iv) Owner : Shanghai Ming Cheng Real Estate Development Co., Ltd. （上海名城房地產發展有限公司）

• (v) Gross floor area : Levels 1-6 6,701.81 sq.m. Basements 1-2 1,762.50 sq.m. 8,464.31 sq.m.

• (vi) Land use term : 50 years, from 9 March 1995 to 8 March 2045

• (2) According to Contract for Grant of State-owned Land Use Rights No. (1994) 193 and its Supplement No. (2001) 88 entered into between Shanghai Real Estate and Land Resources Administration Bureau

• （上海市房屋土地資源管理局）(Party A) and Shanghai Ming Cheng Real Estate Development Co., Ltd.（上海名城房地產發展有限公司）(Party B), the salient conditions, inter alia, are summarized as follows:–

(i) Location : Lot No. 1565 Nanjing Xi Lu, Jingan District (ii) Site area : 1,991 sq.m. (iii) Use : Office (iv) Plot ratio : Total gross floor area not more than 6,400.23 sq.m.

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PROPERTY VALUATION

APPENDIX I

(v) Total land premium : US$748,827 (vi) Land use term : 50 years

(3) The salient terms as stipulated in Equity Joint Venture Contract, inter alia, are summarized as follows:– (i) Joint venture company : Shanghai Ming Cheng Real Estate Development Co., Ltd. （上海名城房地產發展有限公司） (ii) Party A : Shanghai Jingan District Land Development Holding Corporation（上海市靜安區土地開發控股總公司）(70%) Party B : An Sheng International Investment Limited（香港安盛國際 投資有限公司）(30%) (iii) Registered capital : Party A contributes US$3,500,000 Party B contributes US$1,500,000 Total: US$5,000,000 (iv) Profit sharing ratio : According to respective share of capital contribution

• (4) According to Business Licence No. 020914 dated 10 May 2002, 上海名城房地產發展有限公司 has been established with a registered capital of US$5,000,000 for an operation period of 40 years.

• (5) The PRC legal opinion states that:–

• (i) Shanghai Ming Cheng Real Estate Development Co., Ltd.（上海名城房地產發展有限公司） is a sino-foreign equity joint venture established in the PRC with a registered capital of US$5,000,000. The term of its business licence is 40 years;

• (ii) Shanghai Ming Cheng Real Estate Development Co., Ltd.（上海名城房地產發展有限公司） has obtained the Realty Title Certificate and legally owns the land use rights of the property with a site area of 1,991 sq.m. The land use term is 50 years from 9 March 1995 to 8 March 2045. The gross floor area of the building “Mingcheng Plaza” is 8,464.31 sq.m.;

• (iii) Shanghai Ming Cheng Real Estate Development Co., Ltd.（上海名城房地產發展有限公司） has the right to transfer the land use rights and building ownership of the property;

• (iv) the property is subject to a mortgage in favour of CITIC Industrial Bank Shanghai Branch（中 信實業銀行上海分行）for a term due to expire on 10 December 2004; and

• (v) no other situation is found to restrict the transfer and mortgage of the property by Shanghai Ming Cheng Real Estate Development Co., Ltd.（上海名城房地產發展有限公司）.

• (6) We have based on the PRC legal opinion and prepared our valuation on the following assumptions:–

• (i) Shanghai Ming Cheng Real Estate Development Co., Ltd.（上海名城房地產發展有限公司） is in possession of a proper legal title to the property interest and is entitled to transfer the property interest with the residual term of its land use rights at no extra land premium or other onerous payment payable to the government;

• (ii) all land premium, demolition, resettlement and urban utilities costs have been settled in full;

• (iii) the design and construction of the development are in compliance with the local planning regulations and have been approved by the relevant authorities; and

• (iv) the property interest may be disposed of freely to local and overseas purchasers.

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PROPERTY VALUATION

APPENDIX I

(7)	The status of the title and grant of major approvals and licences in accordance with	the information
	provided by the Company and the opinion of the PRC legal adviser are as follows:–
	Realty Title Certificate	Yes
	Contract for Grant of State-owned Land Use Rights	Yes
	Contract for Demolition, Resettlement and Urban Utilities Accommodation	Yes
	Red-line Drawing	Yes
	Equity Joint Venture Contract	Yes
	Business Licence	Yes

– 78 –

SUMMARY OF MATERIAL CHANGES TO THE BYE-LAWS OF THE COMPANY

APPENDIX II

The following is a summary of the major proposed amendments to the existing bye-laws of the Company which will be reflected in the new bye-laws of the Company:

1. CONSEQUENTIAL AMENDMENTS FOLLOWING THE ENACTMENT OF THE SECURITIES AND FUTURES ORDINANCE (CHAPTER 571 OF THE LAWS OF HONG KONG)

• (a) reference to the term “the Securities and Futures (Clearing Houses) Ordinance” in the existing bye-laws is deleted as the Securities and Futures (Clearing Houses) Ordinance was repealed following the enactment of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) on 1 April 2003; and

• (b) a new definition of “Clearing House” is introduced.

2. CHANGES REQUIRED BY APPENDIX 3 OF THE AMENDED LISTING RULES

• (a) a new bye-law is added to provide that where any Shareholder is, under the Listing Rules, required to abstain from voting on any particular resolution or restricted to voting only for or only against any particular resolution, any votes cast by or on behalf of such Shareholder in contravention of such requirement or restriction shall not be counted;

• (b) the minimum seven-day period for lodgment by Shareholders of notice to nominate a director of the Company shall commence no earlier than the day after the despatch of the notice of the general meeting appointed for such election and end no later than seven days before the date of such general meeting;

• (c) a director of the Company shall abstain from voting at board meetings on any matter in which he or any of his associates has a material interest and shall not be counted towards the quorum of the relevant board meeting; and

• (d) the definition of “associates” is amended to follow the new definition of “associates” appearing in the Listing Rules.

3. CHANGES INTRODUCED TO UPDATE THE BYE-LAWS WITH CURRENT LISTING RULES AND THE COMPANIES ACT 1981 OF BERMUDA (AS AMENDED)

• (a) the Company is now given the flexibility to send summarized financial statements to Shareholders who have consented and elected to receive the same in place of full financial statements from which the former are derived. New definitions of “full financial statements” and “summarized financial statements” are added as

– 79 –

SUMMARY OF MATERIAL CHANGES TO THE BYE-LAWS OF THE COMPANY

APPENDIX II

consequential amendments. Notwithstanding this, if a Shareholder elects to receive full financial statements, the Company shall send the full financial statements to such Shareholder within seven days of receipt of his election to receive the same;

• (b) a new bye-law is added which enables notices to be in writing or, to the extent permitted by the relevant laws of Bermuda and the Listing Rules, contained in an electronic communication;

• (c) a notice or document may now be served on or delivered by the Company to any Shareholder by electronic means to such address as such Shareholder may from time to time authorize, or by publishing it on a computer network and notifying the Shareholder concerned, in such manner as he may from time to time authorize, that it has been so published. As consequential amendments, new definitions of “electronic” and “address” are added; and

• (d) any notice or document, if sent by electronic means, shall be deemed to have been given on the day following that on which the electronic communication was sent by or on behalf of the Company. Any notice or document posted on a computer network shall be deemed to have been served or delivered on the day such notice or document was so published or posted.

4. CHANGE OF CHINESE NAME

The Company wishes to standardise the procedural requirements for changes of name of the Company, whether this be a change of the name of the Company in the English or Chinese languages. Accordingly, the change of the name of the Company in the Chinese language will now require a special resolution.

– 80 –

GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief:

• (a) the information contained in this circular is accurate and complete in all material respects and not misleading in any material respect;

• (b) there are no other matters the omission of which would make any statement in this circular misleading in any material respect; and

• (c) all opinions expressed in this circular have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.

2. DIRECTORS’ DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, the interests of the Directors of the Company in the Shares, underlying Shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) (the “Associated Corporations”) as recorded in the register required to be kept by the Company under Section 352 of the SFO, or as otherwise notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”), were as follows:

(i) The Company

Name of Director	Number of % of underlying aggregate ordinary interests to shares held total number Number of ordinary shares under of ordinary Personal Family Corporate Other equity shares in interests interests interests interests derivatives Total issue*
Mr. ANG Keng Lam 2,5851 – – 523,733 2 4,639,858 3 5,166,176 0.43 Mr. WONG Siu Kong – – – – 2,091,8573 2,091,857 0.18 Mr. HO Shut Kan – – – – 991,084 3 991,084 0.08 Mr. MA Wing Kai, William 2,6001 – – – 974,0103 976,610 0.08 Mr. LAU Ling Fai, Herald – – – – – – – Mrs. LEE Pui Ling, Angelina – – – – – – – Mr. Christopher Roger MOSS,O.B.E. – – – – – – –

– 81 –

GENERAL INFORMATION

APPENDIX III

(ii) Associated Corporations

Name of Associated Name of Corporation Director

% of Number of aggregate underlying interests to ordinary shares total number Number of ordinary shares held under of ordinary Personal Family Corporate Other equity shares in interests interests interests interests derivatives Total issue

EDSA Properties Mr. HO Shut Kan 1,5701 – – – – 1,570# 0.00 Holdings Inc. Kerry Group Mr. ANG Keng Lam – 7,050,0005 – 7,000,0002 6,000,000 6 20,050,000 1.37 Limited Mr. WONG – – 5,254,3004 – 5,000,000 6 10,254,300 0.70 Siu Kong Mr. HO 465,0001 – – – 1,000,000 6 1,465,000 0.10 Shut Kan Mr. MA 710,6201 – – – – 710,620 0.05 Wing Kai, William Siam Seaport Mr. ANG Keng Lam 11 – – – – 1 0.00 Terminal & Warehouses Mr. MA 11 – – – – 1 0.00 Co., Ltd. Wing Kai, William

Notes:

1. This represents interests held by the relevant director as beneficial owner.

2. This represents interests held by the relevant director through a discretionary trust of which the relevant director is a beneficiary.

3. This represents interests in options held by the relevant director as a beneficial owner to subscribe for the relevant underlying ordinary shares in respect of the options granted by the Company under the executive share option scheme adopted by the Company on 27 March 1997.

4. This represents interests held by the relevant director through his controlled corporation(s).

5. This represents interests held by the relevant director’s spouse.

6. This represents interests in options held by the relevant director as a beneficial owner to subscribe for the relevant underlying ordinary shares in respect of the options granted by Kerry Group Limited.

7. The percentage has been adjusted based on the total number of ordinary shares of the Company in issue as at the Latest Practicable Date (i.e 1,194,842,540 ordinary shares).

8. The relevant notification was filed under the repealed Securities (Disclosure of Interests) Ordinance.

– 82 –

GENERAL INFORMATION

APPENDIX III

All the interests disclosed in sections (i) and (ii) above represent long positions in the shares of the Company or the Associated Corporations.

Saved as disclosed herein, as at the Latest Practicable Date, none of the Directors had any other interests or short positions in the Shares, underlying Shares or debentures of the Company or any of its Associated Corporations as recorded in the register required to be kept by the Company under Section 352 of the SFO, or as otherwise notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code.

3. SUBSTANTIAL INTERESTS IN THE SHARE CAPITAL OF THE COMPANY

As at the Latest Practicable Date, persons (other than the Directors of the Company) who had interests in the Shares of the Company as recorded in the register required to be kept by the Company under Section 336 of the SFO, were as follows:

	Capacity in			% of ordinary shares
	which ordinary	Number of		to total number of
Name	shares were held	ordinary shares	ordinary shares in issue*
Kerry Group Limited	Interest of controlled	751,042,097 (Notes 1, 2 &	3)	62.86
	corporations
Kerry Holdings Limited	Interest of controlled	751,042,097 (Notes 1, 2 &	3)	62.86
	corporations
Caninco Investments Limited	Beneficial owner	299,632,708 (Note 2)		25.08
Darmex Holdings Limited	Beneficial owner	246,519,994 (Note 2)		20.63
Moslane Limited	Beneficial owner	84,942,917 (Note 2)		7.11
Kerry 1989 (C.I.) Limited	Interest of controlled	80,688,908 (Notes 2 & 3)		6.75
	corporations
Desert Grove Limited	Beneficial owner	79,743,860 (Note 3)		6.67

Notes:

1. The Company is a subsidiary of KHL. KHL itself is a wholly-owned subsidiary of Kerry Group Limited (“KGL”) and, accordingly, the shares in which KHL is shown to be interested are also included in the shares in which KGL is shown to be interested.

2. Caninco Investments Limited (“Caninco”), Darmex Holdings Limited (“Darmex”), Moslane Limited (“Moslane”) and Kerry 1989 (C.I.) Limited (“Kerry 1989 CI”) are wholly-owned subsidiaries of KHL. KHL itself is a wholly-owned subsidiary of KGL and, accordingly, the shares in which Caninco, Darmex, Moslane and Kerry 1989 CI are shown to be interested are also included in the shares in which KHL and KGL are shown to be interested.

– 83 –

GENERAL INFORMATION

APPENDIX III

1. Desert Grove Limited (“Desert”) is a wholly-owned subsidiary of Kerry 1989 CI which in turn is a wholly-owned subsidiary of KHL. KHL itself is a wholly-owned subsidiary of KGL and, accordingly, the shares in which Desert are shown to be interested are also included in the shares in which Kerry 1989 CI, KHL and KGL are shown to be interested.

2. The percentage has been adjusted based on the total number of ordinary shares of the Company in issue as at the Latest Practicable Date (i.e. 1,194,842,540 ordinary shares).

All the interests disclosed in this section represent long positions in the shares of the Company.

Save as disclosed above, the Company had not been notified of any other person who, as at the Latest Practicable Date, had interests or short positions in the Shares or underlying Shares of the Company which had been recorded in the register required to be kept under Section 336 of the SFO.

4. DIRECTORS’ INTEREST IN CONTRACTS

• (a) As at the Latest Practicable Date, save as disclosed in this circular, no Director was materially interested in any contract or arrangement subsisting which is significant in relation to the business of the Group taken as a whole.

• (b) Since the date to which the latest published audited financial statements of the Group were made up, save as disclosed in this circular, none of the Directors, ING, the Valuers nor Fangda Partners has or has had any direct or indirect interest in any assets acquired or disposed of by or leased to or proposed to be acquired or disposed of by any member of the Group.

5. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Director had entered into, or proposed to enter into, a service contract with any member of the Group which does not expire or is not terminable by such member of the Group within one year without payment of compensation, other than statutory compensation.

6. COMPETING INTERESTS

Pursuant to rules 14.64(8) and 8.10 of the Listing Rules, the Company discloses below that, as at the Latest Practicable Date, the following Directors were considered to have interests in the following businesses which competed or were likely to compete, either directly or indirectly, with the businesses of the Group, other than those businesses where the Directors have been appointed/were appointed as directors to represent the interests of the Company and/or the Group.

– 84 –

GENERAL INFORMATION

APPENDIX III

Mr. Ang Keng Lam is a director of the Allgreen Properties Limited (“Allgreen”) group of companies which businesses consist of property investment and development, property and project management, operators of office, retail and serviced apartments in Singapore. In this regard, Mr. Ang is regarded to be interested in such competing businesses (the “Excluded Businesses”) of the Group. Allgreen is listed on the Singapore Stock Exchange.

Messrs. Ang Keng Lam and Wong Siu Kong are directors of the SA group of companies. In this regard, they are regarded to be interested in the Excluded Businesses of the Group.

Messrs. Ang Keng Lam and Wong Siu Kong are directors of the China World Trade Center Ltd. group of companies which businesses consist of property investment and development, hotel ownership and operation in the PRC. In this regard, they are regarded to be interested in the Excluded Businesses of the Group.

The abovementioned Excluded Businesses are operated and managed by companies (and in the case of Allgreen and SA, by publicly listed companies) with independent management and administration.

All the incumbent executive directors maintain certain personal and deemed interests and/or directorships in personal investment entities and/or other entities within the Kerry Group Limited group of companies which businesses consist of property investment and development, hotel ownership and operation, warehouse ownership and operation, port terminal ownership and operation and freight operations. In this regard, they are regarded to be interested in the Excluded Businesses of the Group. However, the size of the businesses undertaken by these entities in which they are appointed directors and/or they have deemed/beneficial interests are considered insignificant and immaterial as compared to the Group.

As the Board is independent of the boards of the abovementioned companies carrying out the Excluded Businesses, the Group is capable of carrying on its business independent of, and at arm’s length from, the Excluded Businesses mentioned above.

– 85 –

GENERAL INFORMATION

APPENDIX III

7. EXPERTS

The following are the qualifications of the experts who have given an opinion or advice which is contained in this circular:

Name

Qualification

ING Bank N.V.

a deemed registered institution for types 1, 4, 6 and 9 regulated activities under the SFO

Chesterton Petty Limited

property valuer and member of The Hong Kong Institute of Surveyors

DTZ Debenham Tie Leung Limited

property valuer and member of The Hong Kong Institute of Surveyors

Fangda Partners

legal advisers on PRC laws

Each of the experts has confirmed that it has no shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

8. CONSENTS

By their respective letters all dated 31 May 2004, each of ING Bank N.V., Chesterton Petty Limited, DTZ Debenham Tie Leung Limited and Fangda Partners has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter or reports and references to its name and letter or reports in the form and context in which it appears.

9. LITIGATION

As at the Latest Practicable Date, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration or claim of material importance and, so far as the Directors are aware, no litigation or arbitration or claim of material importance is pending or threatened by or against any member of the Group.

– 86 –

GENERAL INFORMATION

APPENDIX III

10. NO MATERIAL ADVERSE CHANGE

Since the date to which the latest published audited accounts of the Company have been made up, there has been no material adverse change in the financial or trading position of the Group.

11. MISCELLANEOUS

• (a) The Qualified Accountant of the Company is Chew Fook Aun. Mr. Chew is a Fellow of The Institute of Chartered Accountants in England and Wales, a Fellow of Hong Kong Society of Accountants and is also a Council Member of Hong Kong Society of Accountants.

• (b) The Secretary of the Company is Chow Yin Ping, Anita. Ms. Chow is an associate member of both the Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Company Secretaries.

• (c) 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.

• (d) The Company’s Hong Kong branch share registrar is Abacus Share Registrars Limited, G/F, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

• (e) This circular has been prepared in both English and Chinese. In the case of any discrepancy, the English text shall prevail.

– 87 –

GENERAL INFORMATION

APPENDIX III

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at any weekday (public holidays excepted) at the office of the Company at 13/F., Cityplaza 3, 14 Taikoo Wan Road, Taikoo Shing, Hong Kong up to and including 25 June 2004:

• (a) the Master Agreement;

• (b) the Company 3 Contract;

• (c) the Company 4 Contract;

• (d) the letter from the Independent Board Committee dated 31 May 2004 as set out on pages 41 to 42 of this circular;

• (e) the letter of advice from ING dated 31 May 2004 for the purpose of incorporation in the circular, the text of which is set out on pages 43 to 63 of this circular;

• (f) the letter and valuation certificate from the Valuers dated 31 May 2004 for the purpose of incorporation in the circular, the text of which is set out on pages 64 to 78 of this circular;

• (g) the written consents of the experts referred to in this Appendix; and

• (h) the PRC legal opinion referred to in the valuation report.

– 88 –

NOTICE OF SPECIAL GENERAL MEETING

==> picture [147 x 83] intentionally omitted <==

website: http://www.kerryprops.com

(Stock Code: 00683)

NOTICE IS HEREBY GIVEN that a special general meeting of Kerry Properties Limited (the “Company”) will be held at Island Ballroom, Level 5, Island Shangri-La Hotel, Pacific Place, Supreme Court Road, Central, Hong Kong on Friday, 25 June 2004 at 10:00 a.m. for the following purposes:

1. To consider, and if thought fit, passing with or without modification the following resolution as an ORDINARY RESOLUTION :

“ THAT

• (A) the Relevant Transactions contemplated under the Master Agreement, a copy of which has been produced to this meeting marked “A” and signed by the Chairman hereof for the purpose of identification, be and are hereby confirmed, ratified and approved; and

• (B) the Board of Directors of the Company be and is hereby authorised to take all such actions as it considers necessary or desirable to implement and give effect to the Master Agreement and the Relevant Transactions contemplated under the Master Agreement.

For the purposes of this resolution, the terms “Master Agreement” and “Relevant Transactions” shall have the same definitions as defined in the circular to the shareholders of the Company dated 31 May 2004.”

1. To consider, and if thought fit, passing the following resolution as a SPECIAL RESOLUTION :

“ THAT

• (A) 「嘉里建設有限公司」be adopted as the Chinese name of the Company; and

* For identification purpose only

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NOTICE OF SPECIAL GENERAL MEETING

• (B) such Chinese name be filed and/or registered with the Registrar of Companies in Hong Kong under Part XI of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) and the Directors of the Company be and are hereby authorised to do all such acts, deeds and things as they may, in their absolute discretion, deem fit, to effect and implement such adoption of Chinese name by the Company.”

• To consider, and if thought fit, passing the following resolution as a SPECIAL RESOLUTION :

“ THAT the bye-laws produced to this meeting, a copy of which has been marked “B” and signed by the Chairman hereof for the purpose of identification, be adopted as the new bye-laws of the Company.”

By Order of the Board Chow Yin Ping, Anita Company Secretary

Hong Kong, 31 May 2004

Head Office and Principal

Place of Business in Hong Kong:

13-14/F., Cityplaza 3,

14 Taikoo Wan Road

Taikoo Shing

Hong Kong

Notes:

• (1) 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.

• (2) The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under seal or under the hand of an officer or attorney duly authorised.

• (3) Where there are joint registered holders of any share, any one of such persons may vote at the above 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 persons 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 first will for this purpose be deemed joint holders thereof.

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NOTICE OF SPECIAL GENERAL MEETING

• (4) In order to be valid, a form of proxy, together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of that power or authority 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 the holding the above 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.

• (5) The registers of members of the Company will be closed from Wednesday, 23 June 2004 to Friday, 25 June 2004, 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 Monday, 21 June 2004.

• (6) Members are advised to read the circular to the shareholders of the Company dated 31 May 2004 which contains information concerning the resolutions to be proposed in this notice.

• (7) Kerry Holdings Limited and its associates (as defined in the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”)) will abstain from voting on the Resolution No. 1 set out above. The following directors of the Company, namely, Messrs. Ang Keng Lam and Wong Siu Kong, who are also directors of Kerry Holdings Limited, and their respective associates will also abstain from voting in respect of the Resolution No. 1 set out above.

• (8) Any connected person (as defined in the Listing Rules) of the Company with a material interest in the Resolution No. 1 set out above shall abstain from voting in respect of that resolution.

• (9) All members and their respective associates (as defined in the Listing Rules) with a material interest in respect of any of the resolutions set out above shall abstain from voting in respect of those resolutions which he/she or his/her associates has/have a material interest.

• (10) All the resolutions to be proposed at the meeting shall be decided by way of a poll.

• (11) Pursuant to the bye-laws of the Company, a resolution put to the vote of a general meeting shall be decided on a show of hands, but a poll may be demanded (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll):

• (i) by the Chairman of the meeting; or

• (ii) by at least three shareholders present in person or by proxy for the time being entitled to vote at the meeting; or

• (iii) by any shareholder or shareholders present in person or by proxy and representing not less than one-tenth of the total voting rights of all the shareholders having the right to vote at the meeting; or

• (iv) by any shareholder or shareholders present in person or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

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