Leadway Technology Investment Group Limited - Proxy Solicitation & Information Statement 2003

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

If you have sold all your shares in Tianjin Development Holdings Limited, you should at once hand this circular to the purchaser or to the bank or stockbroker or other agent through whom the sale was effected for transmission to the purchaser.

This circular does not constitute an offer or invitation to subscribe for or purchase any securities nor is it calculated to invite any such offer or invitation.

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(Incorporated in Hong Kong SAR with limited liability under the Hong Kong Companies Ordinance)

DISCLOSEABLE TRANSACTION IN RELATION TO THE SEPARATE LISTING OF

COASTAL RAPID TRANSIT COMPANY LIMITED ON THE MAIN BOARD OF THE STOCK EXCHANGE OF HONG KONG LIMITED PREFERENTIAL OFFER AND SHARE OPTION SCHEME OF COASTAL RAPID TRANSIT COMPANY LIMITED

AND

MAJOR TRANSACTION IN RELATION TO THE TRANSFER OF THE INCOME RECEIVING RIGHT OF THE EASTERN OUTER RING ROAD TO TEDA INVESTMENT COMPANY LIMITED

AND

PROPOSED CONNECTED TRANSACTION IN RELATION TO THE TERMINATION OF THE ROAD MANAGEMENT CONTRACTS OF THE EASTERN OUTER RING ROAD

Independent Financial Adviser to the Independent Board Committee

MANAGEMENT CAPITAL LIMITED

A letter from the Independent Board Committee is set out on page 33 of this circular. A letter from MCL, the independent financial adviser, containing its advice to the Independent Board Committee is set out on pages 34 to 45 of this circular.

A notice convening an Extraordinary General Meeting of Tianjin Development Holdings Limited to be held at 38th Floor, Function Room, Tianjin Building, 167 Connaught Road West, Hong Kong at 3: 00 p.m. on 29 December 2003 is set out on pages 60 to 61 of 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 the same to Tianjin Development Holdings Limited’s share registrar in Hong Kong, Tengis Limited at G/F, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the Extraordinary General Meeting or any adjournments thereof. Completion and return of the form of proxy will not preclude you from attending and voting at the Extraordinary General Meeting or any adjournments thereof should you so desire.

13 December 2003

EXPECTED TIMETABLE

2003

Latest time for lodging transfers of Tianjin Development Shares to qualify for the Preferential Offer (Note) . . . . . . . . . . . . . . . . . . . . . . . . 4: 00 p.m. on 23 December Register of members of the Company closes . . . . . . . . . . . . . . . . . from 9: 00 a.m. on 24 December to 4: 00 p.m. on 29 December Latest time for return of proxy forms in respect of the Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3: 00 p.m. on 27 December Record Date for determining the entitlement to the Preferential Offer (Note) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 December Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3: 00 p.m. on 29 December Register of members of the Company re-opens on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 December

Note: If the Spin-off does not occur by 29 March 2004, the Board may determine another date for closure of the register of members of the Company for the purpose of determination of entitlement to the Preferential Offer and further announcement will be made to inform Tianjin Development Shareholders in due course.

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	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
The Reorganisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
The Spin-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Preferential Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Share Option Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Closure of Register of Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
Non-Competition Undertaking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
Financial Effects of the Spin-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
The Proposed Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
The Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	33
Letter from MCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	34
Appendix I — Summary of the Principal Terms of the Share Option Scheme . . . . . . . . . .	46
Appendix II — General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	55
Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	60

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DEFINITIONS

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

‘‘Administrative Rules’’	the ‘‘Administrative Rules on the Exclusive Management of the Eastern
	Outer Ring Road’’ promulgated by the Tianjin Government on 13 November 1997
‘‘associate(s)’’	has the meaning ascribed to it in the Listing Rules
‘‘Basic Operating Income’’	the incentive determined and paid by the Tianjin Government to Tianjin
	Jinzheng Transportation Company pursuant to the Administrative Rules
‘‘Board’’	board of Directors of the Company
‘‘CCASS’’	the Central Clearing and Settlement System established and operated by
	Hongkong Clearing
‘‘CITIC Capital’’ or	CITIC Capital Markets Limited, a licensed intermediary under the SFO
‘‘Sponsor’’	licensed to carry on Types 1, 4, 5, 6 and 9 regulated activities and the
	sponsor in relation to the Spin-off
‘‘CMB’’	China Merchants Bank
‘‘CMD’’	China Mass Transit Development Co., Ltd., a company incorporated in the
	British Virgin Islands on 2 December 1996 with limited liability and a
‘‘Coastal Rapid’’	wholly-owned subsidiary of Golden Horse Coastal Rapid Transit Company Limited ( ), an
	exempted company incorporated in the Cayman Islands on 14 January
	2003 with limited liability which is currently wholly-owned by the Company
‘‘Coastal Rapid Board’’	board of directors of Coastal Rapid
‘‘Coastal Rapid Group’’	Coastal Rapid and its subsidiaries at the time of the Spin-off
‘‘Coastal Rapid Shares’’	ordinary shares of HK$0.10 each in the share capital of Coastal Rapid
‘‘Company’’	Tianjin Development Holdings Limited, a company incorporated in Hong
	Kong with limited liability, the shares of which are listed on the Stock
	Exchange and which is the controlling shareholder of Coastal Rapid
‘‘Completion’’	the completion of the Proposed Transfer
‘‘Directors’’	the directors of the Company
‘‘Dynamic Infrastructure’’	Dynamic Infrastructure Limited, a company incorporated in the British
	Virgin Islands on 12 June 2002 with limited liability and a wholly-owned
	subsidiary of the Company as at the date of this circular
‘‘Eastern Outer Ring Road’’	the 42.5 km long eastern section of the outer ring road of Tianjin between
	the junction with Yixingbu Road and the junction with Jinjing Road

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DEFINITIONS

‘‘Eastern Outer Ring Road Tianjin Eastern Outer Ring Road Co., Ltd. ( ), a Company’’ State-owned limited liability company established under the laws of the PRC and a wholly-owned subsidiary of Tianjin Engineering Bureau
‘‘Eastern Outer Ring Road the agreement dated 20 August 2003 entered into between Tianjin Jinzheng Toll Collection Transportation Company and the Toll Collection Office pursuant to which Agreement’’ the former appointed the latter to implement a centralised toll collection and payment system for the Eastern Outer Ring Road
‘‘Extraordinary General the extraordinary general meeting of the Company to be held on 29 Meeting’’ December 2003, notice of which is set out on pages 60 to 61 of this circular
‘‘Golden Horse’’ Golden Horse Resources Limited, a company incorporated in the British Virgin Islands on 12 February 2002 with limited liability and a whollyowned subsidiary of Coastal Rapid
‘‘Group’’ the Tianjin Development Group inclusive of the Coastal Rapid Group ‘‘HK$’’ Hong Kong dollars, the lawful currency of Hong Kong ‘‘Hongkong Clearing’’ Hong Kong Securities Clearing Company Limited
‘‘Hong Kong’’ Hong Kong Special Administrative Region of the PRC
‘‘Hong Kong GAAP’’ Generally Accepted Accounting Principles in Hong Kong, the accounting principles generally accepted and adopted by the Hong Kong Society of the Accountants
‘‘Income Receiving Right’’ the right of Tianjin Jinzheng Transportation Company to receive the Basic Operating Income pursuant to the Administrative Rules from the completion of the Proposed Transfer to October 2027
‘‘Independent Board the independent committee of the Board consisting of Mr. Kwong Che Committee’’ Keung, Gordon, Mr. Lau Wai Kit and Dr. Cheng Hon Kwan
‘‘Issue Price’’ the final price per Coastal Rapid Share fixed at a HK$ amount (exclusive of brokerage, SFC transaction levy and Stock Exchange trading fee) at which the Coastal Rapid Shares are to be subscribed for and issued pursuant to the Share Offer, as described in the prospectus to be issued by Coastal Rapid in relation thereto
‘‘Jinbin Expressway’’ the Jinbin Expressway connecting the Tianjin City and the New Coastal Area in the Tianjin Municipality
‘‘Latest Practicable Date’’ 10 December 2003, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
‘‘Letter of Intent’’ the non-legally binding letter of intent in respect of the Proposed Transfer dated 18 October 2002 between Tianjin Jinzheng Transportation Company as transferor and TEDA Investment Co. as transferee

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DEFINITIONS

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||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|‘‘Listing|Agreement’’|the|listing|agreement|entered|into|between|the|Stock|Exchange|and|the|
|Company|
|‘‘Listing|Committee’’|the|listing|committee|of|the|Stock|Exchange|
|‘‘Listing|Date’’|the|date|on|which|dealings|in|Coastal|Rapid|Shares|first|commence|on|the|
|Stock|Exchange|
|‘‘Listing|Rules’’|the|Rules|Governing|the|Listing|of|Securities|on|the|Stock|Exchange|
|‘‘Loan’’|a|bank|loan|in|an|amount|of|RMB850|million|(equivalent|to|approximately|
|HK$801.38|million)|granted|by|CMB|to|Tianjin|Jinzheng|Transportation|
|Company|on|16|August|1999|and|repayable|to|the|Tianjin|branch|of|CMB|
|pursuant|to|an|assignment|of|debt|between,|amongst|others,|CMB|and|the|
|Tianjin|branch|of|CMB|dated|30|November|2000|
|‘‘MCL’’|Management|Capital|Limited,|a|deemed|licensed|corporation|under|the|SFO|
|and|the|independent|financial|adviser|to|the|Independent|Board|Committee|
|in|respect|of|the|Spin-off|
|‘‘MTD|Group’’|Tianjin|Mass|Transit|(Group)|Development|Co.,|Ltd.|
|(|),|Tianjin|Mass|Transit|Development|2|Co.,|
|Ltd. (|), Tianjin Mass Transit Development 3 Co.,|
|Ltd. (|), Tianjin Mass Transit Development 4 Co.,|
|Ltd. (|), Tianjin Mass Transit Development 5 Co.,|
|Ltd.|(|),|each|a|Sino-foreign|equity|joint|venture|
|established|under|the|laws|of|the|PRC|on|16|April|1997|
|‘‘New|Coastal|Area’’|a|key|development|area|in|Tianjin|comprising|six|zones|namely|Tianjin|
|Economic|and|Technological|Development|Area,|the|Tianjin|Port,|the|
|Tianjin|Port|Free|Trade|Zone,|the|Tanggu|District,|Hangu|District|and|
|Dagang|District|and|part|of|the|Dongli|and|Jinnan|District|
|‘‘Over-allotment|Option’’|the|option|granted|by|Coastal|Rapid|to|CITIC|Capital,|on|behalf|of|the|
|underwriters,|under|the|underwriting|agreement|relating|to|the|Spin-off|
|pursuant|to|which|Coastal|Rapid|may|be|required|by|CITIC|Capital|to|allot|
|and issue up to 46,650,000 additional Coastal Rapid Shares at the Issue Price|
|to|cover|over-allocations|in|the|Placing|
|‘‘Overseas|Shareholders’’|holders|of|Tianjin|Development|Shares|whose|addresses|on|the|register|of|
|members|of|the|Company|were|outside|Hong|Kong|at|5: 00|p.m.|on|the|
|Record|Date|
|‘‘Phase|I|of|the|Tang|Jin|Phase I of the Tang Jin section of the Shan Guang Highway which has a total|
|Expressway’’|length|of|3,000|km|and|runs|from|Shanghaiguan|to|Guangzhou|
|‘‘PRC’’|the|People’s|Republic|of|China,|but|for|the|purpose|of|this|circular|and|for|
|geographical|reference|only,|does|not|apply|to|Hong|Kong,|the|Macau|
|Special|Administrative|Region|and|Taiwan|

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DEFINITIONS

‘‘Preferential Offer’’	the proposed preferential offer to the Qualifying Shareholders for
	subscription of the Reserved Shares at the Issue Price, on and subject to
	the terms and conditions as described in the prospectus to be issued by
	Coastal Rapid, the details of which are set out in the paragraph headed
	‘‘Preferential Offer’’ below
‘‘Proposed Transfer’’	the proposed transfer of the Income Receiving Right from Tianjin Jinzheng
	Transportation Company to TEDA Investment Co. pursuant to the Letter of
	Intent
‘‘Qualifying Shareholders’’	holders of Tianjin Development Shares, whose names appear on the register
	of members of the Company at 5: 00 p.m. on the Record Date, other than
	Overseas Shareholders
‘‘Record Date’’	29 December 2003, being the record date for ascertaining entitlements of
	Qualifying Shareholders for Reserved Shares under the Preferential Offer, or
	such later date as the Board may determine if the Spin-off does not occur by
	29 March 2004
‘‘Registrar’’	share registrar of the Company, Tengis Limited of G/F, Bank of East Asia
	Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong
‘‘Reorganisation’’	the corporate reorganisation which the Group will undergo in preparation for
	the listing of Coastal Rapid, the details of which are set out in the paragraph
	headed ‘‘Reorganisation — (1) The Reorganisation’’ below
‘‘Reserved Shares’’	an initial amount of 14,000,000 Coastal Rapid Shares, subject to adjustment,
	being offered pursuant to the Preferential Offer
‘‘RMB’’	Renminbi, the lawful currency of the PRC
‘‘Road Business’’	the construction, development, operation, management of and toll collection
	on toll roads and toll expressways and related businesses
‘‘Segregated Land’’	the land use rights of 4.2 hectares of land situated east of Youyi Road, south
	of Binshui Road, Hexi district and west of Yuexiu Road granted to Tianjin
	Jinzheng Transportation Company pursuant to the State-owned Land Use
	Rights contract dated 14 January 2002 entered into between The Planning
	and Land Resources Bureau of Tianjin Municipality*
	( ) and Tianjin Jinzheng Transportation Company
‘‘SFC’’	the Securities and Futures Commission of Hong Kong
‘‘SFO’’	the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong
	Kong)
‘‘Share Offer’’	the offering of Coastal Rapid Shares under the Spin-off as described in the
	prospectus to be issued by Coastal Rapid

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DEFINITIONS

‘‘Share Option Scheme’’ the share option scheme proposed to be conditionally adopted by Coastal Rapid, the principal terms of which are summarised in Appendix I to this circular
‘‘Spin-off’’ the proposed spin-off and separate listing of the Coastal Rapid Shares on the main board of the Stock Exchange
‘‘Starwell’’ Starwell Holdings Limited, a company incorporated in the British Virgin Islands on 20 August 1996 with limited liability
‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited
‘‘subsidiaries’’ has the meaning as provided in section 2 of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong)
‘‘substantial shareholder’’ has the same meaning ascribed to it in the Listing Rules
‘‘Tang Jin Group’’ 14 Sino-foreign co-operative joint ventures established under the laws of the PRC on 31 December 1997 which collectively have the right in which the Company has a 6.62% interest to construct, operate and manage Phase I of the Tang Jin Expressway
‘‘Team Resources’’ Team Resources Limited, a company incorporated in the British Virgin Islands on 12 August 1998 with limited liability and a wholly-owned subsidiary of the Company as at the date of this circular
‘‘TEDA Administrative the Tianjin Economic-Technological Development Area Administrative Commission’’ Commission ( ), which is an agency of the Tianjin Government responsible for the overall administration of the Tianjin Economic and Technological Development Area on behalf of the Tianjin Government
‘‘TEDA Investment Co.’’
TEDA Investment Holding Co., Ltd. ( ), a Stateowned enterprise incorporated in the PRC under the supervision of the TEDA Administrative Commission which is independent of and not connected with any of the Directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or their respective associates
‘‘Termination’’ the termination of the Road Management Contracts
‘‘Termination Agreement’’ an agreement to be entered into between Tianjin Jinzheng Transportation Company and Eastern Outer Ring Road Company to terminate the Road Management Contracts
‘‘Tianjin City’’ the city of Tianjin, PRC
‘‘Tianjin Development the Company and its subsidiaries (excluding the Coastal Rapid Group) Group’’

— 5 —

DEFINITIONS

‘‘Tianjin Development shareholders of the Company Shareholders’’
‘‘Tianjin Development shares of HK$0.10 each in the share capital of the Company Shares’’

‘‘Tianjin Engineering the Engineering Bureau of the Tianjin Municipality ( ) Bureau’’ ‘‘Tianjin Finance Bureau’’ the Finance Bureau of the Tianjin Municipality ( ) ‘‘Tianjin Gangjin’’ Tianjin Gangjin Real Estate Development Co., Ltd. ( ), a Sino-foreign co-operative joint venture to be established under the laws of the PRC ‘‘Tianjin Government’’ the People’s Government of the Tianjin Municipality ( ) ‘‘Tianjin Jinzheng Tianjin Jin Zheng Transportation Development Co., Ltd. Transportation ( ), a Sino-foreign co-operative joint venture Company’’ established under the laws of the PRC on 25 October 1997, owned as to 83.9308% by the Company and as to 16.0692% by Eastern Outer Ring Road Company ‘‘Tianjin Municipality’’ the municipality of Tianjin, PRC ‘‘Toll Collection Office’’ Tianjin City Indebted Road Construction Vehicle Toll Collection Office ( ) ‘‘Toll Reimbursement’’ the payment received by Tianjin Jinzheng Transportation Company from the Toll Collection Office pursuant to the Eastern Outer Ring Road Toll Collection Agreement ‘‘Tsinlien’’ Tsinlien Group Company Limited, a company incorporated in Hong Kong on 19 October 1979 with limited liability and controlled by the Tianjin Government, the ultimate holding company of the Company ‘‘US$’’ US dollars, the lawful currency of the United States of America

Unless otherwise specified in this circular, amounts denominated in RMB have been translated (for information only) into HK$ at an exchange rate of RMB1 to HK$0.9428 and amounts denominated in US$ have been translated (for information only) into HK$ at an exchange rate of US$1 to HK$7.8. No representation is made that any amounts in RMB or HK$ could have been or could be converted at such a rate or at any other rates or at all.

For identification only

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LETTER FROM THE BOARD

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TIANJIN DEVELOPMENT HOLDINGS LIMITED

(Incorporated in Hong Kong SAR with limited liability under the Hong Kong Companies Ordinance)

Directors:

Mr. Wang Guanghao (Chairman)

Mr. Zhou Sichun (Vice Chairman)

Mr. Yu Rumin (Vice Chairman)

Mr. Chen Zihe

Dr. Zhang Hongru

Registered Office:

26th–38th Floor Tianjin Building 167 Connaught Road West Hong Kong

Dr. Wang Jiandong

Mr. He Xiuheng

Mr. Yang Liheng
Mr. Sun Zengyin
Mr. Pang Jinhua
Mr. Ye Disheng*
Mr. Kwong Che Keung, Gordon**
Mr. Cheung Wing Yui**
Mr. Lau Wai Kit**
Dr. Cheng Hon Kwan**
Non-executive Directors
** Independent non-executive Directors

13 December 2003

To the Tianjin Development Shareholders

Dear Sir or Madam,

DISCLOSEABLE TRANSACTION IN RELATION TO THE SEPARATE LISTING OF

COASTAL RAPID TRANSIT COMPANY LIMITED ON

THE MAIN BOARD OF THE STOCK EXCHANGE OF HONG KONG LIMITED PREFERENTIAL OFFER AND SHARE OPTION SCHEME OF COASTAL RAPID TRANSIT COMPANY LIMITED

AND

MAJOR TRANSACTION

IN RELATION TO THE TRANSFER OF THE INCOME RECEIVING RIGHT OF THE EASTERN OUTER RING ROAD TO TEDA INVESTMENT COMPANY LIMITED

AND

PROPOSED CONNECTED TRANSACTION IN RELATION TO THE TERMINATION OF THE ROAD MANAGEMENT CONTRACTS OF THE EASTERN OUTER RING ROAD

INTRODUCTION

The Board announced on 17 January 2003 that Coastal Rapid had made an application to the Stock Exchange for the separate listing of the Coastal Rapid Shares thereon. The Group has been engaged in the Road Business since 1997. Prior to the separate listing of Coastal Rapid, a group reorganisation will be

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LETTER FROM THE BOARD

implemented whereby the Company will consolidate all of its Road Business into Coastal Rapid Group. Upon the separate listing of Coastal Rapid, the business of the Coastal Rapid Group is distinct from that of the Tianjin Development Group which mainly engages in (i) infrastructure operations, (ii) consumer products operations and (iii) strategic investments. Infrastructure operations consist of container handling operations and stevedoring operations; consumer products operations consist of the production, sale and distribution of winery products and dairy products; and strategic investments include investments in Wah Sang Gas Holdings Limited, OTIS Elevator (China) Investment Company Limited, property development and bio-pharmaceuticals. The Company shall enter into a non-competition deed with Coastal Rapid which is conditional upon the listing of the Coastal Rapid Shares on the Stock Exchange. For details, please refer to the paragraph headed ‘‘Non-Competition Undertaking’’ below.

It is proposed that new Coastal Rapid Shares will be issued pursuant to the Spin-off. The Spin-off, if it proceeds, will constitute a discloseable transaction for the Company under Chapter 14 of the Listing Rules.

Coastal Rapid Group would be a ‘‘major subsidiary’’ of the Company as defined under the Listing Agreement as either the consolidated net tangible asset value or the pre-tax trading profits of Coastal Rapid are expected to represent more than 15% of those of the Group and the Spin-off, if it proceeds, will constitute a material dilution of the Company’s interest in Coastal Rapid Group. As such, the Spin-off is subject to the approval of the Tianjin Development Shareholders pursuant to paragraph 3(e) of Practice Note 15 to the Listing Rules. The controlling shareholder of the Company, Tsinlien, is not required to abstain from voting as its interest as a shareholder in the Company is in all respects identical with those of the other shareholders of the Company as a general body. The Directors confirm that the Company complies with all of the spin-off requirements under Practice Note 15 to the Listing Rules.

Assuming that the Over-allotment Option is not exercised, the Company will hold approximately 56.92% of the enlarged total issued share capital of Coastal Rapid immediately following completion of the Spin-off.

In connection with the Spin-off, the Preferential Offer will be offered to Qualifying Shareholders (other than Tsinlien and Dr. Wang Jiandong which/who has indicated that it/he will not take up its/his entitlements under the Preferential Offer) and Coastal Rapid will adopt the Share Option Scheme. Tianjin Development Shareholders’ approvals are required for the Spin-off and the Share Option Scheme. MCL has been appointed as the independent financial adviser to the Independent Board Committee in respect of the Spin-off.

On 12 December 2003, the Directors announced that Tianjin Jinzheng Transportation Company has entered into a non-legally binding Letter of Intent with TEDA Investment Co. on 18 October 2002, pursuant to which Tianjin Jinzheng Transportation Company agreed to transfer the Income Receiving Right to TEDA Investment Co. for a consideration of RMB750 million (equivalent to approximately HK$707 million) upon Completion.

TEDA Investment Co. is a State-owned enterprise incorporated in the PRC under the supervision of the TEDA Administrative Commission. TEDA Investment Co. is independent of and not connected with any of the Directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or their respective associates.

— 8 —

LETTER FROM THE BOARD

Road. RMB30 million and RMB20 million (equivalent to approximately HK$28 million and HK$19 million) have already been settled by Tianjin Jinzheng Transportation Company itself in February 2003 and November 2003 respectively. For the avoidance of doubt, after the repayment of RMB750 million (equivalent to approximately HK$707 million) by TEDA Investment Co., the outstanding amount of RMB50 million (equivalent to approximately HK$47 million) together with all the obligations under the Loan will continue to be borne by Tianjin Jinzheng Transportation Company.

The terms and conditions of the Proposed Transfer have been negotiated on an arm’s length basis and are on normal commercial terms. The Directors consider that the terms of the Proposed Transfer are fair and reasonable and are in the interests of the Company and the Tianjin Development Shareholders taken as a whole. The Proposed Transfer constitutes a major transaction for the Company under Chapter 14 of the Listing Rules. The Proposed Transfer has, in accordance with Rule 14.10 of the Listing Rules, been approved by Tsinlien, who is the controlling shareholder of the Company and has no special interest in the Proposed Transfer and holds more than 50% of the Tianjin Development Shares giving the right to attend and vote at such general meeting. As such, no extraordinary general meeting will be necessary to approve the Proposed Transfer.

The Directors announced that Tianjin Jinzheng Transportation Company and Eastern Outer Ring Road Company proposed to enter into the Termination Agreement. The Termination Agreement is expected to be signed before the Spin-off of the Coastal Rapid Shares on the Stock Exchange. As Eastern Outer Ring Road Company owns 16.0692% of Tianjin Jinzheng Transportation Company, it is a connected person of the Company and the entering into of the Termination Agreement will constitute a connected transaction for the Company under Chapter 14 of the Listing Rules.

The Directors consider that the terms of the Termination are fair and reasonable so far as the Tianjin Development Shareholders are concerned and the Termination was negotiated on an arm’s length basis and was arrived at on normal commercial terms. Since the consideration for the Termination is less than 3% of the consolidated net tangible asset value of the Company as specified in Chapter 14 of the Listing Rules, the Company is only required under Rule 14.25(1) of the Listing Rules to disclose by way of the press announcement dated 12 December 2003 and the inclusion of the information in relation to the Termination in the next published annual report and accounts of the Company.

The purposes of this circular are (1) to provide Tianjin Development Shareholders with information on the reasons for and the benefits of the Spin-off and such other information relating to the Spin-off as required by the Listing Rules for a discloseable transaction of the Company, the Preferential Offer and the Share Option Scheme; (2) to seek Tianjin Development Shareholders’ approval for the Spin-off and the Share Option Scheme; (3) provide Tianjin Development Shareholders with information on the Proposed Transfer and the Termination; (4) to set out the letter of advice from MCL to the Independent Board Committee; (5) to set out the letter from the Independent Board Committee to the Tianjin Development Shareholders; and (6) to give notice to Tianjin Development Shareholders of the Extraordinary General Meeting at which resolutions will be proposed to approve the Spin-off and the Share Option Scheme.

THE REORGANISATION

(1) The Reorganisation

In preparation for the separate listing of the Coastal Rapid Shares on the Stock Exchange, the Group will implement the Reorganisation.

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LETTER FROM THE BOARD

As part of the Reorganisation, Coastal Rapid was incorporated by the Company in the Cayman Islands on 14 January 2003. Following the incorporation of Coastal Rapid, a number of reorganisation steps will be taken to transfer the Road Business companies within the Group to Coastal Rapid in preparation for the separate listing of Coastal Rapid Shares and to effect a rationalisation of the Group structure. The objective of the Reorganisation was to establish Coastal Rapid as the holding company for the Tianjin Development Group’s interests in the Road Business companies within the Tianjin Development Group. Other than the approvals required in relation to the de-merger agreement and the transfer of the Segregated Land, the PRC legal advisers to Coastal Rapid confirmed that the only regulatory authority approval in the PRC required for the Reorganisation and the Spin-off was the approval of the Tianjin Government, which was granted on 3 January 2003. The PRC legal advisers to Coastal Rapid have advised that completion of the de-merger arrangement will not take effect until six to eight months after the listing of the Coastal Rapid Shares. Pursuant to the Reorganisation, the Tianjin Development Group’s interests in the Eastern Outer Ring Road and Phase I of the Tang Jin Expressway, will be transferred to the Coastal Rapid Group.

The Reorganisation will involve the followings:

As at the date of incorporation of Coastal Rapid, one subscriber share of HK$1.00 was allotted and issued to the Company for cash at par value.
The Company transferred its entire interests in Eastern Outer Ring Road and Phase I of the Tang Jin Expressway to Dynamic Infrastructure, currently a wholly-owned subsidiary of the Company, pursuant to the following agreements:
i. an agreement dated 18 November 2002 (as supplemented by a supplemental agreement dated 30 December 2002) entered into among the Company, Dynamic Infrastructure and Eastern Outer Ring Road Company, pursuant to which, the Company transferred its entire interest representing approximately 83.9308% interest in Tianjin Jinzheng Transportation Company, whose assets comprise the Eastern Outer Ring Road and the Segregated Land (Note 1), to Dynamic Infrastructure and, in return, Dynamic Infrastructure allotted and issued one share of US$1.00 in Dynamic Infrastructure to the Company credited as fully paid; and
ii. an instrument of transfer dated 13 March 2003 entered into between the Company and Dynamic Infrastructure, pursuant to which, the Company transferred 1 share of US$1.00 representing its entire beneficial interest in and the entire issued share capital of, Team Resources, the asset of which mainly comprised a 6.62% interest in Phase I of the Tang Jin Expressway, to Dynamic Infrastructure, and in return, Dynamic Infrastructure allotted and issued one share of US$1.00 in Dynamic Infrastructure to the Company credited as fully paid.

Immediately after completion of the agreements referred to in paragraph (2) above, Dynamic Infrastructure shall hold approximately 83.9308% interest in the Eastern Outer Ring Road and 6.62% interest in Phase I of the Tang Jin Expressway through its respective shareholdings in Tianjin Jinzheng Transportation Company and Team Resources and the Company retains its interest in these toll roads through its wholly-owned subsidiary, Dynamic Infrastructure.

On a date to be decided and before the Spin-off of the Coastal Rapid Shares, a de-merger agreement will be entered into between Tianjin Jinzheng Transportation Company and Tianjin Gangjin, pursuant to which the land use rights in respect of the Segregated Land, originally wholly-owned by Tianjin Jinzheng Transportation Company, will be segregated from the assets of Tianjin Jinzheng Transportation Company and will be injected into Tianjin Gangjin, a PRC

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LETTER FROM THE BOARD

company to be incorporated by the existing shareholders of Tianjin Jinzheng Transportation Company, namely, Dynamic Infrastructure and Eastern Outer Ring Road Company. Dynamic Infrastructure and Eastern Outer Ring Road Company will hold approximately 83.9308% and 16.0692% interest respectively in Tianjin Gangjin.
On a date to be decided and before the Spin-off of the Coastal Rapid Shares, an agreement will be entered into among Dynamic Infrastructure, the Company and Eastern Outer Ring Road Company, pursuant to which Dynamic Infrastructure will transfer its approximately 83.9308% interest in Tianjin Gangjin, the asset of which will mainly comprise the Segregated Land, to the Company for a consideration of RMB309.612 million, which will be set off against a special dividend in the amount of RMB309.612 million to be declared by Dynamic Infrastructure to the Company. Tianjin Gangjin will be owned as to approximately 83.9308% by the Company and as to approximately 16.0692% by Eastern Outer Ring Road Company and will become an associate of Coastal Rapid upon completion of the Reorganisation.
On a date to be decided and before the Spin-off of the Coastal Rapid Shares, Dynamic Infrastructure will allot and issue two shares of US$1.00 each in Dynamic Infrastructure to the Company credited as fully paid in consideration of RMB405,735,000 (equivalent to approximately HK$382,527,000).
On a date to be decided and before the Spin-off of the Coastal Rapid Shares, an agreement will be entered into between the Company and Coastal Rapid, pursuant to which Coastal Rapid will acquire from the Company the entire equity interest in Dynamic Infrastructure and as consideration for the acquisition, Coastal Rapid will allot and issue 531,999,990 Coastal Rapid Shares to the Company credited as fully paid.
On a date to be decided and before the Spin-off of the Coastal Rapid Shares, the Company will convert the Preference Shares (as defined below in Note 2) into ordinary shares of Golden Horse, representing 40% of the enlarged issued share capital of Golden Horse.
On a date to be decided and before the Spin-off of the Coastal Rapid Shares, an agreement will be entered into between Coastal Rapid as purchaser and the Company and Starwell as vendors, pursuant to which Coastal Rapid will acquire from the Company and Starwell 4,000 shares of US$1.00 each (Note 2) and 6,000 shares of US$1.00 each in Golden Horse respectively, representing the entire equity interest in Golden Horse, an intermediate holding company for the 60% interest in Jinbin Expressway, and as consideration for the acquisition, Coastal Rapid will allot and issue 123,200,000 Coastal Rapid Shares and 184,800,000 Coastal Rapid Shares to the Company and Starwell respectively credited as fully paid.

Immediately after the completion of the agreements referred to in paragraphs 6, 7 and 8 above, both Dynamic Infrastructure and Golden Horse will become wholly-owned subsidiaries of Coastal Rapid and the Company and Starwell will hold 655,200,000 Coastal Rapid Shares and 184,800,000 Coastal Rapid Shares respectively, representing 78% and 22% of the issued share capital of Coastal Rapid.

Dynamic Infrastructure was incorporated in the British Virgin Islands under the International Business Companies Act with limited liability on 12 June 2002 by the Company. It is an intermediate holding company for the Company for the purposes of holding the Eastern Outer Ring Road and Phase I of the Tang Jin Expressway.

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LETTER FROM THE BOARD

Tianjin Jinzheng Transportation Company was established as a Sino-foreign co-operative joint venture enterprise under the laws of the PRC on 25 October 1997 by the Company and Eastern Outer Ring Road Company. As Eastern Outer Ring Road Company owns 16.0692% of Tianjin Jizheng Transportation Company, it is a connected person of the Company. As at the date of this circular, Tianjin Jinzheng Transportation Company was owned as to approximately 83.9308% by Dynamic Infrastructure and as to approximately 16.0692% by Eastern Outer Ring Road Company, a State-owned limited liability company established under the laws of the PRC and a wholly-owned subsidiary of the Tianjin Engineering Bureau. The assets of Tianjin Jinzheng Transportation Company comprise the Eastern Outer Ring Road and the Segregated Land prior to the entering into of the de-merger agreement described in paragraph 3 above.

Team Resources was incorporated in the British Virgin Islands under the International Business Companies Act with limited liability on 12 August 1998 by the Company and was 100% owned by the Company. The asset of Team Resources mainly comprises an approximate 6.62% interest in Phase I of the Tang Jin Expressway through 14 Sino-foreign cooperative joint ventures, the Tang Jin Group (Note 3).

Golden Horse was incorporated in the British Virgin Islands with limited liability under the International Business Companies Act on 12 February 2002 by Starwell. Starwell and its subsidiaries are beneficially owned as to 95% by the Wu Family 2003 Trust for the benefit of the eligible beneficiaries, namely Wu Xiao Hua, Ng Hiu Kwong, Ng Mau Mau and such persons as shall be appointed as an additional member(s) of the class of eligible capital beneficiaries, and as to the remaining 5% by Almighty Assets Limited which is beneficially owned by Chu Tin Chi, Chan Tai Keung, Frederick and Tong Yee Ming, who are all employees of Starwell. Starwell and its ultimate beneficial owners are independent of and not connected with any of the directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or their respective associates. As at the date of this circular, Starwell held the entire issued ordinary share capital of Golden Horse and the Company held 4,000 Preference Shares in Golden Horse. Golden Horse is an investment holding company of CMD, its wholly-owned subsidiary.

CMD, a wholly-owned subsidiary of Golden Horse, was incorporated in the British Virgin Islands with limited liability under the International Business Companies Act on 2 December 1996 and is an investment holding company whose asset mainly comprises a 60% interest in Jinbin Expressway, which commenced operations in May 2001, through 5 Sino-foreign equity joint ventures, together forming the MTD Group (Note 4).

Notes:

Pursuant to the State-owned Land Use Rights contract dated 14 January 2002 entered into between The Planning and Land Resources Bureau of Tianjin Municipality* ( ) and Tianjin Jinzheng Transportation Company, Tianjin Jinzheng Transportation Company was granted the land use rights of 4.2 hectares of land situated east of Youyi Road, south of Binshui Road, Hexi district and west of Yuexiu Road (the ‘‘Segregated Land’’) for commercial use granted under land use rights for a consideration of RMB368,890,000. Tianjin Jinzheng Transportation Company has the right to transfer, lease, mortgage or use the Segregated Land for other economic activities within the specified land use rights period, which is fifty (50) years from the date of issuance of the State-owned Land Use Right Certificate. Tianjin Jinzheng Transportation Company obtained the relevant State-owned Land Use Rights Certificate on 13 May 2002.
Pursuant to an agreement dated 22 March 2002, the Company acquired from Starwell 4,000 non-voting convertible redeemable preference shares in Golden Horse (the ‘‘Preference Shares’’) at a consideration of US$20,000,000 (equivalent to approximately HK$156,000,000). Other than the Preference Shares, Golden Horse has no outstanding options or securities convertible into shares of Golden Horse as at the Latest Practicable Date. Although Golden Horse and its subsidiaries incurred losses for the three years ended 31 December 2002 and six months ended 30 June 2003, the Tianjin Government put great emphasis on the future development of the Tianjin Port and the New Coastal Area. The Directors believe that the anticipated expansion of the New Coastal Area and future economic growth of Tianjin will result in an increased demand for road infrastructure within the Tianjin City as well as between the Tianjin City and the
For identification only

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LETTER FROM THE BOARD

New Coastal Area. The Directors accordingly believe that this development will add to the future potentials of the Jinbin Expressway and therefore the acquisition of Golden Horse and its subsidiaries will allow the Tianjin Development Group to capitalise on such growth.

Tang Jin Group was formed by 14 Sino-foreign co-operative joint ventures under the laws of the PRC and is owned as to approximately 6.62% by Team Resources, as to approximately 33.38% by Tianjin Highway Construction Development Corporation, a State-owned enterprise established under the laws of the PRC, and as to approximately 60% by a whollyowned subsidiary of New World Infrastructure Limited, a company incorporated in the Cayman Islands with limited liability, the shares of which are listed on the Stock Exchange. New World Infrastructure Limited is an independent third party not connected with the Directors, chief executive or substantial shareholders of the Company or its subsidiaries or any of their respective associates. Tang Jin Group collectively has the right to construct, operate and manage Phase I of the Tang Jin Expressway.
MTD Group was formed by 5 Sino-foreign equity joint ventures established under the laws of the PRC and is owned as to approximately 60% by CMD and as to approximately 40% by Tianjin Economic and Technological Development Investment Co., Ltd. ( ), a State-owned enterprise which is under the supervision of the TEDA State Assets Management Bureau. TEDA State Assets Management Bureau does not involve in the management and daily operation of Tianjin Economic and Technological Development Investment Co., Ltd.

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LETTER FROM THE BOARD

(2) Corporate Structure

(i) Business and corporate structure of the Company prior to the Reorganisation:

==> picture [410 x 495] intentionally omitted <==

Notes:

(a) Results of the Tang Jin Group are accounted for by the Tianjin Development Group on the basis of dividends received and receivable.
(b) The Company holds approximately 83.9308% of the registered capital of Tianjin Jinzheng Transportation Company while it is entitled to share 86.6794% of the results of Tianjin Jinzheng Transportation Company. Thus, results of Tianjin Jinzheng Transportation Company are accounted for by the Tianjin Development Group at 86.6794% in the Tianjin Development Group’s consolidated income statement.

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LETTER FROM THE BOARD

(ii) Business and corporate structure of the Company upon completion of the Reorganisation but before the Spin-off of the Coastal Rapid Shares:

==> picture [415 x 502] intentionally omitted <==

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LETTER FROM THE BOARD

(iii) Proposed structure of Coastal Rapid immediately upon completion of the Reorganisation and before the Spin-off of the Coastal Rapid Shares on the Stock Exchange:

==> picture [342 x 228] intentionally omitted <==

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

The Company Starwell
78% 22%
Coastal Rapid
100% 100%
Dynamic Infrastructure Golden Horse
100%
83.9308% 100%
CMD
Tianjin Jinzheng
Team Resources
Transportation Company 60%
100% 6.62%
MTD Group
Eastern Outer Ring Road Tang Jin Group
100%
100%
Jinbin Expressway
Phase I of Tang Jin
Expressway
----- End of picture text -----

THE SPIN-OFF

(1) The Spin-off

The exact structure of the Spin-off will be decided by the Directors but at present it is expected to be effected by way of offering new Coastal Rapid Shares to the public in Hong Kong, placing new Coastal Rapid Shares to institutional and professional investors and offering new Coastal Rapid Shares to Qualifying Shareholders under the Preferential Offer and will be accompanied by a separate listing of Coastal Rapid Shares on the main board of the Stock Exchange.

Pursuant to the Spin-off, a new issue of Coastal Rapid Shares representing approximately 27.02% or 29.86% (if the Over-allotment Option is exercised) of the enlarged issued share capital of Coastal Rapid will be offered under the Share Offer. The Coastal Rapid Shares will rank pari passu in all respects with the other Coastal Rapid Shares then in issue.

The Spin-off, if made, is conditional on:

(i) the Tianjin Development Shareholders giving approval to the Spin-off (Tsinlien, the controlling shareholder of the Company, is not required to abstain from voting because it has no special interest in the Spin-off);
(ii) the Listing Committee granting listing of, and permission to deal in, Coastal Rapid Shares in issue and to be issued as part of the Spin-off; and
(iii) the underwriting agreement relating to the Spin-off having been executed and the obligations of the underwriters under the underwriting agreement becoming unconditional and not being terminated in accordance with the terms of such agreement or otherwise.

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LETTER FROM THE BOARD

The Spin-off will not proceed if the above conditions are not satisfied, whereupon an announcement will be made.

(2) Separate Listing of Coastal Rapid Shares

The Tianjin Development Shares will continue to be listed on the Stock Exchange after the implementation of the Spin-off. The Spin-off of the Coastal Rapid Shares on the Stock Exchange is conditional upon the conditions stated in paragraph (1) above.

An application has been made to the Stock Exchange on 17 January 2003 for the listing of and permission to deal in the Coastal Rapid Shares in issue and any new Coastal Rapid Shares to be issued pursuant to the Spin-off as set out in the prospectus to be issued by Coastal Rapid in due course and any new Coastal Rapid Shares that may be issued pursuant to the exercise of options under the Share Option Scheme. The Directors confirm that the Company complies with all of the spin-off requirements under Practice Note 15 to the Listing Rules.

Subject to the granting of the listing of, and permission to deal in, Coastal Rapid Shares on the main board of the Stock Exchange as well as compliance with the stock admission requirements of Hongkong Clearing, the Coastal Rapid Shares will be accepted as eligible securities by Hongkong Clearing for deposit, clearance and settlement in CCASS with effect from the Listing Date or such other date as may be determined by Hongkong Clearing. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

(3) Business of the Coastal Rapid Group

In anticipation of the Spin-off, the Group will undergo the Reorganisation involving, inter alia, the transfer of the Road Business that will be carried out by the Tianjin Development Group to the Coastal Rapid Group. Upon completion of the Spin-off, the Company will become Coastal Rapid’s controlling shareholder, holding approximately 56.92% of its enlarged issued share capital (assuming that the Overallotment Option is not exercised).

The principal operations of the Tianjin Development Group can be categorised into three sectors, namely, (i) infrastructure operations, (ii) consumer products operations and (iii) strategic investments. Infrastructure operations consist of container handling operations, stevedoring operations and road operations; consumer products operations consist of the production, sale and distribution of winery products and dairy products; and strategic investments include investments in Wah Sang Gas Holdings Limited, OTIS Elevator (China) Investment Company Limited, property development and bio-pharmaceuticals. The Company shall enter into a non-competition deed with Coastal Rapid which is conditional upon the Listing of the Coastal Rapid Shares on the Stock Exchange. For details, please refer to the section headed ‘‘NonCompetition Undertaking’’ below.

Upon completion of the Reorganisation, the Coastal Rapid Group will be principally engaged in the construction, operation and development of toll roads and related business in Tianjin of the PRC. The Coastal Rapid Group will operate and receive tolls from the Toll Collection Office in respect of the Eastern Outer Ring Road and will operate and collect tolls on the Jinbin Expressway in Tianjin. Upon completion of the Reorganisation, the Coastal Rapid Group will also have a 6.62% interest in the Tang Jin Group which operates and collects tolls on the Tang Jin Expressway.

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LETTER FROM THE BOARD

The audited profit before taxation of the Coastal Rapid Group excluding Golden Horse and its subsidiaries for each of the three years ended 31 December 2002 and six months ended 30 June 2003 were approximately RMB75,801,000 (equivalent to approximately HK$71,465,000), RMB65,321,000 (equivalent to approximately HK$61,585,000) and RMB99,119,000 (equivalent to approximately HK$93,449,000) and RMB73,211,000 (equivalent to approximately HK$69,023,000), respectively and the audited profit after taxation and minority interests of the Coastal Rapid Group excluding Golden Horse and its subsidiaries for the same periods were approximately RMB64,706,000 (equivalent to approximately HK$61,005,000), RMB53,043,000 (equivalent to approximately HK$50,009,000), RMB78,585,000 (equivalent to approximately HK$74,090,000) and RMB57,150,000 (equivalent to approximately HK$53,881,000), respectively. The audited net assets value of the Coastal Rapid Group excluding Golden Horse and its subsidiaries as at 31 December 2000, 31 December 2001, 31 December 2002 and 30 June 2003 were approximately RMB1,032,695,000 (equivalent to approximately HK$973,625,000), RMB1,085,738,000 (equivalent to approximately HK$1,023,634,000), RMB1,014,907,000 (equivalent to approximately HK$956,854,000) and RMB1,072,057,000 (equivalent to approximately HK$1,010,735,000), respectively.

The audited loss before minority interests of Golden Horse and its subsidiaries for each of the three years ended 31 December 2002 and six months ended 30 June 2003 were approximately RMB424,000 (equivalent to approximately HK$400,000), RMB44,388,000 (equivalent to approximately HK$41,849,000), RMB64,450,000 (equivalent to approximately HK$60,763,000) and RMB26,986,000 (equivalent to approximately HK$25,442,000), respectively and the loss after minority interests of Golden Horse and its subsidiaries for the same periods were approximately RMB253,000 (equivalent to approximately HK$239,000), RMB26,635,000 (equivalent to approximately HK$25,111,000), RMB38,672,000 (equivalent to approximately HK$36,460,000) and RMB16,192,000 (equivalent to approximately HK$15,266,000), respectively. The audited net (liabilities)/assets value of Golden Horse and its subsidiaries as at 31 December 2000, 31 December 2001, 31 December 2002 and 30 June 2003 were approximately RMB(1,181,000) (equivalent to approximately HK$(1,113,000)), RMB(27,816,000) (equivalent to approximately HK$(26,225,000)), RMB82,557,000 (equivalent to approximately HK$77,835,000) and RMB66,365,000 (equivalent to approximately HK$62,569,000), respectively. Upon the corporate reorganisation of Golden Horse and its subsidiaries, the net assets value of Golden Horse and its subsidiaries will be increased by RMB423,138,000 (equivalent to approximately HK$398,935,000) to RMB489,503,000 (equivalent to approximately HK$461,503,000).

The unaudited adjusted proforma consolidated profit before taxation of the Tianjin Development Group (excluding the audited profit before taxation of the Coastal Rapid Group) for each of the three years ended 31 December 2002 and six months ended 30 June 2003 were approximately HK$190,262,000, HK$219,858,000, HK$235,758,000 and HK$154,419,000, respectively and the unaudited adjusted proforma consolidated profit after taxation and minority interests of the Tianjin Development Group (excluding the audited profit after taxation and minority interests of the Coastal Rapid Group) for the same periods were approximately HK$90,133,000, HK$123,828,000, HK$111,749,000 and HK$72,475,000, respectively. The unaudited adjusted proforma consolidated net assets value of the Tianjin Development Group (excluding the audited net assets value of the Coastal Rapid Group) as at 31 December 2000, 31 December 2001, 31 December 2002 and 30 June 2003 were approximately HK$2,082,582,000, approximately HK$2,323,301,000, approximately HK$2,573,168,000 and approximately HK$2,627,127,000, respectively.

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LETTER FROM THE BOARD

(4) Intended use of proceeds

Coastal Rapid intends to use the proceeds from the Spin-off for the following purposes:

. if Coastal Rapid proceeds to acquire equity interest(s) in toll road projects in the Huabei coastal area, up to HK$188 million (assuming the Over-allotment Option is not exercised) or HK$218 million (assuming the Over-allotment Option is fully exercised) may be used to finance the cost of such acquisition(s);
. up to HK$54 million (assuming the Over-allotment Option is not exercised) or HK$63 million (assuming the Over-allotment Option is fully exercised) may be used to improve Coastal Rapid’s existing toll roads so as to enhance their quality and efficiency by installing computerised toll collection system and setting up more road signs beside the toll roads; and
. the balance of HK$27 million (assuming the Over-allotment Option is not exercised) or HK$32 million (assuming the Over-allotment Option is fully exercised) is expected to be used as general working capital of Coastal Rapid and for other general purposes.

Pending such uses, the directors of Coastal Rapid intend to place the net proceeds on short-term interest-bearing deposit with financial institutions in the PRC and/or Hong Kong. Please note that the above figures are subject to finalisation by the directors of Coastal Rapid. Please refer to further announcement of the Company and the prospectus of Coastal Rapid for further details.

Further announcement will be issued by Coastal Rapid in the event that there is a material change in the use of proceeds.

(5) Reasons for and benefits of the Spin-off

The Board believes that the Share Offer will bring a number of benefits to both the Company and Coastal Rapid. The Company will be able to realise the value of its investments in the Road Business, return value to its shareholders in the form of more liquid securities, as well as allow the Company to focus on developing its other core businesses.

The benefits of the Share Offer to Coastal Rapid include:

. achieving its valuation potential as investors can invest directly into the road development, operation and management businesses of the Tianjin Development Group and allowing Coastal Rapid to establish its own shareholder base;
. being able to build its identity as an independent listed group which will facilitate its access to equity and debt markets to fund its existing operations as well as future expansion;
. attracting strategic investors who can produce synergy for Coastal Rapid in future business ventures;
. enhancing the transparency of the performance of Coastal Rapid’s businesses given the different characteristics of Coastal Rapid’s businesses from those of the Tianjin Development Group. By virtue of the information to be set out in its prospectus and the continuing disclosure obligations that Coastal Rapid will be subject to upon listing, detailed financial and business information about Coastal Rapid will become available to the public. Further, the Spin-off of Coastal Rapid

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LETTER FROM THE BOARD

will provide the investing public with financial data that is separately compiled from that of the Company, allowing a better understanding and analysis of Coastal Rapid as a separate and distinct commercial entity;

. providing incentives for the management and staff of Coastal Rapid to develop its businesses by making the performance of the business operations more transparent and linking part of management’s remuneration to Coastal Rapid’s performance through Coastal Rapid’s own share option scheme;
. enabling the management team of Coastal Rapid to be more focused on its business, enhancing the decision-making process and its responsiveness to market changes; and
. improving the ability of Coastal Rapid to attract and retain highly qualified professionals in its businesses by providing Coastal Rapid with a higher profile. The listing of Coastal Rapid will highly improve the liquidity of the Coastal Rapid Shares when compared to shares of private companies. The adoption of the Share Option Scheme will provide incentives for highly qualified professionals to join Coastal Rapid. Further, information on a listed company and its activities are readily available to the public, and are often reported in the media. The Directors believe that such higher profile will allow Coastal Rapid to attract highly qualified professionals.

(6) Effects of the Spin-off

(i) Shareholding structure after the Reorganisation but prior to the Spin-off

The shareholding structure of Coastal Rapid after the Reorganisation but prior to the Spin-off is set out as follows:

==> picture [286 x 99] intentionally omitted <==

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

The Company Starwell
78% 22%
Coastal Rapid
----- End of picture text -----

(ii) Proposed shareholding structure

The shareholding structure of Coastal Rapid immediately following completion of the Spin-off (assuming that the Over-allotment Option is not exercised) is set out as follows:

The Company		Starwell		Public Investors (Notes 1 and 2)
Coastal Rapid 56.92% 27.02% 16.06%

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LETTER FROM THE BOARD

Notes:

Of the 27.02%, approximately 1.22% of the total issued share capital of Coastal Rapid will be held by Qualifying Shareholders, assuming that all the Qualifying Shareholders take up their entitlements under the Preferential Offer and the Over-allotment Option is not exercised.
Assuming the Over-allotment Option is exercised in full, the Coastal Rapid Shares to be offered under the Share Offer will represent approximately 29.86% of the enlarged issued share capital of Coastal Rapid and the Company’s interest in the enlarged issued share capital of Coastal Rapid will be approximately 54.71%.

(iii) Hong Kong taxation and stamp duty

Under current legislation, the implementation of the Spin-off is, of itself, not expected to have any adverse Hong Kong tax consequence for the Tianjin Development Shareholders, except that those persons who are treated for tax purposes as securities dealers may be subject to profits tax in respect of any gain resulting from the dealings in the Coastal Rapid Shares pursuant to the Spin-off.

Dealings in the Coastal Rapid Shares registered on Coastal Rapid’s Hong Kong branch register of members will be subject to Hong Kong stamp duty.

(iv) General

Tianjin Development Shareholders are recommended to consult their professional advisers if they are in any doubt as to the taxation implications of the Spin-off. It is emphasized that none of the Company, Coastal Rapid or their respective professional advisers or any other parties involved in the Spin-off or their respective directors will accept any responsibility for any tax effect on, or liabilities of, the Tianjin Development Shareholders.

PREFERENTIAL OFFER

Subject to the Stock Exchange granting listing of, and permission to deal in, the Coastal Rapid Shares on the Stock Exchange, 14,000,000 Reserved Shares will be available for subscription by Qualifying Shareholders at the Issue Price under the Preferential Offer. Qualifying Shareholders will be invited to participate in the Spin-off by applying the Reserved Shares and will be entitled to subscribe on an assured basis at the Issue Price two Reserved Shares for every whole multiple of 100 existing Tianjin Development Shares held by them at the Record Date. Any Qualifying Shareholder holding less than 100 Tianjin Development Shares will not be entitled to apply for the Reserved Shares on an assured basis. All Qualifying Shareholders may also apply for the excess of the Reserved Shares.. Any Reserved Shares not taken up by the Qualifying Shareholders will be made available first to satisfy excess applications for Reserved Shares from Qualifying Shareholders, then to the public under the terms and subject to the conditions of the Share Offer.

Tsinlien, the controlling shareholder of the Company, holds 385,482,000 Tianjin Development Shares and Dr. Wang Jiandong, an executive director of the Company, holds 450,000 Tianjin Development Shares. Each of Tsinlien and Dr. Wang Jiandong is entitled to subscribe for 7,709,640 Coastal Rapid Shares and 9,000 Coastal Rapid Shares respectively under the Preferential Offer. Each of Tsinlien and Dr. Wang Jiandong has indicated that it/he will not take up its/his entitlements under the Preferential Offer. On the basis of 684,849,256 Tianjin Development Shares in issue as at 10 December 2003, excluding the entitlements of Tsinlien and Dr. Wang Jiandong, the Reserved Shares initially available for excess application will be 8,021,654 Coastal Rapid Shares.

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LETTER FROM THE BOARD

A blue application form will be despatched to each Qualifying Shareholder. Qualifying Shareholders are permitted to apply for a number of Reserved Shares which is greater than, less than, or equal to, their assured entitlements under the Preferential Offer. Where a Qualifying Shareholder applies for a number of Reserved Shares greater than his or her assured entitlement, his or her assured entitlements will be satisfied in full, subject as mentioned above, but the excess portion of such application will only be met to the extent that there are sufficient available Reserved Shares resulting from other Qualifying Shareholders declining to take up some or all of their assured entitlements. CITIC Capital, on behalf of the placing underwriters, will allocate any assured entitlements not taken up by Qualifying Shareholders first to satisfy excess applications for Reserved Shares from Qualifying Shareholders on a fair and reasonable basis, and thereafter, at the discretion of CITIC Capital, to the Placing.

Tianjin Development Shareholders should note that the entitlements to Reserved Shares may represent Coastal Rapid Shares not in a multiple of a full board lot of 2,000 Coastal Rapid Shares, and dealings in odd lot Coastal Rapid Shares may be below their prevailing market price. Entitlements to Reserved Shares are not transferable and there will be no trading in nil paid entitlements on the Stock Exchange. Any Coastal Rapid Shares issued pursuant to the Preferential Offer shall be deemed fully paid, ranking pari passu in all respects with other Coastal Rapid Shares then in issue.

The number of Coastal Rapid Shares initially available under the Preferential Offer represent approximately 4.5% of the Share Offer and approximately 1.22% of the total enlarged issued share capital of Coastal Rapid assuming the Over-allotmen Option is not exercised.

A prospectus, together with the blue form, of Coastal Rapid containing, amongst other matters, details of the Preferential Offer will be despatched to the Qualifying Shareholders after the Extraordinary General Meeting.

SHARE OPTION SCHEME

Pursuant to the Share Option Scheme which is conditional on the Spin-off, the Coastal Rapid Board will be authorised to grant options to any employee (whether full time or part time and including proposed employee), any non-executive directors (including independent non-executive directors) of Coastal Rapid, any of its subsidiaries or any entity in which any member of the Coastal Rapid Group holds any equity interest (‘‘Invested Entity’’), any supplier of goods or services to any member of the Coastal Rapid Group or any Invested Entity, any customer of the Coastal Rapid Group or any Invested Entity, any shareholder of any member of the Coastal Rapid Group or any Invested Entity or any holder of any securities issued by any member of the Coastal Rapid Group or any Invested Entity and any other group or classes of participants from time to time determined by the directors of Coastal Rapid as having contributed or may contribute by way of joint ventures, business alliances or other business arrangements to the development and growth of the Coastal Rapid Group, to subscribe for Coastal Rapid Shares.

The Share Option Scheme is conditional upon (1) the passing of an ordinary resolution(s) approving the adoption of the Share Option Scheme by the shareholder(s) of Coastal Rapid and authorising the Coastal Rapid Board to grant options and to allot and issue the Coastal Rapid Shares pursuant to any options granted under the Share Option Scheme; (2) the approval of the Share Option Scheme by the Tianjin Development Shareholders in the Extraordinary General Meeting; (3) the Listing Committee granting approval of listing of and permission to deal in (a) any Coastal Rapid Shares in issue and to be issued as will be mentioned in the prospectus of Coastal Rapid; and (b) the Coastal Rapid Shares which may fall to be issued pursuant to the exercise of options under the Share Option Scheme; (4) the commencement of dealings in the Coastal Rapid Shares on the Stock Exchange; and (5) the obligations of the underwriters under the underwriting agreement becoming unconditional (including, if relevant, as a result of the waiver of any condition(s) by the underwriters) and not being terminated in accordance with the terms of such agreement or otherwise.

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LETTER FROM THE BOARD

The Share Option Scheme constitutes a share scheme governed by Chapter 17 of the Listing Rules and the adoption of such scheme is subject to the approval of the Tianjin Development Shareholders at the Extraordinary General Meeting. Please refer to Appendix I for a summary of the principal terms of the Share Option Scheme.

CLOSURE OF REGISTER OF MEMBERS

The register of members of the Company will be closed from 24 December 2003 to 29 December 2003 (or such later date(s) as the Board may determine and announce) for the purpose of determining the entitlement of Tianjin Development Shareholders to the Preferential Offer. No transfer of the Tianjin Development Shares may be registered on the days the register of members of the Company is closed. In order to qualify for the Preferential Offer, all transfers must be lodged with the Registrar by no later than 4: 00 p.m. on 23 December 2003 (or such later date as the Board may determine and announce). However, if the Spin-off does not occur by 29 March 2004, the Board may determine another date for closure of the register of members of the Company for the purpose of determination of entitlement to the Preferential Offer and further announcement will be made to inform Tianjin Development Shareholders in due course.

NON-COMPETITION UNDERTAKING

The Company shall, conditional upon the listing of Coastal Rapid Shares on the Stock Exchange, undertake to Coastal Rapid that the Tianjin Development Group will not engage in or control any business in the PRC that may directly or indirectly compete with the toll road business of the Coastal Rapid Group. In the event that the Tianjin Development Group encounters or is granted any business opportunity in the PRC that may compete directly or indirectly with the toll road business of the Coastal Rapid Group, the Company would immediately inform Coastal Rapid and would use its best endeavours to procure that such business opportunity is offered to the Coastal Rapid Group at terms no less favourable than those offered to the Tianjin Development Group. Such non-competition undertaking will be applicable to all projects in relation to toll roads, expressways, bridges and tunnels in the PRC. The deed will be effective from the date of the Spin-off of the Coastal Rapid Shares on the Stock Exchange until (i) the Company ceasing to be the controlling shareholder (as defined in the Listing Rules) of Coastal Rapid; or (ii) the Coastal Rapid Shares no longer being listed on the Stock Exchange; or (iii) Coastal Rapid no longer being principally engaged in the operation of toll road and related businesses, whichever is earliest.

Please note that the terms of the non-competition deed are subject to finalisation by the parties. The detailed terms of the non-competition deed will be set out in the prospectus of Coastal Rapid to be issued in due course.

FINANCIAL EFFECTS OF THE SPIN-OFF

Net Asset Value

On the basis of the unaudited adjusted proforma net tangible asset value of the Coastal Rapid Group including Golden Horse and its subsidiaries of approximately RMB2,502 million (or approximately HK$2,359 million) as at 30 June 2003, the Spin-off will result in a net increase in the unaudited adjusted proforma consolidated net asset value per Tianjin Development Share from HK$5.37 as at 30 June 2003 prior to the Spin-off to HK$5.64 (assuming that the Over-allotment Option is not exercised) upon completion of the Spin-off, based on 677,750,000 Tianjin Development Shares in issue as at 30 June 2003.

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LETTER FROM THE BOARD

Upon the completion of the capitalisation of amounts due to the Company, the details of which are set out in paragraph 5 of the section headed ‘‘The Reorganisation — (1) The Reorganisation’’, the net assets value of the Coastal Rapid Group including Golden Horse and its subsidiaries will be increased by RMB405,735,000 (equivalent to approximately HK$382,527,000). However, there is no impact on the net assets value of the Tianjin Development Group.

Earnings

Assuming that the Spin-off had been completed as at 1 January 2002, the unaudited adjusted proforma consolidated net profit attributable to the Tianjin Development Shareholders for the year ended 31 December 2002 would have increased by approximately RMB279 million (approximately HK$263 million) (assuming that the Over-allotment Option is not exercised) or approximately 39 cents per Tianjin Development Share calculated based on 677,750,000 Tianjin Development Shares were in issue as at 31 December 2002.

Price Earnings Multiple

As at the Latest Practicable Date, the price earnings multiple of the Company based on the audited result for the year ended 31 December 2002 was 13.68 times. Assuming that the Reorganisation had been completed as at 1 January 2002 but before gain on disposal of the Income Receiving Right, the pro-forma price earnings multiple of the Company as at the Latest Practicable Date would have been 20.14 times. Assuming that the Reorganisation had been completed as at 1 January 2002 and gain on disposal of Income Receiving Right, the pro-forma price earnings multiple of the Company as at the Latest Practicable Date would have been 5.66 times.

The Spin-off, if it proceeds, would constitute a discloseable transaction for the Company under Chapter 14 of the Listing Rules. Coastal Rapid Group would be a ‘‘major subsidiary’’ of the Company as defined under the Listing Rules and the Spin-off, if it proceeds, would constitute a material dilution of the Company’s interest in the Coastal Rapid Group. As such, the Spin-off is subject to the approval of Tianjin Development Shareholders pursuant to paragraph 3(e) of Practice Note 15 to the Listing Rules. The controlling shareholder of the Company, Tsinlien, is not required to abstain from voting as its interest as a shareholder in the Company is in all respects identical with those of the other shareholders of the Company as a general body. The Directors confirm that the Company complies with all of the spin-off requirements under Practice Note 15 to the Listing Rules.

THE PROPOSED TRANSFER

(1) The Letter of Intent

Date : 18 October 2002

Parties

Transferor : Tianjin Jinzheng Transportation Company Transferee : TEDA Investment Co.

Tianjin Jinzheng Transportation Company, a 83.9308% owned subsidiary of the Company, entered into a non-legally binding Letter of Intent with TEDA Investment Co. on 18 October 2002. Upon completion of the Spin-off, Tianjin Jinzheng Transportation Company will be owned as to 83.9308% by Dynamic Infrastructure which in turn will become a wholly-owned subsidiary of Coastal Rapid.

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LETTER FROM THE BOARD

Pursuant to the Letter of Intent, Tianjin Jinzheng Transportation Company agreed to transfer the Income Receiving Right to TEDA Investment Co. at a consideration of RMB750 million (equivalent to approximately HK$707 million) upon Completion. TEDA Investment Co. was chosen to be the transferee of the Proposed Transfer as it is one of the largest investment companies in Tianjin with strong financial background. Furthermore, Tianjin Jinzheng Transportation Company believes that it is difficult to identify other companies in Tianjin that could afford to pay such a huge consideration for the Proposed Transfer. For details of the conditions of the Proposed Transfer, please refer to the paragraph headed ‘‘(5) Conditions’’ below.

The contents of the Letter of Intent are subject to the final approval by the respective boards of directors of Tianjin Jinzheng Transportation Company and TEDA Investment Co. and the terms and conditions under the Letter of Intent shall become legally binding when the respective boards of directors of both Tianjin Jinzheng Transportation Company and TEDA Investment Co. have passed resolutions thereto. Resolution to approve the Letter of Intent and transfer of the Income Receiving Right was passed by the board of TEDA Investment Co. on 25 March 2003 and will be passed by the board of Tianjin Jinzheng Transportation Company on a date to be decided and before the Spin-off of the Coastal Rapid Shares.

TEDA Investment Co. is a State-owned enterprise incorporated in the PRC which is under the supervision of the TEDA Administrative Commission. TEDA Investment Co. is independent of and not connected with any of the directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or their respective associates. TEDA Administrative Commission does not involve in the management and daily operation of TEDA Investment Co.

(2) Information on Tianjin Jinzheng Transportation Company

Tianjin Jinzheng Transportation Company is a Sino-foreign co-operative joint venture enterprise established under the laws of the PRC on 25 October 1997 with registered capital of RMB1,104,596,200 (equivalent to approximately HK$1,041,413,297), and is owned as to 83.9308% by Dynamic Infrastructure and as to 16.0692% by Eastern Outer Ring Road Company.

Tianjin Jinzheng Transportation Company is principally engaged in the construction, operations, management and collection of tolls on the Eastern Outer Ring Road. Tianjin Jinzheng Transportation Company has been granted by the Tianjin Government the exclusive right to operate, manage and maintain the Eastern Outer Ring Road in Tianjin for a 30-year term commencing from 25 October 1997 pursuant to the Administrative Rules. The PRC legal advisers to Coastal Rapid have advised that all obligations of Tianjin Jinzheng Transportation Company relating to the Income Receiving Right will be discharged upon completion of the Proposed Transfer. No consideration was required for the grant by the Tianjin Government of the exclusive operating rights.

The Administrative Rules were promulgated by the Tianjin Government on 13 November 1997 to give effect to and to regulate the management of the Eastern Outer Ring Road by Tianjin Jinzheng Transportation Company. Under the Administrative Rules:

(i) Tianjin Jinzheng Transportation Company is granted by the Tianjin Government the exclusive right to operate, manage and maintain the Eastern Outer Ring Road in Tianjin and entitled to receive from the Tianjin Government the Basic Operating Income as per the Income Receiving Right for the period from fourth quarter of 1997 to October 2027; and
(ii) Tianjin Jinzheng Transportation Company shall be responsible for the road maintenance, road safety and road equipment of the Eastern Outer Ring Road.

— 25 —

LETTER FROM THE BOARD

Pursuant to the Administrative Rules, for the year ended 31 December 1997, the Basic Operating Income received by Tianjin Jinzheng Transportation Company pursuant to the Administrative Rules amounted to RMB110 million (equivalent to approximately HK$103 million) which was calculated in accordance with a formula set before the Administrative Rules were introduced. The Administrative Rules provide that the Basic Operating Income will be increased by not less than 20% every five years and will increase annually at: (i) the same rate as the total city road construction supplement charges or (ii) 2%, whichever is higher. For the year ended 31 December 2002, the Basic Operating Income received by Tianjin Jinzheng Transportation Company was RMB145 million (equivalent to approximately HK$137 million).

In 1999, Tianjin Jinzheng Transportation Company was also granted by the Tianjin Government the right to construct toll stations and to collect tolls on the Eastern Outer Ring Road from vehicle users for a period of 28 years commencing from November 1999 to October 2027.

On 30 May 2003, the Tianjin Government announced the implementation of new toll collection arrangements in Tianjin aimed at improving traffic efficiency in the municipality. The new arrangements came into effect on 1 June 2003 and the Toll Collection Office was established to centralise the collection of toll.

Under the Eastern Outer Ring Road Toll Collection Agreement, Tianjin Jinzheng Transportation Company and the Toll Collection Office agreed to implement a centralised toll collection and payment system for the Eastern Outer Ring Road in return for a Toll Reimbursement payable by the Toll Collection Office. Tianjin Jinzheng Transportation Company would record the traffic flow through the two existing toll stations on the Eastern Outer Ring Road and submit a traffic flow report setting out the traffic volume and types of vehicles travelling on the Eastern Outer Ring Road to the Toll Collection Office every Tuesday and Friday. Upon receipt of such traffic flow reports, the Toll Collection Office would pay the Toll Reimbursement by cheque to Tianjin Jinzheng Transportation Company on the same day. The Toll Reimbursement is calculated in accordance with the following formula:

Number of various types of vehicles travelling on the Eastern Outer Ring Road recorded by the two toll stations on the Eastern Outer Ring Road multiplied by the relevant toll rates multiplied by 40%

The toll rates applicable to the Eastern Outer Ring Road prior to the implementation of the new toll collection arrangement are the same as the rates used to calculate the Toll Reimbursement received from the Toll Collection Office.

The new toll collection arrangements did not affect Tianjin Jinzheng Transportation Company’s exclusive operating right in respect of the Eastern Outer Ring Road pursuant to the Administrative Rules nor its toll collection right and the toll collection permit. There has been no material impact on the cashflow of the Tianjin Development Group as a result of the implementation of the new toll arrangements.

— 26 —

LETTER FROM THE BOARD

The table below lists out the audited revenue of Tianjin Jinzheng Transportation Company under Hong Kong GAAP for the six years ended 31 December 2002:

Basic Operating Income Toll revenue Total	1997 HK$ million 103 Nil 103	Year ended 31 December 1998 1999 2000 HK$ million HK$ million HK$ million 105 108 110 Nil 13 91 105 121 201	2001 HK$ million 112 104 216	2002 HK$ million 137 124
				261

The table below lists out the road management fees and repairs and maintenance costs incurred by Tianjin Jinzheng Transportation Company in respect of the maintenance of the Eastern Outer Ring Road under Hong Kong GAAP for the six years ended 31 December 2002:

			Year ended 31 December	Year ended 31 December
	1997	1998	1999	2000	2001	2002
	HK$	HK$	HK$	HK$	HK$	HK$
	million	million	million	million	million	million
Road management fees	21	23	25	27	29	31
Repairs and maintenance
costs	Nil	Nil	Nil	Nil	20	8

Pursuant to the document (Jin Guo Shui Jing [2001] No.56) issued by the State Tax Bureau of the Tianjin Economic Technological Development Area, Tianjin Jinzheng Transportation Company is a production enterprise and is entitled to a preferential PRC enterprise income tax rate of 15%.

With the tax exemptions granted for the year 2001, the audited net profit before and after taxation of Tianjin Jinzheng Transportation Company under Hong Kong GAAP for the year ended 31 December 2001 were approximately RMB65 million (equivalent to approximately HK$62 million) and RMB66 million (equivalent to approximately HK$58 million). The audited net profit before and after taxation of Tianjin Jinzheng Transportation Company under Hong Kong GAAP for the year ended 31 December 2002 were approximately RMB99 million (equivalent to approximately HK$93 million) and RMB91 million (equivalent to approximately HK$86 million) respectively. The audited net asset value of Tianjin Jinzheng Transportation Company (including the Segregated Land) under Hong Kong GAAP as at 31 December 2002 was approximately RMB1,214 million (equivalent to approximately HK$1,145 million).

(3) Right to be transferred

Pursuant to the Letter of Intent, Tianjin Jinzheng Transportation Company has agreed to transfer and TEDA Investment Co. has agreed to accept the permanent transfer of the Income Receiving Right upon Completion and TEDA Investment Co. shall be entitled to receive the Basic Operating Income for the period from the date on which Completion takes place to October 2027.

Tianjin Jinzheng Transportation Company is obliged to obtain all necessary approvals and consents in relation to the Proposed Transfer contemplated under the Letter of Intent, and TEDA Investment Co. is obliged to pay the consideration within five working days after the conditions precedent have been fulfilled.

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LETTER FROM THE BOARD

Upon Completion, Tianjin Jinzheng Transportation Company continues to have the right to collect tolls on the Eastern Outer Ring Road until and inclusive of October 2027.

(4) Consideration

The consideration to be paid by TEDA Investment Co. for obtaining the Income Receiving Right is RMB750 million (equivalent to approximately HK$707 million), which was determined solely by arm’s length negotiation between Tianjin Jinzheng Transportation Company and TEDA Investment Co.. It was determined by reference to the net present value of the effective cash flow of the Income Receiving Right for the remainder of the operating term together with the reduction of interest expense at the rate of 6.138% per annum of Tianjin Jinzheng Transportation Company after the transfer of RMB750 million (equivalent to approximately HK$707 million) of the Loan arising from the Proposed Transfer.

The consideration in the amount of RMB750 million (equivalent to approximately HK$707 million) will be satisfied by TEDA Investment Co. assuming the obligation to repay RMB750 million (equivalent to approximately HK$707 million) in respect of an existing bank loan of RMB800 million (equivalent to approximately HK$755 million) owed by Tianjin Jinzheng Transportation Company to the Tianjin branch of CMB. The purpose of the Loan was to raise funds for the redevelopment works of the Eastern Outer Ring Road and the corporate guarantee was given by the Company and Eastern Outer Ring Road Company on a several basis in proportion to their profit sharing ratio in Tianjin Jinzheng Transportation Company to guarantee the Loan. The Company and Eastern Outer Ring Road did not get anything in return. RMB30 million and RMB20 million (equivalent to approximately HK$28 million and HK$19 million) have already been settled by Tianjin Jinzheng Transportation Company itself in February 2003 and November 2003 respectively. The main terms of the Loan are as follows:

Principal : RMB850 million Outstanding amount as at the Latest : RMB800 million Practicable Date Interest rate : 6.138% per annum Drawdown dates : 6 drawdowns were made on various dates from August 1999 to July 2000 Repayment date : By 6 instalments from February 2004 to January 2005

For the avoidance of doubt, after the repayment of RMB750 million (equivalent to approximately HK$707 million) by TEDA Investment Co., the outstanding amount of RMB50 million (equivalent to approximately HK$47 million) together with all the obligations under the Loan will continue to be borne by Tianjin Jinzheng Transportation Company. The corporate guarantee will be released following the repayment of all outstanding amount. It is the intention of the directors of Coastal Rapid that, after the repayment of RMB750 million (equivalent to approximately HK$707 million) by TEDA Investment Co., the outstanding amount of RMB50 million (equivalent to approximately HK$47 million) will be settled by fund from internal resources before the listing of the Coastal Rapid Shares on the Stock Exchange. Thus, the corporate guarantee given by the Company and Eastern Outer Ring Road Company will be released following the repayment of such outstanding amount and before the Spin-off of the Coastal Rapid Shares.

The terms and conditions of the Letter of Intent have been negotiated on an arm’s length basis and are on normal commercial terms. The Board considers that the terms are fair and reasonable, and are in the interests of Tianjin Development and the Tianjin Development Shareholders taken as a whole.

— 28 —

LETTER FROM THE BOARD

(5) Condition

The Proposed Transfer is subject to approval by the Tianjin Government and consents from the board of TEDA Investment Co. and the board of Tianjin Jinzheng Transportation Company. Pursuant to ‘‘the Approval in relation to the Transfer of Exclusive Right of the Eastern Outer Ring Road’’ (Document no.: Jin Zheng Han [2002] No.144) issued by the Tianjin Government, the Proposed Transfer was approved by the Tianjin Government on 19 December 2002. Resolution to approve the Letter of Intent and transfer of the Income Receiving Right was passed by the board of TEDA Investment Co. on 25 March 2003 and will be passed by the board of Tianjin Jinzheng Transportation on a date to be decided and before the Spin-off of the Coastal Rapid Shares.

In addition, the Letter of Intent is conditional upon the approval by the Stock Exchange of the listing of the Coastal Rapid Shares on the Stock Exchange and the approval by the Tianjin Development Shareholders. As the Proposed Transfer has, in accordance with Rule 14.10 of the Listing Rules, been approved by Tsinlien, who is the controlling shareholder of the Company and has no special interest in the Proposed Transfer and holds more than 50% of the Tianjin Development Shares giving the right to attend and vote at such general meeting, no extraordinary general meeting will be necessary to approve the Proposed Transfer.

Completion shall take place within 5 business days after the satisfaction of the condition as set out above.

(6) Reasons for the Proposed Transfer

The Proposed Transfer is conditional upon the Spin-off. If the Spin-off does not proceed, the Proposed Transfer will not take place.

Although the Proposed Transfer will result in Tianjin Jinzheng Transportation Company ceasing to receive the Basic Operating Income, the Directors believe that Tianjin Development Group will benefit from the Proposed Transfer as TEDA Investment Co. will take over RMB750 million (equivalent to approximately HK$707 million) of Tianjin Jinzheng Transportation Company’s bank loans from CMB, resulting in a reduction of Tianjin Jinzheng Transportation Company’s liabilities by RMB750 million (equivalent to approximately HK$707 million) as well as related borrowing expenses over the long run. Further, the consideration of RMB750 million (equivalent to approximately HK$707 million) net of taxation and minority interests of approximately RMB601 million (equivalent to approximately HK$567 million) will be recognised as the Tianjin Development Group’s income in the year of disposal, i.e., December 2003.

The Proposed Transfer will effectively reduce the gearing ratio and increase current cash flow of Tianjin Jinzheng Transportation Company. Further, by allowing Tianjin Jinzheng Transportation Company to have immediate access to future cash flow, the Directors believe that it will be more flexible for the Tianjin Development Group to plan and allocate its resources. However, such transfer will at the same time, result in the cessation of the Basic Operating Income as part of the revenue stream of Tianjin Jinzheng Transportation Company, and toll revenue will become the major revenue source of revenue for Tianjin Jinzheng Transportation Company. Overall, the Board considers that the Proposed Transfer is beneficial to Tianjin Jinzheng Transportation Company, the Company and the Tianjin Development Shareholders as a whole.

The Proposed Transfer constitutes a major transaction for the Company under Chapter 14 of the Listing Rules. The Proposed Transfer has, in accordance with Rule 14.10 of the Listing Rules, been approved by Tsinlien, who is the controlling shareholder of the Company and has no special interest in the

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LETTER FROM THE BOARD

Proposed Transfer and holds more than 50% of the Tianjin Development Shares giving the right to attend and vote at such general meeting. As such, no extraordinary general meeting will be necessary to approve the Proposed Transfer.

THE TERMINATION

(1) The Termination Agreement

Parties

Party A: Tianjin Jinzheng Transportation Company

Party B: Eastern Outer Ring Road Company

The Directors announced on 12 December 2003 that Tianjin Jinzheng Transportation Company and Eastern Outer Ring Road Company proposed to enter into the Termination Agreement. The Termination Agreement is expected to be signed before the Spin-off of the Coastal Rapid Shares on the Stock Exchange.

As Eastern Outer Ring Road Company owns 16.0692% of Tianjin Jinzheng Transportation Company, it is a connected person of the Company and the entering into the Termination Agreement will constitute a connected transaction for the Company under Chapter 14 of the Listing Rules.

(2) Termination of the Road Management Contracts

In view of the fact that the right to receive the Basic Operating Income will be transferred (for details, please refer to the section headed ‘‘The Proposed Transfer’’ above) and the fact that the Eastern Outer Ring Road Company’s major role was to collect the Basic Operating Income for Tianjin Jinzheng Transportation Company, Tianjin Jinzheng Transportation Company and Eastern Outer Ring Road Company will terminate the Road Management Contracts. Thereafter, Tianjin Jinzheng Transportation Company will resume overall responsibility for the operation, management, repair and maintenance, of the Eastern Outer Ring Road and the Directors do not anticipate there to be any operational difficulty or disruption arising from the Termination.

No compensation will be payable by Tianjin Jinzheng Transportation Company for early termination. The relevant Road Management Contracts provides for early termination in favour of Tianjin Jinzheng Transportation Company and hence Eastern Outer Ring Road Company will have no objection regarding the termination.

(3) Details of the Road Management Contracts

The day-to-day operations and management of the Eastern Outer Ring Road were originally carried out by Eastern Outer Ring Road Company under a road management contract with Tianjin Jinzheng Transportation Company dated 14 November 1997 under which Eastern Outer Ring Road Company was appointed to manage, operate, repair and maintain the Eastern Outer Ring Road and to collect the Basic Operating Income on behalf of Tianjin Jinzheng Transportation Company. The original term of the road management contract was for a period of 30 years expiring in year 2027 and the road management fees for the three years ended 31 December 2002 and six months ended 30 June 2003 were approximately RMB28,484,000 (equivalent to approximately HK$26,855,000), approximately RMB30,478,000 (equivalent to approximately HK$28,735,000), approximately RMB32,612,000 (equivalent to approximately HK$30,747,000) and approximately RMB17,447,000 (equivalent to approximately HK$16,449,000), respectively.

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LETTER FROM THE BOARD

Tianjin Jinzheng Transportation Company and Eastern Outer Ring Road Company subsequently entered into a supplemental agreement on 18 July 1999 to cater for the construction of toll stations and the redevelopment works of the Eastern Outer Ring Road. Thereafter, management of the toll stations and collection of tolls were undertaken by Tianjin Jinzheng Transportation Company itself while the role of Eastern Outer Ring Road Company in the overall management and operation of the road gradually decreased. Since December 1999 its major role was to collect the Basic Operating Income on behalf of Tianjin Jinzheng Transportation Company.

Details of the Road Management Contracts were previously disclosed as connected transactions in the prospectus of the Company dated 2 December 1997, in the circular of the Company dated 3 March 1999 and in the announcement of the Company dated 14 April 2000.

(4) Reasons for the Termination

The Directors are of the opinion that no additional cost will be incurred by Tianjin Jinzheng Transportation Company after the Termination of the Road Management Contracts as the Directors believe that the existing management of Tianjin Jinzheng Transportation Company has sufficient experience and is capable of efficiently managing and operating the Eastern Outer Ring Road. Therefore, the Directors are of the opinion that the impact of terminating the Road Management Contracts on Tianjin Jinzheng Transportation Company’s future operation and financial position would be minimal.

As Eastern Outer Ring Road Company owns 16.0692% of Tianjin Jinzheng Transportation Company, it is a connected person of the Company and the entering into of the Termination Agreement will constitute a connected transaction for the Company under Chapter 14 of the Listing Rules.

Since the consideration for the Termination is less than 3% of the consolidated net tangible asset value of the Company as specified in Chapter 14 of the Listing Rules, the Company is only required under Rule 14.25(1) of the Listing Rules to disclose by way of the press announcement dated 12 December 2003 and the inclusion of the information in relation to the Termination in the next published annual report and accounts of the Company. The inclusion of the information in relation to the Termination in this Circular is for the general information of the Tianjin Development Shareholders only.

EXTRAORDINARY GENERAL MEETING

A notice convening the Extraordinary General Meeting to be held at 38th Floor, Function Room, Tianjin Building, 167 Connaught Road West, Hong Kong on 29 December 2003 at 3: 00 p.m. is set out on pages 60 to 61 of this circular for the purpose of considering and, if thought fit, passing the ordinary resolution set out therein.

You will find enclosed with this circular a proxy form for use at the Extraordinary General Meeting. Whether or not you intend to attend such meeting, you are requested to complete and return the accompanying proxy form to the registered office of the Registrar, Tengis Limited at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for holding such meeting. Completion and return of the proxy form will not preclude you from attending and voting at the Extraordinary General Meeting.

— 31 —

LETTER FROM THE BOARD

RECOMMENDATIONS

Your attention is drawn to (i) the letter from the Independent Board Committee sets out on pages 33 of this circular which contains the recommendation from the Independent Board Committee to the Tianjin Development Shareholders concerning the Spin-off and (ii) the letter of advice from MCL set out on pages 34 to 45 of this circular which sets out its advice to the Independent Board Committee as to voting on the Spin-off, together with the factors it considered in arriving at its opinion. The Independent Board Committee, having taken into account the advice of MCL, consider that the Spin-off under the ordinary resolution is in the interests of the Company and Tianjin Development Shareholders and accordingly recommend Tianjin Development Shareholders to vote in favour of the ordinary resolution in relation to the Spin-off as set out in the Notice of Extraordinary General Meeting on pages 60 to 61 of this circular.

GENERAL

CITIC Capital has been appointed sponsor and global co-ordinator in respect of the Spin-off. The Board expects that a prospectus of Coastal Rapid containing, amongst other matters, details of the Preferential Offer will be despatched to the Qualifying Shareholders in due course.

ADDITIONAL INFORMATION

This circular is being distributed to the Tianjin Development Shareholders. This circular does not constitute an offer or invitation to subscribe for or purchase any securities nor is it calculated to invite any such offer or invitation. Neither this circular nor anything contained herein shall form the basis of any contract or commitment whatsoever. Further details of the business and financial information on Coastal Rapid Group will be set out in the prospectus of Coastal Rapid which will be available to, among others, Tianjin Development Shareholders in due course.

The Directors like to draw your attention to the ‘‘Letter from the Independent Board Committee’’, ‘‘Letter from MCL’’ and to the section headed ‘‘General information’’ set out in Appendix II to this circular for additional information.

Tianjin Development Shareholders should note that the Board may or may not proceed with the Spin-off in accordance with the terms set out above, or at all. A further announcement will be made as and when appropriate in respect of any material developments of the separate listing of Coastal Rapid Shares on the Stock Exchange and/or any material change on the information contained in this circular. The Board emphasises that the specific terms and timing of the Spin-off have yet to be finalised. The implementation of the Spin-off may require certain consents and approvals, including approval from the Stock Exchange and Tianjin Development Shareholders, and subject to any further conditions that may be imposed by the Stock Exchange. Such consents and approvals may or may not be obtained. Tianjin Development Shareholders are therefore reminded to exercise caution when dealing in the Tianjin Development Shares.

Yours faithfully, By Order of the Board Tianjin Development Holdings Limited Wang Guanghao Chairman

— 32 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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TIANJIN DEVELOPMENT HOLDINGS LIMITED

(Incorporated in Hong Kong SAR with limited liability under the Hong Kong Companies Ordinance)

13 December 2003

To shareholders of the Company

Dear Sir or Madam,

DISCLOSEABLE TRANSACTION IN RELATION TO THE SEPARATE LISTING OF COASTAL RAPID TRANSIT COMPANY LIMITED ON THE MAIN BOARD OF THE STOCK EXCHANGE OF HONG KONG LIMITED

We have been appointed as members of the Independent Board Committee to advise you in connection with the Spin-off, details of which are set out in the ‘‘Letter from the Board’’ in the circular dated 13 December 2003 (the ‘‘Circular’’), of which this letter forms part. Terms used in this letter shall have the same meanings as given to them in the Circular unless the context otherwise requires.

Your attention is also drawn to the ‘‘Letter from MCL’’ concerning its advice to us regarding the Spinoff as set out on pages 34 to 45 of this Circular. Having considered the advice given by MCL and the principal factors and reasons taken into consideration by them in arriving at its advice, we are of the opinion that the terms of the Spin-off are fair and reasonable so far as the Tianjin Development Shareholders are concerned and that the Spin-off is in the interests of the Company and the Tianjin Development Shareholders as a whole. We, therefore, recommend the Tianjin Development Shareholders to vote in favour of the ordinary resolution to be proposed at the Extraordinary General Meeting as set out in the notice convening such meeting on pages 60 to 61 of this Circular.

Yours faithfully, For and on behalf of the Independent Board Committee Mr. Kwong Che Keung, Gordon Mr. Lau Wai Kit Dr. Cheng Hon Kwan Independent Independent Independent non-executive Director non-executive Director non-executive Director

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LETTER FROM MCL

The following is the text of the letter of advice dated 13 December 2003 from Management Capital Limited to the Independent Board Committee in respect of the terms of the transaction contemplated thereunder prepared for the purposes of incorporation into this circular:

MANAGEMENT CAPITAL LIMITED

19th Floor St. George’s Building 2 Ice House Street Central Hong Kong

13 December 2003

The Independent Board Committee Tianjin Development Holdings Limited 26th–38th Floor Tianjin Building 167 Connaught Road West Hong Kong

Dear Sirs,

DISCLOSEABLE TRANSACTION IN RELATION TO THE SEPARATE LISTING OF COASTAL RAPID TRANSIT COMPANY LIMITED ON THE MAIN BOARD OF

THE STOCK EXCHANGE OF HONG KONG LIMITED PREFERENTIAL OFFER AND SHARE OPTION SCHEME OF COASTAL RAPID TRANSIT COMPANY LIMITED

We have been appointed to act as the independent financial adviser to the Independent Board Committee in connection with the proposed separate listing of the Company’s subsidiary, Coastal Rapid, on the Stock Exchange (the ‘‘Spin-off’’), the terms of which are set out in the Letter from the Board contained in the shareholders’ circular dated 13 December 2003 (the ‘‘Circular’’), of which this letter forms a part.

The Spin-off, if it proceeds, will constitute a discloseable transaction and will require the approval of Tianjin Development Shareholders under Practice Note 15 of the Listing Rules.

Management Capital Limited has been appointed to advise the Independent Board Committee, consisting of Mr. Kwong Che Keung, Gordon, Mr. Lau Wai Kit and Dr. Cheng Hon Kwan, as to whether the Spin-off is fair and reasonable so far as the Shareholders are concerned.

Management Capital Limited is independent from and not connected with the Company, any subsidiaries of the Company and their respective associates or parties acting in concert with any of them and is accordingly considered suitable to give independent advice.

Expressions used in this letter have the same meanings as defined in this Circular unless the context otherwise requires.

In formulating our recommendation, we have relied on the information and facts supplied, and the opinions expressed by the Company. We have also sought and received confirmation from the Directors that no material facts have been omitted from the information supplied and opinions expressed. We consider that

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LETTER FROM MCL

we have been provided with sufficient information for us to reach an informed view, and have no reason to doubt the truth or accuracy of the information provided. We have assumed that all information and representations made or referred to in the Circular to be true. We have not however conducted an independent investigation into the financial position and affairs of the Company and its subsidiaries.

The Directors have jointly and severally accepted full responsibility for the accuracy of the information contained in the Circular and have confirmed, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts not contained in the Circular the omission of which would make any statement in the Circular misleading.

THE SPIN-OFF

The exact structure of the Spin-off will be decided by the Directors but at present it is expected to be effected by way of an offering of new Coastal Rapid Shares to the public in Hong Kong, placing new Coastal Rapid Shares to institutional and professional investors and offering new Coastal Rapid Shares to Qualifying Shareholders under the Preferential Offer, and will be accompanied by the separate listing of Coastal Rapid Shares on the main board of the Stock Exchange. The Spin-off is expected to comprise the issue of new Coastal Rapid Shares representing approximately 27.02% or, if the Over-allotment Option is exercised, 29.86% of the enlarged issued share capital of Coastal Rapid to be offered under the Share Offer. The new Coastal Rapid Shares will rank pari passu with all other Coastal Rapid Shares then in issue.

The Spin-off, if it proceeds, would constitute a discloseable transaction for the Company under Chapter 14 of the Listing Rules. Coastal Rapid Group would be a ‘‘major subsidiary’’ of the Company as defined under the Listing Rules and the Spin-off, if it proceeds, would constitute a material dilution of the Company’s interest in the Coastal Rapid Group. As such, the Spin-off is subject to the approval of Tianjin Development Shareholders pursuant to paragraph 3(e) of Practice Note 15 to the Listing Rules. The controlling shareholder of the Company, Tsinlien Group Company Limited, is not required to abstain from voting as its interest as a shareholder in the Company is in all respects identical with those of the other shareholders of the Company as a general body.

In addition, the Spin-off, if made, is expected to be conditional, inter alia, upon:

. The Listing Committee granting the listing of, and permission to deal in, Coastal Rapid Shares in issue and to be issued as part of the Spin-off; and
. The underwriting agreement relating to the Spin-off having been executed and the obligations of the underwriters under the underwriting agreement becoming unconditional and not being terminated in accordance with the terms of such agreement or otherwise.

The Spin-off will not proceed if the above conditions are not satisfied, whereupon the Company will make a further announcement.

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LETTER FROM MCL

PRINCIPAL FACTORS CONSIDERED

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

(a) Reasons for and benefits of the Spin-off

As set out in the Letter from the Board in the Circular, the Board considers that the Spin-off will be beneficial for both the Company and Coastal Rapid for the following reasons:

. The Company will be able to realize the value of its investments in the Road Business, return value to its shareholders in the form of more liquid securities, as well as to allow the Company to focus on developing its other core businesses.
. Coastal Rapid, which will remain a subsidiary of the Tianjin Development Group, will benefit from the following,
. Achieving its valuation potential as investors can invest directly into the road development, operation and management businesses of the Tianjin Development Group and allowing Coastal Rapid to establish its own shareholder base;
. Being able to build its identity as an independent listed group which will facilitate its access to equity and debt markets to fund its existing operations as well as future expansion;
. Attracting strategic investors who can produce synergy for Coastal Rapid in future business ventures;
. Enhancing the transparency of the performance of Coastal Rapid Group’s businesses given the different characteristics of Coastal Rapid Group’s businesses from those of the Tianjin Development Group. By virtue of the information to be set out in its prospectus and the continuing disclosure obligations that Coastal Rapid will be subject to upon listing, detailed financial and business information about Coastal Rapid will become available to the public. Further, the Spin-off of Coastal Rapid will provide the investing public with financial data that is separately compiled from that of the Tianjin Development Group, allowing a better understanding and analysis of Coastal Rapid as a separate and distinct commercial entity;
. Providing incentives for the management and staff of Coastal Rapid to develop its businesses by making the performance of its business operations more transparent and providing the ability to link part of management’s remuneration to Coastal Rapid’s performance through Coastal Rapid’s own share option scheme;
. Enabling the management team of Coastal Rapid to be more focused on its business, enhancing the decision making process and its responsiveness to market changes; and
. Improving the ability of Coastal Rapid to attract and retain highly qualified professionals in its businesses by providing Coastal Rapid with a higher profile. The listing of Coastal Rapid will highly improve liquidity for Coastal Rapid Shares when compared to shares of private companies. The adoption of the Share Option Scheme will provide incentives for highly qualified professionals to join Coastal Rapid.

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LETTER FROM MCL

Further, information on a listed company and its activities are readily available to the public, and are often reported in the media. On this basis, the Directors believe that its higher profile will allow Coastal Rapid to attract highly qualified professionals.

The Board notes that Coastal Rapid intends to apply the proceeds from the Spin-off towards the following:

. If Coastal Rapid proceeds to acquire equity interest(s) in toll road projects in the Huabei coastal area, up to HK$188 million (if the Over-allotment Option is not exercised) or HK$218 million (if the Over-allotment Option is exercised) may be used to finance the cost of such acquisition(s);
. Up to HK$54 million (if the Over-allotment Option is not exercised) or HK$63 million (if the Over-allotment Option is exercised) may be used to improve Coastal Rapid’s existing toll roads so as to enhance their quality and efficiency by installing a computerized toll collection system and setting up more road signs beside the toll roads; and
. The balance of HK$27 million (if the Over-allotment Option is not exercised) or HK$32 million (if the Over-allotment Option is exercised) is expected to be used as general working capital of Coastal Rapid and for other general purposes.

Pending such uses, the directors of Coastal Rapid intend to place the net proceeds on short-term interest-bearing deposits with financial institutions in the PRC and/or Hong Kong. The Board notes that the amounts indicated above are subject to finalization by the directors of Coastal Rapid.

Based on the above, we consider there to be sound commercial and strategic reasons for the Proposed Spin-off.

(b) Group structure and non-compete arrangements

Prior to the separate listing of Coastal Rapid, a group reorganisation will be implemented whereby the Company will consolidate all of its Road Business into Coastal Rapid Group and effect a rationalisation of the Group structure. Details of the Reorganisation are set out in the Letter from the Board. As such, upon the separate listing of Coastal Rapid, the business of the Coastal Rapid Group will be distinct from that of the rest of Tianjin Development Group which mainly engages in (i) infrastructure operations, (ii) consumer products operations and (iii) strategic investments. Infrastructure operations consist of container handling operations, stevedoring operations and road operations; consumer products operations consist of the production, sale and distribution of winery products and dairy products; and strategic investments include investments in Wah Sang Gas Holdings Limited, OTIS Elevator (China) Investment Company Limited, property development and biopharmaceuticals.

Following completion of the Spin-off, Coastal Rapid will remain a subsidiary of the Company and will focus on the operation and management of toll roads and related businesses. In order to avoid competition with Coastal Rapid Group following the Spin-off, the Company shall, pursuant to a noncompetition deed which is conditional upon the listing of Coastal Rapid Shares on the Stock Exchange, undertake to Coastal Rapid that the Tianjin Development Group will not engage in or control any business in the PRC that may directly or indirectly compete with the toll road business of the Coastal Rapid Group. In the event that the Tianjin Development Group encounters or is granted any business opportunity in the PRC that may compete directly or indirectly with the toll road business of the Coastal Rapid Group, the Company would immediately inform Coastal Rapid and would use its

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LETTER FROM MCL

best endeavors to procure that such business opportunity is offered to the Coastal Rapid Group on terms no less favorable than those offered to the Tianjin Development Group. The terms of the noncompetition deed are subject to finalization by the parties. We note that such non-compete undertakings are common in transactions such as spin-offs to ensure that the interests of minority shareholders in each of the listed companies are protected.

(c) Value of the Share Offer

Set out below are valuation parameters for companies listed on the Stock Exchange which are principally engaged in toll road activities and the indicative valuation for Coastal Rapid.

Company Zhejiang Expressway Jiangsu Express Hopewell Infrastructure Shenzhen Expressway Anhui Expressway Road King Infrastructure Sichuan Expressway GZI Transport Yue Da Holding Average Average (excluding high and low) Average (for capitalization below HK$10 billion) Coastal Rapid	Price as at 10 December 2003(6) HK$ 4.975 3.675 4.225 2.525 2.525 5.65 1.25 2.35 0.47 At low end of the price range of HK$0.8 per offer share before Over-allotment Option is exercised At high end of the price range of HK$1.06 per offer share before Over-allotment Option is exercised	Capitalisation as at 10 December 2003(6) Price to net tangible asset value(1) HK$’ millions 21,607 2.36 18,514 1.56 12.168 1.81(5) 5,506 0.97 4,188 1.04 3,242 0.71 3,198 0.73 2,567 0.84(4) 94 0.35 1.15 1.10 0.77 921(10) 0.59(8) 1,220(10) 0.78(8)	Price earnings ratios(2) 25.7 23.0 16.9(3) 16.2 11.6 10.3 16.1 15.8(4) 9.2 16.1 15.7 13.2 24.47(9) 32.42(9)

— 38 —

LETTER FROM MCL

Notes:

(1) Based on unaudited net tangible asset value as at 30 June 2003 unless otherwise stated.
(2) Based on earnings per share from the audited accounts of the respective companies for the year ended 31 December 2002 unless otherwise stated.
(3) Based on audited accounts of the company for the year ended 30 June 2003 before its listing on the Stock Exchange.
(4) Based on audited accounts of the company for the period from 1 February 2002 (date of incorporation) to 31 December 2002.
(5) Based on the adjusted net tangible asset value of the company as disclosed in the prospectus of the company.
(6) Being the Latest Practicable Date.
(7) Assumes HK$1.00 = RMB1.06.
(8) Based on unaudited adjusted net tangible asset value of Coastal Rapid of approximately RMB1,657.7 million (or approximately HK$1,562.9 million) as at 30 June 2003 after Reorganisation but before gain on disposal of Income Receiving Right.
(9) Based on pro forma consolidated net profit attributable to Coastal Rapid Group for the year ended 30 December 2003.
(10) Based on initial capitalisation at the offer price.

Based on the comparables shown above, Coastal Rapid is expected to be listed at a price to unaudited adjusted net tangible assets after Reorganisation but before gain on disposal of Income Receiving Right as at 30 June 2003 of between 0.59 times to 0.78 times (at the high end of its price range). This is below the average for comparable companies of 1.1 times but, given its initial capitalisation of between HK$921 million to HK$1,220 million, its price to net tangible assets ratio is comparable to comparable sized companies shown above.

Looking at price earnings ratios, Coastal Rapid is expected to fetch a price earnings ratio of between 24.47 times to 32.42 times pro forma consolidated net earnings for financial year ended 31 December 2002 which is above the range for all the comparable companies noted above.

On this basis, we consider the valuation for the Spin-off to be fair and reasonable.

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LETTER FROM MCL

(d) Effects on the Tianjin Development Group

Interest in Coastal Rapid

The business and corporate structure of the Tianjin Development Group before and immediately after the Reorganisation is set out in the Letter from the Board.

The impact of the Spin-off upon the Company’s shareholding interest in Coastal Rapid Group may be illustrated as follows:

After the Reorganisation but before the Spin-off After Spin-off After full exercise of share options for entire 10% Share Option Scheme	Shareholding Before Over-allotment is exercised 78.0 56.9 51.7	interest (%) After Over-allotment is exercised 78.0 54.7 49.7

Note: Coastal Rapid Group’s Share Option Scheme provides that the total number of Coastal Rapid Shares which may be issued upon exercise of all options to be granted under the Share Option Scheme and any other share option schemes of Coastal Rapid Group (if any) must not in aggregate exceed 10% of the Coastal Rapid Shares in issue as at the date of approval of the Share Option Scheme.

As illustrated, the Tianjin Development Group’s shareholding interest will, except where the over-allotment is exercised and the 10% Share Option Scheme is fully issued and exercised, be maintained above 50% of the issued share capital of Coastal Rapid Group. The Share Option Scheme is contingent equity only at this stage as it is subject to, amongst other things, the scheme being approved by Tianjin Development Shareholders and for options to be issued and then exercised in accordance with its terms. At its maximum size, it has the potential to reduce Tianjin Development Group’s shareholding interest in Coastal Rapid to just below 50%. Tianjin Development Group is however not precluded from topping up its interest and, given the minimal percentage involved for it to maintain an interest of at least 50% plus one share, we consider the risk of dilution to below 50% to be minimal. In conclusion, the Coastal Rapid Group will remain a subsidiary of the Tianjin Development Group and the financial results of the Coastal Rapid Group will continue to be consolidated into the accounts of the Tianjin Development Group.

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LETTER FROM MCL

Net asset value

On the basis of the unaudited adjusted pro forma net tangible asset value of the Coastal Rapid Group as at 30 June 2003 of approximately RMB2,502 million (approximately HK$2,359 million) based on an offer price at the low end of the price range of HK$0.80 per offer share and approximately RMB2,588 million (approximately HK$2,440 million) based on an offer price at the high end of the price range of HK$1.06 per offer share, in each case, before Over-allotment Option is exercised, the Spin-off will result in a net increase in the unaudited adjusted pro forma consolidated net asset value per Tianjin Development Share as follows:

	Unaudited adjusted pro forma	Unaudited adjusted pro forma
	consolidated net	tangible asset value
	Before Over-allotment	After Over-allotment
	Option is exercised	Option is exercised
Before the Spin-off	HK$3,637.9 million	HK$3,637.9 million
(as at 30 June 2003)	or HK$5.37 per Tianjin	or HK$5.37 per Tianjin
	Development Share	Development Share
On completion of Spin-off (at low	HK$3,768.9 million or	HK$3,745.3 million or
end of the price range valuing	HK$5.56 per Tianjin	HK$5.53 per Tianjin
Coastal Rapid Group at	Development Share	Development Share
HK$0.8 per offer share)
On completion of Spin-off (at	HK$3,815.0 million or	HK$3,796.2 million or
high end of the price range	HK$5.64 per Tianjin	HK$5.60 per Tianjin
valuing Coastal Rapid Group at	Development Share	Development Share
HK$1.06 per offer share)

The following table describes the change in net tangible asset value of Coastal Rapid with respect to the effect from Reorganisation, disposal of Income Receiving Right and the Share Offer (at the low end of HK$0.80 per offer share of the price range of the Share Offer and before Over-allotment Option is exercised):

Audited combined net tangible assets of Coastal Rapid
as at 30 June 2003
Special dividend paid to Tianjin Development
Capitalisation of amounts due to Tianjin Development
Acquisition of the Golden Horse Group by issue of shares
Adjusted net tangible asset value of Coastal Rapid Group after
Reorganisation but before gain on disposal of the Income
Receiving Right
Gain on disposal of the Income Receiving Right
Estimated net proceeds from the Share Offer
Adjusted pro forma net tangible asset value of Coastal Rapid

(RMB million)
1,072.1
(309.6)
405.7
489.5
1,657.7
601.3
242.8
2,501.8

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LETTER FROM MCL

Although the issue of Coastal Rapid Shares under the Share Offer is at an expected price below its underlying net tangible asset value of approximately RMB1,657.7 million (approximately HK$1,563.9 million) after Reorganization but before the Spin-off and gain on disposal of the rights to receive Basic Operating Income, the Spin-off results in an increase in the unaudited adjusted pro forma consolidated net tangible asset value of Tianjin Development Shares as the gain on disposal of the rights to receive Basic Operating Income, which is not a tangible asset, is more than enough to compensate the decrease in the attributable net tangible asset value of Coastal Rapid Group to Tianjin Development Group. On this basis, we are of the view that Tianjin Development Group and, indirectly, its shareholders, will benefit from such improvement in the net tangible asset backing of the Group as a result of the Spin-off.

Earnings

Assuming that the Spin-off and Reorganisation had been completed as at 1 January 2002, the unaudited adjusted pro forma consolidated net profit attributable to the Tianjin Development Shareholders for the year ended 31 December 2002 would have been changed as follows:

	Pro forma	consolidated
	net profit of
	Tianjin Development (HK$)
	Before	After
	Over-allotment	Over-allotment
	Option is	Option is
	exercised	exercised
Audited consolidated net profit as at 31 December
2002 (A)	185,839,000	185,839,000
Unaudited adjusted pro forma consolidated net
profit after the Reorganisation but before gain
on disposal of Income Receiving Right (B)	126,183,271	125,348,959
Change (B-A)	(59,655,729)	(60,490,041)
Unaudited adjusted pro forma consolidated net
profit after the Reorganisation and gain on
disposal of Income Receiving Right (C)	448,909,031	435,505,627
Change (C-A)	263,070,031	249,666,627

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LETTER FROM MCL

Audited consolidated net profit per share as
at 31 December 2002 (a)
Unaudited adjusted pro forma consolidated
net profit per Tianjin Development Share
after the Reorganisation but before gain on
disposal of Income Receiving Right (b)
Change (b–a)
Unaudited adjusted pro forma consolidated
net profit per Tianjin Development Share
after the Reorganisation and gain on
disposal of Income Receiving Right (c)
Change (c–a)

Pro forma consolidated net profit per
Tianjin Development Share (HK$)
Before
Over-allotment
Option is
exercised
After
Over-allotment
Option is
exercised
0.27
0.27
0.19
0.18
(0.09)
(0.09)
0.66
0.64
0.39
0.37

Note: Earnings per Tianjin Development Share calculated based on 677,750,000 Tianjin Development Shares in issue as at 31 December 2002.

The unaudited adjusted pro forma consolidated net profit of Tianjin Development will decrease by approximately HK$59.7 million or approximately HK$0.09 per Tianjin Development Share upon Spin-off before taking into account of the gain on disposal of Income Receiving Right and the exercise of Over-allotment Option due mainly to the reduction of the profit attributable to Tianjin Development from Coastal Rapid Group as a result of the dilution effect arising from the issue of new shares to the public. However, pursuant to the Spinoff together with the impact from the gain on disposal of Income Receiving Right and before Over-allotment Option is exercised, the unaudited adjusted pro forma consolidated net profit of Tianjin Development will increase by approximately HK$263.1 million or HK$0.39 per Tianjin Development Share. On this basis, we are of the view that Tianjin Development and, indirectly, its shareholders, will benefit from such improvement in the earnings per share of the Group as a result of the Spin-off.

It should be noted that the above analysis is based on historical profits only and has not taken into consideration any new opportunities or benefits which the Spin-off and the Share Offer could bring to Tianjin Development Group and Coastal Rapid Group in particular those that are contingent on availability of proceeds from the Share Offer and the separate listing of Coastal Rapid Group.

Working capital and Gearing

The net proceeds of the Share Offer are estimated in the range of HK$229 million to HK$310 million (before Over-allotment Option is exercised). On the basis that Coastal Rapid Group will remain a subsidiary of the Tianjin Development Group after the Spin-off, we are of the view that the working capital position of the Tianjin Development Group will improve as a consequence of the Share Offer and we consider this to be in the interest of Tianjin Development Group and its shareholders as a whole.

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LETTER FROM MCL

With regard to gearing, the Tianjin Development Group had borrowings (net of cash at hand and in banks) of approximately HK$721.2 million and shareholders’ equity of approximately HK$3,637.9 million) as at 30 June 2003 or a gearing ratio of 19.8%. Assuming net proceeds from the Share Offers of HK$229 million only (using the lower end of the range of estimated net proceeds and before Over-allotment Option is exercised), the pro forma net borrowings of Tianjin Development Group will be approximately HK$794.5 million (based on Share Offer at the low end of the price range of HK$0.80 per offer share and before Overallotment Option is exercised) and pro forma shareholders’ equity will be approximately HK$3,768.9 million after the Spin-off, giving a gearing ratio of 21.1%. With the separate listing of Coastal Rapid giving the Tianjin Development Group further flexibility in fundraising through Coastal Rapid, we are comfortable with the minimal increase to its gearing ratio.

(e) Effects on shareholders of Tianjin Development Group

Preferential Offer

The Board notes that, subject to the Stock Exchange granting listing of, and permission to deal in, the Coastal Rapid Shares on the Stock Exchange, Qualifying Shareholders (other than Tsinlien and Dr. Wang Jiandong) will be invited to participate in the Spin-off by applying for an initial amount of 14,000,000 Reserved Shares on an assured basis. Based on 684,849,256 Tianjin Development Shares in issue as at 10 December 2003, Qualifying Shareholders are entitled to subscribe two Reserved Shares for every whole multiple of 100 existing Tianjin Development Shares (or such other number of Tianjin Development Shares as will be stated in the prospectus of Coastal Rapid) held by them on the Record Date. This is in compliance with paragraph 3 (f) of Practice Note 15 of the Listing Rules which requires that shareholders of Tianjin Development be provided an assured entitlement to shares in Coastal Rapid, either by way of a distribution in specie of existing shares in Coastal Rapid or by way of preferred application in any offering of existing or new shares in Coastal Rapid. We are of the view that this requirement is satisfied.

Any Qualifying Shareholder holding less than 100 Tianjin Development Shares (or such other number as will be stated in the prospectus of Coastal Rapid) will not be entitled to apply for the Reserved Shares. Any Reserved Shares not taken up by Qualifying Shareholders will be allocated at the discretion of CITIC Capital to investors in Hong Kong and elsewhere pursuant to the public offer.

The Board has advised Tianjin Development Shareholders that entitlements to Reserved Shares may not represent multiples of a full board lot of 2,000 Coastal Rapid Shares, and dealings in odd lots arising as a consequence may be at below the prevailing market price. Entitlements to Reserved Shares are not transferable and there will be no trading in nil paid entitlements on the Stock Exchange. Assuming that all Qualifying Shareholders take up their entitlements under the Preferential Offer, the number of Coastal Rapid Shares under the Preferential Offer will represent about 4.5% of the Share Offer and approximately 1.22% of the total issued share capital of Coastal Rapid assuming the over-allotment option is not exercised. We consider it fair and reasonable that shareholders will receive an assured entitlement under the Preferential Offer.

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LETTER FROM MCL

Dilution of interest in Coastal Rapid Group

Set out above under ‘‘(d) Effects on the Tianjin Development Group’’ is an illustration of the dilutive effect of the Spin-off on Tianjin Development Group shareholders’ interest in the Coastal Rapid Group based on the current expected structure of the Share Offer and the Preferential Offer.

As shown, the Tianjin Development Group shareholders’ interest in the Coastal Rapid Group is diluted from 78% (after the Reorganization but before the Spin-off) to 56.92% (after the Spin-off and assuming the Over-allotment Option is not exercised) or to 54.71% (after the Spin-off and assuming the Over-allotment Option is exercised). In addition, Tianjin Development Group shareholders will directly as a result of the Preferential Offer own up to 1.22% (if the Over-allotment Option is not exercised) of the total issued capital of Coastal Rapid.

Notwithstanding such dilution, Tianjin Development Group will continue to maintain control over the Coastal Rapid Group and, after taking into consideration the benefits which may accrue from the Spin-off as discussed under ‘‘(a) Reasons for and benefits of the Spin-off’’ and ‘‘(d) Effects on the Tianjin Development Group’’, we consider such dilution to be acceptable to Tianjin Development shareholders

Hong Kong taxation and stamp duty

Under current legislation, the implementation of the Spin-off is, of itself, not expected to have any adverse Hong Kong tax consequence for Tianjin Development Shareholders save that persons who are treated for tax purposes as securities dealers may be subject to profits tax in respect of any gain resulting from dealings in Coastal Rapid Shares pursuant to the Spin-off. It is also noted that dealings in Coastal Rapid Shares registered on Coastal Rapid’s Hong Kong branch register of members are subject to Hong Kong stamp duty.

RECOMMENDATION

Having considered the above principal factors and reasons, we are of the opinion that the Spin-off is fair and reasonable so far as the Tianjin Development Shareholders are concerned and that the Spin-off is in the interest of the Group.

Yours faithfully, For and on behalf of MANAGEMENT CAPITAL LIMITED D.H.T. Yu Director

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SUMMARY OF THE PRINCIPAL TERMS OF THE SHARE OPTION SCHEME

APPENDIX I

This Appendix summaries the principal terms of the Share Option Scheme which does not form part of nor is intended to be, part of the Share Option Scheme nor should it be taken as effecting the interpretation of the rules of the Share Option Scheme.

For the purpose of this section, unless the context otherwise requires, the following words and expressions shall have the respective meanings set out opposite them:

‘‘Employee’’ any employee (whether full time or part time) of Coastal Rapid, any of its subsidiaries or any Invested Entity, including any executive director of Coastal Rapid, any of such subsidiaries or any Invested Entity;
‘‘Grantee’’ any Participant who accepts the offer of the grant of any Option in accordance with the terms of the Share Option Scheme or (where the context so permits) a person entitled to any such Option in consequence of the death of the original Grantee;
‘‘Invested Entity’’ any entity in which any member of the Coastal Rapid Group holds any equity interest;
‘‘Option’’ any option to subscribe for the Coastal Rapid Shares granted pursuant to the Share Option Scheme;
‘‘Option Period’’ in respect of any particular Option, the period within which the Coastal Rapid Shares must be taken up under the Option and such period as the Coastal Rapid Board may in its absolute discretion determine and in any event such period shall not be more than ten (10) years from the date upon which the offer of the Option is made to the Grantee in accordance with the rules of the Share Option Scheme;
‘‘Subscription Price’’ the price per Coastal Rapid Share at which the Grantee may subscribe for Coastal Rapid Shares on the exercise of an Option.

1. Purpose of the Share Option Scheme

The purpose of the Share Option Scheme is to enable Coastal Rapid to grant Options to participants as incentive or rewards for the contributions to the Coastal Rapid Group.

2. Who may join

The Coastal Rapid Board may, at their absolute discretion, invite any person belonging to any of the following classes of participants (‘‘Participants’’) to take up Options to subscribe for Coastal Rapid Shares, subject to such conditions as the Coastal Rapid Board may think fit.

2.1 any Employee or proposed Employee;
2.2 any non-executive directors (including independent non-executive directors) of Coastal Rapid, any of its subsidiaries or any Invested Entity;
2.3 any supplier of goods or services to any member of the Coastal Rapid Group or any Invested Entity;

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SUMMARY OF THE PRINCIPAL TERMS OF THE SHARE OPTION SCHEME

APPENDIX I

2.4 any customer of the Coastal Rapid Group or any Invested Entity;
2.5 any shareholder of any member of the Coastal Rapid Group or any Invested Entity or any holder of any securities issued by any member of the Coastal Rapid Group or any Invested Entity; and
2.6 any other group or classes of participants from time to time determined by the directors of Coastal Rapid as having contributed or may contribute by way of joint venture, business alliances or other business arrangements to the development and growth of the Coastal Rapid Group,

and, for the purposes of the Share Option Scheme, the options may be granted to any company wholly owned by one or more persons belonging to any of the above classes of participants. For the avoidance of doubt, the grant of any options by Coastal Rapid for the subscription of Coastal Rapid Shares or other securities of the Coastal Rapid Group to any person who falls within any of the above classes of participants shall not, by itself, unless the Coastal Rapid Board otherwise determines, be construed as a grant of Option under the Share Option Scheme.

The eligibility of any of the above class of participants to the grant of any options shall be determined by the Coastal Rapid Board from time to time on the basis of their contribution to the development and growth of the Coastal Rapid Group.

3. Maximum number of Shares

3.1 The maximum aggregate number of Coastal Rapid Shares to be issued upon exercise of all outstanding options granted and yet to be exercised under the Share Option Scheme and any other share option schemes of the Coastal Rapid Group (if any) must not in aggregate exceed 30% of the issued share capital of Coastal Rapid from time to time (‘‘Overall Scheme Limit’’). No options may be granted under any schemes of Coastal Rapid if this will result in the Overall Scheme Limit being exceeded.
3.2 The total number of Coastal Rapid Shares which may be issued upon exercise of all options to be granted under the Share Option Scheme and any other share option schemes of the Coastal Rapid Group must not in aggregate exceed 10% of the Coastal Rapid Shares in issue as at the date of the approval of Share Option Scheme by the shareholders of Coastal Rapid excluding for this purpose Coastal Rapid Shares issued on exercise of options under the Share Option Scheme and any other share option scheme of Coastal Rapid (the ‘‘Scheme Mandate Limit’’). Options lapsed in accordance with the terms of the Share Option Scheme will not be counted for the purpose of calculating the Scheme Mandate Limit.
3.3 Subject to 3.1 above, Coastal Rapid may seek approval of its shareholders in general meeting for ‘‘refreshing’’ the Scheme Mandate Limit. However, the total number of Coastal Rapid Shares which may be issued upon exercise of all options to be granted under the Share Option Scheme and any other share option schemes of Coastal Rapid under the Scheme Mandate Limit as ‘‘refreshed’’ must not exceed 10% of the Coastal Rapid Shares in issue as at the date of approval of the refreshing of the Scheme Mandate Limit (‘‘Refreshed Scheme Mandate Limit’’). Options previously granted under the Share Option Scheme and any other schemes (including those outstanding, cancelled, lapsed or exercised in accordance with the Share Option Scheme or exercised Options) will not be counted for

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SUMMARY OF THE PRINCIPAL TERMS OF THE SHARE OPTION SCHEME

APPENDIX I

the purpose of calculating the Refreshed Scheme Mandate Limit. Coastal Rapid must send a circular to its shareholders containing the information required under Rule 17.02(2)(d) of the Listing Rules and the disclaimer required under Rule 17.02(4) of the Listing Rules.

3.4 Subject to 3.1 above, Coastal Rapid may seek separate approval by its shareholders in general meeting for granting Options to subscribe for Coastal Rapid Shares beyond the Scheme Mandate Limit or the Refreshed Scheme Mandate Limit (as the case may be) provided the Options in excess of the Scheme Mandate Limit or the Refreshed Scheme Mandate Limit are granted only to Participants specifically identified by Coastal Rapid before such approval is sought. Coastal Rapid must send a circular to its shareholders containing a generic description of the specified Participants who may be granted such Options, the number and terms of the Options to be granted, the purpose of granting Options to the specified Participants with an explanation as to how the terms of the Options serve such purpose, the information required under Rule 17.02(2)(d) of the Listing Rules and the disclaimer required under Rule 17.02(4) of the Listing Rules.

4. Maximum entitlement of each Participant

Without prejudice to sub-paragraph (5) below, unless approved by the shareholders of Coastal Rapid in the manner set out in this sub-paragraph, the total number of Coastal Rapid Shares issued and to be issued upon exercise of the Options granted to each Participant (including both exercised and outstanding Options) in any 12-month period must not exceed 1% of the Coastal Rapid Shares in issue from time to time (the ‘‘Individual Limit’’). Where any further grant of Options to a Participant would result in the Coastal Rapid Shares issued and to be issued upon exercise of all Options granted and to be granted to such person (including exercised, cancelled and outstanding Options) in the 12-month period up to and including the date of such further grant representing in aggregate over 1% of the Coastal Rapid Shares in issue, such further grant must be separately approved by the shareholders of Coastal Rapid in general meeting with such Participant and his or her associates abstaining from voting. Coastal Rapid must send a circular to its shareholders and the circular must disclose the identity of the Participant, the number and terms of the Options to be granted (and Options previously granted to such Participant), the information required under Rule 17.02(2)(d) of the Listing Rules and the disclaimer required under Rule 17.02(4) of the Listing Rules. The number and terms (including the Subscription Price) of Options to be granted to such Participant must be fixed before the approval of the shareholders of Coastal Rapid and the date of Coastal Rapid Board meeting for proposing such further grant should be taken as the date of grant for the purpose of calculating the Subscription Price under Note 1 to Rule 17.03(9) of the Listing Rules.

5. Grant of Options to connected persons

If Options are granted to a connected person, the granting of such Options will be subject to approval by the independent non-executive directors of Coastal Rapid (excluding any independent non-executive director of Coastal Rapid who is a prospective Grantee). Where any grant of Options to a substantial shareholder of Coastal Rapid or an independent non-executive director of Coastal Rapid, or any of their respective associates, would result in the Coastal Rapid Shares issued and to be issued upon exercise of all Options already granted and to be granted (including Options exercised, cancelled and outstanding) to such person in the 12-month period up to and including the date of such grant (a) representing in aggregate over 0.10% of the Coastal Rapid Shares in issue; and (b) having an aggregate value, based on the closing price of the Coastal Rapid Shares at the date of each grant, in excess of HK$5 million, such further grant of Options must be approved by the independent shareholders of Coastal Rapid taken on a poll. A circular required under Rule 17.04 to the

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SUMMARY OF THE PRINCIPAL TERMS OF THE SHARE OPTION SCHEME

APPENDIX I

shareholders of Coastal Rapid in connection with obtaining the aforesaid approval of the shareholders of Coastal Rapid shall be prepared by Coastal Rapid. All connected persons will abstain from voting (except for such any connected person who intends to vote against the resolution at the general meeting provided that its, his or her intention to do so has been stated in the circular). In addition, approval of the shareholders of Coastal Rapid shall be required for any change in the terms of Options granted to a Grantee who is a substantial shareholder or an independent non-executive director of Coastal Rapid or any of their respective associates. The requirements for granting Options to a director or chief executive of Coastal Rapid as set out in this paragraph do not apply where the Participant is only a proposed director or chief executive of Coastal Rapid.

6. Time of acceptance and exercise of an Option

An offer of grant of an Option shall remain open for acceptance by a Participant to whom the offer is made for a period of twenty-one (21) days from the date upon which the offer is made. A nominal consideration of HK$1.00 is payable on acceptance of the grant of an Option.

An Option may be exercised in accordance with the terms of the Share Option Scheme at any time during the Option Period subject to the provisions for early termination thereof.

7. Performance targets

Unless otherwise determined by the directors of Coastal Rapid, a Grantee shall not be required to achieve, meet or exceed any performance targets before that particular Grantee can exercise the Option granted.

8. Subscription price for Shares

The Subscription Price in respect of any particular Option shall be such price as determined by the Coastal Rapid Board in its absolution at the time of the grant of the relevant Option but in any case the Subscription Price must be at least the higher of (i) the closing price of Coastal Rapid Shares as stated in the Stock Exchange’s daily quotations sheet on the date of grant, which must be a business day; (ii) the average closing price of Coastal Rapid Shares as stated in the Stock Exchange’s daily quotations sheets for the five business days immediately preceding the date of grant; and (iii) the nominal value of a Coastal Rapid Share. Without prejudice to the generality of the foregoing, the directors of Coastal Rapid may grant Options in respect of which the Subscription Price is fixed at different prices for certain periods during the Option Period.

Where the Option is granted less than five (5) days after listing of the Coastal Rapid Shares, the Subscription Price shall be the issue price of such Coastal Rapid Shares.

9. Ranking of Shares

The Coastal Rapid Shares to be allotted and issued upon the exercise of an Option will be subject to all the provisions of the articles of association of Coastal Rapid and will rank pari passu in all respects with the fully paid Coastal Rapid Shares in issue as from the day when the name of the particular Grantee is registered on the register of members of Coastal Rapid and accordingly will entitle the holders thereof to participate in all dividends or other distributions paid or made on or after the date when the name of the Grantee is registered on the register of members of Coastal Rapid other than any dividend or other distribution previously declared or recommended or resolved to be paid or

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SUMMARY OF THE PRINCIPAL TERMS OF THE SHARE OPTION SCHEME

APPENDIX I

made if the record date therefor shall be before the date when the name of the Grantee is registered on the register of members of Coastal Rapid. The Coastal Rapid Shares to be allotted and issued upon the exercise of an Option shall be separately designated.

10. Restrictions on the time of grant of Options

No offer for grant of Options shall be made after a price sensitive event has occurred or a price sensitive matter has been the subject of a decision until such price sensitive information has been published in the newspapers. In particular, during the period commencing one month immediately preceding the earlier of (i) the date of the Coastal Rapid Board meeting for the approval of the interim or annual results of Coastal Rapid (as such date is first notified to the Stock Exchange in accordance with paragraph 12 of the listing agreement of Coastal Rapid), and (ii) the deadline for Coastal Rapid to publish its interim or annual results announcement under its listing agreement and ending on the date of the results announcement, no Option may be granted.

11. Period of the Share Option Scheme

The Share Option Scheme shall be valid and effective for a period of ten (10) years commencing on the date of adoption of the Share Option Scheme.

12. Rights on ceasing employment

If the Grantee is an Employee at the time when the relevant Option shall have been granted ceases to be an Employee for any reason other than his or her death or the termination of his or her employment on one or more of the grounds specified in sub-paragraph (14) below, the Grantee may exercise the Option up to his or her entitlement at the date of cessation (to the extent not already exercised) within the period of three (3) months following the date of cessation, which date shall be the last actual working day with Coastal Rapid or the relevant subsidiary whether salary is paid in lieu or not.

13. Rights on death

If the Grantee of an Option dies before exercising the Options in full and, in the case where the Grantee is an Employee, none of certain events which would be grounds for the termination of his or her employment as specified under sub-paragraph (14) below, the legal personal representative(s) of this Grantee shall be entitled within a period of twelve (12) months from the date of death to exercise the Option up to the entitlement of the Grantee as at the date of death (to the extent not already exercised).

14. Rights on dismissal

If the Grantee is an Employee at the time when the relevant Option shall have been granted, ceases to be an Employee by reason of the termination of his or her employment on the grounds that he or she has been guilty of serious misconduct, or appears either to be unable to pay or to have no reasonable prospect of being able to pay his or her debts or has become insolvent or has made any arrangement or composition with his or her creditors generally, or has been convicted of any criminal offence involving his or her integrity or honesty, his or her Option will lapse automatically on the date of cessation to be an Employee.

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SUMMARY OF THE PRINCIPAL TERMS OF THE SHARE OPTION SCHEME

APPENDIX I

15. Rights on takeover

If a general offer by way of takeover is made to all the shareholders of Coastal Rapid (or all shareholders other than the offeror and/or any person controlled by the offeror and/or any person acting in association or concert with the offeror) and such offer becomes or is declared unconditional prior to the expiry date of the relevant Option, the Grantee (or his or her legal personal representatives) shall be entitled to exercise the Option in full (to the extent not already exercised) at any time within one (1) month after the date on which the offer becomes or is declared unconditional.

16. Rights on voluntary winding up

In the event a notice is given by Coastal Rapid to its shareholders to convene a general meeting for the purposes of considering, and if thought fit, approving a resolution to voluntarily wind-up Coastal Rapid, Coastal Rapid shall forthwith give notice thereof to all Grantees and thereupon, each Grantee (or his or her legal personal representatives) shall be entitled to exercise all or any of his Options at any time not later than four (4) business days prior to the proposed general meeting of Coastal Rapid by giving notice in writing to Coastal Rapid, accompanied by a remittance for the full amount of the aggregate Subscription Price for the Coastal Rapid Shares in respect of which the notice is given whereupon Coastal Rapid shall as soon as possible and, in any event, no later than the business day immediately prior to the date of the proposed general meeting referred to above, allot the relevant Coastal Rapid Shares to the Grantee credited as fully paid.

17. Rights on compromise or arrangement with the creditors

In the event of a compromise or arrangement between Coastal Rapid and its shareholders or creditors being proposed in connection with any scheme for the reconstruction or amalgamation of Coastal Rapid, Coastal Rapid shall give notice thereof to all Grantees on the same day as it gives notice of the meeting to its shareholders or creditors to consider such a scheme or arrangement and the Grantee (or his or her personal representatives) may by notice in writing to Coastal Rapid accompanied by the remittance for the Subscription Price in respect of the relevant Option (such notice to be received by Coastal Rapid not later than two (2) business days prior to the proposed meeting) exercise the Option (to the extent not already exercised) either to its full extent or to the extent specified in such notice, and Coastal shall as soon as possible and in any event no later than the business day immediately prior to the date of the proposed meeting, allot and issue such number of Coastal Rapid Shares to the Grantee which falls to be issued on such exercise credited as fully paid and registered the Grantee as holder thereof.

18. Rights on reorganisation

In the event of a reorganisation or proposed reorganisation, Coastal Rapid, at its option, may do either of the following:

18.1 Coastal Rapid irrevocably commute for or into any other security or other property or cash any Option that is still capable of being exercised, upon giving to the Grantee to whom such Option has been granted at least twenty-one (21) days written notice of its intention to commute the Option, and during such period of notice the Option may be exercised (to the extent that it has not been exercised) by the Grantee by notice in writing to Coastal Rapid either to its full extent or to the extent specified in such notice and on the expiry of such period of notice, the unexercised portion of the Option shall lapse and be cancelled, or

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SUMMARY OF THE PRINCIPAL TERMS OF THE SHARE OPTION SCHEME

APPENDIX I

18.2 Coastal Rapid or any company which is or would be the successor to Coastal Rapid or which may issue securities in exchange for Coastal Rapid Shares upon the reorganisation becoming effective, may offer any Grantee the opportunity to obtain a new or replacement Option over any securities into which the Coastal Rapid Shares are changed or convertible or exchangeable, on a basis proportionate to the number of Coastal Rapid Shares under the Option. In such event, the Grantee shall, if the Grantee accepts such offer, be deemed to have released such Grantee’s Option over Coastal Rapid Shares or such Option shall be deemed to have lapsed. Where Coastal Rapid cancels Options to a particular Grantee, and issues new Options to the same Grantee, the issue of such new Options may only be made under a scheme with available unissued Options (excluding the cancelled Options) within the limit approved by the shareholders of Coastal Rapid pursuant to Note 1 of Rule 17.03(3) of the Listing Rules.

19. Rights on scheme of arrangement

If a general offer by way of scheme of arrangement is made to all the shareholders of Coastal Rapid with such scheme having been approved by the necessary number of the shareholders of Coastal Rapid at the requisite meetings, the Grantee (or his or her personal representatives) may thereafter (but before such time as shall be notified by Coastal Rapid) by notice in writing to Coastal Rapid accompanied by the remittance for the Subscription Price in respect of the relevant Option (such notice to be received by Coastal Rapid not later than two (2) business days prior to the proposed meeting) exercise the Option (to the extent not already exercised) either to its full extent or to the extent specified in such notice, and Coastal Rapid shall as soon as possible and in any event not later than the business day immediately prior to the date of the proposed meeting, allot and issue such number of Coastal Rapid Shares to the Grantee which falls to be issued on such exercise credited as fully paid and registered the Grantee as holder thereof.

20. Alterations of capital structure

In the event of capitalisation issue, rights issue, consolidation, sub-division, or reduction of the share capital of Coastal Rapid, other than any alteration in the capital structure of Coastal Rapid as a result of an issue of Coastal Rapid Shares as consideration in a transaction to which Coastal Rapid is a party, whilst any Option remains exercisable, such corresponding adjustment (if any) shall be made to:

20.1 the number or nominal amount of the Coastal Rapid Shares subject to the Option so far as unexercised; or
20.2 the Subscription Price,

or any combination thereof. In respect of any adjustments, other than any made on a capitalisation issue, the independent financial adviser or auditors of Coastal Rapid shall certify in writing to the Coastal Rapid Board, either generally or as regard any particular Grantee, to have, in their opinion, satisfied the requirement that such adjustments give a Participant the same proportion of the equity capital as that to which that person was previously entitled, but that no such adjustments be made to the extent that a Coastal Rapid Share would be issued at less than its nominal value.

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SUMMARY OF THE PRINCIPAL TERMS OF THE SHARE OPTION SCHEME

APPENDIX I

21. Cancellation of Options

Any cancellation of Options granted but not exercised must be approved by the directors of Coastal Rapid and the Grantee. If such cancellation has been approved by the directors of Coastal Rapid, Options may be re-issued after such cancellation, provided that re-issued Options shall only be granted in compliance with the terms of the Share Option Scheme. Where Coastal Rapid cancels Options to a particular Grantee, and issues new Options to the same Grantee, the issue of such new Options may only be made under a scheme with available unissued Options (excluding the cancelled Options) within the limit approved by the shareholders of Coastal Rapid pursuant to Note 1 of Rule 17.03(3) of the Listing Rules.

22. Termination of the Share Option Scheme

Coastal Rapid, by resolution in general meeting, or the Coastal Rapid Board may at any time terminate the Share Option Scheme and in such event no further Options shall be offered but the provisions of the Share Option Scheme shall remain in full force and effect in all other respects. Options complying with the provisions of Chapter 17 of the Listing Rules which are granted during the life of the Share Option Scheme and which remain unexpired immediately prior to the termination of the operation of the Share Option Scheme shall continue to be exercisable until and unless they are expired.

23. Rights are personal to the grantee

An Option is personal to the Grantee and shall not be transferable nor assignable and no Grantee shall in any way sell, transfer, charge, mortgage, encumber or create any interest in favour of any third party over or in relation to any Option.

24. Lapse of Option

An Option shall lapse automatically (to the extent not already exercised) on the earliest of:

24.1 the expiry of the Option Period;
24.2 the expiry of any of the periods referred to in sub-paragraph 12, 13, 15, 16, 17, 18 or 19;
24.3 the date of commencement of the winding up of Coastal Rapid;
24.4 the date on which the Grantee ceases to be an Employee by reason of the termination of his or her employment on the grounds that he or she has been guilty of serious misconduct, or appears either to be unable to pay or to have no reasonable prospect of being able to pay his or her debts or has become insolvent or has made any arrangement or composition with his or her creditors generally, or has been convicted of any criminal offence involving his or her integrity or honesty as referred to in sub-paragraph 14 above;
24.5 the date on which the Grantee commits a breach of sub-paragraph 23; or
24.6 the date on which the Grantee ceases to be an eligible Participant.

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SUMMARY OF THE PRINCIPAL TERMS OF THE SHARE OPTION SCHEME

APPENDIX I

25. Alteration of the Share Option Scheme

This Share Option Scheme may be altered in any respect by resolution of the Coastal Rapid Board or scheme administrators except that the provisions of this Share Option Scheme as to:

25.1 matters set out in rule 17.03 of the Listing Rules which will be to the advantage of Participants;
25.2 terms and conditions of the Share Option Scheme which are of a material nature or any change to the terms of Options already granted (except where the alteration takes effect automatically under the existing terms of the Share Option Scheme); and
25.3 change to the authority of the Coastal Rapid Board or scheme administrator in relation to any alternation to the terms of the Share Option Scheme;

must be approved by the shareholders of Coastal Rapid in general meeting.

The amended terms of this Share Option Scheme or the Options to be granted thereunder must still comply with the relevant requirements of Chapter 17 of the Listing Rules as amended from time to time.

26. Minimum period before an Option can be exercised

The Coastal Rapid Board may in its absolute discretion impose a minimum period for which an Option has to be held before it is exercised.

27. Duration and administration

The Share Option Scheme shall be valid and effective for a period of ten years (10) from the date of adoption thereof and shall be subject to the administration of the directors of Coastal Rapid whose decision (save as otherwise provided herein) shall be final and binding on all parties.

28. Conditions of the Share Option Scheme

The Share Option Scheme is conditional upon (i) the passing of an ordinary resolution(s) approving the adoption of the Share Option Scheme by the shareholder(s) of Coastal Rapid and authorising the Coastal Rapid Board to grant options and to allot and issue the Coastal Rapid Shares pursuant to any options granted under the Share Option Scheme; (ii) the approval of the Share Option Scheme by the Tianjin Development Shareholders in the Extraordinary General Meeting; (iii) the Listing Committee granting approval of the listing of and permission to deal in (a) any Coastal Rapid Shares in issue and to be issued as will be mentioned in the prospectus of Coastal Rapid; and (b) the Coastal Rapid Shares which may fall to be issued pursuant to the exercise of options under the Share Option Scheme; (iv) the commencement of dealings in the Coastal Rapid Shares on the Stock Exchange; and (v) the obligations of the underwriters under the underwriting agreement becoming unconditional (including, if relevant, as a result of the waiver of any condition(s) by the underwriters) and not being terminated in accordance with the terms of such agreement or otherwise. As at the Latest Practicable Date, no option has been granted or agreed to be granted by Coastal Rapid under the Share Option Scheme.

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GENERAL INFORMATION

APPENDIX II

RESPONSIBILITY STATEMENT

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

DISCLOSURE OF INTERESTS

(i) As at the Latest Practicable Date, the interests of the Directors in the Shares and underlying shares of the Company or any of its associated corporations, within the meaning of the SFO, which were notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to have under such provisions of the SFO) and required to be entered in the register maintained by the Company pursuant to Section 352 of the SFO or which were notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules, were as follows:

Interests in the Company

				Percentage of the
		Numbers of		Company’s issued
	Personal	underlying shares		share capital as at
	interests in	held pursuant to	Total	the Latest
Directors	shares	share options	interests	Practicable Date
Wang Guanghao	—	8,504,000	8,504,000*	1.24%
Yu Rumin	—	2,000,000	2,000,000*	0.29%
Chen Zihe	—	6,332,000	6,332,000*	0.92%
He Xiuheng	—	2,000,000	2,000,000*	0.29%
Yang Liheng	—	2,000,000	2,000,000*	0.29%
Wang Jiandong	450,000	—	450,000*	0.07%

These interests are held in the capacity as a beneficial owner.

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GENERAL INFORMATION

APPENDIX II

Share Options

The Company has a share option scheme approved in an extraordinary general meeting on 22 November 1997 under which the Directors may, at their discretion, invite any employees or executive Directors of the Group to take up options to subscribe for shares in the Company subject to the terms and conditions stipulated in the share option scheme. The details of share options granted to the Directors and outstanding as at the Latest Practicable Date are as follows:

				Approximate % of the
				existing issued share
	Number of share		options	capital of the Company
			Outstanding as	in the event that all
			at the Latest	outstanding option are
			Practicable	exercised as at the
Directors	1st lot	2nd lot	Date	Latest Practicable Date
	(Note 1)	(Note 2)
Wang Guanghao	3,500,000	5,004,000	8,504,000	1.24%
Yu Rumin	2,000,000	—	2,000,000	0.29%
Chen Zihe	2,000,000	4,332,000	6,332,000	0.92%
He Xiuheng	2,000,000	—	2,000,000	0.29%
Yang Liheng	2,000,000	—	2,000,000	0.29%

Notes:

These share options were granted to the Directors on 17 April 1998, and are exercisable at a price of HK$6.136 per Tianjin Development Share during the period from 10 June 1998 to 21 November 2007.
These share options were granted to the Directors on 13 April 1999, and are exercisable at a price of HK$3.34 per Tianjin Development Share during the period from 18 September 1999 to 17 March 2004.

As at the Latest Practicable Date, none of the Directors had exercised any share options in the Company.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors had any interest or short positions in any Tianjin Development Shares, underlying shares or debentures of the Company or any associated corporations, within the meaning of the SFO, which would have to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to have under such provisions of the SFO), or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules, to be notified to the Company and the Stock Exchange.

(ii) Service Contracts

Each of Wang Guanghao, Yu Rumin, Chen Zihe, He Xiuheng and Yang Liheng has entered into service contract with the Company for a period of three years commencing 1 December 1997 and will continue thereafter until terminated by either party giving the other not less than six months’ prior written notice.

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GENERAL INFORMATION

APPENDIX II

Save as disclosed herein, no other Directors have entered into any service contract with any member of the Group which is not determinable within one year without payment of compensation (other than statutory compensation).

Cheung Wing Yui is a partner of Woo, Kwan, Lee & Lo, legal adviser to the Company on Hong Kong law in relation to the Spin-off. Woo, Kwan, Lee & Lo will receive normal professional fees in connection with matters relating to the Spin-off.

Save as disclosed herein, as at the Latest Practicable Date:

(i) none of the Directors or MCL has any direct or indirect interest in any assets which have been since 31 December 2002, being the date of the latest published audited accounts of the Tianjin Development Group, acquired or disposed of by or leased to any member of the Tianjin Development Group or are proposed to be acquired or disposed of by or leased to any member of the Tianjin Development Group; and
(ii) none of the Directors is materially interested in any contract or arrangement which is subsisting as at the date of this circular and which is significant in relation to the business of the Tianjin Development Group taken as a whole.

SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as was known to the Directors, the persons who have an interest or short positions in the equity securities or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Division 2 and 3 of Part XV of the SFO, or will be directly or indirectly interested in 10% or more of the nominal value of the share capital carrying rights to vote in all circumstances at general meetings of any member of the Tianjin Development Group or had any option in respect of such capital, were as follows:

		Number of	Percentages to
		shares/	the Company’s
		underlying	issued share
Name of shareholder	Capacity	shares held	capital
Tsinlien	Interest of controlled corporation	385,482,000 (L)	56.29%
	Option seller	65,000,000 (S)	9.49%
Credit Suisse Group	Option buyer	65,000,000 (L)	9.49%

Notes:

The letter ‘‘L’’ stands for the shareholder’s long position (within the meaning of the SFO) in shares of the Company. The letter ‘‘S’’ stands for the shareholder’s short position (within the meaning of the SFO).
As at the Latest Practicable Date, Tianjin Investment Holdings Limited and Tsinlien Property Services Limited, both being wholly-owned subsidiaries of Tsinlien, held 383,459,990 and 2,022,000 shares of the Company respectively. Mr. Wang Guanghao acted as trustee of Tianjin Investment Holdings Limited to held 10 shares of the Company. The corporate interest disclosed under Tsinlien represents its deemed interests in the shares of the Company by virtue of its interests in Tianjin Investment Holdings Limited and Tsinlien Property Services Limited.

Save as disclosed herein, there is no person (not being a Director or chief executive of the Company) known to the Directors or chief executive of the Company who, as at the Latest Practicable Date, who have an interest or short position in the shares or underlying shares of the Company which

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GENERAL INFORMATION

APPENDIX II

would fall to be disclosed to the Company and the Stock Exchange under the provisions of Division 2 and 3 of Part XV of the SFO, or will be directly or indirectly interested in 10% or more of the nominal value of the share capital carrying rights to vote in all circumstances at general meetings of any member of the Tianjin Development Group or had any option in respect of such capital.

INDEBTEDNESS AND CONTINGENT LIABILITIES

At the close of business on 30 June 2003, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Tianjin Development Group had outstanding borrowings of approximately HK$1,796 million, comprising secured bank loans of approximately HK$773 million, unsecured bank loans of approximately HK$613 million, guaranteed convertible bonds of US$20 million (equivalent to approximately HK$156 million), secured short term loans and overdrafts of approximately HK$14 million and unsecured short term loans and overdrafts of approximately HK$240 million.

Save as aforesaid and apart from the intra-group liabilities and trade payables in the ordinary course of business of the Tianjin Development Group, actual or contingent, none of the companies in the Tianjin Development Group had outstanding indebtedness in respect of any mortgages, charges or debentures, loan capital, bank overdrafts or loans, debt securities or other similar indebtedness, or hire purchase commitments, finance lease commitments, guarantees or other material contingent liabilities as at the close of business on 30 June 2003. The Company will issue a supplemental circular which will contain updated information in relation to indebtedness and contingent liabilities of the Tianjin Development Group which will be despatched to Tianjin Development Shareholders in due course.

WORKING CAPITAL

Taking into account the available facilities and internal resources of the Tianjin Development Group, the Directors are of the opinion that the Tianjin Development Group has sufficient working capital for its present requirement.

MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Company since 31 December 2002, the date to which the latest audited accounts of the Company were made up.

MATERIAL CONTRACT

The Letter of Intent is the contract that is material, not being contract in the ordinary course of business, and that has been entered into by the Tianjin Development Group within the two years immediately preceding the date of this circular.

LITIGATION

As at the Latest Practicable Date, neither the Company nor any of its subsidiaries is engaged in any litigation or claims of any material importance and there is no litigation or claims of material importance known to the Directors to be pending or threatened against the Company or any of its subsidiaries.

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GENERAL INFORMATION

APPENDIX II

GENERAL

The registered office of the Company is situated at 26th–38th Floor, Tianjin Building, 167 Connaught Road West, Hong Kong. The share registrar of the Company is Tengis Limited at G/F, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

The secretary of the Company is Tsang Wai Yip, Patrick, FHKSA, FCCA.

CONSENT OF EXPERT

MCL, deemed licensed corporation under the SFO, has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter as set out in this circular and references to its name in the form and context in which it appears.

As at the Latest Practicable Date, MCL was not interested beneficially in the share capital of the Company or any of its subsidiaries or had any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in the Company or any of its subsidiaries and did not have any interest, either directly or indirectly, in any assets which have been since the date to which the latest published audited financial statements of the Company were made up, acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to the Company or any of its subsidiaries.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the offices of Woo, Kwan, Lee & Lo, 27th Floor, Jardine House, 1 Connaught Place, Central, Hong Kong during normal business hours until 29 December 2003:

(a) the memorandum and articles of association of the Company;
(b) the audited consolidated accounts of the Tianjin Development Group for the two years ended 31 December 2002 and the unaudited consolidated accounts of the Tianjin Development Group for the six months ended 30 June 2003;
(c) the letter from MCL, the text of which is set out on pages 34 to 45 of this circular;
(d) the letter of consent from MCL referred to in the paragraph headed ‘‘Consent of Expert’’ above;
(e) the material contract as referred to in this appendix; and
(f) the service contracts as referred to in this appendix.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

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(Incorporated in Hong Kong SAR with limited liability under the Hong Kong Companies Ordinance)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Tianjin Development Holdings Limited (the ‘‘Company’’) will be held at 38th Floor, Function Room, Tianjin Building, 167 Connaught Road West, Hong Kong on 29 December 2003 at 3: 00 p.m. for the purpose of considering and, if thought fit, passing with or without amendments, the following resolutions as ordinary resolutions:

ORDINARY RESOLUTIONS

(1) ‘‘THAT the spin-off and separate listing of Coastal Rapid Transit Company Limited (‘‘Coastal Rapid’’) of the shares of Coastal Rapid (the ‘‘Spin-off’’), which constitutes a material dilution (within the meaning under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited) of the Company’s interest in Coastal Rapid and its subsidiaries, subject to and conditional upon (amongst other things): (a) the approval by shareholders of the Company; (b) the listing committee of The Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’) granting approval of the listing of and permission to deal in any shares of Coastal Rapid; (c) the obligations of the underwriters under the underwriting agreements in respect of the Spin-off becoming unconditional (including, if relevant, as a result of the waiver of any condition(s) by the underwriters) and not being terminated in accordance with the terms of that agreement or otherwise and the reorganisation (the ‘‘Reorganisation’’) mentioned in the circular dated 13 December 2003, be and are hereby approved and the board of directors of the Company be and is hereby authorised to do all such acts and to enter into all such transactions and arrangements as may be necessary or expedient in order to give effect to the Spin-off including without limitation the Reorganisation.’’
(2) ‘‘THAT the share option scheme of Coastal Rapid (the ‘‘Share Option Scheme’’), the terms of which are contained in the document marked ‘‘A’’ and a summary of which is set out in a circular dated 13 December 2003 contained in the document marked ‘‘B’’ and despatched to the shareholders of the Company of which the notice convening this meeting forms part and produced to the meeting and for the purpose of identification signed by the Chairman thereof, subject to and conditional upon (amongst other things): (a) the passing of an ordinary resolutions approving the adoption of the Share Option Scheme by the shareholder(s) of Coastal Rapid and authorising the Coastal Rapid Board to grant options and to allot and issue the Coastal Rapid Shares pursuant to any options granted under the Share Option Scheme; (b) the approval of the Share Option Scheme by shareholders of the Company; (c) the listing committee of the Stock Exchange granting approval of the listing of and permission to deal in (i) any shares of Coastal Rapid in issue and to be issued as will be mentioned in the prospectus of Coastal Rapid; and (ii) the shares of Coastal Rapid which may fall to be issued pursuant to the exercise of options granted under the Share Option Scheme; (d) the commencement of dealings in the shares of Coastal Rapid on the Stock Exchange; and (e) the obligations of the underwriters under the underwriting agreement becoming unconditional (including, if relevant, as a result of the waiver of any condition(s) by the underwriters) and not being terminated in accordance with the terms of such agreement or otherwise, be and is hereby approved and the board of directors of the

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NOTICE OF EXTRAORDINARY GENERAL MEETING

Company be and is hereby authorised to do all such acts and to enter into all such transactions and arrangements as may be necessary or expedient in order to give effect to the Share Option Scheme.’’

By Order of the Board Tianjin Development Holdings Limited Wang Guanghao Chairman

Date: 13 December 2003

Registered Office:

26th–38th Floor Tianjin Building 167 Connaught Road West Hong Kong

Notes:

(i) A member who is entitled to attend and vote at a meeting of the Company is entitled to appoint a proxy/proxies to attend and vote instead of him. A proxy need not be a member.
(ii) The instrument appointing a proxy must be in writing under the hand of the appointer or of his attorney duly authorised in writing or, if the appointer is a corporation, either under its seal or under the hand of an officer, attorney or other person authorised to sign the same.
(iii) The instrument appointing the proxy or proxies and the power of attorney or other authority (if any) under which it is signed, or a certified copy of such power of attorney must be deposited at the registered office of the Company’s share registrar, Tengis Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, not less than 48 hours before the time for holding the meeting. Completion and deposit of the proxy form shall not preclude a member from attending and voting in person at the meeting.

— 61 —

AI assistant

Leadway Technology Investment Group Limited — Proxy Solicitation & Information Statement 2003

50365_rns_2003-12-15_23f5ebd3-52ee-4431-806f-d85d145b2d52.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

DISCLOSEABLE TRANSACTION IN RELATION TO THE SEPARATE LISTING OF

AND

AND

Independent Financial Adviser to the Independent Board Committee

MANAGEMENT CAPITAL LIMITED

EXPECTED TIMETABLE

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

TIANJIN DEVELOPMENT HOLDINGS LIMITED

DISCLOSEABLE TRANSACTION IN RELATION TO THE SEPARATE LISTING OF

AND

MAJOR TRANSACTION

AND

PROPOSED CONNECTED TRANSACTION IN RELATION TO THE TERMINATION OF THE ROAD MANAGEMENT CONTRACTS OF THE EASTERN OUTER RING ROAD

INTRODUCTION

LETTER FROM THE BOARD

LETTER FROM THE BOARD

THE REORGANISATION

(1) The Reorganisation

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

(2) Corporate Structure

LETTER FROM THE BOARD

LETTER FROM THE BOARD

THE SPIN-OFF

(1) The Spin-off

LETTER FROM THE BOARD

(2) Separate Listing of Coastal Rapid Shares

(3) Business of the Coastal Rapid Group

LETTER FROM THE BOARD

(4) Intended use of proceeds

(5) Reasons for and benefits of the Spin-off

LETTER FROM THE BOARD

(6) Effects of the Spin-off

LETTER FROM THE BOARD

(iii) Hong Kong taxation and stamp duty

PREFERENTIAL OFFER

LETTER FROM THE BOARD

SHARE OPTION SCHEME

LETTER FROM THE BOARD

CLOSURE OF REGISTER OF MEMBERS

NON-COMPETITION UNDERTAKING

FINANCIAL EFFECTS OF THE SPIN-OFF

Net Asset Value

LETTER FROM THE BOARD

Earnings

Price Earnings Multiple

THE PROPOSED TRANSFER

(1) The Letter of Intent

LETTER FROM THE BOARD

(2) Information on Tianjin Jinzheng Transportation Company

LETTER FROM THE BOARD

LETTER FROM THE BOARD

(3) Right to be transferred

LETTER FROM THE BOARD

(4) Consideration

LETTER FROM THE BOARD

(5) Condition

(6) Reasons for the Proposed Transfer

LETTER FROM THE BOARD

THE TERMINATION

(1) The Termination Agreement

(2) Termination of the Road Management Contracts

(3) Details of the Road Management Contracts

LETTER FROM THE BOARD

(4) Reasons for the Termination

EXTRAORDINARY GENERAL MEETING

Leadway Technology Investment Group Limited Proxy Solicitation & Information Statement 2003