Leadway Technology Investment Group Limited - Proxy Solicitation & Information Statement 2006

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 or transferred all your shares in Tianjin Development Holdings Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank or stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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 Companies Ordinance) (Stock Code: 882)

(1) POSSIBLE MAJOR TRANSACTION IN RELATION TO THE PROPOSED SPIN-OFF AND SEPARATE LISTING OF TIANJIN PORT DEVELOPMENT HOLDINGS LIMITED ON THE MAIN BOARD OF THE STOCK EXCHANGE OF HONG KONG LIMITED;

(2) PROPOSED DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION;

(3) CONNECTED TRANSACTIONS IN RELATION TO THE TERMINATIONS; (4) PROPOSED CONTINUING CONNECTED TRANSACTIONS; AND

(5) RE-ELECTION OF RETIRING DIRECTOR

Financial adviser to Tianjin Development Holdings Limited

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Deloitte & Touche Corporate Finance Ltd.

Independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Proposed Spin-off, the Acquisition and the Terminations

A letter from Access Capital, the independent financial adviser to the Independent Board Committee and the Independent Shareholders, containing its advice in relation to the Proposed Spin-off, the Acquisition and the Terminations is set out on pages 45 to 77 of this circular.

A notice convening the Extraordinary General Meeting to be held at Kennedy Room, 7/F., Conrad Hotel, 88 Queensway, Hong Kong on 8 May 2006 at 9:30 a.m. is set out on pages 178 to 181 of this circular. Whether or not you intend to attend the Extraordinary General Meeting in person, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return the same to the share registrar of the Company, Tengis Limited at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the Extraordinary General Meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the Extraordinary General Meeting or any adjournment thereof should you so wish.

22 April 2006

EXPECTED TIMETABLE

		2006
Last day for dealing in Shares cum-entitlement	to
the Preferential Offer . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 May
Latest time for lodging transfers of Shares
to qualify for the Preferential Offer . . . . .	. . . . . . . . . . . . . . . . . . .	4:30 p.m. on 4 May
Latest time for return of proxy forms in respect of
the Extraordinary General Meeting . . . . . .	. . . . . . . . . . . . . . . . . . .	9:30 a.m. on 6 May
Register of members of the Company closes	. . . . . from 9:00 a.m. to 4:30 p.m. on 8 May
Record Date for determining the entitlement to
the Preferential Offer . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 May
Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		9:30 a.m. on 8 May
Register of members of the Company re-opens	on . . . . . . . . . . . . . . . . . . . . . . . . . . 9 May

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	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
The Reorganisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
The Proposed Spin-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
The Preferential Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31
The Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
Continuing Connected Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	34
Share Option Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38
Re-election of Retiring Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38
Closure of Register of Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	39
Financial Effects of the Proposed Spin-off and the Acquisition. . . . . . . . . . . . . . .	39
Special Dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	41
Information on Spin-off of Toll Road Operations . . . . . . . . . . . . . . . . . . . . . . . .	41
Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	41
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	42
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	42
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	42
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . .	44
Letter from Access Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	45
Appendix I – Financial Information on the Group . . . . . . . . . . . . . . . . . . . . . .	78
Appendix II – Financial Results of the Group for the
year ended 31 December 2005. . . . . . . . . . . . . . . . . . . . . . . . . .	136
Appendix III – Summary of the Principal Terms of the
Share Option Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	153
Appendix IV – Details of Mr. Zhang Wenli. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	166
Appendix V – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	167
Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	178

Form of proxy

– ii –

DEFINITIONS

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

“ABN AMRO Rothschild”

ABN AMRO Rothschild (being the unincorporated equity capital markets joint venture between ABN AMRO Bank N.V., Hong Kong Branch and N M Rothschild & Sons (Hong Kong) Limited, each trading as ABN AMRO Rothschild), acting as the joint bookrunner and joint lead manager of the Share Offer and ABN AMRO Bank N.V., Hong Kong Branch is licensed by the SFC to conduct type 1 (dealing in securities), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities as defined under the SFO and N M Rothschild & Sons (Hong Kong) Limited is licensed by the SFC to conduct type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities as defined under the SFO

“Access Capital”

Access Capital Limited, a licensed corporation under the SFO permitted to carry out types 1, 4, 6 and 9 regulated activities and the independent financial advisor to the Independent Board Committee and the Independent Shareholders in respect of the Proposed Spin-off, the Acquisition and the Terminations

“Ace Advantage”

Ace Advantage Investments Limited, a company incorporated in the British Virgin Islands with limited liability on 26 July 2005 and a wholly-owned subsidiary of the Company as at the Latest Practicable Date and will, upon completion of the Reorganisation, become a wholly-owned subsidiary of Tianjin Port Development that in turn holds the entire equity interest in Tianjin Container

“Acquisition”

the proposed acquisition of the Properties and the Port Equipment by the Tianjin Port Development Group as contemplated under the Sale and Purchase Agreements

“associate(s)”
has the meaning ascribed to it under the Listing Rules
“Assured Entitlement”
the entitlement of a Qualifying Shareholder to apply for Reserved Shares under the Preferential Offer on the basis of one Reserved Share for every multiple of approximately 15.6258 existing Shares held by each Qualifying Shareholder at the close of business on the Record Date

– 1 –

DEFINITIONS

“Board” the board of Directors
“Business Allocation the undertakings given by Tianjin Port Authority Undertakings” pursuant to the Connected Transactions Agreement, which is more particularly described in sub-paragraph (2)(b) “Business Allocation Undertakings” under the section headed “The Reorganisation”
“business day” any day (excluding Saturday and Sunday) on which banks in Hong Kong are generally open for business
“BVI” British Virgin Islands
“Coastal Rapid” Coastal Rapid Transit Company Limited, an exempted company incorporated in the Cayman Islands on 14 January 2003 with limited liability. It is currently a 78% owned subsidiary of the Company principally engaged in the construction, development, operation, management of and toll collection on toll roads and toll expressway and related businesses
“CCASS” the Central Clearing and Settlement System established and operated by HKSCC
“CLSA” or “Sponsor” CLSA Equity Capital Markets Limited, a licensed corporation under the SFO, licensed under transitional arrangements (migration application lodged) to conduct Types 4 and 6 regulated activities under the SFO
“CLSA Limited” or “Global Coordinator”
CLSA Limited, a licensed corporation under the SFO, authorised to conduct Types 1 and 4 regulated activities under the SFO
“Communications Services” the provision of communications services by Tianjin Communications Navigation Company ( ) to the Tianjin Port Development Group
“Company”
Tianjin Development Holdings Limited, a company incorporated in Hong Kong with limited liability on 9 May 1997 and the shares of which are listed on the main board of the Stock Exchange and which will become the indirect controlling shareholder of Tianjin Port Development upon completion of the Share Offer
“Companies Ordinance”

the Companies Ordinance (Chapter 32 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time

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DEFINITIONS

“Connected Transactions Agreement”
“Continuing Connected Transactions”
“Deed of Termination”
“Deloitte”
“Director(s)”
“Electricity Supply Services”
“Extraordinary General Meeting”
“Fee Collection Services”
“Group”
the agreement entered into between, among others, the Company and Tianjin Port Authority on 1 December 1997 in respect of various connected transactions including the leasing of the land use rights, pier, railway, warehouse and storage facilities at the port of Tianjin, the provision of utilities services such as electricity, water and communications, the Business Allocation Undertakings as well as the Pre-emptive Rights. Full details of the Connected Transactions Agreement are set out in the prospectus of the Company dated 2 December 1997
the Fee Collection Services, Water Supply Services, Communications Services and Electricity Supply Services
the deed of termination to be entered into between the Company and Tianjin Port Group, details of which are set out in the paragraph headed “(1) The Reorganisation”
Deloitte & Touche Corporate Finance Limited, the financial adviser to the Company and a company which is deemed licensed under the SFO for the regulated activities of dealing in securities, advising on securities and advising on corporate finance
the director(s) of the Company
the supply of electricity by Tianjin Port Electricity Company ( ) to the Tianjin Port Development Group
the extraordinary general meeting of the Company to be held at Kennedy Room, 7/F., Conrad Hotel, 88 Queensway, Hong Kong on 8 May 2006 at 9:30 a.m., notice of which is set out on pages 178 to 181 of this circular
the collection of various fees, including but not limited to port construction fees and port management fees by each of Tianjin Container and Tianjin Second Stevedoring, from their customers on behalf of, and for forwarding to, Tianjin Port Group

the Company and its subsidiaries (including the Tianjin Port Development Group)

– 3 –

DEFINITIONS

“Historical Agreements” the agreements entered into between the Group and Tianjin Port Authority in 1997 in relation to the leasing of the Properties and certain port equipment and various services including the collection of port administration fee, provision of container reconfiguration storage, supporting and auxiliary services and inventory management and material supplies
“HK$” or “HK dollars” Hong Kong dollars, the lawful currency of Hong Kong
“HKSCC”
Hong Kong Securities Clearing Company Limited, a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited
“Hong Kong” or “HK” the Hong Kong Special Administrative Region of the PRC
“Independent Board Committee”
the board committee comprising Mr. Kwong Che Keung, Gordon, Mr. Lau Wai Kit and Dr. Cheng Hon Kwan, all independent non-executive Directors, appointed to advise the Independent Shareholders in respect of the Proposed Spin-off, the Acquisition and the Terminations
“Independent Shareholders”
Shareholders other than Tsinlien and its associates
“International Underwriters”
the underwriters of the international placing and the Preferential Offer as mentioned in the Prospectus
“Joint Bookrunners” or “Joint Lead Managers”
CLSA Limited and ABN AMRO Rothschild
“Latest Practicable Date”
20 April 2006, being the latest practicable date prior to the printing of this circular for determining certain information for the purpose of inclusion in this circular
“Leadport Holdings”
Leadport Holdings Limited, a company incorporated in the British Virgin Islands with limited liability on 8 July 2005, a wholly-owned subsidiary of the Company and the immediate controlling shareholder of Tianjin Port Development
“Listing Rules”
the Rules Governing the Listing of Securities on the Stock Exchange, as amended from time to time

– 4 –

DEFINITIONS

“Offer Price” the final price per Tianjin Port Development Share fixed at a HK$ amount (exclusive of brokerage, SFC transaction levy and Stock Exchange trading fee) at which the Tianjin Port Development Shares are to be subscribed for and issued pursuant to the Share Offer, as described in the Prospectus

“Over-allotment Option” the option to be granted by Tianjin Port Development to the International Underwriters under the underwriting agreement relating to the Share Offer pursuant to which Tianjin Port Development may be required to allot and issue up to an aggregate of 86,700,000 additional Tianjin Port Development Shares at the Offer Price to cover over-allocations in connection with the Share Offer
“Port Equipment” 2 portainers and 1 transtainer being used by the Tianjin Port Development Group
“PN15” practice note 15 of the Listing Rules
“PRC” or “China” the People’s Republic of China, except where the context otherwise requires, geographical references in this circular to the PRC or China exclude Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan
“Pre-emptive Rights” certain pre-emptive rights and options granted by Tianjin Port Authority to the Company under the Connected Transactions Agreement, details of which are set out in the sub-paragraph headed “(2)(c) Termination of Pre-emptive Rights” under the section headed “The Reorganisation”
“Preferential Offer”
the proposed preferential offer to the Qualifying Shareholders for subscription of the Reserved Shares at the Offer Price, on and subject to the terms and conditions as described in the Prospectus, details of which are set out in the paragraph headed “Preferential Offer” below
“Properties” certain land use rights, two berths, railways and storage space located at the port of Tianjin, further details of which are set out on page 32 of this circular
“Proposed Spin-off”
the proposed Reorganisation and separate listing of the Tianjin Port Development Shares on the main board of the Stock Exchange

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DEFINITIONS

“Prospectus” the prospectus proposed to be issued by Tianjin Port Development in relation to the Share Offer
“Public Offer”
the offer of Tianjin Port Development Shares for subscription by the public in Hong Kong at the Offer Price under the Share Offer as described in the Prospectus
“Qualifying Shareholders” registered holders of the Shares, in or outside Hong Kong, whose names appear on the register of members of the Company at the close of business on the Record Date
“Record Date” 8 May 2006, being the date for ascertaining the Assured Entitlements
“Remaining Group” the Group, excluding the Tianjin Port Development Group
“Reorganisation”
the reorganisation of the Group in preparation for the listing of the Tianjin Port Development Shares, which is more particularly described in the sub-section headed “(1) The Reorganisation”
“Reserved Shares”
61,200,000 Tianjin Port Development Shares, representing approximately 3.6% of the enlarged share capital of Tianjin Port Development upon completion of the Share Offer (assuming that the Over-allotment Option is not exercised), subject to adjustment, being offered pursuant to the Preferential Offer
“RMB” or “Renminbi”
Renminbi Yuan, the lawful currency of the PRC
“Sale and Purchase Agreements”
the sale and purchase agreements to be entered into between (i) each of Tianjin Container and Tianjin Second Stevedoring with Tianjin Port Group and Tianjin Land Bureau; (ii) each of Tianjin Container and Tianjin Second Stevedoring with Tianjin Port Group; and (iii) Tianjin Container and Tianjin Port Group in relation to the Acquisition
“Securities and Futures Ordinance” or “SFO”
the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
“SFC”
the Securities and Futures Commission of Hong Kong

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DEFINITIONS

“Share(s)”
ordinary share(s) of nominal value HK$0.10 each in the share capital of the Company
“Share Offer”
the offering of Tianjin Port Development Shares under the Proposed Spin-off as described in the Prospectus
“Share Option Scheme” the share option scheme proposed to be conditionally adopted by Tianjin Port Development, the principal terms of which are summarised in Appendix III to this circular
“Shareholder(s)” the shareholder(s) of the Company
“Shinesun Investments” Shinesun Investments Limited, a company incorporated in the British Virgin Islands with limited liability on 5 July 2005 and a wholly-owned subsidiary of the Company as at the Latest Practicable Date and which will, upon completion of the Reorganisation, become a wholly-owned subsidiary of Tianjin Port Development that in turn holds the entire equity interest in Tianjin Second Stevedoring
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“subsidiary”
has the meaning ascribed thereto in section 2 of the Companies Ordinance
“Substantial Shareholder” has the meaning ascribed thereto in the Listing Rules
“Terminations”
the termination of the Historical Agreements and the Pre-emptive Rights
“Tianjin Container”
Tianjin Port Container Terminal Co., Limited ( ), a company incorporated in the PRC
in April 1980 as a state-owned enterprise and converted into a foreign-owned enterprise on 25 October 1997. As at the Latest Practicable Date, it is a wholly-owned subsidiary of the Company
“Tianjin Government” Tianjin Municipal Government of the PRC
“Tianjin Investment”

Tianjin Investment Holdings Limited, a company incorporated in the British Virgin Islands with limited liability on 9 July 1997, a wholly-owned subsidiary of Tsinlien and the immediate holding company of the Company

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DEFINITIONS

“Tianjin Land Bureau”

Bureau of Land Resources and Housing Management of Tianjin Municipality ( )

“Tianjin Port Authority” the former government regulatory body of the port of Tianjin and, prior to the reorganisation of Tianjin Port Group as a wholly-state-owned company in July 2004, the then owner and operator of the businesses now owned by Tianjin Port Group
“TPA Reorganisation”
the reorganisation of Tianjin Port Authority in July 2004, which is more particularly described in the paragraph headed “(a) Background” of paragraph (2) “Business Allocation Undertakings and Termination of Pre-emptive Rights” under the section headed “The Reorganisation”
“Tianjin Port Development”
Tianjin Port Development Holdings Limited, a company incorporated in the Cayman Islands on 26 August 2005, which is expected to indirectly hold the entire equity interest in each of Tianjin Container and Tianjin Second Stevedoring after the Reorganisation
“Tianjin Port Development Group”
the group of companies proposed to be formed by way of Tianjin Port Development acquiring the entire equity interest in each of Tianjin Container and Tianjin Second Stevedoring
“Tianjin Port Development ordinary share(s) of HK$0.10 each in the share capital of Share(s)” Tianjin Port Development
“Tianjin Port Group”
Tianjin Port (Group) Co., Ltd. ( ), an entity reorganised as a wholly-state-owned company in the PRC on 29 July 2004 and the holding company of the businesses formerly owned and operated by Tianjin Port Authority
“Tianjin Second Stevedoring” Tianjin Harbour Second Stevedoring Co., Limited ( ), a state-owned company which was converted into a foreign-invested enterprise on 25 October 1997. As at the Latest Practicable Date, it is a wholly-owned subsidiary of the Company
“Tsinlien”

Tsinlien Group Company Limited, a company incorporated in Hong Kong with limited liability on 19 October 1979 which is controlled by the Tianjin Government and the controlling shareholder of the Company

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DEFINITIONS

“US$”			dollars of the United States of America, the lawful
			currency of the United States of America
“Water	Supply	Services”	the supply of water by Tianjin Port Construction and
			Engineering Company ( ) and to the
			Tianjin Port Development Group
“%”			percentage

Unless otherwise specified, statements contained in this circular assume no exercise of the Over-allotment Option and the options which may be granted under the Share Option Scheme.

In this circular, unless otherwise stated, certain amounts denominated in HK$ have been translated into US$ at an exchange rate of HK$7.80 = US$1.00 for illustration purposes only. Such conversions shall not be construed as representations that amounts in HK$ were or may have been converted into US$ at such rates or any other exchange rates.

In this circular, unless otherwise stated, certain amounts denominated in RMB have been translated into HK$ at an exchange rate of RMB1.04 = HK$1.00 for illustration purposes only. Such conversions shall not be construed as representations that amounts in RMB were or may have been converted into HK$ at such rates or any other exchange rates.

In the event of inconsistency between the Chinese name of the PRC entities mentioned in this circular and their English translation, the Chinese version shall prevail.

Unless otherwise stated, the unaudited figures contained in this circular are prepared under Hong Kong Financial Reporting Standards.

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LETTER FROM THE BOARD

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(Incorporated in Hong Kong SAR with limited liability under the Companies Ordinance) (Stock Code: 882)

Executive Directors: Mr. Wang Guanghao (Chairman) Dr. Ren Xuefeng (Vice Chairman) Mr. Yu Rumin (Vice Chairman) Dr. Zhang Hongru Mr. Nie Jiansheng Dr. Wang Jiandong Mr. Bai Zhisheng Mr. Zhang Wenli Mr. Sun Zengyin Dr. Pang Jinhua

Registered office: Suites 7-13, 36/F., China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong

Non-executive Directors:

Mr. Ye Disheng Mr. Cheung Wing Yui Mr. Kwong Che Keung, Gordon Mr. Lau Wai Kit Dr. Cheng Hon Kwan*

(* Independent non-executive Directors)

22 April 2006

To Shareholders

Dear Sir or Madam,

(1) POSSIBLE MAJOR TRANSACTION IN RELATION TO THE PROPOSED SPIN-OFF AND SEPARATE LISTING OF TIANJIN PORT DEVELOPMENT HOLDINGS LIMITED ON THE MAIN BOARD OF THE STOCK EXCHANGE OF HONG KONG LIMITED;

(2) PROPOSED DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION;

(3) CONNECTED TRANSACTIONS IN RELATION TO THE TERMINATIONS; (4) PROPOSED CONTINUING CONNECTED TRANSACTIONS; AND (5) RE-ELECTION OF RETIRING DIRECTOR

INTRODUCTION

The Proposed Spin-off, the Acquisition, the Terminations and the Continuing Connected Transactions

Reference is made to the announcement of the Company dated 12 September 2005 regarding the Proposed Spin-off.

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LETTER FROM THE BOARD

On 12 September 2005, the Board announced that the Company had submitted a formal application to the Stock Exchange for the separate listing of, and permission to deal in, the Tianjin Port Development Shares then in issue and to be issued under the Share Offer on the main board of the Stock Exchange. Prior to the separate listing of Tianjin Port Development, a group reorganisation will be implemented whereby the Company will transfer all of its container and non-containerised cargo handling businesses to Tianjin Port Development. Upon completion of the Proposed Spin-off, the business of the Tianjin Port Development Group will be distinct from that of the Remaining Group which will engage in (i) toll road operations; (ii) utilities operations consist of supply of water, electricity and thermal power; (iii) consumer products operations consist of production, sale and distribution of winery products and dairy products and (iv) strategic and other investments include property development and investments in gas fuel operations, elevator and escalator operations and bio-pharmaceutical operations.

It is proposed that new Tianjin Port Development Shares will be issued pursuant to the Proposed Spin-off. The Proposed Spin-off will constitute a possible major transaction for the Company under Chapter 14 of the Listing Rules. Since Tianjin Port Development would be a “major subsidiary” of the Company as defined under Rule 13.36 of the Listing Rules and the Company’s interest in Tianjin Port Development would be diluted by more than 5% upon completion of the Proposed Spin-off, the Proposed Spin-off will also constitute a material dilution for the Company. The Proposed Spin-off is conditional on, among other things, obtaining approvals from the Independent Shareholders on the resolution in respect of the Acquisition and the Terminations and that the Acquisition and the Terminations are part and parcel of, and conditional upon, the Proposed Spin-off. In light of the above, it is considered that Tsinlien has a material interest in the Proposed Spin-off. As such, Tsinlien and its associates are required to abstain from voting at the Extraordinary General Meeting in relation to the Proposed Spin-off.

Assuming that the Over-allotment Option is not exercised, the Company will be interested in 66% of the enlarged total issued share capital of Tianjin Port Development immediately following completion of the Proposed Spin-off.

In connection with the Proposed Spin-off, the Preferential Offer will be made to Qualifying Shareholders and Tianjin Port Development will adopt the Share Option Scheme. Shareholders’ approvals are required for the Proposed Spin-off and the adoption of the Share Option Scheme. Access Capital has been appointed as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Proposed Spin-off, the Acquisition and the Terminations.

In preparation for the separate listing of the Tianjin Port Development Shares on the Stock Exchange, the Group will implement the Reorganisation. As part of the Reorganisation, the Company will also enter into the Deed of Termination with Tianjin Port Group.

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LETTER FROM THE BOARD

Prior to the listing of Tianjin Port Development, each of Tianjin Container and Tianjin Second Stevedoring will enter into the Sale and Purchase Agreements with, among others, Tianjin Port Group for the Acquisition and certain subsidiaries of the Tianjin Port Development Group will also enter into agreements with Tianjin Port Group to terminate the Historical Agreements and the Company will enter into the Deed of Termination with Tianjin Port Group to terminate the Pre-emptive Rights. Since the Stock Exchange has exercised its discretion under Rule 14A.06 of the Listing Rules to deem Tianjin Port Group as a connected person (as defined in the Listing Rules) of both the Company and Tianjin Port Development, the Acquisition and the Terminations are subject to the approval of the Independent Shareholders by way of poll at the Extraordinary General Meeting. Since the relevant percentage ratios (as defined under Chapter 14 of the Listing Rules) in respect of the Acquisition are more than 5% but less than 25%, the Acquisition will constitute a discloseable and connected transaction for the Company.

Each of Tianjin Container and Tianjin Second Stevedoring will also enter into service agreements with Tianjin Port Group for the Continuing Connected Transactions which will be subject to, among other things, the connected transactions requirements under Chapter 14A of the Listing Rules following the Proposed Spin-off.

Re-election of the Retiring Director

In accordance with paragraph A.4.2 of the Code on Corporate Governance Practices of the Listing Rules, Mr. Zhang Wenli, an executive Director who was appointed to fill a causal vacancy with effect from 20 March 2006, will be proposed to be re-elected as an executive Director at the Extraordinary General Meeting.

The purposes of this circular are: (1) to provide Shareholders with information on the reasons for, and the benefits of, the Proposed Spin-off, the Preferential Offer and such other information relating to the Proposed Spin-off as required by the Listing Rules for a major transaction of the Company; (2) to provide Shareholders with information on the Acquisition, the Terminations and the Continuing Connected Transactions; (3) to set out the recommendation of the Independent Board Committee to the Independent Shareholders in respect of the Proposed Spin-off, the Acquisition and the Terminations; (4) to set out the letter of advice from Access Capital which contains its recommendation to the Independent Board Committee and the Independent Shareholders; (5) to provide financial information of the Group; (6) to provide Shareholders with details relating to re-election of Mr. Zhang Wenli as an executive Director; (7) to provide Shareholders with details on the Share Option Scheme; and (8) to give notice to Shareholders of the Extraordinary General Meeting at which ordinary resolutions will be proposed to approve the Proposed Spin-off, the Acquisition and the Terminations by way of poll and to approve the re-election of Mr. Zhang Wenli as an executive Director and the Share Option Scheme.

Shareholders and potential investors should note that the Proposed Spin-off, which is subject to a number of conditions, may or may not proceed. In particular, there is no assurance that approval from the Stock Exchange will be granted. Accordingly, Shareholders and potential investors are urged to exercise extreme caution when dealing in the Shares.

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LETTER FROM THE BOARD

THE REORGANISATION

(1) The Reorganisation

In preparation for the separate listing of the Tianjin Port Development Shares on the Stock Exchange, the Group will implement the Reorganisation.

As part of the Reorganisation, Tianjin Port Development was incorporated by the Company in the Cayman Islands on 26 August 2005. Following the incorporation of Tianjin Port Development, a number of reorganisation steps have been taken and will be taken to transfer the container and non-containerised cargo handling businesses within the Group to Tianjin Port Development in preparation for the separate listing of the Tianjin Port Development Shares and to effect a rationalisation of the group structure. The objective of the Reorganisation is to establish Tianjin Port Development as the holding company for the Group’s interests in the container and non-containerised cargo handling companies.

The Reorganisation involves the following principal steps:

(a) on 26 July and 5 July 2005, Ace Advantage and Shinesun Investments were incorporated in the British Virgin Islands respectively;
(b) on 19 August 2005, 1 subscriber share of par value US$1.00 in each of Ace Advantage and Shinesun Investments was transferred to the Company for cash consideration of US$1.00 each;
(c) on 26 August 2005, Tianjin Port Development was incorporated in the Cayman Islands. On the same date, 1 subscriber share of par value of HK$1.00 of Tianjin Port Development was transferred to Leadport Holdings;
(d) on 12 September 2005, the Company entered into an agreement to transfer its entire equity interest in Tianjin Container to Ace Advantage in consideration of which, Ace Advantage agreed to allot and issue 99 shares to the Company, credited as fully paid;
(e) on 12 September 2005, the Company entered into an agreement to transfer its entire equity interest in Tianjin Second Stevedoring to Shinesun Investments in consideration of which Shinesun Investments agreed to allot and issue 99 shares to the Company, credited as fully paid;
(f) on 28 September 2005, Tianjin Second Stevedoring transferred its entire 42.5% interest in the registered capital of Tianjin Ally Thrive International Trade Transportation Co. Ltd. ( ) to Tianjin Port Tax Concession Zone Lianda Service Centre ( ), an independent third party to the Group; and

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LETTER FROM THE BOARD

(g) Tianjin Port Development will acquire the entire issued share capital of Ace Advantage and Shinesun Investments from the Company and will allot and issue 1,121,999,990 new Tianjin Port Development Shares to Leadport Holdings, credited as fully paid, in consideration of the above acquisition.

(2) Business Allocation Undertakings and Terminations

(a) Background

In 1997, the Connected Transactions Agreement was entered into between, among others, the Company and Tianjin Port Authority to govern the Business Allocation Undertakings, the Pre-emptive Rights and certain other agreements between the parties. The Business Allocation Undertakings were stated to cease to have effect when Tianjin Port Authority ceased to have administrative authority to allocate cargoes at the port of Tianjin. In July 2004, Tianjin Port Authority undertook a reorganisation in response to the policy announced by the State Council of the PRC on 23 November 2001, pursuant to which Tianjin Port Group was reorganised on 29 July 2004 to take over all of the businesses previously owned and managed by Tianjin Port Authority, while Tianjin Port Authority’s administrative functions were assumed by the Tianjin Communications Commission (the “TPA Reorganisation”). Upon the TPA Reorganisation, the Connected Transactions Agreement and other agreements previously entered into between the Group and Tianjin Port Authority were subsequently assumed and performed by Tianjin Port Group and its subsidiaries and remained subsisting as at the Latest Practicable Date. Such agreements include four lease agreements in respect of leasing of the Properties, one lease agreement in respect of certain port equipments and various service agreements for the collection of port administration fee, provision of container reconfiguration service, supporting and auxiliary services and inventory management and materials supplies (collectively, the “Historical Agreements”). The validity, legality and enforceability of the Historical Agreements were not affected by the TPA Reorganisation. The Board is of the view that the TPA Reorganisation has not, and will not, have any negative impact on the business, operations and/or financials of the Group. Further details relating to these agreements will be made available in the Prospectus. However, pursuant to the Connected Transactions Agreement, the Business Allocation Undertakings ceased to have legal effect upon the TPA Reorganisation. The Board has reached the view that the Pre-emptive Rights should not remain with the Group following the Proposed Spin-off.

(b) Business Allocation Undertakings

As disclosed in the Company’s prospectus dated 2 December 1997, Tianjin Container and Tianjin Second Steverdoring relied on Tianjin Port Authority in the past for allocation of the majority of their business and customers. Under the Connected Transactions Agreement disclosed in the Company’s prospectus dated 2 December 1997, Tianjin Port Authority agreed that, only and for so long as it retained the authority to allocate cargoes at the port of Tianjin, it would ensure that, among other things, not less than 50% of the annual container throughput and not less than 20% of the annual non-containerised cargo throughput at the port of Tianjin were allocated to the Group from 1 January 1999 onwards (the “Business Allocation Undertakings”).

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LETTER FROM THE BOARD

The Business Allocation Undertakings were in the nature of performance guarantees given by Tianjin Port Authority at the time when the Company was listed on the Stock Exchange in 1997 to ensure that Tianjin Container and Tianjin Second Stevedoring would be guaranteed minimum percentages of business at the port of Tianjin. The Business Allocation Undertakings did not, in any way, restrict the Group from developing its own business and customers since 1997. The Business Allocation Undertakings were also stated not to apply in certain circumstances, such as customers not being satisfied with the quality of the services the Group provided or the capacity of Tianjin Container or Tianjin Second Stevedoring being unable to handle the amounts of throughput to ensure that the relevant percentages were met.

The Group’s port-related business has continually evolved and developed during the eight years since the listing of the Company in 1997 and has experienced steady growth in both operational and financial performance. In line with the development of the Group’s own marketing and sales capabilities and the adoption of various measures to improve and maximise the results and profits of the port-related business of the Group, its reliance on business being allocated or referred to it by Tianjin Port Authority has steadily declined.

In fact, the Business Allocation Undertakings became increasingly unimportant to the Company long before they ceased to have legal effect in July 2004, which can be demonstrated as follows:

(i) Success in maintaining long-standing relationships with the majority of its key customers

A large number of the Group’s key customers that were originally “allocated” to the Group continued their business relationships with the Group without formally going through a further process of “allocation” and notwithstanding that such customers have been free to transfer their businesses to other operators at the port of Tianjin at any time. In fact, as at 31 December 2005, Tianjin Container had maintained relationships of over five years’ duration with four out of its five largest customers and Tianjin Second Stevedoring had maintained relationships of over five years’ duration with three out of its five largest customers. The aggregate turnover from the five largest customers of Tianjin Container and Tianjin Second Stevedoring accounted for approximately 29.54%, 24.24% and 31.82% of the total turnover of Tianjin Container and Tianjin Second Stevedoring for the three years ended 31 December 2005, respectively. These figures demonstrate the success of the Group in maintaining long-standing relationships with the majority of its customers, who account for the bulk of the Group’s revenue from port operations, and continuing to develop relationships with customers that were originally “allocated” to it by Tianjin Port Authority. As disclosed in the prospectus of the Company in 1997, Tianjin Port Authority conducted allocation on the basis of a number of different factors and not all customers were referred to the Group by Tianjin Port Authority. The Group has been, without restriction, allowed to develop and solicit its own customers and develop its own sales and marketing team, which has enabled the Group to generate new customers and maintain relationships with existing customers since

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The total number of customers for the Group’s port services has grown from not less than 43 as at the date of listing of the Company in 1997 to not less than 91 as at the Latest Practicable Date.

(ii) Various measures in developing direct relationships with its customers

Over the years, the Group has, among other things, expanded its own sales force from 9 staff as at the date of listing of the Company in 1997 to 20 staff currently, implemented its own marketing initiatives aimed at retaining premium customers and developing customer relationships and evaluated the efficiency and capacity of its software, logistic services and equipment on a regular basis in order to maintain its competitiveness in the port operations.

(iii) Improvement in operational efficiency, capacity and service quality

With the increasingly competitive operating environment, the Group is acutely aware that its customers always have freedom of choice in respect of port locations and terminal operators within any port and have always been free to cease using the services of the Group. The Board believes that the ability to provide customers with an efficient, high quality and competitive service has always been fundamental to the continued success of the Group’s port operations. Therefore, the Group has strived to maintain its competitiveness in port operations through continuous improvement in its equipment, operational efficiency and capacity as well as service quality such as, upgrading of the container facilities, conversion of non-containerised cargo berths into container berths, adoption of information management system, development of grain handling facilities and accreditation of international quality and management standards.

(iv) It has not been necessary or feasible to enforce Business Allocation Undertakings historically

The container and non-containerised cargo throughput handled by the Group over the years has increased in terms of the actual handling volumes and in respect of container throughput, has substantially achieved the minimum guaranteed percentage laid down in the Business Allocation Undertakings. The overall increase in handling volumes was attributable to the success of Tianjin Container and Tianjin Second Stevedoring in maintaining long-standing relationships with the majority of their customers, developing direct relationships with customers, improvement in the operational efficiency, capacity and service quality as described above and, more importantly, the overall rapid growth of the container and non-containerised cargo throughput at the port of Tianjin throughout these years.

However, as disclosed in the annual reports of the Company since 2000, Tianjin Container once reached its maximum handling capacity in year 2000 and Tianjin Second Stevedoring has reached its maximum handling capacity since 2001. Further, as disclosed in the Company’s annual reports for 2003 and 2004, the Group has dealt with approximately 49.5% and approximately 47.4% of the

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LETTER FROM THE BOARD

annual container throughput and approximately 17.5% and approximately 10.2% of the annual non-containerised cargo throughput at the port of Tianjin for the two years ended 31 December 2004, respectively. Therefore, notwithstanding Tianjin Port Authority’s undertaking that the Group would handle not less than 50% of the annual container throughput and not less than 20% of the annual non-containerised cargo throughput at the port of Tianjin from 1 January 1999 onwards, the actual container and non-containerised cargo throughput handled by the Group since 2001 did not reach these threshold percentages partly due to the nearly maximum utilisation rates of Tianjin Container and Tianjin Second Stevedoring. Given the growth in the actual cargo handling volumes and the approaching maximum handling capacity as mentioned above, it has not been necessary or feasible for the Group to seek to enforce the Business Allocation Undertakings from Tianjin Port Authority.

(v) Results of Tianjin Port Development not affected

Although the Business Allocation Undertakings ceased to have legal effect in July 2004, the cessation of the Business Allocation Undertakings has had no negative effect on the operating and financial performances of the Tianjin Port Development Group, which is evident by the fact that the Tianjin Port Development Group still managed to increase its turnover and profit for the two years ended 31 December 2005.

The business of Tianjin Container and Tianjin Second Stevedoring has gradually shifted from one that relied on both the coordination of customers by Tianjin Port Authority and the standard of service provided to customers, to one that relies solely on external commercial factors, including the standard of service provided to customers, as well as the Group’s marketing and sales capabilities and, in respect of our non-containerised business, pricing of the services provided. Details of the development of the businesses of Tianjin Container and Tianjin Second Stevedoring since the listing of the Company in 1997 have been disclosed in the “Management Discussion and Analysis” sections of the annual reports of the Company issued each year since 1998 (the “Annual Reports”) which have provided Shareholders with such information annually.

The Board would like to emphasise to the Shareholders that a breakdown of allocated and non-allocated business for each year would not be possible to collate since the Group has long-standing relationships with the majority of its customers, who account for the bulk of the Group’s revenue from port operations, and the Group has continued to develop relationships with customers that were originally “allocated” to it by Tianjin Port Authority. Any attempt to quantify the portion of business from such customers that was originally “allocated” to the Group, as compared to the volume of “non-allocated” business due to the Group’s own ongoing development of such customers, would involve subjective judgements that would prevent an accurate and verifiable determination of revenue generated by allocated and non-allocated business. As such, the disclosures in relation to the Business Allocation Undertakings in the “Connected Transactions” section in the Annual Reports only confirmed that the Group

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LETTER FROM THE BOARD

had “dealt with” or “handled” certain levels of throughput during the relevant financial years covered by those reports that were compared by way of percentage to the overall throughput at the port of Tianjin. Such disclosures do not specify that the volumes of business “handled” or “dealt with” by the Group were actually attributable to the Business Allocation Undertakings nor were they intended to indicate that the Company had sought to enforce or strictly rely upon the terms of the Business Allocation Undertakings, for the reasons mentioned above.

(c) Terminations

1. Historical Agreements

In order to reduce the level of reliance on Tianjin Port Group, the Tianjin Port Development Group has entered into/will enter into agreements to terminate the Historical Agreements with Tianjin Port Group prior to the listing of Tianjin Port Development.

The Board considered that the termination of the Historical Agreements will not have any material adverse impact on the Group’s operations as the Group has negotiated with Tianjin Port Group for the purchases of the Properties and the Port Equipment under the Sale and Purchase Agreements and will be entitled to use and occupy the Properties at nil consideration prior to the issuance of the new land use rights certificates of the Properties. In respect of the service agreements for container reconfiguration storage and inventory management and material supplies, all of which were terminated on 31 March 2006, and the needs for container reconfiguration storage and inventory management have been fulfilled internally as the Tianjin Port Development Group has upgraded its existing facilities by purchasing a new 90,000 square metres container stacking facility with a 10,000 square metres distribution warehouse in 2004. As for materials supplies, the materials were miscellaneous in nature and the Tianjin Port Development Group has been able to source from independent third party providers since the termination of the agreement on 31 March 2006. In respect of the supporting and auxiliary services, the Tianjin Port Development Group expects that such service needs can also be satisfied internally. Hence, the Directors believe that the termination of the Historical Agreements will not have any material adverse impact on the Group’s operations.

2. Pre-emptive Rights

For the purpose of delineating the container and non-containerised cargo businesses from the Remaining Group, the Board is of the view that the following pre-emptive rights and options (the “Pre-emptive Rights”) in respect of investments and facilities within the port of Tianjin granted by the Tianjin Port Authority to the Company under the Connected Transactions Agreement entered into in 1997, should be terminated before the listing of Tianjin Port Development:

(i) the right of first refusal to develop, operate and invest in any new container handling operations in the port of Tianjin;

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LETTER FROM THE BOARD

(ii) the right of first refusal to develop, operate and invest in any new non-containerised cargo handling operation in the port of Tianjin (except the new coke terminal located at Nanjiang ( ));
(iii) the right of first refusal to participate in any further capital investment of an amount of over US$5 million in any of (Tianjin Harbour First Stevedoring Company), (Tianjin Harbour Third Stevedoring Company), (Tianjin Harbour Fourth Stevedoring Company), (Tianjin Harbour Fifth Stevedoring Company) and (Tianjin Harbour Sixth Stevedoring Company*) (together referred to as the “Other Stevedoring Companies” hereinafter); and
(iv) options to acquire any of the interests in any of the Other Stevedoring Companies and other stevedoring operation interests held from time to time by Tianjin Port Authority in the port of Tianjin, in the event Tianjin Port Authority ceases to have the authority to allocate non-containerised cargoes in the port of Tianjin.

One of the main reasons for the Proposed Spin-off is to delineate the container and non-containerised cargo handling businesses from the Remaining Group and to give investors an opportunity to separately appraise the position of the container and non-containerised cargo handling businesses through a separate listing. In order to delineate the business of Tianjin Port Development and that of the Group and to avoid the Group being treated as having a competing interest in the container and non-containerised cargo handling businesses following the listing of Tianjin Port Development, the Board reached the view that the Pre-emptive Rights should not remain with the Company following the Proposed Spin-off.

The Board has considered an assignment of the Pre-emptive Rights to Tianjin Port Development. Based on the advice of the PRC lawyers to Tianjin Port Development in relation to the Share Offer, an assignment of the Pre-emptive Rights may not be enforceable under PRC law since for any assignment of rights to be enforceable under PRC law, the prior consent of the grantor (i.e. Tianjin Port Group) would be required. Tianjin Port Group has indicated that it is unable to give such consent.

Hence, the Reorganisation also involves the entering into of the Deed of Termination between the Company and Tianjin Port Group. As a result of entering into the Deed of Termination, the Pre-emptive Rights will no longer exist and the Group will cease to have any interest in businesses relating to containerised and non-containerised cargo handling (other than its interest in the Tianjin Port Development Group) following the listing of Tianjin Port Development. Given that the Company has never sought to exercise the Pre-emptive Rights since it was granted to them in 1997 and the growth strategy of the Tianjin Port Development Group will be based on its enhancement of existing facilities and investment in a new terminal facility, the termination of such rights would not deprive the Tianjin Port Development Group from an investment opportunity that it would otherwise have an interest in pursuing. As such, the Board believes that it would be reasonable for the Group to terminate the Pre-emptive Rights immediately prior to the listing of Tianjin Port Development and that the entry of the Deed of Termination will not have any adverse impact on the Group.

* For identification purpose only

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LETTER FROM THE BOARD

In sum, as the business model of the port operations of the Group has not been changed nor have its operations been affected in any way as a result of Tianjin Port Authority ceasing to have the authority to allocate business in 2004, the Board is of the view that the TPA Reorganisation and the cessation of the Business Allocation Undertakings will not have any negative impact on the business, operations and/or financial position of the Group that would require the Company to issue an announcement under Rule 13.09 of the Listing Rules.

(3) Corporate Structure

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

Toll road business Coastal Rapid (Cayman Islands) (Note 1) 78% 100% 100% 100% 100% 100% 100% 82.7% 100% 100% 91.41% 94.36% Famous Ever Group Limited (BVI) Jetsome Holdings Limited (BVI) Santa Resources Limited (BVI) Tianjin Heavenly Palace Winery Co., Ltd. (PRC) Various subsidiaries engaged in the construction, management and operation of toll road and related businesses Tianjin Second Stevedoring (PRC) One subsidiary and various associated companies engaged in containerised and non- containerised cargo handling and related businesses Tianjin Container (PRC) Various subsidiaries and associated companies engaged in container handling and related businesses Various associated companies engaged in the manufacture, distribution and sale of dairy products Its 44.82% owned associated company, Dynasty Fine Wines Group Limited, is engaged in the manufacture, distribution and sale of winery products Its 22.79% owned associated company, Wah Sang Gas Holdings Limited, is engaged in the supply of fuel gas and related businesses Tianjin Gang Ning Real Estate Development Co., Ltd. (PRC) Engaged in property development of the Huayuan New Century City in Tianjin and one subsidiary engaged in the property management services Tianjin Tai Kang Industrial Co., Ltd. (PRC) Its 20% owned associated copany, Otis Elevator (China) Investment Company Limited is engaged in the manufacture and distribution of elevators and escalators and related services Its 27% owned associated company, China Walfen Medical Limited, holds 100% interest in a PRC subsidiary which is engaged in the research and sale of bio- pharmaceutical products Container and non-containerised cargo handling Consumer products Strategic and other investments The Company Onbase Limited (BVI) Tianjin TEDA Tsinlien Water Supply Co., Ltd. (Note 2) Tianjin TEDA Tsinlien Electric Power Co., Ltd. (Note 3) 90.94% Tianjin TEDA Tsinlien Heat & Power Co., Ltd. (Note 4) Utilities	Toll road business Coastal Rapid (Cayman Islands) (Note 1) 78% 100% 100% 100% 100% 100% 100% 82.7% 100% 100% 91.41% 94.36% Famous Ever Group Limited (BVI) Jetsome Holdings Limited (BVI) Santa Resources Limited (BVI) Tianjin Heavenly Palace Winery Co., Ltd. (PRC) Various subsidiaries engaged in the construction, management and operation of toll road and related businesses Tianjin Second Stevedoring (PRC) One subsidiary and various associated companies engaged in containerised and non- containerised cargo handling and related businesses Tianjin Container (PRC) Various subsidiaries and associated companies engaged in container handling and related businesses Various associated companies engaged in the manufacture, distribution and sale of dairy products Its 44.82% owned associated company, Dynasty Fine Wines Group Limited, is engaged in the manufacture, distribution and sale of winery products Its 22.79% owned associated company, Wah Sang Gas Holdings Limited, is engaged in the supply of fuel gas and related businesses Tianjin Gang Ning Real Estate Development Co., Ltd. (PRC) Engaged in property development of the Huayuan New Century City in Tianjin and one subsidiary engaged in the property management services Tianjin Tai Kang Industrial Co., Ltd. (PRC) Its 20% owned associated copany, Otis Elevator (China) Investment Company Limited is engaged in the manufacture and distribution of elevators and escalators and related services Its 27% owned associated company, China Walfen Medical Limited, holds 100% interest in a PRC subsidiary which is engaged in the research and sale of bio- pharmaceutical products Container and non-containerised cargo handling Consumer products Strategic and other investments The Company Onbase Limited (BVI) Tianjin TEDA Tsinlien Water Supply Co., Ltd. (Note 2) Tianjin TEDA Tsinlien Electric Power Co., Ltd. (Note 3) 90.94% Tianjin TEDA Tsinlien Heat & Power Co., Ltd. (Note 4) Utilities	Toll road business Coastal Rapid (Cayman Islands) (Note 1) 78% 100% 100% 100% 100% 100% 100% 82.7% 100% 100% 91.41% 94.36% Famous Ever Group Limited (BVI) Jetsome Holdings Limited (BVI) Santa Resources Limited (BVI) Tianjin Heavenly Palace Winery Co., Ltd. (PRC) Various subsidiaries engaged in the construction, management and operation of toll road and related businesses Tianjin Second Stevedoring (PRC) One subsidiary and various associated companies engaged in containerised and non- containerised cargo handling and related businesses Tianjin Container (PRC) Various subsidiaries and associated companies engaged in container handling and related businesses Various associated companies engaged in the manufacture, distribution and sale of dairy products Its 44.82% owned associated company, Dynasty Fine Wines Group Limited, is engaged in the manufacture, distribution and sale of winery products Its 22.79% owned associated company, Wah Sang Gas Holdings Limited, is engaged in the supply of fuel gas and related businesses Tianjin Gang Ning Real Estate Development Co., Ltd. (PRC) Engaged in property development of the Huayuan New Century City in Tianjin and one subsidiary engaged in the property management services Tianjin Tai Kang Industrial Co., Ltd. (PRC) Its 20% owned associated copany, Otis Elevator (China) Investment Company Limited is engaged in the manufacture and distribution of elevators and escalators and related services Its 27% owned associated company, China Walfen Medical Limited, holds 100% interest in a PRC subsidiary which is engaged in the research and sale of bio- pharmaceutical products Container and non-containerised cargo handling Consumer products Strategic and other investments The Company Onbase Limited (BVI) Tianjin TEDA Tsinlien Water Supply Co., Ltd. (Note 2) Tianjin TEDA Tsinlien Electric Power Co., Ltd. (Note 3) 90.94% Tianjin TEDA Tsinlien Heat & Power Co., Ltd. (Note 4) Utilities	Toll road business Coastal Rapid (Cayman Islands) (Note 1) 78% 100% 100% 100% 100% 100% 100% 82.7% 100% 100% 91.41% 94.36% Famous Ever Group Limited (BVI) Jetsome Holdings Limited (BVI) Santa Resources Limited (BVI) Tianjin Heavenly Palace Winery Co., Ltd. (PRC) Various subsidiaries engaged in the construction, management and operation of toll road and related businesses Tianjin Second Stevedoring (PRC) One subsidiary and various associated companies engaged in containerised and non- containerised cargo handling and related businesses Tianjin Container (PRC) Various subsidiaries and associated companies engaged in container handling and related businesses Various associated companies engaged in the manufacture, distribution and sale of dairy products Its 44.82% owned associated company, Dynasty Fine Wines Group Limited, is engaged in the manufacture, distribution and sale of winery products Its 22.79% owned associated company, Wah Sang Gas Holdings Limited, is engaged in the supply of fuel gas and related businesses Tianjin Gang Ning Real Estate Development Co., Ltd. (PRC) Engaged in property development of the Huayuan New Century City in Tianjin and one subsidiary engaged in the property management services Tianjin Tai Kang Industrial Co., Ltd. (PRC) Its 20% owned associated copany, Otis Elevator (China) Investment Company Limited is engaged in the manufacture and distribution of elevators and escalators and related services Its 27% owned associated company, China Walfen Medical Limited, holds 100% interest in a PRC subsidiary which is engaged in the research and sale of bio- pharmaceutical products Container and non-containerised cargo handling Consumer products Strategic and other investments The Company Onbase Limited (BVI) Tianjin TEDA Tsinlien Water Supply Co., Ltd. (Note 2) Tianjin TEDA Tsinlien Electric Power Co., Ltd. (Note 3) 90.94% Tianjin TEDA Tsinlien Heat & Power Co., Ltd. (Note 4) Utilities
Tianjin Ning R Estate Develo Co., Lt (PRC)	Gang eal pment d.	Tianjin Kang Industr Co., Lt (PRC)	Tai ial d.

		Its 20% owned associated copany, Otis Elevator (China) Investment Company Limited is engaged in the manufacture and distribution of elevators and escalators and related services

Notes:

The remaining interest in Coastal Rapid is held by Starwell Holdings Limited.
The remaining interest in Tianjin TEDA Tsinlien Water Supply Co., Ltd. is held by Tianjin TEDA Investment Holdings Limited.

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LETTER FROM THE BOARD

The remaining interest in Tianjin TEDA Tsinlien Electric Power Co., Ltd. is held by Tianjin TEDA Investment Holdings Limited.
The remaining interest in Tianjin TEDA Tsinlien Heat & Power Co., Ltd. is held by Tianjin TEDA Investment Holdings Limited.
(ii) Business and corporate structure of the Group upon completion of the Reorganisation but before the separate listing of the Tianjin Port Development Shares:

One subsidiary and various associated companies engaged in the containerised and non- containerised cargo handling and related businesses Tianjin Container (PRC) Toll road business Container and non-containerised cargo handling Coastal Rapid (Cayman Islands) (Note 1) Leadport Holdings (BVI) 78% 100% 100% 100% 100% 100% 100% 100% 100% 82.7% 100% 100% 91.41% 94.36% Famous Ever Group Limited (BVI) Jetsome Holdings Limited (BVI) Onbase Limited (BVI) Santa Resources Limited (BVI) Tianjin Heavenly Palace Winery Co., Ltd. (PRC) Various subsidiaries engaged in the construction, management and operation of toll road and related businesses Tianjin Port Development (Cayman Islands) Various associated companies engaged in the manufacture, distribution and sale of dairy products Its 44.82% owned associated company, Dynasty Fine Wines Group Limied, is engaged in the manufacture, distribution and sale of winery products Its 22.79% owned associated company, Wah Sang Gas Holdings Limited, is engaged in the supply of fuel gases and related businesses Tianjin Gang Ning Real Estate Development Co., Ltd. (PRC) Engaged in property development of the Huayuan New Century City in Tianjin and one subsidiary engaged in property management services Tianjin Tai Kang Industrial Co., Ltd. (PRC) Its 20% owned associated copany, Otis Elevator (China) Investment Company Limited is engaged in the manufacture and distribution of elevators and escalators and related services Its 27% owned associated company, China Walfen Medical Limited, holds 100% interest in a PRC subsidiary which is engaged in the research and sale of bio- pharmaceutical products Utilities Tianjin TEDA Tsinlien Water Supply Co., Ltd. (Note 2) 90.94% Tianjin TEDA Tsinlien Heat & Power Co., Ltd. (Note 4) Consumer products Strategic and other investments The Company Tianjin Second Stevedoring (PRC) Various subsidiaries and associated companies engaged in the container handling and related businesses Tianjin TEDA Tsinlien ~~Ele~~ctric Power Co., Ltd. (Note 3)	One subsidiary and various associated companies engaged in the containerised and non- containerised cargo handling and related businesses Tianjin Container (PRC) Toll road business Container and non-containerised cargo handling Coastal Rapid (Cayman Islands) (Note 1) Leadport Holdings (BVI) 78% 100% 100% 100% 100% 100% 100% 100% 100% 82.7% 100% 100% 91.41% 94.36% Famous Ever Group Limited (BVI) Jetsome Holdings Limited (BVI) Onbase Limited (BVI) Santa Resources Limited (BVI) Tianjin Heavenly Palace Winery Co., Ltd. (PRC) Various subsidiaries engaged in the construction, management and operation of toll road and related businesses Tianjin Port Development (Cayman Islands) Various associated companies engaged in the manufacture, distribution and sale of dairy products Its 44.82% owned associated company, Dynasty Fine Wines Group Limied, is engaged in the manufacture, distribution and sale of winery products Its 22.79% owned associated company, Wah Sang Gas Holdings Limited, is engaged in the supply of fuel gases and related businesses Tianjin Gang Ning Real Estate Development Co., Ltd. (PRC) Engaged in property development of the Huayuan New Century City in Tianjin and one subsidiary engaged in property management services Tianjin Tai Kang Industrial Co., Ltd. (PRC) Its 20% owned associated copany, Otis Elevator (China) Investment Company Limited is engaged in the manufacture and distribution of elevators and escalators and related services Its 27% owned associated company, China Walfen Medical Limited, holds 100% interest in a PRC subsidiary which is engaged in the research and sale of bio- pharmaceutical products Utilities Tianjin TEDA Tsinlien Water Supply Co., Ltd. (Note 2) 90.94% Tianjin TEDA Tsinlien Heat & Power Co., Ltd. (Note 4) Consumer products Strategic and other investments The Company Tianjin Second Stevedoring (PRC) Various subsidiaries and associated companies engaged in the container handling and related businesses Tianjin TEDA Tsinlien ~~Ele~~ctric Power Co., Ltd. (Note 3)	One subsidiary and various associated companies engaged in the containerised and non- containerised cargo handling and related businesses Tianjin Container (PRC) Toll road business Container and non-containerised cargo handling Coastal Rapid (Cayman Islands) (Note 1) Leadport Holdings (BVI) 78% 100% 100% 100% 100% 100% 100% 100% 100% 82.7% 100% 100% 91.41% 94.36% Famous Ever Group Limited (BVI) Jetsome Holdings Limited (BVI) Onbase Limited (BVI) Santa Resources Limited (BVI) Tianjin Heavenly Palace Winery Co., Ltd. (PRC) Various subsidiaries engaged in the construction, management and operation of toll road and related businesses Tianjin Port Development (Cayman Islands) Various associated companies engaged in the manufacture, distribution and sale of dairy products Its 44.82% owned associated company, Dynasty Fine Wines Group Limied, is engaged in the manufacture, distribution and sale of winery products Its 22.79% owned associated company, Wah Sang Gas Holdings Limited, is engaged in the supply of fuel gases and related businesses Tianjin Gang Ning Real Estate Development Co., Ltd. (PRC) Engaged in property development of the Huayuan New Century City in Tianjin and one subsidiary engaged in property management services Tianjin Tai Kang Industrial Co., Ltd. (PRC) Its 20% owned associated copany, Otis Elevator (China) Investment Company Limited is engaged in the manufacture and distribution of elevators and escalators and related services Its 27% owned associated company, China Walfen Medical Limited, holds 100% interest in a PRC subsidiary which is engaged in the research and sale of bio- pharmaceutical products Utilities Tianjin TEDA Tsinlien Water Supply Co., Ltd. (Note 2) 90.94% Tianjin TEDA Tsinlien Heat & Power Co., Ltd. (Note 4) Consumer products Strategic and other investments The Company Tianjin Second Stevedoring (PRC) Various subsidiaries and associated companies engaged in the container handling and related businesses Tianjin TEDA Tsinlien ~~Ele~~ctric Power Co., Ltd. (Note 3)	One subsidiary and various associated companies engaged in the containerised and non- containerised cargo handling and related businesses Tianjin Container (PRC) Toll road business Container and non-containerised cargo handling Coastal Rapid (Cayman Islands) (Note 1) Leadport Holdings (BVI) 78% 100% 100% 100% 100% 100% 100% 100% 100% 82.7% 100% 100% 91.41% 94.36% Famous Ever Group Limited (BVI) Jetsome Holdings Limited (BVI) Onbase Limited (BVI) Santa Resources Limited (BVI) Tianjin Heavenly Palace Winery Co., Ltd. (PRC) Various subsidiaries engaged in the construction, management and operation of toll road and related businesses Tianjin Port Development (Cayman Islands) Various associated companies engaged in the manufacture, distribution and sale of dairy products Its 44.82% owned associated company, Dynasty Fine Wines Group Limied, is engaged in the manufacture, distribution and sale of winery products Its 22.79% owned associated company, Wah Sang Gas Holdings Limited, is engaged in the supply of fuel gases and related businesses Tianjin Gang Ning Real Estate Development Co., Ltd. (PRC) Engaged in property development of the Huayuan New Century City in Tianjin and one subsidiary engaged in property management services Tianjin Tai Kang Industrial Co., Ltd. (PRC) Its 20% owned associated copany, Otis Elevator (China) Investment Company Limited is engaged in the manufacture and distribution of elevators and escalators and related services Its 27% owned associated company, China Walfen Medical Limited, holds 100% interest in a PRC subsidiary which is engaged in the research and sale of bio- pharmaceutical products Utilities Tianjin TEDA Tsinlien Water Supply Co., Ltd. (Note 2) 90.94% Tianjin TEDA Tsinlien Heat & Power Co., Ltd. (Note 4) Consumer products Strategic and other investments The Company Tianjin Second Stevedoring (PRC) Various subsidiaries and associated companies engaged in the container handling and related businesses Tianjin TEDA Tsinlien ~~Ele~~ctric Power Co., Ltd. (Note 3)
Tianjin Ning R Estate Develo Co., Lt (PRC)	Gang eal pment d.	Tianjin Kang Industr Co., Lt (PRC)	Tai ial d.

		Its 20% owned associated copany, Otis Elevator (China) Investment Company Limited is engaged in the manufacture and distribution of elevators and escalators and related services

Notes:

The remaining interest in Coastal Rapid is held by Starwell Holdings Limited.
The remaining interest in Tianjin TEDA Tsinlien Water Supply Co., Ltd. is held by Tianjin TEDA Investment Holdings Limited.

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LETTER FROM THE BOARD

The remaining interest in Tianjin TEDA Tsinlien Electric Power Co., Ltd. is held by Tianjin TEDA Investment Holdings Limited.
The remaining interest in Tianjin TEDA Tsinlien Heat & Power Co., Ltd. is held by Tianjin TEDA Investment Holdings Limited.
(iii) Proposed structure of the Tianjin Port Development Group upon completion of the Reorganisation but before the separate listing of the Tianjin Port Development Shares on the Stock Exchange:

==> picture [276 x 300] intentionally omitted <==

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

The Company
100%
Leadport Holdings
100%
Tianjin Port Development
100% 100%
Ace Advantage Shinesun Investments
100% 100%
Tianjin Second
Tianjin Port DevelopmentTianjin Container
Stevedoring
3 subsidiaries and 1 subsidiary and
3 associated companies 4 associated companies
----- End of picture text -----

THE PROPOSED SPIN-OFF

(1) The Proposed Spin-off

The final structure of the Share Offer will be decided by the Board and the board of directors of Tianjin Port Development. At present it is expected to be effected by way of offering new Tianjin Port Development Shares to the public in Hong Kong, a placing of new Tianjin Port Development Shares to professional, institutional and other investors and an offering of new Tianjin Port Development Shares to Qualifying Shareholders under the Preferential Offer and will be accompanied by a separate listing of Tianjin Port Development Shares on the main board of the Stock Exchange.

Pursuant to the Proposed Spin-off, a new issue of Tianjin Port Development Shares representing approximately 34% or approximately 37.2% (if the Over-allotment Option is exercised in full) of the enlarged issued share capital of Tianjin Port Development will be

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LETTER FROM THE BOARD

offered under the Share Offer. The new Tianjin Port Development Shares pursuant to the Share Offer will rank pari passu in all respects with the other Tianjin Port Development Shares then in issue and there is no restriction on the subsequent sale of such shares.

It is currently expected that the Proposed Spin-off will be conditional on, amongst other things, the following:

(i) conditional on obtaining approvals from the Independent Shareholders on the resolution to be proposed at the Extraordinary General Meeting in respect of the Acquisition and the Terminations as set out in (ii) below, the Independent Shareholders passing an ordinary resolution at the Extraordinary General Meeting approving, inter alia, the implementation of the Proposed Spin-off;
(ii) conditional on obtaining approvals from the Independent Shareholders on the resolution to be proposed at the Extraordinary General Meeting in respect of the Proposed Spin-off as set out in (i) above, the obtaining of the approvals by the Independent Shareholders at the Extraordinary General Meeting in respect of the Acquisition and the Terminations;
(iii) the Listing Committee granting approval for the Proposed Spin-off and/or the listing of, and permission to deal in, all the Tianjin Port Development Shares in issue and to be issued pursuant to the Share Offer (including the Tianjin Port Development Shares to be issued upon the exercise of the options that may be granted under the Share Option Scheme and the Over-allotment Option (if any)) and compliance with the stock admission requirements of HKSCC; and
(iv) the obligations of the underwriters under the underwriting agreement(s) to be entered into between, among other things, Tianjin Port Development, the Company and the underwriters in respect of the Share Offer becoming unconditional (including, if relevant, as a result of the waiver of any condition(s) by or on behalf of the underwriters) and the underwriting agreement(s) not being terminated in accordance with its terms or otherwise, on or before the dates and times to be specified therein.

If any of these and other applicable conditions are not fulfilled or waived prior to the dates and times to be specified, the Share Offer and the Proposed Spin-off will lapse, the Stock Exchange will be notified immediately and an announcement will be published by the Company and/or Tianjin Port Development as soon as practicable following such lapse.

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

(2) Separate Listing of Tianjin Port Development Shares

The Shares will continue to be listed on the main board of the Stock Exchange after the implementation of the Proposed Spin-off. The listing of the Tianjin Port Development Shares on the main board of the Stock Exchange is conditional upon the fulfilment or waiver of the conditions stated in paragraph (1) above.

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LETTER FROM THE BOARD

An application has been made to the Stock Exchange on 12 September 2005 for the listing of, and permission to deal in, the Tianjin Port Development Shares in issue and any new Tianjin Port Development Shares to be issued pursuant to the Proposed Spin-off (as set out in the Prospectus) including any Tianjin Port Development Shares that may be issued pursuant to the exercise of the Over-allotment Option, and any new Tianjin Port Development Shares that may be issued pursuant to the exercise of options granted under the Share Option Scheme. The Directors confirm that the Company complies with all the Proposed Spin-off requirements under PN15.

Subject to the granting of the listing of, and permission to deal in, the Tianjin Port Development Shares on the main board of the Stock Exchange as well as compliance with the stock admission requirements of HKSCC, the Tianjin Port Development Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the date of listing of the Tianjin Port Development Shares or such other date as may be determined by HKSCC. 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 Tianjin Port Development Group

In anticipation of the Proposed Spin-off, the Group will undergo the Reorganisation involving, among other things, the transfer of its container and non-containerised cargo handling businesses to Tianjin Port Development. Upon completion of the Proposed Spin-off, the Company will become Tianjin Port Development’s indirect controlling shareholder, holding 66% of its enlarged issued share capital (assuming that the Over-allotment Option is not exercised) through Leadport Holdings.

The principal operations of the Group and its associated companies can be categorised into four sectors, namely, (i) infrastructure operations, (ii) utilities operations, (iii) consumer products operations and (iv) strategic and other investments. Infrastructure operations consist of container and non-containerised cargo handling operations at the port of Tianjin, and toll road operations of the Eastern Outer Ring Road and Jinbin Expressway; utilities operations consist of supply of water, electricity and thermal power in the Tianjin Economic-Technological Development Zone; consumer products operations consist of the production, sale and distribution of winery products, such as red wines, white wines, sparkling wines and brandy under the brand name of “Dynasty” and dairy products; and strategic and other investments include property development, investments in gas fuel operations, elevator and escalator operations and bio-pharmaceutical operations.

Tianjin Container and Tianjin Second Stevedoring, both of which will be wholly-owned subsidiaries of Tianjin Port Development upon completion of the Reorganisation, have always undertaken the container and non-containerised cargo handling businesses which are different and distinctive to those of the Remaining Group. The two companies were established in 1980 and 1968, respectively, to capture the opportunities that arose from the growing volume of exports and imports in the PRC and have been dedicated to the container and non-containerised cargo handling businesses ever since. As at the Latest Practicable Date, Tianjin Container operates four container handling berths out of a total of thirteen

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LETTER FROM THE BOARD

container handling berths at the port of Tianjin, covering a total site area of 722,750.4 square metres and Tianjin Second Stevedoring operates nine berths. Two of the nine berths were converted into one single container berth and are equipped for the loading and unloading of containers and are dedicated to serving smaller container ships, six berths are equipped for handling general cargo, and one is equipped as a non-containerised grain handling terminal, covering a total site area of approximately 731,643.4 square metres. Over the years, Tianjin Container and Tianjin Second Stevedoring have successfully accumulated much experience in container and non-containerised cargo handling business which has led to the success of the Tianjin Port Development Group.

Upon completion of the Proposed Spin-off, Tianjin Port Development will remain to be a subsidiary of the Company and its financial results will be consolidated into the Group’s results.

Set out below is a brief summary of the unaudited combined results of the Tianjin Port Development Group for the three years ended 31 December 2005:

	Year	ended 31 December	ended 31 December
	2003	2004	2005
	(HK$’000)	(HK$’000)	(HK$’000)
Profit before tax	81,741	93,266	172,821
Profit attributable to equity holders of
Tianjin Port Development	69,678	77,465	147,275

(4) Compliance with PN15

The Tianjin Port Development Group has been functioning independently from the Remaining Group in terms of its mode of operation and management since its establishment.

Independence of directorship and management

The Board currently comprises a total of 15 Directors. The board of Tianjin Port Development is expected to be comprised of nine directors. Save for Mr. Wang Guanghao and Mr. Nie Jiansheng who have been appointed as non-executive director and executive director of Tianjin Port Development respectively, none of the directors, senior management and staff of the Tianjin Port Development Group have assumed any employment, role or function in any company which forms part of the Remaining Group.

The independence of the management of Tianjin Port Development will not be affected by the dual directorship of Messrs. Wang and Nie since the business of the Company and Tianjin Port Development will be managed independently by the Board comprising 15 Directors and the board of Tianjin Port Development comprising nine directors, respectively.

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LETTER FROM THE BOARD

Further, as Tianjin Port Development will remain as a subsidiary of the Company following the completion of the Proposed Spin-off, the interests of Tianjin Port Development will be in alignment with those of the Group. By pursuing the interests of Tianjin Port Development, the aforesaid two Directors will also be acting in the best interests of the Group and the Shareholders.

Hence, despite the dual directorship of Messrs. Wang and Nie, the Company complies with the requirements of PN15 that the management and the directorship of the Company be independent from those of Tianjin Port Development. Mr. Wang is mainly involved in the strategic planning of the Tianjin Port Development Group while Mr. Nie is mainly involved in its corporate finance activities.

Delineation of business

Upon completion of the Proposed Spin-off, the Tianjin Port Development Group will be engaged in the provision of ports services, including the loading and unloading of containerised and non-containerised cargo from shipping vessels, the stacking and warehousing of containers and cargo, as well as various ancillary services such as container repair and maintenance, container transportation and shipping agency services in the PRC, while the Remaining Group will continue to carry on its existing businesses, namely toll roads management and operation, property development and the supply of utilities, which are different and distinctive to the business carried on by the Tianjin Port Development Group in terms of nature of business, location of premises, utilisation of facilities and equipment and management. Hence, the business of Tianjin Port Development Group is different and distinctive to those retained by the Remaining Group.

Independent and financial viability

Since their establishment, neither Tianjin Container nor Tianjin Second Stevedoring have been reliant on the Group for financial assistance.

Independent administrative capacity

The Tianjin Port Development Group has its own team of general and administrative staff and all necessary office equipment and premises to carry out all essential administrative functions and will not share offices with the Remaining Group, either in Hong Kong or Tianjin, upon completion of the Proposed Spin-off. In respect of facilities and equipment, the Tianjin Port Development Group mainly uses berths, railway, portainers, transtainers, cranes and forklifts for its operations which are not utilised by any members of the Remaining Group. In respect of day-to-day management, the management team, employees, offices, administrative functions, operations and financial management of the Tianjin Port Development Group are independent of the Remaining Group.

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LETTER FROM THE BOARD

(5) Intended use of proceeds

The principal reason for the Share Offer is to provide the Tianjin Port Development Group with the necessary funding for the implementation of its future plans to participate in the construction of a new container handling facility at the Beigangchi ( ) area at the port of Tianjin to capture the potential of the growing throughput at the port.

The net proceeds of the Share Offer, after deducting underwriting fees and related expenses payable by Tianjin Port Development in relation to the Share Offer (assuming the Over-allotment Option is not exercised), are estimated to be approximately HK$809 million if the Offer Price as finally determined is HK$1.5 per share and HK$995 million if the Offer Price as finally determined is HK$1.83 per share. Assuming the Over-allotment Option is not exercised and an Offer Price of HK$1.665 per share, being the midpoint of the indicative Offer Price range of HK$1.50 per share to HK$1.83 per share, the net proceeds of the Share Offer are estimated to be approximately HK$902 million, which Tianjin Port Development presently intends to utilize as follows:

approximately HK$577 million as its contribution to the registered capital of a proposed new container handling joint-venture to be formed with two international ports operators; and
approximately HK$325 million to fund part of the acquisition cost of the Acquisition.

Other than the new container handling joint-venture and the Acquisition, Tianjin Port Development currently has no other specific plans for the application of the net proceeds from the Share Offer. Please also refer to the Prospectus for further details on the timing of the application of the net proceeds by Tianjin Port Development.

If the net proceeds of the Share Offer are HK$995 million (based on an Offer Price of HK$1.83 per share), being the high end of the indicative Offer Price range of HK$1.50 per share to HK$1.83 per share), Tianjin Port Development will receive an additional amount of approximately HK$92 million net proceeds, which Tianjin Port Development currently intends to use to complete the Acquisition. In the event that the Over-allotment Option is exercised in full, the net proceeds of the Share Offer will be increased by approximately HK$141 million (based on an Offer Price of HK$1.665 per share, being the midpoint of the indicative Offer Price range of HK$1.50 per share to HK$1.83 per share). Such additional net proceeds will be applied by Tianjin Port Development for funding part of the acquisition cost of the Acquisition

To the extent that the net proceeds of the Share Offer are not immediately used for the above purposes, it is the present intention of the directors of Tianjin Port Development that such amount will be placed on short term deposits with banks and financial institutions in Hong Kong. Investment in any new facilities that Tianjin Port Development may decide to construct, other than the new container terminal facility, will be financed by internal cash flow generated from its operations.

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LETTER FROM THE BOARD

(6) Reasons for and benefits of the Proposed Spin-off

As the Remaining Group and the Tianjin Port Development Group have both expanded their operations over a long period of time, the Board considers the Proposed Spin-off commercially and strategically desirable, and is in the interests of the Shareholders, to obtain a separate listing of the Tianjin Port Development Group, which is expected to also create greater value for the Company and the Shareholders as a whole for the following reasons:

(1) the Proposed Spin-off will allow the Company and the Shareholders an opportunity to realise their investment in the Tianjin Port Development Group;
(2) the Proposed Spin-off will enable the Tianjin Port Development Group to build its identity as a separately listed group, which in turn will provide the Company with an opportunity to focus on its own corporate finance opportunities and requirements and will enable the Tianjin Port Development Group to gain direct access to the capital markets for equity and/or debt financing to fund its existing operations and future expansion. Based on the current structure of the Share Offer, the Proposed Spin-off will enable Tianjin Port Development to raise net proceeds of approximately HK$902 million (based on the midpoint of the indicative Offer Price range mentioned above) to fund its future plans;
(3) as a separately listed group, the Tianjin Port Development Group will be able to further build on its reputation and the Company will in turn be able to benefit from the enhanced reputation of the Tianjin Port Development Group through its shareholding in Tianjin Port Development;
(4) the Proposed Spin-off will increase the operational and financial transparency of the Tianjin Port Development Group and provide investors, the investment market and rating agencies with greater clarity on the businesses and financial status of the Remaining Group and the Tianjin Port Development Group, and together such improvements will help to build up investor confidence in the performance and management of both the Remaining Group and the Tianjin Port Development Group; and
(5) the stock performance of the Tianjin Port Development Group can serve as a separate benchmark for its shareholders and the investing public to evaluate the performance of the management of the Tianjin Port Development Group which could in turn serve as an incentive for the management of the Tianjin Port Development Group to seek improvement and raise efficiency of the Tianjin Port Development Group on an ongoing basis.

In view of the above, the Board is of the view that, whilst recognising the short term financial effects of the Proposed Spin-off as discussed under the paragraph headed “Financial effects of the Proposed Spin-off and the Acquisition” below, the Proposed Spin-off is a sound strategic option to foster the long-term growth and business objectives of Tianjin Port Development, and is consistent with the stated investment strategy of the Group.

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LETTER FROM THE BOARD

(7) Effects of the Proposed Spin-off

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

The simplified shareholding structure of Tianjin Port Development after the Reorganisation but prior to the Proposed Spin-off is set out as follows:

==> picture [115 x 171] intentionally omitted <==

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

Tsinlien
61.14%
The Company
100%
Tianjin Port Development
----- End of picture text -----

(ii) Proposed shareholding structure

The simplified shareholding structure of Tianjin Port Development immediately after completion of the Proposed Spin-off (assuming the Over-allotment Option is not exercised) is set out as follows:

==> picture [340 x 182] intentionally omitted <==

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

Tsinlien
(Note 3)
61.14%
The Company Public investors
(Note 2) (Notes 1 and 2)
66% 34%
Tianjin Port Development
----- End of picture text -----

Notes:

Of the 34%, approximately 3.6% of the total issued share capital of Tianjin Port Development 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.

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LETTER FROM THE BOARD

Assuming the Over-allotment Option is exercised in full, the Tianjin Port Development Shares to be offered under the Share Offer will represent approximately 37.2% of the enlarged issued share capital of Tianjin Port Development and the Company’s interest in the enlarged issued share capital of Tianjin Port Development will be approximately 62.8%.
Assuming Tsinlien has taken up its entitlement under the Preferential Offer in full, Tsinlien would also be indirectly interested in approximately 68.2% of Tianjin Port Development, and the public float of Tianjin Port Development would be reduced to approximately 31.8% of its total issued share capital (assuming the Over-allotment Option is not exercised).

(iii) Hong Kong taxation and stamp duty

Under current legislation, the implementation of the Proposed Spin-off is, of itself, not expected to have any adverse Hong Kong tax consequence for the 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 Tianjin Port Development Shares pursuant to the Proposed Spin-off.

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

(iv) General

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

(8) Listing Rules Implications

The Proposed Spin-off will constitute a possible major transaction as defined in Rule 14.06 of the Listing Rules. Since Tianjin Port Development would be a “major subsidiary” of the Company as defined under the Listing Rules and the Company’s interest in Tianjin Port Development would be diluted by more than 5% upon completion of the Proposed Spin-off, the Proposed Spin-off will also constitute a material dilution for the Company. The Proposed Spin-off is conditional on, among other things, obtaining approvals from the Independent Shareholders on the resolution in respect of the Acquisition and the Terminations and that the Acquisition and the Terminations are part and parcel of, and conditional upon, the Proposed Spin-off. In light of the above, it is considered that Tsinlien has a material interest in the Proposed Spin-off. As such, Tsinlien and its associates are required to abstain from voting at the Extraordinary General Meeting in relation to the Proposed Spin-off.

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LETTER FROM THE BOARD

THE PREFERENTIAL OFFER

Subject to the Stock Exchange granting listing of, and permission to deal in, the Tianjin Port Development Shares on the Stock Exchange, 61,200,000 Reserved Shares will be available for subscription by Qualifying Shareholders at the Offer Price under the Preferential Offer. Qualifying Shareholders will be entitled to subscribe on an assured basis at the Offer Price for an estimated one Reserved Share for every multiple of approximately 15.6258 existing Shares held by them on the Record Date, which multiple is currently calculated based on 956,297,052 Shares in issue as at the Latest Practicable Date and may be subject to adjustment based on the number of Shares in issue on the Record Date. Any Qualifying Shareholder holding less than 16 Shares (or such other number of existing Shares as may be the minimum specified by the Company as carrying the entitlement to subscribe for the Reserved Shares) will not be entitled to apply for the Reserved Shares on an assured basis.

As at the Latest Practicable Date, Tsinlien, the controlling shareholder of the Company, is beneficially interested in 584,655,143 Shares and Dr. Wang Jiandong, an executive Director, is beneficially interested in 450,000 Shares. Each of Tsinlien and Dr. Wang Jiandong is currently expected to be entitled to subscribe for approximately 37,416,000 Tianjin Port Development Shares and approximately 28,800 Tianjin Port Development Shares respectively under the Preferential Offer.

A blue application form, together with a copy of the Prospectus, will be despatched to each Qualifying Shareholder who is entitled to apply for the Reserved Shares. Qualifying Shareholders will be permitted to apply for a number of Reserved Shares which is less than, or equal to, their Assured Entitlements under the Preferential Offer. Where a Qualifying Shareholder applies for a number of Reserved Shares which is greater than his or her assured entitlement, his or her Assured Entitlement will be satisfied in full, subject as mentioned above, but the excess portion of such application will not be met. Qualifying Shareholders may, in addition to applying for the Reserved Shares, also apply for Tianjin Port Development Shares under the Public Offer. Any Assured Entitlements not taken up by the Qualifying Shareholders will be allocated to the international placing under the Share Offer.

Shareholders should note that Assured Entitlements to Reserved Shares may not represent a multiple of a full board lot of 2,000 Tianjin Port Development Shares and will be rounded down to the closest whole number if required, and that dealings in odd lots of the Tianjin Port Development Shares may be at a price below their prevailing market price.

Entitlements to the Reserved Shares will not be transferable and there will be no trading in nil paid entitlements on the Stock Exchange. Any Tianjin Port Development Shares issued pursuant to the Preferential Offer will be deemed fully paid, ranking pari passu in all respects with other Tianjin Port Development Shares then in issue.

The number of Tianjin Port Development Shares initially available under the Preferential Offer represent approximately 10.6% of the Share Offer and approximately 3.6% of the total enlarged issued share capital of Tianjin Port Development upon completion of the Share Offer, assuming the Over-allotment Option is not exercised.

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LETTER FROM THE BOARD

A copy of the Prospectus, together with the blue application form, of Tianjin Port Development containing, amongst other matters, details of the Preferential Offer will be despatched to the Qualifying Shareholders in due course.

THE ACQUISITION

The Properties

Prior to the listing of Tianjin Port Development, each of Tianjin Container and Tianjin Second Stevedoring will enter into an agreement with Tianjin Port Group and the Tianjin Land Bureau and an agreement with Tianjin Port Group in relation to the acquisition of the Properties. The original lease agreements entered into between each of Tianjin Container and Tianjin Second Stevedoring and Tianjin Port Group in 1997 would also be terminated with effect on the effective date of the agreements in relation to the Acquisition of the Properties. Details of the Properties are summarised below:

a) A parcel of land with an aggregate area of 1,365,007.9 square metres located at the Beijiang area of the port of Tianjin; and
b) two berths, railways and storage space in respect of a total quay length of 3,046 metres, together with ancillary facilities including railways totalling 7,783 metres long and a warehouse and storage space 224,754 square metres in size, in each case located at the port of Tianjin.

The Port Equipment

Prior to the listing of Tianjin Port Development, Tianjin Container will enter into an agreement with Tianjin Port Group in relation to the acquisition of the Port Equipment, which includes 2 portainers and 1 transtainer.

The Sale and Purchase Agreements will take immediate effect upon signing by the parties involved.

Consideration

The Properties

The aggregate consideration for the acquisition of the Properties will be RMB894 million (equivalent to approximately HK$860 million), which will be payable by the Tianjin Port Development Group and is based on the independent reports dated 28 February 2006 issued by Tianjin XinHua Certified Public Accountants Ltd. Co. ( ) and (Tianjin Jiade Properties Appraisal & Consulting Limited*), which is a qualified domestic appraisal firm certified by the Tianjin Land Bureau and has been confirmed by the Tianjin Land Bureau. According to the valuation report issued by Vigers Appraisal & Consulting Limited, the aggregate amount of the market values of the Properties was approximately RMB897 million (or equivalent to approximately HK$862.5 million) as at 28 February 2006. Of the total consideration,

* For identification purpose only

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LETTER FROM THE BOARD

RMB136.6 million (equivalent to approximately HK$131.4 million) will be payable in two installments to the Tianjin Land Bureau. The first installment of RMB27.3 million (equivalent to approximately HK$26.3 million) will be settled within ten days from the date of signing of the agreement and the second installment of RMB109.3 million (equivalent to approximately HK$105.1 million) is currently expected to be settled within 60 days from the date of signing of the agreement. The land use rights is expected to be registered in the name of the Tianjin Port Development Group after the Tianjin Port Development Group has settled the second installment to the Tianjin Land Bureau. The remaining RMB757.4 million (equivalent to approximately HK$728.3 million) is payable in three installments to Tianjin Port Group. The first installment of RMB151.5 million (equivalent to approximately HK$145.7 million) will be settled in full within ten days from the date of signing of the agreement and the second installment of RMB378.7 million (equivalent to approximately HK$364.1 million) is currently expected to be settled by 31 December 2006 and the third payment of RMB227.2 million (equivalent to approximately HK$218.5 million) is expected to be settled by 31 May 2007. The Tianjin Port Development Group will settle the payment of the first installment to the Tianjin Land Bureau and the payment of the first installment to Tianjin Port Group by way of bank loans in the amount of HK$70 million and its internal cash flows for the remaining balance and intends to fund the remaining installments to Tianjin Port Group and the Tianjin Land Bureau by using part of the proceeds from the Share Offer.

The Port Equipment

The consideration for the acquisition of the Port Equipment will be approximately RMB31.1 million (equivalent to approximately HK$29.9 million) and will be payable by the Tianjin Port Development Group within two days from the date of signing of the agreement. The consideration is based on an independent valuation of the value of the Port Equipment and will be funded by Tianjin Port Development’s internal resources.

Reasons for the Acquisition

The Properties are fundamental to Tianjin Port Development’s operations because the two terminals and various ancillary buildings and warehouses from which Tianjin Port Development derives substantially all of its revenues, are situated on this land. The railways are important to the business of Tianjin Port Development in order to transport container and non-containerised cargo efficiently to the berths and the pier operated by Tianjin Port Development, and the warehouses and other storage facilities are important to the business of Tianjin Port Development as they are the principal facilities from which Tianjin Port Development provides its container and non-containerised cargo handling services to its customers. The Port Equipment forms part of the Tianjin Port Development Group’s facilities and equipment that are currently used in its operations.

The Directors believe that the Acquisition can assist to decrease Tianjin Port Development’s level of reliance on Tianjin Port Group and assist to further delineate its business from that of Tianjin Port Group. The Directors are of the view that the consideration for the Acquisition is fair and reasonable as it was based on an independent valuation and is subject to normal commercial terms and is therefore in the interests of the Group and the Shareholders as a whole.

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LETTER FROM THE BOARD

Listing Rules Implications

Since the Stock Exchange has exercised its discretion under Rule 14A.06 of the Listing Rules to deem Tianjin Port Group as a connected person to the Company and Tianjin Port Development and the relevant percentage ratios (as defined under the Listing Rules) in respect of the Acquisition are more than 5% but less than 25%, the Acquisition will constitute a connected and discloseable transaction for the Company and will be subject to the approval of the Independent Shareholders by way of poll at the Extraordinary General Meeting.

CONTINUING CONNECTED TRANSACTIONS

The Stock Exchange has exercised its discretion under Rule 14A.06 of the Listing Rules to deem Tianjin Port Group as a connected person (as defined in the Listing Rules) of both the Company and Tianjin Port Development. As such, the agreements set out below will be subject to, among other things, the connected transactions requirements under Chapter 14A of the Listing Rules following the date of listing of Tianjin Port Development.

Fee Collection Services

Each of Tianjin Container and Tianjin Second Stevedoring will enter into an agreement with Tianjin Port Group pursuant to which they will agree to collect various fees, including but not limited to port construction fees and port management fees (the “Port Fees”), from their customers and forward them to Tianjin Port Group in accordance with relevant PRC regulations. No service fees will be paid by Tianjin Port Group to Tianjin Container or Tianjin Second Stevedoring for the Fee Collection Services. The agreements are for terms ending on 31 December 2008. Notwithstanding the fact that no service fees will be paid by Tianjin Port Group to the Group for the Fee Collection Services, the Directors (including the independent non-executive Directors) are of the view that the agreements were negotiated on an arm’s length basis and their terms represent normal commercial terms as such practice is consistent with those of all other port operators at the port of Tianjin in compliance with the relevant PRC laws and regulations. The Port Fees collected by Tianjin Container and Tianjin Second Stevedoring from their customers on behalf of Tianjin Port Group are determined by reference to PRC laws and regulations relating to the charging and collection of port fees.

Listing Rules Implications

The Fee Collection Services will constitute a de minimus transaction for the Company under Rule 14A.33(3) of the Listing Rules after the Proposed Spin-off and will be exempted from the reporting, announcement and independent shareholders’ approval requirements of Chapter 14A of the Listing Rules.

In estimating the annual caps for the Water Supply Services, Communications Services and Electricity Supply Services to be consumed by the Tianjin Development Group, the general assumptions are that the usage of each of such services by the Tianjin Port Development Group will grow at the same pace for each of the three years ending 31 December 2008 and will increase in line with the growth of the Tianjin Port Development

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Group’s throughput and turnover for the same period with the exceptions for Water Supply Services in 2006 and Electricity Supply Services in 2007, both of which are further explained in the following paragraphs.

Water Supply Services

Each of Tianjin Container and Tianjin Second Stevedoring will enter into an agreement with Tianjin Port Construction and Engineering Company, a wholly-owned subsidiary of Tianjin Port Group, pursuant to which Tianjin Port Construction and Engineering Company will agree to supply water to Tianjin Container and Tianjin Second Stevedoring and their subsidiaries nominated by them from time to time. The agreements are for terms ending on 31 December 2008. The agreements were negotiated on an arm’s length basis and their terms represent normal commercial terms. The fees to be charged by Tianjin Port Construction and Engineering in relation to the Water Supply Services are determined according to the usage by Tianjin Port Development Group and the prices prescribed by the PRC government. For the three years ended 31 December 2005, the fees charged by Tianjin Port Construction and Engineering Company in relation to the Water Supply Services amounted to approximately RMB3.7 million, RMB3.3 million and RMB3.8 million, respectively (equivalent to approximately HK$3.5 million, HK$3.1 million and HK$3.6 million, respectively).

Based on Tianjin Port Development’s estimate of its expected water consumption for the three years ending 31 December 2008, it is expected that the Tianjin Port Development Group’s water consumption will increase by approximately 32%, 14% and 14% for the three years ending 31 December 2008 which is in line with the growth of Tianjin Port Development Group’s throughput and turnover for the three years ending 31 December 2008 estimated with reference to the historical and expected growth in throughput levels. However, the proposed annual cap in respect of water consumption in 2006 will be slightly higher as a higher environmental standard has been adopted in relation to the Tianjin Port Development Group’s coal handling business which increases its water consumption. As it is expected that the Tianjin Port Development Group’s coal handling business will be closed down by the end of 2006, the proposed annual cap in respect of water consumption for the two years ending 31 December 2008 will be comparatively smaller. In light of the above, the proposed annual caps in respect of fees payable by the Tianjin Port Development Group for the supply of water is expected not to exceed:

(i) RMB5.0 million (equivalent to approximately HK$4.8 million) for the year ending 31 December 2006;
(ii) RMB5.7 million (equivalent to approximately HK$5.5 million) for the year ending 31 December 2007; and
(iii) RMB6.5 million (equivalent to approximately HK$6.2 million) for the year ending 31 December 2008.

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Communications Services

Each of Tianjin Container and Tianjin Second Stevedoring will enter into an agreement with Tianjin Communications Navigation Company, a wholly-owned subsidiary of Tianjin Port Group, pursuant to which Tianjin Communications Navigation Company will agree to provide communications services to Tianjin Container and Tianjin Second Stevedoring and their subsidiaries nominated by them from time to time. The agreements are for terms ending on 31 December 2008. The agreements were negotiated on an arm’s length basis and their terms represent normal commercial terms. The fees to be charged by Tianjin Communications Navigation Company in relation to the Communications Services are determined according to the usage by the Tianjin Port Development Group and the prices prescribed by the PRC government.

For the three years ended 31 December 2005, the fees charged by Tianjin Communications Navigation Company in relation to the Communications Services amounted to approximately RMB0.9 million, RMB0.8 million and RMB1.0 million respectively (equivalent to approximately HK$0.9 million, HK$0.8 million and HK$1.0 million, respectively).

Based on Tianjin Port Development’s estimate of its expected communications usage for the three years ending 31 December 2008, it is expected that the Tianjin Port Development Group’s communications usage will increase by approximately 20%, 20% and 20% for the three years ending 31 December 2008 which is in line with the growth of Tianjin Port Development Group’s throughput and turnover for the three years ending 31 December 2008 estimated with reference to the historical and expected growth in throughput levels. In light of the above, the proposed annual caps in respect of fees payable by the Tianjin Port Development Group for the provision of communications services is expected not to exceed:

(i) RMB1.3 million (equivalent to approximately HK$1.2 million) for the year ending 31 December 2006;
(ii) RMB1.5 million (equivalent to approximately HK$1.4 million) for the year ending 31 December 2007; and
(iii) RMB1.8 million (equivalent to approximately HK$1.7 million) for the year ending 31 December 2008.

Electricity Supply Services

Each of Tianjin Container and Tianjin Second Stevedoring will enter into an agreement with Tianjin Port Electricity Company, a wholly-owned subsidiary of Tianjin Port Group, pursuant to which Tianjin Port Electricity Company will agree to supply electricity to Tianjin Container and Tianjin Second Stevedoring and their subsidiaries nominated by them from time to time. The agreements will be for terms ending on 31 December 2008. The agreements were negotiated on an arm’s length basis and their terms represent normal

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commercial terms. The fees to be charged by Tianjin Port Electricity Company for the supply of electricity are determined according to the usage by Tianjin Port Development Group and the prices prescribed by the PRC government.

For the three years ended 31 December 2005, the fees charged by Tianjin Port Electricity Company in relation to the Electricity Services amounted to approximately RMB19.1 million, RMB22.6 million and RMB23.8 million respectively (equivalent to approximately HK$18.0 million, HK$21.3 million and HK$22.7 million, respectively).

Based on Tianjin Port Development’s estimate of its expected electricity consumption for the three years ending 31 December 2008, it is expected that the Tianjin Port Development Group’s electricity consumption will increase by approximately 20%, 26% and 22% for the three years ending 31 December 2008 which is in line with the growth of Tianjin Port Development Group’s throughput and turnover for the three years ending 31 December 2008 estimated with reference to the historical and expected growth in throughput levels. The proposed annual cap in respect of electricity consumption in 2007 will be slightly higher as Tianjin Port Development expects that the two new portainers to be purchased by the Tianjin Port Development Group by the end of 2006 will be in full operation in early 2007. In light of the above, the proposed annual caps in respect of fees payable by Tianjin Port Development Group for the supply of electricity is expected not to exceed:

(i) RMB28.6 million (equivalent to approximately HK$27.5 million) for the year ending 31 December 2006;
(ii) RMB36.0 million (equivalent to approximately HK$34.6 million) for the year ending 31 December 2007; and
(iii) RMB43.9 million (equivalent to approximately HK$42.2 million) for the year ending 31 December 2008.

Reasons for the Continuing Connected Transactions

The Group intends to formalise the electricity, water and communication fees payable under the existing port administration fee collection agreements and the port administration fee collection agreements in compliance with the PRC rules and regulations. The Directors are of the view that it is necessary to enter into new agreements to govern the Continuing Connected Transactions in order to provide certainty of the terms of the Continuing Connected Transactions, which have been and will be carried out on an ongoing basis and in the ordinary and usual course of business of Tianjin Port Development and in order to ensure compliance with the PRC rules and regulations and the Listing Rules.

The Directors (including the independent non-executive Directors) are of the opinion that the Continuing Connected Transactions outlined above will be entered into and carried out in the ordinary and usual course of business of the Group and on normal commercial terms which are fair and reasonable so far as the interests of the Shareholders are concerned.

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Listing Rules Implications

Based on the aggregate amount of the estimated considerations payable by the Tianjin Port Development Group for the Water Supply Services, the Communications Services and the Electricity Supply Services for the year ending 31 December 2008, the relevant percentage ratios (as defined in the Listing Rules) in respect of the Company for such Continuing Connected Transactions are less than 2.5%, all of which will be exempted from the independent shareholders’ approval requirement but will be subject to the reporting and announcement requirements set out in Rules 14A.45 to 14A.47 of the Listing Rules.

SHARE OPTION SCHEME

The Share Option Scheme constitutes a share option scheme governed by Chapter 17 of the Listing Rules.

The purpose of the Share Option Scheme is to provide incentive and/or reward to eligible persons for their contribution to, and continuing efforts to promote the interests of Tianjin Port Development Group. On each grant of options, the board of directors of Tianjin Port Development will specify the subscription price to the options and, where necessary, seek the approval of shareholders of Tianjin Port Development in general meeting.

The Share Option Scheme is conditional upon (1) the passing of an ordinary resolution approving the adoption of the Share Option Scheme by the sole shareholder of Tianjin Port Development; (2) the approval of the Share Option Scheme by the Shareholders at the Extraordinary General Meeting; (3) the Listing Committee granting approval of listing of, and permission to deal in, (a) any Tianjin Port Development Shares in issue and to be issued as will be mentioned in the Prospectus; and (b) the Tianjin Port Development Shares which may fall to be issued pursuant to the exercise of options granted under the Share Option Scheme; (4) the commencement of dealings in the Tianjin Port Development Shares on the Stock Exchange; and (5) the obligations of the underwriters under the underwriting agreements 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 agreements or otherwise.

RE-ELECTION OF THE RETIRING DIRECTOR

Pursuant to paragraph A.4.2 of the Code on Corporate Governance Practices of the Listing Rules, all directors appointed to fill a casual vacancy should be subject to election by shareholders at the first general meeting after their appointment.

Mr. Zhang Wenli was appointed as an executive Director with effect from 20 March 2006 to fill the casual vacancy of the Board. The Extraordinary General Meeting will be the first general meeting after the appointment of Mr. Zhang Wenli. In compliance with paragraph A.4.2 of the Code on Corporate Governance Practices of the Listing Rules, Mr. Zhang Wenli shall hold office until the Extraordinary General Meeting and shall be eligible for re-election. Details of Mr. Zhang Wenli who offers himself for re-election are set out in

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Appendix IV to this circular. An ordinary resolution will be proposed at the Extraordinary General Meeting to approve, if thought fit, that Mr. Zhang Wenli be re-elected as an executive Director.

CLOSURE OF REGISTER OF MEMBERS

The register of members of the Company will be closed from 9:00 a.m. to 4:30 p.m. on 8 May 2006 (or such later date(s) as the Board may determine and announce) for the purpose of determining the entitlement of the Qualifying Shareholders to the Preferential Offer. No transfer of Shares may be registered during that period. In order to qualify for the Preferential Offer, all transfers of Shares must be lodged with the share registrar of the Company by no later than 4:30 p.m. on 4 May 2006 (or such later date as the Board may determine and announce).

FINANCIAL EFFECTS OF THE PROPOSED SPIN-OFF AND THE ACQUISITION

Net Assets

The audited consolidated net assets of the Group was approximately HK$5,226.2 million and approximately HK$5,841.3 million as at 31 December 2004 and 31 December 2005 respectively. The unaudited net asset of the Tianjin Port Development Group as at 31 December 2004 and 31 December 2005 were approximately HK$1,301.8 million and approximately HK$1,426.3 million respectively.

The Board expects that the Company will recognise a gain resulting from its deemed disposal of Tianjin Container and Tianjin Second Stevedoring upon completion of the Proposed Spin-off and the Share Offer. Based on the unaudited net assets of the Tianjin Port Development Group as at 31 December 2005, the estimated net proceeds of approximately HK$902 million from the Share Offer, and the current proposed structure of the Share Offer, the amount of such gain is estimated to be approximately HK$101.5 million if the Over-allotment Option is not exercised, or approximately HK$114.7 million if the Over-allotment Option is exercised in full, and represents the difference between the estimated amount of net assets of Tianjin Port Development to be diluted immediately following the Share Offer and the Company’s indirect interest in the net proceeds receivable by Tianjin Port Development under the Share Offer. However, the actual amount of such gain may differ from the estimated figure as mentioned above depending on the actual pricing and structure of the Share Offer. Assuming the Proposed Spin-off is completed by the end of December 2006, such gain will be recognised in the results of the Company for the year ending 31 December 2006. The net assets of the Group will therefore, among other things, be affected by the same amount of such gain.

The PRC legal advisers to the Company have confirmed that the pricing of the shares of Tianjin Port Development and the Proposed Spin-off do not breach any applicable rules and regulations in the PRC.

Immediately following the completion of the Proposed Spin-off and the Share Offer, the Company’s interest, through Tianjin Port Development, in Tianjin Container and Tianjin Second Stevedoring will be diluted from 100% to approximately 66% (taking no account of

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any Tianjin Port Development Shares which may be issued pursuant to the exercise of the Over-allotment Option and the options which may be granted under the Share Option Scheme). Thus, it is currently expected that Tianjin Container and Tianjin Second Stevedoring will continue to remain as subsidiaries of the Company following the Proposed Spin-off and the Share Offer.

The Acquisition will have no impact on the Group’s net asset value as the increase of non-current assets will be offset by a decrease in cash and an increase of bank borrowings obtained for financing the Acquisition.

Earnings

The effect of the Share Offer and the Proposed Spin-off on the future earnings of the Group will depend on, among other matters, the return generated from the proceeds raised from the Share Offer as well as the growth of the business operations of the Tianjin Port Development Group.

Following the implementation of the Proposed Spin-off and the Share Offer, the Group’s earnings contributed from the Tianjin Port Development Group will be reduced as the Company’s interest in the Tianjin Port Development Group will be diluted from 100% to approximately 66% (taking no account of any Tianjin Port Development Shares which may be issued pursuant to the exercise of the Over-allotment Option and the options which may be granted under the Share Option Scheme). Should the Over-allotment Option be exercised in full, the Company’s interest in the Tianjin Port Development Group will be further diluted to approximately 62.8% following the implementation of the Proposed Spin-off and the Share Offer.

For the three years ended 31 December 2005, the Group’s audited profit before tax were approximately HK$363.8 million, approximately HK$1,000.7 million and approximately HK$697.9 million respectively; whereas the audited profit attributable to equity holders of the Company were approximately HK$212.8 million, approximately HK$563.8 million and approximately HK$573.2 million respectively.

For the three years ended 31 December 2005, Tianjin Port Development Group’s unaudited profit before tax amounted to approximately HK$81.7 million, approximately HK$93.3 million and approximately HK$172.8 million respectively; whereas the unaudited profit attributable to equity holders of Tianjin Port Development amounted to approximately HK$69.7 million, approximately HK$77.5 million and approximately HK$147.3 million respectively.

Upon completion of the Proposed Spin-off, Tianjin Port Development will remain as a subsidiary of the Company. Accordingly, the financial results of Tianjin Port Development will be consolidated into those of the Group.

The acquisition of the Properties will have no material impact on the Group’s earnings as the amount of savings on rental expenses is expected to exceed the sum of the increase in depreciation and the increase in interest expenses on the additional bank borrowings used to finance the Acquisition over the expected life of the Properties.

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SPECIAL DIVIDEND

The board of directors of Tianjin Container declared a special cash dividend of approximately RMB25 million (equivalent to approximately HK$24.0 million) on 3 March 2006. The declaration of dividend is considered a return of investment to the Company for its long-term support of the companies comprising the Tianjin Port Development Group. This special dividend is to be paid to the Company out of Tianjin Container’s distributable reserves. Investors of Tianjin Port Development Shares in the Share Offer will not be entitled to this special dividend.

INFORMATION ON SPIN-OFF OF TOLL ROAD OPERATIONS

The last advance booking form submitted to the Stock Exchange on 1 April 2004 for an application for the listing of the shares in Coastal Rapid on the main board of the Stock Exchange has lapsed on 30 September 2004 and, for commercial reasons, the Company has no current intention to continue to pursue the spin-off of its toll road operations.

EXTRAORDINARY GENERAL MEETING

A notice convening the Extraordinary General Meeting to be held on 8 May 2006 at 9:30 a.m. at Kennedy Room, 7/F., Conrad Hotel, 88 Queensway, Hong Kong is set out on pages 178 to 181 of this circular. Whether or not you intend to attend the Extraordinary General Meeting in person, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return the same to the share registrar of the Company, Tengis Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, 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 adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the Extraordinary General Meeting or any adjournment thereof should you so wish.

At the Extraordinary General Meeting, a poll may be demanded (i) by the Chairman; or (ii) by at least three members present in person or in the case of a member being a corporation by its duly authorised representative or by proxy for the time being entitled to vote at the meeting; or (iii) by a member or members present in person or in the case of a member being a corporation by its duly authorised representative or by proxy representing not less than 10% of the total voting rights of all members having the right to vote at the meeting; or (iv) by a member or members present in person or in the case of a member being a corporation by its duly authorised representative or by proxy and holding Shares conferring a right to vote at the meeting being Shares on which an aggregate sum has been paid up equal to not less than 10% of the total sum paid up on all the Shares conferring that right.

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RECOMMENDATIONS

The Directors (including the independent non-executive Directors) are of the view that the respective terms of the Proposed Spin-off, the Acquisition, the Terminations and the Share Option Scheme are in the interests of the Company and the Shareholders as a whole and are fair and reasonable so far as the Independent Shareholders are concerned, and accordingly recommend the Independent Shareholders to vote in favour of the ordinary resolutions to approve the Proposed Spin-off, the Acquisition and the Terminations and recommend the Shareholders to vote in favour of the ordinary resolution to approve the Share Option Scheme, as set out in the notice of Extraordinary General Meeting on pages 178 to 181 of this circular. Your attention is drawn to (a) the letter from the Independent Board Committee set out on page 44 of this circular which contains the recommendation of the Independent Board Committee to the Independent Shareholders regarding the Proposed Spin-off, the Acquisition and the Terminations, and (b) the letter from Access Capital containing its advice and the principal factors and reasons taken into consideration by them in arriving at its advice regarding the Proposed Spin-off, the Acquisition and the Terminations is set out on pages 45 to 77 of this circular. The Directors fully agree with the advice of Access Capital.

The Independent Board Committee, having taken into account the advice of Access Capital, considers that the respective terms of the Proposed Spin-off, the Acquisition and the Terminations are fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the Extraordinary General Meeting to approve, if thought fit, the Proposed Spin-off, the Acquisition and the Terminations and the transactions contemplated thereunder.

GENERAL

CLSA has been appointed as the sponsor while CLSA Limited and ABN AMRO Rothschild have been appointed as the Joint Bookrunners and the Joint Lead Managers of the Share Offer. The Prospectus containing, amongst other matters, details of the Preferential Offer (including the basis of allocation) will be despatched to the Qualifying Shareholders in due course.

ADDITIONAL INFORMATION

This circular is being distributed to the 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.

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In connection with the Share Offer, the price of the Tianjin Port Development Shares may be stabilised in accordance with the Securities and Futures (Price Stabilizing) Rules made under the SFO. Details of any intended stabilisation and how it will be regulated will be contained in the Prospectus.

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

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

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(Incorporated in Hong Kong SAR with limited liability under the Companies Ordinance) (Stock Code: 882)

22 April 2006

To the Independent Shareholders

Dear Sir or Madam,

(1) POSSIBLE MAJOR TRANSACTION IN RELATION TO THE PROPOSED SPIN-OFF AND SEPARATE LISTING OF TIANJIN PORT DEVELOPMENT HOLDINGS LIMITED ON THE MAIN BOARD OF THE STOCK EXCHANGE OF HONG KONG LIMITED; (2) PROPOSED DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION; AND (3) CONNECTED TRANSACTIONS IN RELATION TO THE TERMINATIONS

We have been appointed as members of the Independent Board Committee to advise you in connection with the Proposed Spin-off, the Acquisition and the Terminations, details of which are set out in the “Letter from the Board” in the circular dated 22 April 2006 (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 Access Capital” concerning its advice to us regarding the Proposed Spin-off, the Acquisition and the Terminations as set out on pages 45 to 77 of this Circular. Having considered the advice given by Access Capital, 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 Proposed Spin-off, the Acquisition and the Terminations are fair and reasonable so far as the Independent Shareholders are concerned and that the Proposed Spin-off, the Acquisition and the Terminations are in the interests of the Company and the Independent Shareholders as a whole. We, therefore, recommend the Independent Shareholders to vote in favour of the relevant ordinary resolution(s) to be proposed at the Extraordinary General Meeting as set out in the notice convening such meeting on pages 178 to 181 of this Circular.

Yours faithfully,

For and on behalf of the Independent Board Committee

Kwong Che Keung, Gordon 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 ACCESS CAPITAL

The following is the full text of the letter of advice to the Independent Board Committee and the Independent Shareholders from Access Capital prepared for incorporation in this circular.

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22 April 2006

To the Independent Board Committee and the Independent Shareholders

Dear Sir or Madam,

(1) POSSIBLE MAJOR TRANSACTION IN RELATION TO THE PROPOSED SPIN-OFF AND SEPARATE LISTING OF TIANJIN PORT DEVELOPMENT HOLDINGS LIMITED ON THE MAIN BOARD OF THE STOCK EXCHANGE OF HONG KONG LIMITED;

(2) PROPOSED DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION; AND

(3) CONNECTED TRANSACTIONS IN RELATION TO THE TERMINATIONS

1. INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders with regard to the terms of the Proposed Spin-off, the Acquisition and Terminations. Details of the Proposed Spin-off and the related connected transactions are contained in the “Letter from the Board” of the circular to the Shareholders dated 22 April 2006 (the “Circular”) of which this letter forms part. Terms used in this letter shall have the same meanings as those defined in the Circular, unless the context otherwise specifies.

In preparation for a separate listing of Tianjin Port Development, a group reorganisation will be implemented, whereby the Company will transfer all of its container and non-containerised cargo handling businesses into Tianjin Port Development. The

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objective of the Reorganisation is to establish Tianjin Port Development as the holding company for the Group’s interests in the container and non-containerised cargo handling companies. It is proposed that new Tianjin Port Development Shares will be issued pursuant to the Proposed Spin-off. The Proposed Spin-off, if it proceeds, would constitute a major transaction for the Company under Chapter 14 of the Listing Rules. The Tianjin Port Development Group would be a “major subsidiary” of the Company as defined under the Listing Rules and the Company’s interest in Tianjin Port Development would be diluted by more than 5% upon completion of the Proposed Spin-off. Accordingly, the Proposed Spin-off also constitutes a material dilution for the Company.

Prior to the listing of Tianjin Port Development, each of Tianjin Container and Tianjin Second Stevedoring will enter into the Sale and Purchase Agreements with Tianjin Port Group for the Acquisition and certain subsidiaries of the Tianjin Port Development Group and the Company will enter into agreements to terminate the Historical Agreements and the Pre-emptive Rights respectively with Tianjin Port Group.

As Tianjin Port Development is a wholly-owned subsidiary of the Company and the relevant percentages are more than 5% but less than 25%, the Acquisition will constitute a discloseable transaction for the Company. Since the Stock Exchange has exercised its discretion under Rule 14A.06 of the Listing Rules to deem Tianjin Port Group as a connected person (as defined in the Listing Rules) of both the Company and Tianjin Port Development, the Acquisition and the Terminations will be subject to, among other things, the approval of the Independent Shareholders at the Extraordinary General Meeting with votes taken by poll.

The Proposed Spin-off is conditional on, among other things, obtaining approvals from the Independent Shareholders on the resolution in respect of the Acquisition and the Terminations and that the Acquisition and the Terminations are part and parcel of, and conditional upon, the Proposed Spin-off. In light of the above, it is considered that Tsinlien has a material interest in the Proposed Spin-off. As such, Tsinlien and its associates are required to abstain from voting at the Extraordinary General Meeting in relation to the Proposed Spin-off.

2. THE INDEPENDENT BOARD COMMITTEE

An independent board committee, comprising Mr. Kwong Che Keung, Gordon, Mr. Lau Wai Kit and Dr. Cheng Hon Kwan (all of whom are independent non-executive Directors), has been established to consider the terms of the Proposed Spin-off, the Acquisition and the Terminations and to advise the Independent Shareholders thereon.

We have been appointed by the Independent Board Committee to advise them as to whether the terms of the Proposed Spin-off, the Acquisition and the Terminations are fair and reasonable so far as the Independent Shareholders are concerned, and to give our opinion in relation to the terms of the Proposed Spin-off, the Acquisition and the Terminations for their consideration when making their recommendation to the Independent Shareholders.

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3. BASIS OF THE OPINION

In formulating our advice, we have relied solely on the statements, information, opinions and representations contained in the Circular and the information and representations provided and/or made to us by the Company and/or the Directors and/or the senior management of the Company. We have assumed that all such statements, information, opinions and representations contained or referred to in the Circular or otherwise provided or made or given by the Company and/or the Directors and/or the senior management of the Company and for which it is/they are solely responsible were true, accurate and valid at the time they were made and given and continue to be true, accurate and valid as at the date of the Circular. We have assumed that all the statements, information, opinions and representations made or provided by the Company and/or the Directors and/or the senior management of the Company contained in the Circular have been reasonably made after due and careful enquiry. We have also sought and obtained confirmation from the Company and/or the Directors and/or the senior management of the Company that no material facts have been omitted from the information provided and referred to in the Circular.

We consider that we have reviewed all currently available information and documents to enable us to reach an informed view and to justify our reliance on the information provided so as to provide a reasonable basis for our opinion. We have no reason to doubt the truth, accuracy and completeness of the statements, information, opinions and representations provided to us by the Company, the Directors, the senior management of the Company and their respective advisers or to believe that material information has been withheld or omitted from the information provided to us or referred to in the aforesaid documents. We have not, however, carried out an independent verification of the information provided, nor have we conducted an independent investigation into the business and affairs of the Company or any of its subsidiaries or Tianjin Port Development or any of its subsidiaries.

4. PRINCIPAL FACTORS AND REASONS CONSIDERED

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

4.1 Background to and reasons for the Proposed Spin-off

4.1.1 Principal activities of the Company

The principal activity of the Company is investment holding, the Shares of which were listed on the Main Board of the Stock Exchange since 10 December 1997.

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products and dairy products; and strategic investments include property development and investments in gas fuel operation, elevator and escalator operations and bio-pharmaceutical operations.

4.1.2 Overall financial performance of the Group

Historical financial results

For the past three years ended 31 December 2004, the Group recorded audited turnover of approximately HK$1,745.3 million (2002), HK$1,927.4 million (2003) and HK$2,102.5 million (2004), and recorded an audited profit attributable to equity holders of the Company of approximately HK$181.6 million (2002), HK$212.8 million (2003) and HK$563.8 million (2004). For the year ended 31 December 2005, the Group recorded an audited turnover of approximately HK$2,239.1 million and an audited profit attributable to equity holders of the Company of approximately HK$573.2 million.

The audited consolidated net assets of the Group as at 31 December 2004 and as at 31 December 2005 amounted to approximately HK$5,226.2 million and HK$5,841.3 million respectively.

Although the Group’s audited turnover has increased steadily over the past three financial years, the profit attributable to equity holders of the Company increased substantially in 2004 as compared to 2003 was partly the result of realising a substantial profit attributable to equity holders of the Company of approximately HK$441.8 million on disposal of the income receiving right of the operation of a toll road in that year (as stated in the annual report of the Company for the year ended 31 December 2004). As stated above, the Group recorded an audited profit attributable to equity holders of approximately HK$563.8 million for the year ended 31 December 2004 and after adjusting for the one-off events, namely (i) the profit attributable to equity holders of the Company of approximately HK$441.8 million from the disposal of the income receiving right of a toll road; (ii) the gain on deemed disposal of partial interest in China Walfen Medical Limited (as at the Latest Practicable Date, the Company indirectly held approximately 27% of its issued share capital) of approximately HK$4.3 million; and (iii) the provision of approximately HK$120.0 million for the probable impairment in value of the Group’s investment in Wah Sang Gas Holdings Limited (“Wah Sang Gas”, as at the Latest Practicable Date, the Company indirectly held approximately 22.8% of its issued share capital), the adjusted profit attributable to the equity holders of the Company for the year ended 31 December 2004 would have been approximately HK$237.7 million, which was still slightly higher than the amount recorded for the year ended 31 December 2003 of approximately HK$212.8 million as stated above.

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It is noted that the Group’s turnover has continued to increase from approximately HK$2,102.5 million (for the year ended 31 December 2004) to approximately HK$2,239.1 million (for the year ended 31 December 2005), and the profit attributable to equity holders of the Company also increased from approximately HK$563.8 million to HK$573.2 million mainly due to the deemed gain of approximately HK$235.4 million arising from the disposal of partial interest in Dynasty Fine Wines Group Limited (“Dynasty”) following its separate listing in January 2005 and the improvement of overall businesses. If by deducting the one-off events, namely (i) the deemed gain of approximately HK$235.4 million arising from the completion of a separate listing of Dynasty in January 2005 and (ii) the fair value gain of the investment properties of approximately HK$8.6 million, the adjusted profit attributable to the equity holders of the Company for the year ended 31 December 2005 would have been approximately HK$329.2 million, representing approximately 38.5% higher than the amount recorded for the year ended 31 December 2004 of approximately HK$237.7 million as mentioned above.

Business strategy

According to the “Master Plan for the Port of Tianjin” (“ ”) jointly approved by the Ministry of Communications of the PRC (“ ”) (“Ministry of Communications”) and the People’s Government of Tianjin which was published in 2004 (the latest available information), Tianjin will become the core container port and the centre of non-containerised cargo logistics and international logistics for northern China.

As described in the Company’s 2004 annual report, by leveraging on the favourable economic development trend of Tianjin, the Group will proactively seek investment opportunities to strengthen its core businesses (though the Group has not identified any investment targets as at the date of this letter) with a view to bring better returns to the Shareholders (which is supported by the statistics published by the Statistics Bureau of Tianjin in January 2005 (the latest available information), whereby Tianjin’s GDP in 2004 increased by approximately 15.7% as compared to 2003, fixed assets investment in 2004 increased by approximately 20.3% as compared to 2003, productivity in 2004 increased by approximately 21.5% as compared to 2003; and import and export trade in 2004 increased by approximately 43.2% as compared to 2003). Concurrently, the Group will continue to spin off those mature and well-developed businesses (with a steady growing revenue and profitability as well as market potential such as the performance of the Tianjin Port Development as described in paragraph 4.1.3 below) in order to realise the underlying value of such businesses (which is the valuation of Tianjin Port Development reflected by the market capitalisation upon listing of such company) and to maximise returns to Shareholders. This business strategy of the Group is evidenced by the separate listing of Dynasty which was successfully obtained on the Main Board of the Stock

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Exchange in Hong Kong in January 2005, with approximately HK$776.3 million was raised from such listing to fund Dynasty’s business development in the fast growing wine market in the PRC.

Prospects

As stated in the Group’s interim report for the six months ended 30 June 2005, the Directors have noted that based on the latest central government plan, the development of Tianjin Binhai New Area (“TJBNA”) is an important part of the overall national development strategy. The Directors are therefore of the view that TJBNA will become the hub of future economic development in Tianjin and that this national policy will continue to boost the operation and the total throughput of cargo at the port of Tianjin, which in turn will benefit the port operations of the Group. In addition, the Directors believe that the ongoing development of TJBNA would help to enhance the economic prosperity of TJBNA and its peripheral areas, and create investment opportunities, such as infrastructure projects, in which the Group to participate. Furthermore, the demand for water and electricity in Tianjin Economic-Technological Development Area (“TEDA”), being a key area in TJBNA and where the water and electricity operations of the Group are located, is increasing with the growing economic activity in the area and the Directors are confident that the water and electricity businesses of the Group will continue to grow.

As previously mentioned, Dynasty was successfully listed on the Main Board of the Stock Exchange in January 2005. The separate listing positioned Dynasty as a separate listed company and allows its management to concentrate on the development and expansion of the Group’s winery business interest. In addition, the listing has considerably enhanced the public profile of Dynasty and strengthened its financial position by allowing Dynasty to seek expansion of its production capacity and explore suitable acquisition opportunities going forward.

Consistent with the Group’s strategy for the future development of its individual business lines, and in particular, citing the potential growth of the port business as evidenced by the favourable economic trend and the People’s Government of Tianjin’s intended plan for the port of Tianjin to become the core container port for northern China, an application for the separate listing of Tianjin Port Development on the Main Board of the Stock Exchange has been made. The Directors expect the Proposed Spin-off will, by establishing Tianjin Port Development as a separately listed entity with its own focus activities, serve to accelerate the development and expansion of the port operations of the Group.

4.1.3 Historical financial results of the Tianjin Port Development Group

As stated in the “Letter from the Board”, the unaudited profit attributable to equity holders of the Tianjin Port Development Group has risen steadily to approximately HK$69.7 million in 2003, approximately HK$77.5 million in 2004, and approximately HK$147.3 million in 2005. The percentage contribution of the

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Tianjin Port Development Group to the Group’s profitability accounted for approximately 31.9% in 2003, approximately 13.7% in 2004 and approximately 25.7% in 2005 respectively.

Although the percentage contribution of the Tianjin Port Development Group to the Group’s profitability appeared to decline substantially for the year ended 31 December 2004, the result was partly distorted by (i) the substantial gain on disposal of the income receiving right of a toll road in that year; (ii) the gain on deemed disposal of partial interest in a subsidiary; and (iii) the provision for probable impairment in value of the Group’s investment in Wah Sang Gas (as explained in the paragraph headed “4.1.2 Overall financial performance of the Group” above). By excluding the aforesaid one-off gain, the relevant percentage contribution of the Tianjin Port Development Group to the Group’s profitability would have been approximately 32.4% for the year ended 31 December 2004 as compared to approximately 13.7% mentioned above. On the basis of the above and excluding the abovementioned one-off gain, it is evident that the operations of the Tianjin Port Development Group have been growing steadily in recent years. In addition, this steady growth further supported by the audited 2005 figures as described in paragraph 4.1.2 above.

Also stated in the “Letter from the Board”, the unaudited net assets of the Tianjin Port Development Group as at 31 December 2004 and 31 December 2005 amounted to approximately HK$1,301.8 million and HK$1,426.3 million respectively.

4.1.4 Background to the Tianjin Port Development Group

As stated in the “Letter from the Board”, in preparing for the Proposed Spin-off, the Group will undergo the Reorganisation involving, inter alia, the transfer of the container and non-containerised cargo handling businesses to Tianjin Port Development. Details of the Reorganisation are set out in the “Letter from the Board”. Upon completion of the Proposed Spin-off, the Tianjin Port Development Group will be engaged in the provision of ports services, including the loading and unloading of containerised and non-containerised cargo from shipping vessels, the stacking and warehousing of containers and cargo, as well as various ancillary services such as container repair and maintenance, container transportation and shipping agency services in the PRC. Also stated in the “Letter from the Board”, the Proposed Spin-off will be effected by way of the Share Offer. Hence, upon completion of the Proposed Spin-off, the Company will become Tianjin Port Development’s controlling shareholder, holding approximately 66.0% of its enlarged issued share capital (assuming that the Over-allotment Option is not exercised) and approximately 62.8% of its enlarged issued share capital (assuming that the Over-allotment Option is exercised).

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In considering whether there is a delineation between the Remaining Group and the Tianjin Port Development Group following the Proposed Spin-off, we have considered the following factors:

(1) Delineation of business – the business of the Remaining Group (i.e. by excluding port operations from the existing principal activities of the Group as described in paragraph “4.1.1 Principal activities of the Company” above) is different from the business of the Tianjin Port Development Group (which is engaged in the containerised and non-containerised cargo handling businesses);
(2) Independent operations – the facilities and equipment of the Tianjin Port Development Group are different from and distinctive to those of the Remaining Group, as the facilities and equipment of the Tianjin Port Development Group are not utilised by any members of the Remaining Group;
(3) Independent of directorship and management – management of the Tianjin Port Development Group has been conducted independently of the Remaining Group for the four years ended 31 December 2005 and thereafter and save for the two Directors, namely Mr. Wang Guanghao and Mr. Nie Jiansheng have been appointed as non-executive director and executive director of Tianjin Port Development respectively (out of a total of nine directors) and each of them is mainly involved in the strategic planning, business development and corporate finance activities of the Tianjin Port Development Group, none of the directors, senior management and staff of the Tianjin Port Development Group have assumed any employment, role or function in any company in which forms part of the Remaining Group;
(4) Independent accounting function – the accounting records of the Tianjin Port Development Group are controlled by a separate team of accounting professionals (which are separate from the Remaining Group);
(5) Independent financial viability – there are no cross guarantees between the Remaining Group and the Tianjin Port Development Group;
(6) Independent offices – the various offices occupied by the Tianjin Port Development Group for its business operations are located in different locations separate from the Remaining Group; and
(7) Independent accounting and administrative capacity – the finance, accounting and administrative departments of Tianjin Port Development are staffed by different personnel who report to and work for Tianjin Port Development (i.e. totally separate and independent from the Remaining Group).

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Based on the abovementioned factors, save for the two Directors, namely Mr. Wang Guanghao and Mr. Nie Jiansheng who have been appointed as a non-executive director and an executive director of Tianjin Port Development respectively (out of a total of nine directors) and each of them is mainly involved in the strategic planning, business development and corporate finance activities of the Tianjin Port Development Group, we are of the view that the Tianjin Port Development Group operates independently of the Remaining Group and that the Company complies with PN15 with regard to delineation of management.

4.1.5 Reasons for and benefits of the Proposed Spin-off

Reasons for the Proposed Spin-off

China container port throughput has increased significantly in recent years. According to the Ministry of Communications, China’s container throughput rose nearly twelve-fold during the period from 1995 to 2004, from 5.2 million TEUs in 1995 to 61.6 million TEUs in 2004. According to the National Communications Statistical Material Compilation (“ ”), in 2004 (the latest available information), the port of Tianjin was the fourth largest port in China in terms of throughput and one of four ports in China with an annual throughput exceeding 200 million tonnes. The port of Tianjin was ranked fifth in China in 2004 in terms of TEU throughput.

According to the Tianjin Statistical Yearbook 2005, aggregate throughput has surged from approximately 57.87 million tonnes in 1995 to approximately 206.19 million tonnes in 2004, representing a compound annual growth rate of approximately 15.16%. The port of Tianjin is considered to be one of the principal sea access points for many inland provinces. According to the “Master Plan for the Port of Tianjin” (“ ”) jointly approved by the Ministry of Communications and the People’s Government of Tianjin, it is projected that total throughput at the port of Tianjin will reach 250 million tonnes by 2007 and 300 million tonnes by 2010, including 6.5 million TEUs in 2007 and 10 million TEUs in 2010.

As stated in the announcement of the Company dated 20 April 2006, the Company’s application for the listing of the shares of Coastal Rapid Transit Company Limited on the Main Board of the Stock Exchange lapsed on 30 September 2004 and the Company has no current intention to continue to pursue the spin-off of its toll road operations. We have discussed with the Directors and noticed that the successful spin-off exercise for the toll road operations will depend on a number of factors, including but not limited to, the performance of the toll road operations, the future prospects of the toll road operations, as well as, most importantly, the prevailing market perception of toll road business in general. At the time of making the final decision on the Proposed Spin-off, it was indicated to the Directors by some investment banks, that the capital markets would give greater recognition to

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the port business than the toll road business. As such, the Directors are of the view that the current spin-off exercise for a separate listing of the Tianjin Port Development Group is in line with the stated strategy of the Group (i.e. to realise the underlying value of individual business so as to maximise returns to Shareholders) as described in the paragraph headed “4.1.2 Overall financial performance of the Group” above. Accordingly, we believe that it is reasonable for the Company to pursue the spin-off of the port operations, continue to engage in the businesses of the Remaining Group and not to proceed and pursue the proposal for the spin-off of the toll road operations of the Group at the current moment.

In light of the strong growth of container throughput over the years and the strategic role of the port of Tianjin to become the core container port and the centre of non-containerised cargo logistics and international logistics for north China so as to serve major cities and inland provinces in the northern part of China as mentioned in this section above, the Directors consider that Tianjin Port Development is well positioned to take advantage of the favourable market condition and to capture the opportunity anticipated in the growth trend in cargo throughput. This is further supported by the fact that according to the Administrative Committee of Dongli Economic Development Area, the port of Tianjin is located approximately 150 kilometres south-east of Beijing near the mouth of Hai River and the western edge of the Bohai Bay. In addition, according to the National Communications Statistical Material Compilation, as measured by total throughput for year 2004, the port of Tianjin was the largest port in north China, the fourth largest container port in China and the eighteenth largest container port in the world.

Taking into account the following factors,

the abovementioned government statistics indicate that cargo throughout of the port of Tianjin increased continuously over the past 10 years and is expected to continue to rise in the next 5 years partly due to the administrative policy imposed by the government to establish Tianjin as a major port in north China, which in turn, further suggests that there are ample opportunities for the Tianjin Port Development Group to grow and develop its business;
the background and potential of the industry;
the Proposed Spin-off allows complete delineation of the container and non-containerised cargo handling business from the Remaining Group and enables the Tianjin Port Development Group to concentrate on developing the potential of its container and non-containerised cargo handling business; and

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the Proposed Spin-off and the Share Offer will enable Tianjin Port Development to raise its own equity/debt capital from the market (as and when appropriate) for the development of its other core businesses,

we concur with the view of the Directors on the growth potential of the Tianjin Port Development Group.

Benefits of the Proposed Spin-off

We understand from the Directors that the Group has invested over approximately HK$413.0 million (2002), HK$145.5 million (2003) and HK$97.4 million (2004) as capital expenditure in the past three financial years, and approximately HK$159.2 million (based on the audited figures for the year ended 31 December 2005) in the port operations. The Directors confirm that it is important to continue to upgrade the existing facilities as well as to invest in new facilities in order to maintain and capture the anticipated ongoing growth and demand in cargo throughput related services. In view of the magnitude of the ongoing capital expenditure requirements and the relative maturity of the port operations as described in the paragraph headed “4.1.3 Historical financial results of the Tianjin Port Development Group” above, the Directors believe that it is appropriate to establish it as a separate listed company to enable it to gain direct access to the capital market for equity and/or debt financing to fund its existing operations and future expansion.

As stated in the “Letter from the Board”, the net proceeds of the Share Offer are estimated to be approximately HK$902 million based on the midpoint of the indicative Offer Price of HK$1.665 per Tianjin Port Development Share, which Tianjin Port Development intends to utilise as to approximately HK$577 million as its contribution to the registered capital of the new container handling joint-venture to be formed with two international terminal and transportation operators and as to approximately HK$325 million to fund part of the acquisition cost of the Acquisition.

We are of the view that with Tianjin Port Development separately raising equity funds to finance its business expansion, the Remaining Group would have more flexibility to deploy its financial resources to fund its other core businesses and/or any other suitable investment opportunities in future. Taking into account the aforesaid benefit and the other benefits of the Proposed Spin-off as stated below, we are of the view that it is appropriate to consider the Spin-Off as a viable option to finance and implement the longer-term expansion of the businesses of Tianjin Port Development.

The Directors consider it commercially and strategically desirable, and in the interest of the Shareholders, to obtain a separate listing of the Tianjin Port Development Group, which is also expected to create greater value for the Company and the Shareholders as a whole for the following reasons:

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(1) the Proposed Spin-off will enable the Tianjin Port Development Group to build its identity as a separately listed group, with a separate dedicated management team wholly focused on and responsible for its performance, and to pursue its own long-term financing, without being dependent on financial support from the Group;
(2) the Proposed Spin-off will increase the operational and financial transparency of the Tianjin Port Development Group and provide investors, the investment market and rating agencies with greater clarity on the businesses and financial status of the Remaining Group and the Tianjin Port Development Group, and together such improvements will help to build investor confidence in the performance and management of both the Remaining Group and the Tianjin Port Development Group;
(3) the Proposed Spin-off will enable the Tianjin Port Development Group to enhance its corporate profile and reputation, thereby increasing its ability to attract strategic investors, who can produce synergies for the Tianjin Port Development Group, for investment in, and forming strategic partnerships with, the Tianjin Port Development Group. The Remaining Group will benefit from such investments without capital commitment; and
(4) the stock performance of the Tianjin Port Development Group can serve as a separate benchmark for its shareholders and the investing public to evaluate the performance of the management of the Tianjin Port Development Group which could in turn serve as an incentive for the management of the Tianjin Port Development Group to seek improvement and raise efficiency of the Tianjin Port Development Group on an ongoing basis.

In view of the above reasons, the Directors are of the opinion that, whilst recognising the short term financial effects of the Proposed Spin-off as discussed later, the Proposed Spin-off is a sound strategic option to foster the long-term growth and business objectives of Tianjin Port Development, and is consistent with the stated business strategy of the Group. Taking into account the reasons set out above, we are of the view that the implementation of the Proposed Spin-off and the Share Offer is reasonable.

4.1.6 The Remaining Group

The Remaining Group as defined in the Circular means the Group excluding the Tianjin Port Development Group. The purpose of such distinction is for ease of analysing (per the requirements set out in PN15 of the Listing Rules) whether upon completion of the Proposed Spin-off and by excluding the Group’s interest in Tianjin Port Development, the Company would retain a sufficient level of operations and sufficient assets to support its separate listing status.

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Shareholders should note that for accounting purposes, upon completion of the Proposed Spin-off and Share Offer, Tianjin Port Development will remain a subsidiary of the Group and its financial results will be consolidated into the Group’s results.

In considering whether upon completion of the Proposed Spin-off and by excluding the interest in Tianjin Port Development, the Company will retain a sufficient level of operations and sufficient assets to support its separate listing status, we have discussed with the Company and considered the following matters:

(1) the Remaining Group has been operated under substantially the same management for the four financial years ended 31 December 2005 and thereafter;
(2) the Remaining Group has been operated under the same ownership and control for the two financial years ended 31 December 2005;
(3) after the Proposed Spin-off, the Remaining Group will continue to operate its businesses, principally comprising (i) infrastructure operations – toll road operations; (ii) utilities operations; (iii) consumer products operations; and (iv) strategic investments, as described in paragraph 4.1.1 above;
(4) based on our analysis set out in paragraph 4.1.4 above, we are of the view that the Tianjin Port Development Group operates independently of the Remaining Group;
(5) the revenue generated from the business operations of the Remaining Group (i) for the past three audited financial years ended 31 December 2004 represents over 22% of the total turnover of the Group’s respective annual results; and (ii) based on the audited figures for the financial year ended 31 December 2005 represents approximately 54.4% of that year’s total turnover;
(6) the segmental profit generated from the business operations of the Remaining Group (i) for the past three audited financial years ended 31 December 2004 represents over 40% of the Group’s operating profit of the respective financial year; and (ii) based on the audited figures for the financial year ended 31 December 2005 represents approximately 32.3% of that year’s operating profits;
(7) based on the segmental profit generated from the business operations of the Remaining Group for the past three audited financial years ended 31 December 2004 and by excluding the one-off events as stated in paragraph 4.1.2 above, the net profit of the Remaining Group for the two years ended 31 December 2003 would exceed HK$30 million and the adjusted net profit of the Remaining Group for the year ended 31

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December 2004 (i.e. the last full audited financial year prior to the Proposed Spin-off) would exceed HK$20 million; in other words, the financial results of the Remaining Group can meet the minimum profit requirement of Rule 8.05 of the Listing Rules;

(8) the unaudited net tangible assets of the Remaining Group as at 31 December 2005 represent over 51.2% of the audited net tangible assets of the Group as at 31 December 2005;
(9) there is a growing and sustainable potential for the businesses of the Remaining Group as described in paragraph 4.1.2 above;
(10) save for the two Directors, namely Mr. Wang Guanghao and Mr. Nie Jiansheng who have been appointed as a non-executive director and an executive director of Tianjin Port Development respectively (out of a total of nine directors) and each of them is mainly involved in the strategic planning, business development and corporate finance activities of the Tianjin Port Development Group, none of the directors, senior management and staff of the Tianjin Port Development Group have assumed any employment, role or function in any company in which forms part of the Remaining Group; and
(11) the potential gain on deemed disposal as a result of the Proposed Spin-off as explained in paragraph “4.5.2 Estimated gain on the deemed disposal as a result of the Proposed Spin-off and the effect on the net assets of the Group” below of approximately HK$101.5 million (assuming the Over-allotment Option is not exercised), representing an increase of approximately 1.74% in the adjusted consolidated net asset value of the Group after the Share Offer, and approximately HK$114.7 million (assuming the Over-allotment Option is exercised in full), representing an increase of approximately 1.96% in the adjusted consolidated net asset value of the Group after the Share Offer.

Taking into account the above factors and the prospects of the businesses of the Remaining Group as described in paragraph headed “4.1.2 Overall financial performance of the Group” above, we are of the view that (i) the Remaining Group would retain sufficient level of operations, sufficient assets and viable businesses to support its listing status; and (ii) the board composition of Tianjin Port Development reflects the interest of Tianjin Development in Tianjin Port Development and yet enables Tianjin Port Development to operate independently of the Remaining Group.

4.2 The Proposed Spin-off

4.2.1 The Share Offer

The exact structure of the Proposed Spin-off will be decided by the Directors and the board of directors of Tianjin Port Development but at present it is expected to be effected by way of an offering of new Tianjin Port Development

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Shares to the public in Hong Kong, a placement of new Tianjin Port Development Shares to professional, institutional and other investors and an offering of new Tianjin Port Development Shares to Qualifying Shareholders under the Preferential Offer.

4.2.2 The offer price of the Share Offer

Background

Pursuant to the Proposed Spin-off, a new issue of Tianjin Port Development Shares representing approximately 34% of the enlarged issued share capital of Tianjin Port Development will initially be made available to the public under the Share Offer (assuming the Over-allotment Option is not exercised). According to the Directors, based on an Offer Price of HK$1.665, being the midpoint of the indicative Offer Price range of HK$1.50 to HK$1.83 per Tianjin Port Development Share, the expected market capitalisation of Tianjin Port Development (assuming the Over-allotment Option is not exercised) will be approximately HK$2,831 million.

We have discussed with the Directors, the financial adviser of the Company, the directors of Tianjin Port Development, the sponsor of Tianjin Port Development and the global co-ordinator of the Share Offer, and have been advised that the offer price of the Share Offer would be determined on the basis of the following factors:

(1) the past financial performance of the Tianjin Port Development Group as stated in the paragraph headed “4.1.3 Historical financial results of the Tianjin Port Development Group” above, indicating a steady growth history;
(2) the growth potential of the Tianjin Port Development Group as described in the paragraph headed “4.1.5 Reasons for and benefits of the Proposed Spin-off” above;
(3) the performance of the securities market in Hong Kong and the general market sentiment towards initial public offerings (i.e. with reference to the offer statistics, the subscription results and the after-market share price performance of the recent initial public offerings in the market); and
(4) the current trading multiples of the Company and market comparables as described below.

We have noted a number of listed companies in Hong Kong on the Main Board of the Stock Exchange that have certain parts of their operations that are engaged in business that are similar to those of Tianjin Port Development. However, these companies are mainly conglomerates which also involved in other non-port related businesses. Accordingly, we are of the view that they should not be treated as directly comparable to Tianjin Port Development. In view of the aforesaid constraints, we have identified (i) 4 companies listed on the Stock Exchange and 1 company which is currently

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offering its shares under its initial public offering on the Stock Exchange as at the Latest Practicable Date and (ii) 10 companies listed on the Shanghai Stock Exchange, the Shenzhen Stock Exchange, the London Stock Exchange, the New Zealand Exchange and the Philippine Stock Exchange as set out in the table below, which are not conglomerates, but are engaged solely or principally in similar business as Tianjin Port Development (together the “Comparables”) and we have, accordingly, compared their market statistics of the Comparables with the proposed offer price range of the Share Offer. Given that the market statistics of the Comparables are all historical figures up to their respective final year 2005 (save for Xiamen International Port Co., Ltd. and International Container Terminal Services, Inc. that the latest figures available were for the year 2004), we have accordingly for consistency purpose used Tianjin Port Development’s historical financial data for the year ended 31 December 2005 to compare with the Comparables.

			Closing
			price as
			at 19	Historical		Net asset
	Stock	Container	April	earnings	Historical	value per	Historical
	exchange	throughput	2006	per share	PER	share	PBR
		(TEUs)	HK$	HK$	(times)	HK$	(times)
Hong Kong companies:
1. China Merchant
Holdings (International)
Co., Ltd10	HK	24,490,000	25.45	1.079	23.587	8.049	3.162
2. CIG Yangtze Ports PLC7	HK	59,098	0.74	(0.048)	N.A.	2.974	0.249
3. COSCO Pacific Ltd.1,9	HK	26,079,612	17.65	1.184	14.907	6.664	2.649
4. Xiamen International
Port Co., Ltd.2,8	HK	2,217,645	1.93	0.125	15.440	2.184	0.884
5. Dalian Port (PDA) Co., Ltd. 11, 12	HK	2,598,000	2.375	0.203	11.700	2.551	0.931
Average					16.408		1.575
Outside Hong Kong
companies:
1. Associated British Ports
Holdings PLC3	LSE	N.A.	97.22	4.542	21.405	43.792	2.220
2. Chongqing Gangjiu Co.,
Ltd2	SSE	181,552	3.88	0.097	40.000	3.203	1.211
3. International Container
Terminal Services,
Inc.5	PSE	1,204,798	1.74	0.069	25.217	0.552	3.152
4. Jinzhou Port Co., Ltd2	SSE	200,000	3.89	0.138	28.188	1.282	3.034
5. Lyttelton Port Company
Ltd4	NZX	177,400	11.02	0.569	19.367	6.591	1.672
6. Port of Tauranga
Limited4	NZX	438,214	25.68	1.235	20.794	15.691	1.637
7. Shanghai Port Container
Co., Ltd2	SSE	8,741,100	10.53	0.637	16.531	3.969	2.653
8. Shenzhen Chiwan
Wharf Holdings Ltd2	SZSE	4,170,000	13.96	0.875	15.954	3.158	4.421
9. Tianjin Port Co., Ltd2	SSE	2,250,000	5.63	0.483	11.656	2.677	2.103
10. Yingkou Port Liability
Co., Ltd2	SSE	N.A.	6.92	0.503	13.757	4.494	1.540
Minimum					11.656		0.249
Maximum					40.000		4.421
Average					19.893		2.101
			Mid-price
Tianjin Port
Development6	HK	2,050,000	1.665	0.131	12.710	1.271	1.310

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Notes:

HK$1.00 = USD0.1290
HK$1.00 = RMB1.0347
HK$1.00 = GBP0.0720
HK$1.00 = NZD0.2033
HK$1.00 = PHP6.5976
Extracted from the “Letter from the Board”

HK = The Stock Exchange of Hong Kong Limited LSE = London Stock Exchange PLC NZX = New Zealand Exchange Limited PSE = The Philippine Stock Exchange, Inc. SSE = The Shanghai Stock Exchange SZSE = The Shenzhen Stock Exchange

Extracted from CIG Yangtze Ports Plc’s announcement of 2005 final results dated 15 March 2006
Extracted from the prospectus of Xiamen International Port Co., Ltd. dated 6 December 2005
Extracted from the COSCO Pacific Ltd’s announcement of 2005 final results dated 23 March 2006
10.Extracted from the China Merchant Holdings (International) Co. Ltd.’s announcement of 2005 final results dated 3 April 2006
11.Extracted from the prospectus of Dalian Port (PDA)
Co., Ltd dated 18 April 2006 (“Dalian Port Prospectus”)
12.Based on the midpoint of the estimated offer price as stated in the Dalian Port Prospectus

Source: Bloomberg and the latest annual reports of the Comparables

Compare with historical PER

Based on the abovementioned expected market capitalisation of Tianjin Port Development (on the basis that (i) using the midpoint of the indicative Offer Price of HK$1.665; and (ii) the Over-allotment Option is not exercised) and Tianjin Port Development’s unaudited profit attributable to equity holders amounted to approximately HK$147.3 million for the year ended 31 December 2005 and the unaudited net assets amounted to approximately HK$1,426.3 million as at 31 December 2005, its historic price/earnings ratio (“PER”) and the price-to-book ratio (“PBR”) of Tianjin Port Development would be approximately 12.7 times and 1.3 times respectively.

We note that the PER of Tianjin Port Development of approximately 12.7 times falls within the relevant range of the PER of the Comparables of approximately 11.7 times to 40.0 times. We also note that the historical PER of Tianjin Port Development of approximately 12.7 times is lower than the average PER of the Comparables of approximately 19.9 times.

Compare with historical PBR

The historical PBR of Tianjin Port Development of approximately 1.3 times also falls within the range of the minimum and maximum of the PBR of the Comparables of approximately 0.2 times to 4.4 times. The PBR of Tianjin Port Development of approximately 1.3 times is lower than the average PBR of the Comparables of approximately 2.1 times. Shareholders should note that the book value of the Tianjin Port Development Group has yet to be adjusted with the net proceeds of the Share Offer, which would further adjust the book value per Tianjin Port Development Share to a level closer to the offer price. Shareholders should note that most of the Comparables operate in different geographical areas from Tianjin Port

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Development and are listed in various stock markets in the world where it is normal for such companies to demand different valuations from Tianjin Port Development.

Compare with historical PER of the Company

For the year ended 31 December 2005, the Group recorded a profit attributable to the equity holders of the Company of approximately HK$573.2 million. After adjusting for one-off events, namely (i) the deemed gain of approximately HK$235.4 million from the disposal of partial interest in Dynasty following its separate listing; and (ii) the fair value gain on investment properties of approximately HK$8.6 million, the adjusted profit attributable to equity holders of the Company for the year ended 31 December 2005 would have been approximately HK$329.2 million. On the basis of 910,656,027 Shares in issue as at 31 December 2005, the historical earnings per Share would be approximately HK$0.361. Based on the 10-day average closing price of the Shares up to the Latest Practicable Date of approximately HK$5.835 per Share and (i) the historical earnings per Share of approximately HK$0.63; and (ii) the adjusted historical earnings per Share of approximately HK$0.361, the historical PER and the adjusted historical PER would be approximately 9.3 times and 16.2 times respectively. Given the Group is engaged in other businesses as well as the container and non-containerised cargo handling business, we believe that the Company is a conglomerate which is therefore inappropriate and irrelevant to compare its historical PER and adjusted historical PER with the Comparables (which are not conglomerates, but are engaged solely or principally in similar businesses to Tianjin Port Development as explained in the sub-paragraph headed “Background” of this section above). Based on the above analysis, we believe that if the Tianjin Port Development Shares are going to be offered at a historical PER higher than the historical PER of the Company, it will be beneficial to the Company.

Section summary

Based on our analysis set out above, in sum,

(i) the historical PER of Tianjin Port Development (12.7 times) is lower than the average PER of the Comparables (19.9 times);
(ii) the PBR of Tianjin Port Development (1.3 times) is lower than the average PBR of the Comparables (2.1 times); and
(iii) the historical PER of Tianjin Port Development (12.7 times) is higher than the historical PER of the Company of (9.3 times) and lower than the adjusted historical PER of the Company of (16.2 times),

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we are of the view that the current indicative Offer Price range of HK$1.50 to HK$1.83 per Tianjin Port Development Share (and by applying the midprice of HK$1.665 per Tianjin Port Development Share to calculate the possible effects set out in this letter), is acceptable and reasonable to the Company and the Shareholders.

The Directors are also of the view that if the Group were to, as an alternative to implement the Proposed Spin-off, resort to raising the amount of funding contemplated under the Share Offer by an equity issue of the Company, either via an equity placement or a rights issue, it would be normal and very likely be required to price such issue at a discount to the current market price of the Shares (i.e. at a lower PER than the abovementioned historical PER of the Company (9.3 times) and/or the adjusted historical PER of the Company (16.2 times)). On this basis, the Directors and we are of the view that the terms of the Share Offer are beneficial, fair and reasonable to the Company and the Shareholders.

4.3 The resultant shareholdings in Tianjin Port Development before and after the Proposed Spin-off
4.3.1 Shareholding structure in Tianjin Port Development after the Reorganisation but before the Proposed Spin-off

==> picture [137 x 149] intentionally omitted <==

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

Tsinlien
61.14%
The Company
100%
Tianjin Port Development
----- End of picture text -----

4.3.2 Shareholding structure in Tianjin Port Development after the Reorganisation and the Proposed Spin-off (assuming the Preferential Offer has been fully subscribed by the Qualifying Shareholders)

As stated in the “Letter from the Board”, 61,200,000 Reserved Shares will be available for subscription by Qualifying Shareholders at the Offer Price under the Preferential Offer, representing approximately 10.6% of the Share Offer and approximately 3.60% of the total enlarged issued share capital of Tianjin Port Development assuming the Over-allotment Option is not exercised. Qualifying Shareholders will be invited to participate in the Proposed Spin-off by applying for the Reserved Shares and will be entitled to subscribe on an assured basis at the Offer Price for an estimated one Reserved Share for every multiple of

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approximately 15.63 existing Shares (subject to adjustment) held by them on the Record Date. Details of the Preferential Offer are set out in “Letter from the Board”.

==> picture [324 x 150] intentionally omitted <==

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

Tsinlien
61.14%
Qualifying Other public
The Company
Shareholders investors
66% 3.60% 30.4%
Tianjin Port Development
----- End of picture text -----*

Note:* Dr. Wang Jiandong, an executive Director and a Shareholder, is a Qualifying Shareholder who will be entitled to subscribe the Reserved Shares on a pro rata basis under the Preferential Offer.

If the Proposed Spin-off proceeds, the attributable interest of the Company in Tianjin Port Development will be diluted from 100% to approximately 66.0% (assuming that the Over-allotment Option is not exercised) or to approximately 62.8% (assuming the Over-allotment Option is exercised). In addition, we have considered the reasons and benefits of the Proposed Spin-off set out in this letter, in particular,

(1) the Proposed Spin-off allows complete delineation of the container and non-containerised cargo handling business from the Remaining Group and enables the Remaining Group to concentrate to develop the potentials of its other core businesses as described in paragraph 4.1.1 above;
(2) the Proposed Spin-off and the Share Offer will enable Tianjin Port Development to raise its own equity/debt capital from the market (as and when appropriate), whilst the Remaining Group will be able to deploy its internal resources and/or equity/debt capital to be raised from the market (as and when appropriate) for the development of its other core businesses; and
(3) a separate listing of Tianjin Port Development fulfills the stated business strategy of the Group (as described in paragraph 4.1.2 above) to spin-off those mature and well-developed businesses; and through the separate listing provides investors, the investment markets and rating agencies with greater clarity on the businesses and financial status of the Tianjin Port Development Group and the Remaining Group, and in turn, will help to build investor confidence in the performance and management of both groups,

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we are of the view that such dilution effect is acceptable to the Company and its Shareholders.

4.3.3 Preferential Offer

Subject to the Stock Exchange granting listing of, and permission to deal in, the Tianjin Port Development Shares on the Stock Exchange, 61,200,000 Reserved Shares will be available for subscription by Qualifying Shareholders at the Offer Price under the Preferential Offer. Qualifying Shareholders will be entitled to subscribe on an assured basis at the Offer Price for an estimated one Reserved Share for every multiple of approximately 15.63 existing Shares held by them on the Record Date. Any Qualifying Shareholder holding less than 16 Shares (or such other number of existing Shares as may be the minimum specified by the Company as carrying the entitlement to subscribe for the Reserved Shares) will not be entitled to apply for the Reserved Shares on an assured basis.

In order to assess the reasonableness of the assured entitlement to the Tianjin Port Development Shares to be offered to the Shareholders under the Preferential Offer, we have considered the following recent spin-off exercises (“Spin-off Exercises”) in Hong Kong:

			Assured
			entitlement as a
			percentage of the
			total number of
Date of listing	Company name	Stock code	shares
			(%)
6 August 2003	Hopewell Highway	737	3.0
	Infrastructure
	Limited
11 March 2004	Tom Online Inc.	8282	1.0
30 June 2004	Dah Sing Banking	2356	3.0
	Group Limited
26 January 2005	Dynasty	828	3.0
18 October 2005	One Media Group	426	1.75
	Limited
	*Tianjin Port*		*3.60*
	*Development*

As illustrated in the table above, the assured entitlement offered to the shareholders under the Spin-off Exercises as a percentage to their respective total number of shares issued ranged from approximately 1% to 3%. There will be

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approximately 10.6% of the Tianjin Development Shares under the Share Offer and approximately 3.60% of the total enlarged issued share capital of Tianjin Port Development (i.e. 61,200,000 Tianjin Port Development Shares) available for subscription by Qualifying Shareholders at the Offer Price under the Preferential Offer assuming the Over-allotment Option is not exercised. Given that the relevant percentage of Tianjin Port Development is higher than the other Spin-off Exercises, we consider that the size of the Assured Entitlement under the Preferential Offer is more favourable to the Shareholders than the other Spin-off Exercises.

4.4 THE ACQUISITION

4.4.1 Assets to be acquired

The Properties

Prior to the listing of Tianjin Port Development, each of Tianjin Container and Tianjin Second Stevedoring will enter into an agreement with Tianjin Port Group and the PRC Land Bureau and an agreement with Tianjin Port Group in relation to the acquisition of the Properties. The original lease agreements entered into between each of Tianjin Container and Tianjin Second Stevedoring and Tianjin Port Group in 1997 would also be terminated with effect on the effective date of the agreements in relation to the Acquisition of the Properties. Details of the Properties are as follows:

(a) A parcel of land with an aggregate area of 1,365,007.9 square metres located at the Beijiang area of the port of Tianjin; and
(b) two berths, railway and storage space in respect of a total quay length of 3,046 metres of the port of Tianjin, together with ancillary facilities including railways totalling 7,783 metres long and a warehouse and storage space 224,754 square metres in size, located at the port of Tianjin.

The Port Equipment

4.4.2 Consideration

The aggregate consideration for the Properties of RMB894 million (equivalent to approximately HK$860 million, which will be payable by the Tianjin Port Development Group and is based on the independent valuation reports dated 28 February 2006 issued by Tianjin Xinhua Certified Public Accountants Ltd. ( ) (“Tiangjin Xinhua CPA”) and (Tianjin Jiade Properties Appraisal &

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Consulting Limited) (“Tianjin Jiade Properties Appraisal”), both of which are qualified domestic appraisal firms certified by the Tianjin Land Bureau and have been confirmed by the Tianjin Land Bureau. According to the valuation report issued by Vigers Appraisal & Consulting Limited (“Vigers Appraisal”), the aggregate amount of the market values of the Properties was approximately RMB897 million (or equivalent to approximately HK$862.5 million) as at 28 February 2006.

Of the total consideration, RMB136.6 million (equivalent to approximately HK$131.4 million) will be payable in two installments to the Tianjin Land Bureau. The first installment of RMB27.3 million (equivalent to approximately HK$26.3 million) will be settled in full within 10 days from the date of signing of the agreement and the second installment of RMB109.3 million (equivalent to approximately HK$105.1 million) is currently expected to be settled within 60 days from the date of signing of the agreement. The land use rights is expected to be registered in the name of the Tianjin Port Development Group after the Tianjin Port Development Group settles the second installment to the Tianjin Land Bureau. The remaining RMB757.4 million (equivalent to approximately HK$728.3 million) is payable in three installments to Tianjin Port Group. The first installment of RMB151.5 million (equivalent to approximately HK$145.7 million) will be settled in full within 10 days from the date of signing of the agreement and the second installment of RMB378.7 million (equivalent to approximately HK$364.1 million) is currently expected to be settled by 31 December 2006 and the third payment of RMB227.2 million (equivalent to approximately HK$218.5 million) is expected be settled by 31 May 2007. The Tianjin Port Development Group will settle the payment of the first installment to the Tianjin Land Bureau and the payment of the first installment to Tianjin Port Group by way of bank loans in the amount of HK$70 million and its internal cash flows for the remaining balance and intends to fund the remaining installment to Tianjin Port Group and the Tianjin Land Bureau by using part of the proceeds from the Share Offer.

The consideration for the acquisition of the Port Equipment will be approximately RMB31.1 million (equivalent to approximately HK$29.9 million) and will be payable by the Tianjin Port Development Group within two days from the date of signing the agreement. The consideration is based on an independent valuation of the value of the Port Equipment and will be funded by internal resources.

In assessing the fairness and reasonableness of the considerations payable under the Acquisition, we have reviewed and discussed with Vigers Appraisal, Tianjin Xinhua CPA and Tianjin Jiade Properties Appraisal (together, the “Valuers”) on the methodology, and the underlying bases and assumptions adopted in arriving at the valuations. We concur with the view of the Valuers that their methodology for the valuation of the Acquisition is appropriate. We are currently not aware of any event with respect to such valuations which need to highlight to the Shareholders’ attention.

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4.4.3 Reasons for the Acquisition

As stated in the “Letter from the Board”, the Properties are fundamental to Tianjin Port Development’s operations because the two terminals and various ancillary buildings and warehouses from which Tianjin Port Development derives substantially all of its revenues are situated on this land. The railways are important to the business of Tianjin Port Development in order to transport container and non-containerised cargo efficiently to the berths and the pier, warehouse and other storage facilities are important to the business of Tianjin Port Development as they are the principal facilities from which Tianjin Port Development provides its container and non-containerised cargo handling services to its customers.

The Directors believe that the Acquisition can assist to decrease Tianjin Port Development’s level of reliance on Tianjin Port Group and assist to further delineate its business from that of Tianjin Port Group. The Directors are of the view that consideration for the Acquisition is fair and reasonable as it was based on an independent valuation and subject to normal commercial terms and is therefore in the interest of the Group and the Shareholders as a whole.

Given the reasons and rationale for the Acquisition, including the consideration for the Acquisition which is based on the independent valuation by a qualified domestic appraisal firm certified by the PRC Land Bureau, and the further delineation of Tianjin Port Development’s business from that of Tianjin Port Group, we are of the view that the consideration payable by the Tianjin Port Development Group to Tianjin Port Group under the Acquisition is fair and reasonable and the Acquisition is in the interests of the Company and the Shareholders as a whole.

4.5 Possible financial effects of the Proposed Spin-off and the Acquisition

4.5.1 Special cash dividend

As stated in the “Letter from the Board”, the board of directors of Tianjin Container declared a special cash dividend of approximately RMB25 million (equivalent to approximately HK$24 million) in 2006. The declaration of dividends is considered a return of investment to the Company for its long-term support, such as, providing the necessary funding for expansion, of the companies comprising the Tianjin Port Development Group. The special dividend is to be paid to the Company out of Tianjin Container’s distributable reserves. Investors of Tianjin Port Development Shares in the Share Offer will not be entitled to this special dividend.

We have reviewed the recent initial public offerings and Spin-off Exercises, namely Shenzhou International Group Holdings Limited, China Haisheng Juice Holdings Co., Ltd. and Dynasty and noted that distribution of special cash dividend to the controlling shareholders prior to the initial public offerings or the spin-off is a normal market practice. Accordingly, the Directors and we are of the

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view that the distribution of the proposed special cash dividend to the Group represents a return of investment prior to the Share Offer and is in line with market practice.

Since the special cash dividend will be paid by Tianjin Container to the Company, there is no cash outflow of the Group. In addition, by receiving the special cash dividend, the cash position of the Remaining Group would be further improved by approximately RMB25 million (equivalent to approximately HK$24 million). We consider this distribution of special cash dividend is beneficial to the Company and in the interest of the Shareholders.

4.5.2 Estimated gain on the deemed disposal as a result of the Proposed Spin-off and the effect on the net assets of the Group

As stated in the “Letter from the Board”, based on the current structure of Share Offer and expected market capitalisation of Tianjin Port Development, the Directors expect that the Company will receive a “one-off” gain from its deemed disposal of 34% or approximately 37.2% (assuming the Over-allotment Option is exercised) of Tianjin Port Development following completion of the Proposed Spin-off.

Based on the information set out in the “Letter from the Board”, namely (i) the unaudited net asset value of Tianjin Port Development as at 31 December 2005; (ii) the current structure of the Share Offer; and (iii) the expected market capitalisation of Tianjin Port Development, we have set out below the estimated gain on the deemed disposal as a result of the Proposed Spin-off and the Share Offer.

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	Assuming the	Assuming the
	Over-allotment	Over-allotment
	Option is not	Option is
	exercised	exercised in
	(based on 578	full (based on
	million Tianjin	664.7 million
	Port	Tianjin Port
	Development	Development
	Shares)	Shares)
	HK$’000	HK$’000
Unaudited net asset value of Tianjin Port
Development as at 31 December 2005	1,426,325	1,426,325
Adjusted by: the difference on the special cash
dividend of HK$50 million declared on 12
September 2005, which was adjusted to
RMB25 million (equivalent to approximately
HK$24 million) on 3 March 2006	26,000	26,000
Adjusted net asset value of Tianjin Port
Development before the Share Offer	1,452,325	1,452,325
Adjusted by: estimated net proceeds	902,000	1,043,000
Adjusted unaudited net asset value of Tianjin
Port Development after the Share Offer	2,354,325	2,495,325
The Group’s attributable interest in the
unaudited net asset value of Tianjin Port
Development upon completion of the Share
Offer	1,553,855	1,567,064
Estimated gain on deemed disposal of Tianjin
Port Development	101,530	114,739
Shareholders’ equity of the Group as at 31
December 2005	5,841,310	5,841,310
Percentage increase in the adjusted consolidated
net asset value of the Group after the Share
Offer	1.74%	1.96%

For illustration purpose, we have assumed the Proposed Spin-off is completed within the financial year ended 31 December 2005, and such gain would be recognised in the results of the Company for the year ended 31 December 2005. Based on the above table, the net asset value of the Group would therefore, among other things, be affected by approximately HK$101.5 million (assuming the Over-allotment Option is not exercised), representing an increase of

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approximately 1.74% in the consolidated net asset value of the Group after the Share Offer, or approximately HK$114.7 million (assuming the Over-allotment Option is exercised in full), representing an increase of approximately 1.96% in the consolidated net asset value of the Group after the Share Offer.

Taking into account the reasons and benefits of the Proposed Spin-off set out in this letter, in particular,

(1) the Proposed Spin-off allows complete delineation of the container and non-containerised cargo handling businesses from the Remaining Group and enables the Remaining Group to concentrate on developing the potential of its other core businesses as described in paragraph 4.1.1 above;
(2) the Proposed Spin-off and the Share Offer will enable Tianjin Port Development to raise its own equity/debt capital from the market (as and when appropriate), whilst the Remaining Group will be able to deploy its internal resources and/or equity/debt capital to be raised from the market (as and when appropriate) for the development of its other core businesses; and
(3) a separate listing of Tianjin Port Development fulfills the stated business strategy of the Group (as described in paragraph 4.1.2 above) to spin-off its mature and well-developed businesses; and through the separate listing provides investors, the investment markets and rating agencies with greater clarity on the businesses and financial status of the Tianjin Port Development Group and the Remaining Group, and in turn, will help to build investor confidence in the performance and management of both groups,

we are of the view that the “one-off” deemed gain is in the interests of the Company and the Shareholders as a whole as a result of the Proposed Spin-off.

Shareholders should note that the Offer Price and the structure of the Share Offer are yet to be finalised, the actual gain on the deemed disposal may differ from the estimated figures as mentioned above depending on the actual pricing and structure of the Share Offer. Assuming the Proposed Spin-Off is completed by the end of December 2006, such gain will be recognised in the results of the Company for the year ending 31 December 2006. The net assets of the Group will therefore, among other things, be affected by the same amount of such gain.

As stated in the “Letter from the Board”, the Acquisition will have no impact on the Group’s net asset value as the increase of non-current assets recorded by Tianjin Port Development will be offset by a decrease of cash held by Tianjin Port Development and an increase of bank borrowings to be obtained by Tianjin Port Development to finance the Acquisition. Accordingly, we concur with

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the Directors’ view that since the Acquisition will have no impact on the Tianjin Port Development Group’s net asset value, therefore, there will be no impact on the Group.

4.5.3 Effects on the earnings of the Group

The effects of the Share Offer and the Proposed Spin-off on the future earnings of the Group will depend on, amongst other matters, the return generated from the proceeds raised from the Share Offer as well as the different growth paths for the business operations of the Tianjin Port Development Group.

As stated in the “Letter from the Board”, Tianjin Port Development will remain a 66.0% owned subsidiary of the Company (assuming the Over-allotment Option is not exercised). Accordingly, the financial results of Tianjin Port Development will be consolidated into those of the Group. However, the percentage share of earnings of the Tianjin Port Development Group by the Company will be reduced from 100% to approximately 66.0% (assuming the Over-allotment Option is not exercised and no option has been granted under the Share Option Scheme) in the consolidated accounts of the Group after completion of the Proposed Spin-off and the Share Offer.

Due to the abovementioned potential gain on deemed disposal as a result of the Proposed Spin-off, depending on the final pricing of the Share Offer, the earnings of the Group for the year ending 31 December 2006 (assuming completion of the Proposed Spin-off on or before 31 December 2006) will be affected by the amount of such deemed gain.

Based on the profit attributable to equity holders of the Company for the year ended 31 December 2005 of approximately HK$573.2 million (as described in paragraph 4.1.2 above), and the Company’s share of the unaudited profits of Tianjin Port Development for the year ended 31 December 2005 of approximately HK$147.3 million (as described in paragraph 4.1.3 above), but without taking into account the effect deriving from the “one-off” deemed gain on disposal as a result of the Proposed Spin-off and the effect of the special cash dividend; and assuming the Share Offer was completed on 1 January 2005 and 34.0% of the enlarged share capital of Tianjin Port Development were offered under the Share Offer, the profit attributable to equity holders of the Company for the year ended 31 December 2005 and the earnings per Share would be diluted by approximately 8.7%.

Taking into account the reasons and benefits of the Proposed Spin-off set out above, the gain on deemed disposal as described in paragraph “4.4.2 Estimated gain on the deemed disposal as a result of the Proposed Spin-off and the effect on the net assets of the Group” as compared to the profit attributable to equity holders of the Company for the year ended 31 December 2005 and the “one-off” nature of such effect to the earnings of the Group for the year ended 31 December 2005 (assuming completion of the Proposed Spin-off took place on 1 January

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2005), we are of the view that the effects on the earnings of the Group following the completion of the Proposed Spin-off is in the interests of the Company and the Shareholders as a whole.

As stated in the “Letter from the Board”, the Acquisition will have no material impact on the Group’s earnings as the account of savings on rental expenses is expected to exceed the sum of the increase in depreciation and the increase in interest expenses on the additional bank borrowings used to finance the Acquisition over the expected life of the Properties of approximately 41 years (which is based on the remaining life of the land use rights). On this basis, the depreciation of the Property would amount to approximately RMB22 million per annum.

We have reviewed the basis for the above calculation and we concur with the Directors’ view that the Acquisition will have no material impact on the Group’s earnings over the expected life of the Properties.

4.5.4 Effects on the cash position/gearing of the Group

Based on an Offer Price of HK$1.665, being the midpoint of the indicative Offer Price range of HK$1.50 to HK$1.83 per Tianjin Port Development Share, the expected market capitalisation of Tianjin Port Development (assuming the Over-allotment Option is not exercised) will be approximately HK$2,831 million and the net proceeds to be raised by Tianjin Port Development is expected to be approximately HK$902 million.

As mentioned above, Tianjin Port Development will remain as a 66.0% owned subsidiary of the Group (assuming the Over-allotment Option is not exercised and no option has been granted under the Share Option Scheme) and the financial results of Tianjin Port Development will still be consolidated into those of the Group. Accordingly, the cash position will be increased by approximately HK$902 million (which is equivalent to the amount of the net proceeds raised by Tianjin Port Development from the Share Offer and the gearing ratio (i.e. total borrowings/shareholders’ equity) of the Group will improve from 0.413 (based on the results of the Group as at 31 December 2005) to 0.358 at completion of the Proposed Spin-off (assuming no change to the figures stated in the results of the Group as at 31 December 2005, and the only adjustment factor is the net proceeds raised from the Share Offer). In view of the aforesaid improvement, we are of the view that the Proposed Spin-off and the Share Offer are beneficial to the Company and the Shareholders as a whole.

4.5.5 Other issue

As stated in the “Letter from the Board”, in 1997, the Connected Transaction Agreement was entered into between, among others, the Company and Tianjin Port Authority to govern (i) certain minimum percentages of containerised and non-containerised cargoes were allocated to the Group; and (ii) certain rights, including the rights and options in favour of the Group in relation to the

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operations, investments and facilities associated with the port-related businesses in the port of Tianjin (defined as “Business Allocation Undertakings” and “Pre-emptive Rights” respectively in the “Letter from the Board”), and certain other agreements between the parties. The Business Allocation Undertakings were stated to cease to have effect when Tianjin Port Authority ceased to have administrative authority since July 2004 to allocate cargoes at the port of Tianjin. In July 2004, Tianjin Port Authority undertook a reorganisation in response to the policy announced by the State Council on 23 November 2001, pursuant to which Tianjin Port Group was incorporated to take over all of the businesses previously owned and managed by Tianjin Port Authority, while the administrative functions were assumed by the Tianjin Communications Commission. Details of the Business Allocation Undertakings and Pre-emptive Rights are set out in the “Letter from the Board”.

As at the Latest Practicable Date, the principal assets of Tianjin Port Group were its 57.23% interest in Tianjin Port Limited, 100% interests in each of Tianjin First Stevedoring, Tianjin Third Stevedoring and Tianjin Fourth Stevedoring, as well as various other subsidiaries and associated companies engaged in ancillary ports related businesses. Upon the reorganisation of Tianjin Port Authority, save for the Business Allocation Undertakings, the Connected Transaction Agreement and other agreements previously entered into between the Group and Tianjin Port Authority were subsequently assumed and performed by Tianjin Port Group and its subsidiaries and remained subsisting as at the Latest Practicable Date. Such agreements include four lease agreements in respect of leasing of the Properties, one lease agreement in respect of certain port equipments and various service agreements for the collection of port administration fee, provision of container reconfiguration service, supporting and auxiliary services and inventory management and materials supplies (defined as “Historical Agreements” in the “Letter from the Board”).

Pursuant to Clauses 9 and 10 of the Connected Transaction Agreement, Tianjin Port Group undertook and granted to the Group certain rights, including the rights and options (defined as “Pre-emptive Rights” in the “Letter from the Board”), in favour of the Group in relation to the operations, investments and facilities associated with the port-related businesses in the port of Tianjin.

Also according to the Directors, one of the main reasons for the Proposed Spin-off is to delineate the container and non-containerised cargo handling businesses from the Remaining Group and to give an opportunity to investors to separately appraise the business and financial position of the container and non-containerised cargo handling businesses through a separate listed entity. According to the Directors, there are no cross guarantees between the Remaining Group and the Tianjin Port Development Group. Given that (i) the business activities of the Tianjin Port Development Group; (ii) the facilities and equipment to operate the business activities of the Tianjin Port Development Group; (iii) the management and employees of the Tianjin Port Development Group; (iv) the various offices occupied by the Tianjin Port Development Group for its business operations; and (v) the finance, accounting and administration functions of the

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Tianjin Port Development Group, are carrying out independently and separately from the Remaining Group, there will be no connected transactions between the Group and the Tianjin Port Development Group following the listing of Tianjin Port Development.

In order to ensure complete delineation of the business of Tianjin Port Development and that of the Remaining Group, and avoid the Remaining Group being treated as having a competing interest in the container and non-containerised cargo handling businesses following the listing of Tianjin Port Development, the Board therefore decided the Pre-emptive Rights should not remain with the Company following the Proposed Spin-off. The Board has considered an assignment of the Pre-emptive Rights to Tianjin Port Development. However, according to the PRC legal advice obtained by Tianjin Port Development, such assignment of the Pre-emptive Rights may not be enforceable under PRC law since any assignment of rights to be enforceable under PRC law must obtain prior consent of the grantor (in this case, Tianjin Port Group, which has indicated that it is unable to give such consent).

Accordingly, the Reorganisation also involves the entering into of the Deed of Termination between the Company and Tianjin Port Group for the purpose of terminating the Historical Agreements and the Pre-emptive Rights upon the listing of Tianjin Port Development.

Although the Pre-emptive Rights provide the Group the right of first refusal to expand its container and non-containerised cargo handling businesses within the port of Tianjin (an increasingly important and with substantial growth potential port in the PRC), we have considered the following factors,

(1) the Remaining Group should not be having a competing interest in the container and non-containerised cargo handling businesses following the separate listing of Tianjin Port Development (otherwise it will not be considered as a complete delineation of business/function from the Remaining Group);
(2) the Proposed Spin-off allows complete delineation of the container and non-containerised cargo handling business from the Remaining Group and enables the Remaining Group to concentrate to develop the potentials of its other core businesses as described in paragraph 4.1.1 above;
(3) a separate listing of Tianjin Port Development fulfills the stated business strategy of the Group (as described in paragraph 4.1.2 above) to spin-off those mature and well-developed businesses;
(4) the Company has never sought to exercise the Pre-emptive Rights since their granting in 1997 and the growth strategy of the Tianjin Port Development Group will be based on its enhancement of existing facilities and investment in a new terminal facility, the termination of

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LETTER FROM ACCESS CAPITAL

such rights would not deprive the Tianjin Port Development Group from an investment opportunity that it would otherwise have an interest in pursuing;

(5) the Business Allocation Undertakings became increasingly unimportant to the Company long before they ceased to have legal effect in July 2004, in particular, when the companies now under the Tianjin Port Development Group have (i) maintained long-standing relationships with the majority of its key customers; (ii) established its own sales force to develop direct relationships with its customers; (iii) improved operational efficiency, capacity and service quality; (iv) utilised fully its cargo handling capacity limit, which in turn, it has not been necessary or feasible to seek to enforce the said undertakings for more business; and (v) achieved record performance in terms of both turnover and profit for the two years ended 31 December 2005, which further supported no negative impact on its operating and financial performance; and
(6) the termination of all the Historical Agreements with Tianjin Port Group, save for the lease agreements in respect of the Properties and the certain port equipment which will be terminated upon completion of the Sale and Purchase Agreements, will further reduce the level of reliance on Tianjin Port Group.

we are of the view that it is logical and practicable for the Company to enter into the Deed of Termination (for the purpose of terminating the Historical Agreements and the Pre-emptive Rights) and the entering into of the Deed of Termination would not adversely affect the Company.

5. RECOMMENDATION

In making our recommendation, we have considered the following factors (details of which are elaborated in this letter):

the background to the Proposed Spin-off, in particular, the information of the Tianjin Port Development Group (as mentioned under the paragraphs headed “4.1.3 Historical financial results of the Tianjin Port Development Group” and “4.1.4 Background to the Tianjin Port Development Group” above);
the reasons for and benefits of the Proposed Spin-off (as mentioned under the paragraph headed “4.1.5 Reasons for and benefits of the Proposed Spin-off” above);
the information on the Remaining Group and fulfilment of PN15 requirement (as mentioned under the paragraph headed “4.1.6 The Remaining Group” above);
the Share Offer and the terms of the Share Offer (as mentioned under the paragraph headed “4.2 The Proposed Spin-off” above);

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LETTER FROM ACCESS CAPITAL

the reasons for the Acquisition (as mentioned under the paragraph headed “4.4.3 Reasons for the Acquisition” above);
the resultant shareholding in Tianjin Port Development as a result of the Proposed Spin-off (including the Assured Entitlements under the Preferential Offer as mentioned under the paragraph headed “4.3 The resultant shareholdings in Tianjin Port Development before and after the Proposed Spin-off” above);
the possible financial effects on the Group and the Shareholders, with regard to the estimated deemed gain of approximately HK$101.5 million (assuming the Over-allotment Option is not exercised), the effect to the net asset value and earnings, and the improvement to the liquidity/cash positions of the Group; also the impact to the business of the Group as a result of entering into the Deed of Termination (as mentioned under the paragraph headed “4.4 Possible financial effects on the Group and the Shareholders” above); and
the reasons for entering into the Deed of Termination and the entering of the Deed of Termination would not adversely affect the Company.

After taking into account the factors and reasons mentioned in this letter, in particular the possible financial effects on the Group and the Shareholders, with regard to the estimated deemed gain as mentioned above, the analysis made by us in this letter, and based on the information provided and the representations made to us, we consider the terms of the Proposed Spin-off, the Acquisition and the Terminations to be fair and reasonable so far as the Independent Shareholders are concerned; and that the Proposed Spin-off, the Acquisition and the Terminations are in the interests of the Company and the Shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend to the Independent Shareholders to vote in favour of the relevant resolution(s) which will be proposed at the Extraordinary General Meeting to approve the Proposed Spin-off, the Acquisition and the Terminations.

Yours faithfully, For and on behalf of Access Capital Limited Jeanny Leung Managing Director

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

FINANCIAL SUMMARY

The following is a summary of the audited consolidated results of the Group for each of the three years ended 31 December 2004 as extracted from the annual reports of the Group for the years 2004 and 2003.

RESULTS

Turnover Profit before taxation Income tax expense Profit for the period Attributable to: Equity holders of the Company Minority interest	Year ended 31 December 2004 2003 2002 HK$’000 HK$’000 HK$’000 2,102,473 1,927,377 1,745,259 1,021,925 363,789 329,207 (158,395) (79,741) (83,675) 863,530 284,048 245,532 563,803 212,796 181,649 299,727 71,252 63,883 863,530 284,048 245,532

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The following is a summary of the audited consolidated assets and liabilities of the Group as at 31 December 2004, 2003 and 2002 as extracted from the annual reports of the Group for the year 2003 and the interim report of the Group for the six months ended 30 June 2005.

ASSETS AND LIABILITIES

Non-current assets Current assets Current liabilities Net current assets Shareholders’ funds Minority interests Non-current liabilities	As 2004 HK$’000 (As restated) (note 1) 6,659,363 -------------- 3,054,063 (1,319,591) 1,734,472 -------------- --------------------------- 8,393,835 5,226,236 1,435,407 1,732,192 8,393,835	at 31 December 2003 2002 HK$’000 HK$’000 (note 2) (note 2) 5,480,490 4,117,453 -------------- -------------- 3,192,489 2,501,538 (1,381,077) (1,151,527) 1,811,412 1,350,011 -------------- --------------------------- -------------- --------------------------- 7,291,902 5,467,464 3,987,727 3,530,022 1,187,022 570,370 2,117,153 1,367,072 7,291,902 5,467,464

Notes:

The 2004 figures are extracted from interim report of the Group for the period ended 30 June 2005 and accordingly are restated to reflect relevant changes following adoption of the new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards which are effective for accounting periods commencing on or after 1 January 2005.
The 2003 and 2002 figures are extracted from the annual report of the Group for the year ended 31 December 2003.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

A. FINANCIAL RESULTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2003 AND 2004

Set out below are the audited consolidated profit and loss accounts for the year ended 31 December 2003 and 2004, consolidated balance sheets as at 31 December 2003 and 2004, balance sheets of the Company as at 31 December 2003 and 2004, consolidated statement of changes in equity, consolidated cash flow statements and notes to the accounts for the year ended 31 December 2003 and 2004 as extracted from the audited financial statements of the Group for the year ended 31 December 2004.

Consolidated Profit and Loss Account

For the year ended 31st December 2004

Note Turnover 2 Cost of sales Gross profit Other revenues 2 Gain on disposal of Income Receiving Right 3 Distribution costs General and administrative expenses Impairment charge on investment in an associated company 15(b)(i) Other operating expenses Operating profit before financing 5 Finance costs 6 Shares of profits less losses of: Associated companies 15(b) Jointly controlled entities Profit before taxation Taxation 7 Profit after taxation Minority interests Profit attributable to shareholders 8 Dividends 9 Earnings per share 10	2004 HK$’000 2,102,473 (1,202,810) 899,663 50,052 707,147 (169,416) (359,208) (120,000) (27,818) 980,420 (55,517) 99,003 (1,981) 1,021,925 (158,395) 863,530 (299,727) 563,803 62,592 HK cents 80.2	2003 HK$’000 1,927,377 (1,029,636) 897,741 48,944 – (151,588) (416,768) – (14,734) 363,595 (82,240) 86,955 (4,521) 363,789 (79,741) 284,048 (71,252) 212,796 52,626 HK cents 31.4

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Balance Sheet

At 31st December 2004

Note Non-current assets Goodwill 12 Fixed assets 13 Associated companies 15 Jointly controlled entities 16 Long term investments 17 Deferred tax assets 30 Current assets Properties under development held for sale 18 Completed properties held for sale 19 Inventories 20 Amount due from the ultimate holding company 21 Amounts due from related companies 22 Trade receivables 23 Other receivables, deposits and prepayments Consideration receivable on disposal of partial interest in an associated company Short term investments 24 Bank balances and cash 25 Current liabilities Trade payables 26 Other payables and accruals Amount due to the ultimate holding company 21 Amounts due to related companies 22 Current portion of long term liabilities 29 Short term loans and overdrafts – secured – unsecured Taxation payable Net current assets	2004 HK$’000 400,349 5,221,255 375,599 93,736 188,625 8,156 6,287,720 --------------- 347,813 17,507 262,328 – 85,733 386,446 307,259 – 62,311 1,956,309 3,425,706 --------------- 48,126 550,495 3,925 148,415 388,973 – 74,958 104,699 1,319,591 --------------- ----------------------------- 2,106,115 --------------- ----------------------------- 8,393,835	2003
		HK$’000 54,096 4,800,695 359,260 95,619 170,820 –
		5,480,490 --------------- 347,813 218,807 204,428 26 53,194 304,346 201,283 365,169 58,429 1,438,994
		3,192,489 --------------- 17,474 474,182 – 123,038 660,475 16,406 57,797 31,705
		1,381,077 --------------- ----------------------------- 1,811,412 --------------- ----------------------------- 7,291,902

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Balance Sheet (Continued)

At 31st December 2004

Note Financed by: Share capital 27 Reserves 28 Shareholders’ funds Minority interests Long term liabilities 29 Deferred tax liabilities 30	2004 HK$’000 91,046 5,135,190 5,226,236 1,435,407 1,664,297 67,895 8,393,835	2003
		HK$’000 68,485 3,919,242
		3,987,727 1,187,022 2,051,491 65,662
		7,291,902

Wang Guanghao Director

Ren Xuefeng Director

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Balance Sheet

At 31st December 2004

Note Non-current assets Fixed assets 13 Subsidiaries 14 Associated company 15 Current assets Other receivables, deposits and prepayments Bank balances and cash 25 Current liabilities Other payables and accruals Amount due to the ultimate holding company 21 Net current assets Financed by: Share capital 27 Reserves 28 Shareholders’ funds Long term liabilities 29	2004 HK$’000 1,178 5,486,240 4,000 5,491,418 --------------- 13,645 60,909 74,554 --------------- 13,082 98 13,180 --------------- ----------------------------- 61,374 --------------- ----------------------------- 5,552,792 91,046 4,603,746 4,694,792 858,000 5,552,792	2003
		HK$’000 28,773 4,516,355 4,000
		4,549,128 --------------- 36,989 367,799
		404,788 --------------- 13,052 172
		13,224 --------------- ----------------------------- 391,564 --------------- ----------------------------- 4,940,692

		68,485 4,014,207
		4,082,692 858,000
		4,940,692

Wang Guanghao

Director

Ren Xuefeng

Director

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31st December 2004

Note Total equity as at 1st January Derecognition of negative goodwill in an associated company (Note 1(a)) Exchange differences not recognised in the profit and loss account 28 Profit for the year 28 Dividends 28 Issue of shares 27, 28 Goodwill released on disposal of partial interest in an associated company 28 Goodwill and capital reserves released upon disposal of subsidiaries 28 Exchange reserve released upon deemed disposal of a subsidiary Total equity as at 31st December	2004 HK$’000 3,987,727 23,761 (38) 563,803 (58,458) 709,328 – – 113 5,226,236	2003 HK$’000 3,530,022 – 1,172 212,796 (48,170) 18,466 268,421 5,020 – 3,987,727

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31st December 2004

Note Operating activities Net cash inflow generated from operations 34(a) Interest paid PRC income tax paid PRC income tax refund Net cash inflow from operating activities Investing activities Interest received Proceeds from disposal of partial interest in an associated company in 2003 Purchase of fixed assets Proceeds from disposal of fixed assets Purchase of an associated company Additional investment in a jointly controlled entities Proceeds from disposal of a jointly controlled entity Increase in long term investments Increase in amounts due from jointly controlled entities Increase in amounts due from associated companies Dividends received from an associated company Acquisition of subsidiaries 34(d) Deemed disposal of a subsidiary 34(e) Net cash inflow/(outflow) from investing activities Net cash inflow before financing	2004 HK$’000 1,316,298 (55,517) (67,061) – 1,193,720 --------------- 19,985 365,169 (185,916) 30,292 (2,405) – – (11,565) (98) (23,202) 2,512 108,840 (5,536) 298,076 --------------- ----------------------------- 1,491,796 ---------------	2003 HK$’000 484,483 (84,524) (80,061) 11,304 331,202 --------------- 11,899 – (187,045) 45,132 (1,131) (18,857) 34,074 (1,909) (25) (1,627) 29,520 (12,077) 6,414 (95,632) --------------- ----------------------------- 235,570 ---------------

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Cash Flow Statement (Continued)

For the year ended 31st December 2004

Note Financing 34(b) Net (decrease)/increase in bank loans Capital element of finance lease payments Decrease in restricted bank balances Dividends paid Dividends paid to minority shareholders Issue of ordinary shares Net cash (outflow)/inflow from financing Increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Analysis of balances of cash and cash equivalents Bank balances and cash – unrestricted 25	2004 HK$’000 (840,182) – 14,658 (58,458) (75,841) – (959,823) --------------- ----------------------------- 531,973 1,424,336 1,956,309 1,956,309	2003 HK$’000 291,316 (25) 2,186 (48,170) (38,274) 2,866 209,899 --------------- ----------------------------- 445,469 978,867 1,424,336 1,424,336

– 86 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes to the Accounts

1. Principal accounting policies

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

(a) Basis of preparation

The accounts have been prepared in accordance with accounting principles generally accepted in Hong Kong and comply with accounting standards issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). The accounts are prepared under the historical cost convention.

The HKICPA has issued a number of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards (“new HKFRSs”) which are effective for accounting periods beginning on or after 1st January 2005.

For the year ended 31st December 2004, the Group has early adopted the following accounting standards that are believed to have the most material effect on the Group’s accounts:

Hong Kong Financial Reporting Standard 3 (new “HKFRS 3”) Hong Kong Accounting Standard 36 (revised “HKAS 36”) Hong Kong Accounting Standard 38 (revised “HKAS 38”)

Business Combination Impairment of Assets Intangible Assets

The key impact to the Group is as follows:

amortisation of goodwill and negative goodwill ceased from 1st January 2004;
accumulated amortisation and impairment have been eliminated against the cost of goodwill at 1st January 2004;
negative goodwill has been derecognised and credited to equity;
goodwill will be tested annually for impairment, as well as when there are indications of impairment; and
goodwill which arose prior to 1st January 2001 and which has been taken into reserves, will not be recognised in the profit and loss account when the Group disposes of all or part of the business to which that goodwill relates or when a cash-generating unit to which the goodwill relates becomes impaired.

All changes in the accounting policies have been made in accordance with the transitional provisions in the respective standards and have been applied prospectively. In particular, negative goodwill arising on acquisition has been derecognised in accordance with the transitional provisions of HKFRS 3, resulting in an increase in opening reserves of HK$23,761,000, an increase in associated companies of HK$28,718,000 and an increase in minority interests of HK$4,957,000.

(b) Consolidation

The group accounts include the accounts of the Company and its subsidiaries made up to 31st December. The group accounts also include the Group’s share of post acquisition profits less losses, and reserves, of its associated companies and jointly controlled entities.

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

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

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. Principal accounting policies (Continued)

(c) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiaries, associated companies or jointly controlled entities at the date of acquisition.

In accordance with HKFRS 3, goodwill arising on acquisition is retained at the carrying amount as a separate asset or, as applicable, included within investments in associated companies and joint ventures, and subject to impairment review annually and when there are indications that the carrying value may not be recoverable. If the cost of acquisition is less than the fair value of the Group’s share of the net identifiable assets of the acquired company, the difference is recognised directly in the consolidated profit and loss account. For goodwill which arose before 1st January 2001 and which has been taken into reserves, it would not be recognised in the profit and loss account when the Group disposes of all or part of the business to which that goodwill relates or when a cash-generating unit to which the goodwill relates becomes impaired.

Amortisation of goodwill, which was in previous years amortised over its estimated useful life, ceased on 31 December 2003, and the related accumulated amortisation and impairment were eliminated against the cost of goodwill at 1st January 2004.

The profit or loss on disposal of subsidiary company, associated company or jointly controlled entity is calculated by reference to the net assets at the date of disposal including the attributable amount of goodwill but does not include any attributable goodwill previously eliminated against reserves. In prior years, the aforesaid profit and loss on disposal included any goodwill or negative goodwill taken to reserves and was not previously charged or recognised in the consolidated profit and loss account.

(d) Subsidiaries

A company is a subsidiary if the Group controls more than half of the voting power, controls the composition of the board of directors or hold more than half of the issued share capital.

In the Company’s balance sheet the investments in subsidiaries are stated at costs less provision for impairment losses, if necessary, for any permanent diminution in value. The results of subsidiaries are accounted for by the Company on the basis of dividend income.

(e) Associated companies

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

The consolidated profit and loss account includes the Group’s share of results of associated companies for the year, and the consolidated balance sheet includes the Group’s share of net assets of the associated companies.

(f) Jointly controlled entities

A jointly controlled entity is a contractual arrangement whereby the Group and other parties undertake an economic activity which is subject to joint control and none of the participating parties has unilateral control over the economic activity.

The consolidated profit and loss account includes the Group’s share of the results of jointly controlled entities for the year, and the consolidated balance sheet includes the Group’s share of net assets of the jointly controlled entities.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. Principal accounting policies (Continued)

(f) Jointly controlled entities (Continued)

In the Company’s balance sheet, the investments in jointly controlled entities are stated at cost less provision for impairment losses. The results of jointly controlled entities are accounted for by the Company on the basis of dividend income.

(g) Asset impairment

Assets that have an indefinite useful life are tested for impairment annually. Assets that are subject to depreciation and amortisation are reviewed to determine whether there is any indication that the carrying value of these assets may not be recoverable and have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Such impairment loss is recognised in the consolidated profit and loss account except where the asset is carried at valuation and the impairment loss does not exceed the revaluation surplus for that asset, in which case it is treated as a revaluation decrease.

(h) Fixed assets

Fixed assets are stated at cost less accumulated depreciation and accumulated impairment loss, if any.

No depreciation is provided in respect of construction in progress. Land use rights outside Hong Kong are amortised over the periods of the respective leases. Depreciation of toll roads is calculated based on the pattern of the expected traffic flow throughout the period the Group expects to operate the toll roads.

Depreciation of other fixed assets is calculated to write off the cost of the assets less accumulated impairment losses and estimated residual values using a straight line method over their estimated useful lives as follows:

Leasehold land	over the unexpired lease term
Buildings	20-45 years
Improvements on leased berths	35 years
Plant and machinery	7-25 years
Leasehold improvement, furniture and equipment	5-10 years
Motor vehicles	5-12 years
Others	5 years

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

At each balance sheet date, both internal and external sources of information are considered to assess whether there is any indication that fixed assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated and where relevant, an impairment loss is recognised to reduce the asset to its recoverable amount. Such impairment losses are recognised in the profit and loss account.

The gain or loss on disposal of a fixed asset is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in the profit and loss account.

– 89 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. Principal accounting policies (Continued)

(i) Assets under leases

(i) Finance leases

Leases that substantially transfer to the Group all the risks and rewards of ownership of assets are accounted for as finance leases. Finance leases are capitalised at the inception of the lease at the fair value of the leased assets. Each lease payment is allocated between the capital and finance charges so as to achieve a constant rate on the capital balances outstanding. The corresponding rental obligations, net of finance charges, are included in long term liabilities. The finance charges are charged to the profit and loss account over the lease periods.

Assets held under finance leases are depreciated over the shorter of their estimated useful lives or the lease periods.

(ii) Operating leases

Leases where substantially all the risks and rewards of ownership of assets remain with the lessors are accounted for as operating leases and rentals payable net of any incentives received from the leasing company are charged to the profit and loss account evenly over the periods of the respective leases.

(j) Investments

Investments held for the long term are stated at cost less provision for impairment losses, if

any.

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

(k) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost, calculated on a weighted average basis, comprises materials, direct labour and an appropriate portion of production overheads. Net realisable value is determined on the basis of anticipated sales proceed less estimated cost to completion and selling expenses.

(l) Properties under development held for sale

Properties under development held for sale are included under current assets and comprise land cost, construction costs and other direct costs attributable to such properties, less allowances for any foreseeable losses.

Such properties are sold in advance of completion, profit is recognised over the course of the development and is computed as proportion of the total estimated profit to completion; the proportion used being the lower of the proportion of the construction works completed and the proportion of sales proceeds received to total estimated sales proceeds.

Where purchasers fail to pay the balance of the purchase price on completion and the Group exercises its entitlement to resell the property, sales deposits received in advance of completion which are forfeited are credited to operating profit; and any profits recognised up to the date of completion are written back.

Properties completed and remain unsold as at year end are included in current assets and stated at the lower of cost and net realisable value.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. Principal accounting policies (Continued)

(m) Accounts receivable

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

(n) Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, cash investments with a maturity of three months or less from date of investment and bank overdrafts.

(o) Provisions

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

(p) Employee benefits

(i) Employee leave entitlement

Employee entitlements to annual leave and long service leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave and long service leave as a result of services rendered by employees up to the balance sheet date. Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.

(ii) Retirement scheme obligations

Employees of the Group’s PRC subsidiaries are members of state-managed employee pension scheme operated by the Tianjin Municipal People’s Government which undertakes to assume the retirement benefit obligations of all existing and future retired employees. The Group’s obligation is to make the required contributions under the schemes. In addition, the Group also contributes to a mandatory provident fund scheme for all Hong Kong employees. All these contributions are based on a certain percentage of the staff’s salary and are charged to the profit and loss account as incurred.

(iii) Equity compensation benefits

Share options are granted to directors and continuous contract employees. No compensation cost is recognised in the profit and loss account in connection with share options granted. When the share options are exercised, the proceeds received net of any transaction costs are credited to share capital (nominal value) and share premium.

(q) Deferred taxation

Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the accounts. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. Principal accounting policies (Continued)

(r) Contingent liabilities and contingent assets

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

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

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

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

(s) Related companies

Related companies represent former holding companies of the subsidiaries comprising the Group after the Group’s restructuring and companies or entities controlled by these former holding companies and the existing holding companies, other than companies comprising the Group.

(t) Foreign currencies

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

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

(u) Revenue recognition

Sales of goods are recognised when goods are delivered to customers.

Toll revenues are recognised when services are rendered.

Port service income is recognised when services are rendered.

Sales of properties is recognised on the transfer of risks and rewards of ownership, which generally coincides with the time the title has passed.

Sale of electricity and water is recognised based on meter readings.

Government supplemental income is recognised on an accrual basis as set out in Note 1(w)

below.

Rental, interest income and management fee income are recognised on an accruals basis.

Dividend income from investments is recognised when the right to receive payment is established.

– 92 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. Principal accounting policies (Continued)

(v) Borrowing costs

Borrowing costs that are directly attributable to the construction of an asset that necessarily takes a substantial period of time to get ready for its intended use are capitalised as part of the cost of that asset. All other borrowing costs are charged to the profit and loss account in the year in which they are incurred.

(w) Government supplemental income

Government supplemental income represents assistance by local municipal government in the form of cash based on a fixed rate. Such income is recognised upon compliance with the conditions attached with them and that the income will be received.

(x) Segment reporting

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

Unallocated items represent net corporate expenses or income. Segment assets consist primarily of goodwill, fixed assets, investments in associated companies and jointly controlled entities, properties under development for sale, completed properties held for sale, inventories, receivables and exclude amounts due from related companies and holding company, long term investments, short term investments, taxation recoverable and bank balances and cash. Segment liabilities consist of trade payables and other payables and accruals and exclude taxation payable, amounts due to related companies and holding company, minority interests and corporate borrowings. Capital expenditure comprises additions to fixed assets.

In respect of geographical segment reporting, sales are based on the country in which the Group’s production or service facilities are located. Total assets and capital expenditure are where the assets are located.

2. Turnover and revenues

The principal activity of the Company is investment holding. The Group is principally engaged in manufacturing and sale of winery products, provision of port services, operation of toll roads in Tianjin, sale of properties and supply of utilities.

Turnover is net of discounts and returns where applicable as follows:

Manufacturing and sale of winery products Provision of port services Operation of toll roads Sales of properties Supply of utilities (Note) Trading in garments, chemical products and electrical components	2004 HK$’000 805,349 775,552 207,771 243,833 69,968 – 2,102,473	2003
		HK$’000 669,401 702,005 289,311 199,262 – 67,398
		1,927,377

– 93 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2. Turnover and revenues (Continued)

Other revenues comprises Gain on deemed disposal of partial interest in a subsidiary Unrealised and realised gain on short term investment Gain on deemed and partial disposals of interest in an associated company Gain on disposal of a jointly controlled entity Interest income from bank deposits and others Dividends from unlisted long term investments Sundries	2004 HK$’000 4,325 5,992 – – 19,985 295 19,455 50,052	2003
		HK$’000 – 3,815 17,681 3,619 11,899 411 11,519
		48,944

Note:

On 29th November 2004, the Group completed its acquisition of Tianjin TEDA Tsinlien Electric Power Company Limited (“Electricity Company”) and Tianjin TEDA Tsinlien Water Supply Company Limited (“Water Company”). The Finance Bureau of Tianjin Economic and Technological Development Area (“TEDA”) confirmed that it will grant the Electricity Company and Water Company government supplemental income calculated at RMB0.02 per kWh of electricity supplied and RMB2 per tonne of water supplied to their respective customers in the TEDA for the five years to 31st December 2007.

Turnover generated from the supply of utilities includes about HK$2 million and HK$4.5 million of such income granted to the Electricity Company and Water Company since the date of acquisition of the respective companies to 31st December 2004.

3. Gain on disposal of Income Receiving Right

Pursuant to an agreement with the Tianjin Municipal Government in 1997, one of the Group’s subsidiaries, Tianjin Jin Zheng Transportation Development Co., Ltd. (“Jinzheng”), was granted the exclusive right to operate, manage and maintain the Eastern Outer Ring Road in return for a fixed sum of income receivable annually from the Tianjin Government from 1997 to 2027 (“Income Receiving Right”).

In 2004, Jinzheng disposed of its Income Receiving Right to Tianjin TEDA Investments Holding Co., Ltd. (“Tianjin TEDA”) with effect from 1st January 2004 for a consideration of RMB750 million (approximately HK$707 million) plus all interest payable in respect of an outstanding bank loan owed by Jinzheng. The consideration was satisfied in cash by Tianjin TEDA in February 2004 which was in turn used to repay the aforementioned bank loan of RMB750 million.

Subsequent to the disposal of its Income Receiving Right, Jinzheng will continue to receive toll fees based on the volume of traffic flow and a pre-determined formula in accordance with the Eastern Outer Ring Road Toll Collection Agency Agreement dated 20th August 2003 (Note 4(c)).

– 94 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. Segment information

(a) Primary reporting format — business segments

			Year ended	31st Decem	ber 2004
Winery HK$’000 805,349 227,619 – 1,059 – 250,006 – 11,418 385,219 206,053 298,406 84,993 22,941	Port services HK$’000 775,552 98,757 2,407 – – 1,256,179 28,626 – 106,059 4,039 40,759 97,391 92,131	Operation of toll roads HK$’000 207,771 784,856 – – 74,096 3,216,365 – – 25,754 926,394 60,093 2,289 46,082	Property development HK$’000 243,833 862 – – – 325 – – 369,968 – 30,415 17 106	Supply of utilities HK$’000 69,968 4,449 – – 326,253 451,455 – – 214,948 37,839 135,405 454,055 2,007	Elevator and escalator HK$’000 – – 98,141 – – – 279,976 – 142,188 205,178 9,329 – –	Gas fuel supply HK$’000 – – (120,000) – – – – 38,261 – – – – – –	Others HK$’000 – – (1,545) (3,040) – 46,925 28,736 82,318 77,215 55,904 24,214 946 2,798	Group
								HK$’000 2,102,473

								1,116,543 4,325 (120,000) 19,985 (40,433)
								980,420 (55,517) 99,003 (1,981)
								1,021,925 (158,395)
								863,530 (299,727)
								563,803

								400,349 5,221,255 375,599 93,736 1,321,351 2,301,136
								9,713,426

								1,435,407 598,621 2,453,162
								4,487,190

								639,691 166,065

– 95 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. Segment information (Continued)

(a) Primary reporting format — business segments (Continued)

			Year ended	31st Decem	ber 2003
Winery HK$’000 669,401 153,487 – 1,002 – 189,889 – 10,359 341,385 198,861 245,376 31,668 22,261 –	Port services HK$’000 702,005 88,417 4,243 – – 1,257,134 28,588 – 85,837 3,980 43,304 145,461 90,333 –	Operation of toll roads HK$’000 289,311 190,437 – – 54,096 3,284,039 – – 149,915 773,339 82,246 1,525,869 28,693 –	Property development HK$’000 199,262 10,326 – – – 27,875 – – 588,473 26,891 92,274 112 1,955 –	Trading HK$’000 67,398 (26,172) – – – – – – – – – 405 91 –	Elevator and escalator HK$’000 – – 62,939 – – – 173,774 – 405,828 188,656 3,943 – – –	Gas fuel supply HK$’000 – – 21,891 – – – 156,007 – – – – – – –	Others HK$’000 – – (2,118) (5,523) – 41,758 891 85,260 70,408 (4,705) 24,513 16,319 869 5,698	Group
								HK$’000 1,927,377

								416,495 17,681 11,899 (82,480)
								363,595 (82,240)
								86,955 (4,521)
								363,789 (79,741)
								284,048 (71,252)
								212,796

								54,096 4,800,695 359,260 95,619 1,641,846 1,721,463
								8,672,979

								1,187,022 491,656 3,006,574
								4,685,252

								1,719,834 144,202 5,698

– 96 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. Segment information (Continued)

(b) Secondary report format geographical segments

2004 PRC mainland Hong Kong 2003 PRC mainland Hong Kong	Turnover HK$’000 2,102,473 – 2,102,473 1,859,979 67,398 1,927,377	Segment results HK$’000 1,116,543 – 1,116,543 442,667 (26,172) 416,495	Total assets HK$’000 9,594,932 118,494 9,713,426 8,246,835 426,144 8,672,979	Capital expenditure
				HK$’000 639,115 576
				639,691

				1,719,429 405
				1,719,834

(c) Pursuant to an approval (Jin Zheng Fa 2003 No. 52) dated 30th May 2003 issued by the Tianjin Municipal People’s Government, the direct collection of tolls by all toll stations situated within the urban area of Tianjin City, including the Eastern Outer Ring Road, was terminated with effect from 1st June 2003. In its place, the Tianjin City Indebted Road Construction and Toll Collection Office (the “City Toll Collection Office”) takes up the responsibility of collecting toll payments from road users. Based on a pre-determined formula in accordance with the Eastern Outer Ring Road Toll Collection Agency Agreement dated 20th August 2003 the City Toll Collection Office shall then pay the relevant toll fees to Jinzheng. The City Toll Collection Office charges a toll collection management fee which is equal to 5% of the aggregate toll revenue receivable by the Group in return.
(d) The Group disposed of its entire interests in certain subsidiaries, which engaged in trading operations in Hong Kong, to Tsinlien Group Company Limited for a cash consideration of HK$2 in 2003.

– 97 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

5. Operating profit before financing

Operating profit before financing is stated after (crediting)/charging: Cost of inventories and completed properties held for sale sold Staff cost (including directors’ emoluments) Wages and salaries Retirement benefit costs Auditors’ remuneration Exchange gain Depreciation Net loss on disposal of fixed assets Operating lease expense on Land and buildings Berths, railway and storage space Plant and equipment Impairment of land and building Provision for bad and doubtful debts Provision for obsolete inventories Impairment of goodwill on acquisition of a subsidiary Loss on disposal of subsidiaries Management fee paid to Tianjin Jinbin Expressway Management Company Limited Toll collection management fee	2004 HK$’000 372,565 290,273 36,180 2,820 (241) 166,065 22,444 15,152 20,221 7,633 – 6,627 1,116 – – 12,368 7,776	2003 HK$’000 457,653 253,126 29,641 2,730 (38) 144,202 10,084 18,276 19,258 9,258 5,698 66,418 626 1,469 3,758 – 5,063

6. Finance costs

Interest on bank and other loans wholly repayable within five years, net of interest subsidies of HK$31,680,000 (2003: Nil) Interest on convertible bonds Less: Interest capitalised in properties under development	2004 HK$’000 51,598 3,919 55,517 – 55,517	2003 HK$’000 79,953 4,571 84,524 (2,284) 82,240

– 98 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

7. Taxation

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

Current taxation PRC income tax Under provisions in prior years Deferred taxation relating to the origination and reversal of temporary differences (Note 30) Share of PRC income tax attributable to Jointly controlled entities Associated companies Taxation charge	2004 HK$’000 135,322 3,154 (1,320) 137,156 – 21,239 158,395	2003 HK$’000 66,032 662 5,439 72,133 (383) 7,991 79,741

Hong Kong profits tax has been provided at the rate of 17.5% on the estimated taxable profit for the year (2003: 17.5%). Provision for the PRC income tax has been made at the applicable rate of taxation on the estimated assessable profit for the year for each of the Group’s subsidiaries and associates.

Rates applicable to principal subsidiaries and associates:

On 6th November 1997, the Tianjin Finance Bureau approved that with effect from the listing of the Company, the income tax rate applicable to Tianjin Harbour Second Stevedoring Co., Ltd. and Tianjin Port Container Terminal Co., Ltd. is 15% and remained effective as at year ended 2004.

On 12th November 1997, the State Tax Bureau approved that Tianjin Tai Kang Industrial Co., Ltd. (“Taikang”) and Tianjin Heavenly Palace Winery Co., Ltd. (“Heavenly Palace”) be exempted from income tax for two years starting from the first year of profit generation, followed by a 50% reduction for the next three years. The applicable tax rate of Taikang and Heavenly Palace for the current year is 30% and 33% respectively.

Pursuant to an approval document issued by the State Tax Bureau of Tianjin Economic and Technological Development Area (the “State Tax Bureau”), Jinzheng is entitled to an exemption from the PRC enterprise income tax for two years commencing from its first profit-making year of operation and thereafter, Jinzheng is entitled to a 50% relief from the PRC enterprise income tax for the following three years. The reduced tax rate for the relief period is 7.5%. After the expiry of the tax relief period, Jinzheng is subject to an income tax rate of 15%, being the preferential tax rate applicable. Pursuant to the same document, the State Tax Bureau has confirmed that the first profitmaking year of Jinzheng is the year of 2000.

Pursuant to the relevant laws and regulations in the PRC, Tianjin Mass Transit (Group) Development Co., Ltd. and its subsidiaries (“MTD Group”) is exempted from income tax for two years starting from the first year of profit generation and thereafter, MTD Group is entitled to a 50% relief from the PRC enterprise income tax for the following three years. The reduced tax rate for the relief period is 7.5%. After the expiry of the tax relief period, MTD Group is subject to an income tax rate of 15%, being the preferential tax rate applicable.

Electricity Company and Water Company are exempted from income tax for the two years starting from 2001 followed by a 50% reduction for the next three years.

– 99 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

7. Taxation (Continued)

The taxation on the Group’s profit before taxation differs from the theoretical amount that would arise using the applicable tax rate, being the weighted average of rates prevailing in the territory in which the Group’s principal subsidiaries operate, as follows:

Profit before taxation Calculated at applicable tax rates Income of subsidiaries under tax reduction Income not subject to taxation Expenses not deductible for taxation purposes Utilisation of previously unrecognised tax losses Tax losses not recognised Taxation charge	2004 HK$’000 1,021,925 173,587 (57,647) (4,921) 33,742 (104) 13,738 158,395	2003
		HK$’000 363,789

		83,116 (18,125) (21,337) 33,282 (1,255) 4,060
		79,741

8. Profit attributable to shareholders

The profit attributable to shareholders is dealt with in the accounts of the Company to the extent of a loss of HK$38,770,000 (2003: profit of HK$292,037,000).

9. Dividends

2004 final dividends, proposed, of 3.4 HK cents (2003: final, paid, of 3.9 HK cents per share) 2004 interim, paid, of 4.6 HK cents (2003: 3.8 HK cents) per share	2004 HK$’000 30,956 31,636 62,592	2003
		HK$’000 26,822 25,804
		52,626

At a meeting held on 21st April 2005 the directors proposed a final dividend of 3.4 HK cents per ordinary share. This proposed dividend is not reflected as a dividend payable in these accounts, but will be reflected as an appropriation of retained earnings for the year ending 31st December 2005.

10. Earnings per share

The calculation of the basic earnings per share was based on profit attributable to shareholders of HK$563,803,000 (2003: HK$212,796,000) and the weighted average number of 703,339,858 ordinary shares in issue (2003: 678,771,278 shares) during the year.

The share options have no material dilutive effect on basic earnings per share for the years ended 31st December 2003 and 2004.

– 100 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

11. Emoluments of directors and senior management

(a) Directors’ emoluments

Fees Salaries and other emoluments Emolument bands (HK$) Nil-1,000,000 1,000,001-1,500,000	2004 2003 HK$’000 HK$’000 3,905 5,120 1,674 1,533 5,579 6,653 Number of individuals	2003
		HK$’000 5,120 1,533
		6,653

	2004 14 2 16	2003
		14 2
		16

Remuneration paid to independent non-executive directors for the year represents fees amounting to HK$900,000 (2003: HK$900,000). During the year, none of the directors had waived their directors’ fees (2003: Nil).

(b) Senior management emoluments

Details of the emoluments paid to the five individuals, including 3 directors (2003: 3 directors), whose emoluments were the highest in the Group are as follows:

Fees Salaries and other emoluments Emolument bands (HK$) Nil-1,000,000 1,000,001-1,500,000	2004 2003 HK$’000 HK$’000 2,498 2,444 3,147 3,233 5,645 5,677 Number of individuals	2003
		HK$’000 2,444 3,233
		5,677

	2004 2 3 5	2003
		3 2
		5

During the year, no emoluments were paid by the Group to the five highest paid individuals, including directors, as an inducement to join or upon joining the Group or as compensation for loss of office (2003: Nil).

– 101 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

12. Goodwill

At 1st January Acquisition of subsidiaries (Note 34(d)) Impairment charge At 31st December	2004 HK$’000 54,096 346,253 – 400,349	2003 HK$’000 – 55,565 (1,469) 54,096

13. Fixed assets

Group

Cost At 1st January 2004 Additions Acquisition of subsidiaries (Note 34(d)) Deemed disposal of a subsidiary (Note 34(e)) Transfers upon completion Disposals At 31st December 2004 Accumulated depreciation and impairment At 1st January 2004 Charge for the year Deemed disposal of a subsidiary (Note 34(e)) Disposals At 31st December 2004 Net book value At 31st December 2004 At 31st December 2003	Land and buildings HK$’000 398,089 2,365 179,739 – 45,154 (39,891) 585,456 - - - - - - - - 85,684 14,524 – (7,971) 92,237 - - - - - - - ---------------------------- 493,219 312,405	Toll roads HK$’000 3,542,990 238 – – – (18,375) 3,524,853 - - - - - - - - 264,977 44,501 – (1,972) 307,506 - - - - - - - ---------------------------- 3,217,347 3,278,013	Improvement on leased berths HK$’000 365,489 – – – 437 – 365,926 - - - - - - - - - - 22,540 10,692 – – 33,232 - - - - - - - - - ------------------------------------ 332,694 342,949	Plant and machinery HK$’000 1,056,788 3,116 254,940 – 57,417 (11,177) 1,361,084 - - - - - - - - 313,391 82,200 – (7,877) 387,714 - - - - - - - ---------------------------- 973,370 743,397	Leasehold improvement, furniture and equipment HK$’000 32,297 477 12,258 – 1,155 (788) 45,399 - - - - - - - - - - 5,471 3,846 – (657) 8,660 - - - - - - - - - ------------------------------------ 36,739 26,826	Motor vehicles HK$’000 57,422 7,043 6,838 – 290 (3,615) 67,978 - - - - - - - - 28,269 5,409 – (2,958) 30,720 - - - - - - - ---------------------------- 37,258 29,153	Construction in progress HK$’000 50,732 168,930 – – (104,453) – 115,209 - - - - - - - - - – – – – – - - - - - - - - - ---------------------------------- 115,209 50,732	Others HK$’000 48,918 3,747 – (807) – (2,302) 49,556 - - - - - - - - 31,698 4,893 (477) (1,977) 34,137 - - - - - - - ---------------------------- 15,419 17,220	Total HK$’000 5,552,725 185,916 453,775 (807) – (76,148) 6,115,461 - - - - - - - - 752,030 166,065 (477) (23,412) 894,206 - - - - - - - ---------------------------- 5,221,255 4,800,695

– 102 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

13. Fixed assets (Continued)

Company

Cost At 1st January 2004 Additions Disposals At 31st December 2004 Accumulated depreciation and impairment At 1st January 2004 Charge for the year Disposals At 31st December 2004 Net book value At 31st December 2004 At 31st December 2003	Leasehold land HK$’000 33,920 – (33,920) – - - - - - - - - - - - - 6,461 – (6,461) – - - - - - - - - - - - - – 27,459	Leasehold improvement, furniture and equipment HK$’000 2,373 163 – 2,536 - - - - - - - - - - - - - 1,112 246 – 1,358 - - - - - - - - - - - - - 1,178 1,261	Motor vehicles HK$’000 2,540 – – 2,540 - - - - - - - - - - - - 2,487 53 – 2,540 - - - - - - - - - - - - – 53	Total
				HK$’000 38,833 163 (33,920)
				5,076 - - - - - - - - - - - - 10,060 299 (6,461)
				3,898 - - - - - - - - - - - - 1,178

				28,773

The cost of the Group’s and the Company’s property interests comprises:

Group 2004 2003 HK$’000 HK$’000 585,456 398,089 3,524,853 3,542,990 4,110,309 3,941,079	Company	Company
2004 HK$’000 585,456 3,524,853 4,110,309	2004 HK$’000 – – –	2003
		HK$’000 33,920 –
		33,920

14. Subsidiaries

Unlisted shares, at cost Amounts due from subsidiaries Amounts due to subsidiaries	Company	Company
	2004 HK$’000 3,926,787 1,694,140 (134,687) 5,486,240	2003
		HK$’000 3,518,323 1,140,587 (142,555)
		4,516,355

Details of principal subsidiaries, which in the directors’ opinion, materially affect the results or net assets of the Group at 31st December 2004 are set out in note 39.

– 103 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

15. Associated companies

Group 2004 2003 HK$’000 HK$’000 158,261 156,007 310,087 199,306 468,348 355,313 (1,882) (1,882) 29,133 5,829 (120,000) – 375,599 359,260 N/A 414,624	Company	Company
2004 HK$’000 158,261 310,087 468,348 (1,882) 29,133 (120,000) 375,599 N/A	2004 HK$’000 – – – – 4,000 – 4,000 –	2003
		HK$’000 – –
		– – 4,000 –
		4,000

		–

(a) Details of principal associated companies, which in the directors’ opinion, materially affect the results or net assets of the Group at 31st December 2004 are set out in note 40.

– 104 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

15. Associated companies (Continued)

(b) The summary of the financial information of each of the material associated companies, Wah Sang Gas Holdings Limited (“Wah Sang”) and Otis Elevator (China) Investment Company Limited (“Otis China”) are as follows:

(i) Wah Sang

Turnover Operating profit before taxation Profit after taxation Minority interests Profits attributable to shareholders Share of profit after taxation attributable to the Group Share of profit after taxation attributable to and equity accounted for by the Group		2003	2003	For the three months ended 30th September HK$’000 272,445 91,598 83,000 (1,594) 81,406 18,585
	For the three months ended 31st March HK$’000 120,709 24,840 20,312 1,431 21,743	For the three months ended 30th June HK$’000 231,755 71,143 66,874 (1,529) 65,345	Aggregate for six months ended 30th June HK$’000 352,464 95,983 87,186 (98) 87,088 19,882 19,882

Note: Wah Sang is listed on the Growth Enterprise Market (“GEM”) of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) and has its financial year end date on 31st March. It is required to publish results quarterly.

On 19th December 2003, Wah Sang announced that it is under enquiry by the Securities and Futures Commission (“SFC”) pursuant to section 179 of the Securities and Futures Ordinance. On 13th February 2004, Wah Sang announced that the release of its results to third quarter ended 31st December 2003 was delayed to 31st March 2004. This was further delayed to end of April 2004. On 6th April 2004, the SFC directed that trading in the shares of Wah Sang be suspended until further notice. To date of this report, the status quo on the results announcement and share suspension remains unchanged.

– 105 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

15. Associated companies (Continued)

(i) Wah Sang (Continued)

For the preparation of the Group’s accounts for the year ended 31st December 2003, the Group had equity accounted for its share of the profit of Wah Sang for the six months ended 30th June 2003 amounting to HK$19,882,000. Because Wah Sang was not able to release its financial information for the six months ended 31st December 2003, there existed uncertainty as to the operating results of Wah Sang for the year ended 31st December 2003. As a result, the directors of the Company considered it appropriate not to equity account for any of the results of Wah Sang for the six months ended 31st December 2003 until audited financial statements of Wah Sang are available. Similarly, the share of net assets of Wah Sang included in the Group’s consolidated balance sheet as at 31st December 2003 was based on the results of Wah Sang up to 30th June 2003 amounting to HK$156,007,000, analysed as follows:

Assets and liabilities Fixed assets Current assets Current liabilities Long term liabilities Minority interests Wah Sang’s net assets at 30th June 2003 Share of net assets attributable to the Group representing the Group’s carrying value of investment in Wah Sang at 31st December 2003	2003 HK$’000 961,636 404,206 (394,408) (240,951) (28,944) 701,539 156,007

For the preparation of the Group’s accounts for the year ended 31st December 2004, Wah Sang has yet to release any up-to-date financial information and the trading of its shares remains suspended. The audit of Wah Sang’s accounts for each of the two years ended 31st March 2004 and 2005 is currently being carried out by their auditors together with an investigation report which are not yet finalised. Although Wah Sang is continuing its business operations and the directors of the Company expect it to apply for a resumption of trading of its shares as soon as practicable, the directors of the Company are taking a cautious view that this may not happen in the near term. Accordingly the directors of the Company consider it prudent to set aside at this stage a provision of HK$120 million for the probable impairment in value of the Group’s investment in Wah Sang.

– 106 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

15. Associated companies (Continued)

(ii) Otis China

Turnover Operating profit before taxation Profit after taxation Minority interests Profits attributable to shareholders Share of profit after taxation attributable to the Group Assets and liabilities Fixed assets Other long term assets Current assets Current liabilities Minority interests Net assets Share of net assets attributable to the Group	2004 HK$’000 5,101,773 564,233 460,943 (73,526) 387,417 64,110 529,808 201,310 3,267,980 (2,741,982) (130,884) 1,126,232 231,652	2003
		HK$’000 2,688,237

		236,413

		222,015

		(10,109)

		211,906

		47,819

		502,270 192,206 2,757,661 (2,577,645) (135,678)
		738,814

		143,781

16. Jointly controlled entities

Group’s share of net assets Amounts due to the Group	Group	Group
	2004 HK$’000 93,587 149 93,736	2003
		HK$’000 95,568 51
		95,619

Details of jointly controlled entities are set out in note 41.

– 107 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

17. Long term investments

Unlisted investments, at cost Loans to investee companies	Group	Group
	2004 HK$’000 120,418 68,207 188,625	2003
		HK$’000 102,575 68,245
		170,820

Long term investments included HK$81.9 million (2003: HK$81.9 million) representing the Group’s investment in fourteen joint ventures which build, operate and manage Tang Jin Expressway in each of which the Group holds a 6.62% equity interest. The loans to these investee companies are unsecured, interest free and have no fixed repayment terms.

18. Properties under development held for sale

Land costs	Group	Group
	2004 HK$’000 347,813	2003
		HK$’000 347,813

Land costs of HK$347.8 million (2003: HK$347.8 million) represents the investment in a parcel of land located in Tianjin. The land use right will expire on 13th February 2052.

19. Completed properties held for sale

All completed properties are situated in PRC mainland. As at 31st December 2004, there is no property held for sale which have been pledged as securities for banking facilities granted to the Group (2003: HK$69,847,000).

20. Inventories

Raw materials Work in progress Finished goods Consumable stocks	Group	Group
	2004 HK$’000 96,813 24,475 119,796 21,244 262,328	2003
		HK$’000 67,986 10,071 109,468 16,903
		204,428

21. Amounts due from/(to) the ultimate holding company

The balances are unsecured, interest free and have no fixed repayment terms.

– 108 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

22. Amounts due from/(to) related companies

Amounts due from related companies (Note a) Amounts due to related companies (Note a) Construction costs payable to a minority shareholder (Note b) Amounts due to a minority shareholder (Note a)	Group	Group
	2004 HK$’000 85,733 (37,770) (90,100) (20,545) (148,415)	2003
		HK$’000 53,194

		(32,900) (90,138) –
		(123,038)

Notes:

(a) Amounts receivable and payable and amounts due to a minority shareholder are unsecured, interest free and have no fixed repayment terms.
(b) Amounts payable to Eastern Outer Ring Road Company Limited relate to the construction costs of a toll road owned by the Group.

23. Trade receivables

The aging analysis of the Group’s trade receivables (net of provisions) are as follows:

Within 30 days 30 to 90 days 91 to 180 days Over 180 days	Group	Group
	2004 HK$’000 294,467 40,350 15,021 36,608 386,446	2003
		HK$’000 260,181 30,275 720 13,170
		304,346

The various group companies have different credit policies dependent on the requirements of the markets and the businesses which they operate. In general, credit terms of 90 days are given to customers.

Trade receivables due within 30 days include government supplemental income receivable from the Finance Bureau of TEDA as referred to in Note 2 to the accounts.

– 109 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

24. Short term investments

Designated deposits Listed shares in Hong Kong Listed shares and unit trusts in PRC mainland Market values of listed shares	Group	Group
	2004 HK$’000 9,524 9,239 43,548 62,311 52,787	2003
		HK$’000 58,429 – –
		58,429

		–

The designated deposits were placed with securities companies in PRC mainland as trust deposits for investment purposes. Such deposits are redeemable within one year from date of placement.

25. Bank balances and cash

Group 2004 2003 HK$’000 HK$’000 – 14,658 1,751,930 1,316,129 204,379 108,207 1,956,309 1,438,994	Company	Company
2004 HK$’000 – 1,751,930 204,379 1,956,309	2004 HK$’000 – 60,909 – 60,909	2003
		HK$’000 – 367,799 –
		367,799

The restricted balances as at 31st December 2003 were pledged as securities for certain bank loans and were released upon repayment of the bank loans during the year.

26. Trade payables

The aging analysis of the Group’s trade payables are as follows:

Below 30 days 30 to 90 days 91 to 180 days Over 180 days	Group	Group
	2004 HK$’000 44,137 337 1,870 1,782 48,126	2003
		HK$’000 15,046 47 – 2,381
		17,474

– 110 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

27. Share capital

Authorised: 3,000,000,000 shares of HK$0.10 each Issued and fully paid: At beginning of the year Issue of shares (Note a) Conversion of convertible bonds (Note b) At the end of the year	2004 HK$’000 300,000 68,485 22,271 290 91,046	2003
		HK$’000 300,000

		67,775 130 580
		68,485

Notes:

(a) On 6th December 2004, 222,707,143 shares were allotted to Tianjin Investment Holdings Limited at HK$3.15 per share as partial consideration for the acquisition of two subsidiaries in the PRC mainland.

On 6th and 9th October 2003, 500,000 and 800,000 shares options were exercised by employees respectively. The exercise price was HK$2.204 each and was settled in full by cash.

(b) As detailed in note 29, the Group has convertible bonds listed on the Luxembourg Stock Exchange. On 30th January 2004, a bondholder exercised their option to convert the bonds into shares of the Company by subscribing for 2,899,628 shares (2003: 5,799,256 shares) of the Company at HK$2.69 each.

The shares issued during the year arising from (a) and (b) above rank pari passu with the existing shares.

(c) The Company has a share option scheme (the “Scheme”) approved in an extraordinary general meeting on 22nd November 1997 under which the directors may, at their discretion and within 10 years from the approval date, 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 Scheme. The Company operates the Scheme for the purpose of promoting additional commitment and dedication to the long term objectives of the Group by the participants. The grant will expire on 21st November 2007 or an earlier date as determined by the board of directors. The cash consideration payable for each grant is HK$1.

Prior to 1st September 2001, the subscription price is determined by the directors and shall be the higher of nominal value of the Company’s share and a price not less than 80% of the market price immediately before the options are granted. The maximum number of shares issued to each employee or director in respect of which options may be granted shall not exceed 25% of the total shares in issue or to be issued under the Scheme. On 1st September 2001 when the amendments to the Listing Rules were effective, the subscription price shall be the higher of the closing price on the date of grant and the average closing price for the five business days immediately preceding the date of grant. The maximum number of shares issued and to be issued upon exercise of the options granted to each employee or director shall not exceed 1% of the total shares in issue in any 12-month period. Shares options granted since 1st September 2001 shall comply with the prevailing Listing Rules.

– 111 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

27. Share capital (Continued)

Notes: (Continued)

(d) Movements in the number of share options outstanding during the year are as follows:

At the beginning of the year Granted (Note (i)) Exercised (Note (ii)) Lapsed (Note (iii)) Cancelled (Note (iv)) At the end of the year (Note (v))	Number of options	Number of options
	2004 21,036,000 96,900,000 – (11,336,000) (9,500,000) 97,100,000	2003
		28,668,000 – (1,300,000) (6,332,000) –
		21,036,000

(i) On 15th January 2004, the Company granted 90,000,000 share options to Deltaway Inc., an independent third party, to subscribe for shares of the Company at HK$4.1 per share. The option is exercisable for a period of one year from the date of approval obtained from the Stock Exchange. The consideration for the grant of the option is HK$2,400,000. In addition, 6,900,000 share options were granted to directors and employees of the Group on 23rd December 2004 at the exercise price of HK$3.10 per share and expiring on 21st November 2007.
(ii) No option was exercised in 2004. Options exercised on 6th and 9th October 2003 resulted in 500,000 and 800,000 shares being issued at HK$2.204 for both exercises, yielding net proceeds as follows:

Ordinary share capital — at par Share premium Proceeds	2004 HK$’000 – – –	2003
		HK$’000 130 2,736
		2,866

(iii) Following the resignation of a director, Mr. Chen Zihe, on 30th December 2003, 6,332,000 share options lapsed on 10th January 2004. A further 5,004,000 share options expired on 17th March 2004.
(iv) Following a director’s meeting held on 23rd December 2004, 9,500,000 share options granted on 17th April 1998 was cancelled.

– 112 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

27. Share capital (Continued)

Notes: (Continued)

(v) Share options outstanding at the end of the year have the following terms:

Number of options 2004 2003 90,000,000 – – 9,336,000 – 11,500,000 6,400,000 – 200,000 200,000 500,000 – 97,100,000 21,036,000	Vested percentages	Vested percentages
2004 90,000,000 – – 6,400,000 200,000 500,000 97,100,000	2004 100% N/A N/A 100% 100% 100%	2003
		N/A 100% 100% N/A 100% N/A

28. Reserves

Group

At 1st January 2003 Issue of shares Exchange differences Transfers Profit for the year Dividends Released on disposal of partial interest in an associated company Released upon disposal of subsidiaries At 31st December 2003 Derecognition of negative goodwill in an associated company (Note 1(a)) Issue of shares Exchange differences Transfers Profit for the year Dividends Released on deemed disposal of interest in a subsidiary At 31st December 2004	Capital reserve HK$’000 11,642 – – – – – – 1,028 12,670 – – – – – – – 12,670	Share premium HK$’000 3,542,741 17,756 – – – – – – 3,560,497 – 686,767 – – – – – 4,247,264	General reserve HK$’000 48,760 – – 18,334 – – – – 67,094 – – – 9,901 – – – 76,995	Goodwill reserve HK$’000 (847,843) – – – – – 268,421 3,992 (575,430) – – – – – – – (575,430)	Statutory reserves HK$’000 146,174 – – 19,755 – – – – 165,929 – – – 16,985 – – – 182,914	Exchange reserve HK$’000 10,640 – 1,172 – – – – – 11,812 – – (38) – – – 113 11,887	Retained profits	Total HK$’000 3,462,247 17,756 1,172 – 212,796 (48,170) 268,421 5,020 3,919,242 23,761 686,767 (38) – 563,803 (58,458) 113 5,135,190
							HK$’000 550,133 – – (38,089) 212,796 (48,170) – –
							676,670 23,761 – – (26,886) 563,803 (58,458) –
							1,178,890

– 113 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

28. Reserves (Continued)

Group (Continued)

(a) Goodwill attributable to associated companies amounts to HK$466,814,000 (2003: HK$510,157,000). Retained profits and accumulated losses attributable to associated companies and jointly controlled entities amounts to HK$202,355,000 (2003: HK$101,824,000) and HK$3,722,000 (2003: HK$3,433,000), respectively. All other reserves of the Group are dealt with in the accounts of the Company and its subsidiaries.
(b) Statutory reserves and general reserves are reserves required by the relevant PRC laws applicable to the Group’s subsidiaries and cannot be used for distribution in the form of cash dividends.

Company

At 1st January 2003 Issue of shares Profit for the year Dividends At 31st December 2003 Issue of shares Loss for the year Dividends At 31st December 2004	Share premium HK$’000 3,542,741 17,756 – – 3,560,497 686,767 – – 4,247,264	Retained profit HK$’000 209,843 – 292,037 (48,170) 453,710 – (38,770) (58,458) 356,482	Total HK$’000 3,752,584 17,756 292,037 (48,170) 4,014,207 686,767 (38,770) (58,458) 4,603,746

The Company’s reserve available for distribution to shareholders as at 31st December 2004 is represented by the retained profits of HK$356,482,000 (2003: HK$453,710,000).

– 114 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

29. Long term liabilities

Group 2004 2003 HK$’000 HK$’000 589,289 1,324,722 1,138,888 1,246,844 132,600 140,400 192,493 – 2,053,270 2,711,966 (388,973) (660,475) 1,664,297 2,051,491 256,373 660,475 57,279 407,230 1,037,851 1,049,401 376,674 454,460 1,728,177 2,571,566 - - - - - - - - - - - - - - - - - - - - - - - - 132,600 – – 140,400 132,600 140,400 ------------ --------------------------------------------- ------------ --------------------------------------------- 1,860,777 2,711,966	Company	Company
2004 HK$’000 589,289 1,138,888 132,600 192,493 2,053,270 (388,973) 1,664,297 256,373 57,279 1,037,851 376,674 1,728,177 - - - - - - - - - - - - 132,600 – 132,600 ------------ --------------------------------------------- 1,860,777	2004 HK$’000 – 858,000 – – 858,000 – 858,000 – – 858,000 – 858,000 - - - - - - - - - - - - – – – ------------ --------------------------------------------- 858,000	2003
		HK$’000 – 858,000 – –
		858,000 –
		858,000

		– – 858,000 –
		858,000 - - - - - - - - - - - - – –
		– ------------ --------------------------------------------- 858,000

Notes:

(a) The secured bank loans were secured by cash received from toll collection of toll roads and equity interests in certain subsidiaries of the Group.

Unsecured bank loans include, approximately HK$151,000,000 (RMB160,000,000) was guaranteed by Tianjin Economic and Technological Development Investment Co., Ltd., a minority shareholder of certain subsidiaries. Of the HK$151,000,000, HK$9,000,000 (RMB10,000,000) is included in the short term loans.

(b) On 18th April 2002, the Group issued US$20,000,000 convertible bonds which are listed on the Luxembourg Stock Exchange and carry interest at 3% per annum payable semi-annually in arrears. Each bondholder has the option to convert the bonds into shares of the Company of HK$0.10 each at a conversion price of HK$2.69 per share, subject to adjustment, at any time from 18th April 2003 to 11th April 2005.

– 115 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

29. Long term liabilities (Continued)

Notes: (Continued)

Unless previously purchased and cancelled, redeemed or converted, the bonds will be redeemed at 106.39% of their principal amount plus accrued interest on 18th April 2005.

During the year, US$1,000,000 bonds were converted into 2,899,628 (2003: 5,799,256 shares) ordinary shares of HK$0.10 each of the Company.

Up to the expiry of the convertible bonds, there is no further conversion of the bonds and the outstanding balance has been redeemed in full.

(c) The loans from a minority shareholder of subsidiaries are unsecured, carrying interest at 6.4% per annum and not repayable within one year.

30. Deferred taxation

Deferred taxation is calculated in full on temporary differences under the liability method using prevailing tax rate of the relevant subsidiaries.

The movement on the deferred tax liabilities account in respect of accelerated tax depreciation is as follows:

Deferred tax liabilities At 1st January Acquisition of subsidiaries (Note 34(d)) Deferred taxation charged to profit and loss account (Note 7) At 31st December	2004 HK$’000 65,662 – 2,233 67,895	2003
		HK$’000 10,123 50,100 5,439
		65,662

The movement on the deferred tax assets account in respect of provision for doubtful debts is as follows:

Deferred tax assets At 1st January Acquisition of subsidiaries (Note 34(d)) Deferred taxation credited to profit and loss account (Note 7) At 31st December The amounts shown in the balance sheet include the following: Deferred tax assets to be recovered after 12 months Deferred tax liabilities to be settled after 12 months	2004 HK$’000 – 4,603 3,553 8,156 8,156 67,895	2003
		HK$’000 – – –
		–

		–

		65,662

– 116 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

31. Operating lease commitments

At 31st December 2004, the Group had future aggregate minimum lease payments under noncancellable operating leases as follows:

Group 2004 2003 HK$’000 HK$’000 12,668 7,232 48,748 26,541 234,214 57,482 295,630 91,255 - - - - - - - - - - - - - - - - - - - - - - - - 21,279 20,221 84,656 83,008 182,396 203,736 288,331 306,965 - - - - - - - - - - - - - - - - - - - - - - - - 5,760 3,723 18,118 14,893 29,167 32,891 53,045 51,507 ------------ --------------------------------------------- ------------ --------------------------------------------- 637,006 449,727	Company	Company
2004 HK$’000 12,668 48,748 234,214 295,630 - - - - - - - - - - - - 21,279 84,656 182,396 288,331 - - - - - - - - - - - - 5,760 18,118 29,167 53,045 ------------ --------------------------------------------- 637,006	2004 HK$’000 491 33 – 524 - - - - - - - - - - - - – – – – - - - - - - - - - - - - – – – – ------------ --------------------------------------------- 524	2003
		HK$’000 636 295 –
		931 - - - - - - - - - - - - – –
		– - - - - - - - - - - - - – – –
		– ------------ --------------------------------------------- 931

– 117 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

32. Capital commitments

Group 2004 2003 HK$’000 HK$’000 13,584 2,860 103,252 – 116,836 2,860 3,229 – – 24,212 67,054 25,597 17,773 27,910 815 864 88,871 78,583	Company	Company
2004 HK$’000 13,584 103,252 116,836 3,229 – 67,054 17,773 815 88,871	2004 HK$’000 – – – – – – – – –	2003
		HK$’000 – –
		–

		– – – – –
		–

33. Contingent liabilities

Guarantees given to banks in respect of banking facilities extended to – Subsidiaries – A jointly controlled entity – A third party	Group 2004 2003 HK$’000 HK$’000 – – 18,857 18,857 – 15,344	Company	Company
	2004 HK$’000 – 18,857 –	2004 HK$’000 84,858 – –	2003
			HK$’000 1,138,040 – –

– 118 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

34. Notes to the consolidated cash flow statement

(a) Reconciliation of operating profit before financing to net cash inflow from operations

Operating profit before financing Interest income Depreciation Impairment charge Goodwill written off Net loss on disposal of fixed assets Loss on disposal of subsidiaries Unrealised gain on short term investments Impairment charge on investment in an associated company Gain on deemed disposal of a subsidiary Gain on deemed and partial disposals of interest in an associated company Operating profit before working capital changes Increase in inventories Decrease/(increase) in trade receivables (Increase)/decrease in other receivables, deposits and prepayments Decrease in trade payables (Decrease)/increase in other payables and accruals Decrease in completed properties held for sale (Increase)/decrease in short term investments Decrease in net amounts due from ultimate holding company Decrease in amount due to a fellow subsidiary (Decrease)/increase in net balances due to related companies Exchange differences Net cash inflow generated from operations	2004 HK$’000 980,420 (19,985) 166,065 – – 22,444 – (5,119) 120,000 (4,325) – 1,259,500 (58,036) 122,225 (123,681) (23,085) (45,254) 201,300 (3,882) 3,951 – (16,815) 75 1,316,298	2003 HK$’000 363,595 (11,899) 144,202 5,698 1,469 10,084 3,758 – – – (17,681) 499,226 (7,177) (102,868) 43,879 (50,654) 22,264 64,325 4,456 4,913 (28,286) 33,233 1,172 484,483

– 119 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

34. Notes to the consolidated cash flow statement (Continued)

(b) Analysis of changes in financing during the year

At 1st January 2003 Dividends Net cash inflows/(outflows) from financing Share of profits and reserves attributable to minority shareholders Dividends to minority shareholders Acquisition of subsidiaries (Note 34(d)) Minority interest released upon disposal of subsidiaries (Note 34(e)) Issue of shares Conversion of bonds At 31st December 2003 Derecognition of negative goodwill Dividends Net cash inflows/(outflows) from financing Share of profits and reserves attributable to minority shareholders Dividends to minority shareholders Deemed disposal of a subsidiary Acquisition of subsidiaries (Note 34(d)) Minority interest released upon deemed disposal of a subsidiary (Note 34(e)) Issue of shares Conversion of bonds At 31st December 2004	Dividend payable HK$’000 – 48,170 (48,170) – – – – – – – – 58,458 (58,458) – – – – – – – –	Share capital including premium HK$’000 3,610,516 – – – – – – 2,866 15,600 3,628,982 – – – – – – – – 701,528 7,800 4,338,310	Minority interests HK$’000 570,370 – – 71,252 (38,274) 584,368 (694) – – 1,187,022 4,957 – – 299,727 (75,841) – 14,562 4,980 – – 1,435,407	Restricted bank balances Bank loans and convertible bonds HK$’000 HK$’000 (16,844) 1,766,088 – – 2,186 291,291 – – – – – 744,390 – – – – – (15,600) (14,658) 2,786,169 – – – – 14,658 (840,182) – – – – – (2,452) – – – – – – – (7,800) – 1,935,735	Total
					HK$’000 5,930,130 48,170 245,307 71,252 (38,274) 1,328,758 (694) 2,866 –
					7,587,515 4,957 58,458 (883,982) 299,727 (75,841) (2,452) 14,562 4,980 701,528 –
					7,709,452

(c) Major non-cash transaction

During the year, US$1,000,000 convertible bonds were converted into 2,899,628 ordinary shares of HK$0.10 each of the Company.

On 20th September 2004, the Group entered into a conditional sale and purchase agreement with Tsinlien to acquire 94.4% in Electricity Company and 91.4% in Water Company. The acquisition are satisfied by cash consideration of HK$160 million, as included in total cash consideration on acquisition of subsidiaries, and issue of 222,707,143 number of the Company’s shares. The acquisition was completed on 29th November 2004.

– 120 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

34. Notes to the consolidated cash flow statement (Continued)

(d) Acquisition of subsidiaries

Net assets acquired Long term investments Deferred tax assets (Note 30) Fixed assets (Note 13) Inventories Trade receivables Other receivables, deposits and prepayment Bank balances and cash Amounts due from related companies Trade payables Other payables and accruals Amounts due to related companies Bank loans (Note 34(b)) Deferred tax liabilities (Note 30) Tax payable Minority interests (Note 34(b)) Loans from a minority shareholder Goodwill on acquisition (Note 12) Less: interest already held by the Group – Convertible preference shares Satisfied by: Cash consideration (Note 34(c)) Allotment of shares Prepayment Convertible preference shares Analysis of net cash inflow/(outflow) in respect of acquisition subsidiaries: Cash consideration Bank balances and cash on hand acquired Net cash inflow/(outflow) in respect of the acquisition of subsidiaries	2004 HK$’000 1,121 4,603 453,775 137 205,565 2,647 305,845 36,301 (54,002) (129,109) (45,954) – – (1,594) (14,562) (192,493) 572,280 346,253 918,533 – 918,533 197,005 701,528 20,000 – 918,533 (197,005) 305,845 108,840	2003 HK$’000 – – 1,532,789 4,225 – 16,642 6,989 – (177) (57,486) – (744,390) (50,100) – (584,368) – 124,124 55,565 179,689 (160,623) 19,066 19,066 – – 160,623 179,689 (19,066) 6,989 (12,077)

– 121 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

34. Notes to the consolidated cash flow statement (Continued)

(e) Deemed disposal of a subsidiary/disposal of subsidiaries

Net assets/(liabilities) disposed Fixed assets (Note 13) Inventories Trade receivables Other receivables, deposits and prepayment Bank balances and cash Trade payables Other payables and accruals Short term bank loans and overdrafts repayable within three months from date of advance Short term bank loan repayable after three months from date of advance Taxation payable Amount due to a related company Minority interests (Note 34(b)) Net assets/(liabilities) disposed Goodwill and capital reserves released upon disposal Gain/(loss) on disposal of a subsidiary/subsidiaries Satisfied by: Cash consideration Investment in an associated company Amount due from an associated company Analysis of net cash (outflow)/inflow in respect of disposal of subsidiaries: Bank balances and cash disposed Short term bank loans and overdrafts repayable within three months from date of advance disposed Net cash (outflow)/inflow in respect of the disposal of subsidiaries	2004 HK$’000 330 273 1,240 352 5,536 (265) (1,411) – (2,452) (15) (6,131) 4,980 2,437 – 4,325 6,762 – (990) 7,752 6,762 (5,536) – (5,536)	2003 HK$’000 868 3,686 29,736 3,715 7,464 (26,534) (5,599) (13,878) – (26) – (694) (1,262) 5,020 (3,758) – – – – – (7,464) 13,878 6,414

– 122 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

35. Related party transactions

The following is a summary of significant related party transactions during the year which in the opinion of the directors are carried out in the normal course of the Group’s business:

Transactions with Tianjin Port Authority and its associates Service fees paid for supporting services and auxiliary services (note b) Purchase of inventories (note b) Rental for berths, railway and storage space (note a) Rental for land (note a) Rental for equipment (note a) Temporary storage fee (note b) Transactions with Tianjin Agricultural Cultivation Group Company and its associates Packaging services (note a) Purchase of unprocessed wine (note a) Purchase of packaging materials (note a) Rental for electricity transformation station (note b) Transaction with Tianjin Engineering Bureau Management fee paid (note a) Transactions with Tsinlien Group Company Limited and its associates Acquisition of subsidiaries (note b) Rental on land and buildings (note a) Interest expense (note c) Management fee paid (note a) Transactions with Tianjin Mechanical and Electrical Holding Company and its associates Acquisition of a subsidiary (note b)	2004 HK$’000 29,243 52,900 20,221 6,554 3,910 14,280 29,554 11,524 22,083 2,037 – 898,533 4,440 – 919 –	2003
		HK$’000 29,304 41,525 19,258 6,554 3,723 – 27,267 13,647 16,844 2,037 32,900 – 5,789 1,541 1,164 19,065

Notes:

(a) These transactions were conducted in accordance with agreements entered into at the time of the restructuring in preparation for listing of the Company’s shares on the Stock Exchange in late 1997.
(b) These transactions were conducted in accordance with agreements entered into subsequent to the listing as referred to (a) above.
(c) Interest expense was calculated at rate of 6.11% per annum on the outstanding loan balance.

36. Subsequent events

On 13th January 2005, Dynasty Fine Wines Group Limited (“Dynasty”), a subsidiary owned as to 62% by the Group, completed a reorganisation. Pursuant to the reorganisation, the interests in Sino-French Joint Venture Dynasty Winery Ltd. were transferred to Dynasty by its respective shareholders.

On 26th January 2005, the shares of Dynasty were listed on the Main Board of the Stock Exchange and the Group’s interest in Dynasty was diluted from 62% to 44.8%.

37. Ultimate holding company

The directors of the Company consider Tsinlien Group Company Limited, a company incorporated in Hong Kong, as being the ultimate holding company.

– 123 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

38. Approval of accounts

The accounts were approved by the board of directors on 21st April 2005.

39. Principal subsidiaries

Principal activities Established and operating in the People’s Republic of Sino-French Joint-Venture Dynasty Winery Ltd. Manufacturing and sales of winery products Tianjin Harbour Second Stevedoring Co., Ltd. Provision of stevedoring and storage services Tianjin Heavenly Palace Winery Co., Ltd. Investment holding Tianjin Port Container Terminal Co., Ltd. Provision of containers transportation and storage services Tianjin Tai Kang Industrial Co., Ltd. Investment holding Tianjin Gang Ning Real Estate Development Co., Ltd. Properties investment Tianjin Tianyang Grape Extracting Co., Ltd. Manufacturing and sales of winery products Tianjin Development Assets Management Co., Ltd. Investment holding Tianjin Airfreight Port Equipment Manufacturing Co., Ltd. Development and manufacturing of ground support aero-equipment Tianjin Jin Zheng Transportation Development Co., Ltd. Operating and management of Eastern Outer Ring Road Tianjin Mass Transit (Group) Development Co., Ltd. Operating and management of Jinbin Expressway	Issued and paid up capital/ registered capital China RMB174,389,000 RMB356,821,655 RMB353,730,400 RMB632,890,096 RMB1,030,269,400 RMB50,000,000 RMB66,532,000 RMB32,076,000 RMB29,220,000 RMB1,104,596,200 US$11,992,000	Percentage of effective equity interest held	Percentage of effective equity interest held
		2004 62 (note a) 100 100 100 82.74 100 60 (note a) 100 57.26 (note a) 65.47 (note a) (note d) 67.60 (note c) 46.8 (note a) (note d)	2003
			61.9 (note a) 100 100 100 82.74 51 60 (note a) 100 57.26 (note a) 65.47 (note a) (note d) 67.60 (note c) 46.8 (note a) (note d)

– 124 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

39. Principal subsidiaries (Continued)

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. Tianjin TEDA Tsinlien Electric Power Company Limited Tianjin TEDA Tsinlien Water Supply Company Limited Established in British Virgin Dynamic Infrastructure Limited Team Resources Limited Golden Horse Resources Limited China Mass Transit Development Co., Ltd. Famous Ever Group Limited Grand Spirit Holdings Limited	Principal activities Issued and paid up capital/ registered capital Operating and management of Jinbin Expressway US$11,012,000 Operating and management of Jinbin Expressway US$10,976,000 Operating and management of Jinbin Expressway US$10,996,000 Operating and management of Jinbin Expressway US$11,020,000 Supply of electricity RMB314,342,450 Supply of water RMB163,512,339 Islands and operating in Hong Kong Investment holding US$5 Investment holding US$1 Investment holding US$10,000 Investment holding US$100 Investment holding US$1 Investment holding US$200	Percentage of effective equity interest held	Percentage of effective equity interest held
		2004 46.8 (note a) (note d) 46.8 (note a) (note d) 46.8 (note a) (note d) 46.8 (note a) (note d) 94.4 (note a) 91.4 (note a) 78 (note a) (note d) 78 (note a) (note d) 78 (note a) (note d) 78 (note a) (note d) 100 62	2003
			46.8 (note a) (note d) 46.8 (note a) (note d) 46.8 (note a) (note d) 46.8 (note a) (note d) – – 78 (note a) (note d) 78 (note a) (note d) 78 (note a) (note d) 78 (note a) (note d) – –

– 125 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

39. Principal subsidiaries (Continued)

Principal activities Established in Cayman Islands and operating in Hong Coastal Rapid Transit Company Limited Investment holding Dynasty Fine Wines Group Limited Investment holding Notes:	Issued and paid up capital/ registered capital Kong HK$84,000,000 HK$10	Percentage of effective equity interest held	Percentage of effective equity interest held
		2004 78 (note d) 62 (note a)	2003
			78 (note d) –

(a) Indirectly held by the Company
(b) Represents equity interest in the paid up capital of the subsidiary
(c) Represents profit sharing ratio in the subsidiary
(d) Subsidiaries are not audited by PricewaterhouseCoopers

40. Principal associated companies

Principal activities Established and operating in the People’s Republic of China Tianjin Otis Elevator Co., Ltd. Manufacturing and sales of elevators and escalators Guangzhou Otis Elevator Co., Ltd. Manufacturing and sales of elevators and escalators Otis Elevator (China) Investment Company Limited Investment holding Hangzhou Xizi Otis Elevator Co., Ltd. Manufacturing and sales of elevators and escalators Walfen (Tianjin) Pharmaceutical Co., Ltd. Research and development of bio-pharmaceutical products	Issued and paid up capital/ registered capital China US$26,300,000 US$12,000,000 US$79,625,000 US$15,000,000 RMB14,200,000	Percentage of effective equity interest held	Percentage of effective equity interest held
		2004 16.55 (note a) 16.22 (note a) 16.55 (note a) 13.24 (note a) 27 (note a)	2003
			16.55 (note a) 16.22 (note a) 16.55 (note a) 13.24 (note a) 51 (note a)

– 126 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

40. Principal associated companies (Continued)

Principal activities Issued and paid up capital/ registered capital Established in British Virgin Islands and operating in Hong Kong Pearl Harbour Investment Limited Investment holding US$2 Incorporated in Bermuda, operating in and shares listed in Hong Kong Wah Sang Gas Holdings Limited Investment holding HK$21,770,000 Established and operating in Hong Kong China Walfen Medical Limited Investment holding HK$1,000 Note:	Percentage of effective equity interest held	Percentage of effective equity interest held
	2004 50 22.79 (note a) 27 (note a)	2003
		50 22.67 (note a) 51 (note a)

(a) The associated companies are indirectly held by the Company.

41. Jointly controlled entities

Principal activities Established and operating in the People’s Republic of Tianjin Haihe Dairy Company Limited Manufacturing and sale of dairy products Ning Xia Tiangong Yuma Winery Co., Ltd. Manufacturing of unprocessed wine Tianjin Jingfa Investment Company Limited Investment holding	Issued and paid up capital/ registered capital China RMB200,000,000 RMB40,000,000 RMB70,000,000	Percentage of effective equity interest held	Percentage of effective equity interest held
		2004 40 (note a) 25 (note a) 21.43 (note a)	2003
			40 (note a) 25 (note a) 21.43 (note a)

Note:

(a) The jointly controlled entities are indirectly held by the Company.

– 127 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

B. INDEBTEDNESS

Borrowings

As at the close of business on 28 February 2006, being the latest practicable date for the purpose of this indebtedness statement, the Group had aggregate outstanding borrowings of approximately HK$2,342 million, which comprised unsecured short term bank loans of approximately HK$107 million, unsecured long term bank loans of approximately HK$1,348 million, secured long term bank loans of approximately HK$293 million, convertible bond of approximately HK$393 million and loans from minority shareholders of approximately HK$201 million.

The maturity of the total long term bank loans and convertible bond, both secured and unsecured, of approximately HK$2,034 million is as follows:

	HK$’million
Within one year	31
In the second year	204
In the third to fifth year	1,278
After the fifth year	521
	2,034

Security and guarantee

As at 28 February 2006, the Group’s bank loans of approximately HK$293 million were secured and guaranteed by:

(a) cash received from toll collection of certain toll roads;
(b) equity interest in certain subsidiaries; and
(c) corporate guarantee given by a minority shareholder of certain subsidiaries.

As at 28 February 2006, the Group’s bank loans of approximately HK$293 million were guaranteed by corporate guarantee given by a minority shareholder of certain subsidiaries.

Contingent liabilities

As at 28 February 2006, the Group had contingent liabilities of guarantees given to banks in respect of banking facilities extended to a jointly controlled entity of approximately HK$19 million.

Capital commitments

As at 28 February 2006, the Group had no capital commitments authorized but not contracted for.

– 128 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

As at 28 February 2006, the Group has capital commitments contracted for but not provided for in respect of plant and machinery of approximately HK$12 million, land and buildings of approximately HK$64 million and others of approximately HK$4 million.

Disclaimer

Save as disclosed herein and apart from intra-group liabilities, the Group did not have, at the close of business on 28 February 2006, any outstanding mortgages, charges, debentures, other loan capital, bank overdrafts, loans or their similar indebtedness, or any hire purchase commitment, or any guarantees or other material contingent liabilities.

The Directors have confirmed that save as disclosed above, there has been no material change in the indebtedness, commitments or contingent liabilities of the Group since 28 February 2006.

Foreign currency translation

For the purpose of the indebtedness statement, foreign currency amounts have been translated into Hong Kong dollars at the rates of exchange prevailing at the close of business on 28 February 2006.

C. WORKING CAPITAL

The Directors are of the opinion that based on available banking facilities and internal resources of the Remaining Group, the Remaining Group has sufficient working capital for its requirements currently and for the period ending 12 months from the date of this circular.

D. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2005 (being the date to which the latest published audited financial statements of the Company were made up.)

E. FINANCIAL REVIEW AND EMPLOYEES POLICIES

Liquidity and capital resources analysis

For the year ended 31 December 2003

As at 31 December 2003, the Group’s cash on hand and total bank borrowings stood at approximately HK$1,439 million and HK$2,646 million respectively of which HK$735 million bank borrowings would be matured in 2004. The 3% convertible bonds amounted to approximately HK$140.4 million would be matured in 2005.

The gearing ratio as measured by total borrowings to shareholders’ funds was approximately 70% in 2003.

– 129 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Of the total bank borrowings of approximately HK$2,646 million outstanding at the end of 2003, approximately HK$1,733 million was fixed rate debts with annual interest rate gearing from 4.8% to 6.6%. The remaining approximately HK$913 million of bank loans were subject to floating rates with spread of 0.8% to 0.9% over LIBOR of relevant interest periods.

As at the end of 2003, approximately 65% of the Group’s total bank borrowings were denominated in Renminbi while the remaining portion was denominated in US dollars. As of 31 December 2003, the Group had no material exposure to foreign exchange contracts, interest or currency swap or other financial derivatives.

As at 31 December 2003, the following assets were pledged to bankers to secure banking facilities granted to the Group;

(i) completed properties held for sale of HK$70 million;
(ii) bank balances amounting to approximately HK$15 million; and
(iii) equity interests in certain subsidiaries of the Group.

For the year ended 31 December 2004

As at 31 December 2004, the Group’s cash on hand and total bank borrowings stood at approximately HK$1,956 million and approximately HK$1,803 million respectively of which HK$331 million bank borrowings would be matured in 2005. The 3% convertible bonds amounted to approximately HK$133 million was matured and fully repaid in April 2005. Loans from a minority shareholder of subsidiaries amounted to approximately HK$192 million which bore interest at the rate of 6.4% per annum and not repayable within one year.

The gearing ratio as measured by total borrowings to shareholders’ funds was approximately 41% at the end of 2004, compared to a gearing at approximately 70% at the end of 2003. The Group continued to finance its business with liabilities appropriate to their cash flows, employing limited or non-recourse project finance when available.

Of the total bank borrowings of approximately HK$1,803 million outstanding at the end of 2004, approximately HK$890 million was fixed rate debts with annual interest rate ranging from 4.8% to 6.6%. The remaining bank loans of approximately HK$913 million were subject to floating rates with spread of 0.8% to 0.95% over LIBOR of relevant interest periods.

As at the end of 2004, approximately 49% of the Group’s total bank borrowings were denominated in Renminbi while the remaining portion was denominated in US dollars.

As at 31 December 2004, the Group’s bank loans were secured by:

(a) cash received from toll collection of certain toll roads;
(b) equity interest in certain subsidiaries; and
(c) corporate guarantee given by a minority shareholder of certain subsidiaries.

– 130 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Employee and remuneration policies

For the year ended 31 December 2003

The Group had a total of approximately 8,800 employees at the end of the year, of which about 2,700 were management and technical staff, with the balance being production workers.

The Group contributed to an employee pension scheme established by the Tianjin Municipal People’s Government which undertakes to assume the retirement benefit obligations of all existing and future retired employees of the Group in the People’s Republic of China. The Group also contributed to a mandatory provident fund scheme for all Hong Kong employees. The contributions were based on a fixed percentage of the members’ salaries.

For the year ended 31 December 2004

The Company and its subsidiary companies had a total of approximately 5,300 employees at the end of 2004, of which about 1,400 were management and technical staff, with the balance being production workers.

The Group contributed to an employee pension scheme established by the PRC Government which undertakes to assume the retirement benefit obligations of all existing and future retired employees of the Group in the PRC. The Group also contributed to a mandatory provident fund scheme for all Hong Kong employees. The contributions were based on a fixed percentage of the members’ salaries.

Review of operations

For the year ended 31 December 2003

In 2003, the Group continued to achieve satisfactory results and maintain solid growth, against an operation environment adversely affected by the outbreak of SARS in Mainland China and Hong Kong. The Group also continued to broaden its source of income through growth in its core business and investments in new projects.

Infrastructure operations

Port services

Benefited from the growth of foreign and domestic trade in the PRC, the Group’s container handling business reported growth in both turnover of approximately 22% to approximately HK$376 million and profit attributable to shareholders of approximately 16% to approximately HK$80 million. During the year 2003, Tianjin Container achieved a handling volume of approximately 1,351,130 TEUs, representing an increase of approximately 19% over the year 2002.

– 131 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The turnover of Tianjin Second Stevedoring for the year amounted to approximately HK$326 million, representing an increase of approximately 25% over the year 2002. Loss attributable to shareholders for the year dropped to approximately HK$12 million, compared to HK$19 million recorded in 2002.

During 2003, Tianjin Second Stevedoring converted two of its berths into one single container berth for small to medium vessels. It recorded a throughput of approximately 140,000 TEUs.

Road operation

Road operation remained to be one of the key segments of the Group and continued to contribute stable yet profitable income stream to the Group. Turnover and profit attributable to shareholders amounted to approximately HK$289 million and HK$108 million respectively, representing an increase of approximately 11% and approximately 37% over 2002 respectively, as the combined effects of the increased traffic flow and extension of the estimated useful life of the Eastern Outer Ring Road. The useful life of the Eastern Outer Ring Road was extended as a result of successful extension of the land use right and operation period of Jin Zheng Transportation Company from 30 years to 50 years.

Due to the renovation of the public transportation network for the purpose of improving transportation for vehicles in Tianjin, Tianjin Municipal People’s Government terminated the collection of toll fee directly by all toll stations situated at the urban areas of Tianjin City. The Company’s toll stations for the Eastern Outer Ring Road ceased to collect toll fees directly with effect from 1 June 2003. On 20 August 2003, Jin Zheng Transportation Company entered into an Eastern Outer Ring Road Toll Collection Agency Agreement with Tianjin City Indebted Road Construction and Toll Collection Office, who was appointed as an agent to collect tolls with effect from 1 June 2003 and in return, a toll collection management fee would be payable by the Company.

With the implementation of the new toll collection arrangements, the traffic flow within the transportation network in the urban areas of Tianjin City was enhanced. At the same time, the usage of the Eastern Outer Ring Road was stimulated.

The last advance booking form submitted to the Stock Exchange on 1 April 2004 for an application for the listing of the shares in Coastal Rapid on the main board of the Stock Exchange has lapsed on 30 September 2004, and for commercial reasons, the Company has no current intention to continue to pursue the spin-off of its toll road operations.

Consumer products operations

Winery operation

Since the retail markets in Mainland China were adversely affected by the outbreak of SARS in the first half of 2003, the sales of the Group’s winery products were also affected accordingly. The performance in the second half year picked up quickly but the price competition in the market was severe. The consolidated turnover and consolidated profit attributable to the Group amounted to approximately HK$603 million and HK$63 million respectively, representing decreases of approximately 3% and approximately 9% over 2002.

– 132 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Sales volume decreased from 32.9 million bottles to 32.3 million bottles, representing a drop of approximately 2%. Dry red wine continued to contribute over approximately 80% of the sales mix.

As a result of the adverse effect of the outbreak of SARS on the retail markets and the intensified market competition, Dynasty incurred over HK$100 million promotional expenses in the year under review to enhance the product brandnames and explore potential markets. To maintain its well-established position in the PRC winery sector, Dynasty continued to emphasise on quality control and on matching market trend and demand.

In 2003, vintage wine was launched to market with encouraging response.

Strategic and other investments

For the year ended 31 December 2003, the Group’s strategic and other investments comprised gas fuel supply operation, elevator and escalator operation, property development, trading operation and bio-pharmaceutical business and its profit attributable to shareholders amounted to approximately HK$54 million. The Group’s trading operation was disposed to Tsinlien in June 2003.

For the year ended 31 December 2004

Infrastructure operations

Port services

For the year ended 31 December 2004, the Group’s port operations achieved a container handling volume of approximately 1,808,492 TEUs, representing an increase of approximately 21% over the last year. The Group’s port business reported a turnover of approximately HK$775 million, up approximately 10% against the year 2003 and a profit attributable to shareholders of HK$77 million, representing an increase of approximately 12% over the year 2003.

During the year, HK$60 million was invested to build a cold food depot and a number of bulk grain depots. This would not only increase the overall bulk cargo handling capacity but also cater for the storage of a larger varieties of goods. With increasing container volume, 90,000 square metres of land was acquired to enhance the turnaround and storage capability.

Road operation

For the year 2004, the Group’s toll road operations achieved a significant increase in profit attributable to shareholders of approximately HK$481 million, representing an increase of approximately 345% over the last year, which included a profit after tax and minority interests of approximately HK$442 million from the disposal of the income receiving right of the Eastern Outer Ring Road during the year. After the said disposal, basic operating income would no longer be received and toll revenue based on traffic flow volume became the principal source of revenue for the toll road operations.

– 133 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The apparent drop of the turnover by approximately 28% was due to the absence of the basic operating income following the disposal of the income receiving right. The 2004 turnover represented only toll revenue of approximately HK$208 million, as compared to 2003 turnover which included toll revenue of approximately HK$149 million and basic operating income of approximately HK$140 million. The turnover from toll revenue increased by approximately 39% over the year 2003 mainly due to the increase in traffic flow of the Eastern Outer Ring Road and the consolidation of the Jinbin Expressway acquired in late 2003.

The Eastern Outer Ring Road reported an increase in average daily traffic flow by approximately 3% over the year 2003 to approximately 31,557 vehicles. The increase in traffic flow was benefited from the change in toll collection mode which speeded up the traffic flow. The Jinbin Expressway’s average daily traffic flow for the year 2004 was approximately 12,974 vehicles, representing an increase of approximately 39% over the year 2003. The surge in traffic flow was mainly attributable to the upgrade and expansion work at Zhangguizhuang interchange section completed in the last quarter 2004 and also to the pressing traffic demand accompanied by the rapid economic development in the New Coastal Area of Tianjin.

Utility operations

As part of the Group’s strategy, the Group acquired approximately 94.4% equity interest in Tianjin TEDA Tsinlien Electric Power Co., Ltd. and 91.4% equity interest in Tianjin TEDA Tsinlien Water Supply Co., Ltd. for a total consideration of HK$868 million in the last quarter of 2004.

Since the acquisition was completed at the end of November 2004, only one-month results was accounted for by the Group. The combined turnover from the electricity and water operations of approximately HK$70 million and profit attributable to shareholders of HK$4 million were accounted for by the Group accordingly.

Consumer products operations

Winery operation

The fiscal year of 2004 was a remarkable year for the winery operation. The Group achieved significant growth in both turnover as well as profit attributable to shareholders. The consolidated turnover and profit attributable to shareholders amounted to approximately HK$805 million and HK$107 million respectively, representing growth of approximately 20% and approximately 70% over 2003. Sales volume increased from 32.3 million bottles to 38.9 million bottles, representing an increase of approximately 21% over the last year. Red wine contributed over approximately 90% of the total sales volume. The excellent finance results in 2004 were mainly attributable to the growth of sales volume, improving gross margin and relatively stable distribution costs and general and administration expenses.

In order to expedite the business development of the Group’s winery business, Dynasty was spun off on the main board of the Stock Exchange in January 2005. The gross proceeds raised, inclusive of the exercise of the overallotment option, amounted to approximately HK$776 million.

– 134 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Strategic and other investments

For the year ended 31 December 2004, the Group’s strategic and other investments comprised gas fuel supply operation, elevator and escalator operation, property development and bio-pharmaceutical business and its profit attributable to shareholders amounted to approximately HK$63 million, representing an increase of approximately 16.7% over the last year.

F. PROSPECTS

With the approval of the 11th Five-Year Plan of the PRC, the blueprint of national economic and social development for 2006-2010 was endorsed. There will be immense opportunities for the development of Tianjin as the Bohai Rim Region is being regarded as the third power engine for the economic development of the country, following its successful strategy of developing regional economy in the Pearl River Delta in the south and the Yangtze River Delta in the east.

The Bohai Rim Region strategically links up Tianjin, Beijing, Hebei, Shandong, Shanxi, Liaoning and the central part of Neimenggu. As a traditional economic centre in the country’s north and a major sea access for the northern provinces, the development of Tianjin will not only boost the growth of the Bohai Rim Region but also that of the northern region. The Group will continue to leverage on its strong position in Tianjin and grasp any valuable investment opportunities in order to provide better return to shareholders.

According to the latest central government plan, the development of Tianjin Binhai New Area is a very important part of the Bohai Rim Region development strategy. As such, Binhai New Area becomes the hub of the future economic development of Tianjin.

Being a key area in Binhai New Area, TEDA has huge development potential. As it is anticipated that TEDA will accommodate more production plants and residential apartments, in order to meet the surging demand for utilities, the Group will increase investment in the existing Electricity Company & Water Company and expand the thermal power operation following its acquisition. On the other hand, the Group will continue strengthening its core businesses. The Group is actively seeking investment opportunities in Bohai Rim Region including infrastructure and utility businesses and projects.

– 135 –

APPENDIX II FINANCIAL RESULTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2005

The following is a summary of the audited consolidated income statement and balance sheet of the Group as at 31 December 2005 and 2004 as extracted from the results announcement of the Group for the year ended 31 December 2005 dated 20 April 2006. The annual report of the Group for the year ended 31 December 2005 will be issued after the date of this circular.

CONSOLIDATED INCOME STATEMENT

For the year ended 31st December, 2005

Note Turnover 2 Cost of sales Gross profit Other income 3 Gain on deemed disposal of partial interest in subsidiaries/a subsidiary 2 Gain on disposal of Income Receiving Right 4 Distribution costs General and administration expenses Impairment charge on investment in an associate Other operating expenses Operating profit Finance costs 5 Share of profits/(losses) of Associates Jointly controlled entities Profit before income tax Income tax expense 6 Profit for the year Attributable to: Equity holders of the Company Minority interests Earnings per share for profit attributable to the equity holders of the Company 7 – Basic Dividends 8	2005 HK$’000 2,239,102 (1,478,716) 760,386 76,923 235,370 – (11,057) (388,889) – (9,540) 663,193 (97,534) 146,095 (13,859) 697,895 (73,015) 624,880 573,169 51,711 624,880 HK62.9 cents 78,307	2004 (Restated) HK$’000 2,102,473 (1,202,810) 899,663 45,727 4,325 707,147 (169,416) (359,208) (120,000) (27,818) 980,420 (55,517) 77,764 (1,981) 1,000,686 (137,156) 863,530 563,803 299,727 863,530 HK80.2 cents 62,592

– 136 –

FINANCIAL RESULTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2005

APPENDIX II

CONSOLIDATED BALANCE SHEET

As at 31st December 2005

Note ASSETS Non-current assets Goodwill Property, plant and equipment Investment properties Leasehold land and land use rights Interest in associates Jointly controlled entities Deferred income tax assets Available-for-sales financial assets/long-term investments Other long term assets Current assets Completed properties held for sale Inventories Amount due from the parent company Amounts due from related companies Trade receivables 9 Other receivables, deposits and prepayments Financial assets at fair value through profit or loss/short term investments Cash and cash equivalents Total assets EQUITY Capital and reserves attributable to the Company’s equity holders Share capital Other reserves Retained earnings – Proposed final dividend – Others Minority interests Total equity	2005 HK$’000 400,746 5,002,385 370,192 69,787 1,023,344 81,722 4,695 180,053 34,963 7,167,887 ---------------- 6,200 8,432 200 72,206 272,719 182,385 164,336 2,505,315 3,211,793 ---------------- ------------------------------- 10,379,680 91,066 4,094,099 36,426 1,619,719 5,841,310 1,277,327 7,118,637	2004 (Restated) HK$’000 400,349 5,189,304 347,813 41,627 375,599 93,736 8,156 188,625 14,154
		6,659,363 ---------------- 17,507 262,328 – 85,733 386,446 271,634 62,311 1,956,309
		3,042,268 ---------------- ------------------------------- 9,701,631

		91,046 3,956,300 30,956 1,147,934
		5,226,236 1,435,407
		6,661,643

– 137 –

FINANCIAL RESULTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2005

APPENDIX II

Note LIABILITIES Non-current liabilities Borrowings Deferred income tax liabilities Current liabilities Trade payables 10 Other payables and accruals Amount due to the parent company Amounts due to related companies Borrowings Current income tax liabilities Total liabilities Total equity and liabilities Net current assets Total assets less current liabilities	2005 HK$’000 2,044,687 80,006 2,124,693 ---------------- 15,235 363,533 – 293,438 370,402 93,742 1,136,350 ---------------- 3,261,043 10,379,680 2,075,443 9,243,330	2004 (Restated) HK$’000 1,652,502 67,895
		1,720,397 ---------------- 48,126 550,495 3,925 148,415 463,931 104,699
		1,319,591 ---------------- 3,039,988

		9,701,631

		1,722,677

		8,382,040

– 138 –

FINANCIAL RESULTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2005

APPENDIX II

NOTES

1 Basis of preparation and accounting policies

The accounting policies and methods of computation used in the preparation of these consolidated financial statements are consistent with those used in the annual accounts for the year ended 31st December 2004, except that the Group has changed certain of its accounting policies following its adoption of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards (“new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) which are effective for accounting periods commencing on or after 1st January 2005.

The consolidated financial statements have been prepared in accordance with the new HKFRSs and are prepared under the historical cost convention, as modified by the revaluations of investment properties, available-for-sale financial assets, financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss, which are carried at fair value.

The preparation of financial statements in conformity with new HKFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 4 to the consolidated financial statements in the Annual Report.

In 2004, the Group early adopted HKFRS 3 (Business Combination), HKAS 36 (Impairment of Assets) and HKAS 38 (Intangible Assets) and the key impact to the Group was summarised in the 2004 Annual Report.

In 2005, the Group adopted the remaining new HKFRS below, which are relevant to its operations. The 2004 comparatives have been amended as required, in accordance with the relevant requirements.

HKAS 1	Presentation of Financial Statements
HKAS 2	Inventories
HKAS 7	Cash Flow Statements
HKAS 8	Accounting Policies, Changes in Accounting Estimates and Errors
HKAS 10	Events after the Balance Sheet Date
HKAS 14	Segment Reporting
HKAS 16	Property, Plant and Equipment
HKAS 17	Leases
HKAS 21	The Effects of Changes in Foreign Exchange Rates
HKAS 23	Borrowing Costs
HKAS 24	Related Party Disclosures
HKAS 27	Consolidated and Separate Financial Statements
HKAS 28	Investments in Associates
HKAS 31	Investments in Joint Ventures
HKAS 32	Financial Instruments: Disclosures and Presentation
HKAS 33	Earnings per Share
HKAS 37	Provisions, Contingent Liabilities and Contingent Assets
HKAS 39	Financial Instruments: Recognition and Measurement
HKAS 39	(Amendment) Transition and Initial Recognition of Financial Assets and Financial
	Liabilities
HKAS 40	Investment Property
HKAS-Int 12	Amendment Scope of HKAS-Int 12 Consolidation – Special Purpose Entities
HKAS-Int 15	Operating Leases – Incentives
HKAS-Int 21	Income Taxes – Recovery of Revalued Non-Depreciated Assets
HKFRS 2	Share-based Payments

– 139 –

APPENDIX II FINANCIAL RESULTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2005

The adoption of new/revised HKASs 1, 2, 7, 8, 10, 14, 16, 21, 23, 24, 27, 28, 31, 33, 37 and HKAS-Int 12 and 15 did not result in substantial changes to the Group’s accounting policies. In summary:

HKAS 1 has affected the presentation of minority interest, share of net after-tax results of associates, jointly controlled entities and other disclosures.
HKASs 2, 7, 8, 10, 14, 16, 23, 27, 28, 31, 33, 37 and HKAS-Int 12 and 15 had no material effect on the Group’s policies.
HKAS 21 had no material effect on the Group’s policy. The functional currency of each of the consolidated entities has been re-evaluated based on the guidance to the revised standard.
HKAS 24 has affected the identification of related parties and some other related-party disclosures.

The adoption of revised HKAS 17 has resulted in a change in the accounting policy relating to the reclassification of leasehold land and land use rights from property, plant and equipment to operating leases. The up-front prepayments made for the leasehold land and land use rights are expensed in the income statement on a straight-line basis over the period of the lease or where there is impairment, the impairment is expensed in the income statement. In prior years, the leasehold land was accounted for at cost less accumulated depreciation and accumulated impairment losses.

The adoption of HKASs 32, 39 and HKAS 39 (Amendment) has resulted in a change in the accounting policy relating to the classification of financial assets at fair value through profit or loss and available-for-sale financial assets. It has also resulted in the recognition of derivative financial instruments at fair value and the change in the recognition and measurement of hedging activities.

The adoption of revised HKAS 40 has resulted in a change in the accounting policy relating to classification of land currently held for undetermined future use as investment property of which the changes in fair values are recorded in the income statement as part of other income.

The adoption of revised HKAS-Int 21 has resulted in a change in the accounting policy relating to the measurement of deferred tax liabilities arising from the revaluation of investment properties. Such deferred tax liabilities are measured on the basis of tax consequences that would follow from recovery of the carrying amount of that asset through use. In prior year, the carrying amount of that asset was expected to be recovered through sale.

The adoption of HKFRS 2 has resulted in a change in the accounting policy for share-based payments. Until 31st December 2004, the provision of share options to employees did not result in an expense in the income statements. Effective on 1st January 2005, the Group has to expense the cost of share options in the income statement. As at 31st December 2005, the Group does not have any share based payments which were granted after 7th November 2002 and had not yet vested on 1st January 2005. Accordingly, no cost of share options needs to be expensed retrospectively in the income statement of the respective periods.

All changes in the accounting policies have been made in accordance with the transition provisions in the respective standards, wherever applicable. All standards adopted by the Group require retrospective application other than:

(i) HKAS 16 – the initial measurement of an item of property, plant and equipment acquired in an exchange of assets transaction is accounted at fair value prospectively only to future transactions;
(ii) HKAS 21 – prospective accounting for goodwill and fair value adjustments as part of foreign operations;
(iii) HKAS 39 – does not permit to recognise, derecognise and measure financial assets and liabilities in accordance with this standard on a retrospective basis. The Group applied the previous SSAP 24 “Accounting for investments in securities” to investments in securities for the 2004 comparative information. The adjustments required for the accounting differences between SSAP 24 and HKAS 39 are determined and recognised at 1st January 2005.

– 140 –

FINANCIAL RESULTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2005

APPENDIX II

(iv) HKAS 40 – there is no requirement for the Group to restate the comparative information, any adjustment should be made to the retained earnings as at 1st January 2005.
(v) HKAS-Int 15 – does not require the recognition of incentives for leases beginning before 1st January 2005.
(vi) HKFRS 2 – only retrospective application for all equity instruments granted after 7th November 2002 and not vested at 1st January 2005; and

There was no material impact on opening retained earnings at 1st January 2004 from the adoption of HKAS 17, HKAS 39, HKAS-Int 15, HKAS 40, HKFRS 2 and HKFRS 3.

Standards, interpretations and amendments to published standards that are not yet effective

Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group’s accounting periods beginning on or after 1st January 2006 or later periods but which the Group has not early adopted, as follows:

Effective from 1st January 2006
HKAS 19 (Amendment)	Employee Benefits
HKAS 39 (Amendment)	Cash Flow Hedge Accounting of Forecast Intragroup
	Transactions
HKAS 39 (Amendment)	The Fair Value Option
HKAS 39 and HKFRS 4 (Amendment)	Financial Guarantee Contracts
HKFRS-Int 4	Determining whether an Arrangement Contains a Lease
Effective from 1st January 2007
HKFRS 7 and Amendment to HKAS 1	Financial Instruments: Disclosure, and a complementary
	Amendment to HKAS 1, Presentation of Financial Statements
	– Capital Disclosures

The Group has already commenced an assessment of the impact of these new standards, interpretations and amendment but is not yet in a position to state whether they would have a significant impact on its results of operations and financial position.

2 Segment information

The Group is principally engaged in provision of container handling and non-containerised goods stevedoring services, operation of toll roads, supply of utilities and property development.

The associates of the Group are principally engaged in the manufacturing and sales of winery products, escalators and elevators.

– 141 –

FINANCIAL RESULTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2005

APPENDIX II

Primary reporting format – business segments

Turnover Segment results Gain on deemed disposal of partial interest in subsidiaries (Note) Gain on disposal of an associate Interest income Net corporate expenses Loss on redemption of convertible bonds Operating profit Finance costs Share of profits/(losses) of Associates Jointly controlled entities Profit before income tax Income tax expense Profit for the year Capital expenditure Depreciation	Port services Operation of toll roads HK$’000 HK$’000 870,928 210,332 171,369 93,181 4,986 1,019 – – – 159,205 1,932 76,267 45,091	Year ended 31st D Supply of utilities Property development HK$’000 HK$’000 988,810 19,361 109,827 12,913 – – – – 4,724 25 39,897 111	ecember 200 Winery (Note) HK$’000 149,671 63,220 235,370 57,515 37 – 1,761	5 Elevator and escalator HK$’000 – – 87,481 – – –	Others HK$’000 – – 80 (13,896) 11,921 3,707	Group HK$’000 2,239,102

						450,510 235,370 4,986 21,687 (40,887) (8,473)
						663,193 (97,534) 146,095 (13,859)
						697,895 (73,015)
						624,880

						177,807 166,834

Note:

The winery business previously held as a subsidiary was spun off as a separate listed company on the Hong Kong Stock Exchange effective late January 2005 and the Group’s interest was diluted to below 50% and accordingly, the winery business was reported under share of results of associates thereafter. A gain of HK$235,370,000 arose as a result of the transaction.

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FINANCIAL RESULTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2005

APPENDIX II

Turnover Segment results Gain on deemed disposal of partial interest in a subsidiary Impairment charge on investment in an associate Interest income Net corporate expenses Operating profit Finance costs Share of profits/(losses) of Associates Jointly controlled entities Profit before income tax Income tax expense Profit for the year Capital expenditure Depreciation	Port services Operation of toll roads HK$’000 HK$’000 775,552 207,771 98,757 784,856 1,826 – – – 97,391 2,289 92,131 46,082	Year ended 31st Decem Supply of utilities Property development HK$’000 HK$’000 69,968 243,833 4,449 862 – – – – 454,055 17 1,957 106	ber 2004 (restated) Winery (Note) Elevator and escalator HK$’000 HK$’000 805,349 – 227,619 – – 77,484 1,059 – 93,643 – 22,888 –	Others HK$’000 – – (120,000) (1,546) (3,040) 945 2,641	Group HK$’000 2,102,473

					1,116,543 4,325 (120,000) 19,985 (40,433)
					980,420 (55,517) 77,764 (1,981)
					1,000,686 (137,156)
					863,530

					648,340 165,805

The segment assets and liabilities at 31st December 2005 are as follows:

Assets Associates Total assets Liabilities	Port services HK$’000 1,497,673 27,928 1,525,601 90,659	Operation of toll roads HK$’000 3,381,452 – 3,381,452 58,659	Supply of utilities Property development HK$’000 HK$’000 932,792 380,602 – – 932,792 380,602 152,496 26,088	Winery HK$’000 – 580,288 580,288 –	Elevator and escalator HK$’000 47,801 368,515 416,316 11,350	Others HK$’000 3,116,016 46,613 3,162,629 2,921,791	Group HK$’000 9,356,336 1,023,344
							10,379,680

							3,261,043

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FINANCIAL RESULTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2005

APPENDIX II

The segment assets and liabilities at 31st December 2004 are as follows:

Assets Associates Total assets Liabilities	Port services HK$’000 1,362,238 28,626 1,390,864 40,759	Operation of toll roads HK$’000 3,316,215 – 3,316,215 60,093	Supply of utilities Property development HK$’000 HK$’000 992,656 370,293 – – 992,656 370,293 135,405 30,415	Winery HK$’000 646,643 – 646,643 298,406	Elevator and escalator HK$’000 142,188 279,976 422,164 9,329	Others HK$’000 2,495,799 66,997 2,562,796 2,465,581	Group HK$’000 9,326,032 375,599
							9,701,631

							3,039,988

Secondary reporting format – geographical segments

PRC mainland Total Assets PRC mainland Hong Kong Associates Capital expenditure PRC mainland Hong Kong	Turnover 2005 2004 HK$’000 HK$’000 2,239,102 2,102,473	Operating results 2005 2004 HK$’000 HK$’000 450,510 1,116,543 2005 2004 HK$’000 HK$’000 8,842,427 9,207,538 513,909 118,494 9,356,336 9,326,032 1,023,344 375,599 10,379,680 9,701,631 2005 2004 HK$’000 HK$’000 173,497 647,764 4,310 576 177,807 648,340	Operating results 2005 2004 HK$’000 HK$’000 450,510 1,116,543 2005 2004 HK$’000 HK$’000 8,842,427 9,207,538 513,909 118,494 9,356,336 9,326,032 1,023,344 375,599 10,379,680 9,701,631 2005 2004 HK$’000 HK$’000 173,497 647,764 4,310 576 177,807 648,340

			2004 HK$’000 9,207,538 118,494
			9,326,032 375,599
			9,701,631

			2004 HK$’000 647,764 576
			648,340

Capital expenditure is allocated based on where the assets are located.

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FINANCIAL RESULTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2005

APPENDIX II

3 Other income

Fair value gain on an investment property Financial assets at fair value through profit or loss/ short-term investment – fair value gains (realised and unrealised) Gain on disposal of an associate Interest income from bank deposits and others Dividends from available-for-sale financial assets/ long term investments Sundries	2005 HK$’000 15,343 3,084 4,986 21,687 9,549 22,274 76,923	2004 HK$’000 – 5,992 – 19,985 295 19,455
		45,727

4 Gain on disposal of Income Receiving Right

In 2004, Jinzheng disposed its income receiving right to Tianjin TEDA Investment Holding Co., Ltd. (“Tianjin TEDA”) with effect from 1st January 2004 for a consideration of RMB750 million (approximately HK$707 million) plus all interest payable in respect of an outstanding bank loan owed by Jinzheng. The consideration was satisfied in cash by Tianjin TEDA in February 2004 which was in turn used to repay the related bank loan amounting to RMB750 million.

Subsequent to the aforesaid disposal, Jinzheng continued to receive toll fees based on the volume of traffic flow and a pre-determined formula in accordance with the Eastern Outer Ring Road Toll Collection Agreement dated 20th August 2003.

5 Finance costs

Interest expenses: – bank borrowings – other borrowings – convertible bonds	2005 HK$’000 81,804 14,548 1,182 97,534	2004 HK$’000 51,598 – 3,919
		55,517

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FINANCIAL RESULTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2005

APPENDIX II

6 Income tax expense

Current taxation PRC income tax Under provisions in prior years Deferred income tax	2005 HK$’000 62,351 – 10,664 73,015	2004 (Restated) HK$’000 135,322 3,154 (1,320)
		137,156

No provision for Hong Kong profits tax has been made as there is no estimated assessable profit for the year for the Group (2004: Nil). Provision for the PRC income tax has been made at the applicable rate of taxation on the estimated assessable profit for the year for each of the Group’s subsidiaries and associates.

Share of associate’s taxation for the year ended 31st December 2005 of HK$56,469,000 (2004: HK$21,239,000) is included in the income statement as share of profit of associates.

7 Earnings per share

Basic

The calculation of the basic earnings per share was based on profit attributable to equity holders of the Company of HK$573,169,000 (2004: HK$563,803,000) and the weighted average number of ordinary 910,476,849 shares in issue (2004: 703,339,858 shares) during the year.

Diluted

The exercise of share options would have no material dilutive effect on basic earnings per share for the years ended 31st December 2004 and 2005.

8 Dividends

2005 final dividends, proposed, of 4.0 HK cents (2004: final, paid, of 3.4 HK cents per share) 2005 interim, paid, of 4.6 HK cents (2004: HK4.6 cents) per share	2005 HK$’000 36,426 41,881 78,307	2004 HK$’000 30,956 31,636
		62,592

Note:

At a meeting held on 20th April 2006 the directors proposed a final dividend of 4.0 HK cents per ordinary share. This proposed dividend is not reflected as a dividend payable in these accounts, but will be reflected as an appropriation of retained earnings for the year ending 31st December 2006.

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FINANCIAL RESULTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2005

APPENDIX II

9 Trade receivables

The aging analysis of the Group’s trade receivables (net of provisions) is as follows:

Within 30 days 30 to 90 days 91 to 180 days Over 180 days	2005 HK$’000 178,752 40,293 3,039 50,635 272,719	2004 HK$’000 294,467 40,350 15,021 36,608
		386,446

The various group companies have different credit policies which are dependent on the requirements of the markets and the businesses which they operate. In general, credit terms of 90 days are given to customers.

Trade receivables due within 30 days include government supplemental income receivable from the Finance Bureau of TEDA.

10 Trade payables

The aging analysis of the Group’s trade payables is as follows:

Below 30 days 30 to 90 days 91 to 180 days Over 180 days	2005 HK$’000 4,740 4,124 7 6,364 15,235	2004 HK$’000 44,137 337 1,870 1,782
		48,126

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FINANCIAL RESULTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2005

APPENDIX II

Review of operations

Provision of port services Operation of toll roads Supply of utilities Manufacturing and sales of winery products Elevator and escalator Property development Impairment charge on investment in an associate Net corporate expenses	Turnover 2005 2004 HK$’000 HK$’000 870,928 775,552 210,332 207,771 988,810 69,968 149,671 805,349 – – 19,361 243,833 – – – – 2,239,102 2,102,473	Profit attributable to equity holders of the Company 2005 2004 HK$’000 HK$’000 147,701 76,739 47,207 480,643 79,975 3,894 322,748 107,437 72,756 64,110 3,158 1,116 – (120,000) (100,376) (50,136) 573,169 563,803

Infrastructure operations

Port services

The turnover of port operations increased by 12% from approximately HK$775.6 million in 2004 to approximately HK$870.9 million in 2005. The growth in turnover was driven by a 13% increase in our TEU throughput from 1,808,491 TEUs in 2004 to 2,050,052 TEUs in 2005. For the same period, the total throughput of non-containerised cargo slightly decreased by 2% from approximately 18.7 million tonnes to approximately 18.3 million tonnes. The profit attributable to equity holders of the Company was increased by 93% from approximately HK$76.7 million for 2004 to approximately HK$147.7 million for 2005. Such increase was primarily caused by the increase in the turnover during the same period and improvement of gross profit margin from 43% to 47%.

The Container Company had upgraded their existing equipments, invested in loading equipments of advanced model and installed sophisticated operational software that resulted in an increased level of management and operational efficiency, effectively lowering some of our costs. In addition, our non-containerised goods turnover improved as a result of rationalising the types of cargoes handled, from which we achieve higher unit prices per tonne and therefore better profitability.

An application for the separate listing of the port operations on the Main Board of The Stock Exchange of Hong Kong Limited (“Stock Exchange”) was submitted on 12th September 2005. The Board believes that the proposed spin-off will allow Port Company to establish a higher profile as a separate listed entity with the ability to access the debt and

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APPENDIX II FINANCIAL RESULTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2005

equity capital markets to fund the development and expansion of its business. In addition, the separate listing will allow Port Company to achieve its valuation potential which in turn will be beneficial to the Company and its shareholders as a whole.

Road operation

The operating performances of the individual toll roads were mixed in 2005.

The average daily traffic flow on the Eastern Outer Ring Road has dropped by 4% to 30,441 vehicles in 2005. This was mainly due to the measures on tackling the practice of overloading trucks in the first half of 2005 and the diversion of traffic to the city expressway opened in the second half of the year. As a result, the toll revenue generated was reduced by 6.1% to approximately HK$147.5 million.

The Jinbin Expressway, on the other hand, recorded an average daily traffic flow of 15,974 vehicles in 2005 and generated toll revenue of approximately HK$62.8 million, representing an increase of 23% and 19% respectively over last year. This was attributable to the economic prosperity of the Binhai New Area of Tianjin and its peripheral areas.

For the year 2005, toll road operations recorded a turnover of approximately HK$210.3 million, representing an 1% increase over last year. The profit attributable to equity holders of the Company amounted to approximately HK$47.2 million.

Utility operations

As part of the Group’s strategy, 94.4% and 91.4% equity interest in Electricity Company and Water Company respectively were acquired at the end of November 2004 and hence, only one-month results of Electricity Company and Water Company were accounted for last year.

Electricity operation

Electricity Company is principally engaged in the supply of electricity in the Tianjin Economic-Technological Development Area (“TEDA”). It also provides services in relation to maintenance of power supply equipment and electric power related technological consulting. Currently, the installed capacity of electricity transmission of Electricity Company is approximately 250,000 kVA.

In 2005, the Group’s electricity operation reported a turnover of approximately HK$811.9 million and a profit attributable to equity holders of the Company of approximately HK$43.0 million respectively. The total quantity of electricity sold for the year was approximately 1,452,480,000 kWh, representing an increase of 22% over the comparable period last year.

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FINANCIAL RESULTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2005

APPENDIX II

Water operation

Water Company is principally engaged in the supply of tap water in the TEDA. It is also engaged in installation and maintenance of water pipes, tap water related technological consulting, and retail and wholesale of water pipes and related parts. The daily water supply capacity of the Water Company reaches approximately 180,000 tonnes.

In 2005, the Group’s water operation reported a turnover of approximately HK$176.9 million and a profit attributable to equity holders of the Company of approximately HK$37.0 million respectively. The total quantity of water sold was approximately 34,462,000 tonnes, representing an increase of 15% over the comparable period last year.

Locating at the TEDA with a planned site area of 33 square kilometers, Electricity Company and Water Company have been enjoying the benefits of rapid economic growth and surging future consumption in TEDA. Leveraging on the established production facilities, management expertise and customer base of Electricity Company and Water Company, the Group believes that the utility businesses will broaden the earnings base and provide an excellent growth prospect for the Group’s core businesses.

Strategic investments

Winery operation

On 26th January 2005, the shares of Dynasty Fine Wines Group Limited (“DFWGL”) were listed on the Main Board of the Stock Exchange and the Group’s interest in DFWGL was diluted from 62% to 44.8%. Accordingly, the results of DFWGL was equity accounted for after its listing.

During 2005, sales volume increased from approximately 38.9 million bottles in 2004 to approximately 44.8 million bottles in 2005. Red wine contributed over 95% of total sales volume. The turnover and profit attributable to equity holders of the Company of DFWGL amounted to approximately HK$947.5 million and HK$179.0 million respectively, representing 18% and 8% increase over the same period in last year. The increase in the profit were mainly attributable to the growth in sales volume which was partially offset by the increase in purchase cost of grape juice, distribution costs and general and administrative expenses.

In addition to the exceptional gain of approximately HK$235.4 million arising from the deemed disposal of DFWGL, DFWGL contributed to the Group a profit of approximately HK$87.4 million as compared with approximately HK$107.4 million last year. The apparent drop was due to the reduced shareholding of DFWGL as aforementioned.

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FINANCIAL RESULTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2005

APPENDIX II

Elevator and escalator operation

OTIS China, the associate of the Group, has achieved satisfactory growth in the year. For the year ended 31st December 2005, the contribution of OTIS China to the profit attributable to equity holders of the Company amounted to HK$72.8 million, representing a 13% increase over 2004.

The turnover of OTIS China amounted to HK$5,858.9 million, achieving a 15% increase over 2004. Its profit after tax increased by 13% from HK$460.9 million in 2004 to HK$519.7 million in 2005. The growth was attributable to the Mainland China and oversea markets. The Group believes that the investment in OTIS China will continue to bring in sustainable earnings in the future.

Gas fuel supply operation

Wah Sang Gas Holdings Limited (“Wah Sang”) had yet to release any up-to-date financial information and the trading of its shares remained suspended. Wah Sang is continuing its business operations and in the process of applying for a resumption of trading of its shares. The directors of the Company took a cautious view that the resumption of trading in Wah Sang’s shares might not happen in the near term, and considered the provision of HK$120 million for the probable impairment in value of the Group’s investment in Wah Sang as at 31st December 2004 should be retained in the preparation of the Group’s accounts for the year ended 31st December 2005.

Bio-pharmaceutical operation

Walfen is a 27% associated company of the Group which is positioned as the Group’s investment arm in the bio-pharmaceutical industry. The bio-pharmaceutical industry is a promising and dynamic field with huge untapped potential. The Group will continue to give full support to the business development of Walfen.

Liquidity and capital resources analysis

As at 31st December 2005, the Group’s total cash on hand and total bank borrowings stood at approximately HK$2,505 million and approximately HK$1,826 million respectively (2004: HK$1,956 million and HK$1,791 million respectively) of which approximately HK$169 million bank borrowings will mature within one year. Convertible bonds amounted to approximately HK$388 million (2004: HK$133 million) is repayable in 2008. Loans from minority shareholders of subsidiaries amounted to approximately HK$201 million (2004: HK$192 million) which bore interest at the rate of 6.4% per annum and have no fixed terms of repayment.

The gearing ratio as measured by total borrowings to shareholders’ funds is approximately 41% at the end of 2005, compared to approximately 40% at the end of 2004.

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APPENDIX II FINANCIAL RESULTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2005

Of the total HK$1,826 million bank borrowings outstanding at the end of 2005, HK$720 million was fixed rate debts with annual interest rate ranging from 5.0% to 7.7%. The remaining HK$1,106 million of bank loans were subject to floating rates with spread of 0.52% to 0.8% over LIBOR of relevant interest periods.

As at the end of 2005, 39% (2004: 49%) of the Group’s total bank borrowings was denominated in Renminbi, 59% (2004: 51%) was denominated in US dollars and 2% (2004: Nil) was denominated in HK dollars.

Employees and remuneration policies

The Company and its subsidiary companies had a total of approximately 3,800 employees at the end of the period, of which approximately 810 were management and technical staff, with the balance production workers.

The Group contributes to an employee pension scheme established by the PRC Government which undertakes to assume the retirement benefit obligations of all existing and future retired employees of the Group in the PRC. The Group also contributes to a mandatory provident fund scheme for all Hong Kong employees. The contributions are based on a fixed percentage of the members’ salaries.

Charge on assets

None of the Group’s assets are charged or subject to any encumbrance.

– 152 –

SUMMARY OF THE PRINCIPAL TERMS OF THE SHARE OPTION SCHEME

APPENDIX III

This appendix contains a summary of 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.

(a) Purpose

The Share Option Scheme is a share incentive scheme and is established to recognise and acknowledge the contributions the Eligible Participants (as defined in paragraph (b) below) had or may have made to the Tianjin Port Development Group. The Share Option Scheme will provide the Eligible Participants an opportunity to have a personal stake in Tianjin Port Development with the view to achieving the following objectives:

(i) motivate the Eligible Participants to optimise their performance efficiency for the benefit of the Tianjin Port Development Group; and
(ii) attract and retain or otherwise maintain on-going business relationship with the Eligible Participants whose contributions are or will be beneficial to the long-term growth of the Tianjin Port Development Group.

(b) Who may join

The Tianjin Port Development Board may, at its discretion, offer to grant an option to subscribe for such number of new Tianjin Port Development Shares as the Tianjin Port Development Board may determine at an exercise price determined in accordance with paragraph (f) below to:

(i) any full-time or part-time employees, executives or officers of Tianjin Port Development or any of its subsidiaries;
(ii) any directors (including non-executive directors and independent non-executive directors) of Tianjin Port Development or any of its subsidiaries;
(iii) any advisers, consultants, suppliers, customers and agents to Tianjin Port Development or any of its subsidiaries; and
(iv) such other persons who, in the sole opinion of the Tianjin Port Development Board, will contribute or have contributed to the Tianjin Port Development Group, the assessment criteria of which are:
(aa) contribution to the development and performance of the Tianjin Port Development Group;
(bb) quality of work performed for the Tianjin Port Development Group;
(cc) initiative and commitment in performing his/her duties; and
(dd) length of service or contribution to the Tianjin Port Development Group.

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SUMMARY OF THE PRINCIPAL TERMS OF THE SHARE OPTION SCHEME

APPENDIX III

(c) Acceptance of an offer of Options

An option shall be deemed to have been granted and accepted by the grantee and to have taken effect when the duplicate offer document constituting acceptances of the options duly signed by the grantee, together with a remittance in favour of Tianjin Port Development of HK$1.00 by way of consideration for the grant thereof, is received by Tianjin Port Development on or before the relevant acceptance date. Such payment shall in no circumstances be refundable. Any offer to grant an option to subscribe for Tianjin Port Development Shares may be accepted in respect of less than the number of Tianjin Port Development Shares for which it is offered provided that it is accepted in respect of a board lot for dealing in Tianjin Port Development Shares on the Stock Exchange or an integral multiple thereof and such number is clearly stated in the duplicate offer document constituting acceptance of the option. To the extent that the offer to grant an option is not accepted by any prescribed acceptance date, it shall be deemed to have been irrevocably declined.

Subject to paragraphs (l), (m), (n), (o) and (p) below, an Option shall be exercised in whole or in part and, other than where it is exercised to the full extent outstanding, shall be exercised in integral multiples of such number of Tianjin Port Development Shares as shall represent one board lot for dealing in Tianjin Port Development Shares on the Stock Exchange for the time being, by the grantee by giving notice in writing to Tianjin Port Development stating that the Option is thereby exercised and the number of Tianjin Port Development Shares in respect of which it is exercised. Each such notice must be accompanied by a remittance for the full amount of the Exercise Price for the Tianjin Port Development Shares in respect of which the notice is given. Within 21 days after receipt of the notice and the remittance and, where appropriate, receipt of the certificate by the auditors to Tianjin Port Development or the approved independent financial adviser as the case may be pursuant to paragraph (r), Tianjin Port Development shall allot and issue the relevant number of Tianjin Port Development Shares to the grantee credited as fully paid and issue to the Grantee certificates in respect of the Tianjin Port Development Shares so allotted. The exercise of any Option shall be subject to the shareholders of Tianjin Port Development in general meeting approving any necessary increase in the authorised share capital of Tianjin Port Development.

(d) Maximum number of Tianjin Port Development Shares

The maximum number of Tianjin Port Development Shares in respect of which options may be granted (including Tianjin Port Development Shares in respect of which options, whether exercised or still outstanding, have already been granted) under the Share Option Scheme and under any other share option schemes of Tianjin Port Development must not in aggregate exceed 10% of the total number of Tianjin Port Development Shares in issue on the date of listing of the Tianjin Port Development Shares (but taking no account of any Tianjin Port Development Shares which may be issued under the exercise of the Over-allotment Option), being 170,000,000 Tianjin Port Development Shares (the “Scheme Limit”), excluding for this purpose Tianjin Port Development Shares which would have been issuable pursuant to options which have lapsed in accordance with the terms of the Share Option Scheme (or any other share option schemes of Tianjin Port Development). Subject to

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SUMMARY OF THE PRINCIPAL TERMS OF THE SHARE OPTION SCHEME

APPENDIX III

the issue of a circular by Tianjin Port Development and the approval of the Tianjin Port Development Shareholders in general meeting and/or such other requirements prescribed under the Listing Rules from time to time, the Tianjin Port Development Board may:

(i) renew this limit at any time to 10% of the Tianjin Port Development Shares in issue (the “New Scheme Limit”) as at the date of the approval by the Tianjin Port Development Shareholders in general meeting; and/or
(ii) grant options beyond the Scheme Limit to Eligible Participants specifically identified by the Tianjin Port Development Board. The circular issued by Tianjin Port Development to the Tianjin Port Development Shareholders shall contain a generic description of the specified Eligible 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 Eligible Participants with an explanation as to how the options serve such purpose, the information required under Rule 17.02(2)(d) and the disclaimer required under Rule 17.02(4) of the Listing Rules.

Notwithstanding the foregoing, the Tianjin Port Development Shares which may 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 Tianjin Port Development at any time shall not exceed 30% of the Tianjin Port Development Shares in issue from time to time (the “Maximum Limit”). No options shall be granted under any schemes of Tianjin Port Development (including the Share Option Scheme) if this will result in the Maximum Limit being exceeded. The maximum number of Tianjin Port Development Shares in respect of which options may be granted shall be adjusted, in such manner as the auditors of Tianjin Port Development or an approved independent financial adviser shall certify to be appropriate, fair and reasonable in the event of any alteration in the capital structure of Tianjin Port Development in accordance with paragraph (r) below whether by way of capitalisation issue, rights issue, open offer (if there is a price-dilutive element), consolidation, sub-division of shares or reduction of the share capital of Tianjin Port Development but in no event shall exceed the limit prescribed in this paragraph.

(e) Maximum number of options to any one individual

The total number of Tianjin Port Development Shares issued and which may fall to be issued upon exercise of the options granted under the Share Option Scheme and any other share option schemes of Tianjin Port Development (including both exercised, outstanding options and Tianjin Port Development Shares which were the subject of options which have been granted and accepted under the Share Option Scheme or any other scheme of Tianjin Port Development but subsequently cancelled (the “Cancelled Tianjin Port Development Shares”)) to each Eligible Participant in any 12-month period up to the date of grant shall

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SUMMARY OF THE PRINCIPAL TERMS OF THE SHARE OPTION SCHEME

APPENDIX III

not exceed 1% of the Tianjin Port Development Shares in issue as at the date of grant. Any further grant of Options in excess of this 1% limit shall be subject to:

(i) the issue of a circular by Tianjin Port Development containing the identity of the Eligible Participant, the numbers of and terms of the options to be granted (and options previously granted to such participant) the information as required under Rules 17.02(2)(d) and the disclaimer required under 17.02(4) of the Listing Rules; and
(ii) the approval of the Tianjin Port Development Shareholders in general meeting and/or other requirements prescribed under the Listing Rules from time to time with such Eligible Participant and his associates (as defined in the Listing Rules) abstaining from voting. The numbers and terms (including the exercise price) of options to be granted to such participant must be fixed before the Tianjin Port Development Shareholders’ approval and the date of the Tianjin Port Development Board meeting at which the Tianjin Port Development Board proposes to grant the options to such Eligible Participant shall be taken as the date of grant for the purpose of calculating the subscription price of the Tianjin Port Development Shares. The Tianjin Port Development Board shall forward to such Eligible Participant an offer document in such form as the Tianjin Port Development Board may from time to time determine (or, alternatively, documents accompanying the offer document which state), among others:
(aa) the Eligible Participant’s name, address and occupation;
(bb) the date on which an Option is offered to an Eligible Participant which must be a date on which the Stock Exchange is open for the business of dealing in securities;
(cc) the date upon which an offer for an Option must be accepted;
(dd) the date upon which an Option is deemed to be granted and accepted in accordance with paragraph (c);
(ee) the number of Tianjin Port Development Shares in respect of which the Option is offered;
(ff) the subscription price and the manner of payment of such price for the Tianjin Port Development Shares on and in consequence of the exercise of the Option;
(gg) the date of the notice given by the grantee in respect of the exercise of the Option;
(hh) the method of acceptance of the Option which shall, unless the Tianjin Port Development Board otherwise determines, be as set out in paragraph (c); and

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SUMMARY OF THE PRINCIPAL TERMS OF THE SHARE OPTION SCHEME

APPENDIX III

(iii) such other terms and conditions (including, without limitation, any minimum period for which an Option must be held before it can be exercised and/or any performance targets which must be achieved before the Option can be exercised) relating to the offer of the Option which in the opinion of the Tianjin Port Development Board are fair and reasonable but not being inconsistent with the Share Option Scheme and the Listing Rules.

(f) Price of Tianjin Port Development Shares

The subscription price of a Tianjin Port Development Share in respect of any particular option granted under the Share Option Scheme shall be such price as the Tianjin Port Development Board in its absolute discretion shall determine, save that such price will not be less than the highest of:

(i) the closing price of the Tianjin Port Development Shares as stated in the Stock Exchange’s daily quotation sheets on the date of grant, which must be a day on which the Stock Exchange is open for the business of dealing in securities;
(ii) the average of the closing prices of the Tianjin Port Development Shares as stated in the Stock Exchange’s daily quotation sheets for the five business days immediately preceding the date of grant; and
(iii) the nominal value of a Tianjin Port Development Share.

(g) Granting options to connected persons

Any grant of options to a director, chief executive or substantial shareholder (as defined in the Listing Rules) of Tianjin Port Development or any of their respective associates (as defined in the Listing Rules) is required to be approved by the independent non-executive Tianjin Port Development Directors (excluding any independent non-executive Tianjin Port Development Director who is the grantee of the Options). If the Tianjin Port Development Board proposes to grant options to a substantial shareholder or any independent non-executive Tianjin Port Development Director or their respective associates (as defined in the Listing Rules) which will result in the number of Tianjin Port Development Shares issued and to be issued upon exercise of options 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:

(i) representing in aggregate over 0.1% of the Tianjin Port Development Shares in issue; and
(ii) having an aggregate value in excess of HK$5 million or such other sum as may be from time to time provided under the Listing Rules, based on the closing price of the Tianjin Port Development Shares as stated in the daily quotation sheets of the Stock Exchange at the date of each grant,

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SUMMARY OF THE PRINCIPAL TERMS OF THE SHARE OPTION SCHEME

APPENDIX III

such further grant of options will be subject to the approval of the independent non-executive directors of Tianjin Port Development as referred to in this paragraph, the issue of a circular by Tianjin Port Development and the approval of the Tianjin Port Development Shareholders in general meeting on a poll at which all connected persons (as defined in the Listing Rules) of Tianjin Port Development shall abstain from voting in favour, and/or such other requirements prescribed under the Listing Rules from time to time. Any vote taken at the meeting to approve the grant of such options shall be taken as a poll.

The circular to be issued by Tianjin Port Development to the Tianjin Port Development Shareholders pursuant to the above paragraph shall contain the following information:

(i) the details of the number and terms (including the exercise price) of the options to be granted to each selected Eligible Participant which must be fixed before the shareholders’ meeting and the date of Tianjin Port Development Board meeting for proposing such further grant shall be taken as the date of grant for the purpose of calculating the exercise price of such options;
(ii) a recommendation from the independent non-executive Directors (excluding any independent non-executive Director who is the grantee of the options) to the independent Tianjin Port Development Shareholders as to voting;
(iii) the information required under Rule 17.02(2)(c) and (d) and the disclaimer required under Rule 17.02(4) of the Listing Rules; and
(iv) the information required under Rule 2.17 of the Listing Rules.

(h) Restrictions on the times of grant of Options

A grant of options may not 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 announced pursuant to the requirements of the Listing Rules. In particular, no options may be granted during the period commencing one month immediately preceding the earlier of:

(i) the date of the Tianjin Port Development Board meeting (as such date to first notified to the Stock Exchange in accordance with the Listing Rules) for the approval of Tianjin Port Development’s results for any year, half-year, quarterly or other interim period (whether or not required under the Listing Rules); and
(ii) the deadline for Tianjin Port Development to publish an announcement of the results for any year, or half-year, or quarterly or other interim period (whether or not required under the Listing Rules),

and ending on the date of actual publication of the results announcement.

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SUMMARY OF THE PRINCIPAL TERMS OF THE SHARE OPTION SCHEME

APPENDIX III

(i) Rights are personal to grantee

An option is personal to the grantee. No grantee shall in any way sell, transfer, charge, mortgage, encumber or create any interest (legal or beneficial) in favour of any third party over or in relation to any option or attempt so to do (save that the grantee may nominate a nominee in whose name the Tianjin Port Development Shares issued pursuant to the Share Option Scheme may be registered). Any breach of the foregoing shall entitle Tianjin Port Development to cancel any outstanding options or any part thereof granted to such Grantee.

(j) Time of exercise of Option and duration of the Share Option Scheme

An option may be exercised in accordance with the terms of the Share Option Scheme at any time after the date upon which the Option is deemed to be granted and accepted and prior to the expiry of 10 years from that date. The period during which an option may be exercised will be determined by the Tianjin Port Development Board in its absolute discretion, save that no option may be exercised more than 10 years after it has been granted. No option may be granted more than 10 years after the date of approval of the Share Option Scheme by the sole shareholder of Tianjin Port Development (the “Adoption Date”). Subject to earlier termination by Tianjin Port Development in general meeting or by the Tianjin Port Development Board, the Share Option Scheme shall be valid and effective for a period of 10 years from the Adoption Date.

(k) Performance target

A grantee may be required to achieve any performance targets as the Tianjin Port Development Board may then specify in the grant before any options granted under the Share Option Scheme can be exercised.

(l) Rights on ceasing employment/death

If the grantee of an option ceases to be an Eligible Participant:

(i) by any reason other than death, ill-health, injury, disability or termination of his relationship with Tianjin Port Development and/or any of its subsidiaries on one of more of the grounds specified in paragraph (m) below, the grantee may exercise the option up to the entitlement of the grantee as at the date of cessation (to the extent not already exercised) within a period of one month (or such longer period as the Tianjin Port Development Board may determine) from such cessation, which date shall be the last actual working day with Tianjin Port Development or the relevant subsidiary whether salary is paid in lieu of notice or not, failing which it will lapse (or such longer period as the Tianjin Port Development Board may determine); or
(ii) by reason of death, ill-health, injury or disability (all evidenced to the satisfaction of the Tianjin Port Development Board) and none of the events which would be a ground for termination of his relationship with Tianjin Port Development and/or any of its subsidiaries under paragraph (m) has occurred, the grantee or his

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APPENDIX III SUMMARY OF THE PRINCIPAL TERMS OF THE SHARE OPTION SCHEME

personal representative(s) may exercise the option within a period of 12 months (or such longer period as the Tianjin Port Development Board may determine) from the date of cessation of being an Eligible Participant or death to exercise the Options in full (to the extent not already exercised).

(m) Rights on dismissal

If the grantee of an Option ceases to be an Eligible Participant on the grounds that he has been guilty of serious misconduct, or has committed any act of bankruptcy or has become insolvent or has made any arrangements or composition with his creditors generally, or has been convicted of any criminal offence involving his integrity or honesty, his Option will lapse and not be exercisable after the date of termination of his employment.

(n) Rights on takeover

If a general offer is made to all the Tianjin Port Development Shareholders (or all such Tianjin Port Development Shareholders other than the offeror and/or any person controlled by the offeror and/or any person acting in concert with the offeror (as defined in the Takeovers Codes)) and such offer becomes or is declared unconditional during the option period of the relevant option, the grantee of an option shall be entitled to exercise the option in full (to the extent not already exercised) at any time within 14 days after the date on which the offer becomes or is declared unconditional.

(o) Rights on winding-up

In the event a notice is given by Tianjin Port Development to its members to convene a general meeting for the purposes of considering, and if thought fit, approving a resolution to voluntarily wind-up Tianjin Port Development, Tianjin Port Development shall forthwith give notice thereof to all grantees and thereupon, each grantee (or his legal personal representative(s)) shall be entitled to exercise all or any of his options (to the extent not already exercised) at any time not later than two business days prior to the proposed general meeting of Tianjin Port Development referred to above by giving notice in writing to Tianjin Port Development, accompanies by a remittance for the full amount of the aggregate subscription price for the Tianjin Port Development Shares in respect of which the notice is given, whereupon Tianjin Port Development 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, allot the relevant Tianjin Port Development Shares to the grantee credited as fully paid.

(p) Rights on compromise or arrangement between Tianjin Port Development and its members or creditors

If a compromise or arrangement between Tianjin Port Development and its members or creditors is proposed for the purposes of a scheme for the reconstruction of Tianjin Port Development or its amalgamation with any other companies pursuant to the laws of jurisdictions in which Tianjin Port Development was incorporated, Tianjin Port Development shall give notice to all the grantees of the options on the same day as it gives notice of the meeting to its members or creditors summoning the meeting to consider such a scheme or

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SUMMARY OF THE PRINCIPAL TERMS OF THE SHARE OPTION SCHEME

APPENDIX III

arrangement and any grantee may by notice in writing to Tianjin Port Development accompanied by a remittance for the full amount of the aggregate subscription price for the Tianjin Port Development Shares in respect of which the notice is given (such notice to be received by Tianjin Port Development not later than two business days prior to the proposed meeting), exercise the option to its full extent or to the extent specified in the notice and Tianjin Port Development shall as soon as possible in any event no later than the business day immediately prior to the date of the proposed meeting, allot and issue such number of Tianjin Port Development Shares to the grantee which falls to be issued on such exercise of the option credited as fully paid and register the grantee as holder thereof. With effect from the date of such meeting, the rights of all grantees to exercise their respective options shall forthwith be suspended. Upon such compromise or arrangement becoming effective, all options shall, to the extent that they have not been exercised, lapse and determine. If for any reason such compromise or arrangement does not become effective and is terminated or lapses, the rights of grantees to exercise their respective options shall with effect from such termination be restored in full but only upon the extent not already exercised and shall become exercisable.

(q) Ranking of Tianjin Port Development Shares

The Tianjin Port Development Shares to be allotted upon the exercise of an option will not carry voting rights until completion of the registration of the grantee (or any other person) as the holder thereof. Subject to the aforesaid, Tianjin Port Development Shares allotted and issued on the exercise of options will rank pari passu and shall have the same voting, dividend, transfer and other rights, including those arising on liquidation as attached to the other fully-paid Tianjin Port Development Shares in issue on the date of exercise, save that they will not rank for any dividend or other distribution declared or recommended or resolved to be paid or made by reference to a record date falling on or before the date of exercise.

(r) Effect of alterations to capital

In the event of any alteration in the capital structure of Tianjin Port Development whilst any option may become or remains exercisable, whether by way of capitalisation issue, rights issue, open offer (if there is a price-dilutive element), consolidation, sub-division or reduction of share capital of Tianjin Port Development, such corresponding alterations (if any) shall be made in the number of Tianjin Port Development Shares subject to any outstanding options and/or the subscription price per Tianjin Port Development Share of each outstanding option and/or the Scheme Limit, the New Scheme Limit and the Maximum Limit as the auditors of Tianjin Port Development or an independent financial adviser shall certify in writing to the Tianjin Port Development Board to be in their/his opinion fair and reasonable in compliance with Rule 17.03(13) of the Listing Rules and the note thereto and the supplementary guidance attached to the letter from the Stock Exchange dated 5 September 2005 to all issues relating to Share Option Scheme. The capacity of the auditors of Tianjin Port Development or the approved independent financial adviser, as the case may be, in this paragraph is that of experts and not arbitrators and their certificate shall, in the absence of manifest error, be final and conclusive and binding on Tianjin Port Development and the grantees.

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APPENDIX III

SUMMARY OF THE PRINCIPAL TERMS OF THE SHARE OPTION SCHEME

Any such alterations will be made on the basis that a grantee shall have the same proportion of the equity capital of Tianjin Port Development (as interpreted in accordance with the supplementary guidance attached to the letter from the Stock Exchange dated 5 September 2005) to all issues relating to Share Option Scheme for which any grantee of an option is entitled to subscribe pursuant to the options held by him before such alteration provided that no such alteration shall be made if the effect of which would be to enable a Tianjin Port Development Share to be issued at less than its nominal value. The issue of securities as consideration in a transaction is not to be regarded as a circumstance requiring any such alterations.

(s) Expiry of option

An option shall lapse automatically and not be exercisable (to the extent not already exercised) on the earliest of:

(i) the date of expiry of the option as may be determined by the Tianjin Port Development Board;
(ii) the expiry of any of the periods referred to in paragraphs (l), (m), (n) or (o);
(iii) the date on which the scheme of arrangement of Tianjin Port Development referred to in paragraph (p) becomes effective;
(iv) subject to paragraph (o), the date of commencement of the winding-up of Tianjin Port Development;
(v) the date on which the grantee ceases to be an Eligible Participant by reason of such grantee’s resignation from the employment of Tianjin Port Development or any of its subsidiaries or the termination of his or her employment or contract on the grounds that he or she has been guilty of serious misconduct, or has committed any act of bankruptcy or is unable to pay his or her debts or has become insolvent or has made any arrangement or has compromised with his or her creditors generally, or has been convicted of any criminal offence involving his or her integrity or honesty or has been in breach of contract. A resolution of the Tianjin Port Development Board to the effect that the employment of a grantee has or has not been terminated on one or more of the grounds specified in this paragraph shall be conclusive; or
(vi) the date on which the Tianjin Port Development Board shall exercise Tianjin Port Development’s right to cancel the option at any time after the grantee commits a breach of paragraph (i) above or the options are cancelled in accordance with paragraph (u) below.

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SUMMARY OF THE PRINCIPAL TERMS OF THE SHARE OPTION SCHEME

APPENDIX III

(t) Alteration of the Share Option Scheme

The Share Option Scheme may be altered in any respect by resolution of the Board except that:

(i) any alteration to the advantage of the grantees or the Eligible Participants (as the case may be) in respect of the matters contained in Rule 17.03 of the Listing Rules; and
(ii) any material alteration to the terms and conditions of the Share Option Scheme or any change to the terms of options granted, shall first be approved by the Tianjin Port Development Shareholders in general meeting provided that if the proposed alteration shall adversely affect any option granted or agreed to be granted prior to the date of alteration, such alteration shall be further subject to the grantees’ approval in accordance with the terms of the Share Option Scheme. The amended terms of the Share Option Scheme shall still comply with Chapter 17 of the Listing Rules and any change to the authority of the Tianjin Port Development Board in relation to any alteration to the terms of the Share Option Scheme must be approved by Shareholders in general meeting.

(u) Cancellation of Options

Any cancellation of options granted but not exercised must be approved by the grantees of the relevant options in writing. For the avoidance of doubt, such approval is not required in the event any Option is cancelled pursuant to paragraph (i).

(v) Termination of the Share Option Scheme

Tianjin Port Development may by resolution in general meeting or the Tianjin Port Development Board at any time terminate the Share Option Scheme and in such event no further option shall be offered but the provisions of the Share Option Scheme shall remain in force to the extent necessary to give effect to the exercise of any option granted prior thereto or otherwise as may be required in accordance with the provisions of the Share Option Scheme. Options granted prior to such termination but not yet exercised at the time of termination shall continue to be valid and exercisable in accordance with the Share Option Scheme.

(w) Administration of the Tianjin Port Development Board

The Share Option Scheme shall be subject to the administration of the Tianjin Port Development Board whose decision as to all matters arising in relation to the Share Option Scheme or its interpretation or effect (save as otherwise provided herein) shall be final and binding on all parties.

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SUMMARY OF THE PRINCIPAL TERMS OF THE SHARE OPTION SCHEME

APPENDIX III

(x) Condition of the Share Option Scheme

The Share Option Scheme is conditional on:

(i) the Listing Committee of the Stock Exchange granting for the listing of and permission to deal in the Tianjin Port Development Shares which may fall to be issued pursuant to the exercise of options to be granted under the Share Option Scheme;
(ii) the obligations of the Underwriters under the Underwriting Agreements becoming unconditional (including, if relevant, as result of the waiver of any such condition(s) by the Joint Lead Managers (on behalf of the underwriters)) and not being terminated in accordance with the terms of the underwriting agreements or otherwise;
(iii) the approval of the rules of the Share Option Scheme by the shareholders of Tianjin Development Holdings Limited in general meeting;
(iv) the approval of the rules of the Share Option Scheme by Leadport Holdings in general meeting; and
(v) the commencement of dealings in the Tianjin Port Development Shares on the Stock Exchange.

If the conditions in paragraph (x) above are not satisfied within two calendar months from the Adoption Date:

(i) the Share Option Scheme shall forthwith determine;
(ii) any option granted or agreed to be granted pursuant to the Share Option Scheme and any offer of such a grant shall be of no effect; and
(iii) no person shall be entitled to any rights or benefits or be under any obligations under or in respect of the Share Option Scheme or any option granted thereunder.

(y) Disclosure in annual and interim reports

Tianjin Port Development will disclose details of the Share Option Scheme in its annual and interim reports including the number of options, date of grant, exercise price, exercise period and vesting period during the financial year/period in the annual/interim reports in accordance with the Listing Rules in force from time to time.

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SUMMARY OF THE PRINCIPAL TERMS OF THE SHARE OPTION SCHEME

APPENDIX III

(z) Shareholders’ approval

For matters under the Share Option Scheme or any related matters which require the approval of the Tianjin Port Development Shareholders or the independent non-executive Tianjin Port Development Directors under the Listing Rules, such matters must simultaneously be approved by the Shareholders (including the independent Shareholders) or the independent non-executive directors of the Company.

As at the Latest Practicable Date, no option had been granted or agreed to be granted under the Share Option Scheme.

Application has been made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Tianjin Port Development Shares which may fall to be issued pursuant to the exercise of the options to be granted under the Share Option Scheme, being 170,000,000 Tianjin Port Development Shares in total.

– 165 –

APPENDIX IV

DETAILS OF MR. ZHANG WENLI

Mr. Zhang Wenli ( ), aged 51, is a senior engineer. Mr. Zhang graduated from the Faculty of Electrical Engineering of Harbin Electrical Engineering Institute in 1982. He completed a postgraduate course specializing in law at the School of Central Committee of the Communist Party, the PRC in 1999. He was the deputy head of Tianjin Electrical and Mechanical Research Institute during 1982 to 1993. From 1993 to 1995, he was the deputy head of Tianjin Electricity Control and Mechanic Transmission Institute. From 1996 to 2000, he was the assistant general manager and deputy general manager of Tianjin Electrical and Mechanical Industrial Company (currently known as Tianjin Machinery & Electric Industry Holding Group Company). He was appointed as the general manager since July 2000 and Chairman since November 2005 of Tianjin Machinery & Electric Industry Holding Group Company. He is also the chairman of Tianjin Benefo TeJing Electric Company Limited. Mr. Zhang has solid experience in research and development for over ten years.

Save as disclosed above, as at the Latest Practicable Date, Mr. Zhang does not hold any other positions with the Company and other members of the Group and has no relationship with any Directors, senior management or substantial or controlling shareholders of the Company and does not have any interest in the Shares within the meaning of Part XV of the SFO.

There is no service contract between the Company and Mr. Zhang. Mr. Zhang is not appointed for a specific term. The director’s emolument payable to Mr. Zhang will be determined by the Board with reference to market terms, performance, qualification and experience of Mr. Zhang.

Mr. Zhang has not held any directorship in other public listed companies in Hong Kong in the past three years.

Save as disclosed above, there is no information to be disclosed pursuant to any of the requirements set out in rule 13.51(2)(h) – (v) of the Listing Rules in respect of Mr. Zhang and there is no other matter relating to the re-election of Mr. Zhang as an executive Director that needs to be brought to the attention of the Shareholders.

– 166 –

GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group.

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.

2. SHARE CAPITAL

Authorised

HK$

3,000,000,000 Shares as at the Latest Practicable Date 300,000,000.00

Issued and credited as fully paid

956,297,052 Shares as at the Latest Practicable Date 95,629,705.20

Shares agreed to be issued

The Company adopted a share option scheme as 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 subject to the terms and conditions stipulated in the share option scheme.
2 On 19 December 2005, a subsidiary of the Company issued convertible bonds in the principal amount of HK$400,000,000 which shall be due on 19 December 2008 (the “Convertible Bonds”). The Convertible Bonds are convertible into approximately 102,564,102 Shares upon full exercise by bondholders of the conversion rights attaching thereto at any time on or after 18 January 2006 up to the close of business on 12 December 2008 at the initial conversion price of HK$3.90 per Share (the “Conversion Price”). The Conversion Price shall be subject to (i) a one-time basis adjustment to HK$4.06 per share on 19 December 2007, and (ii) other adjustment provisions of the terms and conditions of the Convertible Bonds. As at the Latest Practicable Date, 25,641,025 Shares were converted and issued to bondholders pursuant to the terms and conditions of the Convertible Bonds.

3. DISCLOSURE OF INTERESTS BY DIRECTORS

(a) As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which (i) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO

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GENERAL INFORMATION

APPENDIX V

(including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein (the “Register”); or (iii) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules, to be notified to the Company and the Stock Exchange were as follows:

(i) Long positions in Shares

					Approximate
			Nature of	Number of	percentage of the
Name	of Director	Capacity	Interest	Shares held	issued Share
Wang	Jiandong	Beneficial	Personal	450,000	0.05%
		owner	interest

(ii) Long positions in underlying shares of equity derivatives of the Company

The Company adopted a share option scheme as 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 subject to the terms and conditions stipulated in the share option scheme. The details of share options granted to the Directors which are outstanding as at the Latest Practicable Date are as follows:

	Number of
	Shares over
Name of	which options	Exercise		Exercisable	Exercisable
Directors	are exercisable	price	Grant date	from	until
		HK$
Wang Guanghao	1,000,000	3.100	23 December	28 December	21 November
			2004	2004	2007
Ren Xuefeng	900,000	3.100	23 December	28 December	21 November
			2004	2004	2007
Yu Rumin	900,000	3.100	23 December	28 December	21 November
			2004	2004	2007
Zhang Hongru	800,000	3.100	23 December	28 December	21 November
			2004	2004	2007
Nie Jiansheng	700,000	3.100	23 December	28 December	21 November
			2004	2004	2007
Wang Jiandong	600,000	3.100	23 December	28 December	21 November
			2004	2004	2007
Sun Zengyin	300,000	3.100	23 December	28 December	21 November
			2004	2004	2007
Pang Jinhua	300,000	3.100	23 December	28 December	21 November
			2004	2004	2007
Ye Disheng	300,000	3.100	23 December	28 December	21 November
			2004	2004	2007

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

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GENERAL INFORMATION

APPENDIX V

(iii) Long positions in shares of associated corporation

					Approximate
					percentage
					of shares
					in issue as
					at the
Name of					Latest
associated	Name of		Nature of	No. of	Practicable
corporation	Director	Capacity	interest	shares held	Date
Dynasty Fine	Wang Jiandong	Beneficial	Personal	17,307	0.001%
Wines Group		owner	interest
Limited

(iv) Share options in Dynasty Fine Wines Group Limited, an associated corporation of the Company

	Number of
	shares over
Name of	which options	Exercise		Exercisable	Exercisable
Directors	are exercisable	price	Grant date	from	until
		HK$
Wang Guanghao	900,000	3.00	27 January	17 August	26 January
			2005	2005	2015
Nie Jiansheng	1,950,000	3.00	27 January	17 August	26 January
			2005	2005	2015
Bai Zhisheng	1,100,000	3.00	27 January	17 August	26 January
			2005	2005	2015

Save as disclosed above, as at the Latest Practicable Date, none of the Directors nor chief executive of the Company were interested, or were deemed to have interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which (i) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) were required, pursuant to section 352 of the SFO, to be entered in the Register referred to therein; or (iii) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules, to be notified to the Company and the Stock Exchange.

(b) Interests in competing businesses

As at the Latest Practicable Date, none of the Directors nor their respective associates had any business which competes or is likely to compete, either directly or indirectly, with any business of the Group.

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GENERAL INFORMATION

APPENDIX V

(c) Interests in assets of the Group

As at the Latest Practicable Date, none of the Directors nor their respective associates had any direct or indirect interests in any assets which have been acquired or disposed of by, or leased to, or which are proposed to be acquired or disposed of by, or leased to, the Company or any of its subsidiaries since 31 December 2005, being the date to which the latest published audited accounts of the Group were made up.

(d) Interests in contracts of the Company

No Director has entered into any service contract with any member of the Group which is not terminable within one year without payment of compensation (other than statutory compensation).

Mr. Cheung Wing Yui, a non-executive Director, is a partner of Woo, Kwan, Lee & Lo, the Company’s legal advisers on Hong Kong law in relation to the Proposed Spin-off. Woo, Kwan, Lee & Lo will receive normal fees for professional services rendered in connection with the Proposed Spin-off.

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

(i) none of the Directors, the Sponsor or the independent financial adviser has any direct or indirect interest in any assets which have been since 31 December 2005, being the date to which the latest published audited accounts of the Group were made up, acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group; and
(ii) none of the Directors is materially interested in any contract or arrangement subsisting as at the Latest Practicable Date which is significant in relation to the business of the Group.

– 170 –

GENERAL INFORMATION

APPENDIX V

4. DISCLOSURE OF INTERESTS BY SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as was known to the Directors and chief executive of the Company, the following persons (not being Directors or chief executive of the Company) had, or were deemed to have, interests or short positions in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or had any option in respect of such capital were as follows:

(a) Interests in the Company

		Number of
		Shares/	Approximate
		underlying	percentage of
Name of Shareholder	Capacity	Shares held	issued Shares
Tsinlien (Note 2)	Interest of controlled corporations	584,655,143 (L)	61.14%
ABN AMRO Holding N.V.	Interest of controlled	102,564,103 (L)	10.73%
	corporation(s)
	Custodian/approved lending agent	76,000 (P)	0.01%

The letter “L” stands for the shareholder’s long position (within the meaning of the SFO) in Shares. The letter “P” stands for lending pool.
As at the Latest Practicable Date, Tianjin Investment and Tsinlien Venture Capital Company Limited (formerly known as Tsinlien Property Services Limited) (“Tsinlien Venture”), both being wholly-owned subsidiaries of Tsinlien, held 582,633,143 Shares and 2,022,000 Shares respectively. Mr. Wang Guanghao acted as trustee of Tianjin Investment held 10 Shares. By virtue of the SFO, Tsinlien is taken to have interest in all the Shares held by Tianjin Investment and Tsinlien Venture.

As at the Latest Practicable Date, Mr. Wang Guanghao, Dr. Ren Xuefeng, Dr. Zhang Hongru and Mr. Nie Jiansheng are directors of Tsinlien.

(b) Interests in other members of the Group

				Approximate
				percentage of
Name of subsidiary of the Company	Name of the	other	shareholders shareholding
Coastal Rapid Transit Company Limited	Starwell Holdings Limited			22.00%
Tianjin Jin Zheng Transportation Development	Tianjin Eastern Outer Ring Road Co., Ltd. 16.07%
Co., Ltd.
Tianjin Mass Transit Development 5 Co., Ltd.	Tianjin Economic and Technological 40.00%
	Development Investment Co., Ltd.
Tianjin Mass Transit Development 2 Co., Ltd.	Tianjin Economic and Technological 40.00%
	Development Investment Co., Ltd.
Tianjin Mass Transit Development 4 Co., Ltd.	Tianjin Economic and Technological 40.00%
	Development Investment Co., Ltd.
Tianjin Mass Transit (Group) Development Co.,	Tianjin Economic and Technological 40.00%
Ltd.	Development Investment Co., Ltd.
Tianjin Mass Transit Development 3 Co., Ltd.	Tianjin Economic and Technological 40.00%
(Tianjin Port	Development Investment Co., Ltd. 10.00%
Tax Concession Zone Chang Hao	(Tianjin Port Tax		Concession	Zone Sheng
International Trade Co., Ltd.*)	Di Er Co., Ltd.*)

– 171 –

GENERAL INFORMATION

APPENDIX V

Name of subsidiary of the Company
Tianjin Gangkai Container Service Co., Ltd.
Tianjin Tai Kang Industrial Co., Ltd.
Tianjin Airfreight Port Equipment
Manufacturing Company Limited
(Tianjin Lianfa
Property Management Co., Ltd.*)
Tianjin Gangjin Real Estate Development Co.,
Ltd.
(Tianjin Gangxin
Container Logistics Co., Ltd.)
(Tianjin Gangshi
Container Services Co., Ltd.)

Name of the other shareholders
Approximate
percentage of
shareholding
(Hong Kong Sun Hoi Enterprise Company
Limited)
25.00%
Tianjin Tai Xin Industrial Co., Ltd.
17.26%
(1)
Tianjin Tai Sing Industrial Co., Ltd.
10.06%
(2)
Tianjin
Kang
Sing
Steel
Equipment
Engineering Co., Ltd.
10.26%
(3)
Civil Aviation University of China
10.48%
(Tianjin Lianjin
Investment Co., Ltd.*)
10.00%
Tianjin Eastern Outer Ring Road Co., Ltd.
16.07%
Gold Prime Holdings
Limited(
)
25%
(1)
Singapore
Pacific
Shipping
Company
Limited (
)
25%
(2)
Sinotrans Container Shipping Company
Limited (
)
20%

English names of the PRC incorporated companies in this circular are only direct translations of their respective official Chinese names. In case of inconsistency, the Chinese names shall prevail.

Save as disclosed above, as at the Latest Practicable Date, the Directors and chief executive of the Company were not aware of any other person (other than Directors and chief executive of the Company) who had, or were deemed to have, interests or short positions in the shares and underlying shares (including any interests in options in respect of such capital), which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or had any option in respect of such capital.

5. MATERIAL CONTRACTS

The following contracts (not being contracts in the ordinary course of business) have been entered into by the Company or any of its subsidiaries within the two years immediately preceding the Latest Practicable Date and are or may be material:

(a) a share transfer agreement dated 30 July 2004 entered into between Tianjin Heavenly Palace Winery Co., Ltd. ( ) as seller and the Company as purchaser in respect of the acquisition of a 62% shareholding in Dynasty Fine Wines Group Limited (“Dynasty”) at nil consideration;
(b) the conditional sale and purchase agreement dated 20 September 2004 entered into between the Company as purchaser and Tsinlien as vendor in respect of the acquisition of Tianjin TEDA Tsinlien Electric Power Company Limited ( ) and Tianjin TEDA Tsinlien Water Supply Company Limited ( ) for a consideration of HK$783,580,000;

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(c) a share transfer agreement dated 20 November 2004 entered into between the Company as vendor and Grand Spirit Holdings Limited (“Grand Spirit”) as purchaser in respect of the acquisition of a 62% shareholding in Dynasty in consideration of Grand Spirit allotting and issuing 62 ordinary shares in Grand Spirit to the Company;
(d) a share transfer agreement dated 20 November 2004 entered into between Remy Pacifique Limited (“Remy Pacifique”) as vendor and Grand Spirit as purchaser in respect of the acquisition of a 33% shareholding in Dynasty in consideration of Grand Spirit allotting and issuing 33 ordinary shares in Grand Spirit to Remy Pacifique;
(e) a share transfer agreement dated 20 November 2004 entered into between Inttra Limited (“Inttra”) as vendor and Grand Spirit as purchaser in respect of the acquisition of a 5% shareholding in Dynasty in consideration of Grand Spirit allotting and issuing 5 ordinary shares in Grand Spirit to Inttra;
(f) a capital injection agreement dated 22 December 2004 entered into between, Tianjin Tai Kang Industrial Co., Ltd. ( )(“Tai Kang”), Tianjin Xin Hao Investment Development Limited ( ), Tianjin Hua Ze Group Limited ( ) and Tianjin Tian Fa Heavy Electric Equipment Manufacturing Limited ( ) (“Tian Fa”) in respect of the capital injection made by Tai Kang in the amount of RMB40,000,000 in Tian Fa, representing approximately 36.4% of the registered capital of Tian Fa;
(g) a share transfer agreement dated 10 January 2005 entered into between the Company as vendor and Dynasty as purchaser in respect of the acquisition of the entire issued share capital and the shareholder’s loan of Smiling East Resources Limited at a consideration of HK$47,000,000;
(h) a sale and purchase agreement dated 13 January 2005 entered into between the Company, Remy Pacifique and Inttra as vendors and Dynasty as purchaser in respect of the acquisition of the entire issue share capital of Grand Spirit in consideration of the allotment and issue 557,999,938 shares in Dynasty, 296,999,967 shares in Dynasty and 44,999,995 shares in Dynasty to Famous Ever Group Limited, Remy Pacifique and Inttra respectively;
(i) an equity interest transfer agreement dated 12 September 2005 entered into between the Company as vendor and Shinesun Investments as purchaser in respect of the transfer of the entire equity interest in Tianjin Second Stevedoring to Shinesun Investments in consideration of Shinesun Investments allotting and issuing 99 ordinary shares to the Company;

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APPENDIX V

(j) an equity interest transfer agreement dated 12 September 2005 entered into between the Company as vendor and Ace Advantage as purchaser in respect of the transfer of the entire equity interest in Tianjin Container to Ace Advantage in consideration of Ace Advantage allotting and issuing 99 ordinary shares to the Company;
(k) an equity interest transfer agreement dated 28 September 2005 entered into between Tianjin Second Stevedoring as vendor and Tianjin Port Tax Concession Zone Lianda Service Centre ( ) as purchaser in respect of the transfer of a 42.5% equity interest in Tianjin Ally Thrive International Trade Transportation Co. Ltd. ( );
(l) a placing and subscription agreement dated 12 December 2005 entered into between the Company as guarantor, Risenation Limited as issuer, ABN AMRO Bank N.V. Hong Kong Branch and N M Rothschild & Sons (Hong Kong) Limited (each trading as ABN AMRO Rothschild) as placing agent and ABN AMRO Bank N.V., London Branch as subscriber in relation to issue of zero coupon guaranteed convertible bonds due 2008 with an aggregate principal amount of HK$400 million;
(m) an investment injection and transfer of equity interests agreement dated 21 December 2005 entered into between with Tai Kang, Tianjin Benefo TeJing Electric Company Limited ( ) (“TeJing”), Zhang Zhi Hai, Xing Shu An, Tianjin Switchgear Factory ( ) and Tianjin BaiLiTianKai Electrical Equipment Company Limited ( ) (“Tian Kai”) pursuant to which (1) TeJing and Tai Kang agreed to pay
RMB52,000,000 to the registered capital and capital reserve of Tian Kai and (2) Tianjin Factory transferred a 5% equity interest in Tian Kai to TeJing at a consideration of RMB783,500 in order to subscribe for 61.76% and 29.56% equity interests of the enlarged registered capital of Tian Kai by TeJing and Tai Kang, respectively; and
(n) a conditional sale and purchase agreement dated 10 January 2006 entered into between the Company, Tsinlien and Progress City Group Limited, a wholly-owned subsidiary of Tsinlien (“Progress City”), pursuant to which the Company conditionally agreed to acquire, or procure its designated wholly-owned subsidiary to acquire, Progress City conditionally agreed to sell, and Tsinlien conditionally agreed to procure Progress City to sell, an approximately 90.9421% equity interest in Tianjin TEDA Tsinlien Heat & Power Co., Ltd ( ) at a consideration of HK$380 million.

Save as disclosed above, no member of the Group has entered into any contracts, not being contracts entered into in the ordinary course of business, which are or may be material within the two years immediately preceding the Latest Practicable Date.

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APPENDIX V

6. LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation, arbitration or claim of material importance and no litigation or claim of material importance was known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries.

7. QUALIFICATION OF EXPERT

The following is the qualification of the expert who has given opinion or advice which is contained or referred to in this circular:

Qualification

Name Qualification Access Capital a licensed corporation under the SFO permitted to carry out types 1, 4, 6 and 9 regulated activities

8. EXPERT’S INTERESTS IN ASSETS

As at the Latest Practicable Date, Access Capital had no shareholding interest in any member of the Group nor the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities of any member of the Group. As at the Latest Practicable Date, Access Capital had no direct or indirect interests in any assets which had since 31 December 2005 (being the date to which the latest published audited accounts of the Group were made up) been acquired or disposed of by or leased to any member of the Group, or which are proposed to be acquired or disposed of by or leased to any member of the Group.

9. CONSENT OF EXPERT

Access Capital has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and/or reference to its name included in this circular in the form and context in which it appears.

10. PROCEDURES FOR DEMANDING A POLL BY SHAREHOLDERS

Pursuant to Article 73 of the articles of association of the Company, a resolution put to the vote of a meeting shall be decided on a show of hands unless a poll is taken as may from time to time be required under the Listing Rules or unless a poll is (before or on the declaration of the results of the show of hands) demanded:

(a) by the Chairman; or
(b) by at least three members present in person or in the case of a member being a corporation by its duly authorised representative or by proxy for the time being entitled to vote at the meeting; or

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APPENDIX V

(c) by any member or members present in person or in the case of a member being a corporation by its duly authorized representative or by proxy and representing not less than 10% of the total voting rights of all members having the right to vote at the meeting; or
(d) by any member or members present in person or in the case of a member being a corporation by its duly authorised representative or by proxy and holding Shares conferring a right to vote at the meeting being Shares on which an aggregate sum has been paid up equal to not less than 10% of the total sum paid up on all the shares conferring that right.

A demand by a person as proxy for a member or in the case of a member being a corporation by its duly authorised representative shall be deemed to be the same as a demand by a member.

11. GENERAL

(a) The registered office of the Company is situated at Suites 7-13, 36/F., China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong.
(b) The company secretary and qualified accountant of the Company is Mr. Tsang Wai Yip, Patrick, who holds a bachelor degree in accountancy and is a fellow member of both the Association of Chartered Certified Accountants and the Hong Kong Institute of Certified Public Accountants.
(c) The share registrar of the Company is Tengis Limited at 26/F., Tesbury Centre, 28 Queen’s Road East, Hong Kong whose address is the address of the transfer office of the Company.
(d) The English text of this circular shall prevail over the Chinese text.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the office of Messrs. Woo, Kwan, Lee & Lo at 27th Floor, Jardine House, 1 Connaught Place, Central, Hong Kong during normal business hours on any weekday, except public holidays, from the date of this circular up to and including 8 May 2006:

(a) the memorandum and articles of association of the Company;
(b) the audited consolidated accounts of the Group for the financial year ended 31 December 2004;
(c) a summary of the audited financial results of the Group for the year ended 31 December 2005, comprising the audited consolidated income statement and balance sheet of the Group as at 31 December 2005 and the notes thereto, the text of which is set out on pages 136 to 152 of this circular;

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APPENDIX V

(d) the letter from the Independent Board Committee to the Independent Shareholders dated 22 April 2006, the text of which is set out on page 44 of this circular;
(e) the letter from Access Capital to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 45 to 77 of this circular;
(f) the letter of consent from Access Capital referred to in the paragraph headed “Consent of Expert” referred to in this appendix;
(g) a discloseable and connected transaction circular dated 4 February 2006 in relation to, among other things, the acquisition of approximately 90.9421% interest in Tianjin TEDA Tsinlien Heat & Power Co., Ltd.; and
(h) the material contracts referred to in the section headed “Material Contracts” in this appendix.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

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==> picture [185 x 42] intentionally omitted <==

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

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Tianjin Development Holdings Limited (the “ Company ”) will be held at Kennedy Room, 7/F., Conrad Hotel, 88 Queensway, Hong Kong on 8 May 2006 at 9:30 a.m. for the purpose of considering and, if thought fit, passing (with or without modifications) the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

“ THAT :
(a) conditional on Resolution No. 2 below being approved by the independent shareholders of the Company:
- (i) the agreements to be entered into between (1) Tianjin Container Terminal Co., Limited (“Tianjin Container”), Tianjin Port (Group) Co., Limited (“Tianjin Port Group”) and Bureau of Land Resources and Housing Management of the Municipality of Tianjin ( ) (the “Tianjin Land Bureau”) and (2) Tianjin Harbour
- Second Stevedoring Co., Ltd. (“Tianjin Second Stevedoring”), Tianjin Port Group and the Tianjin Land Bureau in relation to the acquisition of the land use rights, berths, railways and warehouses located at the port of Tianjin (the “Properties”), copies of which have been produced to the meeting and for the purpose of identification signed by the chairman of the meeting as “A”;
- (ii) the agreement to be entered into between Tianjin Container and Tianjin Port Group in relation to the acquisition of certain equipment (including 2 portainers and 1 transtainer) (the “Port Equipment”), a copy of which has been produced to the meeting and for the purpose of identification signed by the chairman of the meeting as “B”, (collectively, the “Sale and Purchase Agreements”);
- (iii) the deed of termination in relation to the termination of certain pre-emptive rights and options to be entered into between the Company and Tianjin Port Group, a copy of which has been produced to the meeting and for the purpose of identification signed by the chairman of the meeting marked as “C” (the “Deed of Termination on Pre-emptive Rights”); and
- (iv) the agreements entered/to be entered into between Tianjin Container and/or Tianjin Second Stevedoring and Tianjin Port Group in relation to the termination of (i) the agreements for the leasing of the Properties and the Port Equipment and (ii) the agreements for the provision of

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NOTICE OF EXTRAORDINARY GENERAL MEETING

services in connection with the collection of port administration fee, provision of container reconfiguration storage, provision of supporting and auxiliary services and provision of inventory management and materials supplies, all of which were entered into in 1997 and as may be subsequently amended or supplemented, copies of which have been produced to the meeting and for the purpose of identification signed by the chairman of the meeting as “D”, (collectively, the “Termination Agreements”),

and all transactions contemplated under each of the Sale and Purchase Agreements, the Deed of Termination on Pre-emptive Rights and the Termination Agreements and any further agreement or documents in connection therewith be and are hereby approved, confirmed and ratified; and

(b) any one director of the Company, or any two directors of the Company if the affixing of the common seal is necessary, be and is/are hereby authorised to do all such acts and things, to confirm and ratify, to sign and execute the Sale and Purchase Agreements, the Deed of Termination on Pre-emptive Rights and the Termination Agreements and any further agreement(s) or document(s) in connection therewith, to enter into all such other documents, deeds, instruments and agreements and to take such steps as he/they may consider necessary, appropriate, desirable or expedient to give effect to or in connection with any of the Sale and Purchase Agreements, the Deed of Termination on Pre-emptive Rights and the Termination Agreements and any further agreement(s) or document(s) as mentioned in paragraph (a) above or any of the transactions contemplated therein and all other matters incidental thereto.”
“ THAT conditional on Resolution No. 1 above being approved by the independent shareholders of the Company, (i) the spin-off of Tianjin Port Container Terminal Co., Limited (“Tianjin Container”) and Tianjin Harbour Second Stevedoring Co., Ltd. (“Tianjin Second Stevedoring”) and their subsidiaries and associated companies and the separate listing of the shares of Tianjin Port Development Holdings Limited (“Tianjin Port Development”) (the “Spin-off”), which constitutes a material dilution (for the purposes of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules” and the “Stock Exchange” respectively)) of the interest of Tianjin Development Holdings Limited (the “Company”) in Tianjin Port Development, its subsidiaries and associated companies and a possible major transaction (for the purposes of the Listing Rules), subject to and conditional upon (among other things): (a) the approval by the independent shareholders of the Company; (b) the listing committee of the Stock Exchange granting approval for the Spin-off and/or the listing of, and permission to deal in, all the shares of Tianjin Port Development (“Tianjin Port Development Shares”) in issue and to be issued in connection with the Spin-off and any Tianjin Port Development Shares which may be issued pursuant to the exercise of options to be granted under the share option scheme of Tianjin Port Development; and (c) the obligations of the underwriters under the

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NOTICE OF EXTRAORDINARY GENERAL MEETING

underwriting agreement(s) in respect of the Spin-off becoming unconditional (including, if relevant, as a result of the waiver of any condition(s) by, or on behalf of, the underwriters) and not being terminated in accordance with the respective terms of such agreements or otherwise, (ii) the reorganisation (the “Reorganisation”) mentioned in the circular of the Company dated 22 April 2006, be and are hereby approved and the board of directors of the Company (the “Board”) be and is hereby authorised on behalf of the Company to approve and implement the Spin-off including, without limitation, the Reorganisation and to do all such acts, to enter into all such agreements, transactions and arrangements and to take all such actions in connection therewith or arising therefrom relating to the Spin-off including, without limitation, the Reorganisation as the Board may consider necessary or expedient in order to give effect to the Spin-off, including without limitation, the Reorganisation.”

“ THAT the share option scheme of Tianjin Port Development (the “Share Option Scheme”), the terms of which are contained in the document marked as “E” and a summary of which is set out in the circular of the Company dated 22 April 2006 contained in the document marked as “F” 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 (among other things): (a) the passing of an ordinary resolution approving the adoption of the Share Option Scheme by the shareholder(s) of Tianjin Port Development; (b) the approval of the Share Option Scheme by the shareholders of the Company; (c) the listing committee of the Stock Exchange granting approval of the listing of, and permission to deal in, the shares of Tianjin Port Development 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 Tianjin Port Development on the Stock Exchange; and (e) the obligations of the underwriters under the underwriting agreements 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 respective terms of such agreements or otherwise, be and is 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 arrangement(s) as may be necessary or expedient in order to give effect to the Share Options Scheme.”
“ THAT Mr. Zhang Wenli be and is hereby re-elected as an executive director of the Company.”

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

Hong Kong 22 April 2006

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NOTICE OF EXTRAORDINARY GENERAL MEETING

Registered Office: Suites 7-13, 36/F., China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong

Notes:

(1) Any member entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and, on a poll, to vote instead of him. A proxy need not be a member of the Company.
(2) Where there are joint registered holders of any share, any one of such persons may vote at the meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such joint holders is present at the meeting personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company shall, in respect of such share, be entitled alone to vote in respect thereof.
(3) A form of proxy for use at the meeting is enclosed with the circular to shareholders of the Company.
(4) 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.
(5) To be valid, the form of proxy, together with the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of such power of attorney or authority, must be deposited at the share registrar of the Company, Tengis Limited at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for the holding of the meeting (or any adjournment thereof, as the case may be).
(6) Completion and return of the form of proxy will not preclude a member from attending and voting in person at the meeting. If such member attends the meeting, his form of proxy will be deemed to have been revoked.
(7) The translation into Chinese language of this notice is for reference only. In case of any inconsistency, the English version shall prevail.

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AI assistant

Leadway Technology Investment Group Limited — Proxy Solicitation & Information Statement 2006

50365_rns_2006-04-24_b20a4d2a-9855-4775-a221-2658f936373b.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

Financial adviser to Tianjin Development Holdings Limited

EXPECTED TIMETABLE

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

To Shareholders

INTRODUCTION

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Re-election of the Retiring Director

THE REORGANISATION

(1) The Reorganisation

(2) Business Allocation Undertakings and Terminations

(a) Background

(b) Business Allocation Undertakings

LETTER FROM THE BOARD

(ii) Various measures in developing direct relationships with its customers

(iii) Improvement in operational efficiency, capacity and service quality

(iv) It has not been necessary or feasible to enforce Business Allocation Undertakings historically

LETTER FROM THE BOARD

(v) Results of Tianjin Port Development not affected

(c) Terminations

1. Historical Agreements

2. Pre-emptive Rights

LETTER FROM THE BOARD

(3) Corporate Structure

THE PROPOSED SPIN-OFF

(1) The Proposed Spin-off

(2) Separate Listing of Tianjin Port Development Shares

LETTER FROM THE BOARD

(3) Business of the Tianjin Port Development Group

LETTER FROM THE BOARD

(4) Compliance with PN15

Independence of directorship and management

LETTER FROM THE BOARD

Delineation of business

Independent and financial viability

Independent administrative capacity

(5) Intended use of proceeds

(6) Reasons for and benefits of the Proposed Spin-off

(7) Effects of the Proposed Spin-off

(iii) Hong Kong taxation and stamp duty

(iv) General

(8) Listing Rules Implications

THE PREFERENTIAL OFFER

THE ACQUISITION

The Properties

The Port Equipment

Consideration

The Properties

LETTER FROM THE BOARD

The Port Equipment

Reasons for the Acquisition

Listing Rules Implications

CONTINUING CONNECTED TRANSACTIONS

Fee Collection Services

Listing Rules Implications

Water Supply Services

Communications Services

Electricity Supply Services

LETTER FROM THE BOARD

Reasons for the Continuing Connected Transactions

Listing Rules Implications

SHARE OPTION SCHEME

RE-ELECTION OF THE RETIRING DIRECTOR

CLOSURE OF REGISTER OF MEMBERS

FINANCIAL EFFECTS OF THE PROPOSED SPIN-OFF AND THE ACQUISITION

Net Assets

Earnings

Leadway Technology Investment Group Limited Proxy Solicitation & Information Statement 2006