Kerry Properties Limited - Proxy Solicitation & Information Statement 2006

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult a licensed securities dealer, 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.

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website: www.kerryprops.com (Stock Code: 00683)

DISCLOSEABLE AND CONNECTED TRANSACTIONS RELATING TO THE ESTABLISHMENT OF A JOINT VENTURE COMPANY

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

Commerzbank AG Hong Kong Branch

A letter from the Board is set out on pages 7 to 21 of this circular. A letter from the Independent Board Committee is set out on pages 22 and 23 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 24 to 37 of this circular.

An ordinary resolution 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 Thursday, 16 February 2006 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 45 and 46 of this circular. A form of proxy for use at the Special General Meeting is enclosed with this circular. Whether or not you are able to attend the meeting, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to Abacus Share Registrars Limited, the Company’s branch share registrar and transfer office in Hong Kong, of 26/F, Tesbury Centre, 28 Queen’s Road East, 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 Special General Meeting should you so wish.

for identification purpose only

23 January 2006

		Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		7
1.	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
2.	Details of the Joint Venture Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
3.	Details of the Funding Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
4.	Financial Effects of the Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
5.	Acquisition of the Project Site. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
6.	Reasons for the Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
7.	Information about the Company, SA, AG, the JV Parties and the Vendor. .	17
8.	Implications under the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
9.	Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
10.	Procedures by which a Poll may be Demanded . . . . . . . . . . . . . . . . . . . . .	19
11.	General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . .		22
Letter from Commerzbank AG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		24
Appendix	– General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38
Notice of	Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	45

– i –

DEFINITIONS

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

“2.5% Threshold” the threshold set by Rule 14A.32 of the Listing Rules above which connected transactions will be subject to independent shareholders’ approval requirement under Chapter 14A of the Listing Rules;

“AG” or “Allgreen” Allgreen Properties Limited, a company incorporated in Singapore with limited liability, the shares of which are listed on the Singapore Stock Exchange;

“AG Group” AG and its subsidiaries; “Associated Corporations” has the meaning ascribed to it in Part XV of the SFO; “associates” has the meaning ascribed to it in the Listing Rules; “Board” the board of directors of the Company; “circular” this circular, including the appendices hereto; “Company” or “KPL” Kerry Properties Limited, an exempted company incorporated in Bermuda with limited liability, the shares of which are listed on the Main Board of the Stock Exchange; “connected persons” has the meaning ascribed to it in the Listing Rules; “connected transactions” has the meaning ascribed to it in the Listing Rules; “Contracts” collectively, the Joint Venture Contract and the Funding Agreement; “Directors” directors of the Company; “Excluded Businesses” the businesses of the Directors which, as at the Latest Practicable Date, competed or were likely to compete, either directly or indirectly, with the businesses of the Group, other than those businesses in which (a) the Group was interested and (b) the Directors’ only interests were as directors appointed to represent the interests of the Group;

– 1 –

DEFINITIONS

“Funding Agreement” the funding agreement dated 30 November 2005 entered into by Party B, Party C and Party D in relation to JVCO, the purpose of which is to record the agreement amongst Party B, Party C and Party D that none of them shall be obliged to commit further funding contribution to, or for the benefit of, JVCO if the total investment amount of JVCO exceeds US$590,000,000 (approximately HK$4,602,000,000); “Group” the Company and its subsidiaries; “HK$” Hong Kong dollars, the lawful currency of Hong Kong; “Hong Kong” Hong Kong Special Administrative Region of the PRC;

“Independent Board Committee” the independent committee of the Board consisting of all the independent non-executive Directors, being Mr. LAU Ling Fai, Herald, who presides as the chairman of the committee, Mr. William Winship FLANZ and Mr. Christopher Roger MOSS, O.B.E.;

“Independent Financial Adviser” Commerzbank AG, acting through its Hong Kong branch, or “Commerzbank” a licensed bank under the Banking Ordinance and an authorised financial institution under the SFO to conduct type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities as set out in Schedule 5 to the SFO, and appointed as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in relation to the Contracts and the transactions contemplated thereunder;
“Independent Shareholders” Shareholders who are not required to abstain from voting in respect of the KPL Resolution at the Special General Meeting;
“Joint Venture Contract” the joint venture contract in respect of the establishment of JVCO dated 9 October 2005 entered into by the JV Parties;

– 2 –

DEFINITIONS

“JVCO” (Shanghai Pudong Kerry City Properties Co., Ltd.), a sino-foreign equity joint venture company to be established pursuant to the Joint Venture Contract and which will be owned by Party A, Party B, Party C and Party D in the proportions of 20%, 23.20%, 40.80% and 16%, respectively;
“JV Parties” collectively, Party A, Party B, Party C and Party D; “Kerry EAS Logistics” Kerry EAS Logistics Limited, a company in which the Group has a 70% interest;
“KHL” Kerry Holdings Limited, a company incorporated in Hong Kong, which held as at the Latest Practicable Date approximately 61.88% and 43.04% of the issued share capital of the Company and SA, as disclosed under the SFO, respectively;
“KPL Non-competition the non-competition agreement between the Company Agreement” and Kerry Group Limited (on behalf of the Kuok Group) pursuant to which the Kuok Group shall not, except as provided in the KPL Non-competition Agreement, undertake, inter alia, property investment or development in Hong Kong or PRC, details of which are set out on pages 141 to 145 of the Company’s prospectus dated 23 July 1996;
“KPL Resolution” the resolution to approve the Contracts and the transactions contemplated thereunder by the Independent Shareholders at the Special General Meeting;
“Kuok Group” companies owned or controlled by Mr. Kuok Hock Nien and/or interests associated with him;
“Land Contract” a contract for the transfer of State-owned land use right dated 9 October 2005 entered into between the JV Parties (on behalf of JVCO) and the Vendor in relation to the acquisition of the Project Site by JVCO from the Vendor;
“Latest Practicable Date” 16 January 2006, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular;

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DEFINITIONS

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|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|“Listing|Rules”|The|Rules|Governing|the|Listing|of|Securities|on|the|
|Stock|Exchange;|
|“Model|Code”|the|Model|Code|for|Securities|Transactions|by|Directors|
|of|Listed|Issuers,|as|set|out|in Appendix|10|to|the|Listing|
|Rules;|
|“Party|A”|(Shanghai|
|Lujiazui|Finance|&|Trade|Zone|Development|Co.,|Ltd.),|
|a|limited|company|by|shares|established|under|the|laws|
|of|PRC,|whose|shares|are|listed|on|the|Shanghai|Stock|
|Exchange;|
|“Party|B”|Kerry|Shanghai|(Pudong)|Ltd.,|a|company|established|in|
|Samoa|under|the|International|Companies|Act|1987,|and|
|is|indirectly|wholly-owned|by|SA;|
|“Party|C”|Kerry|Shanghai|Pudong|Investments|Ltd.,|a|company|
|established|in|Samoa|under|the|International|Companies|
|Act|1987,|and|is|indirectly|wholly-owned|by|the|
|Company;|
|“Party|D”|Allgreen|Properties|(Shanghai)|Pte.|Ltd.,|a|company|
|established|under|the|laws|of|Singapore,|and|is|wholly-|
|owned|by|AG;|
|“PRC”|The|People’s|Republic|of|China;|
|“Project|Site”|a|plot|of|land|adjacent|to|the|Shanghai|New|International|
|Expo|Centre,|Pudong,|Shanghai,|PRC|with|an|area|of|
|approximately|58,900|sq.m.|currently|owned|by|the|
|Vendor;|
|“RMB”|Renminbi,|the|lawful|currency|of|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|
|Stock|Exchange|with|secondary|listing|on|the|Singapore|
|Stock|Exchange;|
|“SA|Group”|SA|and|its|subsidiaries;|

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– 4 –

DEFINITIONS

“SA Resolution” the resolution to approve the Contracts and the transactions contemplated thereunder by the independent shareholders of SA at a special general meeting of SA; “SA Undertaking” the understanding between SA and the Kuok Group (as set out in the Company’s prospectus dated 23 July 1996) pursuant to which SA would be offered, at the earliest practicable time, the opportunity to acquire at an arm’s length price all or part of any hotel or serviced apartment projects in Hong Kong or PRC that may be undertaken by the Kuok Group and are to be managed by SLIM;

“SFO” Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong);
“Share(s)” ordinary share(s) of HK$1.00 each in the capital of the Company;
“Shareholder(s)” holder(s) of Shares;
“Singapore Stock Exchange” Singapore Exchange Securities Trading Limited;

“SLIM” a group of companies comprising (i) Shangri-La International Hotel Management Limited, a company incorporated in Hong Kong; (ii) Shangri-La International Hotel Management Limited, a company incorporated in British Virgin Islands and (iii) Shangri-La InternationalChina Management Limited, a company incorporated in Hong Kong. All three companies are indirect whollyowned subsidiaries of SA;

“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 Thursday, 16 February 2006 at 10:00 a.m. at which the KPL Resolution will be proposed, the notice of which is set out on pages 45 and 46 of this circular;
“sq.m.”

square metres;

“Stock Exchange” The Stock Exchange of Hong Kong Limited;

– 5 –

DEFINITIONS

“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); “Total Transfer Price” the consideration payable for the Project Site under the Land Contract; “US$” United States Dollars, the lawful currency of the United States of America; “Vendor” (Shanghai Pudong Land Development (Holding) Corporation), a Stateowned enterprise and the existing owner of the Project Site; and “%” per cent.

Note: For the purposes of this circular, unless stated otherwise, the exchange rates of RMB1.04 = HK$1.00 and US$1.00 = HK$7.80 have been used.

– 6 –

LETTER FROM THE BOARD

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website: 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. William Winship FLANZ Mr. LAU Ling Fai, Herald Mr. Christopher Roger MOSS, O.B.E.

Registered Office:

Canon’s Court 22 Victoria Street Hamilton HM12 Bermuda

Head Office and Principal Place of Business in Hong Kong:

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

Non-Executive Director:

Mr. TSE Kai Chi

23 January 2006

To the Shareholders and for information only, the optionholders of Kerry Properties Limited

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTIONS RELATING TO THE ESTABLISHMENT OF A JOINT VENTURE COMPANY

1. INTRODUCTION

On 9 October 2005, the JV Parties entered into the Joint Venture Contract for the establishment of JVCO to undertake a property development project in Pudong, Shanghai, PRC. Upon its establishment, JVCO will be owned by Party A, Party B (a wholly-owned subsidiary of SA), Party C (a wholly-owned subsidiary of the Company) and Party D (a wholly-owned subsidiary of AG) in the proportions of 20%, 23.20%, 40.80% and 16%, respectively. Under the Joint Venture Contract, the total investment amount and the registered capital of JVCO are US$489,604,000 (approximately HK$3,818,911,200) and US$163,201,000 (approximately HK$1,272,967,800), respectively.

for identification purpose only

– 7 –

LETTER FROM THE BOARD

The development mix and the proposed area for different components of the development are based on the preliminary conceptual design and will be subject to further changes and revision. To cater for any possible increase in the total investment amount of JVCO due to unforeseen factors beyond the current expectations of the JV Parties, on 30 November 2005, Party B, Party C and Party D also entered into the Funding Agreement. The obligations of Party B, Party C and Party D under the Joint Venture Contract and the Funding Agreement shall only extend to providing proportionate funding (in accordance with their then respective capital contributions in JVCO) for the purposes set out in the Joint Venture Contract up to a maximum total investment amount for JVCO of US$590,000,000 (approximately HK$4,602,000,000).

Based on the total investment amount under the Joint Venture Contract of US$489,604,000 (approximately HK$3,818,911,200) and on the basis that (a) an additional funding requirement of up to US$100,396,000 (approximately HK$783,088,800) required by JVCO is unanimously approved by the board of directors of JVCO; and (b) all JV Parties agree to contribute to such additional funding in proportion to their then respective capital contributions in JVCO, the maximum contributions of Party A, Party B, Party C and Party D to JVCO are expected to be US$118,000,000 (approximately HK$920,400,000), US$136,880,000 (approximately HK$1,067,664,000), US$240,720,000 (approximately HK$1,877,616,000) and US$94,400,000 (approximately HK$736,320,000), respectively.

Party B, Party C and Party D are wholly-owned subsidiaries of SA, the Company and AG, respectively. Under the Listing Rules, SA and AG are regarded as connected persons of the Company. Accordingly, the entering into of the Contracts constitute connected transactions for the Company under the Listing Rules. As the maximum commitment of the Company under the Contracts of US$240,720,000 (approximately HK$1,877,616,000) exceeds the 2.5% Threshold, the Contracts are subject to the approval of the Independent Shareholders. Furthermore, as the maximum commitment of the Company under the Contracts of US$240,720,000 (approximately HK$1,877,616,000) exceeds 5% of the market capitalisation of the Company of HK$23,979,628,186 (determined on the basis of the average closing price of the Shares for the five trading days immediately preceding the date of the Joint Venture Contract), the entering into of the Contracts also constitute discloseable transactions for the Company under the Listing Rules.

The Independent Board Committee has been formed to advise the Independent Shareholders in relation to the Contracts. Commerzbank has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the Contracts.

The purpose of this circular is to provide you with further information in respect of the Contracts and other information prescribed by the Listing Rules. This circular also contains a letter of advice from Commerzbank to the Independent Board Committee and the Independent Shareholders in respect of the Contracts, a letter of advice containing the recommendation of the Independent Board Committee to the Independent Shareholders in relation to the Contracts and a notice of the Special General Meeting.

– 8 –

LETTER FROM THE BOARD

2. DETAILS OF THE JOINT VENTURE CONTRACT

Date:

9 October 2005

Parties: Party A (20%), Party B (23.20%), Party C (40.80%) and Party D (16%)

Scope of Business: To acquire the Project Site and to develop the Project Site into a mixed-use development which is currently intended to comprise (subject to market conditions) hotel (with meeting facilities), offices, serviced suites/serviced apartments, commercial and related ancillary facilities.

Registered Capital: The registered capital of JVCO is US$163,201,000 (approximately HK$1,272,967,800) of which 20%, 23.20%, 40.80% and 16% will be contributed by Party A, Party B, Party C and Party D respectively.

15% of the registered capital of JVCO is required to be contributed by the JV Parties within 3 months from the date of issue of the business licence of JVCO. The timing and amount of the payment of the balance of the registered capital shall be decided by the board of directors of JVCO in accordance with the progress of the construction of the project. Each further contribution to the registered capital of JVCO by the JV Parties will be made simultaneously on a pro-rata basis within the prescribed time limit.

No time limit is specified in the Joint Venture Contract as regards the timing of the payment of the balance of the registered capital. The time limit for making contribution will be subject to determination by the relevant competent authorities and depend on the amount of the registered capital of JVCO. The JV Parties’ capital contribution shall be made in US$ or RMB equivalent.

Total Investment Amount:

Under the Joint Venture Contract, the total investment amount of JVCO is US$489,604,000 (approximately HK$3,818,911,200).

– 9 –

LETTER FROM THE BOARD

Apart from the contribution to the registered capital, the balance of the investment amount will be funded by loans obtained by JVCO from banks or other financial institutions which may be secured or guaranteed by the JV Parties (if required by the lenders) or such third parties procured by them and/or by way of shareholders’ loans from the JV Parties to JVCO. All loans and/or financial assistance provided by the JV Parties or such third parties procured by them (as the case may be) to, or for the benefit of, JVCO will be provided on a several basis, pro-rata to the then respective capital contributions of the JV Parties and on the same terms and conditions.

Under the Joint Venture Contract, if funds in excess of the total investment amount of US$489,604,000 (approximately HK$3,818,911,200) are required by JVCO, such additional funding requirement must be unanimously approved by the board of directors of JVCO.

Duration: 50 years from the date of issue of the business licence of JVCO. The duration of JVCO may be extended by the JV Parties with the approval of the relevant PRC authorities.
Board of Directors: The board of directors of JVCO will consist of five directors, one of whom shall be nominated by each of Party A, Party B and Party D and two shall be nominated by Party C. The chairman (who must be a director) shall be nominated by Party C.
Profit Distribution: Profits will be distributed to the JV Parties in proportion to their respective capital contributions to the registered capital of JVCO.
Pre-emption Rights: Each of the JV Parties shall only be entitled to assign, transfer or deliver the whole (but not part) of its equity interest in JVCO subject to the pre-emption rights of the other JV Parties and after all the necessary approvals from the relevant PRC government authorities have been obtained; provided that if a JV Party wishes to transfer all of its equity interest in JVCO to any company controlled by, controlling or under common control with, that JV Party, the other JV Parties shall have no pre-emption rights and shall be deemed to have consented to such transfer.

– 10 –

LETTER FROM THE BOARD

Conditions:

The establishment of JVCO is conditional upon all necessary approvals from the relevant PRC authorities having been obtained. The JV Parties shall use all reasonable endeavours to procure the approval of the relevant PRC authorities for the establishment of JVCO. However, if approval could not be obtained after the JV Parties have endeavoured to do so, subject to the JV Parties agreeing otherwise, the Joint Venture Contract shall terminate.

The JV Parties’ performance of their respective obligations under the Joint Venture Contract shall also be subject to the following conditions precedent:

(i) In relation to Party A, the approval of the State-owned assets administration department. Party A shall obtain such approvals as early as possible after the signing of the Joint Venture Contract and shall provide to the other JV Parties proof of having obtained the relevant approvals.
(ii) In relation to Party C and Party B, the passing of the KPL Resolution and the SA Resolution respectively and compliance by the Company and SA with the Listing Rules.
(iii) In relation to Party D, compliance by AG with the listing requirements of the Singapore Stock Exchange.

There is no long-stop date before which the conditions precedent to the Joint Venture Contract must be satisfied.

3. DETAILS OF THE FUNDING AGREEMENT

Date: 30 November 2005

Parties: Party B, Party C and Party D

Purpose:

The purpose of the Funding Agreement is to record the agreement amongst Party B, Party C and Party D that none of them shall be obliged to commit further funding contribution to, or for the benefit of, JVCO if the total investment amount of JVCO exceeds US$590,000,000 (approximately HK$4,602,000,000).

– 11 –

LETTER FROM THE BOARD

Terms:

If a funding request in excess of the total investment amount under the Joint Venture Contract of US$489,604,000 (approximately HK$3,818,911,200) is made by JVCO in accordance with the terms of the Joint Venture Contract, Party B, Party C and Party D will, as between themselves, contribute to such funding request in proportion to their then respective capital contributions in JVCO.

The form of funding contribution shall be agreed by Party B, Party C and Party D as between themselves including:

(i) requiring JVCO to obtain commercial loans from banks or other financial institutions secured or guaranteed by them (if required by the lenders) or such third parties procured by them;
(ii) providing additional shareholders’ loans to JVCO; and/or
(iii) increasing the registered capital of JVCO and making additional contributions to the registered capital of JVCO,

in each case, on a several basis in proportion to their then respective capital contributions in JVCO and upon the same terms and conditions.

Maximum Amount:

The amount of further funding contribution by Party B, Party C and Party D under the Funding Agreement shall not exceed US$80,316,800 (approximately HK$626,471,040) in aggregate. Based on their then respective capital contributions in JVCO, the amount of further funding contributions of Party B, Party C and Party D to JVCO shall not exceed US$23,291,872 (approximately HK$181,676,602), US$40,961,568 (approximately HK$319,500,230) and US$16,063,360 (approximately HK$125,294,208), respectively.

Therefore, the obligations of Party B, Party C and Party D under the Joint Venture Contract and the Funding Agreement shall only extend to providing proportionate funding (in accordance with their then respective capital contributions in JVCO) for the purposes set out in the Joint Venture Contract up to a maximum total investment amount for JVCO of US$590,000,000 (approximately HK$4,602,000,000).

– 12 –

LETTER FROM THE BOARD

Conditions:

The obligations of the parties to the Funding Agreement are conditional upon each of them complying with the applicable rules of the relevant stock exchange.

The additional funding requirement of JVCO under the Funding Agreement is subject to the unanimous approval by the board of directors of JVCO.

Termination: The Funding Agreement shall terminate if the Joint Venture Contract is terminated.

4. FINANCIAL EFFECTS OF THE CONTRACTS

It is currently expected that the funding required by Party C under the Contracts will be sourced by the Company from its internal cash reserves but the Group may, if deemed appropriate, seek external bank borrowings to finance or refinance all or part of its funding commitments.

The maximum contribution of the Company to JVCO (i.e. US$240,720,000 (approximately HK$1,877,616,000)) amounted to approximately 37.7% of the consolidated cash balance (net of bank overdrafts) of the Company as at 30 June 2005 (being in the amount of HK$4,976,261,000). The funding requirement for making the maximum contribution is not expected to have any material impact on the Group. Based on the available cash resources of the Company as at 30 June 2005 and taking into account the cash inflows arising from its business operations and the committed bank borrowing facilities, the Company has sufficient cash resources to satisfy the amount of funding that may be required to be contributed by the Company to JVCO.

If the Company is required to commit further funding to JVCO in excess of its expected maximum contributions as set out above, such further funding shall be subject to compliance with the Listing Rules by the Company.

Following establishment of JVCO, the Company will treat its investment in JVCO as an investment in associated company, and will account for the results and financial position of JVCO under the equity method of accounting.

– 13 –

LETTER FROM THE BOARD

The shareholding structure, upon the establishment of JVCO, is as set out below:

==> picture [371 x 136] intentionally omitted <==

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

SA KPL AG
100% 100% 100%
Party A Party B Party C Party D
20% 23.20% 40.80% 16%
JVCO
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5. ACQUISITION OF THE PROJECT SITE

The Project Site has an area of approximately 58,900 sq.m. It is adjacent to the Shanghai New International Expo Centre, Pudong, Shanghai, PRC to the east and the south and is bounded by Fangdian Road to its west and Huamu Road to its north.

The Project Site is in Pudong’s Lujiazui Financial District and is connected with Puxi District of Shanghai. It is also adjacent to the subway stations of Metro Line No. 7 (which is under construction and is scheduled for completion in 2007) and Metro Line No. 5 (which is under planning). The Project Site is also within walking distance from Century Park Station of Metro Line No. 2.

The Project Site is currently owned by Shanghai Pudong Land Development (Holding) Corporation (the Vendor) and there are no existing buildings on the Project Site. Immediately following the execution of the Joint Venture Contract, the JV Parties entered into a Land Contract on behalf of JVCO with the Vendor to acquire the Project Site. Pursuant to the Land Contract, the term of use of the Project Site is, in the case where the date of delivery of the Project Site by the Vendor is on or before 31 December 2005, fifty years commencing on the date of delivery and, in the case where the date of delivery is after 31 December 2005, the term of use shall be from the date of delivery up to 31 December 2055.

The Total Transfer Price is RMB1,215,780,000 (approximately HK$1,169,019,231), which is calculated based on (a) an above-ground gross floor area of approximately 230,000 sq.m. of the Project Site; and (b) an agreed price of RMB5,286 per sq.m. of the above-ground floor area (approximately HK$5,083 per sq.m.). If the buildable area above ground to be approved by the relevant PRC governmental authorities is different from the aforesaid above-ground gross floor area, adjustments will be made to the Total Transfer Price based on the agreed price per sq.m.. It is currently expected that the buildable area above ground of the Project Site to be approved by the relevant PRC governmental authorities will not significantly deviate from 230,000 sq.m..

– 14 –

LETTER FROM THE BOARD

The Total Transfer Price is payable in accordance with the following schedule:

Within 10 days after the entering into of the Land Contract, the JV Parties shall pay (on behalf of JVCO in proportion to their respective capital contributions in JVCO) to the Vendor a signing deposit representing 10% of the Total Transfer Price, which amounts to approximately RMB121,578,000 (approximately HK$116,901,923). Such amount of signing deposit has been paid by the JV Parties in accordance with the terms of the Land Contract.
Before 31 December 2005 and provided that approvals in respect of the planning parameters set out in the Land Contract have been obtained from the relevant PRC authorities, JVCO shall pay to the Vendor 20% of the Total Transfer Price, which amounts to approximately RMB243,156,000 (approximately HK$233,803,846). If JVCO cannot make payment on time because it has not been established, it shall bear the related interest cost from 31 December 2005 (calculated based on the standard interest rate for loans published by The People’s Bank of China over the same period) unless the JV Parties agree to pay the said sum to the Vendor on behalf of JVCO.
Subject to the fulfilment of paragraph (2) above and after JVCO has obtained all requisite approvals in respect of the transfer of the Project Site and approximately 30 days after JVCO has obtained a business licence which is endeavoured to be before 30 June 2006 but no later than 30 September 2006, JVCO shall pay to the Vendor 40% of the Total Transfer Price, which amounts to approximately RMB486,312,000 (approximately HK$467,607,692).
Subject to the fulfilment of paragraph (3) above and the Vendor having performed its responsibilities and obligations under the Land Contract, approximately 45 days after JVCO has obtained a business licence or before 30 November 2006 and before obtaining the property title certificate for the Project Site, JVCO shall pay to the Vendor 30% of the Total Transfer Price, which amounts to approximately RMB364,734,000 (approximately HK$350,705,769).

JVCO has yet to be established. JVCO will apply for its business licence during its establishment. If JVCO is not established before 31 December 2006, the Vendor shall refund (without interest) to the JV Parties the amount of payments made by them in proportion to their respective contributions under the Land Contract. In addition, if the approval of the independent shareholders and board of directors of the JV Parties (if required) and the relevant government approval are not obtained such that the JVCO is not formed, the JV Parties are not required under the Land Contract to assume any further obligations thereafter. The Company and SA will make a further joint announcement if JVCO is not established or if any of the conditions precedent to the Joint Venture Contract is not fulfilled before 31 December 2006.

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LETTER FROM THE BOARD

6. REASONS FOR THE CONTRACTS

The purpose of the Joint Venture Contract is to enable the JV Parties to acquire a piece of prime land in Shanghai for development into a mixed-use development which is currently intended to comprise (subject to market conditions) hotel (with meeting facilities), offices, serviced suites/serviced apartments, commercial and related ancillary facilities.

Construction of the Project Site is expected to commence in the second quarter of 2006 and be completed in late 2009. It is currently intended that part of the completed development will be put on sale and the remaining part will be held for investment purposes. The exact proportion of the development to be sold will be subject to the final development mix and prevailing market conditions.

It is expected that, subject to compliance with the Listing Rules, the development would be project managed by a subsidiary of the Company while SA (or one of its subsidiaries) would provide technical and marketing consultancy services for the construction of the hotel. Upon completion of the hotel, subject to compliance with the Listing Rules, it is expected that the hotel would be managed by a subsidiary of SA. The terms of the relevant engagements have not yet been determined. Further announcement would be made by the Company and SA as and when appropriate.

Under the Joint Venture Contract, the total investment amount of JVCO is US$489,604,000. The development mix and the proposed area for different components of the development are based on the preliminary conceptual design and will be subject to further changes and revision. To cater for any possible increase in the total investment amount of JVCO due to unforeseen factors beyond the current expectations of the JV Parties, on 30 November 2005, Party B, Party C and Party D also entered into the Funding Agreement. The purpose of the Funding Agreement is to record the agreement amongst Party B, Party C and Party D that none of them shall be obliged to commit further funding contribution to, or for the benefit of, JVCO if the total investment amount of JVCO exceeds US$590,000,000.

The Group has extensive property investment in PRC, and its portfolio of property developments comprises residential, commercial and mixed-use properties in major cities in PRC such as Beijing, Shanghai, Shenzhen and Fuzhou. It is one of the Group’s strategies to focus on the development of large multi-purpose properties in PRC.

The Directors are of the view that the acquisition of the Project Site will strengthen the land bank of the Group in PRC. By building up a portfolio of quality investment properties in key locations in PRC, the Group is well positioned to capture long-term value through asset appreciation and to benefit from a strong and recurrent cash flow through leasing and managing the properties.

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LETTER FROM THE BOARD

7. INFORMATION ABOUT THE COMPANY, SA, AG, THE JV PARTIES AND THE VENDOR

(a) Information about the Company and Party C

Party C is an indirect wholly-owned subsidiary of the Company.

The Group is principally engaged in (i) property development and investment in Hong Kong, PRC and the Asia Pacific region; (ii) logistics, freight, warehouse ownership and operations; (iii) infrastructure-related investment in Hong Kong and PRC; and (iv) hotel ownership in PRC.

(b) Information about SA and Party B

Party B is an indirect wholly-owned subsidiary of SA.

The 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” and “Shang Palace” and related devices and logos.

As at the Latest Practicable Date, KHL was interested in 752,972,645 shares of the Company and 1,087,719,468 shares of SA, respectively, as disclosed under the SFO, representing approximately 61.88% and 43.04% of the issued share capital of the Company and SA, respectively. KHL 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.

Party D is a wholly-owned subsidiary of AG.

The AG Group is principally engaged in property development and investment, project management and trading in building materials.

The controlling shareholder of AG, Kuok (Singapore) Limited, is interested in approximately 34.33% of the existing issued share capital of AG. Kuok (Singapore) Limited’s wholly-owned subsidiary is a substantial shareholder (i.e. interested in 33% of the issued shares) of a 67%-owned subsidiary of the Company. Therefore, AG is a connected person of the Company at the subsidiaries’ level. To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, AG is not a connected person of the Company at the issuer’s level.

(d) Information about Party A

The principal activities of Party A are land development and development, construction, operation and management of real estate properties.

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LETTER FROM THE BOARD

Party A is a company whose shares are listed on the Shanghai Stock Exchange. As at 30 November 2005, Shanghai Lujiazui Development (Group) Co., Ltd. (authorised by Shanghai State-owned Asset Management Committee to manage and operate Party A) held approximately 60.5% of the issued share capital of Party A. To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, Party A and its ultimate beneficial owners are third parties independent of and not connected with or related to the Company or its connected persons (as defined in the Listing Rules), and none of them nor any of their associates has any shareholding interest in the capital of the Company.

(e) Information about the Vendor

The principal activities of the Vendor are requisition and development of land, and development and operation of real estate properties.

The Vendor is a State-owned enterprise. To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, the Vendor and its ultimate beneficial owners are third parties independent of and not connected with or related to the Company or its connected persons (as defined in the Listing Rules), and none of them nor any of their associates has any shareholding interest in the capital of the Company.

8. IMPLICATIONS UNDER THE LISTING RULES

Under the Listing Rules, SA and AG are regarded as connected persons of the Company. Accordingly, the entering into of the Contracts constitutes connected transactions for the Company under the Listing Rules. As the maximum commitment of the Company under the Contracts of US$240,720,000 (approximately HK$1,877,616,000) exceeds the 2.5% Threshold, the Contracts are subject to the approval of the Independent Shareholders. Furthermore, as the maximum commitment of the Company under the Contracts of US$240,720,000 (approximately HK$1,877,616,000) exceeds 5% of the market capitalisation of the Company of HK$23,979,628,186 (determined on the basis of the average closing price of the Shares for the five trading days immediately preceding the date of the Joint Venture Contract), the entering into of the Contracts also constitute discloseable transactions for the Company under the Listing Rules.

9. RECOMMENDATIONS

Having taken into account the recommendation and advice from Commerzbank in relation to the Contracts and the transactions contemplated thereunder (as contained in the letter from Commerzbank set out on pages 24 to 37 of this circular), the Independent Board Committee are

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LETTER FROM THE BOARD

of the view that the terms of the Contracts are fair and reasonable and the entering into of the Contracts and the transactions contemplated thereunder, in accordance with the terms set out in the Contracts, are in the interests of the Company and its Shareholders as a whole and so far as the Company and the Independent Shareholders are concerned. Accordingly, the Directors (including the independent non-executive Directors) consider that the terms of the Contracts are fair and reasonable and the entering into of the Contracts and the transactions contemplated thereunder, in accordance with the terms set out in the Contracts, are in the interests of the Company and its Shareholders as a whole.

Your attention is drawn to the letter from the Independent Board Committee set out on pages 22 and 23 of this circular, which contains its recommendation to the Independent Shareholders, and the letter from Commerzbank set out on pages 24 to 37 of this circular, which contains its advice to the Independent Board Committee and the Independent Shareholders in relation to the Contracts and the transactions contemplated thereunder.

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

10. PROCEDURES BY WHICH A POLL MAY BE DEMANDED

Pursuant to the bye-laws of the Company, a resolution put to the vote of a general meeting of the Company 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 general meeting of the Company; or
(ii) by at least three shareholders present in person or by duly authorised corporate representative or by proxy for the time being entitled to vote at the general meeting of the Company; or
(iii) by any shareholder or shareholders of the Company present in person or by duly authorised corporate representative or by proxy and representing not less than one-tenth of the total voting rights of all the shareholders of the Company having the right to vote at the general meeting of the Company; or
(iv) by any shareholder or shareholders of the Company present in person or by duly authorised corporate representative or by proxy and holding shares in the Company conferring a right to vote at the general 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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LETTER FROM THE BOARD

In addition:

(a) if the aggregate proxies held by (i) the Chairman of a particular meeting, and (ii) the Directors, account for 5% or more of the total voting rights at that meeting, and
(b) if on a show of hands in respect of any resolution, the shareholders at the meeting vote in the opposite manner to that instructed in the proxies referred to in (a) above,

the Chairman of the meeting and/or any Director holding the proxies referred to above shall demand a poll. However, if it is apparent from the total proxies held by the persons referred to in (a) above that a vote taken on a poll will not reverse the vote taken on a show of hands, then no poll shall be required.

11. GENERAL

The notice convening the Special General Meeting is set out on pages 45 and 46 of this circular. At the Special General Meeting, the KPL Resolution will be proposed to approve the Contracts and the transactions contemplated thereunder.

A form of proxy for use at the Special General Meeting is enclosed with this circular. Whether or not you are able to attend the meeting, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to Abacus Share Registrars Limited, the Company’s branch share registrar and transfer office in Hong Kong, of 26th Floor, Tesbury Centre, 28 Queen’s Road East, 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 prevent you from attending and voting at the Special General Meeting should you so wish.

Under the Listing Rules, any connected person of the Company with a material interest in the Contracts and the transactions contemplated thereunder, and any other Shareholders and their respective associates with a material interest in the Contracts and the transactions contemplated thereunder, shall abstain from voting on the KPL Resolution.

The following persons (the “ Abstaining Shareholders ”) will abstain from voting in respect of the KPL Resolution:

(i) KHL and its associates, which are interested in 773,010,978 Shares (representing approximately 63.53% of all Shares in issue) as at the Latest Practicable Date;
(ii) Shang Holdings Limited, an indirect wholly owned subsidiary of SA, which is interested in 6,072,968 Shares (representing approximately 0.5% of all Shares in issue) as at the Latest Practicable Date; and
(iii) Mr. Ang Keng Lam (a common director of the Company and KHL) who is interested in 269,007 Shares (representing approximately 0.022% of all Shares in issue) as at the Latest Practicable Date.

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LETTER FROM THE BOARD

As far as the Directors are aware, having made all reasonable enquiries, as at the Latest Practicable Date:

(i) the Abstaining Shareholders 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 the Abstaining Shareholders, and (b) there were no obligations or entitlements of the Abstaining Shareholders, 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
(iii) there were no discrepancies between the beneficial shareholding interests in the Company of the Abstaining Shareholders 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.

The KPL Resolution 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 KPL Resolution has been passed by the Independent Shareholders.

Your attention is drawn to the additional information set out in the appendix 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 [178 x 94] intentionally omitted <==

website: www.kerryprops.com (Stock Code: 00683)

Independent Board Committee:

Mr. LAU Ling Fai, Herald (Chairman) Mr. William Winship FLANZ Mr. Christopher Roger MOSS, O.B.E.

Registered Office:

Canon’s Court 22 Victoria Street Hamilton HM12 Bermuda

23 January 2006

To the Independent Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTIONS RELATING TO THE ESTABLISHMENT OF A JOINT VENTURE COMPANY

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 Contracts and the transactions contemplated thereunder, in accordance with the terms set out in the Contracts, are 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 the Independent Shareholders are concerned. Commerzbank has been appointed as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in relation to the Contracts.

In our opinion, the terms of the Contracts are fair and reasonable and the entering into of the Contracts and the transactions contemplated thereunder, in accordance with the terms set out in the Contracts, are in the interests of the Company and its Shareholders as a whole and so far as the Company and the Independent Shareholders are concerned. In considering the Contracts, the independent non-executive Directors have taken into consideration the parties’

* for identification purpose only

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

respective obligations under the KPL Non-competition Agreement and the SA Undertaking. Accordingly, we recommend the Independent Shareholders to vote in favour of the KPL Resolution, which will be proposed as an ordinary resolution at the Special General Meeting, in respect of the Contracts and the transactions contemplated thereunder.

Yours faithfully,

The Independent Board Committee of Kerry Properties Limited Mr. LAU Ling Fai, Herald (Chairman) Mr. William Winship FLANZ Mr. Christopher Roger MOSS, O.B.E.

– 23 –

LETTER FROM COMMERZBANK AG

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

==> picture [413 x 69] intentionally omitted <==

23 January 2006

To the Independent Board Committee and the Independent Shareholders

Dear Sirs,

CONNECTED TRANSACTIONS RELATING TO THE ESTABLISHMENT OF A JOINT VENTURE COMPANY

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the connected transactions relating to the establishment of the JVCO, the definitions of which, amongst other things, are set out in the circular dated 23 January 2006, of which this letter forms part. Terms defined in the circular will have the same meanings when used in this letter unless the context requires otherwise.

By an announcement dated 2 December 2005, the Company announced that the JV Parties entered into the Joint Venture Contract on 9 October 2005 for the establishment of the JVCO to undertake a property development project in Pudong, Shanghai, PRC. Upon its establishment, the JVCO will be owned by Party A, Party B, Party C and Party D in the proportions of 20%, 23.2%, 40.8% and 16%, respectively. By the same announcement, the KPL Board and the SA Board announced that a Funding Agreement was entered into between Party B, Party C and Party D, the purpose of which is to record the agreement amongst Party B, Party C and Party D that none of them shall be obliged to commit further funding contribution to, or for the benefit of, the JVCO if the total investment amount of the JVCO exceeds US$590,000,000 (equivalent to approximately HK$4,602,000,000).

Party B, Party C and Party D are wholly-owned subsidiaries of SA, KPL and AG, respectively. SA and AG are regarded as connected persons of KPL under the Listing Rules. Accordingly, the entering into of the Contracts constitutes connected transactions for KPL and SA respectively under the Listing Rules. As the commitment of Party C under the Contracts exceeds the 2.5% Threshold, the Contracts are subject to the approval of the Independent Shareholders.

Our role as the independent financial adviser to the Independent Board Committee and the Independent Shareholders is to give our opinion as to whether the establishment of the JVCO are: (i) in the ordinary and usual course of business; (ii) on normal commercial terms; and (iii) are fair and reasonable and in the interests of KPL and the Independent Shareholders as a whole.

– 24 –

LETTER FROM COMMERZBANK AG

As the independent financial adviser to the Independent Board Committee and the Independent Shareholders, we were not involved in the negotiations in respect of the terms of the Contracts relating to the establishment of the JVCO. Our opinions with regard to the establishment of the JVCO have been made on the assumption that the terms of the Contracts were entered into in relation to the establishment of the JVCO will be fully performed in accordance with the terms thereof.

In formulating our recommendation, we have relied on the information and facts supplied to us by KPL. We have reviewed, among other things: (i) the Joint Venture Contract; (ii) the Funding Agreement; (iii) the Land Contract; (iv) the annual report of KPL as at 31 December 2004; and (v) the interim report of KPL as at 30 June 2005. We have also discussed with the management of KPL regarding their plans and prospects for the proposed development of the Project Site.

We have assumed that all information, opinions and representations contained or referred to in the circular are true, complete and accurate in all material respects and we have relied on the same. We have also relied on the representations of KPL that having made all reasonable enquiries and careful decisions, and to the best of its knowledge and belief, there is no other material fact or representation or the omission of which would make any statement contained in the circular, including this letter, misleading in any material way. We have also assumed that all information and statements and representations made or referred to in the circular, which have been provided to us by KPL, and for which it is responsible, are true, complete and accurate in all material respects at the time they were made and continue to be so at the date of despatch of the circular.

We consider that we have (i) taken reasonable steps as required under the Listing Rules 13.80 in obtaining all necessary information from KPL; and (ii) reviewed sufficient information to enable us to reach an informed view regarding the establishment of the JVCO and to provide us with a reasonable basis for our recommendation. We have no reason to suspect that any material facts have been omitted or withheld, nor are we aware of any facts or circumstances, which would render the information and the representations made to us untrue, inaccurate or misleading. We have not, however, carried out any independent verification of the information provided by KPL; nor have we conducted any independent in-depth investigation into the business and affairs of the KPL Group and their respective associates.

PRINCIPAL FACTORS CONSIDERED

In assessing the establishment of the JVCO and giving our independent financial advice to the Independent Board Committee and the Independent Shareholders, we have taken into account of the following principal factors:

1. Reasons for and benefits of the JVCO

1.1 Business and the corporate strategy of the KPL Group

KPL is principally engaged in property development and investment in Hong Kong, the PRC and the Asia Pacific region. The KPL Group has extensive property investment

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LETTER FROM COMMERZBANK AG

in the PRC, and its portfolio of developments comprising of residential, commercial and mixed-use properties in the major PRC cities such as Beijing, Shanghai, Shenzhen and Fuzhou.

In addition to property development, the KPL Group is also engaged in (i) logistics, freight, warehouse ownership and operations; and (ii) infrastructure-related investment in Hong Kong and the PRC.

We note from KPL’s latest annual report that profit attributable to KPL Shareholders for the year ended 31 December 2004 increased by 395% as compared to the financial year of 2003. Such increase in earnings is largely attributable to a 12 times increase in earning contribution from the KPL Group’s property investment and development business. Profit attributable to the KPL Shareholders from the PRC property portfolio represented an increase of 88% for the financial year ended 31 December 2004 as compared to the financial year ended 31 December 2003.

In terms of geographical segment, as at 31 December 2004, the PRC property portfolio accounted for approximately 40% of the total gross floor area (“GFA”) of property investment or properties under development of the KPL Group. For the year ended 31 December 2004 and the first six months ended 30 June 2005, the PRC property portfolio accounted for approximately 29% and 11% respectively of the total profit of the KPL Group.

We have discussed with the KPL Directors on the corporate strategy of the KPL Group, and note that the KPL Group’s strategy is to focus on the development of large multi-purpose properties in the PRC. The KPL Directors are of the view that by building up a portfolio of quality investment properties in key locations in the PRC, the brand strategy of the investment portfolio also creates a cross-marketing effect to enhance the overall rental value or valuation of the KPL Group’s properties. The KPL Group will continue to complement its prominent presence and successful track records in Beijing, Shanghai and Shenzhen by exploring property development opportunities in other major cities in the PRC.

1.2 Business of the SA Group

The SA Group is principally engaged in the ownership and operation of hotels and associated properties and provision of hotel management and related services. Certain subsidiaries of the SA Group are also the registered proprietors of various trademarks and service marks in various countries, including the brand names of “Shangri-La”, “Traders”, “Rasa”, “Summer Palace” and “Shang Palace” and related devices and logos. According to Business Traveller, a world’s leading business travel magazine, the SA Group was awarded as the best hotel group in Asia Pacific in 2004.

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LETTER FROM COMMERZBANK AG

We note from the interim report of the SA Group that as at 30 June 2005, the SA Group owned 37 hotels with approximately 18,485 rooms available in total, among which 18 hotels and approximately 8,790 rooms available were located in the PRC. We also note that out of 11 hotels with approximately 4,694 rooms available under development and which are expected to commence operations between 2006 and 2008, nine of them with approximately 4,194 rooms were located in the PRC.

1.3 The KPL Group’s existing property projects in Shanghai

The KPL Group’s existing major investment properties in Shanghai are Shanghai Kerry Centre and Kerry Everbright City Phase I, which are mixed-use property comprising office, retail and serviced apartments. We note from the interim report of KPL that both properties have, on average, a 96% occupancy rate during the first six months of 2005. We have been informed by the KPL Directors that Phase II of Kerry Everbright City is on schedule for completion in phases up to the end of 2007.

In May 2004, the KPL Group announced a joint venture with the SA Group to jointly develop a multi-purpose property in Jingan district, Shanghai for a maximum investment amount of US$700 million. With an estimated total GFA of approximately 332,300 sq.m., this project is set to become a new landmark in Shanghai.

In accordance with the interim report of KPL, Shanghai accounted for approximately 72% of the KPL Group’s total GFA under development in the PRC, excluding the Jingan district project and the Project Site. As set out in the circular, the purpose of the establishment of the JVCO is to enable the JV Parties to acquire a prime piece of land in Shanghai for development into a mixed-use development which will comprise of (subject to market conditions) hotel, offices, serviced suites/serviced apartments, commercial and related ancillary facilities.

1.4 The Project Site

As set out in the circular, the Project Site has an area of approximately 58,900 sq.m. and is adjacent to the Shanghai New International Expo Centre, Pudong, Shanghai. The Project Site is currently intended to comprise of (subject to market conditions) hotel, offices, serviced suites/serviced apartments, commercial and related ancillary facilities.

In accordance with the news release from the Ministry of Foreign Affairs of the PRC, total investment of the Shanghai World Expo 2010 is estimated to be at US$3 billion (equivalent to approximately HK$23.4 billion). It is expected that the Shanghai World Expo 2010 will attract 70 million visitors and will accelerate Shanghai to become an internationalized and modernized metropolis and promote the economic development and various industries in the PRC. We note that the World Expo is the third largest event in the world after the World Cup and the Olympic Games. According to the Shanghai Municipal Tourism Administrative Commission, the overall five-star hotels occupancy rate in Shanghai was approximately 76% in 2004. We note from the latest interim report of the SA Group that the occupancy rate of its two luxury hotels in Shanghai reached 80% in 2004, which outperformed the overall occupancy rate of other five-star hotels in Shanghai.

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LETTER FROM COMMERZBANK AG

The Project Site is currently owned by the Shanghai Pudong Land Development (Holding) Corporation and there are no existing buildings on the Project Site. On the same date and upon execution of the Joint Venture Contract for the establishment of the JVCO, the JV Parties entered into a Land Contract on behalf of the JVCO to acquire the Project Site for a term up to 31 December 2055. Upon its establishment, the JVCO will be owned by:

The JV Parties to the JVCO	Percentage of ownership
Party A (an independent third party)	20%
SA (through Party B)	23.20%
KPL (through Party C)	40.80%
AG (through Party D)	16%

As set out in the circular, the Project Site is intended for development into a mixed-use development which is currently intended to comprise of (subject to market conditions) hotel, offices, serviced suites/serviced apartments, commercial and related ancillary facilities. The JV Parties currently intend that part of the completed development of the Project Site will be put on sale and the remaining will be held for investment purpose. The exact proportion of the development to be sold will be subject to the final development mix and prevailing market conditions. We have discussed with the KPL Directors and understand that the acquisition of the Project Site will strengthen the land bank of the KPL Group in the PRC. By building up a portfolio of quality investment properties in key locations in the PRC, the KPL Directors are of the view that KPL will be in a good position to capture the long-term value from asset appreciation as well as to build up a strong and recurrent earnings flow from leasing and managing the properties.

Given that the Project Site (i) provides a prime site for mixed-use development in Shanghai, in particular, the Project Site is adjacent to the Shanghai New International Expo Centre; (ii) brand strategy of the investment portfolio helps to create a crossmarketing effect to enhance the overall rental value or valuation of the KPL Group’s properties; and (iii) is in line with the existing investment strategy of the KPL Group, we are of the view that the Project Site will complement and enhance the KPL Group’s overall property portfolio in the PRC.

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LETTER FROM COMMERZBANK AG

2. Overview of the property market in Shanghai

We have reviewed various research reports and note that in general, the overall property market in the PRC has slowdown as a result of the recent PRC government’s policies in controlling an overheated property market in the PRC, including (i) the imposition of new business tax on sale of new homes purchased within the first two years; and (ii) restriction on the transfer of new houses under construction between buyers. Notwithstanding the austerity measures imposed by the PRC government, according to the Shanghai Statistics Bureau, real estate investment in Shanghai has recorded an annual increase of approximately 30.4% in 2004. In this connection, we concur with the view from various research reports that the Shanghai property market will remain neutral or in a downward-trend in the short term. However, we concur with market consensus that the long-term fundamental outlook on the Shanghai property market remains positive, as there will be continued strong growth in the local economy and robust local demand.

We also note from the Shanghai Statistic Yearbook 2005 that Shanghai’s GDP per capita exceeded RMB55,307 (equivalent to approximately HK$53,180) and continues to rank amongst the top three in terms of GDP per capita for the whole of PRC in 2004. The strong GDP per capita is attributable to the continuous growth of foreign direct investment (“ FDI ”) in Shanghai, which experienced a compound average growth rate of approximately 11.73% during the past three years. Shanghai continues to be the magnet for FDI, and in accordance with the data extracted from the Shanghai Statistics Bureau, FDI reached US$11.69 billion (equivalent to approximately HK$90.48 billion) in 2004, representing an annual increase of 12.6%.

The PRC, Beijing and Shanghai GDP per capita (1994-2004)

==> picture [373 x 171] intentionally omitted <==

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

60,000
50,000
40,000
30,000
20,000
10,000
0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
the PRC GDP per capita Beijing GDP per capita Shanghai GDP per capita
RMB
----- End of picture text -----

Source: National Bureau of Statistics Bureau of China, Shanghai Statistics Yearbook 2005 and CEIC database

– 29 –

LETTER FROM COMMERZBANK AG

The continuous economic growth in Shanghai has resulted in the increase of salary of the residents in Shanghai, leading to improvement of the living standards. According to the Shanghai Statistic Yearbook 2005, we note that average salary in Shanghai was in an increasing trend for the past 10 years, with a compound annual growth rate of 12.67%.

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

Shanghai Average Salary
(1994-2004)
30,000
25,000
20,000
15,000
10,000
5,000
0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
Shanghai Average Salary
RMB
----- End of picture text -----

Source: Shanghai Statistics Yearbook 2005

As discussed with the KPL Directors, one of KPL’s focuses is to concentrate on upmarket residential and mixed-use projects for the fast-growing affluent sector in the PRC. Given the (i) Project Site is located at a prime location in Shanghai, being the most preferred entry point to the PRC market, attracting more than 33 Fortune 500 firms to set up their regional headquarters; (ii) current business performance, occupancy rate of the KPL Group’s investment properties in Shanghai; and (iii) future economic outlook of Shanghai, we are of the view that the acquisition of the Project Site by the JVCO is consistent with the overall corporate strategy of the KPL Group and that the participation in the Project Site is in the interest of the KPL Group and its Independent Shareholders.

3. Terms of the establishment of the JVCO

3.1 The consideration of the Project Site

We note that the Total Transfer Price for the Project Site was calculated based on (i) an above-ground GFA of approximately 230,000 sq.m. of the Project Site (as set out in the Land Contract); and (ii) an agreed price of RMB5,286 per sq.m. of the above-ground GFA (equivalent to approximately HK$5,083 per sq.m.).

We understand from the KPL Directors that the required minimum bid price on the Project Site has to be no less than the price prescribed by the Shanghai Municipal Housing, Land & Resources Administration Bureau under a pricing scale ( ) published on 30 June 2003. Given that the submitted bid price is the Total Transfer Price, we are of the view that the Total Transfer Price represents the fair market value of the Project Site.

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LETTER FROM COMMERZBANK AG

3.2 Terms of the Contracts

3.2.1 The Joint Venture Contact

Pursuant to the Joint Venture Contract, the total investment and registered capital of the JVCO are US$489,604,000 (approximately HK$3,818,911,200) and US$163,201,000 (approximately HK$1,272,967,800), respectively.

We have reviewed the Joint Venture Contract and understand that each party is required to contribute its respective proportion to the JVCO, of which 15% of the registered capital is required to be contributed by the JV Parties within 3 months from the date of the issue of the business licence of the JVCO. The timing and the amount of the payment of the balance of the registered capital shall be decided by the board of directors of the JVCO in accordance with the progress of the construction of the Project Site.

The investment amount in excess of the registered capital will be funded by third party loans obtained by the JVCO from banks or by shareholders’ loans from the JV Parties to the JVCO. All loans and/or financial assistance provided by the JV Parties to the JVCO will be provided on a several basis, pro-rata to the then respective capital contributions of the JV Parties to the JVCO on the same terms and conditions.

We also note that the board of directors of the JVCO will consist of five directors. Party A, Party B and Party D shall be entitled to nominate one director respectively and Party C shall be entitled to nominate two directors, including the chairman.

3.2.2 The Funding Agreement

Pursuant to a further Funding Agreement, Party B, Party C and Party D agree to contribute to the JVCO a funding request in excess of the total investment amount in proportionate funding of up to a maximum total investment amount for the JVCO of US$590,000,000 (equivalent to approximately HK$4,602,000,000). As set out in the Funding Agreement, any additional funding requirement of the JVCO exceeding the total investment amount of US$489,604,000 (equivalent to approximately HK$3,818,911,200) is subject to unanimous approval by the board of directors of the JVCO.

We have also reviewed the Funding Agreement and note that the obligations of each of Party B, Party C and Party D shall only extend to providing their respective proportion of funding in the JVCO up to a maximum total investment amount for the JVCO of US$590,000,000 (equivalent to approximately HK$4,602,000,000).

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LETTER FROM COMMERZBANK AG

Given (i) KPL has two board representatives out of a total of five directors; (ii) all funding contribution and payment schedule will be decided by the board of directors of the JVCO; (iii) any additional funding requirement of the JVCO exceeding the total investment amount of US$489,604,000 (equivalent to approximately HK$3,818,911,200) is subject to unanimous approval by the board of directors of the JVCO; and (iv) all loans and/or guarantees and/or financial assistance provided by the JV Parties or such third party under the JV Contract will be provided on a several basis, pro-rata to their then respective capital contributions of the JV Parties on the same terms and conditions, we are of the view that the entering into of the Contracts are in the interests of KPL and its Independent Shareholders.

4. Co-investment opportunity

In arriving at our opinion regarding the establishment of the JVCO contemplated under the Contracts, we have discussed with the KPL Directors the following:

4.1 Background of the non-competition arrangements

Party B was invited to tender for the Project Site by Shanghai Pudong Land Development (Holding) Corporation and Shanghai Lujiazui Development (Group) Co., Ltd. (“ SLGC ”). We have been advised by the KPL Directors that one of the conditions set by SLGC was that SLGC would have the right to participate in up to 49% of the JVCO. However, following negotiations between SA and SLGC, both SA and SLGC mutually agreed that their participation in the JVCO would be reduced to 20%. SLGC’s participation in the JVCO is made through Party A.

We understand that the bid was jointly submitted by SA and Party B. We further understand from the KPL Directors that pursuant to the KPL Non-competition Agreement entered into between KPL and Kerry Group Limited (on behalf of the Kuok Group), Kerry Group Limited shall procure that, for the period prescribed therein, no member of the Kuok Group shall, except as provided in the KPL Non-competition Agreement, undertake, inter alia, property investment or development in Hong Kong or the PRC. We note that SA is deemed to be a member of the Kuok Group.

Pursuant to the SA Undertaking between SA and the Kuok Group, we note that for so long as SA continues to be controlled by the Kuok Group, SA would be offered, at the earliest practicable time, the opportunity to acquire at an arm’s length price all or part of any hotel or serviced apartments projects in Hong Kong or the PRC that may be undertaken by the Kuok Group and are managed by SLIM.

Given the non-competition arrangement between the KPL Group and the SA Group, as the project is a property investment or development in the PRC and the Project Site is expected to include a hotel and serviced apartments in the development in the PRC, which is expected to be managed by a subsidiary of SA, it falls within the ambit of the KPL Non-competition Agreement and the SA Undertaking.

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LETTER FROM COMMERZBANK AG

We note that the SA Group has offered its right to participate in the Project Site to KPL and KPL has in turn, offered the hotel and serviced apartments portion to the SA Group. We further note that SA has requested AG to jointly participate in the Project Site with SA, and the KPL Group and the SA Group (together with AG, which is nominated by SA) have agreed to co-participate in the Project Site in the respective proportion of 51%, 29% and 20% (on a 100% basis and without taking into consideration the 20% interest of Party A).

We are of the view that subject to the approval of the respective independent shareholders of KPL and SA to permit the participation of SA and AG in the Project Site, the investment participation by the SA Group (together with AG, which is nominated by SA) on the joint development of the Project Site constitutes full compliance by KPL of the SA Undertaking.

Having considered all of the relevant factors relating to the KPL Non-competition Agreement and the SA Undertaking, we are of the view that the participation of KPL and SA (together with AG, which is nominated by SA) in their respective equity interest is fair and reasonable in so far as KPL and the Independent Shareholders are concerned.

4.2 Initial tenderer of the Project Site

As mentioned above, the bid for the right to acquire the Project Site was submitted jointly by SA and Party B, which was zoned for comprehensive development. In addition, we have been informed by the KPL Directors that it is a term of the bid that part of the Project Site should be used to build a hotel, and the bidder must have the relevant experience in investing in and/or managing a five-star hotel.

SA has further invited AG to jointly participate in the Project Site with SA. We note that AG is principally engaged in property development and investment, hotel and serviced apartments development and management, project management and trading in building materials, and is a company listed on the Singapore Stock Exchange since 1999. According to the information as extracted from Bloomberg, as at the Latest Practicable Date, AG has a current market capitalization of approximately S$1,369 million (equivalent to approximately HK$6,516 million) and a net assets of approximately S$1,878 million (equivalent to approximately HK$8,775 million).

Given (i) the terms of the original bid and the SA Undertaking; and (ii) AG’s expertise in property development, hotel and serviced apartments management and financial capacity, we concur with the view of the KPL Directors that the joint development of the Project Site by KPL and SA (together with AG, which is nominated by SA), is appropriate.

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LETTER FROM COMMERZBANK AG

4.3 Extension of the co-investment relationship with the SA Group

The Project Site represents the fourth co-investment arrangement between the KPL Group and the SA Group. The first co-investment between the groups in the PRC has occurred since 1996. As at the Latest Practicable Date, SA is a co-investor of the KPL Group’s existing investment in the Beijing Kerry Centre and the Shanghai Kerry Centre, which the KPL Group have the effective controlling interest in each project. The Beijing Kerry Centre is a mixed-use development comprising office and serviced apartments. We note from the annual report of the KPL Group that the mixed-use development project in Jingan district, Shanghai is the third co-investment project under development. The Project Site, which is anticipated to consist of hotel, offices, retail and serviced apartments, is similar to that undertaken in the existing co-investment in Beijing Kerry Centre and in the Jingan district, Shanghai.

Given (i) the reputation of the SA Group in the hotel industry in the PRC; (ii) the corporate strategy of the KPL Group in focusing on mixed-use development; (iii) the historical co-investment experience in mixed-use development between KPL Group and the SA Group, we are of the view that the joint development of the Project Site represent the extension of good co-investment relationship between the KPL Group and the SA Group.

4.4 Capital commitment

As set out above, the total maximum investment amount of the JVCO is estimated to be approximately US$590,000,000 (equivalent to approximately HK$4,602,000,000), which payment and/or financial obligation will be made or incurred in accordance with the development progress of the Project Site.

We have reviewed the 2004 annual report of the KPL Group and note that the capital commitment for the next 12 months will be HK$2,399.92 million. We have discussed with the KPL Directors and note that given the extensive capital commitment of both projects, the KPL Directors are of the view that it would be commercially prudent to diversify its development risks by co-investing with other parties. In view of the historical coinvestment experience and the reputation of the SA Group in the hotel management, it would be beneficial for the KPL Group to jointly participate with the SA Group in the Project Site.

In view of the foregoing, given (i) the terms of the original bid and the background of the Project Site; (ii) the KPL Non-competition Agreement and the SA Undertaking; (iii) the background and experience of Party B, Party C and Party D; and (iv) the financial consideration and risk allocation as discussed with the KPL Directors, we are of the view that the entering into of the Contracts are: (a) in the ordinary and usual course of business of the KPL Group; (b) on normal commercial terms; and (c) fair and reasonable and in the interests of KPL and the Independent Shareholders as a whole.

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LETTER FROM COMMERZBANK AG

5. Financial impact on the KPL Group

5.1 Net assets value

As set out in the circular, KPL entered into the Contracts for the establishment of the JVCO and will take up 40.8% stake of the JVCO upon its establishment. Based on the total investment amount of US$489.60 million (equivalent to HK$3,818.91 million) in accordance with the Joint Venture Contract and, up to the maximum investment amount of US$590.00 million (equivalent to HK$4,602.00 million) in accordance with the Funding Agreement, the KPL Group’s estimated investment, on a pro rata basis, ranges from approximately US$199.76 million (equivalent to approximately HK$1,558.12 million) (the “ Investment Amount ”) up to a maximum investment amount of approximately US$240.72 million (equivalent to approximately HK$1,877.62 million) (the “ Maximum Investment Amount ”). Given that KPL’s Investment Amount and the Maximum Investment Amount in the JVCO are based on the percentage of ownership in the JVCO, we are of the view that the Investment Amount up to the Maximum Investment Amount is fair and reasonable.

Upon the establishment of the JVCO, we note that KPL will recognize its interest in the JVCO as an investment in associated company and will account for the results and financial positions of the JVCO under the equity method of accounting. As such, upon establishment of the JVCO, the non-current assets of the KPL Group will increase by the Investment Amount up to the Maximum Investment Amount. On the other hand, the cash and bank balance of the KPL Group will decrease by the same amount. In this connection, we note that there is no change in the KPL Group’s total assets.

Taking into account of the above, we note that the NAV of KPL upon the establishment of the JVCO, which is the same as the NAV reported in the unaudited interim financial statement of the KPL Group as at 30 June 2005. Given that there is no change on the NAV, we are of the view that investment in the JVCO has no material impact on the NAV of the KPL Group.

5.2 Gearing

Based on the unaudited interim report of the KPL Group as at 30 June 2005, we note that the KPL Group has total cash and cash equivalent (including cash and bank balance of approximately HK$4,919.95 million and pledged deposit of approximately HK$59.39 million) of approximately HK$4,979.34 million (the “ Cash Balance ”). The Investment Amount and the Maximum Investment Amount accounted for approximately 31.29% and 37.71% of the KPL Group’s Cash Balance. Given that the funding will not be a one-off contribution and the JV Parties are required to contribute in accordance with the construction progress, we are of the view that KPL has sufficient funding sources to cover the Investment Amount or the Maximum Investment Amount as and when required.

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LETTER FROM COMMERZBANK AG

Taking into account of the cash outflow of the Investment Amount or the Maximum Investment Amount, the KPL Group’s net debt position of approximately HK$3,433.55 million, as extracted from the unaudited interim financial statement of the KPL Group as at 30 June 2005, being total debt minus the Cash Balance, will increase by the Investment Amount up to the Maximum Investment Amount. As mentioned in section 5.1 above, we note that there is no change in the NAV position of the KPL Group upon the establishment of the JVCO. Given that (i) no change in the total equity; and (ii) the net debt position is increased, KPL’s net debt to equity ratio upon the establishment of the JVCO, being the total net debt divided by total equity, will increase as compared with the KPL Group’s net debt to equity ratio before the establishment of the JVCO.

5.3 Working capital

Based on the unaudited interim results of the KPL Group as at 30 June 2005, the current assets and current liabilities of the KPL Group were approximately HK$7,383.75 million and approximately HK$3,064.98 million, respectively. The current ratio (being the current assets divided by current liabilities) of the KPL Group was approximately 2.41 times. Upon the establishment of the JVCO, the current assets of the KPL Group will decrease by the Investment Amount up to the Maximum Investment Amount as a result of the settlement of the Investment Amount or the Maximum Investment Amount by internal cash. The current liabilities of the KPL Group will remain the same at approximately HK$3,064.98 million, as extracted from the unaudited interim financial statement of the KPL Group as at 30 June 2005. As such, we note that the KPL Group’s current ratio upon the establishment of the JVCO will decrease as compared with the KPL Group’s current ratio before the establishment of the JVCO.

Given the JVCO will have the right to develop the Project Site into a mixed-use development consisting of hotel, offices, serviced suites/serviced apartments, commercial and related ancillary facilities, we are of the view that a decrease in the current ratio of KPL is acceptable.

Having considered the above as a whole, given that (i) the investment in the JVCO has no material impact on the NAV of the KPL Group; and (ii) no impact on the total debt balance, notwithstanding the increase in net debt to equity ratio and a decrease in the current ratio upon the establishment of the JVCO, we are of the view that entering into the JVCO is in the interests of the KPL and the Independent Shareholders as a whole.

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LETTER FROM COMMERZBANK AG

OUR RECOMMENDATION

Having considered the principal factors referred to above, we are of the view that the establishment of the JVCO is (i) in the ordinary and usual course of business of the KPL Group; (ii) on normal commercial terms; (iii) fair and reasonable; and (iv) in the interests of KPL and the Independent Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolution to be proposed at the Special General Meeting in respect of the Contracts.

Yours faithfully,

For and on behalf of

Commerzbank AG Hong Kong Branch Harald W. A. Vogt Helen General Manager Head of Corporate

Helen Ho

Head of Corporate Finance – M&A Advisory

– 37 –

GENERAL INFORMATION

APPENDIX

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 each of the Directors of the Company in the Shares, underlying Shares and debentures of the Company or any of its Associated Corporations which were (a) required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (b) required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein; or (c) required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange were as follows:

(i) The Company

Name of Director	Number of ordinary shares Number of underlying ordinary shares held under equity derivatives Total Percentage of aggregate interests to the total number of ordinary shares in issue (%) Personal interests Family interests Corporate interests Other interests*
Mr. ANG Keng Lam Mr. WONG Siu Kong Mr. HO Shut Kan Mr. MA Wing Kai, William Mr. William Winship FLANZ Mr. LAU Ling Fai, Herald Mr. Christopher Roger MOSS, O.B.E Mr. TSE Kai Chi	2,6211 – – 266,3862 6,201,8773 6,470,884 0.53 – – – – 3,319,7943 3,319,794 0.27 – – – – 1,121,0443 1,121,044 0.09 7,3841 – – – 1,532,3713 1,539,755 0.13 – – – – – – – – – – – – – – – – – – – – – – – – – – – –

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GENERAL INFORMATION

APPENDIX

(ii) Associated Corporations

Name of Associated Corporation Name of Director	Number of ordinary shares Number of underlying ordinary shares held under equity derivatives Total Percentage of aggregate interests to the total number of ordinary shares in issue (%) Personal interests Family Interests Corporate interests Other interests 1,5701 – – – – 1,570# 0.00 – 7,050,0004 – 8,000,0002 5,566,2215 20,616,221 1.45@ – – 6,254,3006 – 4,638,5175 10,892,817 0.77@ 765,0001 – – – 927,7035 1,692,703 0.12@ 1,010,6201 – – – – 1,010,620 0.07@ 400,0001 – – – 1,855,4075 2,255,407 0.16@ 11 – – – – 1 0.00 11 – – – – 1 0.00
EDSA Properties Holdings Inc. Mr. HO Shut Kan Kerry Group Limited Mr. ANG Keng Lam Mr. WONG Siu Kong Mr. HO Shut Kan Mr. MA Wing Kai, William Mr. TSE Kai Chi Kerry Siam Seaport Limited Mr. ANG Keng Lam Mr. MA Wing Kai, William

Name of Associated
Corporation
Name of Director

Number of ordinary shares
Number of
underlying
ordinary
shares held
under equity
derivatives
Total
Percentage of
aggregate
interests to the
total number
of ordinary
shares in issue
(%)
Personal
interests
Family
Interests
Corporate
interests
Other
interests
1,5701
–
–
–
–
1,570#
0.00
–
7,050,0004
–
8,000,0002
5,566,2215 20,616,221
1.45@
–
–
6,254,3006
–
4,638,5175 10,892,817
0.77@
765,0001
–
–
–
927,7035
1,692,703
0.12@
1,010,6201
–
–
–
–
1,010,620
0.07@
400,0001
–
–
–
1,855,4075
2,255,407
0.16@
11
–
–
–
–
1
0.00
11
–
–
–
–
1
0.00

EDSA Properties
Holdings Inc.
Mr. HO Shut Kan
Kerry Group Limited
Mr. ANG Keng Lam
Mr. WONG Siu
Kong
Mr. HO Shut Kan
Mr. MA Wing Kai,
William
Mr. TSE Kai Chi
Kerry Siam Seaport
Limited
Mr. ANG Keng Lam
Mr. MA Wing Kai,
William

Notes:

This represents interests held by the relevant director as beneficial owner.
This represents interests held by the relevant director through a discretionary trust of which the relevant director is a contingent beneficiary.
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 option shares granted by the Company under the 1997 and 2002 share option schemes.
This represents interests held by the relevant director and his spouse through a discretionary trust of which the relevant director and his spouse are contingent beneficiaries.
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 option shares granted by Kerry Group Limited.
This represents interests held by the relevant director through his controlled corporation(s).
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 1,216,732,422 ordinary shares).
The relevant notification was filed under the repealed Securities (Disclosure of Interests) Ordinance.
@ The percentage has been adjusted based on the total number of ordinary shares of Kerry Group Limited in issue as at the Latest Practicable Date (i.e. 1,423,527,311 ordinary shares).

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GENERAL INFORMATION

APPENDIX

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 or chief executives of the Company had any other interests or short positions in the shares, underlying shares or debentures of the Company or any of its Associated Corporations which were (a) required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (b) required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein; or (c) required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange.

3. DIRECTORS’ INTEREST IN CONTRACTS

(a) As at the Latest Practicable Date, 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, none of the Directors 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.

4. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors 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.

5. COMPETING INTERESTS

As at the Latest Practicable Date, the following Directors were considered to have interests in the following Excluded Businesses:

(a) Mr. Ang Keng Lam was a director of and had interests in shares in Allgreen, the businesses of which consisted of property investment and development, project management and operation of office premises, retail space and serviced apartments in Singapore. The Directors believe that as the size of these Excluded Businesses is not insignificant when compared with the property businesses of the Group, it is likely that these Excluded Businesses may compete with the property businesses of the Group in the Asia Pacific region. Allgreen was listed on the Singapore Stock Exchange as at the Latest Practicable Date;

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GENERAL INFORMATION

APPENDIX

(b) Messrs. Ang Keng Lam and Wong Siu Kong were directors of and had interests in shares in the SA group of companies, the businesses of which consisted of hotel ownership and operation. The Directors believe that as the size of that part of these Excluded Businesses in Beijing, where the Group has hotel businesses, is not insignificant when compared with the hotel business of the Group in Beijing, it is likely that these Excluded Businesses may compete with the hotel business of the Group in Beijing. SA was listed on the Stock Exchange as at the Latest Practicable Date;
(c) Messrs. Ang Keng Lam and Wong Siu Kong were directors of (but did not have any interests in shares in) the China World Trade Center Ltd. group of companies, the businesses of which consisted of property investment and development and hotel ownership and operation in the PRC. The Directors believe that as the size of these Excluded Businesses is not insignificant when compared with the property and hotel businesses of the Group in the PRC, it is likely that these Excluded Businesses may compete with the property and hotel businesses of the Group in the PRC;
(d) Mr. Wong Siu Kong was a director of and had interests in shares of Kuok (Singapore) Limited, one of the principal activities of the Kuok (Singapore) Limited group of companies consisted of owners and operators of warehouses in Singapore and Malaysia. The Directors believe that as the size of these Excluded Businesses is not insignificant when compared with the warehouse businesses of the Group in the South East Asian market, it is likely that these Excluded Businesses may compete with the warehouse businesses of the Group in the South East Asian market; and
(e) the Executive Directors were directors of and/or had interests in shares in the Kerry Group Limited group of companies, the businesses of which consisted of property investment and development, hotel ownership and operation, warehouse ownership and operation, port terminal ownership and operation and freight operations. The size of these Excluded Businesses is considered to be insignificant when compared with similar businesses of the Group. On this basis, the Directors do not consider any competition between these Excluded Businesses as specified under this paragraph and similar businesses of the Group to be significant.

The 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. On this basis, the Directors believe that the Group is capable of carrying on its businesses independently of the Excluded Businesses and at arm’s length from the Excluded Businesses.

6. LITIGATION

Kerry EAS Logistics is involved in a legal case in which an airline operator, together with five other plaintiffs, including the insurers of the aircraft, are claiming for damages, costs and interest, against six defendants, including Kerry EAS Logistics, on a joint and several basis in

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GENERAL INFORMATION

APPENDIX

relation to the alleged damages amounting to approximately US$65.6 million (approximately HK$511.7 million) caused to an aircraft in 2000 in respect of the transportation of certain chemical substance.

The alleged damages sought by the plaintiffs of approximately US$65.6 million represent the market value of the aircraft at the time when the damage occurred less the resale value of the aircraft after repairs. According to the pleadings and the affidavits of the five other plaintiffs, the airline operator was compensated by these plaintiffs for 15% of the total loss. The remaining 85% of the total loss was compensated by other reinsurers. These reinsurers have not brought any legal action against the six defendants as at the Latest Practicable Date.

Based on the opinion of J&J Law Firm dated 25 November 2005, the legal advisers to the Group, the allegation and the said amount claimed by the plaintiffs against Kerry EAS Logistics were not substantiated and it is unlikely that Kerry EAS Logistics will be found liable for the claimed damages and losses.

Save as disclosed above, as at the Latest Practicable Date, the Company was not aware of any further development of this legal action. Pursuant to the sale and purchase agreement for the acquisition of Kerry EAS Logistics, the vendor of Kerry EAS Logistics has undertaken to indemnify the Group in full in respect of all losses, costs, expenses and other responsibilities and liabilities arising in respect of various litigations against Kerry EAS Logistics, including the one referred to above.

As at the Latest Practicable Date, save as disclosed above, 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 were aware, no litigation or arbitration or claim of material importance was pending or threatened by or against any member of the Group.

7. EXPERTS

The following are the qualifications of the experts who have been named in this circular or have given opinions or advice which are contained in this circular:

Name

Qualification

Commerzbank AG

(acting through its Hong Kong branch) a licensed bank under the Banking Ordinance and an authorised financial institution under the SFO to conduct type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities as set out in Schedule 5 to the SFO

J&J Law Firm qualified PRC lawyers

Each of the experts has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its opinion prepared for the purpose of incorporation in this circular, and the references to its name and opinion in the form and context in which they respectively appear.

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GENERAL INFORMATION

APPENDIX

Each of the experts has confirmed that as at the Latest Practicable Date, it did not have any 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 nor did it have any direct or indirect interests in any assets which have since 31 December 2004 (being the date to which the latest published audited accounts of the Group were made up) been acquired or disposed of by or leased to any members of the Group, or were proposed to be acquired or disposed of by or leased to any members of the Group.

8. 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.

9. MISCELLANEOUS

(a) The Qualified Accountant of the Company is Ms. Chang Yin Wa. Ms. Chang is a Fellow of the Hong Kong Institute of Certified Public Accountants and a Fellow of the Association of Chartered Certified Accountants.
(b) The Secretary of the Company is Ms. Li Siu Ching, Liz. Ms. Li is a solicitor qualified in Hong Kong and holds a Master of Laws from the University of Northumbria at Newcastle, England. Ms. Li is also 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 and transfer office is Abacus Share Registrars Limited, 26/F, Tesbury Centre, 28 Queen’s Road East, 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.

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GENERAL INFORMATION

APPENDIX

10. 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 16 February 2006:

(a) the Joint Venture Contract;
(b) the Funding Agreement;
(c) the Land Contract;
(d) the KPL Non-competition Agreement;
(e) the Company’s prospectus dated 23 July 1996, which contains the terms of the SA Undertaking on page 153 thereof;
(d) the letter from the Independent Board Committee dated 23 January 2006 as set out on pages 22 and 23 of this circular;
(e) the letter of advice from Commerzbank dated 23 January 2006 for the purpose of incorporation in the circular, the text of which is set out on pages 24 to 37 of this circular; and
(f) the written consents of the experts referred to in this Appendix.

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NOTICE OF SPECIAL GENERAL MEETING

==> picture [178 x 94] intentionally omitted <==

website: 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 Thursday, 16 February 2006 at 10:00 a.m. for the following purposes:

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

“ THAT

(A) the Contracts (copies of which have been produced to this meeting marked “A” and signed by the Chairman hereof for the purpose of identification) and the transactions contemplated thereunder 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 Contracts and the transactions contemplated thereunder.

For the purposes of this resolution, the term “Contracts” shall have the same definition as defined in the circular to the shareholders of the Company dated 23 January 2006.”

By order of the Board Li Siu Ching, Liz Company Secretary

Hong Kong, 23 January 2006

Head Office and Principal

Place of Business in Hong Kong:

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

for identification purpose only

– 45 –

NOTICE OF SPECIAL GENERAL MEETING

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 will for this purpose be deemed joint holders thereof.
(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 and transfer office in Hong Kong, Abacus Share Registrars Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, 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 Tuesday, 14 February 2006 to Thursday, 16 February 2006, 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 and transfer office in Hong Kong, Abacus Share Registrars Limited, at the above address not later than 4:00 p.m. on Monday, 13 February 2006.
(6) Members are advised to read the circular to the shareholders of the Company dated 23 January 2006 which contains information concerning the resolution to be proposed in this notice.
(7) The resolution to be proposed at the meeting shall be decided by way of a poll.

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AI assistant

Kerry Properties Limited — Proxy Solicitation & Information Statement 2006

49390_rns_2006-01-23_fd405109-2a6d-4565-ae2e-53787b95a798.pdf

DISCLOSEABLE AND CONNECTED TRANSACTIONS RELATING TO THE ESTABLISHMENT OF A JOINT VENTURE COMPANY

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

Commerzbank AG Hong Kong Branch

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

Executive Directors:

Independent Non-Executive Directors:

Registered Office:

Non-Executive Director:

DISCLOSEABLE AND CONNECTED TRANSACTIONS RELATING TO THE ESTABLISHMENT OF A JOINT VENTURE COMPANY

1. INTRODUCTION

LETTER FROM THE BOARD

2. DETAILS OF THE JOINT VENTURE CONTRACT

LETTER FROM THE BOARD

LETTER FROM THE BOARD

3. DETAILS OF THE FUNDING AGREEMENT

LETTER FROM THE BOARD

4. FINANCIAL EFFECTS OF THE CONTRACTS

5. ACQUISITION OF THE PROJECT SITE

6. REASONS FOR THE CONTRACTS

7. INFORMATION ABOUT THE COMPANY, SA, AG, THE JV PARTIES AND THE VENDOR

(b) Information about SA and Party B

(d) Information about Party A

(e) Information about the Vendor

8. IMPLICATIONS UNDER THE LISTING RULES

9. RECOMMENDATIONS

LETTER FROM THE BOARD

10. PROCEDURES BY WHICH A POLL MAY BE DEMANDED

11. GENERAL

website: www.kerryprops.com (Stock Code: 00683)

Independent Board Committee:

Registered Office:

DISCLOSEABLE AND CONNECTED TRANSACTIONS RELATING TO THE ESTABLISHMENT OF A JOINT VENTURE COMPANY

CONNECTED TRANSACTIONS RELATING TO THE ESTABLISHMENT OF A JOINT VENTURE COMPANY

INTRODUCTION

LETTER FROM COMMERZBANK AG

PRINCIPAL FACTORS CONSIDERED

1. Reasons for and benefits of the JVCO

1.2 Business of the SA Group

1.3 The KPL Group’s existing property projects in Shanghai

1.4 The Project Site

LETTER FROM COMMERZBANK AG

2. Overview of the property market in Shanghai

3. Terms of the establishment of the JVCO

3.1 The consideration of the Project Site

3.2 Terms of the Contracts

3.2.1 The Joint Venture Contact

3.2.2 The Funding Agreement

4. Co-investment opportunity

4.1 Background of the non-competition arrangements

LETTER FROM COMMERZBANK AG

4.2 Initial tenderer of the Project Site

4.3 Extension of the co-investment relationship with the SA Group

4.4 Capital commitment

5. Financial impact on the KPL Group

5.1 Net assets value

5.2 Gearing

LETTER FROM COMMERZBANK AG

5.3 Working capital

OUR RECOMMENDATION

Helen Ho

1. RESPONSIBILITY STATEMENT

2. DIRECTORS’ DISCLOSURE OF INTERESTS

(i) The Company

(ii) Associated Corporations

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

3. DIRECTORS’ INTEREST IN CONTRACTS

4. SERVICE CONTRACTS

5. COMPETING INTERESTS

6. LITIGATION

7. EXPERTS

Name

Qualification

Kerry Properties Limited Proxy Solicitation & Information Statement 2006