Long Investment Corp - Proxy Solicitation & Information Statement 2004

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your 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 Shui On Construction and Materials Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

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

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(Incorporated in Bermuda with limited liability)
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INVESTMENT IN SHUI ON LAND LIMITED

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTIONS

Independent Financial Adviser to the Independent Board Committee

A letter from the Independent Board Committee is set out on page 30 of this circular. A letter from BNP Paribas Peregrine Capital Limited, the independent financial adviser to the Independent Board Committee is set out on pages 31 to 44 of this circular.

A notice convening a special general meeting of Shui On Construction and Materials Limited to be held at Room 103, 1/F Shui On Centre, 6-8 Harbour Road, Wanchai, Hong Kong, 2:30 p.m. on 15 April 2004 is set out on pages 228 to 231 at the end of this circular. Whether or not you are able to attend the meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the Company’s registrars in Hong Kong, Standard Registrars Limited at 28th Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for the holding of the special general meeting or any adjournments thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjourned meetings should you so wish.

* For identification purpose only

23 March 2004

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31
Appendix I — Financial Information on the Group . . . . . . . . . . . . . . . . . . . . . . . . .	45
Appendix II — Accountants’ Report on Rainbow City . . . . . . . . . . . . . . . . . . . . . . . .	116
Appendix III — Accountants’ Report on Taipingqiao Properties . . . . . . . . . . . . . . . . .	133
Appendix IV — Proforma Combined Financial Information on Rainbow City and
Taipingqiao Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	170
Appendix V — Valuation Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	176
Appendix VI — General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	220
Notice of Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	228

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DEFINITIONS

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

“Agreements”	the Rainbow Sale and Purchase Agreement, the Taipingqiao
	Sale and Purchase Agreement, and the Subscription and
	Shareholders’ Agreement
“Assets Injection”	the transfer of the shares and related indebtedness of the
	Contributed Companies and their underlying assets into SOL
	under the Rainbow Sale and Purchase Agreement and the
	Taipingqiao Sale and Purchase Agreement
“associates”	has the meaning as ascribed to the term under the Listing
	Rules
“BNP Paribas Peregrine”	BNP Paribas Peregrine Capital Limited, a corporation deemed
	licensed to conduct type 1 (dealing in securities) and type 6
	(advising on corporate finance) regulated activities under the
	SFO
“Board”	the board of Directors
“Cash Injection”	the cash subscription for 50 million Junior Preference Shares
	by NRI Limited under the Subscription and Shareholders’
	Agreement
“Company”	Shui On Construction and Materials Limited, a company
	incorporated in Bermuda and listed on the main board of the
	Stock Exchange
“Contributed Companies”	Foresight Profits Limited and the Taipingqiao Holding
	Vehicles
“Debt”	all amounts which Hollyfield Holdings Limited, a wholly-
	owned subsidiary of Foresight Profits Limited, owes to the
	Company immediately before completion of the Rainbow Sale
	and Purchase Agreement (note: as at 31 January 2004:
	HK$763 million)
“Director(s)”	the director(s) of the Company
“Group”	the Company and its subsidiaries
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the People’s
	Republic of China

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DEFINITIONS

“Independent Board Committee” an independent committee of the Board comprising Mr. Anthony Griffiths and Professor Michael John Enright, both of whom are independent non-executive directors of the Company
“IFA” BNP Paribas Peregrine, the independent financial adviser to the Independent Board Committee
“Independent Shareholders” shareholders of the Company other than members of the Shui On Group and its associates
“Independent Valuer” Chesterton Petty Ltd. “Investors” Ergo Tru Asia Limited, Metro Holdings Limited, Citicorp International Finance Corporation, Ocean Equity Holdings Limited, Value Partners Funds, Standard Chartered Bank, Shanghai Hotel Investments Limited, Jebsen and Company Limited and each of their Permitted Nominees
“IPO” an initial public offering of the shares in the capital of SOL and the consequential listing of such shares on an internationally recognized stock exchange
“Junior Preference Shares” junior convertible redeemable participating preference shares of US$0.01 each (about HK$0.078) in the share capital of SOL having the rights and benefits and being subject to the restrictions set out in the New Articles of Association
“Latest Practicable Date” 19 March 2004, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“New Articles of Association” the articles of association setting out, among other things, the rights of the Preference Shares to be adopted by SOL before the first closing of the Subscription and Shareholders’ Agreement
“NRI Limited” New Rainbow Investments Limited, a company established in the British Virgin Islands and a wholly owned subsidiary of the Company
“Ordinary Shares” ordinary shares of par value US$0.01 each (about HK$0.078) in the share capital of SOL

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DEFINITIONS

“Permitted Nominees”	nominees which may be appointed by Ergo Tru Asia Limited,
	Metro Holdings Limited, Citicorp International Finance
	Corporation, Ocean Equity Holdings Limited, Value Partners
	Funds, Standard Chartered Bank, Shanghai Hotel Investments
	Limited or Jebsen and Company Limited to take up the
	Preference Shares under the Subscription and Shareholders’
	Agreement, which include their affiliates
“PRC”	the People’s Republic of China, and for the purpose of this
	announcement, excluding Hong Kong, the Macau Special
	Administrative Region and Taiwan
“Preference Shares”	Junior Preference Shares and Senior Preference Shares
“Qualifying IPO”	an IPO at a minimum market capitalisation set out in the New
	Articles of Association
“Rainbow City”	the residential housing development project, also known as
	“Rui Hong Xin Cheng ”, located in Hongkou District,
	Shanghai comprising the land parcels identified as Hongkou
	District Lots 11 and 174 (merged and designated as Lot 149),
	South of Lot 1, North of Lot 1, Lot 2, Lot 3, Lot 4, Lot 6, Lot
	7, Lot 8, East of Lot 9, West of Lot 9 and Lot 10, respectively
“Rainbow Sale and Purchase	the sale and purchase agreement dated 18 February 2004
Agreement”	relating to the sale of shares of Foresight Profits Limited and
	the Debt entered into between the Company and SOL
“Senior Preference Shares”	senior convertible redeemable participating preference shares
	of US$0.01 each (about HK$0.078) in the share capital of
	SOL having the rights and benefits and being subject to the
	restrictions set out in the New Articles of Association
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
“SGM”	Special General Meeting to be convened by the Company to
	consider, among other things, the Rainbow Sale and Purchase
	Agreement and the Cash Injection
“Shanghai Xintiandi”	the retail, commercial and ancillary residential developments
	located within the Taipingqiao Area on the land parcels
	identified as Luwan District Lot Nos. 109-1, 109-2, 112-1 and
	112-2
“Share Capital”	the share capital of SOL, comprising the Ordinary Shares and
	the Preference Shares

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DEFINITIONS

“Shareholder(s)”	holder(s) of shares of par value HK$1.00 each in the issued
	share capital of the Company
“Shui On Company”	Shui On Company Limited, the controlling shareholder
	interested in approximately 68.52% of the issued share capital
	of the Company
“Shui On Group”	Shui On Company and its subsidiaries but excluding the
	Company and its subsidiaries
“Shui On Investment”	Shui On Investment Company Limited, a wholly owned
	subsidiary of Shui On Company
“Shui On Properties”	Shui On Properties Limited, a wholly owned subsidiary of the
	Shui On Group
“SOL”	Shui On Land Limited, a company incorporated in the
	Cayman Islands and wholly owned by the Shui On Group
	immediately prior to the completion of the Agreements
“SOL Group”	SOL and the Contributed Companies
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscription and Shareholders’	the subscription and shareholders’ agreement dated 18
Agreement”	February 2004 relating to the subscription of the Preference
	Shares and the operations of SOL entered into by SOL, NRI
	Limited, the Investors, Shui On Investment, Shui On
	Properties, Shui On Company and the Company
“Taipingqiao Area”	an area of about 360,000 square metres in the Luwan District
	in the city centre of Shanghai which is bounded by Xingan Lu
	on the north, Hefei Lu on the south, Xizang Lu on the East
	and Madong Lu on the west
“Taipingqiao Holding Vehicles”	Marble Way Limited, Timezone Management Limited, Global
	Ocean Investments Limited, Modern Prosper Investments
	Limited, Keen Allied Investments Limited, Excel Efficient
	Limited, Sinothink Holdings Limited, Infoshore International
	Limited, Interchina International Limited, Billion World
	Limited and Portspin Limited
“Taipingqiao Interest”	The interest of the Shui On Group over Lot Nos. 115, 116,
	119, 120, 123, 125 and 132 in the Taipingqiao Area pursuant
	to an agreement dated 31 December 1996 and executed by
	Shui On Properties Limited, a subsidiary of the Shui On
	Group, and the Luwan District People’s Government of
	Shanghai relating to the redevelopment of the Taipingqiao
	Area

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DEFINITIONS

“Taipingqiao Properties”	The projects in Taipingqiao Area which comprise: (1) the
	following completed projects (a) Shanghai Xintiandi; (b) the
	residential project at Lot 117; and (c) the commercial project
	comprising predominately offices at Lot 110; (2) the
	residential project under construction at Lot 114; (3) the
	residential project at Lot 113 which is undergoing site
	clearance; and (4) the projects at Lot Nos. 118, 122/1 & 2,
	122/3, 124, 126 and 127 which are under planning and in
	respect of which neither site clearance works nor construction
	works have currently commenced
“Taipingqiao Sale and	the sale and purchase agreement dated 18 February 2004
Purchase Agreement”	relating to the sale of shares in and related indebtedness of the
	Taipingqiao Holding Vehicles entered into by Shui On
	Investment, SOL and Shui On Company
“Transactions”	transactions contemplated under the Agreements
“Value Partners Funds”	the various funds managed by Value Partners Limited

Conversion of RMB to HK$ is based on the exchange rate of RMB1.06 = HK$1.00 Conversion of US$ to HK$ is based on the exchange rate of US$1.00 = HK$7.80

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LETTER FROM THE BOARD

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(Incorporated in Bermuda with limited liability)

Executive Directors:

Mr. LO Hong Sui, Vincent (Chairman)

Mr. WONG Ying Wai, Wilfred

Mr. WONG Yuet Leung, Frankie

Mr. CHOI Yuk Keung, Lawrence

Mr. WONG Hak Wood, Louis

Registered Office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Mr. WONG Fook Lam, Raymond Mrs. LOWE Hoh Wai Wan, Vivien

Independent Non-Executive Directors:

Mr. GRIFFITHS Anthony Professor ENRIGHT Michael John

23 March 2004

To the Shareholders

Dear Sir/Madam,

INVESTMENT IN SHUI ON LAND LIMITED

Very Substantial Acquisition and Connected Transactions

INTRODUCTION

The Directors announced on 23 February 2004 that the Group has entered into the Rainbow Sale and Purchase Agreement and the Subscription and Shareholders’ Agreement on 18 February 2004. The Rainbow Sale and Purchase Agreement and the Subscription and Shareholders’ Agreement are both conditional on, among other things, the completion of the Taipingqiao Sale and Purchase Agreement and are expected to be completed and to close at the same time after the completion of the Taipingqiao Sale and Purchase Agreement. The Taipingqiao Sale and Purchase Agreement was also executed by the relevant parties on 18 February 2004.

The purpose of this circular is to provide the Shareholders with further information of the Agreements and the transactions contemplated thereunder. Since the Securities and Futures (Clearing Houses) Ordinance of Hong Kong was repealed by the SFO on 1 April 2003, the Directors would also like to propose certain amendments to the bye-laws of the Company in order to reflect such changes

For identification purpose only

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LETTER FROM THE BOARD

in applicable laws in Bermuda and Hong Kong. This circular will give the Shareholders notice of the SGM at which (a) ordinary resolutions will be proposed to approve the Rainbow Sale and Purchase Agreement and the Cash Injection under the Subscription and Shareholders’ Agreement and (b) special resolutions will be proposed to approve the amendments to the bye-laws of the Company.

THE RAINBOW SALE AND PURCHASE AGREEMENT DATED 18 FEBRUARY 2004

Parties

(1) the Company as the vendor; and
(2) SOL (a wholly-owned subsidiary of the Shui On Group) as the purchaser.

Assets Involved

The Company will sell to SOL the entire issued share capital of Foresight Profits Limited and the benefit of the Debt for an initial consideration (subject to adjustment) of US$130 million (about HK$1,014 million) to be satisfied by the allotment and issue of 130 million Ordinary Shares in SOL credited as fully paid at the value of US$1.00 each to NRI Limited, a wholly owned subsidiary of the Company on completion. Details of the adjustments to the initial consideration are set out in the section headed “Consideration” below. Foresight Profits Limited is the holding company of Hollyfield Holdings Limited, which in turn holds 99% of the equity interest in Shanghai Rui Hong Xin Cheng Company Limited ( ), a sino foreign joint venture established in the PRC, the sole asset of which is its investment in Rainbow City.

Rainbow City, also known as “Rui Hong Xin Cheng ”, is a residential housing development project in Shanghai, covering a site area of about 354,000 square metres. Construction of the current development phase located in Lot Nos. 11 and 174 with a site area of about 45,000 square metres and a buildable floor area of about 200,000 square metres is well underway. In addition, site clearance works for Lot 4 with a site area of about 19,000 square metres have commenced.

The Group has obtained land use rights for all the land in Rainbow City. However, except for Lot Nos. 11 and 174 mentioned above and for Lot 4 for which the site clearance works have commenced, the land is still to be cleared for development.

When the entire Rainbow City development is completed and in full operation, there will be an urban community with approximately 1,200,000 square metres of residential space and approximately 210,000 square metres of ancillary commercial and shopping facilities. The Group’s total investment in Rainbow City (i.e. the net asset value of Rainbow City) as at 30 June 2003 amounted to about RMB677 million (about HK$638.68 million). Rainbow City has not yet contributed to the profit of the Group but pre-sale of the first stage of the current development phase, comprising seven blocks of residential apartments, has already been launched in October 2003. 815 residential apartments out of 816 such apartments have been sold for a total sum of about HK$680 million. These seven blocks

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LETTER FROM THE BOARD

(comprising the aforesaid 816 units) are expected to be completed in about March 2004. The remainder of the current development phase comprises six blocks (comprising 945 units) of residential apartments, and they are expected to be completed in phases in about April 2005 and October 2006, respectively.

Consideration

The initial consideration of US$130 million (about HK$1,014 million) payable by SOL to the Company (which will be satisfied by the allotment and issue of 130 million Ordinary Shares in SOL credited as fully paid at the value of US$1.00 each to NRI Limited) was arrived at after arm’s length negotiations among the Company, Shui On Company and the Investors with reference primarily to (a) the valuation of Rainbow City by the Independent Valuer as at 31 December 2003; (b) the Group’s total investment in Rainbow City of about RMB677 million in aggregate (about HK$638.68 million) as at 30 June 2003 and (c) the projected cash flow of Rainbow City discounted at various rates of return agreed among the relevant parties. Such consideration is subject to the following adjustments:

(1) the consideration will be adjusted if the Group’s audited total investment in Rainbow City upon completion of the agreement is different from RMB677 million (about HK$638.68 million). Any shortfall or excess will be settled in cash within 14 days of the determination of the adjustment; and
(2) a bonus consideration of up to US$8.8 million (about HK$68.64 million) (subject to adjustment) will be paid to the Company if certain agreed performance targets in respect of the sale of the remaining six blocks of residential units in the second stage of the development over Lot Nos. 11 and 174 in Rainbow City are achieved by the due dates as set out in the agreement. The bonus consideration will be satisfied by the issue and allotment of additional Ordinary Shares credited as fully paid at the value of US$1.00 each to NRI Limited at the direction of the Company. It will be adjusted if a Qualifying IPO occurs before the due date for achieving the agreed performance targets.

The total consideration payable to the Company by way of an allotment of Ordinary Shares excluding any adjustment in relation to a Qualifying IPO mentioned in sub-paragraph (2) above may amount to US$138.8 million (about HK$1,082.64 million) and accordingly, up to 138.8 million Ordinary Shares may be issued to NRI Limited. The Group has, since 30 June 2003, made further investment into Rainbow City of about HK$120 million as at 30 September 2003. Accordingly, a refund of at least about HK$120 million cash will be made to the Company under the adjustment in sub-paragraph (1) above. Further details on SOL and the shareholding of the Group in SOL on completion of the Rainbow Sale and Purchase Agreement are set out in the sections headed “Effect of the Transactions on the Share Capital and Shareholding Structure of SOL”, “Further Information on SOL”, “Impact on the Group and Reasons for the Transactions” and “Relationship between the Company and SOL” below.

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LETTER FROM THE BOARD

Conditions

The sale and purchase of the share capital of Foresight Profits Limited and the Debt is conditional on, among other things:

(1) the approval by the Shareholders in the SGM of the execution of the Rainbow Sale and Purchase Agreement and the transactions contemplated thereunder;
(2) the fulfillment of the conditions of the Subscription and Shareholders’ Agreement as detailed below (excluding the condition relating to the approval of the Cash Injection by the Shareholders);
(3) the completion of the Taipingqiao Sale and Purchase Agreement;
(4) the warranties given by the Company in the Rainbow Sale and Purchase Agreement remaining true and accurate;
(5) the Company having caused the delivery of PRC legal opinion on, among other things, the title of Rainbow City, to SOL in a form as approved by the Company and SOL;
(6) all necessary consents for the sale and purchase of shares in Foresight Profits Limited being granted by the banks pursuant to the banking facilities of Foresight Profits Limited and its subsidiaries; and
(7) all necessary consents being granted by third parties (including any governmental, regulatory or official authorities in the PRC or elsewhere) and no statute, regulation or decision which would prohibit, restrict or materially delay the sale and purchase of the shares in Foresight Profits Limited and the Debt or the operation of any of Foresight Profits Limited or its subsidiaries after completion having been proposed, enacted or taken by any governmental or official authority.

Completion

Completion will take place on the 20th business day after all the conditions precedent to the completion of the agreement are fulfilled, or such other date as SOL and the Company may agree. In the event that any of these conditions are not fulfilled within six months from the date of this agreement (or such later date as the parties may agree), SOL shall not be bound to proceed with the purchase of the share capital of Foresight Profits Limited and the Debt. Completion will take place simultaneously with the closing of the Subscription and Shareholders’ Agreement after the completion of the Taipingqiao Sale and Purchase Agreement. On completion, the Company will execute a deed of indemnity to provide tax indemnities in favour of SOL and Foresight Profits Limited (including its subsidiaries) up to the limit as provided in the deed. The Company intends to complete the Rainbow Sale and Purchase Agreement within two months.

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LETTER FROM THE BOARD

SUBSCRIPTION AND SHAREHOLDERS’ AGREEMENT DATED 18 FEBRUARY 2004

Parties

(1) SOL as the issuer;
(2) NRI Limited and the Investors as the investors;
(3) Shui On Investment, an ordinary shareholder of SOL immediately on completion of the Taipingqiao Sale and Purchase Agreement;
(4) Shui On Properties, an ordinary shareholder of SOL immediately on completion of the Taipingqiao Sale and Purchase Agreement;
(5) Shui On Company as the warrantor in respect of, among other things, the Shui On Group’s operation relating to and interest in the Taipingqiao Properties and the operation of SOL; and
(6) the Company as the warrantor in respect of the Group’s operation relating to (and its interest in) Rainbow City.

Subscription

NRI Limited will subscribe 50 million Junior Preference Shares (i.e. the Cash Injection) and the Investors will together subscribe 170 million Junior Preference Shares and 180 million Senior Preference Shares in SOL, in each case at the subscription price of US$1.00 each (about HK$7.80) in cash. SOL will pay to each Investor and NRI Limited a pre-closing commitment fee of 0.25% over the total amount that each of them has invested or committed to invest in SOL by way of subscription of the Preference Shares under the Subscription and Shareholders’ Agreement when the Shareholders approve the Rainbow Sale and Purchase Agreement, and 0.75% over such committed amount on closing or, if closing does not occur by the date falling six months from the date of this agreement due to the wilful default of SOL and/or Shui On Company of their respective obligations in fulfilling the conditions of this agreement, within 7 days thereafter.

The consideration was arrived at after arm’s length negotiations among the parties. The amount payable by NRI Limited under the Cash Injection will be financed out of internal resources as well as unutilised banking facilities of the Group which exceed HK$700 million.

Subject to the fulfillment of the conditions precedent to the closing of the Subscription and Shareholders’ Agreement (as detailed below), NRI Limited and the Investors will subscribe the Preference Shares in stages. The initial subscription will be effected on the first closing of the agreement whereby NRI Limited will subscribe 25 million Junior Preference Shares and the Investors will together subscribe an aggregate of 85 million Junior Preference Shares and 90 million Senior Preference Shares, respectively. Thereafter, NRI Limited and the Investors will subscribe the remaining Preference Shares in accordance with the capital calls (if at all) made by SOL. Such calls shall be made on a pro rata basis amongst NRI Limited and the Investors on the terms and conditions of the Subscription and Shareholders’ Agreement from the business day following the first closing of

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LETTER FROM THE BOARD

the agreement up to the date falling 18 months thereafter unless otherwise extended for a further one year period by NRI Limited and/or the Investors, respectively. SOL will pay to each of the Investors and NRI Limited a commitment fee for any uncalled balance at the rate of 1.25% per annum during the 18-month period (and, if applicable, the further extended period) aforesaid.

Conditions to the closing of the Subscription and Shareholders’ Agreement

Closing of the Subscription and Shareholders’ Agreement is conditional on, among other things:

(1) all consents and approvals necessary for the completion of the Transactions being granted by third parties (including any governmental or regulatory authority in the PRC or elsewhere);
(2) the receipt of the consents for the Assets Injection or waivers from various lenders in connection with restrictions under the banking facilities of the Shui On Group in relation to the Assets Injection;
(3) the completion of the Taipingqiao Sale and Purchase Agreement;
(4) the warranties and due diligence disclosure made under the Agreements, respectively and any updates thereof being true and accurate;
(5) any updates to the due diligence disclosure made under the Agreements and further due diligence exercise conducted by the Investors on those additional disclosure not showing any material adverse change to the business, operations, assets or financial condition of SOL or any of the Contributed Companies;
(6) SOL having caused each of the Cayman Islands legal counsel and the PRC legal counsel to furnish to the Investors and the Company its legal opinion on, among other things, the title of Rainbow City and the Taipingqiao Properties, in a form as approved by SOL and the Investors;
(7) the approval of the Shareholders in the SGM of (i) the sale of the shares in Foresight Profits Limited and the assignment of the Debt to SOL, and (ii) the issue and allotment of the Ordinary Shares to NRI Limited as consideration therefor pursuant to the Rainbow Sale and Purchase Agreement;
(8) the conditions in the Rainbow Sale and Purchase Agreement being fulfilled;
(9) the entering into of an agreement by Shanghai Ruichen Property Company Limited (a subsidiary of the Shui On Group) and Hollyfield Holdings Limited to terminate the relinquishment agreement dated 2 May 2001 (as amended by an agreement dated 22 May 2001) which provides for, among other things, revenue sharing arrangements between Shanghai Ruichen Property Company Limited and Hollyfield Holdings Limited relating to the sale and lease of the development in Rainbow City as disclosed in the Company’s announcement dated 2 May 2001; and

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LETTER FROM THE BOARD

(10) the entering into of an agreement by Shanghai Ruichen Property Company Limited and Shanghai Rui Hong Xin Cheng Co., Ltd. to terminate the recharge agreement dated 4 February 2002 which provides for, among other things, the reimbursement to the Group by Shanghai Ruichen Property Company Limited for staff costs related to works performed for the benefit of Shanghai Ruichen Property Company Limited as disclosed in the Company’s announcement dated 4 February 2002, since the Group would no longer be required to perform any work for Shanghai Ruichen Property Company Limited.

Conditions to Cash Injection

The Cash Injection is further conditional upon the approval by the Shareholders of such cash subscription in the SGM. In the event that all the conditions precedent to the closing of the Subscription and Shareholders’ Agreement are fulfilled but Shareholders’ approval for the Cash Injection is not obtained, all parties shall proceed to close the Subscription and Shareholders’ Agreement except that NRI Limited will not proceed with the Cash Injection.

Closing

The closing of the Subscription and Shareholders’ Agreement will take place on the 20th business day after all the conditions precedent to the closing of the Subscription and Shareholders’ Agreement are fulfilled. As mentioned above, the Investors will initially subscribe 85 million Junior Preference Shares and 90 million Senior Preference Shares, respectively in aggregate and, if the Shareholders approves the Cash Injection, NRI Limited will subscribe an initial number of 25 million Junior Preference Shares. In the event any of the condition precedents to closing are not fulfilled within six months from the date of the agreement (or such other date as the parties may agree), SOL, NRI Limited and the Investors will not be bound to proceed with the subscription of the Preference Shares.

The closing of the Subscription and Shareholders’ Agreement will take place simultaneously with the completion of the Rainbow Sale and Purchase Agreement and after the completion of the Taipingqiao Sale and Purchase Agreement and when not less than US$125 million (about HK$975 million), or in the case where the Shareholders approve the Cash Injection, not less than US$150 million (about HK$1,170 million), subscription monies in aggregate will be received by SOL under the Subscription and Shareholders’ Agreement on closing. The Company intends to close the Subscription and Shareholders’ Agreement within two months.

Upon closing, each of the Company and Shui On Company will execute a deed of indemnity to provide tax indemnities in favour of the Investors on similar terms as the tax indemnity the Company and Shui On Investment will each provide to SOL under the Rainbow Sale and Purchase Agreement and the Taipingqiao Sale and Purchase Agreement, respectively. The Subscription and Shareholders’ Agreement also sets out the manner in which SOL will be operated.

Further details of SOL and the shareholding structure of SOL on completion of the Subscription and Shareholders’ Agreement including the rights of the Preference Shares are set out in the paragraphs headed “Further Information on SOL” and “Effect of the Transactions on the Share Capital and Shareholding Structure of SOL” and in the paragraph headed “Impact on the Group and Reasons for the Transactions” below.

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LETTER FROM THE BOARD

TAIPINGQIAO SALE AND PURCHASE AGREEMENT DATED 18 FEBRUARY 2004

Parties

(1) Shui On Investment, a wholly-owned subsidiary of Shui On Company, as vendor;
(2) SOL as purchaser; and
(3) Shui On Company, as guarantor.

Assets Involved

Shui On Investment will sell and procure Shui On Properties, its wholly owned subsidiary, to

sell:

(1) their respective entire interests in the Taipingqiao Holding Vehicles, comprising 70% of the equity interest of Interchina International Limited (the remaining 30% are currently held by the affiliates of Ocean Equity Holdings Limited, being also one of the Investors) and the entire issued share capital of the remaining Taipingqiao Holding Vehicles;
(2) all the rights and interests of Shui On Properties in relation to Lot 124 of the Taipingqiao Properties; and
(3) the benefit of all amounts which the Taipingqiao Holding Vehicles owe to Shui On Properties and Shui On Investment immediately prior to completion

for an initial consideration (subject to adjustment) of US$301 million (about HK$2,348 million) to be satisfied by the allotment and issue of 301 million Ordinary Shares in the capital of SOL credited as fully paid at the value of US$1.00 each to Shui On Investment (66 million Ordinary Shares) and Shui On Properties (235 million Ordinary Shares) on completion. Details of the adjustments to the initial consideration are set out in the section “Consideration” below.

The Taipingqiao Holding Vehicles hold various companies which in turn hold the Shui On Group’s investment in, and the future development rights over, the Taipingqiao Properties located in the Taipingqiao Area in Shanghai, PRC. The Taipingqiao Properties, which are to be injected into SOL, comprise (1) several completed projects, namely Shanghai Xintiandi, the residential project at Lot 117, and the commercial project comprising predominately offices at Lot 110 (all with land use right and building ownership certificates ( )); (2) a residential project under construction at Lot 114 (with land use right and building ownership certificate); (3) a residential project at Lot 113 which is undergoing site clearance (with land grant contract ( ) signed between the Shui On Group and the relevant PRC government authority); and (4) the projects at Lot Nos. 118, 122/1 & 2, 122/3, 124, 126 and 127 which are under planning and in respect of which neither site clearance works nor construction works have currently commenced (except for Lot 124, all with land grant contracts signed between the Shui On Group and the relevant PRC government authority).

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LETTER FROM THE BOARD

Shanghai Xintiandi is a completed and fully operational development of about 55,000 square metres comprising a multitude of specialty food and beverage, entertainment and retail outlets. The residential project at Lot 117, which comprises 284 units, has all been sold prior to completion except for 3 units. Lot 110 is a commercial development with a floor area of about 83,000 square metres and is held for lease. Construction works of the residential development at Lot 114 with a site area of about 32,600 square metres and a buildable floor area of about 130,000 square metres have commenced, whilst site clearance works are in progress for the residential development at Lot 113 which covers a site area of about 24,000 square metres and would produce a buildable floor area of about 96,000 square metres. Lot 124 (with a site area of about 8,200 square metres) will be developed into a landmark grade A office building where the Shui On Group head office is expected to be located. Development for all of the remaining land parcels forming part of the Taipingqiao Properties with a site area of about 69,000 square metres (namely, Lot Nos. 118, 122/1 & 2, 122/3, 126 and 127) is at the planning stage.

The Shui On Group has land use rights for all of the Taipingqiao Properties except for Lot 124. Pursuant to the terms of the Taipingqiao Sale and Purchase Agreement, Shui On Properties will, on completion, execute a deed to undertake to take all reasonable steps to cause the land use rights in respect of Lot 124 to be granted (in the form of land grant contract or land use right and building ownership certificate or other appropriate form as required from time to time by the relevant PRC laws and regulations) to a subsidiary of SOL within nine months of completion.

Apart from the Taipingqiao Properties, Shui On Group also has a right (i.e. “Taipingqiao Interest” as defined) to develop certain other areas in the Taipingqiao Area, namely Lots 115, 116, 119, 120, 123, 125 and 132, with a total site area of about 112,000 square metres. No timing for the future developments of these land parcels has been ascertained. Nevertheless, the Shui On Group will upon the closing of the Subscription and Shareholders’ Agreement undertake to use reasonable efforts to procure the granting of the relevant land use rights by the relevant regulatory authorities in respect of those land parcels in favour, and at the direction, of SOL Group.

Other than a 50,000 square metres ‘man-made lake and landscape park’ area and Lots 107 and 108 on which two hotels are to be developed (neither of them form part of the Taipingqiao Properties or the Taipingqiao Interest), the Taipingqiao Properties and the Taipingqiao Interest together form substantially the whole of the Taipingqiao Area.

The Taipingqiao Area, which is in close proximity to Shanghai’s Huai Hai Zhong Lu, is an urban revitalisation and redevelopment project over a site area of about 360,000 square metres that is located in Luwan District in the city centre of Shanghai. The aforesaid 50,000 square metres ‘man-made lake and landscape park’ area (which do not form part of the Taipingqiao Properties) is at the heart of Taipingqiao Area. The current planning envisaged for the Taipingqiao Area consists of four major parts:

(i) a ‘Historic Preservation’ zone is planned to include a mixed-use development comprising office, food and beverage, entertainment and tourism facilities with historical and cultural characteristics. Shanghai Xintiandi is located in the ‘Historic Preservation’ zone. Two hotels to be developed on Lots 107 and 108 (which do not form part of the Taipingqiao Properties) will also be located in this zone;

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LETTER FROM THE BOARD

(ii) a ‘Corporate Headquarters’ zone is planned along the northern lakefront and will consist of Grade A office buildings. The completed office development at Lot 110, which forms part of the Taipingqiao Properties, is located in this zone;
(iii) an ‘Up-market Residential’ zone includes the completed residential project at Lot 117 that is commonly known as ‘the Lakeville’ (which also forms part of the Taipingqiao Properties); and
(iv) a ‘Mid-Range Retail and Residential’ zone is planned to cater for a broader segment of the community.

When fully developed, the Taipingqiao Area will provide about 1,300,000 square metres of space to serve the housing, commercial and recreational needs of Shanghai.

As mentioned above, the man-made lake and landscape park at the heart of the Taipingqiao Area and the two hotels to be developed in the historic preservation zone of the Taipingqiao Area will not form part of the transactions contemplated under the Taipingqiao Sale and Purchase Agreement. The development interest in respect of the two hotels is currently owned by Shanghai Hotel Investments Limited, being also one of the Investors, as to 83.3% and the Shui On Group as to 14.7%. The remaining 2% interest in the two hotels are currently owned by a local PRC company, an independent third party. The Directors believe that the holding of a minority interest in the hotel development right do not form part of the current business strategy of SOL and accordingly the development interest of the two hotels will not form part of the Taipingqiao Properties.

The total investment of the Shui On Group in the Taipingqiao Properties as at 30 June 2003 (i.e. the net asset value of the Taipingqiao Properties as at 30 June 2003) was RMB1,710 million (about HK$1,613 million).

Consideration

The consideration payable by SOL to Shui On Investment was arrived at after arm’s length negotiations among the Company, Shui On Company and the Investors, with reference primarily to (a) the valuation of the Taipingqiao Properties by Independent Valuer as at 31 December 2003; (b) the Shui On Group’s total investment in Taipingqiao Properties of about RMB1,710 million (HK$1,613.20 million) in aggregate as at 30 June 2003; and (c) the projected cash flow of the Taipingqiao Properties discounted at rates of return agreed among the relevant parties. Such consideration is subject to the following adjustments:

(1) the consideration will be adjusted if the audited total investment of the Shui On Group in the Taipingqiao Properties upon completion of the agreement is different from RMB1,649 million (about HK$1,555.66 million). Any shortfall or excess will be settled in cash within 14 days of the determination of the adjustment; and
(2) a bonus consideration of up to US$74 million (about HK$577.20 million) (subject to adjustment) will be paid to Shui On Investment if certain agreed performance targets in respect of the sale and the lease of certain Taipingqiao Properties (including Shanghai

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LETTER FROM THE BOARD

Xintiandi) are achieved by the due dates as set out in the agreement. The bonus consideration will also be satisfied by the issue and allotment of additional Ordinary Shares credited as fully paid at the value of US$1.00 to Shui On Investment and, if there is a Qualifying IPO, will be adjusted in the manner as described in the agreement.

Conditions

Completion of the Taipingqiao Sale and Purchase Agreement is conditional on, among other things:

(1) the warranties given by Shui On Investment in the Taipingqiao City Sale and Purchase Agreement remaining true and accurate;
(2) Shui On Investment having requested and caused the delivery of PRC legal opinion on, among other things, the title of Taipingqiao Properties in a form as approved by SOL, the Company and the Investors;
(3) the remaining shareholders of Interchina International Limited (i.e. shareholders other than Shui On Properties who as mentioned above are affiliate companies of Ocean Equity Holdings Limited, being one of the Investors) waiving any restrictions on the transfer of shares in such company; and
(4) all necessary consents being granted by third parties (including any bank or any governmental, regulatory or official authorities in the PRC or elsewhere) and no statute, regulation or decision which would prohibit, restrict or materially delay the sale and purchase of shares in the Taipingqiao Holding Vehicles, the interest in relation to Lot 124 of the Taipingqiao Properties and the related indebtedness or the operation of any of the Taipingqiao Holding Vehicles or their subsidiaries after completion having been proposed, enacted or taken by any governmental or official authority.

Completion

Completion will take place on the 3rd business day after all the conditions precedent to the completion of the agreement are fulfilled, or such other date as the parties may agree in writing. In the event that any of these conditions are not fulfilled within six months after the date of this agreement (or such later date as the parties may agree), SOL will not be bound to proceed with the transaction. Completion will take place before the completion of the Rainbow City Sale and Purchase Agreements and the closing of the Subscription and Shareholders’ Agreement. On completion, Shui On Investment will execute a deed of indemnity to provide tax indemnity in favour of SOL and Taipingqiao Holding Vehicles (including its subsidiaries) on similar terms as the tax indemnity the Company will provide to SOL and Foresight Profits Limited under the Rainbow Sale and Purchase Agreement (as mentioned above).

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LETTER FROM THE BOARD

EFFECT OF THE TRANSACTIONS ON THE SHARE CAPITAL AND SHAREHOLDING STRUCTURE OF SOL

On the completion of the Agreements, the Share Capital of SOL will comprise Ordinary Shares, Senior Preference Shares and Junior Preference Shares. The Group will receive Ordinary Shares of SOL for the assets it injects into SOL under the Rainbow Sale and Purchase Agreement, and Junior Preference Shares for the cash it injects into SOL under the Subscription and Shareholders’ Agreement.

The Preference Shares, comprising the Junior Preference Shares and the Senior Preference Shares, are convertible redeemable participating preference shares of SOL with limited voting rights and a fixed cumulative preferential dividend. The rights of each class of Preference Shares are set out in the New Articles of Association. The rights of the Junior Preference Shares include:

Income: A fixed cumulative preferential cash dividend at the rate of 7% per annum commencing from the date of issue and payable in priority to the dividend in respect of the Ordinary Shares, payable semi-annually. Conversion: Unless redeemed, the Junior Preference Shares

Unless previously redeemed, the Junior Preference Shares will be converted into Ordinary Shares based on the issue price and the accrued unpaid cash dividend in respect of the Junior Preference Shares upon conversion:

(1) any time at the option of the holder thereof;
(2) compulsorily by SOL upon a Qualifying IPO; and
(3) at the option of SOL at any time after the date falling 60 days from the date of issue of a capital call by SOL pursuant to and in accordance with the terms of the Subscription and Shareholders’ Agreement, if the holder thereof fails to subscribe for further Preference Shares under such capital call and such Preference Shares have not been subscribed by the other members,

in each case, at an initial conversion price of US$1.07 (about HK$8.35) subject to adjustments as set out in the New Articles of Association upon, among other things, a change in the capital structure of SOL and on a Qualifying IPO where the conversion price will be adjusted down to the offer price in the Qualifying IPO if it is below the then conversion price.

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LETTER FROM THE BOARD

Redemption:	Subject to prior permitted redemption at the option of the
	holder, or unless previously converted, the Junior Preference
	Shares will be redeemed on the seventh anniversary of the
	first issue date of the Preference Shares at their issue price
	plus any accrued dividend and an agreed premium determined
	in the manner set out in the New Articles of Association.
Voting Rights:	Holders of the Junior Preference Shares shall be entitled to
	receive notices of and to attend and vote at any general
	meetings of SOL in limited circumstances as set out in the
	New Articles of Association including where the resolution in
	question varies the rights attaching to the Junior Preference
	Shares.

The Senior Preference Shares have a higher fixed preferential cumulative cash dividend at the rate of 7.5% per annum, and a further fixed cumulative preferential cash dividend of 7.5% per annum payable on redemption or conversion and rank prior to the Junior Preference Shares on payment of dividend.

The Senior Preference Shares are convertible into Ordinary Shares at a higher initial conversion price of US$1.35 (about HK$10.53) and have a limit on return at an internal rate of return of 27.5% per annum upon a mandatory conversion incidental to a Qualifying IPO. Redemption of the Senior Preference Shares are also subject to a limit on return at an internal rate of return of 27.5% per annum. As mentioned above, the Junior Preference Shares are convertible into Ordinary Shares at a lower initial conversion price of about US$1.07 (about HK$8.35) and they have no such limits on return that are referred to above. At any time after SOL has commenced its process for a proposed Qualifying IPO, SOL may restrict any optional conversion of Senior Preference Shares for a period of 3 months, and if no Qualifying IPO takes place during the period, the restriction will lapse. Junior Preference Shares are not subject to such moratorium on optional conversion.

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LETTER FROM THE BOARD

Set out below is a table showing the shareholding structure of SOL (1) immediately following the completion of the Assets Injection and the Cash Injection on the closing of the Subscription and Shareholders’ Agreement; (2) when all the Preference Shares issuable under the Subscription and Shareholders’ Agreement and all the Ordinary Shares issuable in settlement of the bonus consideration under the Rainbow Sale and Purchase Agreement and the Taipingqiao Sale and Purchase Agreement are subscribed in full; and (3) upon full conversion of all the Preference Shares:

		Scenario One	Scenario One			Scenario Two	Scenario Two		Scenario	Three
		No. of	No. of			No. of	No. of
	No. of	Junior	Senior	%	No. of	Junior	Senior	%	No. of	%
Name of	Ordinary	Preference	Preference	in the	Ordinary	Preference	Preference	in the	Ordinary	in the
shareholder	Shares	Shares	Shares	Share	Shares	Shares	Shares	Share	Shares	Share
in SOL	held	held	held	Capital	held	held	held	Capital	held	Capital
	(million)	(million)	(million)		(million)	(million)	(million)		(million)
Shui On Investment
and Shui On
Properties	301	—	—	47.70	375	—	—	41.04	375	43.97
NRI Limited	130	25	—	24.57	138.80	50	—	20.66	185.53	21.76
Investors	—	85	90	27.73	—	170	180	38.30	292.21	34.27
Total	431	110	90	100	513.80	220	180	100	852.74	100

Notes:

Scenario One:

Shareholding structure upon closing of the Subscription and Shareholders’ Agreement.

Scenario Two:

Shareholding structure after all the Preference Shares issuable under the Subscription and Shareholders’ Agreement and the Ordinary Shares issuable in settlement of the bonus consideration payable under the Taipingqiao Sale and Purchase Agreement and the Rainbow Sale and Purchase Agreement are subscribed for or (as the case may be) allotted and issued in full.

Scenario Three: Shareholding structure after full conversion of all the Preference Shares, based only on the issue price (without taking into account any accrued unpaid dividend at the relevant time of conversion) and the initial conversion price without any adjustments being made, and the Ordinary Shares issuable in settlement of the bonus consideration payable under the Taipingqiao Sale and Purchase Agreement and the Rainbow Sale and Purchase Agreement are allotted and issued in full.

Note: The above table has not taken into account other adjustments that may arise due to the early conversion or redemption of the Preference Shares, the impact of a Qualifying IPO on the bonus consideration and the impact where none or part only of the bonus consideration may become payable under either or both the Rainbow Sale and Purchase Agreement and the Taipingqiao Sale and Purchase Agreement.

Accordingly, immediately after the completion of the Assets Injection and the Cash Injection on the closing of the Subscription and Shareholders’ Agreement, NRI Limited will own up to about 24.57% of the then issued Share Capital of SOL and will, together with the Shui On Group (which will own up to about 47.70% of the issued Share Capital of SOL), hold the majority interest of SOL.

As mentioned above, the Rainbow Sale and Purchase Agreement and the Subscription and Shareholders’ Agreement are conditional upon each of the Agreements becoming unconditional, excluding the condition relating to the Shareholders’ approval of the Cash Injection. In the event all the conditions precedent for each of the Agreements are fulfilled, but the Shareholders’ approval for

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LETTER FROM THE BOARD

the Cash Injection is not obtained, all parties will proceed with the Assets Injection and the closing of the Subscription and Shareholders’ Agreement except that SOL and NRI Limited shall not proceed with the Cash Injection. The shareholding structure of SOL under the three scenarios in the above table would become as follows:

		Scenario One	Scenario One			Scenario Two	Scenario Two		Scenario	Three
		No. of	No. of			No. of	No. of
	No. of	Junior	Senior	%	No. of	Junior	Senior	%	No. of	%
Name of	Ordinary	Preference	Preference	in the	Ordinary	Preference	Preference	in the	Ordinary	in the
shareholder	Shares	Shares	Shares	Share	Shares	Shares	Shares	Share	Shares	Share
in SOL	held	held	held	Capital	held	held	held	Capital	held	Capital
	(million)	(million)	(million)		(million)	(million)	(million)		(million)
Shui On Investment
and Shui On
Properties	301	—	—	49.67	375	—	—	43.41	375	46.53
NRI Limited	130	—	—	21.45	138.80	—	—	16.07	138.80	17.22
Investors	—	85	90	28.88	—	170	180	40.52	292.21	36.25
Total	431	85	90	100	513.80	170	180	100	806.01	100

If the Independent Shareholders do not approve the Cash Injection, NRI Limited may own less than 20% of the then issued Share Capital of SOL, and the Company may not be able to equity-account for the results of SOL.

FURTHER INFORMATION ON SOL

SOL is a subsidiary newly established by the Shui On Group for the purpose of this co-investment with the Group under the Agreements. It will carry out the business of owning, leasing, managing, developing, constructing and selling commercial, retail and residential real estates in the PRC. Pursuant to the Assets Injection, SOL will inherit from each of the Shui On Group and the Group their respective interests in the Taipingqiao Properties (including Shanghai Xintiandi) and Rainbow City.

It is the intention of the Shui On Group and the Company that SOL will be the flagship property company of the Shui On Group in the PRC, and that it will grow into a premier real estate developer, owner and operator in the PRC, focusing on city core development projects (i.e. large scale, urban, mixed-use development for office, residential, retail, entertainment, cultural and recreational uses) and integrated residential development projects (i.e. high-quality, integrated, residential projects targeting the urban upper-middle class) in the PRC.

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LETTER FROM THE BOARD

development over a site area of about 1.3 million square metres located in Yuzhong District in Chongqing in Southwest China. This project is currently under planning and is expected to comprise various business service facilities, including an exhibition and merchandising area, hotels, office buildings, residential buildings and retail and entertainment areas.

No timing for these possible future investments has been ascertained. However, Shui On Company, Shui On Properties and Shui On Investment have each undertaken to SOL, NRI Limited and the Investors that they will not undertake any new property development, investment or construction projects in the PRC (excluding The Centrepoint in Guangzhou, a stand-alone office and service apartment project currently under planning consisting of approximately 70,000 square metres of gross floor area) without first offering the opportunity to SOL to undertake them.

With the closing of the Subscription and Shareholders’ Agreement, SOL will have a shareholders’ base comprising independent reputable strategic investors that are both locally based and from overseas. Leveraging on its relationship with the Shui On Group and such shareholders’ base, the Directors believe that SOL will be well positioned to seek successfully a listing of its shares on a recognised international stock exchange as and when market conditions permit. Although there is no definite plan as to when and where the shares of SOL may be listed, and a listing of SOL shares may or may not materialise, the Directors believe that given the strong position of the SOL Group and its prospects, SOL is an excellent platform for the Group to expand its investment in the markets in the PRC in which it operates for long term investment growth.

Assuming that NRI Limited will proceed with the Cash Injection, the business of SOL will be managed by its board of directors comprising 17 members, six of whom will be appointed by the Shui On Group, three by NRI Limited and the remaining eight by the Investors (including not more than one to be appointed by NRI Limited should the Cash Injection be approved). A director appointed by the Shui On Group shall preside as the chairman of the board of SOL. The first such chairman shall be Mr. Vincent Lo Hong Sui, Chairman of the Shui On Group and the Company.

IMPACT ON THE GROUP AND REASONS FOR THE TRANSACTIONS

The Group is engaged in cement operations in the PRC, construction and construction materials in Hong Kong and the Pearl River Delta Region of the PRC and also in housing development in the PRC.

The Group started its investment in the PRC housing development market in 2001 after entering into the relinquishment agreement with Shanghai Ruichen Property Company Limited, a subsidiary of the Shui On Group whereby Shanghai Ruichen Property Company Limited, relinquished and surrendered the development rights and title to Rainbow City and assisted the Group in obtaining the necessary development rights and title to Rainbow City from the relevant regulatory authorities in the PRC. The relinquishment agreement was disclosed in the Company’s announcement dated 2 May 2001 and approved by the shareholders at the Company’s special general meeting held on 13 June 2001. Currently, Rainbow City is the Group’s sole investment in the housing development market in the PRC. It did not make any contributions to the turnover of the Group up to 31 March 2003, but, as mentioned above, pre-sales of the first stage of the development in Lot Nos. 11 and 174 consisting of seven blocks of residential buildings was successfully launched in October 2003.

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LETTER FROM THE BOARD

The Directors consider it to be in the best interests of the Group if all of the Group’s property interests in the PRC are combined with the much larger property interests in the PRC of the Shui On Group. The manner in which such interests will be combined is set out in the Rainbow Sale and Purchase Agreement and in the Taipingqiao Sale and Purchase Agreement.

On the basis that Shui On Company will have injected its interest in the Taipingqiao Properties (including Shanghai Xintiandi) into SOL prior to the completion of the Rainbow Sale and Purchase Agreement, the Company will, under the Rainbow Sale and Purchase Agreement, inject its entire investment and interest in Rainbow City into SOL in return for an equity interest in SOL. The Company will cease to have direct control over Rainbow City but will (1) maintain an interest in Rainbow City by virtue of its interest in SOL ranging between 16.07% to 24.57% (depending on whether the Independent Shareholders will approve the Cash Injection) such that it will continue to participate actively in the development of Rainbow City through SOL; (2) become an investor in SOL, an entity with access to a larger land bank (comprising the Taipingqiao Properties in additional to Rainbow City) and more investment and development opportunities in the PRC.

Set out below is the Group’s pro forma adjusted net asset value as at 30 September 2003 assuming that both the Rainbow Sale and Purchase Agreement and the Cash Injection have been approved by the Shareholders and that bonus share consideration has been received:

HK$’ Audited net asset value of the Group as at 31 March 2003 Add: Increase in net asset value for the six month period ended 30 September 2003 Unaudited net asset value of the Group as at 30 September 2003 Effect on the Company’s pro forma adjusted net asset value Add: The Group’s share of attributable interest in SOL (Note 1) Less: Consideration to be paid by the Group for the acquisition of interest in SOL: Total investment in Rainbow City Net asset value of Rainbow City as at 30 September, 2003 Cash injection (US$50 million) Pro forma adjusted net asset value of the Group	Million HK$’ Million 1,215.00 25.00 1,240.00 1,609.13 638.68 (5.55) 390.00 1,023.13 586.00 1,826.00	Million HK$’ Million 1,215.00 25.00 1,240.00 1,609.13 638.68 (5.55) 390.00 1,023.13 586.00 1,826.00	Million HK$’ Million 1,215.00 25.00 1,240.00 1,609.13 638.68 (5.55) 390.00 1,023.13 586.00 1,826.00
		)	1,240.00
			1,609.13 1,023.13
			586.00
			1,826.00

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LETTER FROM THE BOARD

Note:

The Group’s share of attributable interest in SOL is calculated by reference to the percentage of holding in SOL of 21.76% to be held by the Group and on the pro forma combined net asset value of SOL group as at 30th September, 2003 of HK$570.21 million as per the Proforma Combined Financial Information on Rainbow City and Taipingqiao Properties which is set out in Appendix IV to this Circular after adjusting for (i) the debts of HK$2,047.00 million to be capitalized as equity of SOL as agreed under the Rainbow Sale and Purchase Agreement and the Taipingqiao Sale and Purchase Agreement; (ii) net surplus of HK$1,657.67 million arising on valuation of Taipingqiao Holdings Vehicles’ properties under development; and (iii) the subscription money to be received upon issuance and conversion into ordinary shares of all Preference Shares of US$400 million (about HK$3,120 million).

As noted above, the net asset value of the Group will be increased from HK$1,240 million as at 30 September 2003 to HK$1,826 million after completion of the Transactions due to the premium to be received from the disposal of the Group’s interest in Rainbow City to SOL.

The Group will record a gain of approximately US$48.1 million (about HK$375.18 million) upon completion of the Transactions, being the difference between the initial consideration of US$130 million (about HK$1,014 million) to be received on disposal of Rainbow City and total investment of the Company in Rainbow City as of 30 June 2003 of US$81.9 million (about HK$638.68 million). The gain will further increase to approximately US$56.9 million (about HK$443.82 million) if the bonus consideration of US$8.8 million (about HK$68.64 million) were paid in full by SOL. The bonus consideration will be paid to the Group if certain agreed performance targets in Rainbow City are achieved.

If both the Assets Injection and Cash Injection are approved, the Group will own an interest of over 20% in SOL which is expected to generate a steady income stream from its large portfolio of prime commercial, retail and residential property projects in the PRC.

After the Asset Injection, the bank borrowings on Rainbow City amounting to HK$243 million as of 30 September 2003 will be assumed by SOL and it will also remove expected funding needs up to an estimate of RMB1,900 million (about HK$1,792.45 million) over the next two years. However, if the Cash Injection is approved, there will be a net funding need of HK$270 million for the Group, being the difference between HK$390 million (US$50 million) payable under the Cash Injection and HK$120 million that will be paid back by SOL under the Rainbow Sale and Purchase Agreement in respect of the additional funding that the Group has provided for the development of Rainbow City after 30 June 2003.

The Directors believe that the co-investment with the Shui On Group in SOL is beneficial to the Group and its shareholders as a whole for the following principal reasons:

(a) The Assets Injection will be undertaken at a substantial premium of about 59% to the Group’s total investment in Rainbow City (i.e. net asset value of Rainbow City) of RMB677 million (about HK$638.68 million) as at 30 June 2003. Such a premium will rise to about 70% if the bonus consideration is paid in full.

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LETTER FROM THE BOARD

(b) As aforementioned, the Asset Injection will also remove any future funding needs (including bank borrowings) of the Group to develop the remaining phases of Rainbow City, which the Directors estimate to range up to RMB1,900 million (about HK$1,792.45 million) over the next two years, while permitting the Group to appoint three directors onto the board of SOL, thereby enabling the Group to continue to participate actively in the development of Rainbow City. Furthermore, the Group expects to be paid back at least about HK$120 million being the additional funding it has provided for the development of Rainbow City after 30 June 2003 as described earlier on in the sub-section headed “Consideration” of the “Rainbow Sale and Purchase Agreement” section.
(c) Upon completion of the Transactions, the Directors believe that the Group will, depending on whether the Independent Shareholders will approve the Cash Injection, own an interest ranging from 16.07% to 24.57% in SOL, a dynamic mixed-development property company in the PRC. The SOL Group’s revenue will be derived from a large portfolio of commercial, retail and residential property projects (some of which will be held for recurrent income and some of which will be sold) compared to a single revenue stream from Rainbow City.
(d) The consideration payable by SOL under the Rainbow Sale and Purchase Agreement represents a 17.6% discount to the proforma adjusted net asset value of Foresight Profits Limited as at 30 June 2003. On comparison, the consideration payable by SOL under the Taipingqiao Sale and Purchase Agreement represents a much deeper discount of 30.3% to the proforma adjusted net asset value of the Taipingqiao Holding Vehicles as at 30 June 2003 adjusted in each case to take into account the valuation of Rainbow City and the Taipingqiao Properties respectively as at 31 December 2003.
(e) The Directors have been advised that it is the intention of the Shui On Group that SOL will be the flagship property company of the Shui On Group in mainland PRC and that it should grow into a premier real estate developer, owner and operator in mainland PRC, focusing on city core development projects (i.e. large scale, urban mixed use developments, for office, residential, retail, entertainment, cultural and recreational uses) and integrated residential development projects (i.e. high quality, integrated residential projects targeting the urban upper-middle classes) in mainland PRC. As such, the Directors believe that SOL represents an attractive opportunity for the Group to divest its interests in Rainbow City in exchange for Ordinary Shares in SOL.

However, as payment of dividends in respect of the Preference Shares shall rank senior to the Ordinary Shares, an investment in the Ordinary Shares of SOL only would defer the Group’s entitlement to any dividend income generated by Rainbow City, the Taipingqiao Properties and other projects that SOL may undertake. The Directors believe that by making a subscription for the Junior Preference Shares, the Group will (i) increase its shareholding and management presence in SOL; (ii) enjoy a steadier income from the investment in SOL; (iii) secure SOL within the Group as an associated company; and (iv) enjoy a potentially higher capital gain when converting the Junior Preference Shares into Ordinary Shares on a listing of the shares of SOL. Accordingly, the Directors consider an investment in the Junior Preference Shares as beneficial to and in the best interests of the Group.

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LETTER FROM THE BOARD

The Directors confirm the terms and conditions of the Rainbow Sale and Purchase Agreement and the Cash Injection were negotiated on an arm’s length basis and were agreed on normal commercial terms between the parties. The Directors consider the terms of those two agreements are fair and reasonable insofar as the Shareholders are concerned and are beneficial to and in the best interests of the Group.

RELATIONSHIP BETWEEN THE COMPANY AND SOL

It is the intention of the Directors that the Group will, after completion of the Agreements, supply construction materials to and undertake construction works for Rainbow City and Taipingqiao Properties in its ordinary course of business under normal commercial terms and on an arms’ length basis. In particular, the Group has entered into an agreement to increase its interest in Shanghai Shui On Construction Co. Ltd. from 50% to 70% (subject to the relevant approval from the PRC authorities having been obtained). Shanghai Shui On Construction Co. Ltd. currently undertakes construction contracts in relation to parts of Rainbow City. These construction contracts will become connected transactions of the Group following the completion of the Agreements and the said increase in the Group’s interest in Shanghai Shui On Construction Co. Ltd.. The Group will comply with disclosure and approval requirements of the Listing Rules as and when appropriate.

IMPLICATIONS OF THE LISTING RULES

Value Partners Limited (the fund manager of the Value Partners Funds, being part of the Investors) and Mr. Cheah Cheng Hye, who holds an interest in the Value Partners Limited, are together interested in about 5.41% of the issued share capital of the Company, and some of the Investors are also interested in the Taipingqiao Properties as mentioned herein. Save as aforesaid, none of the Investors are connected with any Director, chief executive or substantial shareholder of the Company or any of its subsidiaries or their respective associates. Shui On Investment and Shui On Properties are wholly owned subsidiaries of Shui On Company, the controlling shareholder of the Company. The total consideration for the Ordinary Shares receivable by the Group under the Rainbow Sale and Purchase Agreement (assuming the bonus consideration of up to US$8.8 million is paid to the Company), which will be issued as consideration for the injection of the Group’s interest in Rainbow City into SOL, and the cash to be injected by the Group into SOL under the Cash Injection, may amount up to US$188.8 million (about HK$1,472.64 million) in aggregate. The Rainbow Sale and Purchase Agreement (and the transactions contemplated thereunder) and the Cash Injection together constitute a very substantial acquisition and connected transactions of the Company under Chapter 14 of the Listing Rules.

The Rainbow Sale and Purchase Agreement and the Cash Injection will be subject to the approval by the Shareholders at the SGM on a vote to be taken by a poll at which the Shui On Group and its associates will abstain from voting. Mr. Cheah Cheng Hye and Value Partners Limited who are together interested in about 5.41% of the issued share capital of the Company, will also abstain from voting at the SGM.

— 25 —

LETTER FROM THE BOARD

OTHER BUSINESS

Amendments to Bye-laws

On 1 April 2003, the Securities and Futures (Clearing Houses) Ordinance of Hong Kong was repealed by the SFO. Provisions governing clearing houses in Hong Kong are now contained in the SFO. In order to reflect the above-mentioned changes in applicable laws in Bermuda and Hong Kong, the Directors would like to propose, for the Shareholders’ approval at the SGM, certain amendments to the bye-laws of the Company for clarifying the voting rights of proxies appointed by any Shareholder which is a clearing house. The proposed amendments are now set out below for your reference:

1. Existing Bye-law 66

“Subject to any special rights or restrictions as to voting for the time being attached to any shares by or in accordance with these Bye-laws, at any general meeting on a show of hands every Member present in person (or being a corporation, is present by a representative duly authorised under Section 78 of the Act), or by proxy shall have one vote and on a poll every Member present in person or by proxy or, in the case of a Member being a corporation, by its duly authorised representative shall have one vote for every fully paid share of which he is the holder but so that no amount paid up or credited as paid up on a share in advance of calls or instalments is treated for the foregoing purposes as paid up on the share. A resolution put to the vote of a meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

(a) by the chairman of such meeting; 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
(c) 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 representing not less than one-tenth of the total voting rights of all Members having the right to vote at the meeting; or
(d) 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 in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all 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.”

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LETTER FROM THE BOARD

Proposed amendment:

“Subject to any special rights or restrictions as to voting for the time being attached to any shares by or in accordance with these Bye-laws, at any general meeting on a show of hands every Member present in person (or being a corporation, is present by a representative duly authorised under Section 78 of the Act), or by proxy shall have one vote and on a poll every Member present in person or by proxy or, in the case of a Member being a corporation, by its duly authorised representative shall have one vote for every fully paid share of which he is the holder but so that no amount paid up or credited as paid up on a share in advance of calls or instalments is treated for the foregoing purposes as paid up on the share. Notwithstanding anything contained in these Bye-laws, where more than one proxy is appointed by a Member which is a clearing house (or its nominee(s)), each such proxy shall have one vote on a show of hands. A resolution put to the vote of a meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

(a) by the chairman of such meeting; 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
(c) 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 representing not less than one-tenth of the total voting rights of all Members having the right to vote at the meeting; or
(d) 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 in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all 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.”

2. Existing Bye-law 84(2)

“If permitted by the Act, a clearing house (or its nominee) if a corporation being a Member, may authorise such persons as it thinks fit to act as its representatives at any meeting of the Company or at any meeting of any class of Members provided that the authorisation shall specify the number and class of shares in respect of which each such representative is so authorised. Each person so authorised under the provisions of this Bye-law shall be entitled to exercise the same rights and powers as if such person was the registered holder of the shares of the Company held by the clearing house (or its nominee).”

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LETTER FROM THE BOARD

Proposed amendment:

“Where a Member is a clearing house (or its nominee(s) and, in each case, being a corporation), it may authorise such persons as it thinks fit to act as its representatives at any meeting of the Company or at any meeting of any class of Members provided that the authorisation shall specify the number and class of shares in respect of which each such representative is so authorised. Each person so authorised under the provisions of this Bye-law shall be deemed to have been duly authorised without further evidence of the facts and be entitled to exercise the same rights and powers on behalf of the clearing house (or its nominee(s)) as if such person was the registered holder of the shares of the Company held by the clearing house (or its nominee(s)) in respect of the number and class of shares specified in the relevant authorisation including the right to vote individually on a show of hands.”

The Directors believe that the above amendments to the Articles of Association of the Company are in the best interests of the Company as well as the Shareholders. Accordingly, the Directors recommend that all Shareholders should vote in favour of the Special Resolution.

GENERAL

An independent board committee comprising Mr. Anthony Griffiths and Professor Michael John Enright has been formed to advise the Independent Shareholders in relation to the Rainbow Sale and Purchase Agreement and the Cash Injection and BNP Paribas Peregrine has been appointed to advise the independent board committee in this respect.

SGM

A notice convening the SGM is set out on pages 228 to 231 of this Circular. The SGM will be held at Room 103, 1/F Shui On Centre, 6-8 Harbour Road, Wanchai, Hong Kong on 15 April 2004 at 2:30 p.m.

RECOMMENDATION

The Independent Board Committee, having considered the terms of the Rainbow Sale and Purchase Agreement, the Cash Injection and the transactions contemplated thereunder and having taken into account the opinion of BNP Paribas Peregrine on the Rainbow Sale and Purchase Agreement, the Cash Injection and the transactions contemplated thereunder, in particular the factors and reasons considered by BNP Paribas Peregrine in arriving at its advice thereon as set out in the letter from the Independent Financial Adviser on pages 31 to 44 of this circular, considers that the terms of the Rainbow Sale and Purchase Agreement, the Cash Injection and the transactions contemplated thereunder as a whole are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the resolutions to approve and give effect to the Rainbow Sale and Purchase Agreement, the Cash Injection and the transactions contemplated thereunder at the SGM. The letter from the Independent Board Committee is set out on page 30 of this circular.

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LETTER FROM THE BOARD

FURTHER INFORMATION

You are urged to read carefully the letter from the Independent Board Committee and letter from the Independent Financial Adviser as set out on page 30 and pages 31 to 44 of this circular respectively, additional information as set out in the appendices to this circular and the notice of the SGM as set out on pages 228 to 231 of this circular.

Yours faithfully, By order of the Board

Shui On Construction and Materials Limited Choi Yuk Keung, Lawrence

Managing Director

— 29 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(Incorporated in Bermuda with limited liability)

Registered Office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

23 March 2004

To the Independent Shareholders

Dear Sir/Madam,

INVESTMENT IN SHUI ON LAND LIMITED

Very Substantial Acquisition and Connected Transactions

We have been appointed as the Independent Board Committee to advise you in connection with the Rainbow Sale and Purchase Agreement and the Cash Injection, details of which are set out in the letter from the Board contained in the circular to the shareholders of the Company dated 23 March 2004 (the “Circular”), of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

BNP Paribas Peregrine Capital Limited has been appointed as the independent financial adviser to consider and advise the Independent Board Committee on the Rainbow Sale and Purchase Agreement and the Cash Injection.

Having considered the terms of the Agreements, including the terms of the Cash Injection, and the principal factors, reasons and opinion of the IFA in relation thereto as set out on pages 31 to 44 of the Circular, we are of the opinion that the terms of the Rainbow Sale and Purchase Agreement and the Cash Injection are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Independent Shareholders. We therefore recommend that you vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Rainbow Sale and Purchase Agreement and the Cash Injection. Your attention is drawn to the letter from the Board and the letter from the IFA set out in the Circular.

Yours faithfully,

For and on behalf of the

Independent Board Committee of

Shui On Construction and Materials Limited

Mr. Anthony Griffiths Professor Michael John Enright Independent Non-Executive Director Independent Non-Executive Director

* For identification purpose only

— 30 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter prepared by the IFA for the purposes of inclusion of this circular:

23rd March, 2004

The Independent Committee of the Board of Directors Shui On Construction and Materials Limited Clarendon House 2 Church Street, Hamilton HM11 Bermuda

Dear Sirs,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee as to the fairness and reasonableness of the Rainbow Sale and Purchase Agreement and the Cash Injection, details of which are set out in the letter from the board contained in the circular of the Company dated 23rd March, 2004 (the “Circular”) of which this letter forms part. Terms defined in the Circular shall have the same meaning when used in this letter unless the context requires otherwise.

The transactions contemplated under the Rainbow Sale and Purchase Agreement and the Cash Injection together constitute a very substantial acquisition and connected transactions for the Company under the Listing Rules and are subject to the approval of the Independent Shareholders. Accordingly, the Independent Board Committee has been established to consider the Rainbow Sale and Purchase Agreement and the Cash Injection and to advise the Independent Shareholders as to their fairness and reasonableness.

Apart from normal professional fees for our services to the Company as described above, no arrangement exists whereby we will receive any fees or benefits from Shui On Company, the Company or any of their respective subsidiaries or associates. We are independent of the directors, chief executive or substantial shareholders of Shui On Company, the Company or any of their respective subsidiaries or associates and we consider ourselves suitable to give independent financial advice to the Independent Board Committee in relation to the Rainbow Sale and Purchase Agreement and the Cash Injection.

— 31 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In arriving at our advice, we have relied on the information and facts supplied, and the opinions expressed, by the Directors and management of the Company, and assumed that all statements, opinions and representations made were true and accurate at the time they were made and continue to be true and accurate at the date of the Circular. We have also sought and received confirmation from the Directors that no material facts have been omitted from the information supplied and opinions expressed. We have relied on such information and considered that we have been provided with and have reviewed sufficient information to reach an informed view and to justify our reliance on the accuracy of the information contained in the Circular. We have no reason to believe that any material information has been withheld, or doubt the truth or accuracy of the information provided. We have reviewed, amongst other things, the Rainbow Sale and Purchase Agreement, the Taipingqiao Sale and Purchase Agreement, the Subscription and Shareholders’ Agreement, the property valuation report prepared by Chesterton Petty in respect of its valuation of the property interests of Rainbow City and the Taipingqiao Properties as at 31st December, 2003, the accountants’ report on Rainbow City and Taipingqiao Properties respectively for the three years ended 31st March, 2003 and the six months ended 30th September, 2003 and the statement of pro forma combined adjusted net asset value of Rainbow City and Taipingqiao Holding Vehicles as at 30th September, 2003. We have not, however, carried out any independent verification of such information.

It should be noted that we have been engaged only to advise the Independent Board Committee regarding the Rainbow Sale and Purchase Agreement and the Cash Injection which constitute connected transactions of the Company under the Listing Rules and have not been engaged to advise on the Taipingqiao Sale and Purchase Agreement or the Subscription and Shareholders’ Agreement (apart from the Cash Injection).

BACKGROUND INFORMATION

It was announced on 23rd February, 2004 that the Group entered into the following agreements:

(1) the Rainbow Sale and Purchase Agreement, pursuant to which, the Company has agreed to sell to SOL the entire issued share capital of Foresight Profits Limited and the benefit of the Debt for an initial consideration (subject to adjustment) of US$130 million (about HK$1,014 million) to be satisfied by the allotment and issue of 130 million Ordinary Shares in SOL. Foresight Profits Limited is the holding company of Hollyfield Holdings Limited, which in turn holds 99% of the equity interest in Shanghai Rui Hong Xin Cheng Company Limited (a sino foreign joint venture established in the PRC), the sole asset of which is its investment in Rainbow City; and
(2) the Subscription and Shareholders’ Agreement, pursuant to which NRI Limited, a wholly-owned subsidiary of the Company, agreed to subscribe 50 million Junior Preference Shares (i.e. the Cash Injection) and the Investors together agreed to subscribe for up to an aggregate of 170 million Junior Preference Shares and 180 million Senior Preference Shares respectively in SOL, in each case at the subscription price of US$1.00 (equivalent to HK$7.8) each and payable in cash.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

It is noted that the Taipingqiao Sale and Purchase Agreement has been entered into on the same date. Under the Taipingqiao Sale and Purchase Agreement, Shui On Investment (a wholly owned subsidiary of Shui On Company) will sell and procure Shui On Properties, its wholly owned subsidiary, to sell to SOL (i) their respective entire interests in the Taipingqiao Holding Vehicles, comprising 70% of the equity interest of Interchina International Limited and the entire issued share capital of the remaining Taipingqiao Holding Vehicles; (ii) all the rights and interests of Shui On Properties in relation to Lot 124 of the Taipingqiao Properties; and (iii) the benefit of amounts which the Taipingqiao Holding Vehicles owe to Shui On Properties and Shui On Investment immediately prior to completion. The initial consideration (subject to adjustment) of US$301 million (about HK$2,348 million) is to be satisfied by the allotment and issue of 301 million Ordinary Shares in the capital of SOL. It is also noted that apart from the Taipingqiao Properties, Shui On Group also has a right to develop certain other areas in the Taipingqiao Area, namely Lot 115, 116, 119, 120, 123, 125 and 132 with a total site area of about 112,000 square metres (the “Taipingqiao Interest”). No timing for the future development of the Taipingqiao Interest has been ascertained. Nevertheless, the Shui On Group will upon the closing of the Subscription and Shareholders’ Agreement undertake to use reasonable efforts to procure the granting of the relevant land use rights by the relevant regulatory authorities in respect of the Taipingqiao Interest in favour of SOL Group.

The consideration under the Rainbow Sale and Purchase Agreement is subject to the following adjustments:

(1) The consideration will be adjusted if the Company’s audited total investment in Rainbow City upon completion of the agreement is different from RMB677 million (about HK$638.68 million). Any shortfall or excess will be settled in cash.
(2) A bonus consideration of up to US$8.8 million (about HK$68.64 million) (subject to adjustment) will be paid to the Company if certain agreed performance targets are achieved. The bonus consideration will be satisfied by the issue and allotment of additional Ordinary Shares in SOL credited as fully paid at the value of US$1.00 each.

It is further noted that the consideration under the Taipingqiao Sale and Purchase Agreement is subject to similar adjustment provisions. Details of the Transactions are set out in the Letter from the Board contained in the Circular.

PRINCIPAL FACTORS CONSIDERED

In arriving at our advice to the Independent Board Committee, we have considered the following principal reasons and factors:

Reasons for the Transactions

The Group is engaged in cement operations in the PRC, construction and construction materials operations in Hong Kong and the Pearl River Delta Region of the PRC, and also in housing development in the PRC. Currently, Rainbow City is the Group’s sole investment in the housing development market in the PRC.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As referred to in the Letter from the Board, the Directors consider it to be in the best interests of the Group if all of the Group’s property interests in the PRC are combined with the much larger property interests in the PRC of the Shui On Group. On the basis that Shui On Company will have injected its interest in the Taipingqiao Properties (including Shanghai Xintiandi) into SOL prior to completion of the Rainbow Sale and Purchase Agreement, the Company will, under the Rainbow Sale and Purchase Agreement, inject its entire investment and interest in Rainbow City into SOL in return for an equity interest in SOL. The Company will cease to have direct control over Rainbow City but will (i) maintain an interest in Rainbow City by virtue of its interest in SOL ranging between 16.07% to 24.57% (depending on whether the Independent Shareholders will approve the Cash Injection) such that it will continue to participate actively in the development of Rainbow City through SOL; and (ii) become an investor in SOL, an entity with access to a larger land bank (comprising the Taipingqiao Properties in addition to Rainbow City) and more investment and development opportunities in PRC.

The Directors have been advised that it is the intention of the Shui On Group that SOL will be the flagship property company of the Shui On Group in mainland PRC and that it should grow into a premier real estate developer, owner and operator in mainland PRC, focusing on city core development projects (i.e. large scale, urban mixed use developments, for office, residential, retail, entertainment, cultural and recreational uses) and integrated residential development projects (i.e. high quality, integrated residential projects targeting the urban upper-middle classes) in mainland PRC. As such, the Directors believe that SOL represents a unique opportunity for the Group to divest its interests in Rainbow City in exchange for Ordinary Shares in SOL.

Other than the development rights and interests in Rainbow City and the Taipingqiao Properties (including Shanghai Xintiandi), SOL will also have access to a pipeline of development opportunities in the PRC available to the Shui On Group, which include the Xihu Tiandi project in Hangzhou and the Hualongqiao project in Chongqing. Xihu Tiandi is a mixed-use development with retail outlets and restaurants located in the scenic West Lake of Hangzhou, the capital of Zhejiang province. The development covers a total area of 50,000 square metres, with a total buildable floor area of 58,000 square metres. As regards the Hualongqiao project, it is expected to be a mixed-use development over a site area of about 1.3 million square metres located in Yuzhong District in Chongqing in Southwest China. This project is currently under planning and is expected to comprise various business service facilities, including an exhibition and merchandising area, hotels, office buildings, residential buildings and retail and entertainment areas.

No timing for these possible future investments has been ascertained. However, Shui On Company, Shui On Properties and Shui On Investment have each undertaken to SOL, NRI Limited and the Investors that they will not undertake any new property development or investment projects in the PRC (excluding The Centrepoint in Guangzhou, a stand-alone office and service apartment project currently under planning consisting of about 70,000 square metres of gross floor area) without first offering the opportunity to SOL to undertake them.

As payment of dividends in respect of the Preference Shares will rank senior to the Ordinary Shares, an investment in the Ordinary Shares in SOL would defer the Group’s entitlement to any dividend income generated by Rainbow City, the Taipingqiao Properties and other projects that SOL may undertake. The Directors believe that by making a subscription for the Junior Preference Shares, the Group will (i) increase its shareholding in SOL; (ii) receive a steadier income from the investment

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

in SOL; (iii) secure SOL within the Group as an associated company; and (iv) enjoy a potentially higher capital gain when converting the Junior Preference Shares into Ordinary Shares on a listing of the shares of SOL. Accordingly, the Directors consider an investment in the Junior Preference Shares as beneficial to and in the interests of the Group.

Having considered the above benefits of the transactions contemplated under the Rainbow Sale and Purchase Agreement and the Cash Injection, we concur with the view of the Board that such transactions are beneficial to and in the interests of the Group.

The Taipingqiao Sale and Purchase Agreement and the Subscription and Shareholders’ Agreement

The Rainbow Sale and Purchase Agreement and the Subscription and Shareholders’ Agreement are both conditional on each of the Agreements becoming unconditional, excluding, among other things, the condition relating to the approval of the Cash Injection. Completion of the Rainbow Sale and Purchase Agreement will take place simultaneously with the closing of the Subscription and Shareholders’ Agreement after completion of the Taipingqiao Sale and Purchase Agreement. As such, the Company will, on the basis that Shui On Investment and Shui On Properties will inject its interests in the Taipingqiao Properties (including Shanghai Xintiandi) into SOL, inject its interests in Rainbow City into SOL in return for an equity interest in SOL. In the circumstances, although we have not been engaged to advise on the Taipingqiao Sale and Purchase Agreement or the Subscription and Shareholders’ Agreement (apart from the Cash Injection), we have reviewed the respective terms of the Taipingqiao Sale and Purchase Agreement and the Subscription and Shareholders’ Agreement and the effect of their impact on the underlying net assets of and equity interest in SOL.

Contracting parties

It is noted that (i) the Rainbow Sale and Purchase Agreement was entered into between the Company and SOL; (ii) the Subscription and Shareholders’ Agreement was entered into amongst SOL, the Investors (including NRI Limited), Shui On Investment, Shui On Properties, Shui On Company and the Company; and (iii) the Taipingqiao Sale and Purchase Agreement was entered into amongst Shui On Investment, SOL and Shui On Company.

It is further noted that Shui On Company is the controlling shareholder of the Company while Shui On Investment and Shui On Properties are associates of the Company. Shui On Group and its associates will abstain from voting on the resolutions to approve the Rainbow Sale and Purchase Agreement and the Cash Injection at the SGM.

The Investors (other than NRI Limited) are third parties independent of the directors, chief executive or substantial shareholders of the Company, any of its subsidiaries or their respective associates. Value Partners Limited (the manager of the Value Partners Funds, being part of the Investors) and Mr. Cheah Cheng Hye, who holds an interest in Value Partners Limited, are together interested in about 5.41% of the issued share capital of the Company, and some of the Investors are also interested in the Taipingqiao Properties. Cheah Cheng Hye and Value Partners Limited will also abstain from voting at the SGM.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Valuation method that should be adopted for the purpose of the Transactions

It is noted that the Rainbow City and the Taipingqiao Properties are large scale property projects. For example, Rainbow City is a residential housing development project in Shanghai, covering a site area of about 354,000 square metres. On completion of its entire development (which is expected to be around 2009), there will be an urban community with about 1,200,000 square metres of residential space and about 210,000 square metres of ancillary commercial and shopping facilities. The Taipingqiao Area, which is in close proximity to Shanghai’s Huai Hai Zhong Lu, is an urban revitalisation and redevelopment project over a site area of about 360,000 square metres that is located in Luwan District in the city centre of Shanghai. When fully developed (which is expected to be around 2010), the Taipingqiao Area will provide about 1,300,000 square metres of space to serve the housing, commercial and recreational needs of Shanghai. The Taipingqiao Properties which are located in the Taipingqiao Area, include Shanghai Xintiandi (a completed and fully operational development of about 55,000 square metres comprising a multitude of specialty food and beverage, entertainment and retail outlets), Lot 117 (a completed residential project comprising 284 units, 281 of which have been sold prior to completion), Lot 110 (a completed commercial development with a floor area of about 83,000 square metres held for lease purposes), Lot 124 with a site area of about 8,200 square metres (a project to be developed into a landmark grade A office building, where the Shui On Group head office is expected to be located), Lot 114 (a residential development project with a site area of about 32,600 square metres and a buildable floor area of 130,000 square metres whose construction works are in progress) and Lot 113 (a residential development project with a site area of about 24,000 square metres where site clearance works are in progress). Development for all of the remaining land parcels forming part of the Taipingqiao Properties with an aggregate site area of about 180,000 square metres is at the planning stage.

It is also noted that the consideration receivable by the Company under the Rainbow Sale and Purchase Agreement was arrived at after arm’s length negotiations among the Company, Shui On Company and the Investors with reference primarily to the projected cash flow of Rainbow City discounted at rates of return agreed among the relevant parties. Given that

the approach of discounting the projected cashflow of the Rainbow City project inevitably involves numerous assumptions being adopted such as the prices that properties can command on their sale or the rental levels that can be obtained for each lease or the attendant development costs, interest rates and financial leverage of each development as well as the timing for the launch of the different development phases or stages and that projected cash flows of this type of development typically will be made for a period of ten years or more, thereby assuming that the assumptions adopted would always be accurate over the entire period of the cash flow projection. Any one or all of these assumptions, however, may not be sufficiently reliable for the purpose of our advice to the Independent Board Committee. As such, we do not consider it appropriate to use a discounted cash flow method as the measure of valuation for this purpose;
development projects of this type are long term developments (in Rainbow City’s case being expected to be completed in 2009), earnings will fluctuate from year to year over the development period. As such, we also do not consider it appropriate to use a price earnings multiple as the valuation method for the purpose of our advice to the Independent Board Committee; and

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

it is, however, a widely used and acceptable method in Hong Kong to value a property company by way of valuing its net assets,

we, therefore, consider valuing the net assets of the Rainbow City and the Taipingqiao Holding Vehicles respectively (by reference to the open market values of Rainbow City and the Taipingqiao Properties at their existing state) to be the most appropriate method of valuation in the context of the Rainbow Sale and Purchase Agreement and the Cash Injection from the connected transactions perspective.

Effect of the Rainbow Sale and Purchase Agreement on the Group

Underlying net asset value based on the pro forma combined balance sheet of SOL combined group as at 30th September, 2003

Set out below is an analysis of the consideration payable by SOL under the Rainbow Sale and Purchase Agreement and Taipingqiao Sale and Purchase Agreement respectively and the resultant adjusted net asset values:

	Consideration
	payable	Adjusted net
	by SOL	asset value	Discount
	US$ million	US$ million	%
Under the Rainbow City Sale and Purchase
Agreement
— Without taking into account the bonus
consideration	130.0	157.9	17.7
— After taking into account the bonus
consideration	138.8	157.9	12.1
Under the Taipingqiao Sale and Purchase
Agreement
— Without taking into account the bonus
consideration	301.0	466.9	35.5
— After taking into account the bonus
consideration	375.0	466.9	19.7

Notwithstanding that the consideration payable by SOL to the Company under the Rainbow Sale and Purchase Agreement is at a discount to the adjusted net asset value, it should be noted that the pro forma combined adjusted net asset value of SOL attributable to the Group upon completion of the Assets Injection (excluding the bonus consideration paid to the Group and to the Shui On Group) will represent a premium of US$5 million to the adjusted net asset value contributed by the Group. This is because the consideration payable by SOL to Shui On Investment and Shui On Properties under the Taipingqiao Sale and Purchase Agreement is at a deeper discount to the adjusted net asset value of the Taipingqiao Holding Vehicles. It should also be noted that the pro forma combined adjusted net asset

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

value of SOL attributable to the Group and to the Shui On Group upon completion of the Assets Injection (including the bonus consideration paid to the Group and to the Shui On Group) will represent a deficit of US$1 million to the adjusted net asset value contributed by the Group. The following table shows the change in the notional net asset values attributable to the Group as a result of the Assets Injection:

		Combined
		adjusted	Notional net
	Adjusted net	net asset	asset value
	asset value	value of SOL	surplus (deficit)
	contributed	attributable to	attributable to
	by the Group	the Group	the Group
	US$ million	US$ million	US$ million
Assets Injection into SOL by the
Group, excluding the bonus
consideration paid to the Group and
to the Shui On Group	157.9	162.9	5.0
Assets Injection into SOL by the
Group, including the bonus
consideration paid to the Group and
to the Shui On Group	157.9	156.9	(1.0)

Adjusted net asset value contributed by the Company, Shui On Investment and Shui On Properties for every one percent equity interest in SOL

An analysis of the aggregate underlying net asset value (including the Cash Injection) contributed by the Group, Shui On Investment and Shui On Properties for every one percent equity interest in SOL is set out below:

			Upon issuance of all
			the Preference
		Upon closing of the	Shares and
		Subscription and	after payment
		Shareholders’	of the bonus
		Agreement	consideration
		US$ million	US$ million
The	Group	7.4	10.1
Shui	On Investment and Shui On Properties	9.8	11.4

As shown from the above, the underlying net asset value contributed by the Group for every one percent equity interest in SOL is lower than that contributed by Shui On Investment and Shui On Properties. The Group effectively pays less than what Shui On Investment and Shui On Properties do for every one percent equity interest in SOL.

— 38 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Gain on disposal

As the Company’s interests in Rainbow City will be injected into SOL at a premium to its total investment at 30th June, 2003, a gain on disposal would be recognised by the Company upon closing of the Subscription and Shareholders’ Agreement. The calculation of which is set out below:

	US$ million
Total investment as at 30th June, 2003	81.9
Consideration receivable by the Company under the
Rainbow Sale and Purchase Agreement	130.0
Representing a gain of	48.1	(59%)

The gain on disposal would further increase to about US$56.9 million (representing a 69% increase) if the bonus consideration of US$8.8 million were paid in full. The bonus consideration will be paid to the Group if certain agreed performance targets in respect of the sale of the remaining six blocks of residential units in the second stage of the development over Lot Nos. 11 and 174 in Rainbow City are achieved.

Control over Rainbow City

It should be noted that construction of the current development phase of Rainbow City located in Lot Nos. 11 and 174 with a site area of about 45,000 square metres and a buildable floor area of about 200,000 square metres is well underway. Pre-sale of the first stage of such development phase, comprising seven blocks of residential apartments, was launched in October 2003. An aggregate of 815 residential apartments out of 816 such apartments have been sold for a total sum of about HK$680 million. These seven blocks are expected to be completed in about March 2004. The remainder of such development phase comprises six blocks of residential apartments, and they are expected to be completed in phases in about April 2005 and October 2006, respectively.

At present, the Company owns a 99% interest in Rainbow City. On completion of the Assets Injection and the Cash Injection, the Group’s effective interest in Rainbow City will amount to about 24.57% of SOL’s then issued share capital. The Assets Injection will also result in the Company losing its access to the future cash flow of Rainbow City. However, the Company, together with Shui On Investment and Shui On Properties, will be interested in about 72.27% of the then issued share capital of SOL. SOL will in turn hold the respective interests in Rainbow City and Taipingqiao Properties originally held by the Company, and Shui On Investment and Shui On Properties. The Company will be entitled to appoint four out of 17 directors to the board of SOL (based on the Assets Injection and the Cash Injection becoming unconditional) and together with Shui On Investment and Shui On Properties will be entitled to appoint such number of directors that will enable it to have a majority of the 17 directors appointed to the board of SOL. A director appointed by the Shui On Group will preside as Chairman of the board of SOL. The first such Chairman will be Mr. Vincent Lo Hong Sui, the Chairman of the Shui On Group and of the Company.

— 39 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Funding requirements of Rainbow City’s future developments

Under the existing development plan of Rainbow City, the Group would be required to provide additional funding for the development of the remaining phases of Rainbow City, which the Directors estimate to range up to RMB1,900 million (about HK$1,792.45 million) over the next two years. The transaction contemplated under the Rainbow Sale and Purchase Agreement would remove such funding requirements from the Group as the funds required will in future be provided by SOL. In this regard, it should be noted that the net asset value of the Group was about HK$1,213 million as at 31st March, 2003 and the outstanding bank borrowings were about HK$1,264 million as at the same date.

Adjustment clause

Under the Rainbow Sale and Purchase Agreement, the consideration will be adjusted if the Group’s audited total investment in Rainbow City upon completion of the agreement is different from RMB677 million (about HK$638.68 million). Any shortfall or excess of which will be settled in cash. We note that there is a similar provision in the Taipingqiao Sale and Purchase Agreement. We consider that these provisions serve to protect the interests of the Group in the Rainbow Sale and Purchase Agreement.

Our view

On the above basis, we regard the transaction contemplated under the Rainbow Sale and Purchase Agreement as being justifiable so far as the Independent Shareholders are concerned.

Effect of the Cash Injection on the Group

Terms of subscription

Under the Subscription and Shareholders’ Agreement, NRI Limited will subscribe 50 million Junior Preference Shares (i.e. the Cash Injection) and the Investors will together subscribe 170 million Junior Preference Shares and 180 million Senior Preference Shares in SOL, in each case at the subscription price of US$1.00 each (about HK$7.80) in cash. The terms and conditions of such subscription, in particular, the subscription price paid by NRI Limited for the Junior Preference Shares are the same as the Investors who subscribe for the Junior Preference Shares.

In this regard, although Cheah Cheng Hye and Value Partners Limited (the manager of the Value Partners Funds, being part of the Investors) are interested in about 5.41% of the issued share capital of the Company, and some of the Investors are also interested in the Taipingqiao Properties, all of the Investors are third parties independent of the directors, chief executive or substantial shareholders of the Company, any of its subsidiaries or their respective associates.

— 40 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Discount to underlying adjusted net asset value based on the Independent Property Valuation

The following table shows the notional discount of the Cash Injection to the pro forma combined adjusted net asset value of SOL that is attributable to the equity interests held by the holders of the Preference Shares:

	Without taking into	After taking
	account	into account
	the bonus	the bonus
	consideration	consideration
Pro forma combined adjusted net asset value of
SOL attributable to the equity interests held by
the holders of Preference Shares	US$493.3 million	US$448.6 million
Cash Injection	US$400 million	US$400 million
Representing a discount of	18.9%	10.8%

In this respect, it should be noted that it is not uncommon for investors in Hong Kong to acquire interests in property companies in Hong Kong and the PRC by cash at discounts to their underlying net asset value. The following table shows the closing share prices as at the date of the Subscription and Shareholders’ Agreement of certain listed PRC property companies and their respective net asset value for information only:

		Net asset
	Net asset	value
	value as	per share as		Premium/
	per then	per then		(discount) of
	latest	latest	Closing price	share price
	published	published	as at	to net asset
	audited	audited	18th February,	value
Company name	accounts	accounts	2004	per share
	HK$ million	HK$	HK$	%
Beijing Capital Land Limited	4,615	2.86	2.625	(8.2)
Beijing North Star Co. Limited	4,896	2.62	1.800	(31.3)
China Overseas Land and
Investment Limited	7,706	1.42	1.990	40.1
China Resources Land Limited	3,947	2.63	1.520	(42.2)
Henderson China Holdings
Limited	7,036	14.16	4.650	(67.2)
Shanghai Forte Land Co., Ltd.	4,681	2.22	2.650	19.4

Note:

Net asset values of Beijing Capital Land Limited and Shanghai Forte Land Co., Ltd. are extracted from their respective prospectus after taking into account the revaluation surplus and listing proceeds.

— 41 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The property portfolios of such companies are considered to be comparable in terms of size and location of the relevant projects. While the net asset values referred to above are all contained in their respective then latest published audited accounts, the current PRC property market conditions may have a positive impact on the respective net asset value of the above companies. It should be noted, however, that the businesses, operations, location of the properties and prospects of SOL upon completion of the Transactions are not completely the same as those companies set out in the table above. As such, the information should be used with care.

Funding

Upon the closing of the agreement, NRI Limited will subscribe 25 million Junior Preference Shares at the subscription price of US$1.00 each. NRI Limited does not have to subscribe the remaining 25 million Junior Preference Shares until the capital calls made by SOL, (if at all). It is stated in the Letter from the Board that the amount payable by NRI Limited under the Cash Injection will be financed out of internal resources as well as unutilsed banking facilities of the Group which exceed HK$700 million. As stated in the Letter from the Board, HK$120 million has been invested into Rainbow City since 30th June, 2003 and, as such, a refund of this amount will be made to the Group. It follows that the actual cash outlay for the Group is US$50 million less the HK$120 million referred to above. In this respect, we have no reason to believe that, the internal resources and the unutilised banking facilities of the Group, which amount to at least HK$700 million, are not sufficient to finance the Cash Injection

Effect of the Cash Injection on the financial statements of the Company

It is noted that each of the Agreements is conditional upon the other becoming unconditional, excluding among other things, the condition relating to the Shareholders’ approval of the Cash Injection. In the event that all the conditions precedent for each of the Agreements are fulfilled but the Shareholders’ approval for the Cash Injection is not obtained, all parties will proceed with the Assets Injection and the closing of the Subscription and Shareholders’ Agreement except that the Company will not proceed with the Cash Injection. In such case, the Group would not be able to enjoy the benefit from the Cash Injection referred to above and, in particular, the Group’s equity interests in SOL upon completion of the Transaction would be reduced. Set out below is a table showing the equity interests attributable to the Company (1) immediately following completion of the Assets Injection and the Cash Injection on the closing of the Subscription and Shareholders’ Agreement (namely Scenario One); (2) when all the Preference Shares issuable under the Subscription and

— 42 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Shareholders’ Agreement and all the Ordinary Shares issuable in settlement of the bonus consideration under the Rainbow Sale and Purchase Agreement and the Taipingqiao Sale and Purchase Agreement are subscribed in full (namely Scenario Two); and (3) upon full conversion of all the Preference Shares (namely Scenario Three):

		Scenario	Scenario	Scenario
		One	Two	Three
		(%)	(%)	(%)
If	Shareholders’ approval for
	Cash Injection is not obtained	21.45	16.07	17.22
If	Shareholders’ approval for
	Cash Injection is obtained	24.57	20.66	21.76

It should be noted from the above table that if the Independent Shareholders do not approve the Cash Injection, the Company could own less than 20% of the then issued share capital of SOL in Scenarios Two and Three, and the Group will not be able to equity account for the results of SOL. It should also be noted that with a lower equity interest, the Group would not be able to obtain the notional net asset value surplus attributable to the Group both including and excluding the bonus consideration that is paid to the Group and to the Shui On Group. As a result of the Assets Injection and the Cash Injection, the Group contributed an aggregate adjusted net asset value of about US$207.9 million. The table set out below shows the notional net asset value surplus attributable to the Group as a result of the Assets Injection and the Cash Injection:

		Combined
		adjusted net	Notional net
	Adjusted net	asset value	asset value
	asset value	of SOL	surplus
	contributed	attributable	attributable
	by the Group	to the Group	to the Group
	US$ million	US$ million	US$ million
Asset Injection and Cash Injection into
SOL by the Group, excluding the
bonus consideration paid to the
Group and to the Shui On Group	207.9	222.0	14.1
Asset Injection and Cash Injection into
SOL by the Group, including the
bonus consideration paid to the
Group and to the Shui On Group	207.9	211.7	3.8

The increase in the notional net asset value attributable to the Group that is shown above (i.e. assuming approval for the Cash Injection is obtained) compares favourably to the surplus of US$5.0 million (that excludes the bonus consideration) and the deficit of US$1.0 million (that includes the bonus consideration) if approval for only the Assets Injection is obtained. The relevant table showing the increase in the notional net asset value attributable to the Group as a result of the Assets Injection is shown in the paragraph headed “Underlying net asset value based on the pro forma combined balance sheet of SOL combined group as at 30th September, 2003” of this letter.

— 43 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Our view

Based on the above analysis, we regard the Cash Injection as being beneficial to the Group so far as the Independent Shareholders are concerned.

ADVICE

Having considered the above principal reasons and factors, we consider that the Rainbow Sale and Purchase Agreement and the Cash Injection are overall fair and reasonable so far as the Independent Shareholders taken as a whole are concerned. Accordingly, we advise you to recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Rainbow Sale and Purchase Agreement and the Cash Injection.

Yours faithfully,

For and on behalf of

BNP Paribas Peregrine Capital Limited Isadora Li

Managing Director

— 44 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

I. SUMMARY FINANCIAL INFORMATION

A summary of the published results of the Group for the last three financial years, as extracted from the audited financial statements is set out below:

	2003	2002	2001
	HK$ million	HK$ million	HK$ million
Turnover	2,311.3	3,757.2	5,556.1
Other operating income	29.4	53.8	67.6
Changes in inventories of finished goods,
work in progress, contract work in
progress and properties held for sale	30.0	(58.3)	(341.6)
Raw materials and consumables used	(483.9)	(645.7)	(745.3)
Staff costs	(364.2)	(513.7)	(552.5)
Depreciation and amortisation expenses	(45.3)	(62.8)	(70.4)
Subcontracting, external labour costs and
other operating expenses	(1,530.3)	(2,407.0)	(3,355.5)
Revaluation (decrease) increase on investment
property	(14.0)	(3.0)	10.0
Revaluation decrease on land and buildings	(2.3)	—	—
(Loss) profit from operations	(69.3)	120.5	568.4
Finance costs	(5.9)	(3.1)	(1.1)
Share of results of jointly controlled entities	30.6	5.0	30.8
(Loss) profit before taxation	(44.6)	122.4	598.1
Taxation	(2.7)	(20.5)	(80.7)
(Loss) profit before minority interests	(47.3)	101.9	517.4
Minority interests	0.2	2.4	(9.1)
(Loss) profit attributable to shareholders	(47.1)	104.3	508.3
Dividends
Paid	39.7	357.1	489.1
Proposed	—	39.7	316.0
(Loss) earnings per share
Basic	HK$(0.18)	HK$0.39	HK$1.93
Diluted	HK$(0.18)	HK$0.39	HK$1.93

— 45 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

II. SUMMARY OF FINANCIAL RESULTS FOR THE TWO YEARS ENDED 31 MARCH 2003

Set out below is a summary of the consolidated profit and loss accounts, the consolidated statements of recognised gains and losses, the consolidated cash flow statements for each of the two year ended 31 March 2003 and the consolidated balance sheets as at 31 March 2002 and 2003 of the Group together with the relevant notes as extracted from the audited financial statements of the Group for the year ended 31 March 2003.

Consolidated Income Statement

For The Year Ended 31 March 2003

	Notes	2003	2002
		HK$ million	HK$ million
Turnover	4	2,311.3	3,757.2
Other operating income	5	29.4	53.8
Changes in inventories of finished goods,
work in progress, contract work in
progress and properties held for sale		30.0	(58.3)
Raw materials and consumables used		(483.9)	(645.7)
Staff costs		(364.2)	(513.7)
Depreciation and amortisation expenses		(45.3)	(62.8)
Subcontracting, external labour costs and
other operating expenses		(1,530.3)	(2,407.0)
Revaluation decrease on investment property		(14.0)	(3.0)
Revaluation decrease on land and buildings		(2.3)	—
(Loss) profit from operations	6	(69.3)	120.5
Finance costs	7	(5.9)	(3.1)
Share of results of jointly controlled entities		30.6	5.0
(Loss) profit before taxation		(44.6)	122.4
Taxation	10	(2.7)	(20.5)
(Loss) profit before minority interests		(47.3)	101.9
Minority interests		0.2	2.4
(Loss) profit attributable to shareholders		(47.1)	104.3

— 46 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

	Notes	2003	2002
		HK$ million	HK$ million
Dividends	11
Paid		39.7	357.1
Proposed		—	39.7
(Loss) earnings per share	12
Basic		HK$(0.18)	HK$0.39
Diluted		HK$(0.18)	HK$0.39

— 47 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Balance Sheets

As At 31 March 2003

THE 2003 HK$ million 123.0 197.5 706.0 (0.7) — 437.5 135.6 1.2 13.9 1,614.0	GROUP 2002 HK$ million 137.0 238.2 367.2 — — 337.9 179.0 1.2 16.9 1,277.4	THE COMPANY 2003 2002 HK$ million HK$ million — — 1.7 2.7 — — — — 291.7 291.7 — — — — 1.2 1.2 — — 294.6 295.6	THE COMPANY 2003 2002 HK$ million HK$ million — — 1.7 2.7 — — — — 291.7 291.7 — — — — 1.2 1.2 — — 294.6 295.6
			295.6
39.7 56.1 596.8 221.2 — 0.4 0.6 620.9 4.9 89.5	33.0 57.1 692.4 266.0 — 0.2 0.1 418.6 6.6 74.5	— — 4.8 — 2,071.0 0.4 — 3.2 — 0.4	— — 3.4 — 1,407.7 0.2 — 3.2 — 5.6
1,630.1	1,548.5	2,079.8	1,420.1

— 48 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

THE 2003 HK$ million 630.0 81.1 — 23.0 0.1 68.9	GROUP 2002 HK$ million 918.5 147.6 — 23.4 0.9 16.0	THE COMPANY 2003 2002 HK$ million HK$ million 15.5 12.6 — — 334.8 367.5 7.0 0.1 — — — —	THE COMPANY 2003 2002 HK$ million HK$ million 15.5 12.6 — — 334.8 367.5 7.0 0.1 — — — —
803.1 827.0	1,106.4 442.1	357.3 1,722.5	380.2
			1,039.9
2,441.0	1,719.5	2,017.1	1,335.5
264.7 948.7 1,213.4	264.5 1,066.1 1,330.6	264.7 690.4 955.1	264.5 711.0
			975.5
26.1	27.4	—	—
1,194.8 1.6 5.1 1,201.5	360.0 1.5 — 361.5	1,061.0 — 1.0 1,062.0	360.0 — —
			360.0
2,441.0	1,719.5	2,017.1	1,335.5

— 49 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For The Year Ended 31 March 2003

	2003	2002
	HK$ million	HK$ million
At the beginning of the year
— as originally stated	1,330.6	1,582.1
— prior period adjustments resulting from the adoption
of SSAP 34 (Note 2)	(24.4)	—
— as restated	1,306.2	1,582.1
Revaluation (decrease) increase on land and buildings	(13.8)	1.4
Exchange differences arising on translation of overseas operations	6.9	(6.0)
Net losses not recognised in the consolidated income statement	(6.9)	(4.6)
(Loss) profit attributable to shareholders	(47.1)	104.3
Negative goodwill released upon disposal of a jointly
controlled entity	—	(1.4)
Dividends paid	(39.7)	(357.1)
Shares issued at premium upon exercise of share options	0.9	7.3
At the end of the year	1,213.4	1,330.6

— 50 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For The Year Ended 31 March 2003

	2003	2002
	HK$ million	HK$ million
Operating Activities
(Loss) profit from operations	(69.3)	120.5
Adjustments for:
Interest income	(10.0)	(14.0)
Dividends from unlisted investments	—	(0.6)
Dividends from listed investments	(6.2)	(5.8)
Revaluation decrease on investment property	14.0	3.0
Revaluation decrease on property, plant and equipment	2.3	—
Net unrealised holding loss (gain) on other investments	28.8	(9.7)
Depreciation on property, plant and equipment	41.9	57.4
Amortisation of site establishment expenditure	3.4	5.4
Loss on disposal of property, plant and equipment	0.9	1.1
Gain on dissolution/disposal of a jointly controlled entity	(2.5)	(0.1)
Loss (gain) on disposal of listed investments	0.1	(2.0)
Release of negative goodwill	(0.2)	—
Decrease in defined benefit liabilities	(3.4)	—
Operating cash flows before movements in working capital	(0.2)	155.2
(Increase) decrease in inventories	(6.7)	9.9
Decrease in properties held for sale	1.0	134.7
Decrease in debtors, deposits and prepayments	95.6	2,762.3
Decrease (increase) in amounts due from customers
for contract work	44.8	(56.4)
Increase in amounts due from related companies	(0.2)	—
Increase in amount due from associates	(0.5)	—
Increase in amounts due from jointly controlled entities	(202.3)	(225.9)
Decrease in creditors and accrued charges	(304.4)	(289.3)
Decrease in amounts due to customers for contract work	(66.5)	(26.3)
Decrease in amounts due to jointly controlled entities	(0.4)	(16.7)
(Decrease) increase in amounts due to related companies	(0.8)	0.9
Cash (used in) generated from operations	(440.6)	2,448.4
Hong Kong Profits Tax paid	(0.1)	(116.8)
Income tax of other regions in the PRC refunded (paid)	0.3	(1.7)
Interest paid	(19.1)	(14.3)
Other borrowing costs	(3.4)	(3.8)
Net cash (used in) from operating activities	(462.9)	2,311.8

— 51 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

	2003	2002
	HK$ million	HK$ million
Investing activities
Interest received	10.0	15.5
Dividends received from unlisted investments	—	0.6
Dividends received from listed investments	6.2	5.8
Dividends received from a jointly controlled entity	1.0	1.0
Capital distribution from dissolution of a jointly controlled entity	15.3	—
Purchase of property, plant and equipment	(28.9)	(27.6)
Additions to property under development	(322.4)	(361.9)
Purchase of investments in securities	(19.5)	—
Proceeds from sale of property, plant and equipment	11.0	2.8
Investments in jointly controlled entities	(83.8)	(183.9)
Site establishment costs expended	(0.4)	(2.5)
Proceeds on disposal of investments in securities	34.0	18.8
Proceeds on disposal of a jointly controlled entity	—	6.4
Net cash used in investing activities	(377.5)	(525.0)
Financing activities
New secured and unsecured bank loans raised	886.5	360.0
Net proceeds received on issue of shares	0.9	7.3
Repayments of secured and unsecured bank loans	—	(2,027.3)
Dividends paid	(39.7)	(357.1)
Net cash inflow from minority interests	1.3	2.4
Dividends paid to minority shareholders	(1.1)	(0.6)
Net cash from (used in) financing activities	847.9	(2,015.3)
Net increase (decrease) in cash and cash equivalents	7.5	(228.5)
Cash and cash equivalents at the beginning of the year	58.5	293.0
Effect of foreign exchange rate changes	6.3	(6.0)
Cash and cash equivalents at the end of the year	72.3	58.5
Analysis of the balances of cash and cash equivalents
Bank balances, deposits and cash	89.5	74.5
Bank overdrafts	(17.2)	(16.0)
	72.3	58.5

— 52 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Financial Statements

For The Year Ended 31 March 2003

1. GENERAL

The Company is incorporated in Bermuda as an exempted company with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The Directors consider that its ultimate holding company is Shui On Company Limited (“SOCL”), a private limited liability company incorporated in the British Virgin Islands.

The principal activity of the Company is investment holding. Its subsidiaries are principally engaged in construction and contracting, renovation and fitting out, manufacturing and trading of construction and building materials, property development, property investment and investment holding.

2. ADOPTION OF STATEMENTS OF STANDARD ACCOUNTING PRACTICE

In the current year, the Group has adopted for the first time a number of new and revised Statements of Standard Accounting Practice (“SSAPs”) issued by the Hong Kong Society of Accountants. Adoption of these SSAPs has led to a number of changes in the Group’s accounting policies. The revised accounting policies are set out in note 3. In addition, the adoption of these SSAPs has resulted in a change in the format of presentation of the consolidated cash flow statement and the inclusion of the consolidated statement of changes in equity. Comparative amounts for the prior year have been restated in order to achieve a consistent presentation.

The adoption of these new and revised SSAPs has resulted in the following changes to the Group’s accounting policies that have affected the amounts reported for the current or prior periods.

Foreign currency translation

The revisions to SSAP 11 “Foreign currency translation” have eliminated the choice of translating the income statement of subsidiaries operating outside Hong Kong at the closing rate for the period, the policy previously followed by the Group. They are now required to be translated at an average rate. This change in accounting policy has not had any material effect on the results for the current or prior accounting periods. Accordingly, no prior period adjustment has been required.

Cash flow statements

In the current year, the Group has adopted SSAP 15 (Revised) “Cash flow statements”. Under SSAP 15 (Revised), cash flows are classified under three headings - operating, investing and financing activities, rather than the previous five headings. Interest paid, interest and dividends received and dividends paid, which were previously presented under a separate heading, are classified as operating, investing and financing cash flows respectively. Cash flows arising from taxes on income are classified as operating activities, unless they can be separately identified with investing or financing activities.

Employee benefits

In the current period, the Group has adopted SSAP 34 “Employee benefits”, which introduces measurement rules for employee benefits, including retirement benefit plans.

i) Short-term employee benefits - accrued liabilities on unused annual leave

Prior to the issue of SSAP 34, the Group did not provide for liabilities in respect of vested annual leave of its staff. SSAP 34 requires that obligations in respect of these entitlements should be accrued as soon as services are rendered. This change in accounting policy has resulted in a prior period adjustment of a decrease in the Group’s retained profits by HK$15.9 million as at 1 April 2002. No restatement of comparative information has been made as the directors consider that it is impracticable to quantify the amount.

— 53 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

ii) Post-employment benefits - defined benefit plan

The principal effect of the implementation of SSAP 34 is in connection with the recognition of costs for the Group’s defined benefit retirement plan. In prior years, the cost of providing retirement benefits under this plan was determined using the attained age method, with actuarial valuations carried out every three years. Actuarial gains and losses and past service cost were spread systematically over the expected remaining working lives of existing employees.

Under SSAP 34, the cost of providing retirement benefits under the Group’s defined benefit retirement plan is determined using the projected unit credit method, with actuarial valuations being carried out annually. Actuarial gains and losses which exceed 10% of the greater of the present value of the Group’s pension obligations and the fair value of plan assets are amortised over the expected average remaining working lives of the employees participating in the plan. Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the amended benefits become vested.

As a result of the changes described above, the Group has determined the transitional liability for its defined benefit retirement plan as at 1 April 2002 of HK$8.5 million arising from this change in accounting policy. This amount has been adjusted immediately to the opening balance of retained profits at 1 April 2002. Comparatives have not been restated as the directors consider that it is impracticable to quantify the amount.

3. SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared under the historical cost convention as modified for the revaluation of investment properties, certain land and buildings and investments in securities.

The financial statements have been prepared in accordance with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are as follows:

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 March each year.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or made up to the effective date of disposal, as appropriate.

All significant inter-company transactions and balances within the Group have been eliminated on consolidation.

Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition.

Goodwill arising on acquisitions prior to 1 April 2001 continues to be held in reserves, and will be charged to the consolidated income statement at the time of disposal of the relevant subsidiary, associate or jointly controlled entity, or at such time as the goodwill is determined to be impaired.

— 54 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Goodwill arising on acquisitions on or after 1 April 2001 is capitalised and amortised on a straight-line basis over its useful economic life. Goodwill arising on the acquisition of an associate or a jointly controlled entity is included within the carrying amount of the associate or jointly controlled entity. Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet.

On the disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of unamortised goodwill/goodwill previously eliminated against reserves is included in the determination of the profit or loss on disposal.

Negative goodwill

Negative goodwill represents the excess of the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition over the cost of acquisition.

Negative goodwill arising on acquisitions prior to 1 April 2001 continues to be held in reserves and will be credited to the consolidated income statement at the time of disposal of the relevant subsidiary, associate or jointly controlled entity.

Negative goodwill arising on acquisitions on or after 1 April 2001 is presented as a deduction from assets and will be released to the consolidated income statement based on an analysis of the circumstances from which the balance resulted.

To the extent that the negative goodwill is attributable to losses or expenses anticipated at the date of acquisition, it is released to income in the period in which those losses or expenses arise. The remaining negative goodwill is recognised as income on a straight-line basis over the remaining average useful life of the acquired identifiable depreciable assets. To the extent that such negative goodwill exceeds the aggregate fair value of the acquired identifiable non-monetary assets, it is recognised as income immediately.

Negative goodwill arising on the acquisition of an associate or a jointly controlled entity is deducted from the carrying value of that associate or jointly controlled entity. Negative goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet as a deduction from assets.

Revenue recognition

Construction contracts

When the outcome of a construction contract can be estimated reliably, revenue is recognised on the percentage of completion method, measured by reference to the value of work carried out during the period. Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer.

When the outcome of a construction contract cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred that is probable will be recoverable.

Others

Interest income is accrued on a time proportion basis, by reference to the principal outstanding and at the interest rate applicable.

Sales of goods are recognised when goods are delivered and title has passed.

— 55 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Rental income, including rentals invoiced in advance from properties let under operating leases, is recognised on a straight-line basis over the term of the relevant lease.

Dividend income from investments is recognised when the Group’s right to receive the relevant payment has been established.

Investment properties

Investment properties are completed properties which are held for their investment potential, any rental income being negotiated at arm’s length.

Investment properties are stated at their open market value based on professional valuations at the balance sheet date. They are valued at intervals of not more than three years by independent professional valuers. In each of the intervening years, valuations are undertaken by professionally qualified executives of the Group. Any revaluation increase or decrease arising on the revaluation of investment properties is credited or charged to the investment property revaluation reserve unless the balance on this reserve is insufficient to cover a revaluation decrease, in which case the excess of the revaluation decrease over the balance on the investment property revaluation reserve is charged to the consolidated income statement. Where a decrease has previously been charged to the consolidated income statement and a revaluation increase subsequently arises, this increase is credited to the consolidated income statement to the extent of the decrease previously charged.

On the disposal of an investment property, the balance on the investment property revaluation reserve attributable to that property is transferred to the consolidated income statement.

No depreciation is provided on investment properties except where the unexpired term of the relevant lease is 20 years or less.

Property, plant and equipment

Property, plant and equipment, other than certain land and buildings in Hong Kong with significant carrying values, are stated at cost less accumulated depreciation and impairment losses.

Depreciation is provided to write off the cost or valuation of property, plant and equipment over their estimated useful lives on a straight-line basis at the following rates per annum and after taking into account their estimated residual value, if applicable.

Land and buildings in Hong Kong and other regions of the People’s Republic of China (the “PRC”) held under medium-term leases:

Leasehold land	Over the term of the lease
Buildings	2.5%
Land and buildings in Hong Kong under short-term leases	Over the term of the lease
Plant and machinery	10 - 25%
Motor vehicles, equipment, furniture and other assets	20 - 33%

No depreciation is provided on plant under construction until the assets are completed and put into operation.

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the consolidated income statement.

— 56 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Certain land and buildings in Hong Kong are stated in the balance sheet at their revalued amounts, being the fair values on the basis of their existing use at the date of revaluation less any subsequent accumulated depreciation. Revaluations are performed with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the balance sheet date.

Any increase arising on the revaluation of land and buildings is credited to the revaluation reserve, except to the extent that it reverses a revaluation decrease of the same asset previously recognised as an expense, in which case the increase is credited to the consolidated income statement to the extent of the decrease previously charged. A decrease in net carrying amount arising on revaluation of an asset is dealt with as an expense to the extent that it exceeds the balance, if any, on the revaluation reserve relating to a previous revaluation of that asset. On the subsequent sale or retirement of a revalued asset, the attributable revaluation surplus is transferred to retained profits.

Properties under development

Properties under development are stated at cost less any identified impairment loss.

Investments in subsidiaries

Investments in subsidiaries are included in the Company’s balance sheet at cost less any impairment loss.

Interests in associates

An associate is an enterprise, other than a subsidiary or a jointly controlled entity, over which the Group is in a position to exercise significant influence, including participation in financial and operating policy decisions.

The consolidated income statement includes the Group’s share of the post-acquisition results of its associates for the year. In the consolidated balance sheet, interests in associates are stated at the Group’s share of the net assets of the associates, less any identified impairment loss.

When the Group transacts with its associates, unrealised profits and losses are eliminated to the extent of the Group’s interest in the relevant associates, except where unrealised losses provide evidence of an impairment of the asset transferred.

Interests in joint ventures

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

Jointly controlled entities

Joint venture arrangements which involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly controlled entities.

The Group’s interests in jointly controlled entities are included in the consolidated balance sheet at the Group’s share of the net assets of the jointly controlled entities less any identified impairment loss. The Group’s share of the post-acquisition results of jointly controlled entities is included in the consolidated income statement.

When the Group transacts with its jointly controlled entities, unrealised profits and losses are eliminated to the extent of the Group’s interest in the jointly controlled entities, except where unrealised losses provide evidence of an impairment of the asset transferred.

— 57 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Investments in securities

Investments in securities are recognised on a trade-date basis and are initially measured at cost.

Investments other than held-to-maturity debt securities are classified as investment securities and other investments.

Investment securities, which are securities held for an identified long-term strategic purpose, are measured at subsequent reporting dates at cost, as reduced by any impairment loss that is other than temporary.

Other investments are measured at fair value, with unrealised gains and losses included in net profit or loss for the year.

Club debentures

Club debentures represent membership rights in recreational clubs and are stated at cost less impairment losses recognised.

Site establishment expenditure

Site establishment expenditure for quarrying rights or leased sites is stated at cost less amortisation. Amortisation is provided to write off the cost of site establishment expenditure based on the quarrying capacity or over the duration of the relevant site leases.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the first-in, first-out method. Net realisable value represents the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.

Properties held for sale

Properties held for sale are stated at the lower of cost and net realisable value. Cost includes the cost of land, development expenditure incurred and, where appropriate, financial expenses capitalised. Net realisable value is determined by management based on prevailing market conditions.

Construction contracts

When the outcome of a construction contract can be estimated reliably, contract costs are charged to the consolidated income statement by reference to the stage of completion of the contract activity at the balance sheet date, as measured by the value of work carried out during the year.

When the outcome of a construction contract cannot be estimated reliably, contract costs are recognised as an expense in the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

— 58 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Where contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus is shown as an amount due from customers for contract work. For contracts where progress billings exceed contract costs incurred to date plus recognised profits less recognised losses, the surplus is shown as an amount due to customers for contract work.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. Capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised.

All other borrowing costs are recognised as an expense in the period in which they are incurred.

Impairment

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately, unless the relevant asset is carried at a revalued amount under another accounting standard, in which case the impairment loss is treated as a revaluation decrease under that other accounting standard.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount under another accounting standard, in which case the reversal of the impairment loss is treated as a revaluation increase under that other accounting standard.

Taxation

The charge for taxation is based on the results for the year as adjusted for items which are non-assessable or disallowed. Timing differences arise from the recognition for tax purposes of certain items of income and expense in a different accounting period from that in which they are recognised in the financial statements. The tax effect of the resulting timing differences, computed under the liability method, is recognised as deferred taxation in the financial statements to the extent that it is probable that a liability or an asset will crystallise in the foreseeable future.

Leases

Rentals payable under operating leases are charged to the consolidated income statement on a straight-line basis over the term of the relevant lease.

Foreign currencies

Transactions in currencies other than Hong Kong dollars are translated into Hong Kong dollars at the rates ruling on the dates of the transactions. Monetary assets and liabilities denominated in currencies other than Hong Kong dollars are re-translated into Hong Kong dollars at the rates ruling on the balance sheet date. Gains and losses arising on exchange are dealt with in the income statement.

— 59 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

On consolidation, the assets and liabilities of operations outside Hong Kong are translated into Hong Kong dollars at exchange rates ruling on the balance sheet date. Income and expense items are translated at the average exchange rates for the year. All exchange differences arising on consolidation are classified as equity and transferred to the translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of.

Retirement benefits costs

Payments to the Mandatory Provident Fund Scheme (the “MPF Scheme”) are charged as an expense as they fall due.

For defined benefit retirement plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses which exceed 10 per cent of the greater of the present value of the Group’s pension obligations and the fair value of plan assets are amortised over the expected average remaining working lives of the participating employees. Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the amended benefits become vested.

The amount recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses and unrecognised past service cost, and as reduced by the fair value of plan assets.

4. BUSINESS AND GEOGRAPHICAL SEGMENTS

Business segments

For management reporting purposes, the Group is currently organised into five operating divisions - construction and building maintenance, sale of construction materials, trading of building materials, property development and property investment and others. These divisions are the basis on which the Group reports its primary segment information.

Turnover represents the revenue arising on construction contracts and building maintenance, net amounts received and receivable for goods sold by the Group to third party customers, less returns and allowances, revenue from property development projects, and rental and leasing income for the year.

— 60 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Segment information about these businesses is presented below.

	Construction	Sale of	Trading of		Property
	and building	construction	building	Property	investment
2003	maintenance	materials	materials	development	and others	Eliminations	Consolidated
	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million
TURNOVER
External sales	1,773.2	466.1	53.4	2.3	16.3	—	2,311.3
Inter-segment sales	—	150.4	3.9	—	0.4	(154.7)	—
	1,773.2	616.5	57.3	2.3	16.7	(154.7)	2,311.3

Inter-segment sales are charged at mutually agreed prices.

RESULTS Segment results Interest income Loss from operations Finance costs Share of results of jointly controlled entities - Cement operations in - Chongqing and Guizhou - Nanjing - Others Loss before taxation Taxation Loss before minority interests	27.0 1.1	(42.5) 42.4 (8.3) (3.4)	(30.3)	(1.7)	(31.8)**
					(1.2)		10.0 (69.3) (5.9)
							42.4 (8.3) (3.5)
							30.6 (44.6) (2.7)

** This comprises mainly unrealised holding loss of listed securities (HK$24.6 million), revaluation decrease on an investment property (HK$14.0 million) and profit from renting of the investment property (HK$7.1 million).

— 61 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

BALANCE SHEET

	Construction	Sale of	Trading of		Property
	and building	construction	building	Property	investment
	maintenance	materials	materials	development	and others	Eliminations	Consolidated
	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million
ASSETS
Segment assets	571.2	457.4	33.8	839.4	278.4	—	2,180.2
Amounts due from
jointly controlled
entities/associates	21.0	597.3	—	—	3.2	—	621.5
Interests in jointly
controlled
entities/associates	17.9	352.5	—	—	67.1	—	437.5
Inter-segment
receivables	775.5	90.8	9.7	—	1,859.6	(2,735.6)	—
Unallocated assets							4.9
Consolidated total
assets							3,244.1
LIABILITIES
Segment liabilities	563.9	119.2	7.4	7.5	19.9	—	717.9
Amounts due to
jointly controlled
entities	15.3	0.7	—	—	7.0	—	23.0
Inter-segment
payables	215.1	1,203.3	110.7	724.4	482.1	(2,735.6)	—
Unallocated liabilities							1,263.7
Consolidated total
liabilities							2,004.6

OTHER INFORMATION

	Construction	Sale of	Trading of		Property
	and building	construction	building	Property	investment
	maintenance	materials	materials	development	and others	Total
	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million
Capital expenditure	1.2	25.5	1.1	0.7	0.8	29.3
Negative goodwill	—	(0.8)	—	—	—	(0.8)
Depreciation and
amortization	1.2	38.6	3.2	0.3	2.2	45.5
Release of negative
goodwill	—	(0.2)	—	—	—	(0.2)
Other non-cash
(income) expenses	(0.1)	0.2	0.6	—	42.9	43.6

— 62 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

	Construction	Sale of	Trading of		Property
	and building	construction	building	Property	investment
2002	maintenance	materials	materials	development	and others	Eliminations	Consolidated
	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million
TURNOVER
External sales	2,916.3	671.9	18.1	136.9	14.0	—	3,757.2
Inter-segment sales	1.4	310.1	2.1	—	5.2	(318.8)	—
	2,917.7	982.0	20.2	136.9	19.2	(318.8)	3,757.2

Inter-segment sales are charged at mutually agreed prices.

RESULTS Segment results Interest income Profit from operations Finance costs Share of results of jointly controlled entities - Cement operations in - Chongqing and Guizhou - Nanjing - Others Profit before taxation Taxation Profit before minority interests	81.8 0.5	48.2 16.1 (12.1) (0.8)	(39.3)	(2.1)	17.9**
					1.3		14.0 120.5 (3.1)
							16.1 (12.1) 1.0
							5.0 122.4 (20.5)

** This comprises mainly unrealised holding gain on other investments (HK$9.7 million), dividends received from investment in listed securities (HK$5.8 million), revaluation decrease on an investment property (HK$3.0 million) and profit from renting of the investment property (HK$6.6 million).

— 63 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

BALANCE SHEET

	Construction	Sale of	Trading of		Property
	and building	construction	building	Property	investment
	maintenance	materials	materials	development	and others	Eliminations	Consolidated
	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million
ASSETS
Segment assets	654.4	604.8	15.3	443.6	344.6	—	2,062.7
Amounts due from
jointly controlled
entities/associates	16.3	391.1	8.1	—	3.2	—	418.7
Interests in jointly
controlled
entities/associates	18.2	251.4	—	—	68.3	—	337.9
Inter-segment
receivables	980.3	76.4	46.0	—	1,173.0	(2,275.7)	—
Unallocated assets							6.6
Consolidated total
assets							2,825.9
LIABILITIES
Segment liabilities	911.6	133.0	4.3	3.7	15.9	—	1,068.5
Amounts due to
jointly controlled
entities	8.6	0.7	14.0	—	0.1	—	23.4
Inter-segment
payables	203.4	1,010.9	80.5	436.9	544.0	(2,275.7)	—
Unallocated liabilities							376.0
Consolidated total
liabilities							1,467.9

OTHER INFORMATION

	Construction	Sale of	Trading of		Property
	and building	construction	building	Property	investment
	maintenance	materials	materials	development	and others	Total
	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million
Capital expenditure	1.4	23.3	3.7	0.4	1.3	30.1
Depreciation and
amortization	1.9	53.4	4.6	0.1	2.8	62.8
Other non-cash
(income) expenses	(0.1)	1.1	—	—	(8.7)	(7.7)

— 64 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Geographical segments

The Group’s operations are located in Hong Kong and other regions in the PRC.

Analyses of the Group’s turnover and contribution by geographical markets, irrespective of the origin of the goods/services, are as follows:

Turnover by geographical markets Contribution to (loss) profit from operations 2003 2002 2003 2002 HK$ million HK$ million HK$ million HK$ million Hong Kong 2,166.8 3,640.8 (68.1) 121.5 Other regions in the PRC 144.5 116.4 (11.2) (15.0) 2,311.3 3,757.2 (79.3) 106.5 Interest income 10.0 14.0 (Loss) profit from operations (69.3) 120.5 Finance costs (5.9) (3.1) Share of results of jointly controlled entities 30.6 5.0 (Loss) profit before taxation (44.6) 122.4	Turnover by geographical markets Contribution to (loss) profit from operations 2003 2002 2003 2002 HK$ million HK$ million HK$ million HK$ million Hong Kong 2,166.8 3,640.8 (68.1) 121.5 Other regions in the PRC 144.5 116.4 (11.2) (15.0) 2,311.3 3,757.2 (79.3) 106.5 Interest income 10.0 14.0 (Loss) profit from operations (69.3) 120.5 Finance costs (5.9) (3.1) Share of results of jointly controlled entities 30.6 5.0 (Loss) profit before taxation (44.6) 122.4	Turnover by geographical markets Contribution to (loss) profit from operations 2003 2002 2003 2002 HK$ million HK$ million HK$ million HK$ million Hong Kong 2,166.8 3,640.8 (68.1) 121.5 Other regions in the PRC 144.5 116.4 (11.2) (15.0) 2,311.3 3,757.2 (79.3) 106.5 Interest income 10.0 14.0 (Loss) profit from operations (69.3) 120.5 Finance costs (5.9) (3.1) Share of results of jointly controlled entities 30.6 5.0 (Loss) profit before taxation (44.6) 122.4	Turnover by geographical markets Contribution to (loss) profit from operations 2003 2002 2003 2002 HK$ million HK$ million HK$ million HK$ million Hong Kong 2,166.8 3,640.8 (68.1) 121.5 Other regions in the PRC 144.5 116.4 (11.2) (15.0) 2,311.3 3,757.2 (79.3) 106.5 Interest income 10.0 14.0 (Loss) profit from operations (69.3) 120.5 Finance costs (5.9) (3.1) Share of results of jointly controlled entities 30.6 5.0 (Loss) profit before taxation (44.6) 122.4
			106.5
		10.0 (69.3) (5.9) 30.6	14.0
			120.5 (3.1) 5.0
		(44.6)	122.4

The following is an analysis of the carrying amount of segment assets, and additions to property, plant and equipment analysed by the geographical areas in which the assets are located:

							Additions to property,	Additions to property,
							plant and equipment	and
					Carrying amount of		site establishment
					segment	assets	expenditure
					2003	2002	2003 2002
					HK$ million	HK$ million	HK$ million HK$ million
Hong	Kong				1,281.4	1,549.1	21.0	8.6
Other	regions	in	the	PRC	1,962.7	1,276.8	8.3	21.5
					3,244.1	2,825.9	29.3	30.1

— 65 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. OTHER OPERATING INCOME

Included in other operating income is net investment income as follows:

	2003	2002
	HK$ million	HK$ million
Interest income	10.0	14.0
Dividends received from investments in securities
- listed	6.2	5.8
- unlisted	—	0.6
Gain on dissolution/disposal of a jointly controlled entity	2.5	0.1
Net realised (loss) gain on disposal of other investments
- listed	(0.1)	2.0
Net unrealised holding gain on other investments	—	9.7

— 66 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. (LOSS) PROFIT FROM OPERATIONS

	2003	2002
	HK$ million	HK$ million
(Loss) profit from operations has been arrived at after charging (crediting):
Depreciation and amortisation
Owned assets	42.1	57.4
Site establishment expenditure	3.4	5.4
	45.5	62.8
Less: Amount capitalised to property under development	(0.2)	—
	45.3	62.8
Auditors’ remuneration	2.1	2.1
Operating lease payments in respect of rented premises	37.3	35.1
Loss on disposal of property, plant and equipment	0.9	1.1
Net unrealised holding loss on other investments	28.8	—
Staff costs:
Salaries and allowances (including directors’ emoluments)	354.3	492.2
Retirement benefits cost	19.1	26.6
Less: Amount capitalised to property under development	(9.2)	(5.1)
	364.2	513.7
Release of negative goodwill (included in other expenses):
- subsidiary	(0.1)	—
- jointly controlled entities	(0.1)	—
	(0.2)	—
Gross rental revenue from an investment property and car park spaces	(14.9)	(15.7)
Less: Related outgoings	2.1	3.7
Net rental income	(12.8)	(12.0)

— 67 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. FINANCE COSTS

		2003	2002
		HK$ million	HK$ million
	Interest on bank loans and overdrafts and
	other loans wholly repayable within 5 years	18.7	6.4
	Other borrowing costs	3.4	3.8
		22.1	10.2
	Less: Amount capitalised to property under development (Note 15)	(16.2)	(7.1)
		5.9	3.1
8.	DIRECTORS’ EMOLUMENTS
		2003	2002
		HK$ million	HK$ million
	Fees
	Executive directors	0.1	0.1
	Non-executive directors	—	—
	Independent non-executive directors	0.1	0.1
	Other emoluments
	Executive directors
	Salaries and other benefits	13.0	18.4
	Retirement benefits cost	0.8	0.8
		14.0	19.4
	The emoluments of the directors were within the following bands:
		2003	2002
		Number of	Number of
	Emolument bands	directors	directors
	HK$0 - HK$1,000,000	5	5
	HK$1,500,001 - HK$2,000,000	1	—
	HK$2,000,001 - HK$2,500,000	1	1
	HK$2,500,001 - HK$3,000,000	2	—
	HK$3,000,001 - HK$3,500,000	—	2
	HK$4,000,001 - HK$4,500,000	—	1
	HK$4,500,001 - HK$5,000,000	1	—
	HK$6,000,001 - HK$6,500,000	—	1
		10	10

— 68 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. EMPLOYEES’ EMOLUMENTS

Of the five individuals with the highest emoluments in the Group, four (2002: all) are executive directors of the Company whose emoluments are included in the disclosures in note 8 above. The emoluments of the remaining one individual in 2003 were as follows:

	2003	2002
	HK$ million	HK$ million
Salaries and other emoluments	2.1	—
Retirement benefits cost	0.1	—
	2.2	—
TAXATION
	2003	2002
	HK$ million	HK$ million
The charge (credit) comprises:
Current taxation
Hong Kong Profits Tax	1.8	20.4
Income tax of other regions in the PRC	(0.3)	0.4
	1.5	20.8
Deferred taxation	0.1	(2.0)
Share of taxation attributable to jointly controlled entities
Hong Kong Profits Tax	0.3	0.2
Income tax of other regions in the PRC	0.8	1.5
	1.1	1.7
	2.7	20.5

10. TAXATION

Hong Kong Profits Tax is calculated at 16% (2002: 16%) on the estimated assessable profits for the year. Income tax of other regions in the PRC has been provided for based on the estimated assessable profits in accordance with the relevant tax laws applicable to the Group in the Chinese Mainland.

Details of the potential deferred tax charge (credit) provided and not provided for the year are set out in note 28.

— 69 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. DIVIDENDS

	2003	2002
	HK$ million	HK$ million
Dividends, paid
Final dividend in respect of year 2001/2002 at HK$0.15 per share on
264,514,000 shares (2000/2001: HK$1.20 per share on 263,334,000 shares)	39.7	316.0
Additional final dividend for shares issued upon exercise of share options	—	1.4
Interim dividend in respect of year 2002/2003: nil
(2001/2002: HK$0.15 per share on 264,496,000 shares)	—	39.7
	39.7	357.1
Proposed final dividend in respect of year 2002/2003: nil
(2001/2002: HK$0.15 per share on 264,514,000 shares)	—	39.7

12. (LOSS) EARNINGS PER SHARE

The calculation of the basic and diluted (loss) earnings per share is based on the following data:

	2003	2002
	HK$ million	HK$ million
(Loss) earnings for the purposes of basic and diluted (loss) earnings per share	(47.1)	104.3
	Million	Million
Weighted average number of ordinary shares for the purposes of
basic (loss) earnings per share	264.6	264.1
Effect of dilutive potential ordinary shares:
Share options	0.2	0.5
Weighted average number of ordinary shares for the purposes of
diluted (loss) earnings per share	264.8	264.6

— 70 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. INVESTMENT PROPERTY

	2003	2002
	HK$ million	HK$ million
THE GROUP
At the beginning of the year	137.0	140.0
Revaluation decrease	(14.0)	(3.0)
At the end of the year	123.0	137.0

The Group’s investment property is held in Hong Kong under a medium-term lease. It was revalued at 31 March 2003 by Chesterton Petty Ltd, independent professional valuers, on an open market value basis. The revaluation decrease has been charged to the consolidated income statement.

The Group’s investment property is rented out under operating leases.

— 71 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. PROPERTY, PLANT AND EQUIPMENT

Land and buildings in Hong Kong held under medium- term leases Land and buildings in other regions of the PRC held under medium- term leases Land and buildings in Hong Kong held under short-term lease Plant under construction Plant and machinery Motor vehicles Equipment, furniture and other assets Total HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million THE GROUP AT COST/VALUATION At 1 April 2002 67.5 5.8 25.7 — 493.4 39.2 53.2 684.8 Exchange realignments — 0.1 — — 0.6 0.2 — 0.9 Additions — — — 4.1 19.2 3.1 2.5 28.9 Disposals — — (25.7) — (84.3) (4.1) (3.3) (117.4 Transfer — — — — (0.4) — 0.4 — Revaluation decrease (17.5) — — — — — — (17.5 At 31 March 2003 50.0 5.9 — 4.1 428.5 38.4 52.8 579.7 ACCUMULATED DEPRECIATION At 1 April 2002 — 1.7 25.7 — 356.0 28.5 34.7 446.6 Exchange realignments — — — — 0.3 0.1 — 0.4 Charge for the year 1.4 0.4 — — 30.6 3.3 6.4 42.1 Eliminated on disposals — — (25.7) — (74.8) (3.1) (1.9) (105.5 Adjustment upon valuation (1.4) — — — — — — (1.4 Transfer — — — — (0.4) — 0.4 — At 31 March 2003 — 2.1 — — 311.7 28.8 39.6 382.2 NET BOOK VALUES At 31 March 2003 50.0 3.8 — 4.1 116.8 9.6 13.2 197.5 At 31 March 2002 67.5 4.1 — — 137.4 10.7 18.5 238.2 Cost or valuation comprising: At valuation - 2003 50.0 — — — — — — 50.0 At cost — 5.9 — 4.1 428.5 38.4 52.8 529.7 50.0 5.9 — 4.1 428.5 38.4 52.8 579.7	Land and buildings in Hong Kong held under medium- term leases Land and buildings in other regions of the PRC held under medium- term leases Land and buildings in Hong Kong held under short-term lease Plant under construction Plant and machinery Motor vehicles Equipment, furniture and other assets Total HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million THE GROUP AT COST/VALUATION At 1 April 2002 67.5 5.8 25.7 — 493.4 39.2 53.2 684.8 Exchange realignments — 0.1 — — 0.6 0.2 — 0.9 Additions — — — 4.1 19.2 3.1 2.5 28.9 Disposals — — (25.7) — (84.3) (4.1) (3.3) (117.4 Transfer — — — — (0.4) — 0.4 — Revaluation decrease (17.5) — — — — — — (17.5 At 31 March 2003 50.0 5.9 — 4.1 428.5 38.4 52.8 579.7 ACCUMULATED DEPRECIATION At 1 April 2002 — 1.7 25.7 — 356.0 28.5 34.7 446.6 Exchange realignments — — — — 0.3 0.1 — 0.4 Charge for the year 1.4 0.4 — — 30.6 3.3 6.4 42.1 Eliminated on disposals — — (25.7) — (74.8) (3.1) (1.9) (105.5 Adjustment upon valuation (1.4) — — — — — — (1.4 Transfer — — — — (0.4) — 0.4 — At 31 March 2003 — 2.1 — — 311.7 28.8 39.6 382.2 NET BOOK VALUES At 31 March 2003 50.0 3.8 — 4.1 116.8 9.6 13.2 197.5 At 31 March 2002 67.5 4.1 — — 137.4 10.7 18.5 238.2 Cost or valuation comprising: At valuation - 2003 50.0 — — — — — — 50.0 At cost — 5.9 — 4.1 428.5 38.4 52.8 529.7 50.0 5.9 — 4.1 428.5 38.4 52.8 579.7	Land and buildings in Hong Kong held under medium- term leases Land and buildings in other regions of the PRC held under medium- term leases Land and buildings in Hong Kong held under short-term lease Plant under construction Plant and machinery Motor vehicles Equipment, furniture and other assets Total HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million THE GROUP AT COST/VALUATION At 1 April 2002 67.5 5.8 25.7 — 493.4 39.2 53.2 684.8 Exchange realignments — 0.1 — — 0.6 0.2 — 0.9 Additions — — — 4.1 19.2 3.1 2.5 28.9 Disposals — — (25.7) — (84.3) (4.1) (3.3) (117.4 Transfer — — — — (0.4) — 0.4 — Revaluation decrease (17.5) — — — — — — (17.5 At 31 March 2003 50.0 5.9 — 4.1 428.5 38.4 52.8 579.7 ACCUMULATED DEPRECIATION At 1 April 2002 — 1.7 25.7 — 356.0 28.5 34.7 446.6 Exchange realignments — — — — 0.3 0.1 — 0.4 Charge for the year 1.4 0.4 — — 30.6 3.3 6.4 42.1 Eliminated on disposals — — (25.7) — (74.8) (3.1) (1.9) (105.5 Adjustment upon valuation (1.4) — — — — — — (1.4 Transfer — — — — (0.4) — 0.4 — At 31 March 2003 — 2.1 — — 311.7 28.8 39.6 382.2 NET BOOK VALUES At 31 March 2003 50.0 3.8 — 4.1 116.8 9.6 13.2 197.5 At 31 March 2002 67.5 4.1 — — 137.4 10.7 18.5 238.2 Cost or valuation comprising: At valuation - 2003 50.0 — — — — — — 50.0 At cost — 5.9 — 4.1 428.5 38.4 52.8 529.7 50.0 5.9 — 4.1 428.5 38.4 52.8 579.7	Land and buildings in Hong Kong held under medium- term leases Land and buildings in other regions of the PRC held under medium- term leases Land and buildings in Hong Kong held under short-term lease Plant under construction Plant and machinery Motor vehicles Equipment, furniture and other assets Total HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million THE GROUP AT COST/VALUATION At 1 April 2002 67.5 5.8 25.7 — 493.4 39.2 53.2 684.8 Exchange realignments — 0.1 — — 0.6 0.2 — 0.9 Additions — — — 4.1 19.2 3.1 2.5 28.9 Disposals — — (25.7) — (84.3) (4.1) (3.3) (117.4 Transfer — — — — (0.4) — 0.4 — Revaluation decrease (17.5) — — — — — — (17.5 At 31 March 2003 50.0 5.9 — 4.1 428.5 38.4 52.8 579.7 ACCUMULATED DEPRECIATION At 1 April 2002 — 1.7 25.7 — 356.0 28.5 34.7 446.6 Exchange realignments — — — — 0.3 0.1 — 0.4 Charge for the year 1.4 0.4 — — 30.6 3.3 6.4 42.1 Eliminated on disposals — — (25.7) — (74.8) (3.1) (1.9) (105.5 Adjustment upon valuation (1.4) — — — — — — (1.4 Transfer — — — — (0.4) — 0.4 — At 31 March 2003 — 2.1 — — 311.7 28.8 39.6 382.2 NET BOOK VALUES At 31 March 2003 50.0 3.8 — 4.1 116.8 9.6 13.2 197.5 At 31 March 2002 67.5 4.1 — — 137.4 10.7 18.5 238.2 Cost or valuation comprising: At valuation - 2003 50.0 — — — — — — 50.0 At cost — 5.9 — 4.1 428.5 38.4 52.8 529.7 50.0 5.9 — 4.1 428.5 38.4 52.8 579.7	Land and buildings in Hong Kong held under medium- term leases Land and buildings in other regions of the PRC held under medium- term leases Land and buildings in Hong Kong held under short-term lease Plant under construction Plant and machinery Motor vehicles Equipment, furniture and other assets Total HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million THE GROUP AT COST/VALUATION At 1 April 2002 67.5 5.8 25.7 — 493.4 39.2 53.2 684.8 Exchange realignments — 0.1 — — 0.6 0.2 — 0.9 Additions — — — 4.1 19.2 3.1 2.5 28.9 Disposals — — (25.7) — (84.3) (4.1) (3.3) (117.4 Transfer — — — — (0.4) — 0.4 — Revaluation decrease (17.5) — — — — — — (17.5 At 31 March 2003 50.0 5.9 — 4.1 428.5 38.4 52.8 579.7 ACCUMULATED DEPRECIATION At 1 April 2002 — 1.7 25.7 — 356.0 28.5 34.7 446.6 Exchange realignments — — — — 0.3 0.1 — 0.4 Charge for the year 1.4 0.4 — — 30.6 3.3 6.4 42.1 Eliminated on disposals — — (25.7) — (74.8) (3.1) (1.9) (105.5 Adjustment upon valuation (1.4) — — — — — — (1.4 Transfer — — — — (0.4) — 0.4 — At 31 March 2003 — 2.1 — — 311.7 28.8 39.6 382.2 NET BOOK VALUES At 31 March 2003 50.0 3.8 — 4.1 116.8 9.6 13.2 197.5 At 31 March 2002 67.5 4.1 — — 137.4 10.7 18.5 238.2 Cost or valuation comprising: At valuation - 2003 50.0 — — — — — — 50.0 At cost — 5.9 — 4.1 428.5 38.4 52.8 529.7 50.0 5.9 — 4.1 428.5 38.4 52.8 579.7	Land and buildings in Hong Kong held under medium- term leases Land and buildings in other regions of the PRC held under medium- term leases Land and buildings in Hong Kong held under short-term lease Plant under construction Plant and machinery Motor vehicles Equipment, furniture and other assets Total HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million THE GROUP AT COST/VALUATION At 1 April 2002 67.5 5.8 25.7 — 493.4 39.2 53.2 684.8 Exchange realignments — 0.1 — — 0.6 0.2 — 0.9 Additions — — — 4.1 19.2 3.1 2.5 28.9 Disposals — — (25.7) — (84.3) (4.1) (3.3) (117.4 Transfer — — — — (0.4) — 0.4 — Revaluation decrease (17.5) — — — — — — (17.5 At 31 March 2003 50.0 5.9 — 4.1 428.5 38.4 52.8 579.7 ACCUMULATED DEPRECIATION At 1 April 2002 — 1.7 25.7 — 356.0 28.5 34.7 446.6 Exchange realignments — — — — 0.3 0.1 — 0.4 Charge for the year 1.4 0.4 — — 30.6 3.3 6.4 42.1 Eliminated on disposals — — (25.7) — (74.8) (3.1) (1.9) (105.5 Adjustment upon valuation (1.4) — — — — — — (1.4 Transfer — — — — (0.4) — 0.4 — At 31 March 2003 — 2.1 — — 311.7 28.8 39.6 382.2 NET BOOK VALUES At 31 March 2003 50.0 3.8 — 4.1 116.8 9.6 13.2 197.5 At 31 March 2002 67.5 4.1 — — 137.4 10.7 18.5 238.2 Cost or valuation comprising: At valuation - 2003 50.0 — — — — — — 50.0 At cost — 5.9 — 4.1 428.5 38.4 52.8 529.7 50.0 5.9 — 4.1 428.5 38.4 52.8 579.7	Land and buildings in Hong Kong held under medium- term leases Land and buildings in other regions of the PRC held under medium- term leases Land and buildings in Hong Kong held under short-term lease Plant under construction Plant and machinery Motor vehicles Equipment, furniture and other assets Total HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million THE GROUP AT COST/VALUATION At 1 April 2002 67.5 5.8 25.7 — 493.4 39.2 53.2 684.8 Exchange realignments — 0.1 — — 0.6 0.2 — 0.9 Additions — — — 4.1 19.2 3.1 2.5 28.9 Disposals — — (25.7) — (84.3) (4.1) (3.3) (117.4 Transfer — — — — (0.4) — 0.4 — Revaluation decrease (17.5) — — — — — — (17.5 At 31 March 2003 50.0 5.9 — 4.1 428.5 38.4 52.8 579.7 ACCUMULATED DEPRECIATION At 1 April 2002 — 1.7 25.7 — 356.0 28.5 34.7 446.6 Exchange realignments — — — — 0.3 0.1 — 0.4 Charge for the year 1.4 0.4 — — 30.6 3.3 6.4 42.1 Eliminated on disposals — — (25.7) — (74.8) (3.1) (1.9) (105.5 Adjustment upon valuation (1.4) — — — — — — (1.4 Transfer — — — — (0.4) — 0.4 — At 31 March 2003 — 2.1 — — 311.7 28.8 39.6 382.2 NET BOOK VALUES At 31 March 2003 50.0 3.8 — 4.1 116.8 9.6 13.2 197.5 At 31 March 2002 67.5 4.1 — — 137.4 10.7 18.5 238.2 Cost or valuation comprising: At valuation - 2003 50.0 — — — — — — 50.0 At cost — 5.9 — 4.1 428.5 38.4 52.8 529.7 50.0 5.9 — 4.1 428.5 38.4 52.8 579.7	Land and buildings in Hong Kong held under medium- term leases Land and buildings in other regions of the PRC held under medium- term leases Land and buildings in Hong Kong held under short-term lease Plant under construction Plant and machinery Motor vehicles Equipment, furniture and other assets Total HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million THE GROUP AT COST/VALUATION At 1 April 2002 67.5 5.8 25.7 — 493.4 39.2 53.2 684.8 Exchange realignments — 0.1 — — 0.6 0.2 — 0.9 Additions — — — 4.1 19.2 3.1 2.5 28.9 Disposals — — (25.7) — (84.3) (4.1) (3.3) (117.4 Transfer — — — — (0.4) — 0.4 — Revaluation decrease (17.5) — — — — — — (17.5 At 31 March 2003 50.0 5.9 — 4.1 428.5 38.4 52.8 579.7 ACCUMULATED DEPRECIATION At 1 April 2002 — 1.7 25.7 — 356.0 28.5 34.7 446.6 Exchange realignments — — — — 0.3 0.1 — 0.4 Charge for the year 1.4 0.4 — — 30.6 3.3 6.4 42.1 Eliminated on disposals — — (25.7) — (74.8) (3.1) (1.9) (105.5 Adjustment upon valuation (1.4) — — — — — — (1.4 Transfer — — — — (0.4) — 0.4 — At 31 March 2003 — 2.1 — — 311.7 28.8 39.6 382.2 NET BOOK VALUES At 31 March 2003 50.0 3.8 — 4.1 116.8 9.6 13.2 197.5 At 31 March 2002 67.5 4.1 — — 137.4 10.7 18.5 238.2 Cost or valuation comprising: At valuation - 2003 50.0 — — — — — — 50.0 At cost — 5.9 — 4.1 428.5 38.4 52.8 529.7 50.0 5.9 — 4.1 428.5 38.4 52.8 579.7
50.0 — — 1.4 — (1.4) — —	5.9 1.7 — 0.4 — — — 2.1	— 25.7 — — (25.7) — — —	4.1 — — — — — — —	428.5 356.0 0.3 30.6 (74.8) — (0.4) 311.7	38.4 28.5 0.1 3.3 (3.1) — — 28.8	52.8 34.7 — 6.4 (1.9) — 0.4 39.6	579.7
							446.6 0.4 42.1 (105.5 (1.4 —
							382.2
50.0 67.5	3.8 4.1	— —	4.1 —	116.8 137.4	9.6 10.7	13.2 18.5	197.5
							238.2
50.0 —	— 5.9	— —	— 4.1	— 428.5	— 38.4	— 52.8	50.0 529.7
50.0	5.9	—	4.1	428.5	38.4	52.8	579.7

— 72 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

(i) The land and buildings in Hong Kong held under medium-term leases have been revalued on 31 March 2003 by Albert So Surveyors Ltd., independent professional valuers, on an open market value basis. No separate valuation was undertaken for land and buildings in other regions of the PRC under medium-term leases as its carrying value is insignificant and the directors are of the opinion that its carrying value approximate its fair value.
(ii) Had the revalued land and buildings in Hong Kong held under medium-term leases been restated at cost less accumulated depreciation, their net book values as at the balance sheet date would have been stated at HK$30.4 million (2002: HK$31.2 million).

		Equipment,	Equipment,
		furniture and
	Motor vehicles	other assets		Total
	HK$ million	HK$ million		HK$ million
THE COMPANY
AT COST
At 1 April 2002	1.8		9.4	11.2
Additions	—		0.2	0.2
Disposals	(0.1)		—	(0.1)
At 31 March 2003	1.7		9.6	11.3
ACCUMULATED DEPRECIATION
At 1 April 2002	1.2		7.3	8.5
Charge for the year	0.2		1.0	1.2
Eliminated on disposals	(0.1)		—	(0.1)
At 31 March 2003	1.3		8.3	9.6
NET BOOK VALUES
At 31 March 2003	0.4		1.3	1.7
At 31 March 2002	0.6		2.1	2.7

15. PROPERTY UNDER DEVELOPMENT

THE GROUP

The property under development represents a property situated in Shanghai, the PRC, held under a long term lease. Included in property under development are borrowing costs and staff costs capitalised amounting to approximately HK$23.3 million (2002: HK$7.1 million) and HK$14.3 million (2002: HK$5.1 million) respectively. The effective interest rate for interest capitalised for the project was approximately 2.5% per annum.

— 73 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. NEGATIVE GOODWILL

	THE GROUP	THE GROUP
	HK$ million
Gross amount arising on acquisition of additional interest
in a subsidiary during the year		(0.8)
Released to income in the year		0.1
Carrying amount at 31 March 2003		(0.7)

The negative goodwill is released to income on a straight-line basis over 6 years, the remaining weighted average life of the depreciable assets acquired.

17. INVESTMENTS IN SUBSIDIARIES

					THE	COMPANY
					2003	2002
				_HK$ _	million	HK$ million
Unlisted	shares,	at	cost		291.7	291.7

Particulars of the principal subsidiaries are set out in note 36.

18. INTERESTS IN JOINTLY CONTROLLED ENTITIES

	THE	GROUP
	2003	2002
	HK$ million	HK$ million
Share of net assets	440.4	338.2
Negative goodwill	(2.9)	(0.3)
	437.5	337.9

Negative goodwill is recognised as income on a straight-line basis over 30 years. The amortisation of negative goodwill for the year is netted off in other operating expenses. Particulars of the jointly controlled entities are set out in note 38.

— 74 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The summary of aggregate financial information of the Group’s significant jointly controlled entities engaged in manufacture and sale of cement in Chongqing, Guizhou and Nanjing, based on the adjusted financial statements prepared under the accounting principles generally accepted in Hong Kong for the year ended 31 December 2002 and 2001, are as follows:

	2002	2001
	HK$ million	HK$ million
Results for the year ended 31 December:
Turnover	939.0	484.1
Profit before taxation	52.1	8.7
Profit before taxation attributable to the Group	34.1	4.0
Financial positions as at 31 December:
Non-current assets	1,514.3	1,169.0
Current assets	917.6	585.2
Current liabilities	(996.8)	(754.5)
Non-current liabilities	(843.5)	(573.7)
Minority interests	(145.3)	(140.9)
Net assets	446.3	285.1
Net assets attributable to the Group	349.1	219.8
INVESTMENTS IN SECURITIES
	THE	GROUP
	2003	2002
	HK$ million	HK$ million
Other investments, at fair value:
equity securities
- unlisted overseas	15.3	18.8
- listed in Hong Kong	120.3	160.2
	135.6	179.0
Market value of listed securities	120.3	160.2

19. INVESTMENTS IN SECURITIES

There has been no purchase or disposal of equity securities listed in Hong Kong since 31 March 2003 to the date of this report. As at 21 July 2003, the market value of equity securities listed in Hong Kong amounted to HK$125.7 million.

— 75 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20. CLUB DEBENTURE

	THE	GROUP	THE	COMPANY
	2003	2002	2003	2002
	HK$ million	HK$ million	HK$ million	HK$ million
Unlisted membership debenture in
a recreational club, at cost	1.2	1.2	1.2	1.2

21. SITE ESTABLISHMENT EXPENDITURE

	THE	GROUP
	2003	2002
	HK$ million	HK$ million
At the beginning of the year	16.9	19.8
Additions	0.4	2.5
Amortisation for the year	(3.4)	(5.4)
At the end of the year	13.9	16.9

22. INVENTORIES AND CONTRACTS IN PROGRESS

	THE	GROUP
	2003	2002
	HK$ million	HK$ million
Inventories
Raw materials	5.6	10.4
Work-in-progress	9.0	4.1
Finished goods	12.2	7.8
Spare parts	12.9	10.7
	39.7	33.0

Included above are raw materials of HK$2.3 million (2002: nil) which are carried at net realisable value.

— 76 —

APPENDIX I FINANCIAL INFORMATION OF THE GROUP

THE GROUP 2003 2002 HK$ million HK$ million Contracts in progress Costs incurred to date 6,013.7 5,681.1 Recognised profits less recognised losses 261.1 306.5 6,274.8 5,987.6 Less: Progress billings (6,134.7) (5,869.2 Net contract work 140.1 118.4 Represented by: Amounts due from customers for contract work 221.2 266.0 Amounts due to customers for contract work (81.1) (147.6 140.1 118.4	THE GROUP 2003 2002 HK$ million HK$ million Contracts in progress Costs incurred to date 6,013.7 5,681.1 Recognised profits less recognised losses 261.1 306.5 6,274.8 5,987.6 Less: Progress billings (6,134.7) (5,869.2 Net contract work 140.1 118.4 Represented by: Amounts due from customers for contract work 221.2 266.0 Amounts due to customers for contract work (81.1) (147.6 140.1 118.4	THE GROUP 2003 2002 HK$ million HK$ million Contracts in progress Costs incurred to date 6,013.7 5,681.1 Recognised profits less recognised losses 261.1 306.5 6,274.8 5,987.6 Less: Progress billings (6,134.7) (5,869.2 Net contract work 140.1 118.4 Represented by: Amounts due from customers for contract work 221.2 266.0 Amounts due to customers for contract work (81.1) (147.6 140.1 118.4
		5,987.6 (5,869.2
		118.4
	221.2 (81.1)	266.0 (147.6
	140.1	118.4

23. DEBTORS, DEPOSITS AND PREPAYMENTS

The Group maintains a defined credit policy. The general credit term ranges from 30 days to 90 days.

THE GROUP 2003 2002 HK$ million HK$ million Debtors (net of provisions for bad and doubtful debts) aged analysis: Within 90 days 235.5 324.0 91 days to 180 days 19.1 13.3 181 days to 360 days 18.0 9.9 Over 360 days 4.7 4.5 277.3 351.7 Retentions receivable 124.7 149.2 Prepayments, deposits and other receivables 194.8 191.5 596.8 692.4	THE GROUP 2003 2002 HK$ million HK$ million Debtors (net of provisions for bad and doubtful debts) aged analysis: Within 90 days 235.5 324.0 91 days to 180 days 19.1 13.3 181 days to 360 days 18.0 9.9 Over 360 days 4.7 4.5 277.3 351.7 Retentions receivable 124.7 149.2 Prepayments, deposits and other receivables 194.8 191.5 596.8 692.4	THE GROUP 2003 2002 HK$ million HK$ million Debtors (net of provisions for bad and doubtful debts) aged analysis: Within 90 days 235.5 324.0 91 days to 180 days 19.1 13.3 181 days to 360 days 18.0 9.9 Over 360 days 4.7 4.5 277.3 351.7 Retentions receivable 124.7 149.2 Prepayments, deposits and other receivables 194.8 191.5 596.8 692.4
	277.3 124.7 194.8	351.7 149.2 191.5
	596.8	692.4

— 77 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

24. CREDITORS AND ACCRUED CHARGES

THE GROUP 2003 2002 HK$ million HK$ million Creditors aged analysis: Within 30 days 93.0 169.2 31 days to 90 days 38.4 44.8 91 days to 180 days 7.4 10.2 Over 180 days 5.7 8.4 144.5 232.6 Retentions payable 136.5 194.9 Accruals and other payables 349.0 491.0 630.0 918.5	THE GROUP 2003 2002 HK$ million HK$ million Creditors aged analysis: Within 30 days 93.0 169.2 31 days to 90 days 38.4 44.8 91 days to 180 days 7.4 10.2 Over 180 days 5.7 8.4 144.5 232.6 Retentions payable 136.5 194.9 Accruals and other payables 349.0 491.0 630.0 918.5	THE GROUP 2003 2002 HK$ million HK$ million Creditors aged analysis: Within 30 days 93.0 169.2 31 days to 90 days 38.4 44.8 91 days to 180 days 7.4 10.2 Over 180 days 5.7 8.4 144.5 232.6 Retentions payable 136.5 194.9 Accruals and other payables 349.0 491.0 630.0 918.5
	144.5 136.5 349.0	232.6 194.9 491.0
	630.0	918.5

25. BANK BORROWINGS

THE GROUP THE COMPANY 2003 2002 2003 2002 HK$ million HK$ million HK$ million HK$ million Secured bank loan (Note 32) 107.3 — — — Unsecured bank loans and bank overdrafts 1,156.4 376.0 1,061.0 360.0 1,263.7 376.0 1,061.0 360.0 Less: Amounts due within one year (68.9) (16.0) — — 1,194.8 360.0 1,061.0 360.0 The borrowings are repayable as follows: Within one year 68.9 16.0 — — More than one year but not exceeding two years 1,096.8 — 1,061.0 — More than two years but not exceeding five years 98.0 360.0 — 360.0 1,263.7 376.0 1,061.0 360.0	THE GROUP THE COMPANY 2003 2002 2003 2002 HK$ million HK$ million HK$ million HK$ million Secured bank loan (Note 32) 107.3 — — — Unsecured bank loans and bank overdrafts 1,156.4 376.0 1,061.0 360.0 1,263.7 376.0 1,061.0 360.0 Less: Amounts due within one year (68.9) (16.0) — — 1,194.8 360.0 1,061.0 360.0 The borrowings are repayable as follows: Within one year 68.9 16.0 — — More than one year but not exceeding two years 1,096.8 — 1,061.0 — More than two years but not exceeding five years 98.0 360.0 — 360.0 1,263.7 376.0 1,061.0 360.0	THE GROUP THE COMPANY 2003 2002 2003 2002 HK$ million HK$ million HK$ million HK$ million Secured bank loan (Note 32) 107.3 — — — Unsecured bank loans and bank overdrafts 1,156.4 376.0 1,061.0 360.0 1,263.7 376.0 1,061.0 360.0 Less: Amounts due within one year (68.9) (16.0) — — 1,194.8 360.0 1,061.0 360.0 The borrowings are repayable as follows: Within one year 68.9 16.0 — — More than one year but not exceeding two years 1,096.8 — 1,061.0 — More than two years but not exceeding five years 98.0 360.0 — 360.0 1,263.7 376.0 1,061.0 360.0	THE GROUP THE COMPANY 2003 2002 2003 2002 HK$ million HK$ million HK$ million HK$ million Secured bank loan (Note 32) 107.3 — — — Unsecured bank loans and bank overdrafts 1,156.4 376.0 1,061.0 360.0 1,263.7 376.0 1,061.0 360.0 Less: Amounts due within one year (68.9) (16.0) — — 1,194.8 360.0 1,061.0 360.0 The borrowings are repayable as follows: Within one year 68.9 16.0 — — More than one year but not exceeding two years 1,096.8 — 1,061.0 — More than two years but not exceeding five years 98.0 360.0 — 360.0 1,263.7 376.0 1,061.0 360.0
1,263.7 (68.9)	376.0 (16.0)	1,061.0 —	360.0 —
1,194.8	360.0	1,061.0	360.0
68.9 1,096.8 98.0	16.0 — 360.0	— 1,061.0 —	— — 360.0
1,263.7	376.0	1,061.0	360.0

— 78 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

26. SHARE CAPITAL

		2003	2002
		HK$ million	HK$ million
(a)	Authorised:
	400,000,000 shares of HK$1 each	400.0	400.0
(b)	Issued and fully paid:
	At the beginning of the year	264.5	263.3
	Exercise of share options	0.2	1.2
	At the end of the year	264.7	264.5

— 79 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

27. RESERVES

Property, plant and equipment revaluation reserve Share premium account Translation reserve Contributed surplus Goodwill Negative goodwill Retained profits Reserve funds Total HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million THE GROUP At 1 April 2001 36.3 526.2 (0.7) 197.6 (2.7) 1.9 559.8 0.4 1,318.8 Exchange differences arising on translation of financial statements of operations outside Hong Kong — — (6.0) — — — — — (6.0 Released upon disposal of a jointly controlled entity — — — — — (1.4) — — (1.4 Premium on issue of shares — 6.1 — — — — — — 6.1 Profit for the year — — — — — — 104.3 — 104.3 Dividends — — — — — — (357.1) — (357.1 Transfer (0.7) — — — — — 0.7 — — Revaluation increase in the year 1.4 — — — — — — — 1.4 Transfer to reserve funds — — — — — — (0.4) 0.4 — At 31 March 2002 — as originally stated 37.0 532.3 (6.7) 197.6 (2.7) 0.5 307.3 0.8 1,066.1 — prior period adjustments resulting from the adoption of SSAP 34 (note 2) — — — — — — (24.4) — (24.4 — as restated 37.0 532.3 (6.7) 197.6 (2.7) 0.5 282.9 0.8 1,041.7 Exchange differences arising on translation of financial statements of operations outside Hong Kong — — 6.9 — — — — — 6.9 Premium on issue of shares — 0.7 — — — — — — 0.7 Loss for the year — — — — — — (47.1) — (47.1 Dividends — — — — — — (39.7) — (39.7 Transfer (0.8) — — — — — 0.8 — — Revaluation decrease in the year (13.8) — — — — — — — (13.8 Transfer to reserve funds — — — — — — (0.1) 0.1 — At 31 March 2003 22.4 533.0 0.2 197.6 (2.7) 0.5 196.8 0.9 948.7 THE COMPANY At 1 April 2001 — 526.2 — 88.9 — — 7.3 — 622.4 Premium on issue of shares — 6.1 — — — — — — 6.1 Profit for the year — — — — — — 439.6 — 439.6 Dividends — — — — — — (357.1) — (357.1 At 31 March 2002 — as originally stated — 532.3 — 88.9 — — 89.8 — 711.0 — prior period adjustments resulting from the adoption of SSAP 34 — — — — — — (3.0) — (3.0 — as restated — 532.3 — 88.9 — — 86.8 — 708.0 Premium on issue of shares — 0.7 — — — — — — 0.7 Profit for the year — — — — — — 21.4 — 21.4 Dividends — — — — — — (39.7) — (39.7 At 31 March 2003 — 533.0 — 88.9 — — 68.5 — 690.4	Property, plant and equipment revaluation reserve Share premium account Translation reserve Contributed surplus Goodwill Negative goodwill Retained profits Reserve funds Total HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million THE GROUP At 1 April 2001 36.3 526.2 (0.7) 197.6 (2.7) 1.9 559.8 0.4 1,318.8 Exchange differences arising on translation of financial statements of operations outside Hong Kong — — (6.0) — — — — — (6.0 Released upon disposal of a jointly controlled entity — — — — — (1.4) — — (1.4 Premium on issue of shares — 6.1 — — — — — — 6.1 Profit for the year — — — — — — 104.3 — 104.3 Dividends — — — — — — (357.1) — (357.1 Transfer (0.7) — — — — — 0.7 — — Revaluation increase in the year 1.4 — — — — — — — 1.4 Transfer to reserve funds — — — — — — (0.4) 0.4 — At 31 March 2002 — as originally stated 37.0 532.3 (6.7) 197.6 (2.7) 0.5 307.3 0.8 1,066.1 — prior period adjustments resulting from the adoption of SSAP 34 (note 2) — — — — — — (24.4) — (24.4 — as restated 37.0 532.3 (6.7) 197.6 (2.7) 0.5 282.9 0.8 1,041.7 Exchange differences arising on translation of financial statements of operations outside Hong Kong — — 6.9 — — — — — 6.9 Premium on issue of shares — 0.7 — — — — — — 0.7 Loss for the year — — — — — — (47.1) — (47.1 Dividends — — — — — — (39.7) — (39.7 Transfer (0.8) — — — — — 0.8 — — Revaluation decrease in the year (13.8) — — — — — — — (13.8 Transfer to reserve funds — — — — — — (0.1) 0.1 — At 31 March 2003 22.4 533.0 0.2 197.6 (2.7) 0.5 196.8 0.9 948.7 THE COMPANY At 1 April 2001 — 526.2 — 88.9 — — 7.3 — 622.4 Premium on issue of shares — 6.1 — — — — — — 6.1 Profit for the year — — — — — — 439.6 — 439.6 Dividends — — — — — — (357.1) — (357.1 At 31 March 2002 — as originally stated — 532.3 — 88.9 — — 89.8 — 711.0 — prior period adjustments resulting from the adoption of SSAP 34 — — — — — — (3.0) — (3.0 — as restated — 532.3 — 88.9 — — 86.8 — 708.0 Premium on issue of shares — 0.7 — — — — — — 0.7 Profit for the year — — — — — — 21.4 — 21.4 Dividends — — — — — — (39.7) — (39.7 At 31 March 2003 — 533.0 — 88.9 — — 68.5 — 690.4	Property, plant and equipment revaluation reserve Share premium account Translation reserve Contributed surplus Goodwill Negative goodwill Retained profits Reserve funds Total HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million THE GROUP At 1 April 2001 36.3 526.2 (0.7) 197.6 (2.7) 1.9 559.8 0.4 1,318.8 Exchange differences arising on translation of financial statements of operations outside Hong Kong — — (6.0) — — — — — (6.0 Released upon disposal of a jointly controlled entity — — — — — (1.4) — — (1.4 Premium on issue of shares — 6.1 — — — — — — 6.1 Profit for the year — — — — — — 104.3 — 104.3 Dividends — — — — — — (357.1) — (357.1 Transfer (0.7) — — — — — 0.7 — — Revaluation increase in the year 1.4 — — — — — — — 1.4 Transfer to reserve funds — — — — — — (0.4) 0.4 — At 31 March 2002 — as originally stated 37.0 532.3 (6.7) 197.6 (2.7) 0.5 307.3 0.8 1,066.1 — prior period adjustments resulting from the adoption of SSAP 34 (note 2) — — — — — — (24.4) — (24.4 — as restated 37.0 532.3 (6.7) 197.6 (2.7) 0.5 282.9 0.8 1,041.7 Exchange differences arising on translation of financial statements of operations outside Hong Kong — — 6.9 — — — — — 6.9 Premium on issue of shares — 0.7 — — — — — — 0.7 Loss for the year — — — — — — (47.1) — (47.1 Dividends — — — — — — (39.7) — (39.7 Transfer (0.8) — — — — — 0.8 — — Revaluation decrease in the year (13.8) — — — — — — — (13.8 Transfer to reserve funds — — — — — — (0.1) 0.1 — At 31 March 2003 22.4 533.0 0.2 197.6 (2.7) 0.5 196.8 0.9 948.7 THE COMPANY At 1 April 2001 — 526.2 — 88.9 — — 7.3 — 622.4 Premium on issue of shares — 6.1 — — — — — — 6.1 Profit for the year — — — — — — 439.6 — 439.6 Dividends — — — — — — (357.1) — (357.1 At 31 March 2002 — as originally stated — 532.3 — 88.9 — — 89.8 — 711.0 — prior period adjustments resulting from the adoption of SSAP 34 — — — — — — (3.0) — (3.0 — as restated — 532.3 — 88.9 — — 86.8 — 708.0 Premium on issue of shares — 0.7 — — — — — — 0.7 Profit for the year — — — — — — 21.4 — 21.4 Dividends — — — — — — (39.7) — (39.7 At 31 March 2003 — 533.0 — 88.9 — — 68.5 — 690.4	Property, plant and equipment revaluation reserve Share premium account Translation reserve Contributed surplus Goodwill Negative goodwill Retained profits Reserve funds Total HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million THE GROUP At 1 April 2001 36.3 526.2 (0.7) 197.6 (2.7) 1.9 559.8 0.4 1,318.8 Exchange differences arising on translation of financial statements of operations outside Hong Kong — — (6.0) — — — — — (6.0 Released upon disposal of a jointly controlled entity — — — — — (1.4) — — (1.4 Premium on issue of shares — 6.1 — — — — — — 6.1 Profit for the year — — — — — — 104.3 — 104.3 Dividends — — — — — — (357.1) — (357.1 Transfer (0.7) — — — — — 0.7 — — Revaluation increase in the year 1.4 — — — — — — — 1.4 Transfer to reserve funds — — — — — — (0.4) 0.4 — At 31 March 2002 — as originally stated 37.0 532.3 (6.7) 197.6 (2.7) 0.5 307.3 0.8 1,066.1 — prior period adjustments resulting from the adoption of SSAP 34 (note 2) — — — — — — (24.4) — (24.4 — as restated 37.0 532.3 (6.7) 197.6 (2.7) 0.5 282.9 0.8 1,041.7 Exchange differences arising on translation of financial statements of operations outside Hong Kong — — 6.9 — — — — — 6.9 Premium on issue of shares — 0.7 — — — — — — 0.7 Loss for the year — — — — — — (47.1) — (47.1 Dividends — — — — — — (39.7) — (39.7 Transfer (0.8) — — — — — 0.8 — — Revaluation decrease in the year (13.8) — — — — — — — (13.8 Transfer to reserve funds — — — — — — (0.1) 0.1 — At 31 March 2003 22.4 533.0 0.2 197.6 (2.7) 0.5 196.8 0.9 948.7 THE COMPANY At 1 April 2001 — 526.2 — 88.9 — — 7.3 — 622.4 Premium on issue of shares — 6.1 — — — — — — 6.1 Profit for the year — — — — — — 439.6 — 439.6 Dividends — — — — — — (357.1) — (357.1 At 31 March 2002 — as originally stated — 532.3 — 88.9 — — 89.8 — 711.0 — prior period adjustments resulting from the adoption of SSAP 34 — — — — — — (3.0) — (3.0 — as restated — 532.3 — 88.9 — — 86.8 — 708.0 Premium on issue of shares — 0.7 — — — — — — 0.7 Profit for the year — — — — — — 21.4 — 21.4 Dividends — — — — — — (39.7) — (39.7 At 31 March 2003 — 533.0 — 88.9 — — 68.5 — 690.4	Property, plant and equipment revaluation reserve Share premium account Translation reserve Contributed surplus Goodwill Negative goodwill Retained profits Reserve funds Total HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million THE GROUP At 1 April 2001 36.3 526.2 (0.7) 197.6 (2.7) 1.9 559.8 0.4 1,318.8 Exchange differences arising on translation of financial statements of operations outside Hong Kong — — (6.0) — — — — — (6.0 Released upon disposal of a jointly controlled entity — — — — — (1.4) — — (1.4 Premium on issue of shares — 6.1 — — — — — — 6.1 Profit for the year — — — — — — 104.3 — 104.3 Dividends — — — — — — (357.1) — (357.1 Transfer (0.7) — — — — — 0.7 — — Revaluation increase in the year 1.4 — — — — — — — 1.4 Transfer to reserve funds — — — — — — (0.4) 0.4 — At 31 March 2002 — as originally stated 37.0 532.3 (6.7) 197.6 (2.7) 0.5 307.3 0.8 1,066.1 — prior period adjustments resulting from the adoption of SSAP 34 (note 2) — — — — — — (24.4) — (24.4 — as restated 37.0 532.3 (6.7) 197.6 (2.7) 0.5 282.9 0.8 1,041.7 Exchange differences arising on translation of financial statements of operations outside Hong Kong — — 6.9 — — — — — 6.9 Premium on issue of shares — 0.7 — — — — — — 0.7 Loss for the year — — — — — — (47.1) — (47.1 Dividends — — — — — — (39.7) — (39.7 Transfer (0.8) — — — — — 0.8 — — Revaluation decrease in the year (13.8) — — — — — — — (13.8 Transfer to reserve funds — — — — — — (0.1) 0.1 — At 31 March 2003 22.4 533.0 0.2 197.6 (2.7) 0.5 196.8 0.9 948.7 THE COMPANY At 1 April 2001 — 526.2 — 88.9 — — 7.3 — 622.4 Premium on issue of shares — 6.1 — — — — — — 6.1 Profit for the year — — — — — — 439.6 — 439.6 Dividends — — — — — — (357.1) — (357.1 At 31 March 2002 — as originally stated — 532.3 — 88.9 — — 89.8 — 711.0 — prior period adjustments resulting from the adoption of SSAP 34 — — — — — — (3.0) — (3.0 — as restated — 532.3 — 88.9 — — 86.8 — 708.0 Premium on issue of shares — 0.7 — — — — — — 0.7 Profit for the year — — — — — — 21.4 — 21.4 Dividends — — — — — — (39.7) — (39.7 At 31 March 2003 — 533.0 — 88.9 — — 68.5 — 690.4	Property, plant and equipment revaluation reserve Share premium account Translation reserve Contributed surplus Goodwill Negative goodwill Retained profits Reserve funds Total HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million THE GROUP At 1 April 2001 36.3 526.2 (0.7) 197.6 (2.7) 1.9 559.8 0.4 1,318.8 Exchange differences arising on translation of financial statements of operations outside Hong Kong — — (6.0) — — — — — (6.0 Released upon disposal of a jointly controlled entity — — — — — (1.4) — — (1.4 Premium on issue of shares — 6.1 — — — — — — 6.1 Profit for the year — — — — — — 104.3 — 104.3 Dividends — — — — — — (357.1) — (357.1 Transfer (0.7) — — — — — 0.7 — — Revaluation increase in the year 1.4 — — — — — — — 1.4 Transfer to reserve funds — — — — — — (0.4) 0.4 — At 31 March 2002 — as originally stated 37.0 532.3 (6.7) 197.6 (2.7) 0.5 307.3 0.8 1,066.1 — prior period adjustments resulting from the adoption of SSAP 34 (note 2) — — — — — — (24.4) — (24.4 — as restated 37.0 532.3 (6.7) 197.6 (2.7) 0.5 282.9 0.8 1,041.7 Exchange differences arising on translation of financial statements of operations outside Hong Kong — — 6.9 — — — — — 6.9 Premium on issue of shares — 0.7 — — — — — — 0.7 Loss for the year — — — — — — (47.1) — (47.1 Dividends — — — — — — (39.7) — (39.7 Transfer (0.8) — — — — — 0.8 — — Revaluation decrease in the year (13.8) — — — — — — — (13.8 Transfer to reserve funds — — — — — — (0.1) 0.1 — At 31 March 2003 22.4 533.0 0.2 197.6 (2.7) 0.5 196.8 0.9 948.7 THE COMPANY At 1 April 2001 — 526.2 — 88.9 — — 7.3 — 622.4 Premium on issue of shares — 6.1 — — — — — — 6.1 Profit for the year — — — — — — 439.6 — 439.6 Dividends — — — — — — (357.1) — (357.1 At 31 March 2002 — as originally stated — 532.3 — 88.9 — — 89.8 — 711.0 — prior period adjustments resulting from the adoption of SSAP 34 — — — — — — (3.0) — (3.0 — as restated — 532.3 — 88.9 — — 86.8 — 708.0 Premium on issue of shares — 0.7 — — — — — — 0.7 Profit for the year — — — — — — 21.4 — 21.4 Dividends — — — — — — (39.7) — (39.7 At 31 March 2003 — 533.0 — 88.9 — — 68.5 — 690.4	Property, plant and equipment revaluation reserve Share premium account Translation reserve Contributed surplus Goodwill Negative goodwill Retained profits Reserve funds Total HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million THE GROUP At 1 April 2001 36.3 526.2 (0.7) 197.6 (2.7) 1.9 559.8 0.4 1,318.8 Exchange differences arising on translation of financial statements of operations outside Hong Kong — — (6.0) — — — — — (6.0 Released upon disposal of a jointly controlled entity — — — — — (1.4) — — (1.4 Premium on issue of shares — 6.1 — — — — — — 6.1 Profit for the year — — — — — — 104.3 — 104.3 Dividends — — — — — — (357.1) — (357.1 Transfer (0.7) — — — — — 0.7 — — Revaluation increase in the year 1.4 — — — — — — — 1.4 Transfer to reserve funds — — — — — — (0.4) 0.4 — At 31 March 2002 — as originally stated 37.0 532.3 (6.7) 197.6 (2.7) 0.5 307.3 0.8 1,066.1 — prior period adjustments resulting from the adoption of SSAP 34 (note 2) — — — — — — (24.4) — (24.4 — as restated 37.0 532.3 (6.7) 197.6 (2.7) 0.5 282.9 0.8 1,041.7 Exchange differences arising on translation of financial statements of operations outside Hong Kong — — 6.9 — — — — — 6.9 Premium on issue of shares — 0.7 — — — — — — 0.7 Loss for the year — — — — — — (47.1) — (47.1 Dividends — — — — — — (39.7) — (39.7 Transfer (0.8) — — — — — 0.8 — — Revaluation decrease in the year (13.8) — — — — — — — (13.8 Transfer to reserve funds — — — — — — (0.1) 0.1 — At 31 March 2003 22.4 533.0 0.2 197.6 (2.7) 0.5 196.8 0.9 948.7 THE COMPANY At 1 April 2001 — 526.2 — 88.9 — — 7.3 — 622.4 Premium on issue of shares — 6.1 — — — — — — 6.1 Profit for the year — — — — — — 439.6 — 439.6 Dividends — — — — — — (357.1) — (357.1 At 31 March 2002 — as originally stated — 532.3 — 88.9 — — 89.8 — 711.0 — prior period adjustments resulting from the adoption of SSAP 34 — — — — — — (3.0) — (3.0 — as restated — 532.3 — 88.9 — — 86.8 — 708.0 Premium on issue of shares — 0.7 — — — — — — 0.7 Profit for the year — — — — — — 21.4 — 21.4 Dividends — — — — — — (39.7) — (39.7 At 31 March 2003 — 533.0 — 88.9 — — 68.5 — 690.4	Property, plant and equipment revaluation reserve Share premium account Translation reserve Contributed surplus Goodwill Negative goodwill Retained profits Reserve funds Total HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million THE GROUP At 1 April 2001 36.3 526.2 (0.7) 197.6 (2.7) 1.9 559.8 0.4 1,318.8 Exchange differences arising on translation of financial statements of operations outside Hong Kong — — (6.0) — — — — — (6.0 Released upon disposal of a jointly controlled entity — — — — — (1.4) — — (1.4 Premium on issue of shares — 6.1 — — — — — — 6.1 Profit for the year — — — — — — 104.3 — 104.3 Dividends — — — — — — (357.1) — (357.1 Transfer (0.7) — — — — — 0.7 — — Revaluation increase in the year 1.4 — — — — — — — 1.4 Transfer to reserve funds — — — — — — (0.4) 0.4 — At 31 March 2002 — as originally stated 37.0 532.3 (6.7) 197.6 (2.7) 0.5 307.3 0.8 1,066.1 — prior period adjustments resulting from the adoption of SSAP 34 (note 2) — — — — — — (24.4) — (24.4 — as restated 37.0 532.3 (6.7) 197.6 (2.7) 0.5 282.9 0.8 1,041.7 Exchange differences arising on translation of financial statements of operations outside Hong Kong — — 6.9 — — — — — 6.9 Premium on issue of shares — 0.7 — — — — — — 0.7 Loss for the year — — — — — — (47.1) — (47.1 Dividends — — — — — — (39.7) — (39.7 Transfer (0.8) — — — — — 0.8 — — Revaluation decrease in the year (13.8) — — — — — — — (13.8 Transfer to reserve funds — — — — — — (0.1) 0.1 — At 31 March 2003 22.4 533.0 0.2 197.6 (2.7) 0.5 196.8 0.9 948.7 THE COMPANY At 1 April 2001 — 526.2 — 88.9 — — 7.3 — 622.4 Premium on issue of shares — 6.1 — — — — — — 6.1 Profit for the year — — — — — — 439.6 — 439.6 Dividends — — — — — — (357.1) — (357.1 At 31 March 2002 — as originally stated — 532.3 — 88.9 — — 89.8 — 711.0 — prior period adjustments resulting from the adoption of SSAP 34 — — — — — — (3.0) — (3.0 — as restated — 532.3 — 88.9 — — 86.8 — 708.0 Premium on issue of shares — 0.7 — — — — — — 0.7 Profit for the year — — — — — — 21.4 — 21.4 Dividends — — — — — — (39.7) — (39.7 At 31 March 2003 — 533.0 — 88.9 — — 68.5 — 690.4	Property, plant and equipment revaluation reserve Share premium account Translation reserve Contributed surplus Goodwill Negative goodwill Retained profits Reserve funds Total HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million THE GROUP At 1 April 2001 36.3 526.2 (0.7) 197.6 (2.7) 1.9 559.8 0.4 1,318.8 Exchange differences arising on translation of financial statements of operations outside Hong Kong — — (6.0) — — — — — (6.0 Released upon disposal of a jointly controlled entity — — — — — (1.4) — — (1.4 Premium on issue of shares — 6.1 — — — — — — 6.1 Profit for the year — — — — — — 104.3 — 104.3 Dividends — — — — — — (357.1) — (357.1 Transfer (0.7) — — — — — 0.7 — — Revaluation increase in the year 1.4 — — — — — — — 1.4 Transfer to reserve funds — — — — — — (0.4) 0.4 — At 31 March 2002 — as originally stated 37.0 532.3 (6.7) 197.6 (2.7) 0.5 307.3 0.8 1,066.1 — prior period adjustments resulting from the adoption of SSAP 34 (note 2) — — — — — — (24.4) — (24.4 — as restated 37.0 532.3 (6.7) 197.6 (2.7) 0.5 282.9 0.8 1,041.7 Exchange differences arising on translation of financial statements of operations outside Hong Kong — — 6.9 — — — — — 6.9 Premium on issue of shares — 0.7 — — — — — — 0.7 Loss for the year — — — — — — (47.1) — (47.1 Dividends — — — — — — (39.7) — (39.7 Transfer (0.8) — — — — — 0.8 — — Revaluation decrease in the year (13.8) — — — — — — — (13.8 Transfer to reserve funds — — — — — — (0.1) 0.1 — At 31 March 2003 22.4 533.0 0.2 197.6 (2.7) 0.5 196.8 0.9 948.7 THE COMPANY At 1 April 2001 — 526.2 — 88.9 — — 7.3 — 622.4 Premium on issue of shares — 6.1 — — — — — — 6.1 Profit for the year — — — — — — 439.6 — 439.6 Dividends — — — — — — (357.1) — (357.1 At 31 March 2002 — as originally stated — 532.3 — 88.9 — — 89.8 — 711.0 — prior period adjustments resulting from the adoption of SSAP 34 — — — — — — (3.0) — (3.0 — as restated — 532.3 — 88.9 — — 86.8 — 708.0 Premium on issue of shares — 0.7 — — — — — — 0.7 Profit for the year — — — — — — 21.4 — 21.4 Dividends — — — — — — (39.7) — (39.7 At 31 March 2003 — 533.0 — 88.9 — — 68.5 — 690.4
37.0 — 37.0 — — — — (0.8) (13.8) —	532.3 — 532.3 — 0.7 — — — — —	(6.7) — (6.7) 6.9 — — — — — —	197.6 — 197.6 — — — — — — —	(2.7) — (2.7) — — — — — — —	0.5 — 0.5 — — — — — — —	307.3 (24.4) 282.9 — — (47.1) (39.7) 0.8 — (0.1)	0.8 — 0.8 — — — — — — 0.1	1,066.1 (24.4
								1,041.7 6.9 0.7 (47.1 (39.7 — (13.8 —
22.4	533.0	0.2	197.6	(2.7)	0.5	196.8	0.9	948.7
— — — — — — — — — —	526.2 6.1 — — 532.3 — 532.3 0.7 — —	— — — — — — — — — —	88.9 — — — 88.9 — 88.9 — — —	— — — — — — — — — —	— — — — — — — — — —	7.3 — 439.6 (357.1) 89.8 (3.0) 86.8 — 21.4 (39.7)	— — — — — — — — — —	622.4 6.1 439.6 (357.1
								711.0 (3.0
								708.0 0.7 21.4 (39.7
—	533.0	—	88.9	—	—	68.5	—	690.4

— 80 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Included in the above is the Group’s share of the post-acquisition profits of its jointly controlled entities, as follows:

	Translation		Negative	Retained
	reserve	Goodwill	goodwill	profits	Total
	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million
At 1 April 2001	(0.2)	(2.0)	1.7	(0.3)	(0.8)
Released upon disposal of a jointly
controlled entity	—	—	(1.4)	—	(1.4)
Profit for the year	—	—	—	3.3	3.3
Dividends	—	—	—	(1.0)	(1.0)
At 31 March 2002	(0.2)	(2.0)	0.3	2.0	0.1
Released upon dissolution of a jointly
controlled entity	—	—	—	(2.5)	(2.5)
Profit for the year	—	—	—	29.5	29.5
Dividends	—	—	—	(1.0)	(1.0)
At 31 March 2003	(0.2)	(2.0)	0.3	28.0	26.1

The contributed surplus of the Group represents the difference between the nominal value of the shares of the acquired subsidiaries and the nominal value of the Company’s shares issued for the acquisition at the time of the group reorganisation prior to the listing of the Company’s shares in 1997.

The contributed surplus of the Company arose when the Company issued shares in exchange for the equity in subsidiaries and associates pursuant to the group restructuring in January 1997. Under the Companies Act of 1981 of Bermuda (as amended), the contributed surplus is distributable to the shareholders of the Company. However, the Company cannot declare or pay a dividend, or make a distribution out of contributed surplus if:

(a) it is, or would after the payment be, unable to pay its liabilities as they become due; or
(b) the realisable value of its assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts.

As at the balance sheet date, the Company’s reserves, including the contributed surplus, available for distribution to shareholders amounted to HK$157.4 million (2002: HK$178.7 million).

28. DEFERRED TAXATION

	THE	GROUP
	2003		2002
	HK$ million	_HK$ _	million
At the beginning of the year	1.5		3.5
Charge (credit) for the year (Note 10)	0.1		(2.0)
At the end of the year	1.6		1.5

— 81 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

At the balance sheet date, the major components of the deferred taxation liabilities (assets), provided and unprovided, are as follows:

		THE GROUP	THE GROUP			THE COMPANY	THE COMPANY
	Provided		Unprovided		Provided		Unprovided
	2003	2002	2003	2002	2003	2002	2003	2002
	HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million
Tax effect of timing
Differences attributable to:
Excess of tax allowances
over Depreciation	3.4	3.0	5.5	9.7	—	—	0.1	0.3
Tax losses	(1.8)	(0.5)	(14.7)	(11.1)	—	—	(0.6)	(0.8)
Other timing differences	—	(1.0)	(0.6)	—	—	—	—	—
	1.6	1.5	(9.8)	(1.4)	—	—	(0.5)	(0.5)

Deferred tax assets have not been recognised in the financial statements as it is not certain that the deferred tax assets will crystallise in the foreseeable future.

The movement and amount of the unprovided deferred tax (credit) charge for the year is as follows:-

	THE	GROUP	THE COMPANY	THE COMPANY
	2003	2002	2003	2002
	HK$ million	HK$ million	HK$ million	HK$ million
Tax effect of timing differences attributable to:
(Shortfall) excess of tax allowances over depreciation	(4.2)	2.6	(0.2)	(0.2)
Tax losses	(3.6)	(2.7)	0.2	1.3
Other timing differences	(0.6)	—	—	—
	(8.4)	(0.1)	—	1.1

29. PROVIDENT AND RETIREMENT FUND SCHEMES

The Group participates in both a defined benefit plan (the “Plan”) which is registered under the Occupational Retirement Schemes Ordinance and a Mandatory Provident Fund Scheme (the “MPF Scheme”) established under the Mandatory Provident Fund Schemes Ordinance in December 2000. The assets of the schemes are held separately from those of the Group and are invested in securities and funds under the control of trustees. Employees who were members of the Plan prior to the establishment of MPF Scheme were offered a choice of staying within the Plan or switching to the MPF Scheme, whereas all new employees joining the Group on or after 1 December 2000 are required to join the MPF Scheme.

Mandatory Provident Fund Scheme

For members of the MPF Scheme, contributions are made by the employees at 5% of relevant income and by the Group at rates ranging from 5% to 10% of the employees’ salaries, depending on the employees’ length of service with the Group.

— 82 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Group’s contributions to the MPF Scheme charged to the income statement as staff cost during the year ended 31 March 2003 amounted to HK$4.6 million (2002: HK$5.9 million). The amount of employer’s voluntary contributions to MPF schemes forfeited for the year ended 31 March 2003 were immaterial and had been used to reduce the existing level of contributions.

Defined Benefit Plan

Contributions to the Plan are made by the members at 5% of their salaries and by the Group which are based on recommendations made by the actuary of the Plan. The current employer contribution rate is 7.4% of the members’ salaries. Under the Plan, a member is entitled to retirement benefits which comprise the sum of any benefits transferred from another scheme and the greater of the sum of employer’s basic contribution plus the member’s basic contribution accumulated with interest at a rate of no less than 6% per annum or 1.8 times the final salary times the length of employment with the Group on the attainment of the retirement age of 60. For members who joined the Plan before 1997, the retirement age is 60 for male members and 55 for female members. No other post-retirement benefits are provided.

The most recent actuarial valuations of the plan assets and the present value of the defined benefit obligation were carried out at 31 March 2003 by Ms. Elaine Hwang of Watson Wyatt Hong Kong Limited, who is a Fellow of the Society of Actuaries. The present value of the defined benefit obligations and the related current service cost were measured using the projected unit credit method.

The principal actuarial assumptions used are as follows:

Discount	rate at 1 April 2002	6.25%
Discount	rate at 31 March 2003	4.5%
Expected	return on plan assets	5.5%
Expected	rate of salary increase	Nil for the next four years commencing from 1 April 2003 and 3% thereafter

The actuarial valuation showed that the fair value of the plan assets attributable to the Group was HK$226.4 million at 31 March 2003 representing 72% of the benefits that had accrued to members. The shortfall of the plan assets of HK$88.4 million is to be cleared over the estimated remaining service period of the current membership of 10 years.

Amounts recognised in the consolidated income statement for the year ended 31 March 2003 in respect of the defined benefit plan are as follows:

	2003
	HK$ million
Current service cost	13.0
Interest cost	16.0
Expected return on plan assets	(14.5)
Net amount charged to consolidated income statement as staff costs	14.5

The actual return on plan assets allocated to the Group for the year ended 31 March 2003 was a loss of HK$33.0 million.

— 83 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The amounts included in the balance sheets at 31 March 2003 arising from the Group’s and the Company’s obligations in respect of the Plan are as follows:

	THE GROUP	THE COMPANY
	HK$ million	HK$ million
Present value of defined benefit obligations	314.8	44.6
Unrecognised actuarial losses	(83.3)	(11.5)
Fair value of plan assets	(226.4)	(32.1)
Defined benefit liability included in the balance sheet	5.1	1.0

Included within the fair value of plan assets is HK$5.6 million in respect of the equity shares of the Company.

Movements of the defined benefit liability in the balance sheets are as follows:

	THE GROUP	THE COMPANY
	HK$ million	HK$ million
At the beginning of the year	8.5	1.3
Amounts charged to income statement	14.5	1.6
Employers’ contributions	(17.9)	(1.9)
At the end of the year	5.1	1.0

30. LEASE ARRANGEMENTS

As lessor

Property rental income in respect of the investment property and car park spaces earned during the year was HK$14.9 million (2002: HK$15.7 million). The investment property held has committed tenants for the next one to two years.

At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments which fall due as follows:

	THE	GROUP
	2003		2002
	HK$ million	_HK$ _	million
Within one year	7.9		6.2
In the second to fifth years inclusive	5.9		2.2
	13.8		8.4

— 84 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As lessee

At the balance sheet date, the Group and the Company had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

	THE	GROUP	THE	COMPANY
	2003	2002	2003	2002
	HK$ million	HK$ million	HK$ million	HK$ million
Within one year	13.3	10.4	4.2	0.3
In the second to fifth years inclusive	9.9	4.9	4.6	—
Over five years	0.1	0.5	—	—
	23.3	15.8	8.8	0.3

Operating lease payments represent rentals payable by the Group and the Company for certain of its office properties. Leases are negotiated for lease terms ranging from one to ten years.

31. CAPITAL COMMITMENTS

(a) As at 31 March 2003, the Group had commitments in respect of the development costs of property under development contracted but not provided for in the financial statements amounting to approximately HK$621.7 million (2002: HK$225.0 million).

(b) As at 31 March 2003, the Group had no commitments to fund its jointly controlled entities contracted but not provided for in the financial statements (2002: HK$89.1 million).

				2003	2002
				HK$ million	HK$ million
Contracted	but	not	provided for	61.0	137.2
Authorised	but	not	contracted for	117.2	115.8

(d) As at 31 March 2003, the Group had commitments in respect of the acquisition of property, plant and equipment contracted but not provided for in the financial statements amounting to approximately HK$1.4 million (2002: Nil).

The Company had no significant capital commitments at the balance sheet date.

— 85 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

32. PLEDGE OF ASSETS

In August 2002, a subsidiary of the Company was granted certain syndicated bank loan facilities which are secured by the Group’s interest in the property under development with carrying value of HK$706.0 million as at 31 March 2003.

33. SHARE OPTION SCHEME

Following the amendments of Chapter 17 of the Rules Governing the Listing of Securities on the Stock Exchange on 1 September 2001, the Employee Share Option Scheme of the Company adopted on 20 January 1997 (the “Old Scheme”) has been terminated and replaced by a new share option scheme on 27 August 2002 (the “New Scheme”). Since then, no further option can be granted under the Old Scheme, but all options granted prior to such termination shall continue to be valid and exercisable.

Under the Old Scheme, the Board of Directors may offer the eligible participants options to subscribe for shares in the Company at a price equal to the higher of the nominal value of the shares and 90% of the average of the closing prices of the shares quoted on the Stock Exchange on the five trading days immediately after the preliminary announcement of the Group’s annual results, subject to a maximum of 10% of the issued share capital of the Company from time to time. Consideration paid for each grant is HK$1. The maximum entitlement of each eligible participant shall not exceed 25% of the aggregate number of ordinary shares in respect of options that may be granted under existing option schemes. Options granted are exercisable in stages within 5 years from the date of grant.

On 27 August 2002, the Company has adopted the New Scheme which shall continue in force until the 10th anniversary of such date. The principal terms of the New Scheme are summarised as below:

Purpose
(a) The New Scheme is a share incentive scheme and is established to recognise and acknowledge the contributions which the eligible participants have made or may make to the Group.
(b) The New Scheme will provide the eligible participants an opportunity to have a personal stake in the Company with a view to achieving the following objectives:
- (i) motivate the eligible participants to utilise their performance and efficiency for the benefit of the Group; and
- (ii) attract and retain or otherwise maintain on-going relationship with the eligible participants whose contributions are or will be beneficial to the long term growth of the Group.
Eligible participants
(a) The Board may at its discretion invite anyone belonging to any of the following classes of persons to take up options to subscribe for shares of the Company, subject to such conditions as the Board may think fit: any director (whether executive or non-executive or independent non-executive), employee (whether full time or part time), officer, consultant, customer, supplier, agent, partner or adviser of or contractor to the Group or any invested entity and for the purpose of the New Scheme, the options may be granted to any corporation wholly-owned by any person mentioned in this paragraph.
(b) The eligibility of any of the above persons to the grant of any option shall be determined by the Board from time to time on the basis of his contribution to the development and growth of the Group. The Company shall be entitled to cancel any option granted to a grantee but not exercised if such grantee fails to meet the eligibility criteria determined by the Board after an option is granted but before it is exercised.

— 86 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. Total number of shares available for issue under the New Scheme

(a) 10% limit

Subject to the following paragraphs, the total number of shares which may be issued upon exercise of all options to be granted under the New Scheme and any other share option scheme of the Company must not in aggregate exceed 10% of the shares in issue as at the date of approval of the New Scheme (excluding options which have lapsed) (the “Scheme Mandate Limit”).

The Company may, from time to time, refresh the Scheme Mandate Limit by obtaining the approval of the shareholders in general meeting. The Company may also seek separate approval of the shareholders in general meeting for granting options beyond the Scheme Mandate Limit or the refreshed limit, provided the options in excess of such limit are granted only to eligible participants specifically identified by the Company before such approval is sought.

(b) 30% limit

The overall limit on the number of shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the New Scheme and any other share option scheme of the Company must not exceed 30% of the shares in issue from time to time.

4. Maximum entitlement of each participant

The total number of shares issued and to be issued upon exercise of the options granted to each participant (including both exercised and outstanding options) in any 12 month period must not exceed 1% of the shares in issue. Where any further grant of options to a grantee would result in the Shares issued and to be issued upon exercise of all options granted and to be granted to such person (including exercised, cancelled and outstanding options) in the 12 month period up to and including the date of such further grant representing in aggregate over 1% of the shares in issue, such further grant must be separately approved by the Shareholders in general meeting with such grantee and his associates abstaining from voting.

5. Performance target

The New Scheme allows the Board, when offering the grant of any option, to impose any condition including any performance target which must be met before the option shall vest and become exercisable.

6. Minimum period for which an option must be held

The Board may at its discretion when offering the grant of any option impose any minimum period for which an option must be held.

7. Price of shares

The exercise price shall be determined by the Board but shall be at least the highest of: (a) the closing price of a share as stated in the daily quotations sheet of the Stock Exchange on the date of grant; and (b) the average closing price of the shares as shown on the daily quotations sheets of the Stock Exchange for the five business days immediately preceding the date of grant; and (c) the nominal value of a share.

8. Amount payable upon acceptance of option

HK$1.00 is payable by each eligible participant to the Company on acceptance of an offer of an option, which shall be paid within 28 days from the date of the offer.

— 87 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The following tables disclose details of the Company’s share options held by employees (including directors) and movements in such holdings during the year.

Date of grant Subscription price per share Old Scheme 25.7.1997 7.50 15.7.1998 4.14 7.7.1999 11.21 4.7.2000 9.56 17.7.2001 9.30 New Scheme 27.8.2002 6.00 27.8.2002 6.00 Date of grant Subscription price per share Old Scheme 25.7.1997 7.50 15.7.1998 4.14 7.7.1999 11.21 4.7.2000 9.56 17.7.2001 9.30	At 1.4.2002 158,000 666,000 3,190,000 3,542,000 3,670,000 — — 11,226,000 At 1.4.2001 760,000 1,152,000 3,210,000 3,640,000 — 8,762,000	Granted during the year — — — — — 3,240,000 22,000,000 25,240,000 Granted during the year — — — — 3,670,000 3,670,000	Exercised during the year Cancelled during the year Lapsed during the year — — (158,000) (220,000) (14,000) — — (70,000) — — (90,000) — — (110,000) — — (10,000) — — — — (220,000) (294,000) (158,000) Exercised during the year Cancelled during the year Lapsed during the year (602,000) — — (482,000) (4,000) — — (20,000) — (78,000) (20,000) — — — — (1,162,000) (44,000) —	At 31.3.2003 Period during which share options outstanding at 31.3.2003 are exercisable Price of Company’s shares at exercise date of options HK$ (Note) — 25.1.1998 to 24.7.2002 — 432,000 15.1.1999 to 14.7.2003 6.03 3,120,000 7.1.2000 to 6.7.2004 — 3,452,000 4.1.2001 to 3.7.2005 — 3,560,000 17.1.2002 to 16.7.2006 — 3,230,000 27.2.2003 to 26.8.2007 — 22,000,000 27.8.2005 to 26.8.2010 — 35,794,000 At 31.3.2002 Period during which share options outstanding at 31.3.2002 are exercisable Price of Company’s shares at exercise date of options HK$ (Note) 158,000 25.1.1998 to 24.7.2002 10.05 666,000 15.1.1999 to 14.7.2003 10.08 3,190,000 7.1.2000 to 6.7.2004 — 3,542,000 4.1.2001 to 3.7.2005 10.61 3,670,000 17.1.2002 to 16.7.2006 — 11,226,000

Note: The price of the Company’s shares as disclosed is the weighted average closing price of the Company’s shares immediately before the dates on which the options were exercised during the year for each category of eligible participants.

Total consideration received during the year from employees, including directors, for taking up the options granted was HK$94 (2002: HK$87).

— 88 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The financial impact of share options granted is not recorded in the financial statements until such time as the options are exercised, and no charge is recognised in the consolidated income statement in respect of the value of options granted in the year. Upon the exercise of the share options, the resulting shares issued are recorded by the Company as additional share capital at the nominal value of the shares, and the excess of the exercise price per share over the nominal value of the shares is recorded by the Company in the share premium account. Options which lapse or are cancelled prior to their exercise date are deleted from the register of outstanding options.

34. CONTINGENT LIABILITIES

At the balance sheet date, the Group had contingent liabilities not provided for in the financial statements as follows:

(a) performance bonds established amounting to approximately HK$143.4 million (2002: HK$156.2 million);
(b) guarantees in lieu of utility deposits amounting to approximately HK$0.3 million (2002: HK$0.3 million).

The Company has given guarantees to banks in respect of general facilities granted to its subsidiaries and jointly controlled entities at 31 March 2003 for general facilities amounting to approximately HK$1,755.7 million (2002: HK$1,205.7 million) and HK$165.0 million (2002: HK$125.3 million) respectively. The extent of such facilities utilised by the subsidiaries and jointly controlled entities at 31 March 2003 amounted to approximately HK$367.4 million (2002: HK$374.8 million) and HK$159.0 million (2002: HK$125.2 million) respectively.

Pursuant to an agreement entered into with the Government (“the Hongkou Government”) and the Education Authority of the Hongkou District, Shanghai, the PRC on 31 July 2002, guarantees of no more than RMB324 million will be granted by the Group to support bank borrowings arranged in the name of a company nominated by the Hongkou Government, as part of the financial arrangement for the site clearance work in relation to the development of a parcel of land. As at 31 March 2003, no amount has been drawn down under this arrangement.

35. RELATED PARTY TRANSACTIONS

(a) During the year, the Group had the following transactions with SOCL and its subsidiaries and associates other than those of the Group (“SOCL Group”). These transactions were to reimburse the costs and expenses incurred, or were carried out on terms similar to those applicable to transactions with unrelated parties or as mutually agreed between the parties.

Nature of transactions	2003	2002
	HK$ million	HK$ million
Income received:
Decoration work	—	0.6
Management and information system services	0.5	0.7
Project management services	11.8	0.9
Sales and marketing services	3.7	—
Cost and expenses paid:
Rental expenses	0.6	0.5
Building management fee	0.1	1.0
Balance as at 31 March
Amounts due to SOCL Group	0.1	0.9
Amounts due from SOCL Group	0.4	0.2

— 89 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(b) During the year, the Group had the following transactions with jointly controlled entities of the Group on terms meant to reimburse costs and expenses incurred and on terms similar to those applicable to transactions with unrelated parties or as mutually agreed between the parties.

Nature of transactions


Nature of transactions	2003	2002
	HK$ million	HK$ million
Income received:
Interest income	7.6	2.7
Management fee	0.8	1.4
Sales of construction materials	0.2	0.4
Capital distribution from dissolution of a jointly controlled entity	15.3	—
Dividend income	1.0	1.0
Cost and expenses paid:
Construction/subcontracting work	82.2	87.1
Supply of construction materials	13.0	41.5
Management and information system services	0.3	—
Balances as at 31 March
Amounts due to jointly controlled entities	23.0	23.4
Amounts due from jointly controlled entities*	620.9	418.6
Interest receivable	—	0.7

Included in the amounts due from jointly controlled entities are amounts of approximately HK$268.6 million (2002: HK$147.7 million), which are interest bearing and with no fixed repayment terms.
(c) The Group is licensed by Shui On Holdings Limited, a wholly-owned subsidiary of SOCL, to use the trademark, trade name “Shui On”, “ ” and/or the Seagull devices on a non-exclusive, royalty-free basis for an unlimited period of time.
(d) At the balance sheet date, the Group had amounts due from associates amounting to HK$0.6 million (2002: HK$0.1 million), which are interest free and repayable on demand.
(e) During the year, the Group paid rental deposits to SOCL Group amounting to HK$0.2 million (2002: HK$0.1 million).
(f) Pursuant to a relinquishment agreement entered into between Hollyfield Holdings Limited, a wholly-owned subsidiary of the Company, and Shanghai Ruichen Property Company Limited (“Shanghai Ruichen”), a subsidiary of SOCL, on 2 May 2001 (as supplemented by an agreement dated 22 May 2001 between these parties), Shanghai Ruichen agreed, amongst others, to relinquish and surrender the development rights and title of a residential property development at Hongkou District of Shanghai to Shanghai Rui Hong Xin Cheng Company Limited (“Rui Hong”), a 99% indirectly owned subsidiary of the Company. In consideration of the above, Rui Hong had paid Shanghai Ruichen a sum of RMB184.5 million (approximately HK$172.4 million) during the year.

— 90 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

36. PARTICULARS OF PRINCIPAL SUBSIDIARIES

The Directors are of the opinion that a complete list of the particulars of all subsidiaries will be of excessive length and therefore the following list contains only the particulars of subsidiaries which principally affect the results or assets of the Group. All the companies listed below were incorporated and are operating in Hong Kong except as otherwise indicated.

		Percentage of issued/	Percentage of issued/
	Issued and fully paid share	registered capital held
Name of subsidiary	capital/ registered capital	by the Company		Principal activities
		Directly	Indirectly
Construction and building
maintenance business
Pacific Extend Limited	10,000 ordinary shares of	—	67%	Maintenance contractor
	HK$1 each
P.D. (Contractors) Limited	1,000,000 ordinary shares of	—	94%	Renovation work
	HK$1 each
Pat Davie Limited	9,400,100 ordinary shares of	—	94%	Interior decoration,
	HK$1 each 100,000 non-			fitting out, design
	voting deferred shares of			and contracting
	HK$10 each
Pat Davie (China) Limited	2 ordinary shares of HK$1 each	—	94%	Investment holding
Shui On Building Contractors	117,000,100 ordinary shares of	—	100%	Building construction
Limited	HK$1 each 33,000,100 non-			and maintenance
	voting deferred shares of
	HK$1 each 50,000 non-voting
	deferred shares of HK$1,000
	each
Shui On Construction Company	100 ordinary shares of HK$1	—	100%	Building construction
Limited	each 69,000,000 non-voting
	deferred shares of HK$1 each
	1,030,000 non-voting
	deferred shares of HK$100
	each
Shui On Contractors Limited*	1 share of US$1	100%	—	Investment holding
Sale of construction materials
business
Asia No.1 Material Supply	100 ordinary shares of HK$100	—	100%	Holding of a quarry
Limited	each 1,000 non-voting			right
	deferred shares of HK$100
	each
Billion Centre Company	100 ordinary shares of HK$1	—	100%	Holding of a land lease
Limited	each 2 non-voting deferred
	shares of HK$1 each
Dynamic Mark Limited	100 ordinary shares of HK$1	—	80%	Supply of metal gates
	each 3,000,000 non-voting
	deferred shares of HK$1 each

— 91 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Percentage of issued/

Issued and fully paid share registered capital held
Name of subsidiary capital/ registered capital by the Company Principal activities Directly Indirectly
First Direction Limited 100 ordinary shares of HK$1 — 100% Property holding each 2 non-voting deferred shares of HK$1 each
Great Market Limited 100 ordinary shares of HK$1 — 100% Investment holding each 5 non-voting deferred shares of HK$1 each
Guangdong Ken On Concrete Registered and paid up capital — 100% Supply of ready-mixed Co., Ltd.†& HK$10,500,000 concrete
Guangzhou Ken On Concrete Registered and paid up capital — 100% Supply of readyCo., Ltd.†& HK$18,393,943 mixed concrete
Guangdong Lamma Concrete Registered and paid up capital — 60% Manufacture of precast Products Limited†§ RMB5,000,000 concrete facade
Guang Rui Construction Registered and paid up capital — 70% Manufacture of panel Materials (Panyu) Ltd.†@ HK$2,100,000 walls
Instant Mortars Limited 2 ordinary shares of HK$1 each — 100% Supply of readymixed mortars
Ken On Concrete Company 11,000,000 ordinary shares of — 100% Supply of ready-mixed Limited HK$1 each concrete
Lamma Concrete Products 10 ordinary shares of HK$1 — 60% Investment holding Limited each
Lamma Rock Products Limited 100 ordinary shares of HK$10 — 100% Investment holding each 3,500,000 non-voting deferred shares of HK$10 each
Panyu Dynamic Mark Steel & Registered and paid up capital — 64% Steel fabrication Aluminium Engineering Co. HK$4,000,000 Ltd.†@
Panyu Shui Fai Metal Works Registered and paid up capital — 55% Manufacture of Engineering Company HK$9,000,000 wallform and other Limited†@ metal works
Project Way Limited 2 ordinary shares of HK$1 each — 100% Investment holding Shui Fai Metal Works 10,000 ordinary shares of HK$1 — 55% Sales and installation Engineering Company each of wallform and Limited other metal works
Shui On Building Materials 100 ordinary shares of HK$1 — 100% Investment holding and Limited each 1,000,000 non-voting sale of construction deferred shares of HK$1 each materials
Shui On Cement (Guizhou) 100 shares of US$1 each — 99% Investment holding

Shui On Cement (Guizhou) Limited (formerly known as T.H. Cement (Guizhou) Company Limited)*

— 92 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Percentage of issued/ Issued and fully paid share registered capital held capital/ registered capital by the Company

	Issued and fully paid share	registered capital held	registered capital held
Name of subsidiary	capital/ registered capital	by the Company		Principal activities
		Directly	Indirectly
Shui On Materials Limited*	1 share of US$1	100%	—	Investment holding
Shui On Plant & Equipment	1,611,000 ordinary shares of	—	100%	Owning and leasing of
Services Limited	HK$1 each 45,389,000 non-			plant and machinery
	voting deferred shares of			and structural steel
	HK$1 each			construction work
Shui On Rock Products Limited	2 ordinary shares of HK$1 each	—	100%	Site formation
Silver Limited	2 ordinary shares of HK$1 each	—	100%	Holding of a land lease
Xinhui Longkoushan Rock	Registered and paid up capital	—	55%	Quarrying
Products Limited†@	US$1,785,700
Trading of building materials
business
Asia Materials Limited	2 ordinary shares of HK$1 each	—	100%	Trading
(formerly known as
AsiaMaterials.com Limited)
AsiaMaterials International	Registered and paid up capital	—	100%	Trading
Trading (Shenzhen) Co.,	HK$1,000,000
Ltd.†§
Asia Materials Holdings	1,000,000 shares of US$1 each	100%	—	Investment holding
Limited#
AsiaMaterials Technologies	Registered and paid up capital	—	100%	Trading
(Beijing) Co., Ltd.†§	US$150,000
AsiaMaterials Technologies	Registered and paid up capital	—	100%	Trading
(Hangzhou) Co., Ltd.†§	US$200,000
AsiaMaterials Technologies	Registered and paid up capital	—	100%	Provision of
(Shenzhen) Co., Ltd.†§	HK$3,000,000			technology services
AsiaMaterials Trading	Registered and paid up capital	—	100%	Trading
(Shanghai) Co., Ltd.†§	US$200,000
Property development
business
Hollyfield Holdings Limited‡	2 ordinary shares of US$1 each	—	100%	Investment holding
Jade City International Limited	2 ordinary shares of HK$1 each	—	100%	Property holding
Shanghai Rui Hong Xin Cheng	Registered and paid up capital	—	99%	Property development
Co. Ltd.†@	RMB467,000,000
Property investment and
others business
Asia Trend Development	2 ordinary shares of HK$1 each	100%	—	Investment in
Limited				securities
Billion Century Limited	2 ordinary shares of HK$1 each	—	100%	Investment in
				securities
Casa Growth Limited*	1 share of US$1	100%	—	Investment holding

— 93 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

		Percentage of issued/	Percentage of issued/
	Issued and fully paid share	registered capital held
Name of subsidiary	capital/ registered capital	by the Company		Principal activities
		Directly	Indirectly
Eventful Time Investments	1 share of US$1	—	100%	Investment holding
Limited*
Goldcrest Development	1 share of US$1	100%	—	Investment holding
Limited*
Jesca Limited	2 ordinary shares of HK$1 each	100%	—	Investment holding
Kotemax Limited	2 ordinary shares of HK$1 each	—	100%	Property holding
Kroner Investments Limited*	1 share of US$1	100%	—	Investment holding
Landstar Development Limited	2 ordinary shares of HK$1 each	—	100%	Investment holding
Guizhou Shui On Consulting	Registered and paid up capital	—	99%	Provision of
Co., Ltd.†§	US$420,000			consultancy services
Middleton Investments	2 ordinary shares of US$1 each	—	99%	Investment holding
Limited‡
Shui On Corporate Services	2 ordinary shares of HK$1 each	100%	—	Provision of secretarial
Limited				services
Shui On Granpex Limited	2 ordinary shares of HK$1 each	—	100%	Investment holding
Shui On Graceton Limited	2 ordinary shares of HK$1 each	—	100%	Investment holding
Smartway Investment Limited‡	2 ordinary shares of US$1 each	—	99%	Investment holding
SOCAM.com Limited	2 ordinary shares of HK$1 each	—	100%	Provision of on-line
				services for internal
				procurement and
				project management
Sommerset Investments	2 ordinary shares of US$1 each	—	99%	Investment holding
Limited‡
Tinsley Holdings Limited‡	2 ordinary shares of US$1 each	—	99%	Investment holding
Total Trend Investments	1 share of US$1	100%	—	Investment holding
Limited*
Top Bright Investments	2 ordinary shares of US$1 each	—	99%	Investment holding
Limited‡
Winway Holdings Limited‡	2 ordinary shares of US$1 each	—	99%	Investment holding

Notes:

All these subsidiaries have no debt securities subsisting at the end of the year or at any time during the year.

Incorporated in the British Virgin Islands
Registered and operated in other regions of the PRC
Incorporated in Mauritius
Incorporated in the Cayman Islands
§ Wholly foreign owned enterprises
@ Equity joint venture
& Cooperative joint venture

— 94 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

37. PARTICULARS OF PRINCIPAL ASSOCIATES

The Directors are of the opinion that a complete list of the particulars of all associates will be of excessive length and therefore the following list contains only the particulars of the principal associate of the Group. The company listed below was incorporated and is operating in Hong Kong.

	Issued and paid-up	Effective percentage of issued
Indirect associate	share capital	capital held by the Group	Principal activities
Happy Way Resources Limited	5 ordinary shares of	20%	Holding of a land lease
	HK$1 each

38. PARTICULARS OF JOINTLY CONTROLLED ENTITIES

The Directors are of the opinion that a complete list of the particulars of all jointly controlled entities will be of excessive length and therefore the following list contains only the particulars of principal jointly controlled entities of the Group. All the companies listed below were incorporated and are operating in Hong Kong except otherwise indicated.

		Effective
		percentage
	Issued and paid-up	of issued
	share capital/	capital held
Indirect jointly controlled entities	registered capital	by the Group	Principal activities	Notes
Construction and building
maintenance business
Brisfull Limited	5,000,000 ordinary shares	50%	Sale and installation
	of HK$1 each		of aluminium
			window products
City Engineering Limited	10,000 ordinary shares of	50%	Installation of mould
	HK$1 each		work
Super Race Limited	420,000 ordinary shares	50%	Supply of sink units
	HK$1 each		and cooking
			benches
Sale of construction materials
business
Biella Enterprises Limited	5 ordinary shares of HK$1	20%	Holding of a land
	each		lease
Chongqing T.H. Cement Co. Ltd.†¶	Registered and paid up	40%	Manufacture and sale	2
	capital RMB50,000,000		of cement
Chongqing T.H. Diwei Cement Co.	Registered and paid up	40%	Manufacture and sale	2
Ltd.†¶	capital RMB61,680,000		of cement
Chongqing T.H. Special Cement Co.	Registered and paid up	40%	Manufacture and sale	2
Ltd.†¶	capital RMB160,000,000		of cement
Chongqing T.H. White Cement Co.	Registered and paid up	30%	Manufacture and sale	2
Ltd.†¶	capital US$1,506,000		of cement

— 95 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

		Effective
		percentage
	Issued and paid-up	of issued
	share capital/	capital held
Indirect jointly controlled entities	registered capital	by the Group	Principal activities	Notes
Guizhou Dingxiao Shui On Cement	Registered and paid up	89%	Manufacture and sale	1 and 2
Co. Ltd. (formerly known as	capital RMB56,000,000		of cement
Guizhou Dingxiao T.H. Cement
Company Ltd.)†¶
Guizhou Kaili Shui On Cement Co.	Registered and paid up	89%	Manufacture and sale	1 and 2
Ltd. (formerly known as Guizhou	capital RMB60,000,000		of cement
Kaili T.H. Cement Company
Ltd.)†¶
Guizhou Xinpu Shui On Cement Co.	Registered and paid up	79%	Manufacture and sale	1 and 2
Ltd.†¶	capital RMB60,000,000		of cement
Guizhou Xishui Shui On Cement Co.	Registered capital	89%	Manufacture and sale	1 and 2
Ltd. (formerly known as Guizhou	RMB42,800,000 paid up		of cement
Xishui T.H. Cement Company	capital RMB40,120,000
Ltd.)†¶
Guizhou Yuqing T. H. Cement Co.	Registered and paid up	79%	Manufacture and sale	1 and 2
Ltd.†¶	capital RMB12,500,000		of cement
Guizhou Zunyi Shui On Cement Co.	Registered and paid up	79%	Manufacture and sale	1 and 2
Ltd. (formerly known as Guizhou	capital RMB92,000,000		of cement
Zunyi T.H. Cement Company
Ltd.)†¶
Lamma Yue Jie Company Limited	10,000 ordinary shares of	60%	Trading of
	HK$1 each		construction
			materials
Nanjing Jiangnan Cement Company	Registered and paid up	60%	Manufacture and	1 and 2
Ltd.†¶	capital RMB120,000,000		trading of cement
Shenzhen Lamma Yue Jie Concrete	Registered capital	60%	Manufacture of precast	1
Products Co. Ltd.†¶	RMB5,000,000 Paid up		concrete facade
	capital RMB3,000,000
Shui On (Panyu) Stainless Steel &	Registered and paid up	50%	Manufacture and	1 and 2
Aluminium Products Company	capital HK$2,000,000		trading of stainless
Limited†¶			steel and aluminium
			products
Shui On Sumicem Consulting Limited	100,000 ordinary shares of	50%	Consultancy services
	HK$1 each
Sichuan Hejiang T. H. Cement Co.	Registered and paid up	89%	Plant under	1 and 2
Ltd.†¶	capital RMB12,500,000		construction
TH Industrial Management Limited*	2,740 ordinary shares of	50%	Investment holding	2
	US$1 each

— 96 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Effective percentage Issued and paid-up of issued share capital/ capital held Indirect jointly controlled entities registered capital by the Group Principal activities Notes

Other business The Yangtze Ventures Limited‡ 1,000 ordinary shares of 65.5% Investment fund 2 HK$0.1 each

Incorporated in the Bahamas
Registered and operated in other regions of the PRC
Incorporated in the Cayman Islands
Equity joint venture

Notes:

The Group is under contractual arrangements to jointly control these entities with PRC partners. Accordingly, the Directors consider they are jointly controlled entities.
The results of these jointly controlled entities are accounted for by the Group based on their financial statements made up to 31 December 2002.

PARTICULARS OF PROPERTIES

Properties held by the Group as at 31 March 2003 are as follows:

			Approx. floor	Lease	Group’s	Stage of	Anticipated
	Location	Use	area	term	interest	completion	completion
			(Sq. metres)
(A)	PROPERTIES HELD AS
	PROPERTY, PLANT AND
	EQUIPMENT
	Section A of Lot No.609,	Workshop and	2,599	Medium	100%	N/A	N/A
	Lot Nos. 610 and 611,	storage
	Section F of Lot No. 612
	in Demarcation District
	No.85,
	Fanling,
	New Territories
	Section B and the Remaining	Workshop and	1,796	Medium	100%	N/A	N/A
	Portion of Lot No.1477 in	storage
	Demarcation District
	No.77,
	Ping Che,
	Fanling,
	New Territories

— 97 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

			Approx. floor	Lease	Group’s	Stage of	Anticipated
	Location	Use	area	term	interest	completion	completion
			(Sq. metres)
(B)	INVESTMENT PROPERTY
	Kwun Tong Inland Lot No.43	Industrial/	19,723	Medium	100%	N/A	N/A
	54 - 56 Tsun Yip Street	godown
	Kwun Tong,
	Kowloon
(C)	PROPERTY HELD FOR
	SALE
	Tseung Kwan O Town	Carparking	3,538	Medium	100%	N/A	N/A
	Lot No. 62, Area 65A
	Bauhinia Garden
	11 Tong Chun Street
	Tseung Kwan O
	Sai Kung
	New Territories
(D)	PROPERTY UNDER
	DEVELOPMENT
	Land No. 149/1,	Residential	187,195	Long	99%	Super-	Stage I -
	Xin Gang Road,					structure in	March 2004
	Hong Kou District	Commercial	32,216			progress
	Shanghai,	Carparking	17,608
	PRC
		Club house	2,901

— 98 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

III. 2003 INTERIM RESULTS

Set out below is the interim condensed consolidated financial statements of the Company for the six months ended 30 September 2003 as extracted from the interim report of the Company.

Condensed Consolidated Income Statement

		Six months		Six months
		ended	Year ended	ended
		30 September	31 March	30 September
		2003	2003	2002
	Notes	(Unaudited)		(Unaudited)
		HK$ million	HK$ million	HK$ million
			(Restated)	(Restated)
Turnover
The Company and its subsidiaries		1,300	2,311	1,180
Share of jointly controlled entities		325	527	216
		1,625	2,838	1,396
Group turnover	2	1,300	2,311	1,180
Other operating income		12	29	9
Changes in inventories of finished
goods, work in progress, contract
work in progress and properties held
for sale		30	30	47
Raw materials and consumables used		(259)	(484)	(189)
Staff costs		(183)	(364)	(181)
Depreciation and amortisation
expenses		(21)	(45)	(24)
Subcontracting, external labour costs
and other operating expenses		(911)	(1,505)	(838)
Revaluation decrease on investment
property		—	(14)	—
Revaluation decrease on land and
buildings		—	(2)	—
Profit on disposal of listed securities		35	—	—
Unrealised holding gain (loss) on
investment in listed securities		6	(25)	(24)
Profit (Loss) from operations	3	9	(69)	(20)
Finance costs		(5)	(6)	(1)
Share of results of jointly controlled
entities		13	31	8

— 99 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

		Six months	Six months		Six months
			ended	Year ended	ended
		30 September		31 March	30 September
			2003	2003	2002
	Notes	(Unaudited)			(Unaudited)
		HK$ million		HK$ million	HK$ million
				(Restated)	(Restated)
Profit (Loss) before taxation			17	(44)	(13)
Taxation	4		(4)	1	(3)
Profit (Loss) before minority interests			13	(43)	(16)
Minority interests			1	—	—
Profit (Loss) attributable to
shareholders			14	(43)	(16)
Dividend	5		—	—	—
Earnings (Loss) per share	6
Basic			HK$0.05	(HK$0.16)	(HK$0.06)
Diluted			HK$0.05	(HK$0.16)	(HK$0.06)
Interim dividend per share			—	—	—

— 100 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Balance Sheet

As at 30 September 2003 As at 31 March 2003 Notes (Unaudited) (Restated) HK$ million HK$ million Non-Current Assets Investment property 123 123 Property, plant and equipment 187 198 Property under development 891 706 Interests in jointly controlled entities 498 437 Investments in securities 7 33 136 Site establishment expenditure 20 14 Deferred tax assets 5 5 1,757 1,619 Current Assets Inventories 46 39 Properties held for sale 56 56 Debtors, retentions and prepayments 8 589 597 Amounts due from customers for contract work 249 221 Amounts due from associates 1 1 Amounts due from jointly controlled entities 549 621 Tax recoverable 3 5 Bank balances, deposits and cash 283 90 1,776 1,630 Current Liabilities Creditors and accrued charges 9 782 630 Amounts due to customers for contract work 78 81 Amounts due to jointly controlled entities 19 23 Bank borrowings - due within one year 701 69 1,580 803 Net Current Assets 196 827 Total Assets Less Current Liabilities 1,953 2,446	As at 30 September 2003 As at 31 March 2003 Notes (Unaudited) (Restated) HK$ million HK$ million Non-Current Assets Investment property 123 123 Property, plant and equipment 187 198 Property under development 891 706 Interests in jointly controlled entities 498 437 Investments in securities 7 33 136 Site establishment expenditure 20 14 Deferred tax assets 5 5 1,757 1,619 Current Assets Inventories 46 39 Properties held for sale 56 56 Debtors, retentions and prepayments 8 589 597 Amounts due from customers for contract work 249 221 Amounts due from associates 1 1 Amounts due from jointly controlled entities 549 621 Tax recoverable 3 5 Bank balances, deposits and cash 283 90 1,776 1,630 Current Liabilities Creditors and accrued charges 9 782 630 Amounts due to customers for contract work 78 81 Amounts due to jointly controlled entities 19 23 Bank borrowings - due within one year 701 69 1,580 803 Net Current Assets 196 827 Total Assets Less Current Liabilities 1,953 2,446	As at 30 September 2003 As at 31 March 2003 Notes (Unaudited) (Restated) HK$ million HK$ million Non-Current Assets Investment property 123 123 Property, plant and equipment 187 198 Property under development 891 706 Interests in jointly controlled entities 498 437 Investments in securities 7 33 136 Site establishment expenditure 20 14 Deferred tax assets 5 5 1,757 1,619 Current Assets Inventories 46 39 Properties held for sale 56 56 Debtors, retentions and prepayments 8 589 597 Amounts due from customers for contract work 249 221 Amounts due from associates 1 1 Amounts due from jointly controlled entities 549 621 Tax recoverable 3 5 Bank balances, deposits and cash 283 90 1,776 1,630 Current Liabilities Creditors and accrued charges 9 782 630 Amounts due to customers for contract work 78 81 Amounts due to jointly controlled entities 19 23 Bank borrowings - due within one year 701 69 1,580 803 Net Current Assets 196 827 Total Assets Less Current Liabilities 1,953 2,446
	1,757 46 56 589 249 1 549 3 283 1,776 782 78 19 701 1,580 196	1,619
		39 56 597 221 1 621 5 90
		1,630
		630 81 23 69
		803
		827
	1,953	2,446

— 101 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

		As at	As at
		30 September	31 March
		2003	2003
	Notes	(Unaudited)	(Restated)
		HK$ million	HK$ million
Capital and Reserves
Share capital	10	265	265
Reserves	11	975	950
		1,240	1,215
Minority Interests		25	26
Non-Current Liabilities
Bank borrowings		676	1,195
Deferred tax liabilities		5	5
Defined benefit liabilities		7	5
		688	1,205
		1,953	2,446

— 102 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Statement of Changes in Equity

	Six months ended	Six months ended
	30 September
	2003	2002
	(Unaudited)
	HK$ million	HK$ million
Balance at 1 April (restated)	1,215	1,300
Issue of shares upon exercise of share options	—	2
Exchange differences arising on translation of overseas operations	11	7
Profit (Loss) for the period	14	(16)
Equity before dividends paid	1,240	1,293
Dividends	—	(40)
Balance at 30 September	1,240	1,253

— 103 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Cash Flow Statement

	Six months ended	Six months ended
	30 September
	2003	2002
	(Unaudited)
	HK$ million	HK$ million
Net cash inflow (outflow) from operating activities	161	(168)
Net cash outflow from investing activities	(87)	(198)
Net cash inflow from financing activities	113		380
Increase in cash and cash equivalents	187		14
Cash and cash equivalents at the beginning of the period	90		75
Effect of foreign exchange rate changes	6		7
Cash and cash equivalents at the end of the period Analysis
of the balance of cash and cash equivalents	283		96
Bank balances, deposits and cash	283		96

— 104 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes on the Unaudited Interim Financial Statements

(1) BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES

These unaudited interim financial statements have been prepared in accordance with Statement of Standard Accounting Practice (“SSAP”) 25 “Interim financial reporting” issued by the Hong Kong Society of Accountants and Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”).

These interim financial statements should be read in conjunction with the 2002/2003 audited financial statements.

The principal accounting policies and method of computation adopted for preparing these unaudited interim financial statements are consistent with those followed in the Group’s annual financial statements for the year ended 31 March 2003 except that the Group has changed its accounting policy on deferred tax following its adoption of the SSAP 12 (Revised) “Income taxes” issued by the Hong Kong Society of Accountants effective for accounting periods commencing on or after 1 January 2003.

In prior years, deferred tax liabilities were provided using the liability method in respect of the taxation effect arising from all material timing differences between the accounting and tax treatment of income and expenditure, which were expected with reasonable probability to crystallise in the foreseeable future. Deferred tax assets were not recognised unless their realisation was assured beyond reasonable doubt.

In order to comply with SSAP 12 (Revised), the Group adopted a new accounting policy for deferred tax. A balance sheet method was used to recognise deferred tax in respect of all temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, with limited exceptions. The effect of adopting the new accounting policy has been applied retrospectively. The shareholders’ funds as at 1 April 2003 were restated by an increase of HK$0.6 million, which comprises an increase in revenue reserves of HK$4.0 million and a decrease in revaluation reserve of HK$3.4 million. Shareholders’ funds as at 1 April 2002 were restated by a reduction of HK$5.6 million, comprising an increase in revenue reserves of HK$0.2 million and a decrease in revaluation reserve of HK$5.8 million. The adjustments represented the deferred tax liability recognised in respect of temporary differences mainly arising from depreciation and revaluation of fixed assets net of deferred tax assets in respect of tax losses and revaluation deficit of an investment property recognised to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. The effect of the change on taxation for the six months ended 30 September 2003 is an increased charge of HK$0.2 million (30 September 2002: decreased charge of HK$1.1 million).

— 105 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(2) SEGMENTAL INFORMATION

An analysis of the Group’s turnover and results by business segments is:

For the six months ended 30 September 2003

	Construction	Sales of	Trading of	Trading of		Property
	and building	construction	building		Property	investment
	maintenance	materials	materials		development	and others	Eliminations	Consolidated
	HK$ million	HK$ million	_HK$ _	million	HK$ million	HK$ million	HK$ million	HK$ million
TURNOVER
External sales	1,084	142		66	—	8	—	1,300
Inter-segment sales	—	68		7	—	—	(75)	—
Group turnover	1,084	210		73	—	8	(75)	1,300
Share of jointly controlled
entities	16	309*		—	—	—	—	325
Total	1,100	519		73	—	8	(75)	1,625

Inter-segment sales are charged at mutually agreed prices.

This represents mainly the Group’s effective share of turnover of jointly controlled entities in respect of the cement operations in Chongqing and Guizhou (HK$262 million) and Nanjing (HK$34 million).

RESULTS Segment results Interest income Profit on disposal of listed securities Unrealised holding gain on investment in listed securities Profit from operations Finance costs Share of results of jointly controlled entities - Cement operations in - Chongqing and Guizhou - Nanjing - Others Profit before taxation Taxation Profit before minority interests	8	(43)	(4)	(1)	3	3
						5 35 6 9 (5)
						18 (6) 1
						13 17 (4)

— 106 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the six months ended 30 September 2002

	Construction	Sales of	Trading of	Trading of		Property
	and building	construction	building		Property	investment
	maintenance	materials	materials		development	and others	Eliminations	Consolidated
	HK$ million	HK$ million	_HK$ _	million	HK$ million	HK$ million	HK$ million	HK$ million
TURNOVER
External sales	883	271		18	1	7	—	1,180
Inter-segment sales	—	105		1	—	—	(106)	—
Group turnover	883	376		19	1	7	(106)	1,180
Share of jointly
controlled entities	13	203*		—	—	—	—	216
Total	896	579		19	1	7	(106)	1,396

Inter-segment sales are charged at mutually agreed prices.

This represents mainly the Group’s effective share of turnover of jointly controlled entities in respect of the cement operations in Chongqing and Guizhou (HK$167 million) and Nanjing (HK$35 million).

RESULTS Segment results Interest income Unrealised holding loss on investment in listed securities Loss from operations Finance costs Share of results of jointly controlled entities - Cement operations in - Chongqing and Guizhou - Nanjing - Others Loss before taxation Taxation Loss before minority interests	27	(11)	(16)	(1)	1	1
						4 (24) (20) (1)
						13 (3) (2)
						8 (13) (3)

— 107 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

An analysis of the Group’s turnover and contribution by geographical markets, irrespective of the origin of the goods/services, is:

		Turnover by	Turnover by			Contribution to	Contribution to	Contribution to
		geographical markets				profit (loss) from operations
		Six months ended				Six	months ended
		30 September				30 September
		2003	2002				2003		2002
		HK$ million	HK$ million			HK$ million		HK$ million
	Hong Kong	1,203	1,111				(25)		8
	Other regions in the People’s Republic of China	97		69			(12)		(8)
		1,300	1,180				(37)		—
	Interest income						5		4
	Profit on disposal of listed securities						35		—
	Unrealised holding gain (loss) on investment
	in listed securities						6		(24)
	Profit (Loss) from operations						9		(20)
	Finance costs						(5)		(1)
	Share of results of jointly controlled entities						13		8
	Profit (Loss) before taxation						17		(13)
(3)	PROFIT (LOSS) FROM OPERATIONS
		Six months	ended		Year ended		Six	months	ended
		30 September			31	March		30 September
			2003			2003			2002
		_HK$ _	million	_HK$ _		million		HK$ million
	Profit (Loss) from operations has been arrived
	at after charging (crediting):
	Depreciation and amortisation
	Owned assets		19			42			22
	Site establishment expenditure		2			3			2
			21			45			24
	Interest on bank loans and overdrafts		12			22			6
	Less: Amount capitalised to property
	under development		(7)			(16)			(5)
			5			6			1

— 108 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(4) TAXATION

Hong Kong Profits Tax is calculated at 17.5% (2002: 16%) on the estimated assessable profits for the period. Income tax of the other regions in the PRC has been provided for based on the estimated assessable profits in accordance with the relevant tax laws applicable to the Group in the Chinese Mainland. Deferred tax is provided on temporary differences under the liability method.

(5) DIVIDEND

Your Board does not recommend the payment of a dividend (2002: Nil) for the six months ended 30 September 2003.

	Six months ended	Year ended	Six months ended
	30 September	31 March	30 September
	2003	2003	2002
	HK$ million	HK$ million	HK$ million
Dividend paid during the period
Final dividend for 2002/2003: nil (2001/2002:
HK$0.15) per share	—	40	40
Additional final dividend for shares issued pursuant to
exercise of share options	—	—	—
	—	40	40
Proposed interim dividend: nil (2002: nil)	—	—	—

(6) EARNINGS (LOSS) PER SHARE

The calculation of the basic and diluted earnings (loss) per share is based on the following data:

	Six months ended	Year ended	Six months ended
	30 September	31 March	30 September
	2003	2003	2002
	HK$ million	HK$ million	HK$ million
Earnings (Loss) for the purposes of basic and
diluted earnings (loss) per share	14	(43)	(16)
	Million	Million	Million
Weighted average number of ordinary shares for the
purposes of basic earnings (loss) per share	265	265	265
Effect of dilutive potential ordinary shares	—	—	—
Weighted average number of ordinary shares for the
purposes of diluted earnings (loss) per share	265	265	265

— 109 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(7) INVESTMENTS IN SECURITIES As at 30 September As at 31 March 2003 2003 HK$ million HK$ million Other investments - equity securities, listed in Hong Kong 18 121 - equity securities, unlisted overseas 15 15 33 136 (8) DEBTORS, RETENTIONS AND PREPAYMENTS As at 30 September As at 31 March 2003 2003 HK$ million HK$ million Debtors (net of provisions for bad and doubtful debts) with aging analysis Current to 90 days 223 235 91 to 180 days 9 19 181 to 360 days 31 18 Over 360 days 7 5 270 277 Retentions receivable 143 125 Prepayments, deposits and other receivables 176 195 589 597	(7) INVESTMENTS IN SECURITIES As at 30 September As at 31 March 2003 2003 HK$ million HK$ million Other investments - equity securities, listed in Hong Kong 18 121 - equity securities, unlisted overseas 15 15 33 136 (8) DEBTORS, RETENTIONS AND PREPAYMENTS As at 30 September As at 31 March 2003 2003 HK$ million HK$ million Debtors (net of provisions for bad and doubtful debts) with aging analysis Current to 90 days 223 235 91 to 180 days 9 19 181 to 360 days 31 18 Over 360 days 7 5 270 277 Retentions receivable 143 125 Prepayments, deposits and other receivables 176 195 589 597	(7) INVESTMENTS IN SECURITIES As at 30 September As at 31 March 2003 2003 HK$ million HK$ million Other investments - equity securities, listed in Hong Kong 18 121 - equity securities, unlisted overseas 15 15 33 136 (8) DEBTORS, RETENTIONS AND PREPAYMENTS As at 30 September As at 31 March 2003 2003 HK$ million HK$ million Debtors (net of provisions for bad and doubtful debts) with aging analysis Current to 90 days 223 235 91 to 180 days 9 19 181 to 360 days 31 18 Over 360 days 7 5 270 277 Retentions receivable 143 125 Prepayments, deposits and other receivables 176 195 589 597
	270 143 176	277 125 195
	589	597

The Group has a defined credit policy. The general credit term ranges from 30 days to 90 days.

— 110 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(9) CREDITORS AND ACCRUED CHARGES

		As at	As at
		30 September	31 March
		2003	2003
		HK$ million	HK$ million
Creditors with aging analysis
Within 30 days		53	93
31	to 90 days	36	38
91	to 180 days	8	7
Over 180 days		6	6
		103	144
Retentions payable		132	137
Accruals and other payables		547	349
		782	630
SHARE CAPITAL
			HK$ million
(a)	Authorised
	400,000,000 ordinary shares of HK$1 each		400
(b)	Issued and fully paid
	Balance at 31 March 2003 and 30 September 2003		265

(10) SHARE CAPITAL

— 111 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(11) RESERVES

At 31 March 2003 as previously reported Prior year adjustment (Note 1 to the financial statements) At 31 March 2003 (restated) Exchange adjustment Profit for the period At 30 September 2003	Property revaluation reserve Share premium account HK$ million HK$ million 22 533 (3)	Property revaluation reserve Share premium account HK$ million HK$ million 22 533 (3)	Translation reserve HK$ million —	Contributed surplus HK$ million 198	Goodwill Negative Goodwill HK$ million HK$ million (3) 1	Retained profits HK$ million 197 4	Reserve funds HK$ million (Note) 1	Total HK$ million 949 1
	19	533	— 11	198	(3) 1	201 14	1	950 11 14
	19	533	11	198	(3) 1	215	1	975

Note: Reserve funds represent mainly statutory reserves set up for enterprises in mainland PRC.

(12) CONTINGENT LIABILITIES

As at 30 September 2003, the Group had contingent liabilities not provided for in these financial statements:

		As at	As at
		30 September	31 March
		2003	2003
		HK$ million	HK$ million
Contingent liabilities
(a)	Performance bonds	144	143
(b)	Guarantees to banks in respect of general facilities granted to
	jointly controlled entities	315	165

In additions to HK$315 million stated above, pursuant to an agreement entered into with the Government (“the Hongkou Government”) and the Education Authority of the Hongkou District, Shanghai, the PRC on 31 July 2002, guarantees of no more than RMB324 million will be granted by the Group to support bank borrowings arranged in the name of a company nominated by the Hongkou Government, as part of the financial arrangement for the site clearance work in relation to the development of a parcel of land. As at 30 September 2003, no amount has been drawn down under this arrangement.

— 112 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(13) CAPITAL COMMITMENT

As at 30 September 2003

(a) the Group had commitments in respect of the development costs of property under development contracted but not provided for in the accounts amounting to approximately HK$861 million (As at 31 March 2003: HK$622 million).
(b) the Group’s share of capital commitments of its jointly controlled entities are as follows:

					As at	As at
				30 September		31 March
					2003	2003
				HK$ million		HK$ million
Contracted	but	not	provided for		60	61
Authorised	but	not	contracted for		2	117

(14) PLEDGE OF ASSETS

Certain syndicated bank loan facilities granted to a subsidiary of the Company are secured by the Group’s interest in the property under development, which has a carrying value of HK$891 million as at 30 September 2003.

(15) RELATED PARTY TRANSACTIONS

During the period, the Group had the following significant transactions with jointly controlled entities of the Group on terms similar to those applicable to transactions with unrelated parties or as mutually agreed between the parties.

	Six months	ended
	30 September
Nature of transactions	2003		2002
	HK$ million	_HK$ _	million
Income received:
Interest income	3		1
Management fee	—		1
Sales of construction materials	1		—
Proceeds from disposal of fixed assets	1		—
Costs and expenses paid:
Construction/subcontracting work	29		87
Supplies of construction materials	12		6

(16) COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform with the current period’s presentation.

— 113 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

IV. STATEMENT OF INDEBTEDNESS

As at the close of business on 31 January 2004, being the latest practicable date for the purpose of this indebtedness statement, the Group had outstanding bank borrowings of approximately HK$1,375.7 million comprising secured syndicated bank loan of approximately HK$283.1 million and unsecured bank loans and overdrafts of approximately HK$1,092.6 million; amounts due to related companies of approximately HK$0.4 million; and amounts due to jointly controlled entities of approximately HK$13.3 million. In addition, the Group had contingent liabilities of HK$759.0 million, comprising guarantees relating to performance bonds issued by banks of approximately HK$164.9 million and guarantees given to banks in respect of general facilities granted to jointly controlled entities of approximately HK$307.8 million and mortgage loans granted to purchasers of the Group’s properties amounting to approximately HK$286.3 million.

The secured bank borrowings were secured by the Group’s interest in the property under development and corporate guarantees given by the Group.

The Directors are not aware of any material change in the indebtedness and contingent liabilities of the Group since 1 February 2004.

Save as aforesaid and apart from intra-group liabilities, no companies within the Group had outstanding at the close of business on 31 January 2004 any mortgages, charges or debentures, loan capital, bank overdrafts, loans or other similar indebtedness or any hire purchase commitments, liabilities under acceptances or acceptance credits or any guarantees or other material contingent liabilities.

V. WORKING CAPITAL

The Directors are of the opinion that, based on the expected cash flows, and taking into account the internal resources of the Group, the consideration and the expected cash flows arising from the Cash Injection, and assuming that the banking facilities of the Group will not be withdrawn, the Group will have sufficient working capital for its present requirements in the absence of unforeseen circumstances.

VI. FINANCIAL AND TRADING POSITION

The Directors have seen little improvement in the construction sector despite the recent recovery in the economy. Tendering prices remain at cut-throat level. With the shrinking public housing market, the Group will continue its attempt to secure more works from the Architectural Services Department.

The concrete price war subsided recently and concrete prices have recovered to a more reasonable level. The construction materials business of the Group should improve when the financial impact of contracts signed previously at low prices are completed.

— 114 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group will, assuming both Asset Injection and the Cash Injection are approved by the Independent Shareholders, own an interest of over 20% in SOL which is expected to generate a steady income stream from its large portfolio of prime commercial, retail and residential property projects in the PRC. A substantial premium will be realized by the Group when Rainbow City is injected into SOL.

The fast expansion of the Group in the Chongqing and Guizhou cement markets will continue. Demand on cement should remain strong with the substantial infrastructure projects on stream and the modernization of cities under the Go West policy. The Group is actively looking for further growth opportunities in nearby provinces with a view to becoming a leading cement group.

An investment about 9% shareholding in a computer chip design company under the Group’s Yangtze Venture Fund is expected to bear fruit. Listing of this company on the main board of the Hong Kong Stock Exchange is targeted at the second quarter of 2004 and the Group’s effective holding of 66% in the aforementioned fund should generate a sizable gain.

With the encouraging developments in the sectors in which the Group operates in the Chinese Mainland, the Directors are confident that, barring unforeseen circumstances, substantially improved profits should be achieved in the current and coming years.

The Directors are not aware of any other material change in the financial or trading position or prospects of the Group since 31 March 2003, being the date of the latest published audited accounts of the Group.

— 115 —

ACCOUNTANTS’ REPORT ON RAINBOW CITY

APPENDIX II

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==> picture [87 x 55] intentionally omitted <==

23 March 2004

The Directors

Shui On Construction and Materials Limited

Dear Sirs,

We set out below our report on the financial information of Foresight Profits Limited and its subsidiaries, Hollyfield Holdings Limited and Shanghai Rui Hong Xin Cheng Co., Ltd., companies to be disposed of by Shui On Construction and Materials Limited (the “Company”) to Shui On Land Limited (“SOL”) in relation to the proposed investment in SOL by the Company, for inclusion in the circular of the Company dated 23 March 2004 (the “Circular”).

SOL was incorporated in the Cayman Islands under Companies Law (2003 Revision) on 12 February 2004 and is a wholly owned subsidiary of Shui On Company Limited (“Shui On Company”), the controlling shareholder of the Company, as at the date of this report.

Pursuant to a conditional sale and purchase agreement dated 18 February 2004 (the “Rainbow Sale and Purchase Agreement”) entered into between the Company as vendor and SOL as purchaser, as described more fully in the section headed “Letter from the Board” included in the Circular, the Company has conditionally agreed to sell to SOL the entire issued share capital of Foresight Profits Limited, a wholly owned subsidiary of the Company, and the benefit of the amounts owed by Hollyfield Holdings Limited to the Company immediately prior to the completion of the Rainbow Sale and Purchase Agreement.

Upon completion of the Rainbow Sale and Purchase Agreement, SOL will become the holding company of the following companies (the “Companies”), all of which are private limited companies:

			Attributable
	Place and date	Issued and	equity
	of incorporation/	fully paid share	interests to
	establishment/	capital/registered	be held by
Name of company	operation	capital	SOL Principal activities
Foresight Profits	British Virgin Islands	1 ordinary share	100% Investment holding
Limited	8 February 2001	of US$1
Hollyfield Holdings	Mauritius	2 ordinary shares	100% Investment holding
Limited	19 April 2001	of US$1 each
Shanghai Rui Hong	People’s Republic	Registered and paid	99% Property development
Xin Cheng	of China	up capital
Co., Ltd.	(the “PRC”)	RMB467,000,000
	2 July 2001

— 116 —

ACCOUNTANTS’ REPORT ON RAINBOW CITY

APPENDIX II

Shanghai Rui Hong Xin Cheng Co., Ltd. is a sino foreign joint venture company established in the PRC with a joint venture period of 70 years.

The statutory financial statements of Shanghai Rui Hong Xin Cheng Co., Ltd. for the period from 2 July 2001 (date of establishment) to 31 December 2001 and the year ended 31 December 2002 were audited by (Shanghai Fuxingmingfang Certified Public Accountants). No audited financial statements have been prepared for Foresight Profits Limited and Hollyfield Holdings Limited since their respective dates of incorporation, as there is no statutory requirement for these entities to prepare audited financial statements. For the purpose of this report, we have carried out independent audit procedures in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants on the consolidated management accounts of Foresight Profits Limited for the period from 8 February 2001 (date of incorporation) to 31 March 2001, each of the two years ended 31 March 2003, and the six months period ended 30 September 2003 (the “Relevant Periods”) prepared in accordance with accounting principles generally accepted in Hong Kong (the “Underlying Financial Statements”).

We have examined the Underlying Financial Statements in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” as recommended by the Hong Kong Society of Accountants.

The consolidated income statements, consolidated statements of changes in equity and consolidated cash flow statements of the Companies for each of the Relevant Periods and the consolidated balance sheets of the Companies as at the period end of each of the Relevant Periods together with the notes thereon (the “Financial Information”) set out in this report have been prepared from the Underlying Financial Statements.

The Underlying Financial Statements are the responsibility of the directors of Foresight Profits Limited who approved their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the consolidated results and cash flows of the Companies for each of the Relevant Periods and of the state of affairs of the Companies as at 31 March 2001, 31 March 2002, 31 March 2003 and 30 September 2003.

— 117 —

ACCOUNTANTS’ REPORT ON RAINBOW CITY

APPENDIX II

A. FINANCIAL INFORMATION

Consolidated Income Statements

Notes Other operating expenses Loss before taxation 3 Taxation 5 Loss before minority interests Minority interests Loss for the year/period	Year 2001 HK$ — — — — — —	ended 31 March Six months ended 30 September 2002 2003 2003 HK$ HK$ HK$ — (232,547) (2,248,029) — (232,547) (2,248,029) — — — — (232,547) (2,248,029) — 2,325 22,480 — (230,222) (2,225,549)

— 118 —

ACCOUNTANTS’ REPORT ON RAINBOW CITY

APPENDIX II

Consolidated Balance Sheets

2001 HK$ — —	At 31 March 2002 2003 HK$ HK$ 359,799 786,508 363,442,597 693,225,642	At 31 March 2002 2003 HK$ HK$ 359,799 786,508 363,442,597 693,225,642	At 30 September 2003 HK$ 756,799 886,561,560 887,318,359 2,889,670 — 233,777,451 236,667,121 122,229,291 759,887,306 882,116,597 (645,449,476) 241,868,883 8 (5,552,188) (5,552,180) 4,380,855 243,040,208 241,868,883
— — 8 — 8 — — — 8	363,802,396 25,075 4,975 934,894 964,944 102,804 367,742,832 367,845,636 (366,880,692)	694,012,150 937,403 — 59,042,686 59,980,089 7,477,795 634,723,108 642,200,903 (582,220,814)	887,318,359
			2,889,670 — 233,777,451
			236,667,121
			122,229,291 759,887,306
			882,116,597
			(645,449,476
8	(3,078,296)	111,791,336
8 — 8 — —	8 (3,078,304) (3,078,296) — —	8 96,616 96,624 4,403,335 107,291,377	8 (5,552,188
			(5,552,180
			4,380,855
			243,040,208
8	(3,078,296)	111,791,336

— 119 —

ACCOUNTANTS’ REPORT ON RAINBOW CITY

APPENDIX II

Consolidated Statements of Changes in Equity

Paid-in capital Translation reserve Accumulated losses HK$ HK$ HK$ 8 — — — — —	Paid-in capital Translation reserve Accumulated losses HK$ HK$ HK$ 8 — — — — —	Paid-in capital Translation reserve Accumulated losses HK$ HK$ HK$ 8 — — — — —	Total HK$ 8 — 8 (3,078,304) — (3,078,296) 3,405,142 (230,222) 96,624 (3,423,255) (2,225,549) (5,552,180)
8 — — 8 — — 8 — —	— (3,078,304) — (3,078,304) 3,405,142 — 326,838 (3,423,255) —	— — — — — (230,222) (230,222) — (2,225,549)	8 (3,078,304 —
			(3,078,296 3,405,142 (230,222
			96,624 (3,423,255 (2,225,549
8	(3,096,417)	(2,455,771)

— 120 —

ACCOUNTANTS’ REPORT ON RAINBOW CITY

APPENDIX II

Consolidated Cash Flow Statements

Year ended 31 March 2001 2002 2003 HK$ HK$ HK$ — — (232,547) — — 232,547	Year ended 31 March 2001 2002 2003 HK$ HK$ HK$ — — (232,547) — — 232,547	Year ended 31 March 2001 2002 2003 HK$ HK$ HK$ — — (232,547) — — 232,547	Six months ended 30 September 2003 HK$ (2,248,029) 2,248,029 — (1,952,267) 114,751,496 112,799,229 (103,903) (195,702,539) — (195,806,442) 122,916,169 135,748,831 — (2,891,791) — 255,773,209
— — — — — — (8) (8) — — — — 8 8	— (25,075) 102,804 77,729 (414,286) (361,333,051) (4,967) (361,752,304) 367,742,832 — — (2,055,059) — 365,687,773	— (912,328) 7,374,991 6,462,663 (691,212) (320,138,918) 4,975 (320,825,155) 266,747,729 107,291,377 4,405,660 (5,947,527) — 372,497,239	— (1,952,267 114,751,496
			112,799,229
			(103,903 (195,702,539 —
			(195,806,442
			122,916,169 135,748,831 — (2,891,791 —
			255,773,209

— 121 —

ACCOUNTANTS’ REPORT ON RAINBOW CITY

APPENDIX II

Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the year/period Effect on foreign exchange rate changes Cash and cash equivalents at end of the year/period Represented by: Bank balances and cash	Year ended 31 March 2001 2002 2003 HK$ HK$ HK$ — 4,013,198 58,134,747 — — 934,894 — (3,078,304) (26,955) — 934,894 59,042,686 — 934,894 59,042,686	Six months ended 30 September 2003 HK$ 172,765,996 59,042,686 1,968,769
		233,777,451
		233,777,451

— 122 —

ACCOUNTANTS’ REPORT ON RAINBOW CITY

APPENDIX II

Notes to the Financial Information

1. BASIS OF CONSOLIDATION AND BASIS OF PREPARATION

The Financial Information incorporate the financial statements of Foresight Profits Limited and its subsidiaries made up to the year/period end of each of the Relevant Periods.

The results of subsidiaries acquired or disposed of during the Relevant Periods are included in the consolidated income statement from the effective date of acquisition or made up to the effective date of disposal, as appropriate.

All significant inter-group transactions and balances have been eliminated on consolidation.

The Company has agreed to provide financial support to enable the Companies to meet in full their financial obligations as they fall due for the foreseeable future. The Financial Information has been prepared on a going concern basis, also on the basis that on completion of the Rainbow Sales and Purchase Agreement, SOL will provide financial support to enable the Companies to meet their financial obligation as they fall due and to continue in operational existence for the foreseeable future.

2. SIGNIFICANT ACCOUNTING POLICIES

The financial information have been prepared under the historical cost convention.

The financial information set out in this report have been prepared in accordance with the following principal accounting policies which conform with the accounting principles generally accepted in Hong Kong:

Property, plant and equipment

Property, plant and equipment are stated at cost less depreciation and any accumulated impairment losses.

Depreciation is charged so as to write off the cost, less residual value of 10 per cent, of items of property, plant and equipment over their estimated useful lives, using the straight line method, at the following rates per annum:

Plant and machinery 10% - 25% Furniture, fixtures, equipment and motor vehicles 20% - 33%

Properties under development

Properties under development are stated at cost less any identified impairment loss.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying asset are capitalised as part of the cost of those assets. Capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognised as an expense in the period in which they are incurred.

— 123 —

ACCOUNTANTS’ REPORT ON RAINBOW CITY

APPENDIX II

Impairment

At each balance sheet date, the Companies reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately.

Taxation

Income tax expense represents the sum of tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes income statement items that are never taxable or deductible.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.

Foreign currencies

Transactions in foreign currencies are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are re-translated to local currencies at the rates prevailing on the balance sheet date. Gains and losses arising on exchange are included in net profit or loss for the period.

On consolidation, the assets and liabilities of the operations outside Hong Kong are translated into Hong Kong dollars at exchange rates prevailing on the balance sheet date. Income and expenses items are translated into Hong Kong dollars at the average exchange rates for the period. Exchange differences arising, if any, are classified as equity and transferred to the translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of.

— 124 —

ACCOUNTANTS’ REPORT ON RAINBOW CITY

APPENDIX II

Retirement benefits costs

Payments to the defined contribution retirement benefit plans are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution plans where the obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit plan.

3. LOSS BEFORE TAXATION AND SEGMENT INFORMATION

Year ended 31 March Six months ended 30 September 2001 2002 2003 2003 HK$ HK$ HK$ HK$ — — — — — — — — — 54,487 267,897 127,503 — (54,487) (267,897) (127,503) — — — — — — 232,547 2,248,029 — 2,055,059 5,947,527 2,891,791 — (2,055,059) (5,947,527) 2,891,791 — — — — — 4,917,398 8,381,569 5,620,752 — 154,083 788,235 427,910 — 5,071,481 9,169,804 6,048,662 — (5,071,481) (9,169,804) (6,048,662) — — — —	Year ended 31 March Six months ended 30 September 2001 2002 2003 2003 HK$ HK$ HK$ HK$ — — — — — — — — — 54,487 267,897 127,503 — (54,487) (267,897) (127,503) — — — — — — 232,547 2,248,029 — 2,055,059 5,947,527 2,891,791 — (2,055,059) (5,947,527) 2,891,791 — — — — — 4,917,398 8,381,569 5,620,752 — 154,083 788,235 427,910 — 5,071,481 9,169,804 6,048,662 — (5,071,481) (9,169,804) (6,048,662) — — — —	Year ended 31 March Six months ended 30 September 2001 2002 2003 2003 HK$ HK$ HK$ HK$ — — — — — — — — — 54,487 267,897 127,503 — (54,487) (267,897) (127,503) — — — — — — 232,547 2,248,029 — 2,055,059 5,947,527 2,891,791 — (2,055,059) (5,947,527) 2,891,791 — — — — — 4,917,398 8,381,569 5,620,752 — 154,083 788,235 427,910 — 5,071,481 9,169,804 6,048,662 — (5,071,481) (9,169,804) (6,048,662) — — — —	Year ended 31 March Six months ended 30 September 2001 2002 2003 2003 HK$ HK$ HK$ HK$ — — — — — — — — — 54,487 267,897 127,503 — (54,487) (267,897) (127,503) — — — — — — 232,547 2,248,029 — 2,055,059 5,947,527 2,891,791 — (2,055,059) (5,947,527) 2,891,791 — — — — — 4,917,398 8,381,569 5,620,752 — 154,083 788,235 427,910 — 5,071,481 9,169,804 6,048,662 — (5,071,481) (9,169,804) (6,048,662) — — — —
— — —	— 2,055,059 (2,055,059)	232,547 5,947,527 (5,947,527)	2,248,029 2,891,791 2,891,791
—	—	—
— — — —	4,917,398 154,083 5,071,481 (5,071,481)	8,381,569 788,235 9,169,804 (9,169,804)	5,620,752 427,910
			6,048,662 (6,048,662
—	—	—

The principal activity of the Companies for the Relevant Periods is property development in the PRC. The principal assets employed by the Companies are located in the PRC. Accordingly, no segmental analysis by business and geographical segments is provided for the Relevant Periods.

— 125 —

ACCOUNTANTS’ REPORT ON RAINBOW CITY

APPENDIX II

4. FIVE HIGHEST PAID EMPLOYEES

During the Relevant Periods, no emoluments were paid or payable to the directors of the Company.

The emoluments of the five highest paid individuals are as follows:

									Six months
									ended 30
						Year	ended 31	March	September
					2001		2002	2003	2003
					HK$		HK$	HK$	HK$
Basic	salaries	and	other	allowances	—		570,072	2,585,393	1,003,271

The emoluments were within the following bands:

						Six months
						ended 30
				Year ended 31	March	September
			2001	2002	2003	2003
			Number of	Number of	Number of	Number of
			employees	employees	employees	employees
Nil	to	HK$1,000,000	—	5	5	5

During the Relevant Periods, no remunerations were paid by the Companies to the 5 highest paid individuals as an inducement to join or upon joining the Companies or as compensation for loss of office.

5. TAXATION

No provision for taxation has been made as the Companies have no assessable profit in each of the Relevant Periods.

Loss before taxation PRC income tax at 33% Tax effect of expense not deductible for tax purpose	Year ended 31 March Six months ended 30 September 2001 2002 2003 2003 HK$ HK$ HK$ HK$ — — (232,547) (2,248,029	Year ended 31 March Six months ended 30 September 2001 2002 2003 2003 HK$ HK$ HK$ HK$ — — (232,547) (2,248,029	Year ended 31 March Six months ended 30 September 2001 2002 2003 2003 HK$ HK$ HK$ HK$ — — (232,547) (2,248,029	Year ended 31 March Six months ended 30 September 2001 2002 2003 2003 HK$ HK$ HK$ HK$ — — (232,547) (2,248,029
	— —	— —	(76,741) 76,741	(741,850 741,850
	—	—	—	—

6. LOSS PER SHARE

Loss per share is not presented as such information is not meaningful having regarded to the purpose of this report.

— 126 —

ACCOUNTANTS’ REPORT ON RAINBOW CITY

APPENDIX II

7. PROPERTY, PLANT AND EQUIPMENT

Plant and machinery Furniture, fixtures, equipment and motor vehicles HK$ HK$ COST Additions during the year and balance at 31 March 2002 14,954 399,332 DEPRECIATION Provided for the year and balance at 31 March 2002 2,019 52,468 NET BOOK VALUES At 31 March 2002 12,935 346,864 COST At 1 April 2002 14,954 399,332 Exchange realignment 141 3,767 Additions 229,216 461,996 At 31 March 2003 244,311 865,095 DEPRECIATION At 1 April 2002 2,019 52,468 Exchange realignment 19 495 Provided for the year 51,500 216,397 At 31 March 2003 53,538 269,360 NET BOOK VALUES At 31 March 2003 190,773 595,735 COST At 1 April 2003 244,311 865,095 Exchange realignment (1,898) (6,721) Additions 16,568 87,335 At 30 September 2003 258,981 945,709 DEPRECIATION At 1 April 2003 53,538 269,360 Exchange realignment (416) (2,094) Provided for the period 24,092 103,411 At 30 September 2003 77,214 370,677 NET BOOK VALUES At 30 September 2003 181,767 575,032	Plant and machinery Furniture, fixtures, equipment and motor vehicles HK$ HK$ COST Additions during the year and balance at 31 March 2002 14,954 399,332 DEPRECIATION Provided for the year and balance at 31 March 2002 2,019 52,468 NET BOOK VALUES At 31 March 2002 12,935 346,864 COST At 1 April 2002 14,954 399,332 Exchange realignment 141 3,767 Additions 229,216 461,996 At 31 March 2003 244,311 865,095 DEPRECIATION At 1 April 2002 2,019 52,468 Exchange realignment 19 495 Provided for the year 51,500 216,397 At 31 March 2003 53,538 269,360 NET BOOK VALUES At 31 March 2003 190,773 595,735 COST At 1 April 2003 244,311 865,095 Exchange realignment (1,898) (6,721) Additions 16,568 87,335 At 30 September 2003 258,981 945,709 DEPRECIATION At 1 April 2003 53,538 269,360 Exchange realignment (416) (2,094) Provided for the period 24,092 103,411 At 30 September 2003 77,214 370,677 NET BOOK VALUES At 30 September 2003 181,767 575,032	Total HK$ 414,286 54,487 359,799 414,286 3,908 691,212 1,109,406 54,487 514 267,897 322,898 786,508 1,109,406 (8,619) 103,903 1,204,690 322,898 (2,510) 127,503 447,891 756,799
14,954 141 229,216 244,311 2,019 19 51,500 53,538	399,332 3,767 461,996 865,095 52,468 495 216,397 269,360	414,286 3,908 691,212
		1,109,406
		54,487 514 267,897
		322,898
190,773	595,735
244,311 (1,898) 16,568 258,981 53,538 (416) 24,092 77,214	865,095 (6,721) 87,335 945,709 269,360 (2,094) 103,411 370,677	1,109,406 (8,619 103,903
		1,204,690
		322,898 (2,510 127,503
		447,891
181,767	575,032

— 127 —

ACCOUNTANTS’ REPORT ON RAINBOW CITY

APPENDIX II

8. PROPERTIES UNDER DEVELOPMENT

Land cost Development expenditure HK$ HK$ 350,468,470 12,974,127	Land cost Development expenditure HK$ HK$ 350,468,470 12,974,127	Total HK$ 363,442,597
350,468,470 3,306,306 160,497,292	12,974,127 122,397 165,857,050	363,442,597 3,428,703 326,354,342
514,272,068	178,953,574	693,225,642
514,272,068 (3,995,561) 30,667,766	178,953,574 (1,390,354) 168,054,067	693,225,642 (5,385,915 198,721,833
540,944,273	345,617,287	886,561,560

The properties under development are all situated in the PRC under long leases. The Companies have pledged the entire interests in the properties under development to banks to secure the banking facilities granted to the Companies.

Included in properties under development are borrowing costs capitalised of HK$10,894,377 (31 March 2003: HK$8,002,586; 31 March 2002: HK$2,055,059; and 31 March 2001: Nil).

In addition, the following expenses charged by certain subsidiaries of Shui On Company are capitalised in properties under development:

								As at 30
				As	at	31 March		September
			2001			2002	2003	2003
			HK$			HK$	HK$	HK$
Project	development	fees	—			—	172,400,000	172,748,040
Project	construction	fees	—			—	—	1,148,982
			—			—	172,400,000	173,897,022

The project development fees represent the reimbursement of certain public infrastructure and site clearance works paid by a subsidiary of Shui On Company in respect of the properties under development and an interest charge thereon under the Relinquishment Agreement dated 2 May 2001 as disclosed under a circular issued by the Company dated 23 May 2001 regarding disclosable and connected transactions which was subsequently approved by the shareholders of the Company in a Special General Meeting held on 13 June 2001.

— 128 —

ACCOUNTANTS’ REPORT ON RAINBOW CITY

APPENDIX II

9. AMOUNT DUE FROM AN INTERMEDIATE HOLDING COMPANY

Particulars of the amount due from an intermediate holding company are as follows:

	Balance at	Balance at				Balance at 30
	31 March 2001	31 March 2002				September 2003
	and maximum	and maximum			Maximum	and maximum
	amount	amount			amount	amount
	outstanding	outstanding			outstanding	outstanding
	during the	during the			during the	during the
	period ended	year ended	Balance at		year ended	period ended 30
Name of related entity	31 March 2001	31 March 2002	31 March 2003		31 March 2003	September 2003
	HK$	HK$	HK$		HK$	HK$
Shui On Construction and
Materials Limited	8	4,975		—	4,975	—

The amount due from intermediate holding company was unsecured and interest free.

10. ACCOUNTS PAYABLE, ACCRUED CHARGES AND DEPOSITS RECEIVED

An aged analysis of the trade payables is as follows:

Within 30 days 31 days to 60 days 61 days to 90 days Over 90 days Accrued charges and deposits received	As at 31 March 2001 2002 HK$ HK$ — — — — — — — —	As at 31 March 2001 2002 HK$ HK$ — — — — — — — —	2003 HK$ — — — 6,518,769	As at 30 September 2003 HK$ — 13,676,654 13,087,800 11,835,007
	— —	— 102,804	6,518,769 959,026	38,599,461 83,629,830
	—	102,804	7,477,795	122,229,291

— 129 —

ACCOUNTANTS’ REPORT ON RAINBOW CITY

APPENDIX II

11. AMOUNT DUE TO AN INTERMEDIATE HOLDING COMPANY

The amount, which is due to the Company, is unsecured and has no fixed repayment terms.

				As at 30
		As at 31 March		September
	2001	2002	2003	2003
	HK$	HK$	HK$	HK$
Interest bearing (Note)	—	—	145,016,845	265,016,845
Non interest-bearing	—	367,742,832	489,706,263	494,870,461
	—	367,742,832	634,723,108	759,887,306

Note: The amount bears interest at prevailing Hong Kong Inter Bank Offered Rates plus 0.8%.

12. PAID-IN CAPITAL

The balance represents the entire issued and fully paid share capital of Foresight Profits Limited as at 31 March 2001, 31 March 2002, 31 March 2003 and 30 September 2003.

13. SECURED BANK LOANS

Repayable within a period of: More than 1 year, but not exceeding 2 years More than 2 years, but not exceeding 5 years	As at 31 March 2001 2002 2003 HK$ HK$ HK$ — — — — — 107,291,377 — — 107,291,377	As at 30 September 2003 HK$ 41,179,566 201,860,642
		243,040,208

The bank loans are secured by the pledge of assets as set out in note 16 and the corporate guarantees issued in favour of banks by the Company.

— 130 —

ACCOUNTANTS’ REPORT ON RAINBOW CITY

APPENDIX II

14. CAPITAL COMMITMENTS

Contracted but not provided for: Capital expenditures in respect of properties under development in the PRC Capital expenditures in respect of the acquisition of property, plant and equipment Authorised but not contracted for: Capital expenditures in respect of properties under development in the PRC	2001 HK$ — — — —	As at 31 March 2002 2003 HK$ HK$ 225,000,000 621,653,917 — — 225,000,000 621,653,917 — —	As at 30 September 2003 HK$ 802,628,674 294,861
			802,923,535
			22,240,940

15. RETIREMENT BENEFITS PLANS

Defined contribution plans

The qualifying employees of the Companies are members of a state-managed retirement benefit plan operated by the government of the PRC. The Companies are required to contribute a specified percentage of their payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Companies with respect to the retirement benefit scheme is to make the specified contributions.

16. PLEDGE OF ASSETS

As at 30 September 2003, banking facilities were secured by the Companies’ interests in properties under development amounted to HK$886,561,560 (31 March 2003: HK$693,225,642; 31 March 2002: HK$363,442,597; and 31 March 2001: Nil).

17. CONTINGENT LIABILITIES

Pursuant to an agreement entered into with the district government (the “Hongkou Government”) and the Education Authority of the Hongkou District, Shanghai, the PRC on 31 July 2002, guarantees of no more than approximately HK$303 million will be granted by the Shanghai Rui Hong Xin Cheng Co., Ltd. (“RHXC”) to support bank borrowings arranged in the name of a company nominated by the Hongkou Government, as part of the financial arrangement for the site clearance work in relation to the development of a parcel of land. As at 30 September, 2003, no such guarantee has been granted by Shanghai Rui Hong Xin Cheng Co., Ltd. under this arrangement.

— 131 —

ACCOUNTANTS’ REPORT ON RAINBOW CITY

APPENDIX II

18. SUBSEQUENT EVENT

(a) Subsequent to 30 September 2003, the Companies entered into an agreement to engage a third party in handling the relocation and demolition work in respect of one parcel of land at a consideration of approximately HK$214,311,000.
(b) RHXC has given guarantees to banks in respect of facilities granted to the purchasers of its properties amounting to approximately HK$286.3 million.

Save as aforesaid, no other significant events took place subsequent to 30 September 2003.

B. SUBSEQUENT FINANCIAL INFORMATION

No audited financial statements of any of the Companies have been prepared in respect of any period subsequent to 30 September 2003.

Yours faithfully, DELOITTE TOUCHE TOHMATSU Certified Public Accountants Hong Kong

— 132 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

==> picture [202 x 63] intentionally omitted <==

==> picture [87 x 55] intentionally omitted <==

23 March 2004

The Directors

Shui On Construction and Materials Limited

Dear Sirs,

We set out below our report on the financial information (“Financial Information)” for the three years ended 31 March 2003 and the six months ended 30 September 2003 (the “Relevant Periods”) in respect of the current attributable interests in certain subsidiaries of Shui On Investment Limited (“Shui On Investment”) to be disposed of to Shui On Land Limited (“SOL”) (collectively the “Relevant Taipingqiao Interests”). This Financial Information is prepared in relation to the proposed investment in SOL by Shui On Construction and Materials Limited (the “Company”) for inclusion in the Circular of the Company dated 23 March 2004 (the “Circular”).

Shui On Investment is a wholly owned subsidiary of Shui On Company Limited (“Shui On Company”), the controlling shareholder of the Company. SOL was incorporated in the Cayman Islands under Companies Law (2003 Revision) on 12 February 2004 and is a wholly owned subsidiary of Shui On Company as at the date of this report.

Pursuant to a conditional sale and purchase agreement dated 18 February 2004 (the “Taipingqiao Sale and Purchase Agreement”) entered into among Shui On Investment as vendor, SOL as purchaser and Shui On Company as guarantor, as described more fully in the section headed “Letter from the Board” included in the Circular, SOL has conditionally agreed to acquire from Shui On Investment the following:

seventy percent of the equity interest in Interchina International Limited and the entire issued share capital of Marble Way Ltd., Timezone Management Limited, Global Ocean Investments Limited, Modern Prosper Investments Limited, Keen Allied Investments Limited, Excel Efficient Limited, Sinothink Holdings Limited, Infoshore International Limited, Billion World Limited and Portspin Limited;
all the rights and interests of Shui On Properties Limited, a wholly owned subsidiary of Shui On Investment, in relation to Lot 124 of the Taipingqiao Properties (as defined in the Taipingqiao Sale and Purchase Agreement); and
the benefits of all the amounts owed by those companies referred to in point 1. above to Shui On Properties Limited and Shui On Investments immediately prior to the completion of the Taipingqiao Sale and Purchase Agreement.

— 133 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

Upon completion of the Taipingqiao Sale and Purchase Agreement, SOL will become the holding company of the following private limited companies (the “Companies”), which comprise the Relevant Taipingqiao Interests.

	Place and	Attributable	Attributable
	date of	Issued and	equity
	incorporation/	fully paid	interests
	establishment/	share capital/	to be held	Principal
Name of company	operation	registered capital	by SOL	activities
*Xintiandi Project*
Century Team Limited	Hong Kong	2 ordinary shares	100%	Investment
	16 January 1998	of HK$1 each		holding
Focus Top Limited	Hong Kong	2 ordinary shares	100%	Investment
	24 April 1998	of HK$1 each		holding
Kinmax Limited	Hong Kong	2 ordinary shares	100%	Investment
	24 April 1998	of HK$1 each		holding
Marble Way Ltd.	British Virgin	1 ordinary share	100%	Investment
	Islands (“BVI”)	of US$1		holding
	28 August 1996
Princemax Limited	Hong Kong	2 ordinary shares	100%	Investment
	15 April 1998	of HK$1 each		holding
Shanghai Bai-Xing	People’s Republic	Registered and	97%	Property
Properties Co., Ltd.	of China	paid up capital		development
	(the “PRC”)	RMB151,300,000
	2 February 1999
Shanghai Ji-Xing	PRC	Registered and	97%	Property
Properties Co., Ltd.	2 February 1999	paid up capital		development
		RMB71,600,000
Shanghai Xin-tian-di	PRC	Registered and	97%	Property
Plaza Co., Ltd.	2 February 1999	paid up capital		development
		RMB101,300,000
Shanghai Xing-Qi	PRC	Registered and	97%	Property
Properties Co., Ltd.	2 February 1999	paid up capital		development
		RMB274,900,000

— 134 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

	Place and	Attributable	Attributable
	date of	Issued and	equity
	incorporation/	fully paid	interests
	establishment/	share capital/	to be held	Principal
Name of company	operation	registered capital	by SOL	activities
*Projects Under*
*Development*
Atlantic Best Limited	Hong Kong	2 ordinary shares	70%	Investment
	5 January 2001	of HK$1 each		holding
Billion World Limited	Hong Kong	2 ordinary shares	100%	Investment
	19 November	of HK$1 each		holding
	2003
Bondwise Profits	BVI	1 ordinary share	70%	Investment
Limited	28 December	of US$1		holding
	2000
Brixworth International	BVI	1 ordinary share	70%	Investment
Limited	3 January 2001	of US$1		holding
Cititop Pacific Limited	Hong Kong	2 ordinary shares	70%	Investment
	1 December 2000	of HK$1 each		holding
Costworth Investments	BVI	1 ordinary share	70%	Investment
Limited	12 January 2001	of US$1		holding
East Trend Limited	Hong Kong	2 ordinary shares	70%	Investment
	14 February	of HK$1 each		holding
	2001
Galore Profits Limited	BVI	1 ordinary share	70%	Investment
	23 January 2001	of US$1		holding
Interchina International	BVI	100 ordinary	70%	Investment
Limited	12 January 2001	shares of US$1		holding
		each
Oriental Gain Limited	Hong Kong	2 ordinary shares	70%	Investment
	2 February 2001	of HK$1 each		holding
Shanghai Fu-Xiang	PRC	Registered and	69.3%	Property
Property Co., Ltd.	19 December	paid up capital		development
	2001	RMB195,000,000

— 135 —

APPENDIX III

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

	Place and	Attributable	Attributable
	date of	Issued and	equity
	incorporation/	fully paid	interests
	establishment/	share capital/	to be held	Principal
Name of company	operation	registered capital	by SOL	activities
Shanghai Jing-Fu	PRC	Registered and	69.3%	Property
Property Co., Ltd.	26 December	paid up capital		development
	2001	RMB400,000,000
Shanghai Lakeville	PRC	Registered and	69.3%	Property
Properties Co., Ltd.	23 May 2001	paid up capital		development
(formerly known as		RMB165,000,000
Shanghai Si Fu
Properties Co., Ltd.)
Shanghai Xing-Bang	PRC	Registered and	69.3%	Property
Properties Co., Ltd.	21 June 2001	paid up capital		development
		RMB290,500,000
*Projects Under Planning*
Excel Efficient Limited	BVI	1 ordinary share	100%	Investment
	19 August 2002	of US$1		holding
Global Ocean	BVI	1 ordinary share	100%	Investment
Investments Limited	1 November	of US$1		holding
	2002
Globaland Limited	Hong Kong	2 ordinary shares	100%	Investment
	30 October 2002	of HK$1 each		holding
Infoshore International	BVI	1 ordinary share	100%	Investment
Limited	1 November	of US$1		holding
	2002
Keen Allied Investments	BVI	1 ordinary share	100%	Investment
Limited	18 September	of US$1		holding
	2002
Legend City Limited	Hong Kong	2 ordinary shares	100%	Investment
	4 June 1997	of HK$1 each		holding
Lucky Gain Limited	Hong Kong	2 ordinary shares	100%	Investment
	8 November	of HK$1 each		holding
	2002

— 136 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

	Place and		Attributable
	date of	Issued and	equity
	incorporation/	fully paid	interests
	establishment/	share capital/	to be held	Principal
Name of company	operation	registered capital	by SOL	activities
Modern Prosper	BVI	1 ordinary share	100%	Investment
Investments Limited	1 November	of US$1		holding
	2002
Onfair Limited	Hong Kong	2 ordinary shares	100%	Investment
	13 November	of HK$1 each		holding
	2002
Onwin Limited	Hong Kong	2 ordinary shares	100%	Investment
	13 November	of HK$1 each		holding
	2002
Portspin Limited	BVI	1 ordinary share	100%	Investment
	22 May 1997	of US$1		holding
Sinoco Limited	Hong Kong	2 ordinary shares	100%	Investment
	28 October 2002	of HK$1 each		holding
Sinothink Holdings	BVI	100 ordinary	100%	Investment
Limited	15 September	shares of US$1		holding
	2000	each
Union Grow Limited	Hong Kong	2 ordinary shares	100%	Investment
	8 November	of HK$1 each		holding
	2002
*Others*
Timezone Management	BVI	1 ordinary share	100%	Investment
Limited	28 February	of US$1		holding
	2001
Shanghai Taipingqiao	PRC	Registered and	99%	Property
Properties Management	31 August 2001	paid up capital		management
Co. Ltd.		RMB1,655,000

The statutory financial statements of Century Team Limited, Focus Top Limited, Kinmax Limited and Princemax Limited for each of the three years ended 31 March 2003 were audited by us.

The statutory financial statements of Shanghai Bai-Xing Properties Co., Ltd., Shanghai Ji-Xing Properties Co., Ltd., Shanghai Xin-tian-di Plaza Co., Ltd., Shanghai Xing-Qi Properties Co., Ltd. for each of the three years ended 31 December 2002, and the statutory financial statements of Shanghai

— 137 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

Fu-Xiang Property Co., Ltd., Shanghai Jing-Fu Property Co., Ltd., Shanghai Lakeville Properties Co., Ltd., Shanghai Xing-Bang Properties Co., Ltd. and Shanghai Taipingqiao Properties Management Co. Ltd. for the period from their respective dates of establishment to 31 December 2001 and the year ended 31 December 2002 were prepared in accordance with applicable accounting principles and financial regulations in the PRC and were audited by (Shanghai Fuxingmingfang Certified Public Accountants).

Other than as disclosed above, no audited financial statements have been prepared in respect of any of the Companies for the Relevant Periods as these companies are either inactive or are not subject to any audit requirement in the jurisdiction in which these companies are incorporated. For the purpose of this report, we have, however, reviewed all relevant transactions of these companies since their respective dates of incorporation/establishment to the date of this report.

For the purpose of this report, the management of Shui On Company has prepared combined management accounts of the Relevant Taipingqiao Interests in accordance with accounting principles generally accepted in Hong Kong on basis set out in Note 1 of Section A below for each of the Relevant Periods (the “Combined Management Accounts”). We have carried out independent audit procedures in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants on the Combined Accounts.

We have examined the audited financial statements or, where appropriate, the management accounts of the Relevant Taipingqiao Interests for each of the Relevant Periods and the Combined Management Accounts. Our examination was made in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” as recommended by the Hong Kong Society of Accountants.

The combined income statements, combined statements of changes in equity and combined cash flow statements of the Relevant Taipingqiao Interests for each of the Relevant Periods and the combined balance sheets of the Relevant Taipingqiao Interests as at the period end of each of the Relevant Periods together with the notes thereon (the “Financial Information”) set out in this report have been prepared from the Combined Management Accounts on the basis set out in Note 1 of Section A below.

The Combined Management Accounts are the responsibility of the directors of Shui On Company who approved their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Combined Management Accounts, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, on the basis of presentation set out in Note 1 of Section A below, the Financial Information gives, for the purpose of this report, a true and fair view of the combined results and cash flows of the Relevant Taipingqiao Interests for each of the Relevant Periods and of the state of affairs of the Relevant Taipingqiao Interests as at 31 March 2001, 31 March 2002, 31 March 2003 and 30 September 2003.

— 138 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

A. FINANCIAL INFORMATION

Combined income statements

				Six months	Six months
					ended 30
		Year ended 31		March	September
	Notes	2001	2002	2003	2003
		HK$’000	HK$’000	HK$’000	HK$’000
Turnover	3	—	36,073	750,790	150,496
Cost of sales		—	(1,975)	(479,689)	(68,081)
Gross profit		—	34,098	271,101	82,415
Other operating income	4	—	997	3,526	3,097
Staff costs		—	(5,914)	(18,819)	(8,032)
Depreciation and amortisation		—	(3,564)	(7,634)	(5,648)
Other operating expenses		(12,527)	(41,329)	(85,140)	(30,131)
Profit (loss) from operations	5	(12,527)	(15,712)	163,034	41,701
Finance costs	7	(1,135)	(42,856)	(57,282)	(15,925)
Profit (loss) before taxation		(13,662)	(58,568)	105,752	25,776
Taxation	8	—	—	(66,774)	(9,410)
Profit (loss) before minority interests		(13,662)	(58,568)	38,978	16,366
Minority interests		375	1,780	(28,314)	(5,002)
Profit (loss) for the year/period		(13,287)	(56,788)	10,664	11,364

— 139 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

Combined balance sheets

2001 HK$’000 — 1,065 1,427,517 —	At 31 March At 30 September 2002 2003 2003 HK$’000 HK$’000 HK$’000 2,304,327 2,237,348 2,230,534 128,188 133,696 132,809 952,058 914,329 1,689,111 — 240 18,493	At 31 March At 30 September 2002 2003 2003 HK$’000 HK$’000 HK$’000 2,304,327 2,237,348 2,230,534 128,188 133,696 132,809 952,058 914,329 1,689,111 — 240 18,493	At 31 March At 30 September 2002 2003 2003 HK$’000 HK$’000 HK$’000 2,304,327 2,237,348 2,230,534 128,188 133,696 132,809 952,058 914,329 1,689,111 — 240 18,493
1,428,582 — — — 10,457 11,386 — 15,154 36,997 13,594 315,337 9,648 — 296,391 634,970 (597,973)	3,384,573 333 — — 32,307 417,737 — 241,321 691,698 236,690 433,808 9,654 — 381,726 1,061,878 (370,180)	3,285,613 1,103 90,076 79,555 274,639 309,044 32,926 217,030 1,004,373 306,087 630,483 1,926 41,761 198,018 1,178,275 (173,902)	4,070,947
			1,124 109,389 19,282 154,071 429,989 94,176 348,351
			1,156,382
			283,041 650,187 1,346 41,623 58,725
			1,034,922
			121,460
830,609	3,014,393	3,111,711	4,192,407

— 140 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

Notes 2001 HK$’000 Capital and reserves Paid-in capital 21 — Reserves (21,261) (21,261) Minority interests 8,544 Non-current liabilities Loans — due after one year 22 668,550 Secured bank loans — due after one year 20 174,776 Deferred tax liabilities 23 — 843,326 830,609	At 31 March At 30 September 2002 2003 2003 HK$’000 HK$’000 HK$’000 — — 1 594,052 569,932 575,762 594,052 569,932 575,763 93,621 128,525 133,536 1,529,580 1,755,854 1,512,948 198,140 70,400 1,377,160 599,000 587,000 593,000 2,326,720 2,413,254 3,483,108 3,014,393 3,111,711 4,192,407	At 31 March At 30 September 2002 2003 2003 HK$’000 HK$’000 HK$’000 — — 1 594,052 569,932 575,762 594,052 569,932 575,763 93,621 128,525 133,536 1,529,580 1,755,854 1,512,948 198,140 70,400 1,377,160 599,000 587,000 593,000 2,326,720 2,413,254 3,483,108 3,014,393 3,111,711 4,192,407
		575,763
		133,536
		1,512,948 1,377,160 593,000
		3,483,108
		4,192,407

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ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

Combined statements of changes in equity

Paid-in capital HK$’000 — — —	Other reserve Translation reserve Investment properties revaluation reserve HK$’000 HK$’000 HK$’000 — 2,097 — — 1,258 — — — —	Other reserve Translation reserve Investment properties revaluation reserve HK$’000 HK$’000 HK$’000 — 2,097 — — 1,258 — — — —	Other reserve Translation reserve Investment properties revaluation reserve HK$’000 HK$’000 HK$’000 — 2,097 — — 1,258 — — — —	Deficit HK$’000 (11,329) — (13,287)	Total HK$’000 (9,232) 1,258 (13,287) (21,261) 376 1,139,519 (599,000) (16,214) 524,681 147,420 (56,788) 594,052
— — — — — — — — —	— — — — — — 147,420 — 147,420	3,355 376 — — — 376 — — 3,731	— — 1,139,519 (599,000) (16,214) 524,305 — — 524,305	(24,616) — — — — — — (56,788) (81,404)	(21,261
					376 1,139,519 (599,000 (16,214
					524,681
					147,420 (56,788
					594,052

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ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

Paid-in capital HK$’000 —	Other reserve Translation reserve Investment properties revaluation reserve HK$’000 HK$’000 HK$’000 147,420 3,731 524,305	Other reserve Translation reserve Investment properties revaluation reserve HK$’000 HK$’000 HK$’000 147,420 3,731 524,305	Other reserve Translation reserve Investment properties revaluation reserve HK$’000 HK$’000 HK$’000 147,420 3,731 524,305	Deficit HK$’000 (81,404)	Total HK$’000 594,052 (4,047) (58,688) 27,000 951 (34,784) 10,664 569,932 (12,581) 8,265 (1,000) (218) (5,534) 1 11,364 575,763
— — — — — — — — — — — — 1 —	— — — — — — 147,420 — — — — — — —	(4,047) — — — (4,047) — (316) (12,581) — — — (12,581) — —	— (58,688) 27,000 951 (30,737) — 493,568 — 8,265 (1,000) (218) 7,047 — —	— — — — — 10,664 (70,740) — — — — — — 11,364	(4,047 (58,688 27,000 951
					(34,784
					10,664
					569,932
					(12,581 8,265 (1,000 (218
					(5,534
					1 11,364
1	147,420	(12,897)	500,615	(59,376)

— 143 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

Combined cash flow statements

Year ended 31 March Six months ended 30 September 2001 2002 2003 2003 HK$’000 HK$’000 HK$’000 HK$’000 (12,527) (15,712) 163,034 41,701 — 3,564 7,634 5,648 — (904) (1,002) (585) (12,527) (13,052) 169,666 46,764 — (333) (770) (21) — — 441,203 60,273 (8,608) (21,850) (242,332) 120,568 (11,386) (406,351) 108,693 (120,945) 10,401 223,096 76,819 (23,046) — 6 (7,728) (580) 200,486 118,471 196,675 19,704 178,366 (100,013) 742,226 102,717 — — (10,013) (4,548) 178,366 (100,013) 732,213 98,169 (649,949) (772,417) (570,957) (772,059) (524) (20,513) (14,893) (5,719) — — (33,166) (79,503) — 904 1,002 585 — 125 941 12 (650,473) (791,901) (617,073) (856,684)	Year ended 31 March Six months ended 30 September 2001 2002 2003 2003 HK$’000 HK$’000 HK$’000 HK$’000 (12,527) (15,712) 163,034 41,701 — 3,564 7,634 5,648 — (904) (1,002) (585) (12,527) (13,052) 169,666 46,764 — (333) (770) (21) — — 441,203 60,273 (8,608) (21,850) (242,332) 120,568 (11,386) (406,351) 108,693 (120,945) 10,401 223,096 76,819 (23,046) — 6 (7,728) (580) 200,486 118,471 196,675 19,704 178,366 (100,013) 742,226 102,717 — — (10,013) (4,548) 178,366 (100,013) 732,213 98,169 (649,949) (772,417) (570,957) (772,059) (524) (20,513) (14,893) (5,719) — — (33,166) (79,503) — 904 1,002 585 — 125 941 12 (650,473) (791,901) (617,073) (856,684)	Year ended 31 March Six months ended 30 September 2001 2002 2003 2003 HK$’000 HK$’000 HK$’000 HK$’000 (12,527) (15,712) 163,034 41,701 — 3,564 7,634 5,648 — (904) (1,002) (585) (12,527) (13,052) 169,666 46,764 — (333) (770) (21) — — 441,203 60,273 (8,608) (21,850) (242,332) 120,568 (11,386) (406,351) 108,693 (120,945) 10,401 223,096 76,819 (23,046) — 6 (7,728) (580) 200,486 118,471 196,675 19,704 178,366 (100,013) 742,226 102,717 — — (10,013) (4,548) 178,366 (100,013) 732,213 98,169 (649,949) (772,417) (570,957) (772,059) (524) (20,513) (14,893) (5,719) — — (33,166) (79,503) — 904 1,002 585 — 125 941 12 (650,473) (791,901) (617,073) (856,684)	Year ended 31 March Six months ended 30 September 2001 2002 2003 2003 HK$’000 HK$’000 HK$’000 HK$’000 (12,527) (15,712) 163,034 41,701 — 3,564 7,634 5,648 — (904) (1,002) (585) (12,527) (13,052) 169,666 46,764 — (333) (770) (21) — — 441,203 60,273 (8,608) (21,850) (242,332) 120,568 (11,386) (406,351) 108,693 (120,945) 10,401 223,096 76,819 (23,046) — 6 (7,728) (580) 200,486 118,471 196,675 19,704 178,366 (100,013) 742,226 102,717 — — (10,013) (4,548) 178,366 (100,013) 732,213 98,169 (649,949) (772,417) (570,957) (772,059) (524) (20,513) (14,893) (5,719) — — (33,166) (79,503) — 904 1,002 585 — 125 941 12 (650,473) (791,901) (617,073) (856,684)
(12,527) — — (8,608) (11,386) 10,401 — 200,486 178,366 — 178,366 (649,949) (524) — — — (650,473)	(13,052) (333) — (21,850) (406,351) 223,096 6 118,471 (100,013) — (100,013) (772,417) (20,513) — 904 125 (791,901)	169,666 (770) 441,203 (242,332) 108,693 76,819 (7,728) 196,675 742,226 (10,013) 732,213 (570,957) (14,893) (33,166) 1,002 941 (617,073)	46,764 (21 60,273 120,568 (120,945 (23,046 (580 19,704
			102,717 (4,548
			98,169
			(772,059 (5,719 (79,503 585 12
			(856,684

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ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

				Six months
				ended 30
	Year ended 31		March	September
	2001	2002	2003	2003
	HK$’000	HK$’000	HK$’000	HK$’000
Financing activities
New bank loans raised	471,167	108,699	70,279	1,167,467
Repayment of bank loans	—	—	(381,727)	—
Other loans raised (repaid)	41,810	861,030	226,274	(231,072)
Finance costs paid	(30,052)	(69,144)	(59,723)	(44,682)
Capital contributions by minority
shareholders of the Companies	62	218,044	8,977	1,174
Issue of shares	—	—	—	1
Net cash from (used in) financing activities	482,987	1,118,629	(135,920)	892,888
Net increase (decrease) in cash and cash
equivalents	10,880	226,715	(20,780)	134,373
Cash and cash equivalents at beginning of
the year/period	4,504	15,154	241,321	217,030
Effect on foreign exchange rate changes	(230)	(548)	(3,511)	(3,052)
Cash and cash equivalents at end of the
year/period	15,154	241,321	217,030	348,351
Represented by:
Bank balances and cash	15,154	241,321	217,030	348,351

— 145 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

Notes to the financial information

1. BASIS OF PRESENTATION OF FINANCIAL INFORMATION

The combined income statements, combined statements of changes in equity and combined cash flow statements include the combined results and cash flows of the Relevant Taipingqiao Interests as if they had been formed as a single reporting entity throughout the Relevant Periods, or since the respective date of incorporation/establishment of the individual company, where this is a shorter period. The combined balance sheets as at 31 March 2001, 31 March 2002, 31 March 2003 and 30 September 2003 have been prepared to present the combined assets and liabilities of the Relevant Taipingqiao Interests as if they had been formed as a single reporting entity as at those dates.

All significant intra-group transactions and balances have been eliminated on combination.

2. SIGNIFICANT ACCOUNTING POLICIES

The financial information have been prepared under the historical cost convention as modified for the revaluation of investment properties.

The financial information have been prepared in accordance with the following principal accounting policies which conform with the accounting principles generally accepted in Hong Kong.

Revenue recognition

Income from properties developed for sale, where there are no pre-sales prior to completion of the development, is recognised on the execution of a binding sales agreement entered into subsequent to the completion of the development.

Income from properties under pre-sale arrangement prior to completion of the development is recognised on the execution of a binding sales agreement or when the relevant completion certificates are issued by the respective government authorities, whichever is the later. Payments received from the purchasers prior to this stage are recorded as customer’s deposits received on sale of properties and presented as current liabilities.

Rental income, including rentals invoiced in advance from properties let under operating leases, is recognised on a straight line basis over the terms of the relevant leases.

Sales of goods are recognised when goods are delivered and title has passed.

Interest income is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable.

Service income is recognised when services are rendered.

Investment properties

Investment properties are completed properties which are held for their investment potential, any rental income being negotiated at arm’s length.

— 146 —

APPENDIX III

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

properties revaluation reserve unless the balance on this reserve is insufficient to cover a revaluation decrease, in which case the excess of the revaluation decrease over the balance on the investment properties revaluation reserve is charged to the combined income statements. Where a decrease has previously been charged to the combined income statements and a revaluation increase subsequently arises, this increase is credited to the combined income statements to the extent of the decrease previously charged.

On the disposal of an investment property, the balance on the investment properties revaluation reserve attributable to that property is transferred to the combined income statements.

No depreciation is provided on investment properties except where the unexpired term of the relevant lease is 20 years or less.

Property, plant and equipment

Property, plant and equipment are stated at cost less depreciation and accumulated impairment losses.

Depreciation is charged so as to write off the cost of leasehold land and buildings over their estimated useful lives of 50 years using the straight line method and depreciation commences when the buildings are ready for their intended use.

Depreciation is charged so as to write off the cost, less residual value of 10 per cent, of items of furniture, fixtures, equipment and motor vehicles over their estimated useful lives, using the straight line method, at 20% - 33% per annum.

Properties under development

Properties under development are stated at cost less any identified impairment loss.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are capitalised as part of the cost of those assets. Capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognised as an expense in the period in which they are incurred.

Impairment

— 147 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

Inventories

Properties held for sale

Properties held for sale are stated at the lower of cost and net realisable value. Cost includes the cost of land, development expenditure incurred and, where appropriate, borrowings costs capitalised. Net realisable value is determined by management based on prevailing market conditions.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year/period. Taxable profit differs from net profit as reported in the combined income statements because it excludes items of income and expense that are taxable or deductible in other years, and it further excludes income statement items that are never taxable and deductible.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the combined income statements, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Foreign currencies

On combination, the assets and liabilities of the operations outside Hong Kong are translated into Hong Kong dollars at exchange rates prevailing on the balance sheet date. Income and expense items are translated into Hong Kong dollars at the average exchange rates for the period. Exchange differences arising, if any, are classified as equity and transferred to the translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of.

— 148 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

Retirement benefits costs

3. TURNOVER AND SEGMENT INFORMATION

Turnover

Turnover represents the following categories of revenue during the Relevant Periods.

				Six months
				ended 30
		Year ended 31 March		September
	2001	2002	2003	2003
	HK’000	HK’000	HK’000	HK’000
Property sales	—	—	663,117	95,491
Gross rental income received from
investment properties	—	29,808	66,477	36,331
Property management fees	—	4,691	12,948	7,814
Services income	—	1,574	8,248	10,860
	—	36,073	750,790	150,496

Business segments

For management purposes, the Companies are currently organised into two operating divisions — property development for sale and property investment. These divisions are the basis on which the Companies reports its segment information.

— 149 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

Segment information about these businesses is presented below.

Income statement for the year ended 31 March 2001

Property development for sale Property investment HK$’000 HK$’000 Revenue — — Segment results (7) (12,477) Unallocated expenses Loss from operations Finance costs Loss before taxation Taxation Loss before minority interests	Property development for sale Property investment HK$’000 HK$’000 Revenue — — Segment results (7) (12,477) Unallocated expenses Loss from operations Finance costs Loss before taxation Taxation Loss before minority interests	Combined HK$’000 —
		(12,484
		(43
		(12,527 (1,135
		(13,662 —
		(13,662

Balance sheet as at 31 March 2001

Property development for sale Property investment HK$’000 HK$’000 Assets Properties under development 222,135 1,205,382 Other segment assets — 38,062 Combined total assets Liabilities Segment liabilities 70,579 34,348 Unallocated liabilities Combined total liabilities Other information Additions to property, plant and equipment — 524 Depreciation and amortisation — 212	Combined HK$’000 1,427,517 38,062
	1,465,579
	104,927 1,373,369
	1,478,296
	524 212

— 150 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

Income statement for the year ended 31 March 2002

Property development for sale Property investment HK$’000 HK$’000 Revenue — 36,073 Segment results (40) (12,707) Unallocated expenses Loss from operations Finance costs Loss before taxation Taxation Loss before minority interests	Property development for sale Property investment HK$’000 HK$’000 Revenue — 36,073 Segment results (40) (12,707) Unallocated expenses Loss from operations Finance costs Loss before taxation Taxation Loss before minority interests	Combined HK$’000 36,073
		(12,747
		(2,965
		(15,712 (42,856
		(58,568 —
		(58,568

Balance sheet as at 31 March 2002

Property development for sale Property investment HK$’000 HK$’000 Assets Investment properties — 2,304,327 Properties under development 754,800 197,258 Other segment assets 90,811 729,020 Unallocated assets Combined total assets Liabilities Segment liabilities 71,741 524,699 Unallocated liabilities Combined total liabilities Other information Additions to property, plant and equipment 296 130,527 Depreciation and amortisation 9 3,567	Combined HK$’000 2,304,327 952,058 819,831 55
	4,076,271
	596,440 2,792,158
	3,388,598
	130,823 3,576

— 151 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

Income statement for the year ended 31 March 2003

Property development for sale Property investment Combined HK$’000 HK$’000 HK$’000 Revenue 663,117 87,673 750,790 Segment results 151,505 10,989 162,494 Unallocated revenue 540 Profit from operations 163,034 Finance costs (57,282 Profit before taxation 105,752 Taxation (66,774 Profit before minority interests 38,978	Property development for sale Property investment Combined HK$’000 HK$’000 HK$’000 Revenue 663,117 87,673 750,790 Segment results 151,505 10,989 162,494 Unallocated revenue 540 Profit from operations 163,034 Finance costs (57,282 Profit before taxation 105,752 Taxation (66,774 Profit before minority interests 38,978	Property development for sale Property investment Combined HK$’000 HK$’000 HK$’000 Revenue 663,117 87,673 750,790 Segment results 151,505 10,989 162,494 Unallocated revenue 540 Profit from operations 163,034 Finance costs (57,282 Profit before taxation 105,752 Taxation (66,774 Profit before minority interests 38,978
		162,494
		540
		163,034 (57,282
		105,752 (66,774
		38,978

Balance sheet as at 31 March 2003

Property development for sale Property investment HK$’000 HK$’000 Assets Investment properties — 2,237,348 Properties under development 665,105 339,300 Properties held for sale 79,555 — Other segment assets 502,661 464,596 Unallocated assets Combined total assets Liabilities Segment liabilities 295,775 615,389 Unallocated liabilities Combined total liabilities Other information Additions to property, plant and equipment 70 14,823 Depreciation and amortisation 41 7,659	Combined HK$’000 2,237,348 1,004,405 79,555 967,257 1,421
	4,289,986
	911,164 2,680,365
	3,591,529
	14,893 7,700

— 152 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

Income statement for the six months ended 30 September 2003

Property development for sale Property investment Combined HK$’000 HK$’000 HK$’000 Revenue 95,491 55,005 150,496 Segment results and profit from operations 24,677 17,024 41,701 Finance costs (15,925) Profit before taxation 25,776 Taxation (9,410) Profit before minority interests 16,366	Property development for sale Property investment Combined HK$’000 HK$’000 HK$’000 Revenue 95,491 55,005 150,496 Segment results and profit from operations 24,677 17,024 41,701 Finance costs (15,925) Profit before taxation 25,776 Taxation (9,410) Profit before minority interests 16,366	Property development for sale Property investment Combined HK$’000 HK$’000 HK$’000 Revenue 95,491 55,005 150,496 Segment results and profit from operations 24,677 17,024 41,701 Finance costs (15,925) Profit before taxation 25,776 Taxation (9,410) Profit before minority interests 16,366
		41,701
		(15,925)
		25,776 (9,410)
		16,366

Balance sheet as at 30 September 2003

Property development for sale Property investment HK$’000 HK$’000 Assets Investment properties — 2,230,534 Properties under development 1,022,689 775,811 Properties held for sale 19,282 — Other segment assets 613,058 565,897 Unallocated assets Combined total assets Liabilities Segment liabilities 431,940 418,495 Unallocated liabilities Combined total liabilities Other information Additions to property, plant and equipment 85 5,634 Depreciation and amortisation 27 5,669	Combined HK$’000 2,230,534 1,798,500 19,282 1,178,955 58
	5,227,329
	850,435 3,667,595
	4,518,030
	5,719 5,696

Geographical segment

Over 90% of the Companies’ turnover and contribution to operating profit/loss is attributable to customers in the PRC. Accordingly, no analysis of geographical segment is presented.

As at 31 March 2001, 31 March 2002, 31 March 2003 and 30 September 2003, over 90% of the Companies’ assets and liabilities are located in the PRC.

— 153 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

4. OTHER OPERATING INCOME

						Six months
						ended 30
			Year	ended 31	March	September
		2001		2002	2003	2003
		HK$’000		HK$’000	HK$’000	HK$’000
Interest	income	—		904	1,002	585
Sundry	income	—		93	2,524	2,512
		—		997	3,526	3,097

5. PROFIT (LOSS) FROM OPERATIONS

Year ended 31 March Six months ended 30 September 2001 2002 2003 2003 HK$’000 HK$’000 HK$’000 HK$’000 — 90 90 — 212 3,576 7,700 5,696 (212) (12) (66) (48)	Year ended 31 March Six months ended 30 September 2001 2002 2003 2003 HK$’000 HK$’000 HK$’000 HK$’000 — 90 90 — 212 3,576 7,700 5,696 (212) (12) (66) (48)	Year ended 31 March Six months ended 30 September 2001 2002 2003 2003 HK$’000 HK$’000 HK$’000 HK$’000 — 90 90 — 212 3,576 7,700 5,696 (212) (12) (66) (48)	Year ended 31 March Six months ended 30 September 2001 2002 2003 2003 HK$’000 HK$’000 HK$’000 HK$’000 — 90 90 — 212 3,576 7,700 5,696 (212) (12) (66) (48)
— — 2,537 253 2,790 (2,790) —	3,564 — 5,830 662 6,492 (578) 5,914	7,634 — 30,734 1,024 31,758 (12,939) 18,819	5,648
			— 13,771 623
			14,394 (6,362)
			8,032
—	(29,808)	(66,477)	(36,331)

— 154 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

6. FIVE HIGHEST PAID EMPLOYEES

During the Relevant Periods, no emoluments were paid or payable to the directors of the Companies.

The emoluments of the five highest paid individuals are as follows:

				Six months
				ended 30
		Year ended 31	March	September
	2001	2002	2003	2003
	HK$’000	HK$’000	HK$’000	HK$’000
Basic salaries, housing allowances, other
allowances and benefits in kind	680	718	5,356	2,489
Bonus	94	68	230	117
Retirement scheme contributions	75	93	89	—
	849	879	5,675	2,606

The emoluments were within the following bands:

				Six months
				ended 30
		Year ended 31	March	September
	2001	2002	2003	2003
	Number of	Number of	Number of	Number of
	employees	employees	employees	employees
Nil to HK$1,000,000	5	5	2	5
HK$1,000,001 to HK$1,500,000	—	—	2	—
HK$1,500,001 to HK$2,000,000	—	—	1	—

During the Relevant Periods, no remunerations were paid by the Companies to the five highest paid individuals as an inducement to join or upon joining the Companies or as compensation for loss of office.

— 155 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

7. FINANCE COSTS

Interest paid:
Bank loans and overdrafts wholly repayable
within five years
Interest on other loans wholly repayable
within five years
Bank charges
Less: amount capitalised to properties under
development
TAXATION
The charge comprises:
PRC taxation:
Current tax
Deferred tax

Year ended 31 March
Six months
ended 30
September
2001
2002
2003
2003
HK$’000
HK$’000
HK$’000
HK$’000
28,917
46,090
30,362
13,769
—
21,045
22,669
23,120
1,135
2,009
6,692
7,793
30,052
69,144
59,723
44,682
(28,917)
(26,288)
(2,441)
(28,757)
1,135
42,856
57,282
15,925
Year ended 31 March
Six months
ended 30
September
2001
2002
2003
2003
HK$’000
HK$’000
HK$’000
HK$’000
—
—
51,774
4,410
—
—
15,000
5,000
—
—
66,774
9,410

8. TAXATION

Provision for PRC income tax has been provided at the applicable income tax rate of 33% on the assessable profits of the Companies during the Relevant Periods.

No provision for Hong Kong Profits Tax has been made as the Companies’ income neither arises in, nor is derived from, Hong Kong.

— 156 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

The charge for the Relevant Periods can be reconciled to the profit (loss) per the combined income statement as follows:

Profit (loss) before taxation PRC income tax at 33% Tax effect on utilisation of tax losses not previously recognised Others Tax effect on expenses not deductible for tax purpose Tax effect on tax losses not recognised	Year ended 31 March Six months ended 30 September 2001 2002 2003 2003 HK$’000 HK$’000 HK$’000 HK$’000 (13,662) (58,568) 105,752 25,776 (4,508) (19,328) 34,898 8,506 — — — (2,000) — — (124) 2,904 4,508 8,328 — — — 11,000 32,000 — — — 66,774 9,410	Year ended 31 March Six months ended 30 September 2001 2002 2003 2003 HK$’000 HK$’000 HK$’000 HK$’000 (13,662) (58,568) 105,752 25,776 (4,508) (19,328) 34,898 8,506 — — — (2,000) — — (124) 2,904 4,508 8,328 — — — 11,000 32,000 — — — 66,774 9,410	Year ended 31 March Six months ended 30 September 2001 2002 2003 2003 HK$’000 HK$’000 HK$’000 HK$’000 (13,662) (58,568) 105,752 25,776 (4,508) (19,328) 34,898 8,506 — — — (2,000) — — (124) 2,904 4,508 8,328 — — — 11,000 32,000 — — — 66,774 9,410	Year ended 31 March Six months ended 30 September 2001 2002 2003 2003 HK$’000 HK$’000 HK$’000 HK$’000 (13,662) (58,568) 105,752 25,776 (4,508) (19,328) 34,898 8,506 — — — (2,000) — — (124) 2,904 4,508 8,328 — — — 11,000 32,000 — — — 66,774 9,410
	(4,508) — — 4,508 —	(19,328) — — 8,328 11,000	34,898 — (124) — 32,000	8,506 (2,000 2,904 — —
	—	—	66,774

9. EARNINGS (LOSS) PER SHARE

Earnings (loss) per share is not presented as such information is not meaningful having regarded to the purpose of this report.

10. INVESTMENT PROPERTIES

At beginning of the year/period Exchange realignment Transfer from properties under development (note 12) Revaluation increase (decrease) Cost adjustments At end of the year/period	As at 31 March 2001 2002 HK$’000 HK$’000 — — — — — 1,164,808 — 1,139,519 — — — 2,304,327	As at 30 September 2003 2003 HK$’000 HK$’000 2,304,327 2,237,348 (869) (15,079) — — (58,688) 8,265 (7,422) — 2,237,348 2,230,534

(i) The investment properties are situated in the PRC under medium term leases and have been revalued at 31 March 2002, 31 March 2003 and 30 September 2003 by Chesterton Petty Limited, independent professional valuer, on an open market value basis. The revaluation increase and decrease arising on the revaluations have been credited and charged to the investment properties revaluation reserve, respectively.

(ii) All the investment properties are rented out under operating leases.
(iii) All the investment properties at 31 March 2002, 31 March 2003 and 30 September 2003 have been pledged to banks to secure the banking facilities granted to the Companies.

— 157 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

11. PROPERTY, PLANT AND EQUIPMENT

Land use rights in the PRC Buildings in the PRC Furniture, fixtures, equipment and motor vehicles HK$’000 HK$’000 HK$’000 — — 825 — — 12 — — 524	Land use rights in the PRC Buildings in the PRC Furniture, fixtures, equipment and motor vehicles HK$’000 HK$’000 HK$’000 — — 825 — — 12 — — 524	Land use rights in the PRC Buildings in the PRC Furniture, fixtures, equipment and motor vehicles HK$’000 HK$’000 HK$’000 — — 825 — — 12 — — 524	Total HK$’000 825 12 524 1,361 84 212 296 1,065 1,361 1 110,310 20,513 (184) 132,001 296 3,576 (59) 3,813 128,188
— — — —	— — — —	1,361 84 212 296	1,361
			84 212
			296
—	—	1,065
— — 50,248 — — 50,248 — 803 — 803	— — 60,062 — — 60,062 — 960 — 960	1,361 1 — 20,513 (184) 21,691 296 1,813 (59) 2,050	1,361 1 110,310 20,513 (184
			132,001
			296 3,576 (59
			3,813
49,445	59,102	19,641

— 158 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

Land use rights in the PRC Buildings in the PRC Furniture, fixtures, equipment and motor vehicles HK$’000 HK$’000 HK$’000 50,248 60,062 21,691 (19) (23) (703) — — 14,893 (572) (131) (300)	Land use rights in the PRC Buildings in the PRC Furniture, fixtures, equipment and motor vehicles HK$’000 HK$’000 HK$’000 50,248 60,062 21,691 (19) (23) (703) — — 14,893 (572) (131) (300)	Land use rights in the PRC Buildings in the PRC Furniture, fixtures, equipment and motor vehicles HK$’000 HK$’000 HK$’000 50,248 60,062 21,691 (19) (23) (703) — — 14,893 (572) (131) (300)	Total HK$’000 132,001 (745) 14,893 (1,003) 145,146 3,813 (1) 7,700 (62) 11,450 133,696 145,146 (975) 5,719 (18) 149,872 11,450 (77) 5,696 (6) 17,063 132,809
49,657 803 — 1,843 — 2,646	59,908 960 — 467 — 1,427	35,581 2,050 (1) 5,390 (62) 7,377	145,146
			3,813 (1 7,700 (62
			11,450
47,011	58,481	28,204
49,657 (585) — — 49,072 2,646 (12) 918 — 3,552	59,908 (153) — — 59,755 1,427 (16) 235 — 1,646	35,581 (237) 5,719 (18) 41,045 7,377 (49) 4,543 (6) 11,865	145,146 (975 5,719 (18
			149,872
			11,450 (77 5,696 (6
			17,063
45,520	58,109	29,180

— 159 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

The land use rights in the PRC are held under medium-term leases.

The entire interests in the land use rights and the buildings in the PRC with an aggregate net book value of approximately HK$103,629,000 (31.3.2003: HK$105,492,000; 31.3.2002: HK$108,547,000; 31.3.2001: Nil) have been pledged to banks to secure the banking facilities granted to the Companies.

12. PROPERTIES UNDER DEVELOPMENT

Land use rights in the PRC Development expenditure HK$’000 HK$’000 COST At 1 April 2000 633,156 113,807 Exchange realignment 1,251 225 Additions 223,961 455,117 At 31 March 2001 858,368 569,149 Exchange realignment 566 376 Additions 619,660 179,057 Transfer to investment properties (note 10) (514,019) (650,789) Transfer to property, plant and equipment (note 11) (50,248) (60,062) At 31 March 2002 914,327 37,731 Exchange realignment (345) (14) Additions 117,065 456,399 Transfer to properties held for sale (205,460) (315,298) At 31 March 2003 825,587 178,818 Exchange realignment (5,564) (1,205) Additions 456,500 344,364 At 30 September 2003 1,276,523 521,977	Land use rights in the PRC Development expenditure HK$’000 HK$’000 COST At 1 April 2000 633,156 113,807 Exchange realignment 1,251 225 Additions 223,961 455,117 At 31 March 2001 858,368 569,149 Exchange realignment 566 376 Additions 619,660 179,057 Transfer to investment properties (note 10) (514,019) (650,789) Transfer to property, plant and equipment (note 11) (50,248) (60,062) At 31 March 2002 914,327 37,731 Exchange realignment (345) (14) Additions 117,065 456,399 Transfer to properties held for sale (205,460) (315,298) At 31 March 2003 825,587 178,818 Exchange realignment (5,564) (1,205) Additions 456,500 344,364 At 30 September 2003 1,276,523 521,977	Total HK$’000 746,963 1,476 679,078 1,427,517 942 798,717 (1,164,808) (110,310) 952,058 (359) 573,464 (520,758) 1,004,405 (6,769) 800,864 1,798,500
858,368 566 619,660 (514,019) (50,248) 914,327 (345) 117,065 (205,460) 825,587 (5,564) 456,500	569,149 376 179,057 (650,789) (60,062) 37,731 (14) 456,399 (315,298) 178,818 (1,205) 344,364	1,427,517 942 798,717 (1,164,808 (110,310
		952,058 (359 573,464 (520,758
		1,004,405 (6,769 800,864
1,276,523	521,977

— 160 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

The Companies’ properties under development are all situated in the PRC and are held under the following lease terms:

Long lease Medium-term lease Less: Amounts shown under current assets	As at 31 March 2001 2002 HK$’000 HK$’000 1,355,177 754,800 72,340 197,258 1,427,517 952,058 — — 1,427,517 952,058	As at 30 September 2003 2003 HK$’000 HK$’000 665,105 1,026,466 339,300 772,034 1,004,405 1,798,500 90,076 109,389 914,329 1,689,111	As at 30 September 2003 2003 HK$’000 HK$’000 665,105 1,026,466 339,300 772,034 1,004,405 1,798,500 90,076 109,389 914,329 1,689,111
			1,798,500 109,389
			1,689,111

At 30 September 2003 properties under development with carrying value of approximately HK$1,178,719,000 (31.3.2003: HK$338,329,000; 31.3.2002: Nil; and 31.3.2001: Nil) were pledged to banks to secure the banking facilities granted to the Companies.

Included in properties under development are borrowing costs capitalised of approximately HK$86,403,000 (31.3.2003: HK$57,646,000; 31.3.2002: HK$55,205,000; and 31.3.2001: HK$28,917,000).

13. PLEDGED BANK DEPOSITS

The amounts represent deposits pledged to banks to secure banking facilities granted to the Companies. Deposits amounting to HK$18,493,000 (31.3.2003: HK$240,000; 31.3.2002: Nil; and 31.3.2001: Nil) have been pledged to secure long-term bank loans and are therefore classified as non-current assets.

14. INVENTORIES

The amount represents consumables which are carried at cost.

15. PROPERTIES HELD FOR SALE

The Companies’ properties held for sale are situated in the PRC and held under long leases. All the properties held for sale are stated at cost.

— 161 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

16. ACCOUNTS RECEIVABLE, DEPOSITS AND PREPAYMENTS

The Companies have policies of allowing average credit period of 30 days to its tenants for rental properties and average credit period of 30 days to its purchasers for properties held for sale.

An aged analysis of trade receivables is as follows:

				As at 30
		As at 31 March		September
	2001	2002	2003	2003
	HK$’000	HK$’000	HK$’000	HK$’000
Within 30 days	—	—	224,058	89,571
31 to 60 days	158	1,813	2,528	3,863
61 to 90 days	99	812	817	2,457
Over 90 days	169	16,633	27,516	42,380
	426	19,258	254,919	138,271
Deposits and prepayments	10,031	13,049	19,720	15,800
	10,457	32,307	274,639	154,071

— 162 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

17. AMOUNTS DUE FROM RELATED COMPANIES

Particulars of the amounts due from related companies, which are subsidiaries of Shui On Company, are as follows:

										Maximum
				Maximum		Maximum		Maximum		amount
				amount		amount		amount		outstanding
				outstanding		outstanding		outstanding		during the
				during the		during the		during the	Balance	period
			Balance at	year ended	Balance at	year ended	Balance at	year ended	at 30	ended 30
			31 March	31 March	31 March	31 March	31 March	31 March	September	September
Name of related entity			2001	2001	2002	2002	2003	2003	2003	2003
			HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Shanghai Cheng-Li Properties
Co.,	Ltd.		4	4	—	—	—	—	—	—
Shanghai Jin Hai Rimmer
Properties Co., Ltd.			11,382	25,388	—	11,382	—	—	—	—
Shanghai Shui On Property
Development Management
Co.,	Ltd. (formerly known
as Shanghai Shui On
Consulting Co., Ltd.)			—	—	80,173	98,791	307,582	455,665	407,797	408,706
Shanghai Xin Chen Carpark
Co.,	Ltd.		— —	— —	337,564 —	337,564 —	85 15	337,564 15	— 169	85 169
Shui On		Investment Co., Ltd.	—	—	—	—	1,362	1,362	—	1,362
Shui On		Real Estate Agency
Ltd			—	—	—	—	—	—	14,101	14,101
Chinabest International
Co.,	Ltd.		—	—	—	—	—	—	3,417	3,417
Shui On		Construction and
Materials Limited			—	—	—	—	—	—	190	190
Shanghai Xintiandi Plaza
Winery Co., Ltd.			—	—	—	—	—	—	571	571
Shanghai Ruichen Property
Co.,	Ltd.		—	—	—	—	—	—	3,744	65,525
			11,386		417,737		309,044		429,989

The amounts due from related companies are unsecured, interest free and are repayable on demand.

— 163 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

18. ACCOUNTS PAYABLE, ACCRUED CHARGES AND DEPOSITS RECEIVED

An aged analysis of the trade payables is as follows:

Within 30 days 31 to 60 days 61 to 90 days Over 90 days Accrued charges and deposits received	As at 31 March 2001 2002 HK$’000 HK$’000 3,873 12,726 — 6,155 297 10,461 3,656 168,458	As at 31 March 2001 2002 HK$’000 HK$’000 3,873 12,726 — 6,155 297 10,461 3,656 168,458	As at 30 September 2003 2003 HK$’000 HK$’000 34,237 67,244 953 573 8,813 1,670 44,303 25,382	As at 30 September 2003 2003 HK$’000 HK$’000 34,237 67,244 953 573 8,813 1,670 44,303 25,382
	7,826 5,768	197,800 38,890	88,306 217,781	94,869 188,172
	13,594	236,690	306,087	283,041

19. AMOUNTS DUE TO RELATED COMPANIES

The amounts due to related companies, which are subsidiaries of Shui On Company, are unsecured, interest free and repayable on demand.

20. SECURED BANK LOANS

Repayable within a period of: Not more than 1 year More than 1 year, but not exceeding 2 years More than 2 year, but not exceeding 5 years More than 5 years Less: amount due within one year shown under current liabilities Amount due after one year	As at 31 March 2001 2002 HK$’000 HK$’000 296,391 381,726 60,369 198,140 114,407 — — —	As at 31 March 2001 2002 HK$’000 HK$’000 296,391 381,726 60,369 198,140 114,407 — — —	As at 30 September 2003 2003 HK$’000 HK$’000 198,018 58,725 — 104,320 70,400 762,626 — 510,214	As at 30 September 2003 2003 HK$’000 HK$’000 198,018 58,725 — 104,320 70,400 762,626 — 510,214
	471,167 (296,391)	579,866 (381,726)	268,418 (198,018)	1,435,885 (58,725
	174,776	198,140	70,400	1,377,160

The bank loans are secured by the pledge of assets as set out in note 24 and the corporate guarantees issued in favour of banks by Shui On Company.

— 164 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

21. PAID-IN CAPITAL

The balance represents the aggregate of the issued and fully paid share capital of the following companies as at 31 March 2001, 31 March 2002, 31 March 2003 and 30 September 2003 currently attributable to Shui On Investment:

Excel Efficient Limited

Global Ocean Investments Limited

Infoshore International Limited

Interchina International Limited Keen Allied Investments Limited Marble Way Ltd. Modern Prosper Investments Limited Portspin Limited Sinothink Holdings Limited Timezone Management Limited

22. LOANS — DUE AFTER ONE YEAR

				As at 30
		As at 31 March		September
	2001	2002	2003	2003
	HK$’000	HK$’000	HK$’000	HK$’000
Loans from certain subsidiaries of Shui On
Company:
— interest bearing (Note 1)	314,642	410,992	246,669	—
— interest bearing (Note 2)	—	250,000	250,000	—
— non interest bearing	353,908	646,288	1,001,785	1,255,548
	668,550	1,307,280	1,498,454	1,255,548
Loans from minority shareholders of Interchina
International Limited
— non interest bearing	—	222,300	257,400	257,400
	668,550	1,529,580	1,755,854	1,512,948

Notes:

The amounts bear interest at prevailing Singapore Interbank Offered Rates plus 2.875%.
The amounts bear interest at Hong Kong prime rates plus 1%.

All the loans as stated above are unsecured and are not repayable within one year.

— 165 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

23. DEFERRED TAXATION

The following are the major deferred tax liabilities recognised by the Companies and movements thereon during the Relevant Periods:

Revaluation of
investment
properties
Accelerated tax
depreciation
HK$’000
HK$’000
At 1 April 2000 and 31 March 2001
—
—
Charge to equity and as 31 March 2002
599,000
—
Charge to income for the year
—
15,000
Credit to equity
(27,000)
—
At 31 March 2003
572,000
15,000
Charge to income for the period
—
5,000
Charge to equity
1,000
—
At 30 September 2003
573,000
20,000

Total
HK$’000
—
599,000
15,000
(27,000)
587,000
5,000
1,000
593,000

At 30 September 2003, the Companies have unused tax losses of HK$124 million (31.3.2003: HK$130 million; 31.3.2002: HK$33 million; and 31.3.2001: Nil) available for offset against future profits. No deferred tax asset has been recognised in respect of these unused tax losses and tax losses will expire five years after their respective years of assessments.

24. PLEDGE OF ASSETS

Certain banking facilities were secured by the Companies’ interests in investment properties; property, plant and equipment; property under development; and bank deposits. The aggregate carrying value of assets pledged amounted to HK$3,531,375,000 (31.3.2003: HK$2,681,409,000; 31.3.2002: HK$2,412,874,000; and 31.3.2001: Nil).

— 166 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

25. OPERATING LEASE ARRANGEMENTS

As lessor

The investment properties held have committed tenants for the next one to eighteen years at fixed and contingent rentals.

At the balance sheet date, the Companies had contracted with tenants for the following future minimum lease payments under non-cancellable operating leases which fall due as follows:

				As at 30
		As at 31 March		September
	2001	2002	2003	2003
	HK$’000	HK$’000	HK$’000	HK$’000
Within one year	13,154	25,425	66,931	17,681
In the second to fifth years inclusive	30,985	43,558	97,652	123,058
Over five years	13,270	9,610	13,583	54,051
	57,409	78,593	178,166	194,790

26. CAPITAL COMMITMENTS

				As at 30
		As at 31 March		September
	2001	2002	2003	2003
	HK$’000	HK$’000	HK$’000	HK$’000
Contracted but not provided for:
Capital expenditure in respect of properties under
development in the PRC	1,543,974	767,207	869,027	404,919

27. RETIREMENT BENEFITS PLANS

The qualifying employees of the Companies are members of state-managed retirement benefit plans operated by the government of the PRC. The Companies are required to contribute a specified percentage of their payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Companies with respect to the retirement benefit schemes is to make the specified contributions.

— 167 —

ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

APPENDIX III

28. CONTINGENT LIABILITIES

(i) On 7 July 2003, a civil writ was presented to a PRC court claiming damages against Shanghai Xing-Bang Properties Co., Ltd. for repairing a building and its amenities amounting to approximately HK$3.8 million. The management is of the opinion that the outcome of this legal case would not have a material adverse effect on the financial position of the Companies.
(ii) As at 30 September 2003, Shanghai Lakeville Properties Co., Ltd. has given guarantees to banks in respect of mortgage facilities granted to the buyers of its residential properties up to the limit of approximately HK$227 million (31.3.2003: HK$138 million; 31.3.2002: Nil; and 31.3.2001: Nil).

29. RELATED PARTY TRANSACTIONS

Apart from the related party transactions as stated in note 17, 19, 20 and 22 above, the Group had the following transactions with certain subsidiaries of Shui On Company during the Relevant Periods:

==> picture [432 x 320] intentionally omitted <==

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

|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|Six|months|
|ended|30|
|Year|ended|31|March|September|
|Name|of|related|party|Nature|of|transactions|2001|2002|2003|2003|
|HK$’000|HK$’000|HK$’000|HK$’000|
|Construction|work|fee|1,455|58,318|60,971|75,091|
|Chinabest|International|Limited|Construction|work|fee|—|—|7,261|4,240|
|Construction|work|fee|—|—|—|2,050|
|Shanghai|Shui|On|Property|Project|management|fee|—|2,562|50,794|6,601|
|Development|Management|
|Co.,|Ltd.|(formerly|known|as|
|Shanghai|Shui|On|Consulting|
|Co.,|Ltd.)|
|Shanghai|Shui|On|Property|F|&|B|income|—|—|936|340|
|Development|Management|
|Co.,|Ltd.|(formerly|known|as|
|Shanghai|Shui|On|Consulting|
|Co.,|Ltd.)|
|Shanghai|Shui|On|Property|Rental|and|building|—|—|—|172|
|Development|Management|management|income|
|Co.,|Ltd.|(formerly|known|as|
|Shanghai|Shui|On|Consulting|
|Co.,|Ltd.)|
|Rental|and|building|—|—|—|47|
|management|income|

----- End of picture text -----

The directors confirmed that the above related party transactions were conducted in normal business terms in the ordinary course of the Companies’ business.

— 168 —

APPENDIX III ACCOUNTANTS’ REPORT ON TAIPINGQIAO PROPERTIES

B. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of any of the Companies have been prepared in respect of any period subsequent to 30 September 2003.

Yours faithfully, DELOITTE TOUCHE TOHMATSU

Certified Public Accountants Hong Kong

— 169 —

APPENDIX IV PROFORMA COMBINED FINANCIAL INFORMATION ON RAINBOW CITY AND TAIPINGQIAO PROPERTIES

The information set out below is for information purposes only and does not form part of the accountants’ report prepared by the reporting accountants of the companies, Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong, as set out in appendices II and III.

The SOL combined group will be formed after completion of the Transactions details of which are set out in section headed “Letter from the Board” in this Circular, and comprises the SOL and Taipingqiao Properties and Rainbow City. The business combination of Rainbow City will be accounted for under acquisition accounting in its first set of financial statements prepared immediately after completion of the Transactions as the effective shareholding interest in Rainbow City of its ultimate shareholders will be different after completion of the Transactions.

To provide additional financial information, the pro forma combined financial information of the combined group for each of the three years ended 31 March 2003 and the six months period ended 30 September 2003 have been prepared based on the historical financial information of the companies for each of the three years ended 31 March 2003 and the six months period ended 30 September 2003, which have been extracted from the accountants’ reports as set out in appendix II and III to this Circular, after taking into account of the pro forma adjustments as described in the notes thereto as if those companies had been held by SOL since 1 April 2000, or their respective dates of incorporation or establishment, whichever is later.

The pro forma combined financial information of the combined group presented below do not purport to present what the financial information would actually have been if the companies had been held by SOL since 1 April 2000, or to project the financial information for any future period and are included for information purposes only.

The pro forma combined financial information should be read in conjunction with the historical financial information of the group, the acquired companies and other financial information included elsewhere in this circular.

— 170 —

APPENDIX IV PROFORMA COMBINED FINANCIAL INFORMATION ON RAINBOW CITY AND TAIPINGQIAO PROPERTIES

Pro forma combined income statements

The pro forma combined results of operation of the SOL combined group for each of the three years ended 31 March 2003 and the six months period ended 30 September 2003 are as follows:

				Six months
				ended 30
	For the	year ended	31 March	September
	2001	2002	2003	2003
	HK$’000	HK$’000	HK$’000	HK$’000
Turnover	—	36,073	750,790	150,496
Cost of sales	—	(1,975)	(479,689)	(68,081)
Gross profit	—	34,098	271,101	82,415
Other operating income	—	997	3,526	3,097
Staff costs	—	(5,914)	(18,819)	(8,032)
Depreciation and amortisation	—	(3,564)	(7,634)	(5,648)
Other operating expenses	(12,527)	(41,329)	(85,372)	(32,379)
Profit (loss) from operations	(12,527)	(15,712)	162,802	39,453
Finance costs	(1,135)	(42,856)	(57,282)	(15,925)
Profit (loss) before taxation	(13,662)	(58,568)	105,520	23,528
Taxation	—	—	(66,774)	(9,410)
Profit (loss) before minority interests	(13,662)	(58,568)	38,746	14,118
Minority interests	375	1,780	(28,312)	(4,980)
Profit (loss) for the year/period	(13,287)	(56,788)	10,434	9,138

— 171 —

PROFORMA COMBINED FINANCIAL INFORMATION ON RAINBOW CITY AND TAIPINGQIAO PROPERTIES

APPENDIX IV

The pro forma combined income statements of the SOL combined group for the six months ended 30 September 2003 has been prepared based on the combined income statement of the Taipingqiao Properties for the six months ended 30 September 2003, the consolidated income statement of Rainbow City for the six months ended 30 September 2003, and after making certain pro forma combination adjustments as set out below:

			SOL
	Taipingqiao	Rainbow	combined
	Properties	City	group
	2003	2003	2003
	HK$’000	HK$’000	HK$’000
Turnover	150,496	—	150,496
Cost of sales	(68,081)	—	(68,081)
Gross profit	82,415	—	82,415
Other operating income	3,097	—	3,097
Gain on deemed partial disposal of a subsidary	—	—	—
Staff costs	(8,032)	—	(8,032)
Depreciation and amortisation	(5,648)	—	(5,648)
Other operating expenses	(30,131)	(2,248)	(32,379)
Profit (loss) from operations	41,701	(2,248)	39,453
Finance costs	(15,925)	—	(15,925)
Profit (loss) before taxation	25,776	(2,248)	23,528
Taxation	(9,410)	—	(9,410)
Profit (loss) before minority interests	16,366	(2,248)	14,118
Minority interests	(5,002)	22	(4,980)
Profit (loss) for the year/period	11,364	(2,226)	9,138

— 172 —

APPENDIX IV PROFORMA COMBINED FINANCIAL INFORMATION ON RAINBOW CITY AND TAIPINGQIAO PROPERTIES

Pro forma combined statement of assets and liabilities of the SOL combined group after completion of the Transactions

Set out below is the pro forma combined statement of assets and liabilities of the SOL combined group after the completion of the Transactions. The pro forma combined statement of assets and liabilities has been prepared based on the pro forma combined balance sheet of the Taipingqiao Properties as at 30 September 2003, the consolidated balance sheet of Rainbow City as at 30 September 2003, and after making certain pro forma combination adjustments as set out below:

Taipingqiao Properties as at 30 September Rainbow City 30 September SOL combined group as at 30 September 2003 2003 2003 HK$’000 HK$’000 HK$’000 Non-current assets Investment properties 2,230,534 — 2,230,534 Property, plant and equipment 132,809 757 133,566 Properties under development 1,689,111 886,561 2,575,672 Pledged bank deposits 18,493 — 18,493 4,070,947 887,318 4,958,265 Current assets Inventories 1,124 — 1,124 Properties under development 109,389 — 109,389 Properties held for sale 19,282 — 19,282 Accounts receivable, deposits and prepayments 154,071 2,890 156,961 Amounts due from related companies 429,989 — 429,989 Pledged bank deposits 94,176 — 94,176 Bank balances and cash 348,351 233,777 582,128 1,156,382 236,667 1,393,049	Taipingqiao Properties as at 30 September Rainbow City 30 September SOL combined group as at 30 September 2003 2003 2003 HK$’000 HK$’000 HK$’000 Non-current assets Investment properties 2,230,534 — 2,230,534 Property, plant and equipment 132,809 757 133,566 Properties under development 1,689,111 886,561 2,575,672 Pledged bank deposits 18,493 — 18,493 4,070,947 887,318 4,958,265 Current assets Inventories 1,124 — 1,124 Properties under development 109,389 — 109,389 Properties held for sale 19,282 — 19,282 Accounts receivable, deposits and prepayments 154,071 2,890 156,961 Amounts due from related companies 429,989 — 429,989 Pledged bank deposits 94,176 — 94,176 Bank balances and cash 348,351 233,777 582,128 1,156,382 236,667 1,393,049	Taipingqiao Properties as at 30 September Rainbow City 30 September SOL combined group as at 30 September 2003 2003 2003 HK$’000 HK$’000 HK$’000 Non-current assets Investment properties 2,230,534 — 2,230,534 Property, plant and equipment 132,809 757 133,566 Properties under development 1,689,111 886,561 2,575,672 Pledged bank deposits 18,493 — 18,493 4,070,947 887,318 4,958,265 Current assets Inventories 1,124 — 1,124 Properties under development 109,389 — 109,389 Properties held for sale 19,282 — 19,282 Accounts receivable, deposits and prepayments 154,071 2,890 156,961 Amounts due from related companies 429,989 — 429,989 Pledged bank deposits 94,176 — 94,176 Bank balances and cash 348,351 233,777 582,128 1,156,382 236,667 1,393,049
4,070,947 1,124 109,389 19,282 154,071 429,989 94,176 348,351 1,156,382	887,318 — — — 2,890 — — 233,777 236,667	4,958,265
		1,124 109,389 19,282 156,961 429,989 94,176 582,128
		1,393,049

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PROFORMA COMBINED FINANCIAL INFORMATION ON RAINBOW CITY AND TAIPINGQIAO PROPERTIES

APPENDIX IV

	Taipingqiao		SOL
	Properties		combined
	as at	Rainbow City	group as at
	30 September	30 September	30 September
	2003	2003	2003
	HK$’000	HK$’000	HK$’000
Current liabilities
Accouts payable, accrued
charges and deposits received	283,041	122,229	405,270
Amounts due to an intermediate holding
company	—	759,887	759,887
Amounts due to related companies	650,187	—	650,187
Amounts due to minority shareholders of the
Companies	1,346	—	1,346
Taxation	41,623	—	41,623
Secured bank loans
— due within one year	58,725	—	58,725
	1,034,922	882,116	1,917,038
Net current (liabilities) assets	121,460	(645,449)	(523,989)
	4,192,407	241,869	4,434,276
Capital and reserves
Paid-in capital	1	—	1
Reserves	575,762	(5,552)	570,210
	575,763	(5,552)	570,211
Minority interests	133,536	4,381	137,917
Non-current liabilities
Loans - due after one year	1,512,948	—	1,512,948
Secured bank loans
— due after one year	1,377,160	243,040	1,620,200
Deferred tax liabilities	593,000	—	593,000
	3,483,108	243,040	3,726,148
	4,192,407	241,869	4,434,276

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PROFORMA COMBINED FINANCIAL INFORMATION ON RAINBOW CITY AND TAIPINGQIAO PROPERTIES

APPENDIX IV

Pro forma Adjusted Net Asset Value Statement

The following statement of Rainbow City, Taipingqiao Holding Vehicles and SOL’s pro forma adjusted net asset value as at 30 September 2003 is based on the relevant pro forma net asset value as at 30 September 2003 as shown in the Accountant’s Report, the text of which is set out in Appendix II and III to this Circular and adjusted as described below:

Rainbow City Taipingqiao Holding Vehicles Combined total HK$’000 HK$’000 HK$’000 Pro forma net asset value as at 30 September 2003 per Accountants’ Reports (5,552) 575,763 570,211 Debts owed to the Company and/or to Shui On Properties and Shui On Investment to be capitalized as equity as agreed under the Rainbow City Sale and Purchase Agreement and the Taipingqiao Sale and Purchase Agreement 638,861 1,408,143 2,047,004 Net surplus arising on valuation of Rainbow City and Taipingqiao Holding Vehicles’ properties under developement (See note 1 and 2 below) 598,820 1,657,672 2,256,492 Pro forma adjusted net asset value before closing 1,232,129 3,641,578 4,873,707 Subscription money to be received by SOL upon issuance and conversion into ordinary shares of all Preference Shares 3,120,000 Pro forma adjusted net asset value of SOL after issuance and conversion into ordinary shares of all Preference Shares 7,993,707	Rainbow City Taipingqiao Holding Vehicles Combined total HK$’000 HK$’000 HK$’000 Pro forma net asset value as at 30 September 2003 per Accountants’ Reports (5,552) 575,763 570,211 Debts owed to the Company and/or to Shui On Properties and Shui On Investment to be capitalized as equity as agreed under the Rainbow City Sale and Purchase Agreement and the Taipingqiao Sale and Purchase Agreement 638,861 1,408,143 2,047,004 Net surplus arising on valuation of Rainbow City and Taipingqiao Holding Vehicles’ properties under developement (See note 1 and 2 below) 598,820 1,657,672 2,256,492 Pro forma adjusted net asset value before closing 1,232,129 3,641,578 4,873,707 Subscription money to be received by SOL upon issuance and conversion into ordinary shares of all Preference Shares 3,120,000 Pro forma adjusted net asset value of SOL after issuance and conversion into ordinary shares of all Preference Shares 7,993,707	Rainbow City Taipingqiao Holding Vehicles Combined total HK$’000 HK$’000 HK$’000 Pro forma net asset value as at 30 September 2003 per Accountants’ Reports (5,552) 575,763 570,211 Debts owed to the Company and/or to Shui On Properties and Shui On Investment to be capitalized as equity as agreed under the Rainbow City Sale and Purchase Agreement and the Taipingqiao Sale and Purchase Agreement 638,861 1,408,143 2,047,004 Net surplus arising on valuation of Rainbow City and Taipingqiao Holding Vehicles’ properties under developement (See note 1 and 2 below) 598,820 1,657,672 2,256,492 Pro forma adjusted net asset value before closing 1,232,129 3,641,578 4,873,707 Subscription money to be received by SOL upon issuance and conversion into ordinary shares of all Preference Shares 3,120,000 Pro forma adjusted net asset value of SOL after issuance and conversion into ordinary shares of all Preference Shares 7,993,707
		4,873,707
		3,120,000
		7,993,707

Notes:-

The net surplus arising on the valuation of Rainbow City and Taipingqiao Holding Vehicles’ properties under development is calculated based on the fair market value of these properties as at 31 December 2003 assessed by Chesterton Petty Ltd. whose report is included in Appendix V to this Circular less the aggregate book costs of Rainbow City and Taipingqiao Holding Vehicles’ properties under development as at 31 December 2003 and the provision for deferred tax on revaluation surplus.

The provision for deferred tax on revaluation surplus is calculated on the basis that both Land Appreciation Tax and Income Tax provisions are made against those properties of Rainbow City and Taipingqiao Holding Vehicles at the relevant prevailing tax rates.

The pro forma adjusted net asset value includes HK$1,176 million provision for deferred tax on revaluation surplus of those investment properties of Taipingqiao Holding Vehicles. Whilst these properties are held for long term purposes and there is no plan to sell these properties in the foreseeable future, the crystallization of such deferred tax liabilities are considered to be remote. The pro forma adjusted net asset value of Taipingqiao Holding Vehicles and SOL will be increased to HK$4,818 million and HK$9,170 million respectively if such deferred tax provision is excluded.

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VALUATION REPORT

APPENDIX V

The following is the text of the letter, a summary of valuation and the valuation certificate received from Chesterton Petty Ltd, an independent property valuer, prepared for the purpose for incorporation in this prospectus, in connection with their valuation of the property interests held by the Company and its subsidiaries as at 31 December 2003.

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PETTY
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International Property Consultants

Chesterton Petty Limited 16/F CITIC Tower 1 Tim Mei Avenue Central Hong Kong

23 March 2004

The directors

Shui On Construction and Materials Limited

12/F

New Kowloon Plaza 38 Tai Kok Tsui Road

Kowloon Hong Kong

Dear Sirs,

In accordance with your instructions for us to value the property interests held by Shui On Construction and Materials Limited (hereinafter referred to as the “Company”) and its subsidiaries (hereinafter referred to as the “Group”) in the People’s Republic of China (the “PRC”), we confirm that we have carried out inspections, made relevant enquiries and searches and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the open market values of such property interests as at 31 December 2003.

Our valuation is our opinion of the open market value which we would define as intended to mean “the best price at which the sale of an interest in a property would have been completed unconditionally for cash consideration on the date of valuation assuming:

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

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VALUATION REPORT

APPENDIX V

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

Our valuation has been made on the assumption that the owner sells the property interests on the open market without the benefit of a deferred term contract, leaseback, joint-venture, management agreement or any similar arrangement which would serve to increase the values of the property interests. In addition, no account has been taken of any option or right of pre-emption concerning or affecting the sale of the property interests and no forced sale situation in any manner is assumed in our valuation.

We have valued Property Nos. 3, 4 and 5, by reference to sales evidence as available on the market and where appropriate on the basis of capitalisation of the net income shown on the documents handed to us by the Company. We have allowed for outgoings, and where appropriate, made provisions for reversionary income potential.

In valuing the Property Nos. 1, 2, 6 and 7 we have valued it on the basis that the property interest will be developed and completed in accordance with the development proposals provided to us. We have assumed that the approvals for the proposals have been obtained. In arriving at our opinion of value, we have valued it by making reference to comparable transactions in the locality and have also taken into account the construction costs that will be expended to complete the development to reflect the quality of the completed development.

We have been provided with copies of extracts of title documents relating to the properties. However, we have not inspected the original documents to verify ownership or to verify any amendments which may not appear on the copies handed to us. We have relied on the information given by the Group and its legal advisers on the PRC laws, Jin Mao Law Firm, regarding the title and other legal matters relating to the properties.

We have relied to a considerable extent on the information given by the Group and the legal opinion of the Group’s PRC legal advisers. We have no reason to doubt the truth and accuracy of the information provided to us by the Group and/or its PRC legal advisers which is material to the valuation. We have accepted advice given by the Group on such matters as planning approvals or statutory notices, easements, tenure, ownership, completion date of building, particulars of occupancy, tenancy details, floor and site areas and all other relevant matters. Dimensions, measurements and areas included in the valuation certificates are based on information contained in the documents provided to us and are therefore only approximations. We have not been able to carry out detailed on-site measurements to verify the correctness of the site and floor areas of the property and we have assumed that the site and the floor areas shown on the documents handed to us are correct. We were also advised by the Group that no material facts have been omitted from the information provided.

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VALUATION REPORT

APPENDIX V

We have inspected the exterior and, where possible, the interior of the properties. However, we have not carried out on site investigations to determine the suitability of the ground conditions and services, etc for any future development. Our valuations are prepared on the assumption that these aspects are satisfactory. Moreover, no structural survey has been made, but in the course of our inspection, we did not note any serious defects. We are not, however, able to report that the properties are free from rot, infestation or any other structural defects. No tests were carried out on any of the services.

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

Unless otherwise specified, all money amounts stated are in Renminbi. The exchange rate adopted for conversation is US$1:RMB8.3 and there has been no material fluctuation of the exchange rate between the valuation dated and the date of this letter.

Our summary of values and valuation certificate are attached.

Yours faithfully For and on behalf of Chesterton Petty Limited Charles C K Chan MSc FRICS FHKIS MCIArb RPS(GP) Executive Director

Note: Charles C K Chan, Chartered Estate Surveyor, MSc., F.R.I.C.S., F.H.K.I.S, M.C.I.Arb., R.P.S. (G.P.), has been a qualified valuer with Chesterton Petty Limited since June 1987 and has about 19 years’ experience in the valuation of property in Hong Kong and has about 11 years’ experience in the valuation of property in the People’s Republic of China.

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VALUATION REPORT

APPENDIX V

SUMMARY OF VALUATION

					Capital value
					in existing state
		Capital value			attributable to
			in existing		the Group
			state as at	Interest	as at
		31	December	attributable to	31 December
Property			2003	the Group	2003
			RMB		RMB
Rainbow City
Property interests held by the Group in the		PRC
1	Rui Hong Xin Cheng Phase II	1,010,000,000		99%	999,900,000
	(Lot No. 149)
	Hong Kou District
	Shanghai
	The PRC
2	Rui Hong Xin Cheng	3,834,000,000		99%	3,795,660,000
	Remaining Phases
	(Site Nos. 1, 2, 3, 4, 6, 7, 8, 9 and 10)
	Hong Kou District
	Shanghai
	The PRC
Taipingqiao Properties
Property interests held by the Group in the		PRC
3	Lot Nos. 109 and 112	2,552,200,000		97%	2,475,634,000
	Xintiandi
	Taipingqiao Area
	Lu Wan District
	Shanghai
	The PRC
4	Unsold portion of Lakeville		76,000,000	69.3%	52,668,000
	Lot No. 117
	Taipingqiao Area
	Lu Wan District
	Shanghai
	The PRC

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VALUATION REPORT

APPENDIX V

					Capital value
					in existing state
		Capital value			attributable to
		in existing			the Group
		state as at		Interest	as at
		31 December	attributable to		31 December
Property		2003	the Group		2003
		RMB			RMB
Property interests held by the Group under		development in	the PRC
5	Lot No. 110	1,970,000,000		69.3%	1,365,210,000
	Taipingqiao Area
	Lu Wan District
	Shanghai
	The PRC
6	Lot Nos. 113 and 114	1,742,000,000		69.3%	1,207,206,000
	Taipingqiao Area
	Lu Wan District
	Shanghai
	The PRC
Property held by the Group for Future Development in the			PRC
7	Lot Nos. 118, 122, 124, 126 and 127	2,518,000,000		99%	2,492,820,000
	Taipingqiao Area	(This value is
	Lu Wan District	exclusive of
	Shanghai	Lot No. 124
	The PRC	and please
		refer to note 7
		in the content
		of property no.
		7 for details)
			Grand-total		12,389,098,000

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VALUATION REPORT

APPENDIX V

VALUATION CERTIFICATE

Rainbow City Property interests held by the Group in the PRC

Property

Description and Tenure

Particulars of Occupancy

Capital value in existing state as at 31 December 2003

1 Rui Hong Xin Cheng Phase II (Lot No. 149) Hong Kou District Shanghai The PRC

Rui Hong Xin Cheng (“RHXC”) is situated on Siping Road in Hongkou District, Shanghai, with a total site area of approximately 354,000 sq m. The whole development shall be constructed in phases and shall comprise various high-rise residential blocks with a total gross floor area of approximately 1,620,000 sq m.

Phase II

Phase II of RHXC comprises Site Nos. 11, Lot No. 174 (combined to form Lot No. 149) with a total site area of approximately 45,131 sq m (485,790 sq ft). According to the proposed development, it will provide a total gross floor area of approximately 204,386 sq m (2,200,011 sq ft) comprising 13 high-rise residential blocks. The development is also supplemented by public amenities and other facilities including an underground car park, garden, a 3,700 sq m club house and a ground level pedestrian plaza. The commercial component of the property include a 2-level shopping complex and a 3-level commercial podium situated beneath the residential blocks.

As advised, RMB1,010,000,000 stage I of the property is (99% interest expected to attributable complete in to the Group: March 2004. RMB999,900,000) The remainder comprising six blocks (comprises a total of 945 residential units) of the current development phase is expected to be completed in phases in about April 2005 and October 2006 respectively.

The property will be constructed by 2 stages and upon completion, the details of the gross floor area of each stage is listed as follows:

Stage 1 (blocks 1 to 7 and main shopping arcade)

	Gross	Floor Area
	sq m	sq ft
Residential area	91,066	980,234
Commercial area	9,436	101,569
Clubhouse area	3,700	39,827
	104,202	1,121,630

The Stage 1 development also comprise a basement with an area of approximately 18,725 sq m (201,566 sq ft) and an open car park with an area of approximately 8,424 sq m (90,676 sq ft).

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VALUATION REPORT

APPENDIX V

Property

Description and Tenure

Capital value in Particulars of existing state as at Occupancy 31 December 2003

Stage 2 (blocks 8 to 13 and southern shopping arcade)

arcade)
		Gross	Floor Area
		sq m	sq ft
Residential	area	96,129	1,034,733
Commercial	area	4,055	43,648
		100,184	1,078,381

The Stage II development will also provide approximately 550 open car parking spaces within the development.

According to the information provided, the land use right term for Phase II is held for a term of 70 years commencing from 20 November 2001 and expiring on 1 July 2071 for residential use. (please see note 14(iii))

Notes:

Pursuant to the Land Grant Contract No. Hu Fang Di (2001) Chu Rang He Tong Hong Zi 077 entered into between Hongkou District Real Estate and Land Administration Bureau (Party A) and Shanghai Rui Hong Xin Cheng Co., Ltd (hereinafter referred to as “RHXC”) on 12 November 2001, Shanghai Rui Hong Xin Cheng Co., Ltd has been granted with the land use rights of the land, comprising a site area of 45,131 sq m. The Contract for Grant of Land use Right contains, inter alia, the following salient conditions:

(i)	Use	:	Residential Use
(ii)	Land use term	:	70 years
(iii)	Permitted total gross floor area	:	�203,089 sq m
(iv)	Green area	:	�35%
(v)	Land grant fee	:	RMB8,203,192 (As advised by the company, this fee is waived)

Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Hong Zi (2001) Di 036585 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 29 November 2001, the title to the land (Lot No. 149) with an area of approximately 45,131.00 sq m is vested in Shanghai Rui Hong Xin Cheng Co., Ltd for a term commencing from 20 November 2001 and expiring on 19 November 2071 for residential use.

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VALUATION REPORT

APPENDIX V

Pursuant to the co-operative Joint Venture Contract entered into between Shanghai Zhong Hong (Group) Company Limited ( ) (the “PRC Party”) and Hollyfield Holdings Limited ( ) (the “Foreign Party”) dated 27 April 2001 (the “Joint Venture Contract”), both parties agreed to established a co-operative joint-venture company. The salient conditions as stipulated in the Joint Venture Contract are, inter alia, cited as follows:
(i) Name of joint-venture company : Shanghai Rui Hong Xin Cheng Co., Ltd. ( ) (ii) Period of operation : 70 years from the date of issuance of business licence (iii) Total investment amount : RMB1,400,000,000 (iv) Registered Capital : RMB467,000,000
Pursuant to a copy of the Business Licence No. Qi Zuo Hu Zong Zi Di 028894 (Shi Ju) ( 028894 ( )) dated 17 September 2003, the Joint Venture was incorporated with a registered capital of RMB467,000,000 for a valid period from 2 July 2001 to 1 July 2071. The scope of business for the joint venture includes construction, development and operation of real estate within the old districts of Hong Zheng ( ) and Xin Gang ( ); leasing and sales of real estate; provision of amenities, commercial and entertainment facilities in association with real estate development; and property management.
Pursuant to the Planning Permit for Construction Project No. Hu Di (2001) 0024 and No. Hu Di (2001) 0029 dated 11 July 2001 and 10 September 2001 respectively issued by Shanghai Hong Kou District Urban Planning Administration Bureau, the scale of the proposed development of Phase II of RHXC is permitted to comprise a total site area of 54,099 sq m.
Pursuant to the Planning Permit for Construction Project No. Hu Hong Jian (2002) 0049 Hao dated 29 July 2002 issued by Shanghai Hong Kou District Urban Planning Administration Bureau, the scale of the proposed development of Phase II of RHXC is permitted to comprise a total gross floor area of 143,662 sq m.
Pursuant to the Planning Permit for Construction Project No. Hu Hong Jian (2002) 0069 Hao dated 9 September 2003 issued by Shanghai Hong Kou District Urban Planning Administration Bureau, the scale of the proposed development of Phase II of RHXC is permitted to comprise a total gross floor area of 68,244 sq m.
Pursuant to the Planning Permit for Construction Project No. Hu Hong Jian (2002) 0033 Hao dated 18 May 2003 issued by Shanghai Hong Kou District Urban Planning Administration Bureau, the scale of the proposed development of Phase II of RHXC is permitted to comprise a total gross floor area of 208 sq m.
Pursuant to the Pre-sale Permit No Hong Kou (2003) Yu Zi 030 Hao issued by Shanghai Hong Kou Real Estate and Land Administration Bureau dated 7 August 2003, Block No. 1 to 3 and 5 to 8 of Rui Hong Xin Cheng Phase II are allowed to presale.
Pursuant to the Other Party’s Certificate Hu Fang Di Hong Ta Zi (2002) No. 011736 dated 12 September 2002, the land with an area of approximately 45,131.00 sq m is under a mortgage in favour of Bank of East Asia Limited, Shanghai Branch; Hang Seng Bank Limited, Shanghai Branch; Standard Chartered Bank, Shanghai Branch; Dao Heng Bank, Limited, Shenzhen Branch; The Industrial and Commercial Bank of China, Shanghai Branch, Luwan Sub-branch for a term commencing from 5 August 2002 and expiring on 4 August 2006.
Pursuant to the Supplementary Contract Hu Fang Di (2002) Chu Rang He Tong (Hong) Bao Zi Di 001 Hao, Lot No. 174 and Site No. 11 has been combined to form a site with an area of approximately 45,131 sq m. As advised, the combined site is named as Lot No. 149.
Pursuant to the Construction and Land Use Planning Permit issued by Shanghai Hong Kou District Urban Planning Administration Bureau dated 11 July 2001, the use of land on Lot No. 11 meet the requirement of city planning.

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VALUATION REPORT

APPENDIX V

We were advised that the total construction cost for the properties under construction as at 31 December 2003, were estimated to be RMB860,000,000 and the construction cost expended as at 31 December 2003 was approximately RMB410,000,000. In the course of our valuation, we have taken into account such construction cost.

The open market value of the property after completion, according to the development plan provided by the Group, is estimated at RMB2,011,000,000

We have been provided with a legal opinion on the title to the property issued by the Group’s PRC legal adviser, which contains, inter alia, the following information:

Land Use Rights over the Lots

(i) According to the documents issued by government, the RHXC holds the development right of the Lots. According to Chinese Laws and Regulations (defined as the current laws of China, administrative statutes of the State Council, local statutes and the rules and regulations formulated by the ministries (commissions, offices) of the State Council of China and local People’s Governments pursuant to laws and the administrative statutes, decisions and orders of the State Council (excluding the laws and regulations of Hong Kong, Macao and Taiwan), the RHXC has the right to transfer the development right in accordance with corresponding laws and regulations.)
(ii) According to the Government document Hu Fu Fa (1998) No. 22 issued by Shanghai People’s Government, the land grant fees defined in the land grant contract Hu Fang Di (2001) Grant Contract Hong Zi No. 077 dated 12 November 2001 has been waived.
(iii) Pursuant to the Government document Hong Fu No. 2002 38 issued by Shanghai Hongkou District People’s Government on 27 April 2002, RHXC is allowed to use the land (comprising approximately 3,900 square meters in area) above the proposed MTR station which is situated between Lot 11 and Lot 174 of Rainbow City, for a period of 70 years without charge. The commencement date is not specified in the document. The use of the land is also not clearly specified in the relevant documents, except that there is a provision for the land to be developed in accordance with the overall planning for the area, and that no buildings shall be erected on the land, although green areas, pedestrian walkways and walkways with resting areas are permitted, subject to planning approval being obtained.
(iv) According to the contract (Hu Fang Di (2001) Chu Rang He Tong Hong Zi No. 077) signed by the Shanghai Municipal Hongkou District Housing and Land Administrative Bureau and RHXC on 12 November 2001, the obligation for RHXC to pay the agreed land grant fee has been waived.
(v) The information contained in the Real Estate Ownership Certificates and other certificates provided by RHXC are true and such certificates are in full force and effect. RHXC holds proper titles to the Lots. At the same time, based on these Certificates, they notice that except for the Lot #11 and Lot #174, there is no mortgage on any other Lots.
(vi) Meanwhile, according to the land grant contracts, RHXC can transfer, let or mortgage the Lots with the prerequisite that the RHXC conforms to the land grant contract’s clause.
(vii) According to the land grant contract and the graphic attached to the real estate ownership certificate, Lot No. 11 and Lot No. 174 have been later combined to form Lot No. 149.

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VALUATION REPORT

APPENDIX V

Project Development and Demolition Issues

(i) The real estate developing projects of RHXC have obtained the relevant government permissions.
(ii) According to the Pre-sale Permissions Hong Kou (2003) Yu Zi No. 030 provided by RHXC, RHXC has the right to sell Building 1-3 and Building 5-8 located at Lane 133 Linping Road in advance.
(iii) The deadline of construction for Lot No. 149 is by November 2005 (otherwise application for extension to be made 6 months in advance)

Ownership of the Buildings

(i) RHXC has title to the Buildings and the Lots, such title being properly constituted by and can be deducted from Real Estate Ownership Certificates issued in its favour and that such certificate is validly subsisting in full force and effect. RHXC with exceptions above lawfully has the right to sell the Buildings to domestic and foreign buyers, and no legal impediment exists that bars RHXC from selling the Buildings to domestic or foreign individuals or companies. Also, RHCX lawfully has the right to let or mortgage the building complying with Chinese Laws and Regulations.

— 185 —

VALUATION REPORT

APPENDIX V

Property

2 Rui Hong Xin Cheng Remaining Phases (Site Nos. 1, 2, 3, 4, 6, 7, 8, 9 and 10) Hong Kou District Shanghai The PRC

Description and Tenure

The Remaining Phases of the development is scheduled to be constructed upon Site Nos. 1, 2, 3, 4, 6, 7, 8, 9 and 10. The aforesaid sites, together is a plot of irregular-shaped land abuts Xingang Road on the north, Dongshaqui Road on the west, Liuping Road on the south and Hongchenglao Road on the east. The total site areas of the Remaining Phases is approximately 305,060 sq m.

Capital value in existing state as at 31 December 2003

Particulars of Occupancy

As advised, site RMB3,834,000,000 clearance work for Site No. 4 (99% interest have attributable commenced. to the Group: The remaining RMB3,795,660,000) sites are currently occupied by dilapidated or run-down buildings which are due to be demolished.

According to the information provided, the Remaining Phases shall comprise a massive composite development for residential, commercial, and retail uses, and shall provide the following approximate gross floor area:

Site No. 1 Use Residential Office Retail (basement) Carpark Total*	Gross Floor Area sq m sq ft 67,584 727,474 105,587 1,136,538 13,525 145,583 19,900 214,204 173,171 1,864,013	Gross Floor Area sq m sq ft 67,584 727,474 105,587 1,136,538 13,525 145,583 19,900 214,204 173,171 1,864,013
		1,864,013

Remarks - The total gross floor area excludes the basement and car park area.

Site No. 2 Use Residential Retail (above ground) Retail (basement) Carpark Total*	Gross Floor Area sq m sq ft 76,848 827,192 17,165 184,764 9,000 96,876 10,250 110,331 94,013 1,011,956

Remarks - The total gross floor area excludes the basement and car park area.

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VALUATION REPORT

APPENDIX V

Property

Description and Tenure

Particulars of Occupancy

Capital value in existing state as at 31 December 2003

Site No. 3	Gross	Floor Area
Use	sq m	sq ft
Residential	76,792	826,589
Retail (above ground)	18,215	196,066
Retail (basement)	9,900	106,564
Carpark	10,150	109,255
Total*	95,007	1,022,655

Remarks - The total gross floor area excludes the basement and car park area.

Site No. 4 Use Residential Retail (above ground) Retail (basement) Carpark Total*	Gross Floor Area sq m sq ft 62,700 674,903 16,862 181,503 8,500 91,494 11,800 127,015 79,562 856,405	Gross Floor Area sq m sq ft 62,700 674,903 16,862 181,503 8,500 91,494 11,800 127,015 79,562 856,405
		856,405

Remarks - The total gross floor area excludes the basement and car park area.

Site No. 6 Use Residential Caraprk Total*	Gross Floor Area sq m sq ft 132,706 1,428,447 19,790 213,020 132,706 1,428,447	Gross Floor Area sq m sq ft 132,706 1,428,447 19,790 213,020 132,706 1,428,447
		1,428,447

Remarks - The total gross floor area excludes the basement and car park area.

Site No. 7 Use Residential Retail (above ground) Retail (basement) Carpark Total*	Gross Floor Area sq m sq ft 185,720 1,999,090 11,400 122,710 6,000 64,584 23,500 252,954 197,120 2,121,800	Gross Floor Area sq m sq ft 185,720 1,999,090 11,400 122,710 6,000 64,584 23,500 252,954 197,120 2,121,800
		2,121,800

Remarks - The total gross floor area excludes the basement and car park area.

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VALUATION REPORT

APPENDIX V

Property

Description and Tenure

Particulars of Occupancy

Capital value in existing state as at 31 December 2003

Site No. 8	Gross	Floor Area
Use	sq m	sq ft
Residential	27,684	297,991
Retail (above ground)	4,308	46,371
Retail (basement)	2,400	25,834
Total*	31,992	344,362

Remarks - The total gross floor area excludes the basement and car park area.

Site No. 9 & 10 Use Residential Retail (above ground) Retail (basement) Carpark Total*	Gross Floor Area sq m sq ft 237,716 2,558,775 29,867 321,488 15,750 169,533 32,520 350,045 267,583 2,880,263	Gross Floor Area sq m sq ft 237,716 2,558,775 29,867 321,488 15,750 169,533 32,520 350,045 267,583 2,880,263
		2,880,263

Remarks - The total gross floor area excludes the basement and car park area.

According to the information provided, the land use right term for the Remaining Phases are held for a term of 70 years commencing from 13 June 2002 and expiring on 12 June 2072 for residential uses.

Notes:

Pursuant to the co-operative Joint Venture Contract entered into between Shanghai Zhong Hong (Group) Company Limited ( ) (the “PRC Party”) and Hollyfield Holdings Limited ( ) (the “Foreign Party”) dated 27 April 2001 (the “Joint Venture Contract”), both parties agreed to established a co-operative joint-venture company. The salient conditions as stipulated in the Joint Venture Contract are, inter alia, cited as follows:

(i) Name of joint-venture company : Shanghai Rui Hong Xin Cheng Co.,Ltd. ( ) (ii) Period of operation : 70 years from the date of issuance of business licence (iii) Total investment amount : RMB1,400,000,000 (iv) Registered Capital : RMB467,000,000

Pursuant to a copy of the Business Licence No. Qi Zuo Hu Zong Zi Di 028894 (Shi Ju) ( 028894 ( )) dated 17 September 2003, the Joint Venture was incorporated with a registered capital of RMB467,000,000 for a valid period from 2 July 2001 to 1 July 2071. The scope of business for the joint venture includes construction, development and operation of real estate within the old districts of Hong Zheng ( ) and Xin Gang ( ); leasing and sales of real estate; provision of amenities, commercial and entertainment facilities in association with real estate development; and property management.

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APPENDIX V

VALUATION REPORT

Pursuant to the Land Grant Contract No. Hu Fang Di (1996) Chu Rang He Tong Wai Zi Di 7 entered into between Shanghai Real Estate and Land Administration Bureau (Party A) and Selfers Limited and Shanghai Zhong Hong (Group) Company Limited ( ) (together refer to as Party B) on 8 April 1996, Party B has been granted with the land use rights of the land, comprising a site area of 340,418 sq m. The Contract for Grant of Land use Right contains, inter alia, the following salient conditions:

(i) Use : Residential Use (ii) Land use term : 70 years (iii) Permitted total gross floor area : �1,200,000 sq m (iv) Green area : �30% (v) Land grant fee : RMB21,236,662

Pursuant to the supplementary contract Hu Fang Di (1999) Chu Rang He Tong Wai Zi No. 15 entered into between Shanghai Real Estate and Land Administration Bureau (Party A) and Shanghai Ruichen Properties Co., Limited (a joint venture formed between Selfers Limited and Shanghai Zhong Hong (Group) Company Limited ( ) dated 12 March 1999, the land grant fee as stated in the Land Grant Contract No. Hu Fang Di (1996) Chu Rang He Tong Wai Zi Di 7 has been changed from RMB21,236,662 to RMB1,998,254.
Pursuant to the supplementary contract Hu Fang Di (2002) Chu Rang He Tong (Hong) Bu Zi No. 7 entered into between Shanghai Hongkou District Real Estate and Land Administration Bureau (Party A) and Shanghai Rui Hong Xin Cheng Co., Limited (Party B) dated 13 June 2002, the purchaser in the contract stated in the Land Grant Contract No. Hu Fang Di (1996) Chu Rang He Tong Wai Zi Di 7 has been changed to Party B, and the site area has been changed from 340,418 sq m to 271,924 sq m.
Pursuant to the supplementary contract Hu Fang Di (2002) Chu Rang He Tong (Hong) Bu Zi No. 018 entered into between Shanghai Hongkou District Real Estate and Land Administration Bureau (Party A) and Shanghai Rui Hong Xin Cheng Co., Limited (Party B) dated 15 November 2002, the site area as stated in the contract Hu Fang Di (2002) Chu Rang He Tong (Hong) Bu Zi No. 7 has been changed from 271,924 sq m to 234,837 sq m and the site area of Site No. 8 has been changed to 5,800 sq m.
Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Hong Zi (2002) Di 011964 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 28 June 2002, the title to the land (Lot No. 4) with an area of approximately 18,617.00 sq m is vested in Shanghai Rui Hong Xin Cheng Co., Ltd for a term commencing from 13 June 2002 and expiring on 12 June 2072 for residential use.
Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Hong Zi (2002) Di 011967 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 28 June 2002, the title to the land (north of Lot No. 1) with an area of approximately 3,656.00 sq m is vested in Shanghai Rui Hong Xin Cheng Co., Ltd for a term commencing from 13 June 2002 and expiring on 12 June 2072 for residential use.
Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Hong Zi (2002) Di 011968 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 28 June 2002, the title to the land (south of Lot No. 1) with an area of approximately 11,549.00 sq m is vested in Shanghai Rui Hong Xin Cheng Co., Ltd for a term commencing from 13 June 2002 and expiring on 12 June 2072 for residential use.
Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Hong Zi (2002) Di 011966 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 28 June 2002, the title to the land (Lot No. 2) with an area of approximately 30,458.00 sq m is vested in Shanghai Rui Hong Xin Cheng Co., Ltd for a term commencing from 13 June 2002 and expiring on 12 June 2072 for residential use.

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VALUATION REPORT

APPENDIX V

Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Hong Zi (2002) Di 011965 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 28 June 2002, the title to the land (Lot No. 3) with an area of approximately 26,144.00 sq m is vested in Shanghai Rui Hong Xin Cheng Co., Ltd for a term commencing from 13 June 2002 and expiring on 12 June 2072 for residential use.
Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Hong Zi (2002) Di 011963 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 28 June 2002, the title to the land (Lot No. 6) with an area of approximately 42,658.00 sq m is vested in Shanghai Rui Hong Xin Cheng Co., Ltd for a term commencing from 13 June 2002 and expiring on 12 June 2072 for residential use.
Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Hong Zi (2002) Di 011962 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 28 June 2002, the title to the land (Lot No. 7) with an area of approximately 34,369.00 sq m is vested in Shanghai Rui Hong Xin Cheng Co., Ltd for a term commencing from 13 June 2002 and expiring on 12 June 2072 for residential use.
Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Hong Zi (2003) Di 005998 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 2 April 2003, the title to the land (Lot No. 8) with an area of approximately 5,800.00 sq m is vested in Shanghai Rui Hong Xin Cheng Co., Ltd for a term commencing from 13 June 2002 and expiring on 12 June 2072 for residential use.
Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Hong Zi (2002) Di 011960 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 28 June 2002, the title to the land (East of Lot No. 9) with an area of approximately 13,442.00 sq m is vested in Shanghai Rui Hong Xin Cheng Co., Ltd for a term commencing from 13 June 2002 and expiring on 12 June 2072 for residential use.
Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Hong Zi (2002) Di 011959 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 28 June 2002, the title to the land (West of Lot No. 9) with an area of approximately 8,819.00 sq m is vested in Shanghai Rui Hong Xin Cheng Co., Ltd for a term commencing from 13 June 2002 and expiring on 12 June 2072 for residential use.
Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Hong Zi (2002) Di 011958 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 28 June 2002, the title to the land (Lot No. 10) with an area of approximately 39,325.00 sq m is vested in Shanghai Rui Hong Xin Cheng Co., Ltd for a term commencing from 13 June 2002 and expiring on 12 June 2072 for residential use.
Pursuant to the Supplementary Contract for Grant of Land Use Right Hu Fang Di (2002) Chu Rang He Tong (Hong) Bu Zi Di 007 entered into between Shanghai Buildings and Land Resource Administration Bureau (Party A) and Shanghai Rui Hong Xin Cheng Company Limited ( ) (Party B) on 13 June 2002, the land use rights to the property with a site area of 271,924 sq m (2,926,990 sq ft) is held by Party B for a term of 70 years commencing from 13 June 2002.
Pursuant to the Supplementary Contract for Grant of Land Use Right Hu Fang Di (2002) Chu Rang He Tong (Hong) Bu Zi Di 018 entered into between Shanghai Buildings and Land Resource Administration Bureau (Party A) and Shanghai Rui Hong Xin Cheng Company Limited ( ) (Party B) on 15 November 2002, the site area of 271,924 sq m as stated in note 18 has been changed to 234,837 sq m and the site area of Lot No. 8 has been changed to 5,800 sq m.

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VALUATION REPORT

APPENDIX V

We have been provided with a legal opinion on the title to the property which issued by the Group’s PRC legal adviser, which contains, inter alia, the following information:

Land Use Rights over the Lots

(i) RHXC holds the development right of the Site Nos. 1, 2, 3, 4, 6, 7, 8, 9 and 10. According to Chinese Laws and Regulations, the RHXC has the right to transfer the development right in accordance with responding laws.
(ii) According to the supplementary contract for the contract Hu Fang Di (1996) Chu Rang He Tong Wai Zi No. 7 signed by the Shanghai Real Estate and Land Administrative Bureau and RHXC on 12 March 1999, and according to the land grant fee receipt issued by the Shanghai Real Estate and Land Administrative Bureau, the land grant fee agreed in the contract has been duly paid.
(iii) The Real Estate Ownership Certificates and other certificates provided by RHXC are true and such certificates are in full force and effect. RHXC holds proper titles to the Site Nos. 1, 2, 3, 4, 6, 7, 8, 9 and 10 and there is no mortgage on those Lots.
(iv) Meanwhile, according to the land grant contracts, RHXC can transfer, let or mortgage the Lots with the prerequisite that the RHXC conforms to the land grant contract’s clause.

Project Development and Demolition Issues

(i) The real estate developing projects of RHXC have obtained the relevant government permissions.
(ii) As of 15 March 1999, the land grant fees for Remaining Lots have been fully paid by Shanghai Ruichen Property Co., Ltd.
(iii) The deadline of construction is by 31 December 2011 (otherwise application for extension to be made 6 months in advance)
(iv) The deadline of construction for Lot No. 4 is 31 December 2011 (otherwise application for extension to be made 6 months in advance)

Ownership of the Buildings

(i) Real Estate Ownership Certificate Hu Fang Di Hong Zi (2002) No. 011968 dated 28 June 2002 issued by the Shanghai Real Estate and Land Resource Administrative Bureau for RHXC indicates that a building has been erected on the land, the ownership of which has been described as “Others”.
(ii) RHXC has title to the Buildings and the Lots, such title being properly constituted by and can be deducted from Real Estate Ownership Certificates issued in its favour and that such certificate is validly subsisting in full force and effect. RHXC with exceptions above lawfully has the right to sell the Buildings to domestic and foreign buyers, and no legal impediment exists that bars RHXC from selling the Buildings to domestic or foreign individuals or companies. Also, RHCX lawfully has the right to let or mortgage the building complying with Chinese Laws and Regulations.

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VALUATION REPORT

APPENDIX V

Taipingqiao Properties

Property interests held by the Group in the PRC

Description and Tenure

Property

3 Lot Nos. 109 and Shanghai Xin Tian Di is Phase I of the entire 112 Xintiandi Taipingqiao area redevelopment and is a mixedTaipingqiao Area use property development project located at the Lu Wan District city centre of Shanghai - the Taipingqiao area in Shanghai the Luwan district. It is only one block south of The PRC Huai Hai Road Central and its Metro station, as well as the intersection of Shanghai’s major urban freeways.

The property comprising of the whole Xin Tian Di is composed of 4 plots of land (namely Lot Nos. 109-1, 2 and Lot Nos. 112-1, 2). Xin Tian Di is developed as a low density commercial, residential, entertainment and cultural complex by refurbishment of existing Li ( ) Long ( ) buildings together with some low-rise modern buildings.

The property is developed in two phases and were completed in 2001 and May 2002, respectively providing the following approximate gross floor areas:

Lot No. 109-1

Lot No. 109-1
House No. 6 (Levels 1-2) 7 (Levels 1-2) 8 (Levels 1-2) 9 (Levels 1-2) 10 (Levels 1-2) 11 (Levels 1-2) 12 (Levels 1-2) 15 (Levels 1-3) 25 (Levels 1-2) 26 (Levels 1-2) Total	Gross Floor Area sq m sq ft 717.43 7,722 699.94 7,534 680.14 7,321 412.99 4,445 636.29 6,849 559.16 6,019 346.63 3,731 1,189.49 12,804 679.10 7,310 96.12 1,035 6,017.29 64,770
		64,770

Capital value in Particulars of existing state as at Occupancy 31 December 2003

RMB2,552,200,000

Lot No. 109

The property is being occupied as restaurants and shops. The property has been fully leased under various tenancies with the latest term expiring on 2009 yielding a total monthly base rental of US$355,878 exclusive of management fee.

(97% interest attributable to the Group: RMB2,475,634,000)

Lot No. 112

The property is operated as a modern

shopping mall comprising office, cinema, spa and fitness centre and leased under various tenancies with the latest term expiring on 2020 yielding a total monthly base rental of US$397,964 exclusive of management fee.

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VALUATION REPORT

APPENDIX V

Property

Description and Tenure

Particulars of Occupancy

Capital value in existing state as at 31 December 2003

Lot No. 109-2

House No.	Gross	Floor Area
	sq m	sq ft
1 (Clubhouse)	1,234.24	13,285
1 (remaining portion)	212.04	2,282
2, 3 & 5 (Levels 1-3)	1,390.60	14,968
16 (Levels 1-3)	1,311.01	14,112
17 (Levels 1-4)	1,805.29	19,432
18 (Levels 1-3)	732.67	7,886
19, 20, 21 (Level 1, 2)	1,146.75	12,344
22, 23 (Level 1-3)	1,694.05	18,235
27 (Levels B2-4)	3,683.45	39,649
28 (Level B1 - Roof)	3,862.49	41,576
Total	17,072.59	183,769
Lot No. 112-1
House No.	Gross	Floor Area
	sq m	sq ft
1 (commercial)	920	9,903
2-3 (commercial)	1,988.00	21,399
7 (commercial)	6,644	71,516
Sub-total	9,552	102,818

Lot No. 112-2

House No. 5 (commercial) 5 (service apartment) 6 (commercial) Sub-total Basement (car park) Sub-total Total	Gross Floor Area sq m sq ft 2,407.90 25,919 4,726.47 50,876 18,204 195,948 25,338.37 272,742 11,265 121,256 46,155.37 496,816	Gross Floor Area sq m sq ft 2,407.90 25,919 4,726.47 50,876 18,204 195,948 25,338.37 272,742 11,265 121,256 46,155.37 496,816
		272,742
		121,256 496,816

According to the information provided, the property is held under a land use right term of 50 years for composite uses and 70 years for residential uses.

Notes:

Lot 109

Pursuant to the Land Grant Contract No. Hu Fang Di (1998) Chu Rang He Tong Di 029 ( (1998) 029 ) entered into among Shanghai Real Estate and Land Administrative Bureau (“Party A”), Century Team Limited

( ) (the “Foreign Party A”), and Shanghai Fuxing Construction and Development Company

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VALUATION REPORT

APPENDIX V

( ) (“Party C”, together with Foreign Party A, referred to as the “Joint Venture A”) on 12 June 1998 (the “Contract for Grant of Land Use Right to Lot 109(I)”), the Joint Venture A has been granted the land use rights of a tract of land known as Lot 109(I), Lu Wan District comprising a site area of 5,886 sq m. The Contract for Grant of Land use Right to Lot 109(I) contains, inter alia, the following salient conditions:

(i)	Use	:	Composite uses including cultural, commercial, residential and
			office purposes
(ii)	Land use right term	:	50 years
(iii)	Plot Ratio	:	�1.3
(iv)	Total gross floor area	:	�7,651.80 sq m
(v)	Green area	:	�3,700 sq m for Lot nos 109(I) & 109(II)
(vi)	Permitted building height	:	�12 m abutting Xing Ye Road and Huangpinan Road
(vii)	Building Covenant	:	The proposed development must be completed on or before 30 June
			2003
(viii)	Land Use Premium	:	US$474,412
(ix)	Land Use Rent	:	RMB1 per sq m per annum

Pursuant to the Land Grant Contract No. Hu Fang Di (1998) Chu Rang He Tong Di 030 ( (1998) 030 ) entered into among Party A, Princemax Limited ( ) (“Foreign Party B”) and Party C (together with Foreign Party B referred to as the “Joint Venture B”) on 12 June 1998 (the “Contract for Grant of Land Use Right to Lot 109(II)”), the Joint Venture B has been granted the land use rights of a tract of land known as Lot 109(II), Lu Wan District comprising a site area of 8,558 sq m. The Contract for Grant of Land use Right to Lot 109(II) contains, inter alia, the following salient conditions:

(i)	Use	:	Composite uses including cultural, commercial, residential and
			office purposes
(ii)	Land use term	:	50 years
(iii)	Plot Ratio	:	�1.6
(iv)	Total gross floor area	:	�13,692.80 sq m
(v)	Green area	:	�3,700 sq m for Lot nos 109(I) & 109(II)
(vi)	Permitted building height	:	�12 m abutting Huangpinan Road
(vii)	Building Covenant	:	The proposed development must be completed on or before 31
			December 2002
(viii)	Land Use Premium	:	US$848,954
(ix)	Land Use Rent	:	RMB1 per sq m per annum

Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Shi Zi (1999) Di 100084 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 31 May 1999, the title to the land located at Lot 109-1 with an area of approximately 5,886.00 sq m is vested in Shanghai Ji Xing Properties Co.,Ltd. for a term commencing from 19 August 1998 and expiring on 18 August 2048 for composite use.
Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Shi Zi (1999) Di 100083 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 31 May 1999, the title to the land located at Lot 109-2 with an area of approximately 8,558.00 sq m is vested in Shanghai Bai Xing Properties Co., Ltd. for a term commencing from 19 August 1998 and expiring on 18 August 2048 for composite use.
Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Shi Zi (2001) Di 010756 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 31 December 2001, the title to the land located at Lot 109-1 Tai Cang Road No. 9-12 and 25 with a common area of approximately 5,886.00 sq m is vested in Shanghai Ji Xing Properties Co., Ltd. for a term commencing from 19 August 1998 and expiring on 18 August 2048 for composite use.

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VALUATION REPORT

APPENDIX V

Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Shi Zi (2001) Di 010758 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 31 December 2001, the title to the land located at Lot 109-1 Tai Cang Road No. 6-8 with a common area of approximately 5,886.00 sq m is vested in Shanghai Ji Xing Properties Co., Ltd. for a term commencing from 19 August 1998 and expiring on 18 August 2048 for composite use.
Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Shi Zi (2001) Di 010757 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 31 December 2001, the title to the land located at Lot 109-1 Tai Cang Road No. 15 and 26 with common area of approximately 5,886.00 sq m is vested in Shanghai Ji Xing Properties Co., Ltd. for a term commencing from 19 August 1998 and expiring on 18 August 2048 for composite use.
Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Shi Zi (2001) Di 010759 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 31 December 2001, the title to the land located at Lot 109-2 Tai Cang Road No. 19-23 with common area of approximately 8,558.00 sq m is vested in Shanghai Bai Xing Properties Co., Ltd. for a term commencing from 19 August 1998 and expiring on 18 August 2048 for composite use.
Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Shi Zi (2001) Di 010756 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 31 December 2001, the title to the land located at Lot 109-2 Tai Cang Road No. 2, 3, 5, 16, 18 with common area of approximately 8,558.00 sq m is vested in Shanghai Bai Xing Properties Co., Ltd. for a term commencing from 19 August 1998 and expiring on 18 August 2048 for composite use.
Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Shi Zi (2001) Di 010761 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 31 December 2001, the title to the land located at Lot 109-2 Tai Cang Road No. 1, 17 with common area of approximately 8,558.00 sq m is vested in Shanghai Bai Xing Properties Co., Ltd. for a term commencing from 19 August 1998 and expiring on 18 August 2048 for composite use.
Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Shi Zi (2002) Di 003005 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 1 April 2002, the title to the land located at Lot 109-2 Tai Cang Road No. 27, 28 with common area of approximately 8,558.00 sq m is vested in Shanghai Bai Xing Properties Co., Ltd. for a term commencing from 19 August 1998 and expiring on 18 August 2048 for composite use.
Pursuant to the co-operative Joint Venture Contract entered into between Shanghai Fuxing Construction and Development Company ( ) (the “PRC Party”) and Century Team Limited ( ) (Party B) dated 1 December 1998 (the “Joint Venture Contract”), both parties agreed to established a co-operative joint-venture company. The salient conditions as stipulated in the Joint Venture Contract are, inter alia, cited as follows:
(i) Name of joint-venture company : Shanghai Ji Xing Properties Co., Ltd. (“Ji-Xing”) ( )
(ii) Period of operation : 50 years from the date of issuance of business licence (iii) Total investment amount : RMB159,000,000 (iv) Registered capital : RMB63,600,000

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VALUATION REPORT

APPENDIX V

Pursuant to the Article of Association of Shanghai Ji Xing Properties Co., Ltd. entered into between Shanghai Fuxing Construction and Development Company Limited ( ) (Party A) and Century Team Limited ( ) (Party B) dated 1 December 2001, Shanghai Ji Xing Properties Co.,Ltd. is established. The Article of Association contains, inter alia, the following salient conditions:
(i) Name of joint-venture company : Shanghai Ji Xing Properties Co., Ltd. ( ) (ii) Period of operation : 50 years from the date of issuance of business licence (iii) Total investment amount : RMB159,000,000 (iv) Registered capital : RMB63,600,000
Pursuant to the Business Licence No. Qi He Hu Zong Zi Di 025754 Hao dated 16 January 2004, Shanghai Ji Xing Properties Co., Ltd. was incorporated with a registered capital of RMB716,000,000 for a valid period from 2 February 1999 to 30 June 2004 and the scope of business is to engage in planning, restructure, development, construction, sale and lease of various overseas transferable property and ancillary facilities (for entertainment, commercial, residential, office and travel use) within the granted land at the old city; to provide property consulting and management services; and to operate Chinese and western style restaurant (including sale of tobacco and alcohol), fast food restaurant, music bar, music tea house, cafe, gym, swimming pool, squash court, snooker room, parking place, exhibition facilities, beauty and hair-dressing parlor, wedding photography studio, Karaoke, entertainment hall, outdoor performance, game center, business center, and sale center (souvenir) (separate licenses shall be obtained if required).
Pursuant to the co-operative Joint Venture Contract entered into between Shanghai Fuxing Construction and Development Company ( ) (the “PRC Party”) and Princemax Limited ( ) (Party B) dated 1 December 1998 (the “Joint Venture Contract”), both parties agreed to established a co-operative joint-venture company. The salient conditions as stipulated in the Joint Venture Contract are, inter alia, cited as follows:
(i) Name of joint-venture company : Shanghai Bai Xing Properties Co.,Ltd. (“Bai-Xing”) ( )
(ii) Period of operation : 50 years from the date of issuance of business licence (iii) Total investment amount : RMB290,000,000 (iv) Registered Capital : RMB99,340,000
Pursuant to the Article of Association of Shanghai Bai Xing Properties Co.,Ltd. entered into between Shanghai Fuxing Construction and Development Company Limited ( ) (Party A) and Princemax Limited ( ) (Party B) dated 1 December 2001, Shanghai Bai Xing Properties Co., Ltd. is established. The Article of Association contains, inter alia, the following salient conditions:
(i) Name of joint-venture company : Shanghai Bai Xing Properties Co., Ltd. ( ) (ii) Period of operation : 50 years from the date of issuance of business licence (iii) Total investment amount : RMB290,000,000 (iv) Registered Capital : RMB99,340,000
Pursuant to the Business Licence No. Qi He Hu Zong Zi Di 025753 Hao dated 18 December 2002, Shanghai Bai Xing Properties Co., Ltd. was incorporated with a registered capital of RMB151,300,000 for a valid period from 2 February 1999 to 28 February 2005 and the scope of business is to to engage in planning, restructure, development, construction, sale and lease of various overseas transferable property and ancillary facilities (for entertainment, commercial, residential, office and travel use) within the granted land at the old city; to provide property consulting and management services; and to operate Chinese and western style restaurant (including sale of tobacco and alcohol), fast food restaurant, music bar, music tea house, cafe, gym, swimming pool, squash court, snooker room, parking place, exhibition facilities, beauty and hair-dressing parlor, wedding photography studio, Karaoke, entertainment hall, outdoor performance, game center, business center, and sale center (souvenir) (separate licenses shall be obtained if required).

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VALUATION REPORT

APPENDIX V

Lot 112

Pursuant to the Land Grant Contract No. Hu Fang Di (1998) Chu Rang He Tong Di 031 ( (1998) 031 ) entered into among Party A, Focus Top Limited ( ) (the “Foreign Party C”), and Party C

(together with Foreign Party C referred to as the “Joint Venture C”) on 12 June 1998 (the “Contract for Grant of Land Use Right to Lot 112(I)”), the Joint Venture C has been granted the land use rights of a tract of land known as Lot 112(I), Lu Wan District comprising a site area of 6,559 sq m. The Contract for Grant of Land use Right to Lot 112(I) contains, inter alia, the following salient conditions:

(i)	Use	:	Composite uses including cultural, commercial, residential and
			office purposes
(ii)	Land use term	:	50 years
(iii)	Plot Ratio	:	�1.5
(iv)	Total gross floor area	:	�9,838.50 sq m
(v)	Green area	:	�2,500 sq m for Lot nos 112(I) & 112(II)
(vi)	Permitted building height	:	�12 m abutting Xing Ye Road and Huangpinan Road
(vii)	Building Covenant	:	The proposed development must be completed on or before 30 June
			2002
(viii)	Land Use Premium	:	US$609,987
(ix)	Land Use Rent	:	RMB1 per sq m per annum

Pursuant to the Land Grant Contract No. Hu Fang Di (1998) Chu Rang He Tong Di 032 ( (1998) 032 ) entered into among Party A, Kinmax Limited ( ) (the “Foreign Party D”), and Party

C (together with Foreign Party D referred to as the “Joint Venture D”) on 12 June 1998 (the “Contract for Grant of Land Use Right to Lot 112 (II)”), the Joint Venture D has been granted the land use rights of a tract of land known as Lot 112 (II), Lu Wan District comprising a site area of 8,703 sq m. The Contract for Grant of Land use Right to Lot 112 (II) contains, inter alia, the following salient conditions:

(i)	Use	:	Composite uses including cultural, commercial, residential and
			office purposes
(ii)	Land use term	:	50 years
(iii)	Plot Ratio	:	�2.8
(iv)	Total gross floor area	:	�24,368.40 sq m
(v)	Green area	:	�2,500 sq m for Lot Nos. 112(I) & 112(II)
(vi)	Permitted building height	:	�12 m abutting Huangpinan Road
(vii)	Building Covenant	:	The proposed development must be completed on or before 31
			December 2003
(viii)	Land Use Premium	:	US$1,510,841
(ix)	Land Use Rent	:	RMB1 per sq m per annum

Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Shi Zi (1999) Di 100086 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 31 May 1999, the title to the land located at Lot 112-1 with an area of approximately 6,559.00 sq m is vested in Shanghai Fu De Properties Co., Ltd. for a term commencing from 19 August 1998 and expiring on 18 August 2048 for composite use.
Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Shi Zi (1999) Di 100085 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 31 May 1999, the title to the land located at Lot 112-2 with an area of approximately 8,703.00 sq m is vested in Shanghai Xing Qi Properties Co., Ltd. for a term commencing from 19 August 1998 and expiring on 18 August 2048 for composite use.
Pursuant to the Shanghai Real Estate Title Ownership Certificate Hu Fang Di Shi Zi (2001) Di 003633 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 23 May 2001, the title to the land located at Lot 112 Phase I of Luwan District with an area of approximately 6,559 sq m is vested in Shanghai Fu De Properties Co., Ltd for a term commencing from 19 August 1998 and expiring on 18 August 2038 for composite use.

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APPENDIX V

Pursuant to the Shanghai Real Estate Title Ownership Certificate Hu Fang Di Shi Zi (2001) Di 003634 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 23 May 2001, the title to the land located at Lot 112 Phase II of Luwan District with an area of approximately 8,703 sq m is vested in Shanghai Xing Qi Properties Co., Ltd for a term commencing from 19 August 1998 and expiring on 18 August 2038 for composite use.
Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Shi Zi (2002) Di 012063 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 28 November 2002, the title to the land located at Lot 112-1 Xingye Road 123 Long No. 1-3 with common area of approximately 6,559.00 sq m is vested in Shanghai Xintiandi Plaza Co., Ltd for a term commencing from 19 August 1998 and expiring on 18 August 2048 for composite use.
Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Shi Zi (2002) Di 012451 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 26 December 2002, the title to the land located at Lot 112-1 Xingye Road 123 Long No. 7 with common area of approximately 6,559.00 sq m is vested in Shanghai Xintiandi Plaza Co., Ltd for a term commencing from 19 August 1998 and expiring on 18 August 2048 for composite use.
Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Shi Zi (2002) Di 012370 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 5 December 2002, the title to the land located at Lot 112 Xingye Road 123 Long No. 6 with common area of approximately 8,703.00 sq m is vested in Shanghai Xing Qi Properties Co., Ltd for a term commencing from 19 August 1998 and expiring on 18 August 2048 for composite use.

27.
28.
29.

Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Shi Zi (2002) Di 012371Hao issued by
Shanghai Real Estate and Land Resources Administration Bureau dated 5 December 2002, the title to the land
located at Lot 112 Xingye Road 123 Long No. 5 with common area of approximately 8,703.00 sq m is vested in
Shanghai Xing Qi Properties Co., Ltd for a term commencing from 19 August 1998 and expiring on 18 August
2048 for composite use.
Pursuant to the co-operative Joint Venture Contract entered into between Shanghai Fuxing Construction and
Development Company (
) (the “PRC Party”) and (Kinmax Limited)
(Party B)
dated 1 December 1998 (the “Joint Venture Contract”), both parties agreed to established a co-operative
joint-venture company. The salient conditions as stipulated in the Joint Venture Contract are, inter alia, cited as
follows:
(i)
Name of joint-venture company
:
Shanghai Xing Qi Properties Co., Ltd. (“Xing-Qi”)
(
)
(ii)
Period of operation
:
50 years from the date of issuance of business licence
(iii)
Total investment amount
:
RMB290,000,000
(iv)
Registered capital
:
RMB99,340,000
Pursuant to the Article of Association of Shanghai Xing Qi Properties Co., Ltd. entered into between Shanghai
Fuxing Construction and Development Company Limited (
) (Party A) and (Kinmax Limited)
(Party B) dated 1 December 2001, Shanghai Xing Qi Properties Co., Ltd. is established. The Article
of Association contains, inter alia, the following salient conditions:
(i)
Name of joint-venture company
:
Shanghai Xing Qi Properties Co., Ltd. (
)
(ii)
Period of operation
:
50 years from the date of issuance of business licence
(iii)
Total investment amount
:
RMB290,000,000
(iv)
Registered capital
:
RMB99,340,000

Pursuant to the Business Licence No. Qi He Hu Zong Zi Di 025750 Hao dated 18 December 2003, Shanghai Xing Qi Properties Co., Ltd. was incorporated with a registered capital of RMB2,749,000,000 for a valid period from 2 February 1999 to 28 February 2005 and the scope of business is to engage in planning, restructure, development, construction, sale and lease of various overseas transferable property and ancillary facilities (for entertainment,

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APPENDIX V

commercial, residential, office and travel use) within the granted land at the old city; to provide property consulting and management services; and to operate Chinese and western style restaurant (including sale of tobacco and alcohol), fast food restaurant, music bar, music tea house, cafe, gym, swimming pool, squash court, snooker room, parking place, exhibition facilities, beauty and hair-dressing parlor, wedding photography studio, Karaoke, entertainment hall, outdoor performance, game center, theater and sale apartment (separate licenses shall be obtained if required).

Pursuant to the co-operative Joint Venture Contract entered into between Shanghai Fuxing Construction and Development Company ( ) (the “PRC Party”) and Focus Top Limited ( ) (Party B) dated 1 December 1998 (the “Joint Venture Contract”), both parties agreed to established a co-operative joint-venture company. The salient conditions as stipulated in the Joint Venture Contract are, inter alia, cited as follows:

	(i)	Name of joint-venture company :	Shanghai Fu De Properties Co., Ltd. ( )
	(ii)	Period of operation :	50 years from the date of issuance of business licence
	(iii)	Total investment amount :	RMB159,000,000
	(iv)	Registered capital :	RMB63,600,000
32.	Pursuant to the Article of Association of Shanghai Fu De Properties Co., Ltd. entered into between Shanghai Fuxing Construction and Development Company Limited ( ) (Party A) and Focus Top Limited ( ) (Party B) dated 1 December 2001, Shanghai Fu De Properties Co., Ltd. is established.
	The (i)	Article of Association contains, inter alia, the following salient conditions: Name of joint-venture company : Shanghai Fu De Properties Co., Ltd. ( )
	(ii)	Period of operation :	50 years from the date of issuance of business licence
	(iii)	Total investment amount :	RMB159,000,000
	(iv)	Registered capital :	RMB63,600,000

Pursuant to a document issued by Shanghai Foreign Investment Working Committee dated 16 July 2001, Shanghai Fu De Properties Co., Ltd. ( ) is allowed to change the name to Shanghai Xintiandi Plaza Co., Ltd. (hereinafter referred to as “Xintiandi”).
Pursuant to the Business Licence No. Qi He Hu Zong Zi Di 025752 Hao dated 18 December 2003, Xintiandi was incorporated with a registered capital of RMB101,300,000 for a valid period from 2 February 1999 to 28 February 2005 and the scope of business is to to engage in planning, restructure, development, construction, sale and lease of various overseas transferable property and ancillary facilities (for entertainment, commercial, residential, office and travel use) within the granted land at the old city; to provide property consulting and management services; and to operate Chinese and western style restaurant (including sale of tobacco and alcohol), fast food restaurant, music bar, music tea house, cafe, gym, swimming pool, squash court, snooker room, parking place, exhibition facilities, beauty and hair-dressing parlor, wedding photography studio, Karaoke, entertainment hall, outdoor performance, game center, sale apartment (separate licenses shall be obtained if required).
Pursuant to the Other Party’s Certificate Lu Fang Di Shi Ta Zi (2001) Di 006331dated 31 December 2001, the building erected on Lot No. 109-1 No. 9-12 and 25 with a gross floor area of approximately 2,634.12 sq m is subject to a mortgage in favour of The Hongkong and Shanghai Banking Corporation commencing from the registration date and expiring on 31 December 2008.
Pursuant to the Other Party’s Certificate Lu Fang Di Shi Ta Zi (2001) Di 006332 dated 31 December 2001, the buildings erected on Lot No. 109-1 No. 15, 26 with a gross floor area of approximately 1,285.61 sq m is subject to a mortgage in favour of The Hongkong and Shanghai Banking Corporation commencing from the registration date and expiring on 31 December 2008.
Pursuant to the Other Party’s Certificate Lu Fang Di Shi Ta Zi (2001) Di 006333 dated 31 December 2001, the building erected on Lot No. 109-1 No. 6-8 with a gross floor area of approximately 2,097.51 sq m is subject to a mortgage in favour of The Hongkong and Shanghai Banking Corporation commencing from the registration date and expiring on 31 December 2008.

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APPENDIX V

Pursuant to the Other Party’s Certificate Lu Fang Di Shi Ta Zi (2001) Di 006334 dated 31 December 2001, the building erected on Lot No. 109-2 No. 19-23 with a gross floor area of approximately 2,840.80 sq m is subject to a mortgage in favour of The Hongkong and Shanghai Banking Corporation commencing from the registration date and expiring on 31 December 2008.
Pursuant to the Other Party’s Certificate Lu Fang Di Shi Ta Zi (2001) Di 006335 dated 31 December 2001, the building erected on Lot No. 109-2 No. 2,3,5,16,18 with a gross floor area of approximately 3,434.28 sq m is subject to a mortgage in favour of The Hongkong and Shanghai Banking Corporation commencing from the registration date and expiring on 31 December 2008.
Pursuant to the Other Party’s Certificate Lu Fang Di Shi Ta Zi (2001) Di 006336 dated 31 December 2001, the building erected on Lot No. 109-2 No. 1, 17 with a gross floor area of approximately 3,316.59 sq m is subject to a mortgage in favour of The Hongkong and Shanghai Banking Corporation commencing from the registration date and expiring on 31 December 2008.
Pursuant to the Other Party’s Certificate Lu Fang Di Shi Ta Zi (2001) Di 001862 dated 18 February 2003, the building erected on Lot No. 109-2 No. 6-12, 15, 25, 26 with a gross floor area of approximately 6,017.24 sq m is subject to a mortgage in favour of The Hongkong and Shanghai Banking Corporation commencing from 10 December 2002 and expiring on 30 September 2009.
Pursuant to the Other Party’s Certificate Lu Fang Di Shi Ta Zi (2002) Di 001718 dated 1 April 2002, the building erected on Lot No. 109-2 No. 27, 28 with a gross floor area of approximately 7,545.94 sq m is subject to a mortgage in favour of The Hongkong and Shanghai Banking Corporation commencing from 25 March 2002 and expiring on 31 December 2008.
Pursuant to the Other Party’s Certificate Lu Fang Di Shi Ta Zi (2003) Di 001865 dated 18 February 2003, the building erected on Lot No. 109-2 No. 1-3, 5, 16-23, 27, 28 with a gross floor area of approximately 17,137.61 sq m is subject to a mortgage in favour of The Hongkong and Shanghai Banking Corporation commencing from 10 December 2002 and expiring on 30 September 2009.
Pursuant to the Other Party’s Certificate Lu Fang Di Shi Ta Zi (2003) Di 008304 dated 28 November 2002, the building erected on Lot No. 112 Xingye Road 123 Long No. 1-3 with a gross floor area of approximately 2,907.58 sq m is subject to a mortgage in favour of The Hongkong and Shanghai Banking Corporation commencing from 19 July 2002 and expiring on 31 December 2008.
Pursuant to the Other Party’s Certificate Lu Fang Di Shi Ta Zi (2002) Di 008603 dated 6 December 2002, the building erected on Lot No. 112 Xingye Road 123 Long No. 7 with a gross floor area of approximately 6,643.58 sq m is subject to a mortgage in favour of The Hongkong and Shanghai Banking Corporation commencing from 19 July 2002 and expiring on 31 December 2008.
Pursuant to the Other Party’s Certificate Lu Fang Di Shi Ta Zi (2003) Di 001863 dated 28 February 2003, the building erected on Lot No. 112 Xingye Road 123 Long No. 1-3, 7 with a gross floor area of approximately 13,678.74 sq m is subject to a mortgage in favour of The Hongkong and Shanghai Banking Corporation commencing from 10 December 2002 and expiring on 30 September 2009.
Pursuant to the Other Party’s Certificate Lu Fang Di Shi Ta Zi (2002) Di 008562 dated 5 December 2002, the building erected on Lot No. 112 Xingye Road 123 Long No. 6 with a gross floor area of approximately 24,926 sq m is subject to a mortgage in favour of The Hongkong and Shanghai Banking Corporation commencing from 27 November 2002 and expiring on 31 December 2008.
Pursuant to the Other Party’s Certificate Lu Fang Di Shi Ta Zi (2003) Di 008563 dated 5 December 2002, the building erected on Lot No. 112 Xingye Road 123 Long No. 5 with a gross floor area of approximately 7,134.39 sq m is subject to a mortgage in favour of The Hongkong and Shanghai Banking Corporation commencing from 27 November 2002 and expiring on 31 December 2008.

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APPENDIX V

Pursuant to the Other Party’s Certificate Lu Fang Di Shi Ta Zi (2003) Di 001864 dated 18 February 2003, the building erected on Lot No. 112 Xingye Road 123 Long No. 5, 6 with a gross floor area of approximately 32,060.39 sq m is subject to a mortgage in favour of The Hongkong and Shanghai Banking Corporation commencing from 10 December 2002 and expiring on 30 September 2009.
We have been provided with a legal opinion on the title to the property which issued by the Group’s PRC legal adviser, which contains, inter alia, the following information:

Land Use Rights over the Lots

(i) Ji-Xing, Bai-Xing, Xintiandi and Xing-Qi have acquired the rights to develop the Lots (i.e. Lot No. 109-1, 109-2, 112-1, 112-2 from the Master Agreement (Each of the FIEs, Shanghai Ji-Xing Properties Co., Ltd. ( ) (“Ji-Xing”), Shanghai Bai-Xing Properties Co., Ltd. ( ) (“Bai-Xing”), Shanghai Xintiandi Plaza Co. Ltd. ( ) (“Xintiandi”), Shanghai Xing-Qi Properties Co., Ltd. ( ) (“Xing-Qi”), Shanghai Xing Bang Property Co., Ltd. ( ) (“Xing-Bang”), Shanghai Fu Xiang Property Co., Ltd ( ) (“Fu-Xiang”), Shanghai Jing Fu Property Co., Ltd. ( ) (“Jing-Fu”), Shanghai Lakeville Property Co., Ltd. ( ) (“Lakeville”), Shanghai Fu Ji Property Co., Ltd., ( ) (“Fu-Ji”), Shanghai Xing Qiao Property Co., Ltd. ( ) (“Xing-Qiao”), Shanghai Le Fu Property Co., Ltd. ( ) (“Le-Fu”) (herein after collectively referred to as “FIEs”) and Tai Ping Qiao Property Management has been formed pursuant to the Letter of Intent of 18 May 1996, the Agreement of 31 December 1996, and the Memorandum of 15 January 1997 and a set of implementing rules for the development and construction of the Taipingqiao Area dated 1 March 1997 executed between Shui On Properties Limited and the Luwan District Government, Shanghai, defined as “Master Agreement”), pursuant to which the Shui On Properties Limited and its affiliates (collectively, “Shui On”) have been granted the right to develop the entire Taipingqiao Area in conjunction with the Luwan District People’s Government in accordance with the terms of the Master Agreement. The Master Agreement sets out the implementation of the redevelopment of the Taipingqiao area, including the establishment of Sino-foreign jointventure companies by Shui On and PRC companies designated by Luwan District People’s Government to develop individual lots in the Taipingqiao area.
(ii) According to the land grant contracts and agreements provided, each of Ji-Xing, Bai-Xing, Xintiandi and Xing-Qi has entered into a land grant contract with the Shanghai Real Estate and Land Administrative Bureau concerning its corresponding Lot. The Bureau has the proper authority to grant the land use rights to each of the Lots, and the land grant contracts are legally valid and enforceable.
(iii) Shui On has the land use rights protected by the PRC laws for the lots of No. 109-1, 109-2, 112-1 and 112-2.
(iv) The Master Agreement is in compliance with the PRC laws then prevailing at the time of contract. However, due to changes to PRC laws effected after the date of the Master Agreement, the land grant fee specified in the Master Agreement may not be fully binding and enforceable.
(v) According to the land grant contracts signed by the Shanghai Real Estate and Land Administrative Bureau and Ji-Xing, Bai-Xing, Xintiandi and Xing-Qi and the land grant fee receipt issued by the Shanghai Real Estate and Land Administrative Bureau, they are of the opinion that Ji-Xing, Bai-Xing, Xintiandi and Xing-Qi has duly paid the corresponding land grant fee for each lot. According to the documents issued by government, they are of the opinion that Ji-Xing, Bai-Xing, Xintiandi and Xing-Qi hold the development right of the Lots. According to Chinese Laws and Regulations, Ji-Xing, Bai-Xing, Xintiandi and Xing-Qi have the right to transfer the development right in accordance with responding laws.
(vi) Information contained in the Real Estate Ownership Certificates and other certificates provided are true and lawful, validly subsisting in full force and effect. Ji-Xing, Bai-Xing, Xintiandi and Xing-Qi hold a proper title to these lots described in the Certificates and can freely transfer, let or mortgage the lots in accordance with corresponding laws and regulations. Meanwhile, based on all these certificates, there are mortgages on some real estates.

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APPENDIX V

(vii) According to the land grant contracts, Ji-Xing, Bai-Xing, Xintiandi and Xing-Qi can transfer or mortgage the Lots with the prerequisite requirements that Ji-Xing, Bai-Xing, Xintiandi and Xing-Qi conform to the land grant contract’s clause.
(viii) Land use rights of the properties without title certificates to the opinion could not be freely transferred, let or mortgaged in the market until the land use right certificates are issued and the developments of these lands comply with the responding laws.

Project Development and Demolition Issues

(i) The real estate developing projects of Ji-Xing, Bai-Xing, Xintiandi and Xing-Qi have obtained the relevant government permissions.
(ii) Government and has the right to sell in advance the Building 1-3 Building 7 on Lot 112; the Building 24a, 24b, 26a-d, 27-29, 39, 43, 49 on Lot 109(I); the Building 3-5, 9, 17, 13, 15-16, 18, 22, 23, 32, 35, 35a and 47 on Lot 109(II); the Building 5-6 on Lot 112(II).

Ownership of the Buildings

(i) Ji-Xing, Bai-Xing, Xintiandi and Xing-Qi lawfully possess the property rights over the respective Lots and Buildings.
(ii) The Shanghai Real Estate Ownership Certificates issued by the Shanghai Real Estate and Land Resource Administration Bureau in relation to buildings supposedly owned by Ji Xing, Bai Xing, Xintiandi and Xing Qi, the ownership nature of the buildings was described as “Others”, and the land was described as “jointly used”.
(iii) Ji-Xing, Bai-Xing, Xintiandi and Xing-Qi has title to the Buildings constructed, such title being properly constituted by and can be deducted from Real Estate Ownership Certificates issued in its favor and that such certificate is validly subsisting in full force and effect. Ji-Xing, Bai-Xing, Xintiandi and Xing-Qi has the lawful right to sell the Buildings to domestic and foreign buyers, and no legal impediment exists that bars Ji-Xing, Bai-Xing, Xintiandi and Xing-Qi from selling the Buildings to domestic or foreign individuals or companies. Also, Ji-Xing, Bai-Xing, Xintiandi and Xing-Qi lawfully have the right to mortgage or let the buildings complying with Chinese Laws and Regulations.

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APPENDIX V

Property

4 Unsold portion of Lakeville Lot No. 117 Taipingqiao Area Lu Wan District Shanghai The PRC

Description and Tenure

The subject development is part of the Shanghai Lu Wan Taipingqiao Development Project located at the centre of the development zone with a site area of approximately 16,937 sq m known as the “Lakeville”.

The development is bounded on the north by Zhi Zhong Road, on the west by Shun Chang Road, on the south by Fu Xing Central Road and on the east by Ji Nan Road within the Taipingqiao District.

Capital value in existing state as at 31 December 2003

Particulars of Occupancy

RMB76,000,000

As at the date of RMB76,000,000 valuation, construction of the property has been (69.3% interest fully completed and attributable according to the to the Group: information provided, the RMB52,668,000) property has been completely sold except 4 townhouses and 87 car parking spaces.

Lakeville is a large-scale residential development, comprising one detached villa, six townhouse duplexes and five residential buildings ranging from 8 to 23-storey.

The property comprises the following unsold portion of Lakeville:

Four Town House Duplexes 87 carparks Total:	Floor Area sq m sq ft 1,716 18,471 3,480 37,456 5,196 55,927	Floor Area sq m sq ft 1,716 18,471 3,480 37,456 5,196 55,927
		55,927

According to the information provided with us, the property is held for a land use right term of 50 years for commercial/office uses and 70 years for residential uses.

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APPENDIX V

Notes:

Pursuant to the Land Grant Contract Hu Fang Di Zi (2001) Chu Rang He Tong Wai Zi Di 3 Hao entered into among Shanghai Real Estate and Land Resources Administration Bureau (“Party A”), Cititop Pacific Limited ( ) (“Party B”), and Shanghai Fuxing Construction and Development Company Limited ( ) (“Party C”) on 28 February 2001 (the “Contract for Grant of Land Use Right to Lot No. 117”), Party B and C have been granted the land use right of a tract of land known as Lot No. 117, Lu Wan District comprising a site area of 16,937 sq m. The Contract for Grant of Land Use Right to Lot No. 117 contains, inter alia, the following salient conditions:

(i) Use : Residential use (ii) Land use term : 70 years (iii) Plot ratio : 2.7 (iv) Total gross floor area : 45,730 sq m (v) Permitted building height : 78 m (vi) Building convenient : The proposed development must be completed on or before 31 December 2005 (vii) Land use premium : RMB12,279,325

Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Shi Zi (2001) Di 006891 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 14 September 2001, the title to the land with an area of approximately 16,937.00 sq m is vested in Shanghai Si Fu Properties Co Ltd for a term commencing from 7 May 2001 and expiring on 6 May 2071 for residential use.
Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Lu Zi (2003) Di 004955 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 24 July 2003, the title to the land with an area of approximately 16,937.00 sq m is vested in Shanghai Lakeville Properties Co., Ltd for a term commencing from 7 May 2001 and expiring on 6 May 2071 for residential use.
Pursuant to the Other Party’s Certificate Hu Fang Di Shi Ta Zi (2002) No. 005798 dated 28 August 2002, the land with an area of approximately 16,937.00 sq m is under a mortgage in favour of Bank of China (Hong Kong Limited), Shanghai Branch for a term commencing from 19 June 2002 and expiring on 18 June 2005.
Pursuant to a copy of the Business Licence No. Qi He Hu Zong Zi Di 028669 Hao (Shi Ju) ( 028669 ( )) dated 28 September 2002, the Joint Venture was incorporated with a registered capital of

RMB165,000,000 for a valid period from 23 May 2001 to 22 May 2071. The scope of business for the joint venture includes construction, development and operation of real estate; leasing and sales of real estate; provision of amenities, commercial and entertainment facilities in association with real estate development; and property management.

Pursuant to the Equity Joint Venture Contract dated 6 April 2001 entered into between Cititop Pacific Limited ( ) and Shanghai Fuxing Construction and Development Company Limited ( ), the parties agreed to establish an equity joint-venture company to jointly develop Lot No. 117 Lu Wan District. The salient conditions as stipulated in the joint venture contract are, inter alia, cited as follows:
(i) Name of joint-venture company : Shanghai Si Fu Properties Co Ltd ( ) (ii) Period of operation : 70 years (iii) Total investment amount : RMB495,000,000 (iv) Registered capital : RMB165,000,000

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APPENDIX V

VALUATION REPORT

Pursuant to the Article of Association of Shanghai Si Fu Properties Co Ltd entered into between Shanghai Fuxing Construction and Development Company Limited ( ) (Party A) and Cititop Pacific Limited ( ) (Party B) dated 1 April 2001, Shanghai Si Fu Properties Co Ltd is established. The Article of Association contains, inter alia, the following salient conditions:
(i) Name of joint-venture company : Shanghai Si Fu Properties Co Ltd ( ) (ii) Period of operation : 70 years from the date of issuance of business licence (iii) Total investment amount : RMB495,000,000 (iv) Registered capital : RMB165,000,000
Pursuant to a document issued by Shanghai Foreign Investment Working Committee dated 10 September 2002, name of Shanghai Si Fu Properties Co Ltd ( ) was allowed to change to Shanghai Lakeville Properties Co., Ltd. (“Lakeville”).
We have been provided with a legal opinion on the title to the property which issued by the Group’s PRC legal adviser, which contains, inter alia, the following information:

Land Use Rights over the Lots

(i) The Lakeville have acquired the rights to develop Lot No. 117 from the Master Agreement, pursuant to which Shui On has been granted the right to develop the entire Taipingqiao Area in conjunction with the Luwan District People’s Government in accordance with the terms of the Master Agreement. The Master Agreement sets out the implementation of the redevelopment of the Taipingqiao area, including the establishment of Sino-foreign joint-venture companies by Shui On affiliates and PRC companies designated by Luwan District People’s Government to develop individual lots in the Taipingqiao area.
(ii) According to the land grant contracts and agreements provided, Lakeville has entered into a land grant contract with the Shanghai Real Estate and Land Resources Administrative Bureau concerning its corresponding Lot. The Bureau has the proper authority to grant the land use rights to each of the Lots, and the land grant contracts are legally valid and enforceable.
(iii) According to Chinese Laws and Regulations, the Land Use Right Certificate is the voucher for land use right and the land use rights registered in accordance with the law are protected by the PRC laws. Consequently, Shui On has the land use rights protected by the PRC laws for the Lot No. 117.
(iv) The Master Agreement is in compliance with the PRC laws then prevailing at the time of contract. However, due to changes to PRC laws effected after the date of the Master Agreement, the land grant fee specified in the Master Agreement may not be fully binding and enforceable.
(v) Lakeville has duly paid the corresponding land grant fee for the lot. According to the documents issued by government, Lakeville hold the development right of the Lots and Lakeville have the right to transfer the development right in accordance with responding laws.
(vi) Information contained in the Real Estate Ownership Certificates and other certificates provided are true and lawful, validly subsisting in full force and effect. Lakeville hold a proper title to these lots described in the Certificates and can freely transfer, let or mortgage the lots in accordance with corresponding laws and regulations. Based on all these certificates, there are mortgages on some real estates.
(vii) According to the land grant contracts, Lakeville can transfer or mortgage the Lots with the prerequisite requirement that Lakeville conform to the land grant contract’s clause.

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APPENDIX V

Project Development and Demolition Issues

(i) The real estate developing projects of Lakeville have obtained the relevant government permissions.
(ii) Lakeville has obtained the pre-sale permits issued by the government and has the right to sell in advance the Cui HuTianDi Combining Residence and Construction Building 1-3 and 5 on Lot 117.

Ownership of the Buildings

(i) Lakeville lawfully possess the property rights over the respective Lot No. 117.
(ii) Lakeville has title to the Buildings constructed, such title being properly constituted by and can be deducted from Real Estate Ownership Certificates issued in its favor and that such certificate is validly subsisting in full force and effect. Lakeville, has the lawful right to sell the Buildings to domestic and foreign buyers, and no legal impediment exists that bars Lakeville from selling the Buildings to domestic or foreign individuals or companies. Also, Lakeville with the lawfully have the right to mortgage or let the buildings complying with Chinese Laws and Regulations.

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APPENDIX V

Property interests held by the Group under development in the PRC

Property Description and Tenure

5 Lot No. 110 The property is part of the Shanghai Lu Wan Taipingqiao Area Taipingqiao Development Project located at the Lu Wan District centre of the development zone with a site area Shanghai of approximately 11,119.00 sq m. The PRC

The property is bounded on the north by Hu Bin Road, on the west by Shun Chang Road, on the south by Tai Cang Road and on the east by Wang Bo Nan Road within the Taipingqiao District.

The development comprises two office buildings (Block A and Block B) erecting upon a common commercial podium and a 2-level basement.

Capital value in Particulars of existing state as at Occupancy 31 December 2003

As at the date RMB1,970,000,000 of valuation, construction of (69.3% interest the property attributable has been to the Group: substantially RMB1,365,210,000) completed and according to the information provided, the construction will be fully completed soon.

The commercial podium comprises 2 storey whereas Block A and Block B comprises 21 and 10 storey, respectively. The two basement levels accommodate car parking spaces and other buildings facilities. Two footbridges are constructed on Level 2 of the commercial podium to provide pedestrian links across Tai Cang Road and Shun Chang Road, respectively.

The development upon completion will provide the following approximate gross floor areas:

Lot No. 110

	Gross Floor	Gross Floor	Area (GFA)
		sq m	sq ft
Commercial Podium		5,792.04	62,345.52
*Office*
Office - Block A	57,609.11		620,104.46
Office - Block A
(common area)*		577.66	6,217.93
Office - Block B	18,268.56		196,642.78
*Basement*
Carpark*	13,436.12		144,626.40
Bicycle parking spaces*		1,458.98	15,704.46
Area for security purpose*		147.04	1,582.74
Water pool*		63.18	680.07
*Detached shops*		1,478.03	15,909.51
Total	83,147.74		895,002.27

Area not counted as GFA

The property is held under a land use right term of 50 years for commercial/office uses and 70 years for residential uses.

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APPENDIX V

Notes:

Pursuant to the Land Grant Contract Hu Fang Di (2001) Chu Rang He Tong Di 18 Hao entered into among Shanghai Real Estate and Land Resources Administration Bureau (“Party A”), Atlantic Best Limited ( ) (“Party B”), and Shanghai Fuxing Construction and Development Company Limited ( ) (“Party C”) on 9 March 2001 (the “Contract for Grant of Land Use Rights to Lot No. 110”), Party B and C have been granted the land use rights of a tract of land known as Lot No. 110, Lu Wan District comprising a site area of 11,119 sq m. The Contract for Grant of Land use Rights to Lot No. 110 contains, inter alia, the following salient conditions:

(i) Use : Commercial/Office use (ii) Land use term : 50 years (iii) Plot ratio : ≤7 (iv) Total gross floor area : ≤77,833 sq m (v) Permitted building height : ≤100 m (vii) Building convenant : The proposed development must be completed on or before 31 December 2005 (viii) Land use premium : US$5,837,475

Pursuant to the Equity Joint Venture Contract dated 20 April 2001 entered into between Party C and Party B, the parties agreed to establish an equity joint-venture company to jointly develop Lot No. 110 Lu Wan District. The salient conditions as stipulated in the joint-venture contract are, inter alia, cited as follows:

(i) Name of joint�venture company : Shanghai Xing Bang Property Co Ltd ( ) (ii) Period of operation : 50 years (iii) Total investment amount : RMB690,000,000 (iv) Registered capital : RMB230,000,000

Pursuant to the Article of Association of Shanghai Xing Bang Property Co Ltd entered into between Shanghai Fuxing Construction and Development Company Limited ( ) (Party A) and Atlantic Best Limited ( ) (Party B) dated 8 September 2001, Shanghai Xing Bang Properties Co Ltd is established. The Article of Association contains, inter alia, the following salient conditions:

(i) Name of joint-venture company : Shanghai Xing Bang Property Co Ltd ( ) (ii) Period of operation : 50 years from the date of issuance of business licence (iii) Total investment amount : RMB690,000,000 (iv) Registered capital : RMB230,000,000 4. Pursuant to the Business Licence No. Qi He Hu Zong Zi Di 028808 (Shi Ju) ( 208808( )) dated 18 December 2003, the Shanghai Xing Bang Properties Co Ltd ( ) (“Xing-Bang”) was incorporated with a registered capital of RMB290,500,000 for a valid period from 21 June 2001 to 20 June 2051. The scope of business for the joint venture includes construction, development and operation of real estate; leasing and sales of real estate; provision of amenities, commercial and entertainment facilities in association with real estate development; and property management.

Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Shi Zi (2001) Di 010129 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 18 December 2001, the title to the land with an area of approximately 11,119.00 sq m is vested in Shanghai Xing Bang Properties Co Ltd for a term commencing from 16 May 2001 and expiring on 15 May 2051 for composite use.

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APPENDIX V

Pursuant to the Other Party’s Certificate Hu Fang Di Shi Ta Zi (2002) No. 001351 dated 18 March 2002, the land with an area of approximately 11,119.00 sq m is subject to a mortgage in favour of The Hongkong and Shanghai Banking Corporation Limited for a term commencing from 5 February 2002 and expiring on 31 March 2005.
We have been provided with a legal opinion on the title to the property which issued by the Group’s PRC legal adviser, which contains, inter alia, the following information:

Land Use Rights over the Lots

(i) Xing-Bang has acquired the rights to develop the Lot No. 110 from the Master Agreement, pursuant to which the Shui On has been granted the right to develop the entire Taipingqiao Area in conjunction with the Luwan District People’s Government in accordance with the terms of the Master Agreement. The Master Agreement sets out the implementation of the redevelopment of the Taipingqiao Area, including the establishment of Sino-foreign joint-venture companies by Shui On affiliates and PRC companies designated by Luwan District People’s Government to develop individual lots in the Taipingqiao Area.
(ii) According to the land grant contracts and agreements provided, Xing-Bang has entered into a land grant contract with the Shanghai Real Estate and Land Resources Administrative Bureau concerning its corresponding Lot. The Bureau has the proper authority to grant the land use rights to the Lots, and the land grant contracts are legally valid and enforceable.
(iii) According to Chinese Laws and Regulations, the Land Use Right Certificate is the voucher for land use right and the land use rights registered in accordance with the law are protected by the PRC laws. Shui On has the land use rights protected by the PRC laws for the Lot No. 110.
(iv) The Master Agreement is in compliance with the PRC laws then prevailing at the time of contract. However, due to changes to PRC laws effected after the date of the Master Agreement, the land grant fee specified in the Master Agreement may not be fully binding and enforceable.
(v) According to the land grant contracts signed by the Shanghai Real Estate and Land Resources Administrative Bureau and Xing-Bang and the land grant fee receipt issued by the Shanghai Real Estate and Land Resources Administrative Bureau, they are of the opinion that Xing-Bang has duly paid the corresponding land grant fee for the lot. According to the documents issued by government, they are of the opinion that Xing-Bang holds the development right of the Lots. According to Chinese Laws and Regulations, Xing-Bang has the right to transfer the development right in accordance with responding laws.
(vi) The Real Estate Ownership Certificates and other certificates provided are true and lawful, validly subsisting in full force and effect. Xing-Bang holds a proper title to these lots described in the Certificates and can freely transfer, let or mortgage the lots in accordance with corresponding laws and regulations. Based on all these certificates, there are mortgages on some real estates.
(vii) Xing-Bang can transfer or mortgage the Lots with the prerequisite requirement that Xing-Bang conform to the land grant contract’s clause.

Project Development and Demolition Issues

(i) The real estate developing projects of Xing-Bang have obtained the relevant government permissions.
(ii) Government has the right to sell in advance the Block A and part of podium and Block B and podium on Lot 110.

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APPENDIX V

Ownership of the Buildings

(i) Xing-Bang has title to the Buildings constructed, such title being properly constituted by and can be deducted from Real Estate Ownership Certificates issued in its favor and that such certificate is validly subsisting in full force and effect. Xing-Bang, has the lawful right to sell the Buildings to domestic and foreign buyers, and no legal impediment exists that bars Xing-Bang from selling the Buildings to domestic or foreign individuals or companies. Also, Xing-Bang have the right to mortgage or let the buildings complying with Chinese Laws and Regulations.

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VALUATION REPORT

APPENDIX V

Property

Description and Tenure

Capital value in Particulars of existing state as at Occupancy 31 December 2003

6 Lot Nos. 113 The property is part of the Shanghai Lu Wan and 114 Taipingqiao Development Project located at the Taipingqiao Area centre of the development zone with a site area Lu Wan District of approximately 49,000 sq m. Shanghai The PRC The property is bounded on the north by Zhi Zhong Road, on the west by Huang Pi Nan Road, on the south by Fu Xing Central Road and on the east by Shun Chang Road within the Taipingqiao District.

According to RMB1,742,000,000 the information provided, (69.3% interest residential attributable project on Lot to the Group: No. 113 is RMB1,207,206,000) undergoing site clearance while Lot No. 114 is currently a vacant site.

According to the information provided with us, the development schemes for Lot Nos. 113 and 114 are both planned to build high-rise and lowrise residential blocks with ancillary commercial facilities. Upon completion, it will provide the following approximate gross floor areas:

	Gross	Floor Area
	sq m	sq ft
Lot No. 113
Residential	81,515	877,427
Retail portion	14,385	154,840
Total	95,900	1,032,267
Lot No. 114
Residential	130,459	1,404,261

The property is held under a land use right term of 50 years for commercial/office uses and 70 years for residential uses.

Notes:

Pursuant to the Land Grant Contract No. Hu Fang Di Zi (2001) Chu Rang He Tong Wai Zi Di 1 ( (2001) 1 ) entered into among Shanghai Real Estate and Land Resources Administration Bureau (“Party A”), East Trend Limited (“Party B”), and Shanghai Fuxing Construction and Development Company Limited ( ) (“Party C”) on 28 February 2001, Party B and C have been granted the land use rights of a tract of land known as Lot No. 113, Lu Wan District comprising a site area of 16,151 sq m. The Contract for Grant of Land Use Rights to Lot No. 113 contains, iner-alia, the following salient conditions:
(i) Use

: Residential : 70 years : ≤5.5 : ≤88,831 sq m

(ii) Land use term (iii) Plot ratio (iv) Total gross floor area (v) Permitted site coverage (vi) Permitted building height (vii) Building convenant

: ≤60% of the site area : ≤100 m : The proposed development must be completed on or before 31 December 2006 : RMB23,015,175

(viii) Land use premium : RMB23,015,175 (ix) Land use rent : RMB1 per sq m per annum

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VALUATION REPORT

APPENDIX V

Pursuant to the Land Grant Contract No. Hu Fang Di Zi (2001) Chu Rang He Tong Wai Zi Di 2 ( (2001) 2 ) entered into among Party A, Party C and Oriental Gain Limited ( ) (“Party D”) on 28 February 2001, Party C and D have been granted the land use rights of a tract of land known as Lot No. 114, Lu Wan District comprising a site area of 32,603 sq m. The Contract for Grant of Land Use Right to Lot No. 114 contains, inter alia, the following salient conditions:

(i)	Use	:	Residential use
(ii)	Land use term	:	70 years
(iii)	Plot ratio	:	≤5
(iv)	Total gross floor area	:	≤165,015 sq m
(v)	Permitted site coverage	:	≥25% of the site area
(vi)	Permitted building height	:	≤100 m
(vii)	Building convenant	:	The proposed development must be completed on or before 31
			December 2007
(viii)	Land use premium	:	RMB42,383,900
(ix)	Land use rent	:	RMB1 per sq m per annum

Pursuant to the Article of Association of Shanghai Jing Fu Property Co., Ltd entered into between Shanghai Fuxing Construction and Development Company Limited ( ) (Party A) and Oriental Gain Limited ( ) (Party B) dated 8 September 2001, Shanghai Jing Fu Property Co., Ltd is established. The Article of Association contains, inter alia, the following salient conditions:

	(i)	Name of joint-venture company : Shanghai Jing Fu Property Co., Ltd. (
	(ii)	Period of operation : 70 years from the date of issuance of business licence
	(iii)	Total investment amount : RMB825,000,000
	(iv)	Registered capital : RMB275,000,000
4.	Pursuant to the Article of Association of Shanghai Fu Xiang Property Co., Ltd entered into between Shanghai Fuxing Construction and Development Company Limited ( ) (Party A) and Hong Kong East Trend Limited ( ) (Party B) dated 8 September 2001, Shanghai Fu Xiang Property Co., Ltd is
	established. The Article of Association contains, inter alia, the following salient conditions: (i) Name of joint-venture company : Shanghai Fu Xiang Property Co., Ltd (		)
	(ii)	Period of operation : 70 years from the date of issuance of business licence
	(iii)	Total investment amount : RMB585,000,000
	(iv)	Registered capital : RMB195,000,000

Pursuant to the Shanghai Real Estate Ownership Certificate Hu Fang Di Shi Zi (2003) Di 004176 Hao issued by Shanghai Real Estate and Land Resources Administration Bureau dated 10 April 2003, the title to the land (Lot No. 114) with an area of approximately 32,603.00 sq m is vested in Shanghai Jing Fu Property Co., Ltd. for a term commencing from 7 May 2001 and expiring on 6 May 2071 for residential use.
Pursuant to the Other Party’s Certificate Lu 200303010916 dated 20 June 2003, the land of Lot No. 114 is subject to a mortgage in favour of Hang Seng Bank Limited, Shanghai Branch; Standard Chartered Bank, Shanghai Branch; Wing Hang Bank, Limited, Shenzhen Branch; Singapore Development Bank, Shanghai Branch a term commencing from 23 April 2003 and expiring on 30 October 2006.
Pursuant to the Business Licence No. Qi He Hu Zong Zi Di 029956 Hao (Shi Ju) ( 029956 ( )) dated 18 December 2003, Shanghai Fu Xiang Property Co., Ltd ( ) was incorporated with a registered capital of RMB195,000,000 for a valid period from 19 December 2001 to 18 December 2071. The scope of business for the joint venture includes construction, development and operation of real estate; leasing and sales of real estate; provision of amenities, commercial and entertainment facilities in association with real estate development; and property management.

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APPENDIX V

Pursuant to the Business Licence No. Qi He Hu Zong Zi Di 030025 Hao (Shi Ju) ( 030025 ( )) dated 15 October 2003, Shanghai Ji Fu Property Co., Ltd. ( ) was incorporated with a registered capital of RMB400,000,000 for a valid period from 24 December 2001 to 25 December 2071. The scope of business for the joint venture includes construction, development and operation of real estate; leasing and sales of real estate; provision of amenities, commercial and entertainment facilities in association with real estate development; and property management.
We were advised that the total construction cost for the properties under construction as at 31 December 2003, were estimated to be RMB960,000,000 and the construction cost expended as at 31 December 2003 was approximately RMB108,000,000. In the course of our valuation, we have taken into account such construction cost.

The open market value of the property after completion, according to the development plan provided by the Group, is estimated at RMB5,300,000,000

We have been provided with a legal opinion on the title to the property which issued by the Group’s PRC legal adviser, which contains, inter alia, the following information:

Land Use Rights over the Lots

(i) Fu-Xiang and Jing-Fu have acquired the rights to develop the Lot No. 113 and 114 from the Master Agreement, pursuant to which Shui On has been granted the right to develop the entire Taipingqiao Area in conjunction with the Luwan District People’s Government in accordance with the terms of the Master Agreement. The Master Agreement sets out the implementation of the redevelopment of the Taipingqiao Area, including the establishment of Sino-foreign joint-venture companies by Shui On affiliates and PRC companies designated by Luwan District People’s Government to develop individual lots in the Taipingqiao Area.
(ii) According to the land grant contracts and agreements provided, Fu-Xiang and Jing-Fu has entered into a land grant contract with the Shanghai Real Estate and Land Resources Administrative Bureau concerning its corresponding Lot. The Bureau has the proper authority to grant the land use rights to the Lots, and the land grant contracts are legally valid and enforceable.
(iii) According to Chinese Laws and Regulations, the Land Use Right Certificate is the voucher for land use right and the land use rights registered in accordance with the law are protected by the PRC laws. Consequently, Shui On has the land use rights protected by the PRC laws for the Lot No. 114. Although Shui On has entered into the land grant contract for Lot No. 113, the Land Use Right Certificate has not yet been issued.
(iv) The Master Agreement is in compliance with the PRC laws then prevailing at the time of contract. However, due to changes to PRC laws effected after the date of the Master Agreement, the land grant fee specified in the Master Agreement may not be fully binding and enforceable.
(v) According to the land grant contracts signed by the Shanghai Real Estate and Land Resources Administrative Bureau and Fu-Xing and Jing-Fu and the land grant fee receipt issued by the Shanghai Real Estate and Land Resources Administrative Bureau, Fu-Xiang and Jing-Fu has duly paid the corresponding land grant fee for each lot. According to the documents issued by government, Fu-Xiang and Jing-Fu hold the development right of the Lots. According to Chinese Laws and Regulations, Jing-Fu has the right to transfer the development right in accordance with responding laws.
(vi) Information contained in the Real Estate Ownership Certificates and other certificates provided are true and lawful, validly subsisting in full force and effect. Jing-Fu holds a proper title to the lot described in the Certificate and can freely transfer, let or mortgage the lots in accordance with corresponding laws and regulations. Based on all these certificates, there are mortgages on some real estates.

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APPENDIX V

(vii) According to the land grant contracts, Jing-Fu and Fu Xiang can transfer or mortgage the Lots with the prerequisite requirement that Jing-Fu conform to the land grant contract’s clause.
(viii) Although Shui On has entered into the land grant contracts for lots of No. 113, the Land Use Right Certificate have not yet been issued. Upon settling the outstanding land grant fee (if any) and processing all necessary applications, there will be no legal obstacles for Shui On to obtain the land use right certificates for such lots.
(ix) Fu-Xiang does not hold a proper title to the lot. Upon settling the outstanding land grant fee and processing all necessary applications procedures, there will be no legal obstacles for Shui On to apply for the Real Estate Ownership Certificates for such lot. Upon obtaining the certificates, Shui On can transfer, let or mortgage the lot in accordance with corresponding laws and regulations and the land grant contract.

Project Development and Demolition Issues

(i) The real estate developing projects of Fu-Xiang and Jing-Fu have obtained the relevant government permissions.

Ownership of the Buildings

(i) The real estate ownership certificates covering the Buildings corresponding to Lot 113 has not been issued.

Upon settling the outstanding land grant fee (if any) and processing all necessary application procedures, there will be no legal obstacles for Shui On to obtain the real-estate ownership certificate for the lot. After obtaining the aforesaid real estate title certificate, Jing-Fu has the right to transfer, let or mortgage the buildings.

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VALUATION REPORT

APPENDIX V

Property held by the Group for Future Development in the PRC

Property

7 Lot Nos. 118, 122, 124, 126 and 127 Taipingqiao Area Lu Wan District Shanghai The PRC

Description and Tenure

The property is part of the Shanghai Lu Wan Taipingqiao Development Project located at the periphery of the development zone with a site area of approximately 188,609 sq m (2,030,187 sq ft).

The property is currently planned to develop into a commercial/cultural/recreational/ residential development.

Particulars of Occupancy

Lot Nos. 118, 122-1&2, 122-3, 124, 126 and Lot No. 127 are all currently under planning and occupied by run-down or dilapidated buildings.

Capital value in existing state as at 31 December 2003

RMB2,518,000,000*

(This value is exclusive of Lot No. 124 and please refer to note 7 for details)

Lot No. 118

According to the information provided with us, Lot No. 118 with a total site area of approximately 19,843 sq m (213,590 sq ft) will be planned to develop into a residential development comprising medium to high-rise residential blocks with a total permitted gross floor area of approximately 79,372 sq m (854,360 sq ft).

Lot No. 122 (Lot No. 122-1, Lot No. 122-2 and Lot No. 122-3)

According to the information provided with us, Lot No. 122-1 and Lot No. 122-2 with a total site area of 12,940 sq m (139,286 sq ft) and Lot No. 122-3 with a total site area of 11,127 sq m (119,771 sq ft) will be together planned to develop into a residential development comprising medium to high-rise residential blocks, and a composite purpose complex with a total permitted gross floor area of 53,822 sq m (579,340 sq ft).

Lot No. 124

According to the information provided with us, Lot No. 124 with a total site area of

approximately 8,156 sq m (87,791 sq ft) will be planned to develop into a grade A office with a total permitted gross floor area of 157,384 sq m (1,694,081 sq ft).

Lot No. 126

According to the information provided with us, Lot No. 126 with a total site area of

approximately 11,817 sq m (127,198 sq ft) will be planned to develop into a commercial/office complex with a total permitted gross floor area of 64,994 sq m (699,595 sq ft).

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APPENDIX V

Property

Description and Tenure

Capital value in Particulars of existing state as at Occupancy 31 December 2003

Lot No. 127

According to the information provided with us, Lot No. 127 with a total site area of approximately 13,204 sq m (142,128 sq ft) will be planned to develop into a commercial/office complex with a total permitted gross floor area of 72,622 sq m (781,703 sq ft).

Lot Nos. 118, 122, 124, 126 and 127 of the property are all held under a land use right term of 50 years for composite or residential uses and 70 years for residential uses. (Please see note 6 for details of Lt No. 124.)

Notes:

Lot 118

Pursuant to the Land Grant Contract No. Lu Fang Di Yong (2002) Chu Rang He Tong Di No. 38 ( (2002) 38 ) entered into among Shanghai Luwan District Real Estate and Land Administration Bureau (“Party

A”), Globaland Limited ( ) (“Party B”), and Shanghai Fuxing Construction and Development Company Limited ( ) (“Party C”) on 31 December 2002, Party B and C have been granted the land use rights of a tract of land known as Lot No. 118, Lu Wan District comprising a site area of 19,843 sq m. The Contract for Grant of Land Use Rights to Lot No. 118 contains, inter alia, the following salient conditions:

(i) Use : Residential (ii) Land use term : 70 years (iii) Plot ratio : ≤4.5 (iv) Building convenant : The proposed development must be completed on or before 31 December 2007 (v) Land use premium : RMB32,641,735*

According to a notice dated 9 February 2001 issued by Shanghai Construction and Administration Committee, Shanghai City Planning Administration Bureau, Shanghai Land and Real Estate Resources Administration Bureau and Shanghai Residential Development Bureau, the premium is waived.

Lot No. 122-1 and Lot No. 122-2

Pursuant to the Land Grant Contract No. Lu Fang Di Yong (2002) Chu Rang He Tong Di No. 37 ( (2002) 37 ) entered into among Shanghai Luwan District Real Estate and Land Administrative Bureau, Onfair

Limited ( ) (“Party D”), Party C on 31 December 2002, Party D and C have been granted the land use rights of a tract of land known as Lot No. 122-1 and Lot No. 122-2, Lu Wan District comprising a site area of 12,940 sq m. The Contract for Grant of Land Use Rights to Lot Lot No. 122-1 and Lot no 122-2 contains, inter alia, the following salient conditions:

(i) Use : Residential (ii) Land use term : 70 years (iii) Plot ratio : ≤5 (iv) Building convenant : The proposed development must be completed on or before 31 December 2007

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APPENDIX V

(v) Land use premium : RMB23,550,800*
According to a notice dated 9 February 2001 issued by Shanghai Construction and Administration Committee, Shanghai City Planning Administration Bureau, Shanghai Land and Real Estate Resources Administration Bureau and Shanghai Residential Development Bureau, the premium is waived.

Lot No. 122-3

Pursuant to the Land Grant Contract No. Hu Fang Di Zi (2003) Chu Rang He Tong Di No. 82 ( (2003) 82 ) entered into among Shanghai Real Estate and Land Resources Administrative Bureau, Lucky Gain

Limited ( ) (“Party E”), and Party C on 20 June 2003, Party E and C have been granted the land use rights of a tract of land known as Lot No. 122-3, Lu Wan District comprising a site area of 11,127 sq m. The Contract for Grant of Land Use Rights to Lot No. 122-3 contains, inter alia, the following salient conditions:

(i) Use : Residential (ii) Land use term : 50 years (iii) Plot ratio : ≤5.5 (iv) Total gross floor area : ≤61,198 sq m (v) Permitted site coverage : ≤65% of the site area (vi) Permitted building height : ≤70 m (vii) Building convenant : The proposed development must be completed on or before 30 June 2007 (viii) Land use premium : US$9,179,700 (ix) Land use rent : RMB1 per sq m per annum

Lot No. 124

We have not been provided with any documents in ascertaining the tenure of the property. For the purpose of this valuation, we have assumed that Lot No. 124 has an un-expired land use right terms of 50 years for commercial/office development and 70 years for residential development commencing from the valuation date of this report.

Lot No. 126

Pursuant to the Land Grant Contract No. Hu Fang Di Zi (2003) Chu Rang He Tong Di No. 83 ( (2003) 83 ) entered into among Shanghai Real Estate and Land Resources Administrative Bureau, Sinoco

Limited ( ) (“Party F”), and Party C on 20 June 2003, Party F and C have been granted the land use rights of a tract of land known as Lot no 126, Lu Wan District comprising a site area of 11,817 sq m. The Contract for Grant of Land Use Rights to Lot no 126 contains, inter alia, the following salient conditions:

(i)	Use	:	Composite (office and commercial)
(ii)	Land use term	:	50 years
(iii)	Plot ratio	:	≤5.5
(iv)	Total gross floor area	:	≤64,993 sq m
(v)	Permitted site coverage	:	≤45% of the site area
(vi)	Permitted building height	:	≤80 m
(vii)	Building convenant	:	The proposed development must be completed on or before 30 June
			2008
(viii)	Land use premium	:	US$9,748,950
(ix)	Land use rent	:	RMB1 per sq m per annum

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APPENDIX V

Lot No. 127

Pursuant to the Land Grant Contract No. Hu Fang Di Zi (2003) Chu Rang He Tong Di No. 84 ( (2003) 84 ) entered into among Shanghai Real Estate and Land Resources Administrative Bureau, Union Grow

Limited ( ) (“Party G”), and Party C on 20 June 2003, Party G and C have been granted the land use rights of a tract of land known as Lot no 127, Lu Wan District comprising a site area of 13,204 sq m. The Contract for Grant of Land Use Rights to Lot no 127 contains, iner-alia, the following salient conditions:

(i) Use : Composite (office and commercial) (ii) Land use term : 50 years (iii) Plot ratio : ≤5.5 (iv) Total gross floor area : ≤72,622 sq m (v) Permitted site coverage : ≤40% of the site area (vi) Permitted building height : ≤80 m (vii) Building convenant : The proposed development must be completed on or before 30 June 2006 (viii) Land use premium : US$10,893,300 (ix) Land use rent : RMB1 per sq m per annum

The breakdown of the value of the property is listed as follows:

Lot 118 122 124 126 127 Total	Open Market Value Compensation (RMB) (RMB) 599,000,000 434,000,000 873,000,000 535,000,000 No Commercial Value 397,000,000 499,000,000 276,000,000 547,000,000 286,000,000 2,518,000,000 1,928,000,000	Open Market Value Compensation (RMB) (RMB) 599,000,000 434,000,000 873,000,000 535,000,000 No Commercial Value 397,000,000 499,000,000 276,000,000 547,000,000 286,000,000 2,518,000,000 1,928,000,000
		1,928,000,000

According to your specific terms of instructions, we have depended on the information provided about the development potential of the Lot 124 and based on the assumption that Lot 124 has a proper legal title and is freely transferable in the market arrived at a hypothetical open market value of Lot 124 listed as follows:

Lot	Open	Market Value	Compensation
		(RMB)	(RMB)
124		953,000,000	397,000,000

We have been provided with a legal opinion on the title to the property which issued by the Group’s PRC legal adviser, which contains, inter alia, the following information:

Land Use Rights over the Lots

(i) Fu-Ji, Xing-Qiao and Le-Fu have acquired the rights to develop the Lots No. 122-3, 126 and 127 from the Master Agreement, pursuant to which Shui On has been granted the right to develop the entire Taipingqiao Area in conjunction with the Luwan District People’s Government in accordance with the terms of the Master Agreement.

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APPENDIX V

(ii) According to the Master Agreement and Shanghai Luwan District Taipingqiao Area Specific Plan provided, Shui On has acquired the right to develop lots of No. 118, 122-1&2, 124, 126, 127.
(iii) Shui On should enter into the land grant contracts with the Real Estate and Land Resources Administrative Bureau on lots of No. 124 and obtain the Land Use Right Certificates. Although Shui On has entered into the land grant contracts for lots of Nos. 122-1&2, 122-3, 126, 127, 118, 113, the Land Use Right Certificates have not yet been issued. Upon settling the outstanding land grant fee (if any) and processing all necessary applications procedures, there will be no legal obstacles for Shui On to obtain the land use right certificates for such lots.
(iv) The Master Agreement is in compliance with the PRC laws then prevailing at the time of contract. However, due to changes to PRC laws effected after the date of the Master Agreement, the land grant fee specified in the Master Agreement may not be fully binding and enforceable.

According to land grant contracts Lu Fang Di Yong (2002) Chu Rang He Tong No. 38 dated 31 December 2002 and Lu Fang Di Yong (2002) Chu Rang He Tong No. 37 dated 31 December 2002, the land grant fees of lot 118 and 122-1&2 have been waived.

(v) Shui On has not obtained the Land Use Right Certificates for Lots Nos. 122-1&2, 122-3, 126, 127, 118, 124, so the development right for these lots could not be transferred freely in the market according to Chinese Laws and Regulations.
(vi) Fu-Xiang, Fu-Ji, Xing-Qiao and Le-Fu do not hold a proper title to these lots whereas those lots with land grant contracts can only be transferred or mortgaged subject to the terms of the relevant land grant contract. There is no legal obstacle for Shui On to apply for the Real Estate Ownership Certificates and upon obtaining the certificates, Shui On can freely transfer, let or mortgage the lot.

Ownership of the Buildings

(i) Fu-Ji, Xing-Qiao and Le-Fu do not possess the property rights over the respective lots.
(ii) The real estate ownership certificates covering the Buildings corresponding to Lots 118, 122-1 & 2, 122-3, 126 and 127 have not been issued. Upon settling the outstanding land grant fee (if any) and processing all necessary applications procedures, there will be no legal obstacles for Shui On to obtain the real estate ownership certificates for those lots. After obtaining the aforesaid real estate ownership certificates, Fu-Ji, Xing-Qiao and Le-Fu, have the right to transfer, let or mortgage those lots in accordance with corresponding laws and regulations and the land grant contracts.

— 219 —

GENERAL INFORMATION

APPENDIX VI

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

(a) Interests of Directors and chief executives

As at the Latest Practicable Date, the interests and short positions of the Directors and the Company’s chief executives in the shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) which 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 are taken or deemed to have under such provisions of the SFO), the Model Code for Securities Transactions by Directors of Listed Companies and which were required to be entered in the register required to be kept under section 352 of the SFO were as follows:

Interests in the Shares

	Number of ordinary shares	Number of ordinary shares
	in the Company
Name of Director	Personal Interests	Other Interests
Lo Hong Sui, Vincent	—	183,659,000
Wong Ying Wai, Wilfred	—	—
Wong Yuet Leung, Frankie	—	—
Choi Yuk Keung, Lawrence	602,000	—
Wong Hak Wood, Louis	184,000	—
Wong Fook Lam, Raymond	—	—
Lowe Hoh Wai Wan, Vivien	—	—

Note: The 183,659,000 shares are held as to 166,148,000 shares and 17,511,000 shares by the ultimate holding company, Shui On Company and Shui On Finance Company Limited respectively, which is an indirect, wholly-owned subsidiary of Shui On Company. Shui On Company is owned by the Bosrich Unit Trust. The units of the Bosrich Unit Trust are the property of a discretionary trust of which Mr. Lo Hong Sui, Vincent is a discretionary beneficiary. Accordingly, Mr. Lo Hong Sui, Vincent is deemed to be interested in such shares.

— 220 —

GENERAL INFORMATION

APPENDIX VI

(b) Share Options of the Company

Following the amendments of Chapter 17 of the Rules Governing the Listing of Securities on the Stock Exchange on 1st September 2001, the employee share option scheme adopted on 20th January 1997 (the “Old Scheme”) has been terminated and replaced by a new share option scheme on 27th August 2002 (the “New Scheme”). Since then, no further option can be granted under the Old Scheme but all options granted prior to such termination continue to be valid and exercisable.

As at the Latest Practicable Date, the following Directors had interests in right of options granted under the Old Scheme and the New Scheme:

			Period during	Number of
		Subscription	which options	ordinary
	Date of	price per	outstanding	shares subject
Name of Director	grant	share	are exercisable	to the options
		HK$
Wong Ying Wai,	27.8.2002	6.00	27.2.2003 to	200,000
Wilfred			26.8.2007
	27.8.2002	6.00	27.8.2005 to	5,000,000**
			26.8.2010
Wong Yuet Leung,	7.7.1999	11.21	7.1.2000 to	200,000
Frankie			6.7.2004
	4.7.2000	9.56	4.1.2001 to	200,000
			3.7.2005
	17.7.2001	9.30	17.1.2002 to	200,000
			16.7.2006
	27.8.2002	6.00	27.2.2003 to	160,000
			26.8.2007
	27.8.2002	6.00	27.8.2005 to	2,000,000**
			26.8.2010
Choi Yuk Keung,	7.7.1999	11.21	7.1.2000 to	280,000
Lawrence			6.7.2004
	4.7.2000	9.56	4.1.2001 to	70,000
			3.7.2005
	17.7.2001	9.30	17.1.2002 to	140,000
			16.7.2006
	27.8.2002	6.00	27.2.2003 to	168,000
			26.8.2007
	27.8.2002	6.00	27.8.2005 to	5,000,000**
			26.8.2010

— 221 —

GENERAL INFORMATION

APPENDIX VI

			Period during	Number of
		Subscription	which options	ordinary
	Date of	price per	outstanding	shares subject
Name of Director	grant	share	are exercisable	to the options
		HK$
Wong Hak Wood,	7.7.1999	11.21	7.1.2000 to	250,000
Louis			6.7.2004
	4.7.2000	9.56	4.1.2001 to	280,000
			3.7.2005
	17.7.2001	9.30	17.1.2002 to	280,000
			16.7.2006
	27.8.2002	6.00	27.2.2003 to	132,000
			26.8.2007
	27.8.2002	6.00	27.8.2005 to	2,000,000**
			26.8.2010
Wong Fook Lam,	7.7.1999	11.21	7.1.2000 to	150,000
Raymond			6.7.2004
	4.7.2000	9.56	4.1.2001 to	160,000
			3.7.2005
	17.7.2001	9.30	17.1.2002 to	160,000
			16.7.2006
	27.8.2002	6.00	27.2.2003 to	110,000
			26.8.2007
	27.8.2002	6.00	27.8.2005 to	2,000,000**
			26.8.2010
Lowe Hoh Wai Wan	7.7.1999	11.21	7.1.2000 to	150,000
Vivien			6.7.2004
	4.7.2000	9.56	4.1.2001 to	160,000
			3.7.2005
	17.7.2001	9.30	17.1.2002 to	160,000
			16.7.2006
	27.8.2002	6.00	27.2.2003 to	66,000
			26.8.2007
	27.8.2002	6.00	27.8.2005 to	2,000,000**
			26.8.2010

** These options were granted under the mega grant as stipulated in the circular dated 30 July 2002. Certain financial and performance targets must be achieved before the options granted will vest and be exercisable.

— 222 —

GENERAL INFORMATION

APPENDIX VI

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or the Company’s chief executives, had, under Divisions 7 and 8 of Part XV of the SFO, nor were they taken to or deemed to have under such provisions of the SFO, any interests or short positions in the shares, underlying shares or debentures of the Company or any associated corporations (within the meaning of Part XV of the SFO) or any interests which are required to be entered into the register kept by the Company pursuant to section 352 of the SFO or any interests which are required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules.

(c) Interests of shareholders discloseable pursuant to the SFO

Save as disclosed below, the Directors are not aware of any other person (other than a Director or chief executive of the Company or his/her respective associate(s)) who, as at the Latest Practicable Date, had an interest or short position in the shares or 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:

			Number of	Percentage of
			ordinary shares	shareholding in
Name			in the Company	the Company
Cheah	Cheng	Hye	14,504,000	5.41%

Of the 14,504,000 shares, 14,042,000 shares are held by Value Partners Limited which is controlled by Mr. Cheah Cheng Hye.

— 223 —

GENERAL INFORMATION

APPENDIX VI

(d) Substantial shareholding in other members of the Group

Save as disclosed below, the Directors are not aware of any other person (other than a Director or chief executive of the Company or his/her respective associate(s)) who, as at the Latest Practicable Date, was directly or indirectly interested in 10 per cent. 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:

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||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|Effective|
|Name|of|owner|of|shares|or|equity|%|equity|
|interest|(as|the|case|may|be)|Name|of|subsidiary|interest|held|
|Panyu|Dynamic|Mark|Steel|&|20%|
|Aluminium|Engineering|Co.|Ltd.|
|Eversound|Enterprise|Ltd.|Panyu|Dynamic|Mark|Steel|&|16%|
|Aluminium|Engineering|Co.|Ltd.|
|Lung|Shing|Construction|&|Materials|Lamma|Concrete|Products|Ltd.|40%|
|Company|Ltd.|
|Lung|Shing|Construction|&|Materials|Guangdong|Lamma|Concrete|40%|
|Company|Ltd.|Products|Limited|
|Panyu|Shui|Fai|Metal|Works|22.5%|
|Engineering|Company|Limited|
|Hip|Kwan|Engineering|Co.|Ltd.|Panyu|Shui|Fai|Metal|Works|22.5%|
|Engineering|Company|Limited|
|Eversound|Enterprise|Ltd.|Dynamic|Mark|Limited|20%|
|Guang|Rui|Construction|Materials|25%|
|(Panyu)|Ltd.|
|Hip|Kwan|Engineering|Co.|Ltd.|Shui|Fai|Metal|Works|Engineering|22.5%|
|Co.|Ltd.|
|Eversound|Enterprise|Ltd.|Shui|Fai|Metal|Works|Engineering|22.5%|
|Co.|Ltd.|
|Jadson|Construction|Ltd.|Pacific|Extend|Ltd.|33%|

----- End of picture text -----

— 224 —

GENERAL INFORMATION

APPENDIX VI

(e) Material Interests

Save as disclosed in this circular, as at the Latest Practicable Date, none of the Directors had any direct or indirect interests in any assets which have since 31st March 2003 (being the date to which the latest published audited consolidated accounts of the Group were made up) been acquired or disposed of by or leased to the Company or any of its subsidiaries, or are proposed to be acquired or disposed of by or leased to the Company or any of its subsidiaries.

Save as disclosed in this circular, as at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement entered into by the Company or any of its subsidiaries, which was subsisting and was significant in relation to the business of the Group.

3. MATERIAL CHANGES

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 March 2003, the date to which the latest published audited financial statements of the Company were made up.

4. EXPERTS

(a) The following are the qualifications of the experts who have given their opinions or advices which are contained in this circular:

Name	Qualifications
BNP Paribas Peregrine	Corporation deemed licensed	to	conduct	type	1
Capital Limited	(dealing in securities) and	type	6 (advising		on
	corporate finance) regulated	activities under			the
	SFO
Deloitte Touche Tohmatsu	Certified Public Accountants, Hong		Kong
Chesterton Petty Ltd.	Qualified property valuer
Jin Mao Law Firm	Qualified PRC lawyer

(b) Neither the IFA, Deloitte Touche Tohmatsu, the Independent Valuer nor Jin Mao Law Firm has any shareholding, directly or indirectly, in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
(c) Each of the IFA, Deloitte Touche Tohmatsu, the Independent Valuer and Jin Mao Law Firm has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which they are included.

— 225 —

GENERAL INFORMATION

APPENDIX VI

(d) Neither the IFA, Deloitte Touche Tohmatsu, the Independent Valuer nor Jin Mao Law Firm has any interest, direct or indirect, in any assets which have been acquired or disposed of by or leased to any member of the Group, nor which are proposed to be acquired or disposed of by or leased to any member of the Group since 31st March 2003, the date to which the latest published audited financial statements of the Company were made up.
(e) The letter of the IFA set out in the section headed “Letter from the Independent Financial Adviser”, the accountants’ report prepared by Deloitte Touche Tohmatsu set out in Appendices II to III and the valuation report prepared by the Independent Valuer set out in Appendix V (including the references to the legal opinion issued by Jin Mao Law Firm, the Group’s PRC legal adviser), are given for incorporation in this circular.

5. LITIGATION

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

6. SERVICE CONTRACTS

There is no existing or proposed service contracts between any of the Directors and the Company or any of its subsidiaries respectively, other than contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation).

7. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by members of the Group within the two years immediately prior to the date of this circular:

(1) Rainbow Sale and Purchase Agreement
(2) Subscription and Shareholders’ Agreement

8. GENERAL

(a) The secretary of the Company is Ms. Tam Ching Wah, Janice M.Sc, FCCA, AHKSA.
(b) The principal share registrar and the transfer office of the Company is the Bank of Bermuda Limited, 6 Front Street, Hamilton HM 11, Bermuda.
(c) The Hong Kong branch share registrar and transfer office is Standard Registrars Limited, 28th Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

— 226 —

GENERAL INFORMATION

APPENDIX VI

(d) The registered office of the Company is at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. The head office and principal place of business of the Company is at 34th Floor, Shui On Centre, 6-8 Harbour Road, Wanchai, Hong Kong.
(e) The English text of this circular shall prevail over the Chinese text.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours up to 4:00 p.m. on 14 April 2004 at the principal office of the Company at 34th Floor, Shui On Centre, 6-8 Harbour Road, Wanchai, Hong Kong:

(a) memorandum of association and bye-laws of the Company;
(b) the Rainbow Sale and Purchase Agreement;
(c) the Taipingqiao Sale and Purchase Agreement;
(d) the Subscription and Shareholders’ Agreement;
(e) the New Articles of Association of SOL;
(f) the letter from the IFA, the text of which is set out in the section headed “Letter from the Independent Financial Adviser” of this circular;
(g) the accountants’ report of Deloitte Touche Tohmastu, the text of which is set out in Appendix II and Appendix III;
(h) the valuation report of the Independent Valuer, the text of which is set out in Appendix V;
(i) the legal opinion issued by Jin Mao Law Firm, references to which are made in the valuation report set out in Appendix V;
(j) the annual report of the Company for the two financial years ended 31 March 2003;
(k) the interim report of the Company for the six months ended 30 September 2003; and
(l) the written consents referred to in paragraph 4 in this Appendix.

— 227 —

NOTICE OF SPECIAL GENERAL MEETING

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(Incorporated in Bermuda with limited liability)

NOTICE IS HEREBY GIVEN that a Special General Meeting of Shui On Construction and Materials Limited (the “Company”) will be held at Room 103, 1/F Shui On Centre, 6-8 Harbour Road, Wanchai, Hong Kong on 15 April 2004 at 2:30 p.m. for the purpose of considering and, if thought fit, passing (with or without amendments) the following resolutions:

SPECIAL RESOLUTION

“ THAT the bye-laws of the Company be amended as follows:
(a) by substituting the existing bye-law 66 of the Company’s bye-laws with the following new bye-law 66:
Subject to any special rights or restrictions as to voting for the time being attached to any shares by or in accordance with these Bye-laws, at any general meeting on a show of hands every Member present in person (or being a corporation, is present by a representative duly authorised under Section 78 of the Act), or by proxy shall have one vote and on a poll every Member present in person or by proxy or, in the case of a Member being a corporation, by its duly authorised representative shall have one vote for every fully paid share of which he is the holder but so that no amount paid up or credited as paid up on a share in advance of calls or instalments is treated for the foregoing purposes as paid up on the share. Notwithstanding anything contained in these Bye-laws, where more than one proxy is appointed by a Member which is a clearing house (or its nominee(s)), each such proxy shall have one vote on a show of hands. A resolution put to the vote of a meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:
(a) by the chairman of such meeting; 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
(c) 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 representing not less than one-tenth of the total voting rights of all Members having the right to vote at the meeting; or

— 228 —

NOTICE OF SPECIAL GENERAL MEETING

(d) 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 in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all 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.

(b) by substituting the existing bye-law 84(2) of the Company’s bye-laws with the following new bye-law 84(2):
(2) Where a Member is a clearing house (or its nominee(s) and, in each case, being a corporation), it may authorise such persons as it thinks fit to act as its representatives at any meeting of the Company or at any meeting of any class of Members provided that the authorisation shall specify the number and class of shares in respect of which each such representative is so authorised. Each person so authorised under the provisions of this Bye-law shall be deemed to have been duly authorised without further evidence of the facts and be entitled to exercise the same rights and powers on behalf of the clearing house (or its nominee(s)) as if such person was the registered holder of the shares of the Company held by the clearing house (or its nominee(s)) in respect of the number and class of shares specified in the relevant authorisation including the right to vote individually on a show of hands.

and that the directors of the Company be and are hereby authorised generally to do all such acts, deeds and things as they shall, in their absolute discretion, deem appropriate or necessary to effect, implement and complete any of the foregoing.”

ORDINARY RESOLUTIONS

“ THAT:
(a) the Rainbow Sale and Purchase Agreement (as defined in the circular to the shareholders of the Company dated 23 March 2004 and a copy of which has been produced to this meeting marked “A” and signed by the chairman of this meeting for the purpose of identification) and the transactions contemplated thereunder, be and are hereby approved, confirmed and ratified; and
(b) any one of the directors of the Company (“Director(s)”) be and is hereby authorised to do all such further acts and things and execute such further documents and take all steps which in his opinion may be necessary, desirable or expedient to implement and/or give effect to the Rainbow City Sale and Purchase Agreement and the transactions contemplated thereunder with any changes as such Director may consider necessary, desirable or expedient.”

— 229 —

NOTICE OF SPECIAL GENERAL MEETING

“ THAT subject to the passing of the ordinary resolution numbered 2 in the notice convening this meeting becoming effective:
(a) the Cash Injection (as defined in the circular of the shareholders of the Company dated 23 March 2004, a copy of the related Subscription and Shareholders’ Agreement setting out the terms of the Cash Injection has been produced to this meeting marked “B” and signed by the chairman of this meeting for the purpose of identification) and the transactions contemplated thereunder, be and are hereby approved, confirmed and ratified; and
(b) any one of the directors of the Company (“Director(s)”) be and is hereby authorised to do all such further acts and things and execute such further documents and take all steps which in his opinion may be necessary, desirable or expedient to implement and/or give effect to the Cash Injection and the transactions contemplated thereunder with any changes as such Director may consider necessary, desirable or expedient.”

By Order of the Board

Shui On Construction and Materials Limited Choi Yuk Keung, Lawrence Managing Director

Hong Kong, 23 March 2004

Registered office:

Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Notes:

A member of the Company entitled to attend and vote at the meeting is entitled to appoint a proxy or proxies to attend and, on a poll, vote in his stead. A proxy need not be a member of the Company. A form of proxy for use at the meeting is enclosed herewith.
Bye-law 66 of the Company provides that a poll may be demanded by: (a) the chairman of the meeting; (b) at least three (3) 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; (c) 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 representing not less than one-tenth (10%) of the total voting rights of all the members having the right to vote at the meeting; or (d) 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 in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth (10%) of the total sum paid up on all shares conferring that right.

— 230 —

NOTICE OF SPECIAL GENERAL MEETING

Where there are joint holders of any share, any one of such joint holders may vote at the meeting, either personally or by proxy, in respect of such share as if he or she were solely entitled thereto, but if more than one of such joint holders be present at the meeting personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof.
To be valid, the form of proxy together with any power of attorney or other authority under which it is signed or a notarially certified copy thereof, must be deposited at the office of the Company’s registrar in Hong Kong, Standard Registrars Limited at 28th Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not later than 48 hours before the time appointed for holding the meeting or any adjournment thereof.
Completion and return of the accompanying form of proxy will not preclude members of the Company from attending and voting in person at the meeting or any adjournment thereof should they so wish.
Shui On Company Limited and its associates (as the term is defined in the Rules Governing the Listing of Securities of the Stock Exchange of Hong Kong Limited) and Mr. Cheah Cheng Hye and Value Partners Limited will abstain from voting at the Special General Meeting.

— 231 —

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(Incorporated in Bermuda with limited liability)

Form of Proxy for Special General Meeting

I/We (note 1)

being (a) shareholder(s) of Shui On Construction and Materials Limited (the “Company”), hereby appoint (note 2) the Chairman of the Meeting or

or failing him

to act as my/our proxy at the Special General Meeting of the Company to be held at Room 103, 1/F Shui On Centre, 6-8 Harbour Road,Wanchai, Hong Kong on Thursday, 15 April 2004 at 2:30 p.m. and at any adjournment thereof and to vote for me/us and in my/our name(s) in respect of the resolutions as indicated below.

Resolutions	Resolutions
1.	Special resolution:
	“THAT the bye-laws of the Company be amended				as follows:
	(a)	by	substituting the existing bye-law 66 of the Company’s bye-laws with
		the	following new bye-law 66:
		66.	Subject to any special rights or restrictions as to			voting for the time
			being attached to any shares by or in accordance with these
			Bye-laws, at any general meeting		on a show of hands every
			Member present in person (or being a corporation, is present by a
			representative duly authorised under		Section 78 of the Act), or by
			proxy shall have one vote and on a poll every Member present in
			person or by proxy or, in the case of a		Member being a corporation,
			by its duly authorised representative shall have			one vote for every
			fully paid share of which he	is the holder but		so that no amount
			paid up or credited as paid up on a		share in advance of calls or
			instalments is treated for the	foregoing purposes as paid up on the
			share. Notwithstanding anything contained in these Bye-laws,
			where more than one proxy is appointed by a Member which is a
			clearing house (or its nominee(s)), each such proxy shall have one
			vote on a show of hands. A resolution put to the vote of a meeting
			shall be decided on a show	of hands unless		(before or on the
			declaration of the result of the show of hands or on the withdrawal
			of any other demand for a poll) a poll is demanded:
			(a) by the chairman of such meeting; 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
			(c) 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 representing not less than
			one-tenth of the total voting rights of all Members having
			the right to vote at the meeting; or
			(d) 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 in the
			Company conferring a right to vote at			the meeting being
			shares on which an aggregate sum has been paid up equal to
			not less than one-tenth	of the total sum paid up on all 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.

	(b)	by substituting the existing bye-law 84(2) of the Company’s bye-laws
		with the following new bye-law 84(2):
		(2) Where a Member is a clearing house (or its nominee(s) and, in each
		case, being a corporation), it may authorise such persons as it
		thinks fit to act as its representatives at any meeting of the
		Company or at any meeting of any class of Members provided that
		the authorisation shall specify the number and class of shares in
		respect of which each such representative is so authorised. Each
		person so authorised under the provisions of this Bye-law shall be
		deemed to have been duly authorised without further evidence of
		the facts and be entitled to exercise the same rights and powers on
		behalf of the clearing house (or its nominee(s)) as if such person
		was the registered holder of the shares of the Company held by the
		clearing house (or its nominee(s)) in respect of the number and
		class of shares specified in the relevant authorisation including the
		right to vote individually on a show of hands.
		and that the directors of the Company be and are hereby authorised
		generally to do all such acts, deeds and things as they shall, in their
		absolute discretion, deem appropriate or necessary to effect, implement
		and complete any of the foregoing.”
2.	Ordinary resolution:
	“THAT:
	(a)	the Rainbow Sale and Purchase Agreement (as defined in the circular to
		the shareholders of the Company dated 23 March 2004 and a copy of
		which has been produced to this meeting marked “A” and signed by the
		chairman of this meeting for the purpose of identification) and the
		transactions contemplated thereunder, be and are hereby approved,
		confirmed and ratified; and
	(b)	any one of the directors of the Company (“Director(s)”) be and is hereby
		authorised to do all such further acts and things and execute such further
		documents and take all steps which in his opinion may be necessary,
		desirable or expedient to implement and/or give effect to the Rainbow
		Sale and Purchase Agreement and the transactions contemplated
		thereunder with any changes as such Director may consider necessary,
		desirable or expedient.”
3.	Ordinary resolution:
	“THAT subject to the passing of the ordinary resolution numbered 2 in the notice
	convening this meeting becoming effective:
	(a)	the Cash Injection (as defined in the circular of the shareholders of the
		Company dated 23 March 2004, a copy of the related Subscription and
		Shareholders’ Agreement setting out the terms of the Cash Injection has
		been produced to this meeting marked “B” and signed by the chairman of
		this meeting for the purpose of identification) and the transactions
		contemplated thereunder, be and are hereby approved, confirmed and
		ratified; and
	(b)	any one of the directors of the Company (“Director(s)”) be and is hereby
		authorised to do all such further acts and things and execute such further
		documents and take all steps which in his opinion may be necessary,
		desirable or expedient to implement and/or give effect to the Cash
		Injection and the transactions contemplated thereunder with any changes
		as such Director may consider necessary, desirable or expedient.”

No. of shares to which this Proxy relate (note 4)

Signature: (note 5) Date:

Notes:

Please insert full name(s) and address(es) in block capitals. In the case of joint holders, the names of all the joint holders must be stated.
If you wish to appoint a person other than the Chairman of the Meeting as your proxy, please delete the words “the Chairman of the Meeting or” and insert the name and address of the proxy you wish to appoint in the space provided. A member may appoint one or more proxies to attend and vote in his stead. A proxy need not be a member of the Company. Any alteration made to this Form of Proxy must be duly initialled.
voteImportant:againstIfanyyouresolution,wish to votepleasefor insertany resolution,a “�” in thepleasebox markedinsert a“Against”“�” in thebesidebox markedthe appropriate“For” besideresolution.the appropriateFailure to resolution.complete anyIf youor allwishboxesto will entitle your proxy to cast his/her votes on the relevant resolution at his/her discretion. Your proxy will also be entitled to vote at his/her discretion on any resolution(s) properly put to the Meeting other than those referred to in the Notice convening the Meeting.
Please insert the number of shares registered in your name(s) to which this Form of Proxy relates. If no number is inserted, this Form of Proxy will be deemed to relate to all the shares of the Company registered in your name(s).
This Form of Proxy must be signed by you or your attorney duly authorised in writing or, in the case of a corporation, must either be executed under its common seal or under the hand of an officer, attorney or other person duly authorised. In the case of joint holders, the signature of any one of such persons is sufficient.
In the case of joint holders, any one of such persons may vote at the Meeting, either personally or by proxy, in respect of the relevant joint holding as if he/she were solely entitled thereto, but if more than one of such joint holders are 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 in respect of the relevant joint holding shall alone be entitled to vote in respect thereof.
To be valid, this Form of Proxy, together with the power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof, must be deposited at the Company’s head office at 34th Floor, Shui On Centre, 6-8 Harbour Road, Hong Kong (marked for the attention of the Company Secretary) not less than 48 hours before the time for holding the Meeting or any adjournment thereof.
For identification purposes only

AI assistant

Long Investment Corp — Proxy Solicitation & Information Statement 2004

50512_rns_2004-03-24_314b5d71-ebd9-462e-a3e7-2eeb5face95c.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

INVESTMENT IN SHUI ON LAND LIMITED

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTIONS

Independent Financial Adviser to the Independent Board Committee

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

(Incorporated in Bermuda with limited liability)

INVESTMENT IN SHUI ON LAND LIMITED

Very Substantial Acquisition and Connected Transactions

INTRODUCTION

LETTER FROM THE BOARD

THE RAINBOW SALE AND PURCHASE AGREEMENT DATED 18 FEBRUARY 2004

Parties

Assets Involved

LETTER FROM THE BOARD

Consideration

Conditions

Completion

SUBSCRIPTION AND SHAREHOLDERS’ AGREEMENT DATED 18 FEBRUARY 2004

Parties

Subscription

LETTER FROM THE BOARD

Conditions to the closing of the Subscription and Shareholders’ Agreement

Conditions to Cash Injection

Closing

TAIPINGQIAO SALE AND PURCHASE AGREEMENT DATED 18 FEBRUARY 2004

Parties

Assets Involved

LETTER FROM THE BOARD

Consideration

LETTER FROM THE BOARD

Conditions

Completion

EFFECT OF THE TRANSACTIONS ON THE SHARE CAPITAL AND SHAREHOLDING STRUCTURE OF SOL

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

FURTHER INFORMATION ON SOL

LETTER FROM THE BOARD

IMPACT ON THE GROUP AND REASONS FOR THE TRANSACTIONS

LETTER FROM THE BOARD

LETTER FROM THE BOARD

RELATIONSHIP BETWEEN THE COMPANY AND SOL

IMPLICATIONS OF THE LISTING RULES

OTHER BUSINESS

Amendments to Bye-laws

1. Existing Bye-law 66

Proposed amendment:

2. Existing Bye-law 84(2)

Proposed amendment:

GENERAL

SGM

RECOMMENDATION

FURTHER INFORMATION

Shui On Construction and Materials Limited Choi Yuk Keung, Lawrence

INVESTMENT IN SHUI ON LAND LIMITED

Very Substantial Acquisition and Connected Transactions

For and on behalf of the

Independent Board Committee of

Shui On Construction and Materials Limited

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTIONS

INTRODUCTION

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BACKGROUND INFORMATION

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS CONSIDERED

Reasons for the Transactions

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Taipingqiao Sale and Purchase Agreement and the Subscription and Shareholders’ Agreement

Contracting parties

Valuation method that should be adopted for the purpose of the Transactions

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Effect of the Rainbow Sale and Purchase Agreement on the Group

Underlying net asset value based on the pro forma combined balance sheet of SOL combined group as at 30th September, 2003

Long Investment Corp Proxy Solicitation & Information Statement 2004